The Economist Misunderstands Politics Because It Ignores Social Mood
Today, almost ten years after the most severe financial crisis since the Depression, a broad-based economic upswing is at last under way (see article). In America, Europe, Asia and the emerging markets, for the first time since a brief rebound in 2010, all the burners are firing at once.
But the political mood is sour. A populist rebellion, nurtured by years of sluggish growth, is still spreading. Globalisation is out of favour. An economic nationalist sits in the White House. This week all eyes were on Dutch elections featuring Geert Wilders, a Dutch Islamophobic ideologue (see article), just one of many European malcontents.
This dissonance is dangerous. If populist politicians win credit for a more buoyant economy, their policies will gain credence, with potentially devastating effects. As a long-awaited upswing lifts spirits and spreads confidence, the big question is: what lies behind it?
This is exactly backwards. A growing economy would be good for the populists in power because it makes it more likely they will be re-elected. But it does not support the anti-establishment movements because people do not want change in times of prosperity. The best thing for the populists would be a false dawn. They could blame central bankers and corrupt politicians for yet another downturn. Where populists didn’t win, such as Holland, they would be more likely to win. Where they hold power, such as in the U.S, they would accelerate and widen the campaign for change. There are some conspiracy theorists on the right who think Yellen is hiking rates to help tank the economy and weaken Trump. Anyone who has an understanding of socionomic theory and opposes nationalism would want to make sure Trump succeeds beyond his wildest dreams because support for travel bans, trade wards and deportations will collapse if the economy booms. Tank the economy and more power will accrue to the nationalists (or other anti-establishment parties) because they offer a change.
The past decade has been marked by false dawns, in which optimism at the start of a year has been undone—whether by the euro crisis, wobbles in emerging markets, the collapse of the oil price or fears of a meltdown in China. America’s economy has kept growing, but always into a headwind (see article). A year ago, the Federal Reserve had expected to raise interest rates four times in 2016. Global frailties put paid to that.
Now things are different.
No, they’re not. At least the data is not substantially better than it was at the peak of other false dawns. Only this week, Chinese data shows deceleration of inflation. The first quarter U.S. GDP forecast is down to 0.9 percent at the Atlanta Fed. Oil prices could not rally past $55 a barrel, and sank to $47. Three years ago, oil was $100 a barrel. In the U.S., oil inventory is higher than it was in 2016. The U.S. dollar rally appears to be paused, not ended. The potential for faster growth exists, but thus far all the data shows is a synchronized bear market rally. Sustained gains in commodities, in global trade, in the shipping industry are needed before an all clear signal is given.
Finally, The Economist is completely out of touch with public mood. Consider this sentence:
The tussle over who created the recovery is about more than bragging rights. An endorsement for populist economics would favour insurgent parties in countries like France, where the far-right Marine Le Pen is standing for president. It would also favour the wrong policies. Mr Trump’s proposed tax cuts would pump up the economy that now least needs support—and complicate the Fed’s task.
The American economy, stuck at 2 percent growth, with millions of able bodied workers out of the labor force, doesn’t need faster growth? For those whose wealth is tied up in financial assets this might be the case, but most voters feel differently.
That this sentence was written reflects the fundamental problem for the establishment: it is too small. First, that means it has become isolated. Witness the creation of the “fake news” meme. The establishment no longer controls the narrative and tried to call non-official narratives “fake.” This instantly was flipped and now “fake news” is more closely associated with official, establishment media. Second, it means when it acts in self-interest, there are rival elites who are harmed. This then leads to intra-elite competition.
Elites are a small proportion of the population (on the order of 1 percent) who concentrate social power in their hands (see my previous post and especially its discussion in the comments that reveal the complex dimensions of this concept). In the United States, for example, they include (but are not limited to) elected politicians, top civil service bureaucrats, and the owners and managers of Fortune 500 companies (see Who Rules America?). As individual elites retire, they are replaced from the pool of elite aspirants. There are always more elite aspirants than positions for them to occupy. Intra-elite competition is the process that sorts aspirants into successful elites and aspirants whose ambition to enter the elite ranks is frustrated. Competition among the elites occurs on multiple levels. Thus, lower-ranked elites (for example, state representatives) may also be aspirants for the next level (e.g., U.S. Congress), and so on, all the way up to POTUS.
Moderate intra-elite competition need not be harmful to an orderly and efficient functioning of the society; in fact, it’s usually beneficial because it results in better-qualified candidates being selected. Additionally, competition can help weed out incompetent or corrupt office-holders. However, it is important to keep in mind that the social effects of elite competition depend critically on the norms and institutions that regulate it and channel it into such societally productive forms.
Excessive elite competition, on the other hand, results in increasing social and political instability. The supply of power positions in a society is relatively, or even absolutely, inelastic. For example, there are only 435 U.S. Representatives, 100 Senators, and one President. A great expansion in the numbers of elite aspirants means that increasingly large numbers of them are frustrated, and some of those, the more ambitious and ruthless ones, turn into counter-elites. In other words, masses of frustrated elite aspirants become breeding grounds for radical groups and revolutionary movements.
…Elite overproduction in the US has already driven up the intensity of intra-elite competition. A reasonable proxy for escalating political competition here is the total cost of election for congressional races, which has grown (in inflation-adjusted dollars) from $2.4 billion in 1998 to $4.3 billion in 2016 (Center for Responsive Politics). Another clear sign is the unraveling of social norms regulating political discourse and process that has become glaringly obvious during the 2016 presidential election.
I’m not sure that either side in the current battle applies socionomic theory, but if I have to place a bet, I would bet The Economist is on the losing side if social mood doesn’t improve. If social mood improves greatly and the economy rebounds, the globalists will hang on for a few more years……until the next downturn.