My thoughts on the global economy after a week away

I’m back!

Last week, I was on a hiking trip out in Arizona to Havasu Falls in one of the Canyons abutting the Grand Canyon National Park. It was an amazing experience that I would recommend to anyone. And it will probably rank as one of my most cherished life memories. By the way, I thought I was in pretty good shape before I left. But I have to say, I came back on Friday and have been recuperating ever since.

So, in the week since I last wrote you, I’ve been pretty cut off from the world and am only now getting back into a workflow. I think that makes this a prime opportunity to reflect on where we are. And as I do that, unfortunately politics comes to mind more than economics. So I am going to talk a little bit about the political economy here (even though I vowed a few weeks ago not to do so!).

Change you can believe in

Let’s start with former US President Barack Obama’s 2008 campaign slogan “Change you can believe in”. This is a bit of a big wind-up to get to today since that was 10 years ago. But hear me out because I want to contrast Obama with Trump because I think this is important to understanding today’s political economy.

So, “Change you can believe in”. What does that mean?

I reckon it meant and means different things to different people. But, if we thrust ourselves back to 2008 when it was a rallying call for a successful US presidential bid, I think it meant “good change, not bad change”.

The key here is to understand that Obama’s promise was to change. And that could only mean that something was wrong and needed to be changed. In the context of a global economic crisis, you could look at that promised change narrowly – as making the few tweaks necessary to put us back on the path we were on before the crisis. But I don’t think we’ve accomplished that. And, anyway, I don’t think that’s what people wanted.

When I look at macro questions like this, I like to zoom out and look at cross currents. The global financial crisis affected a lot of people globally. So “change you can believe in” is a slogan that could have worked in a lot of places in 2008, 2009 or 2010. And judging from the turmoil we see in Europe politically, it certainly fits today as well.

Two things here. First, since we are seeing the call for change on a global scale, nation after nation, it’s clear that whatever changes people want are global in scale, not national. Second, given the fact that we are seeing increased political turmoil right now, not decreased turmoil, it suggests that politicians – including Obama – have failed to deliver the changes people craved.

Make America Great Again

Now partisans from the Democratic Party in the United States would argue that the reason Donald Trump became President was because the people who voted for him are racist. After eight years of having a black president, these people saw the change that Obama was bringing and they didn’t like it. It may have been change that minorities and liberals could believe in. But it wasn’t change that white American racists could believe in. So they voted for Trump, someone who could make that change go away.

I don’t believe any of that.

Instead, what I believe we are seeing is a mass trauma from a financial crisis that exposed middle classes in the developed world – already buffeted by economic insecurity – to, in many cases, outright economic hardship. Think of this globally, now. I’m talking about the Arie Kempinga’s of the world here. That’s the Dutch voter I highlighted in February 2017 who said:

they can send millions to Greece or a country at war, but if I ask for a stipend for my daughter’s studies for later, they say they can’t help. There’s no money for that.

Think about that in the context of Trumpism. MAGA (Make America Great Again) is exactly the kind of slogan an American Arie Kempinga would want. That’s why Trump won Michigan, Pennsylvania and Ohio.

So, it’s not (just) about race in America. It’s about stagnation and insecurity. And it’s not just about stagnation and insecurity in the United States. It’s about stagnation and insecurity in every middle class in the developed world, post-financial crisis.

What’s the answer, then?

Before I get into the answer, let me briefly mention Hillary Clinton. Is she, was she “change you can believe in”? I would argue that the answer for many in 2016 was no. And that’s why they voted for Trump.

After 8 years of a slow grind back to health under Obama, the US economy was just beginning to show the promise of normalcy as the US election in 2016 hit. In fact, that’s in part because of a slowdown in 2015 and 2016, which has been the source of a lot of Twitter debate over the past two days. There was a lot of angst. The American middle class was experiencing what people were calling “secular stagnation”.

And then they were told to vote for Hillary Clinton, a woman who had been in the public eye as a political force for the past 24 years. She was supposed to carry the torch for change forward. For millions, that simply didn’t resonate. That’s my view. (And as with all things political, I’m sure there are equally valid and opposing views.)

So now we have Trump – and Brexit in Britain. That’s change. But is that the answer? I would say no. The answer is economic security for the middle classes. We’re talking about jobs at decent pay, education, retirement, health care, the whole kit and caboodle.

People want to live their lives. And by that I mean, people want to focus on their families, their friends and their community. Full stop. They want to do that with the security that their governments are providing an economic environment that will maintain their standard of living for the foreseeable future. Our governments have failed to do so. And the Great Financial Crisis was clean enough of a break, enough of a trauma, that people have felt unsettled ever since. Just going back to the status quo won’t do.

Trumpism won’t deliver what people are craving. This will become crystal clear when we have a recession and people are most exposed to economic deprivation and insecurity. That’s when the danger will be highest. The same is true in Europe, particularly in Italy where the economic upturn has been the most fragile amongst the large EU countries.

I’ve come back from the wilderness to a world riven by discord. And this is occurring against the most enviable macroeconomic backdrop we’ve had in at least a decade. For me, that’s not a good sign. It’s a sign that we are in trouble. I wish I had something more uplifting to deliver you after a week away. But this is what I see.

Happy Monday.