Misunderstanding the verdict

This is not an independent piece but a response to a piece that Martin Sandbu has written after the U.S. election results have been announced. His ‘free lunch’ piece (‘Silver linings for friends of liberal society’) may be behind a subscription firewall.

These are his two concluding paragraphs:

The populist wave of 2016 is not, therefore, the rise of a new, reactionary class, more the last gasp of a vanishing one. Few expected its death throes to be so violent, but that is still what they are. Attitudes among the young mean that time is on the side of liberal, open societies.

If those attitudes stay firm enough, this week may be remembered not as the when the floodgates opened to an ever-growing tsunami of illiberal populism, but rather as when its high water mark was passed. That, however, depends on the defenders of open society standing firm, to ensure its values are not washed away before the populist tide recedes.

This is a thorough mis-reading of the vote – from Brexit to Trump’s candidacy to Trump’s victory. First, one has to acknowledge the fact that Trump has won votes among the city-bred, educated, non-white, black and Latino voters. Similarly, Ms. Clinton had won votes among rural white men and women without a college degree. So, the voting fault lines are more blurred than what Mr. Martin Sandbu would like to have us believe. Of course, in few of these categories the vote share has been overwhelming in favour of one candidate. But, those are the exceptions.

There are many ways to interpret the voting pattern. One is Mr. Sandbu’s way. However, there are other interpretations too. One, it could be said that the young are relatively inexperienced and that, in the fullness of the time, they may come to appreciate the chasm between the discourse and delivery on globalisation and free movement of factors of production (both labour and capital). Two, populations are aging. So, more people will join the ranks of the old – the world over – and not the other way around. Our preferences and attitudes towards risk and cultural assimilations shift as we age. Third, with technology – robotics and artificial intelligence – many so-called educated young people will eventually feel the way that white under-educated men and women might be feeling today. It is not the ‘last gasp of the vanishing one’. It may be the beginning in which these distinctions between race, nationality and age profiles might be blurred. He may have to thank robots and their (Silicon valley?) creators in a future piece for uniting us all in our disaffection and frustration!

In any case, it is a betrayal of elitist thinking that those who have not spent time with formal schooling are not educated. They may be less complicated in their thinking.

It is good thinking on his part to spread the cheer among his colleagues who might be drained and exhausted. But, if he really wishes to see this as the ‘last gasp of a vanishing one’, many things need to change. Tax rates on top incomes (corporate and individual) might have to go up in some countries. Tax compliance has to be improved. Tax arbitrage has to be eliminated. Financialisation of advanced economies has to be rolled back. Executive compensation must be delinked from short-term stock price movements.  Monetary policy in many parts of the advanced world must be exorcised of the spell that asset prices have cast over it, for decades.

If Mr. Sandbu is yet to read  the paper ‘Stock returns over the FOMC cycle’, he might wish to do so to begin to understand the election verdict. Creative destruction of capitalism must be allowed to play its role instead of monetary policy propping up asset prices in the guise of delivering on output and employment growth. Recessions and slowdowns are necessary ingredients of a healthy economy. Once he has finished that paper, he can read the speech delivered by William White while accepting the Adam Smith prize from the National Association of Business and Economics.

Instead of the above, if defiance is his only response, then he should not be surprised if he and his fellow travellers continue to add to their exemplary record of failures in understanding and anticipating Brexit, American elections, etc.

Well, reading Gideon Rachman and Ed Luce in FT analysing the verdict, it is clear that the elites are far too steeply trapped in their own morass to smell anything other than the stink that their morass generates. This comment under Luce’ article sums it up well:

Edward Luce, Gideon Rachman and Martin Wolf will not reconsider their firm belief that they know better. Intellectual arrogance is an addiction that does not allow those with it to admit they have it. It leads to less relevance among serious thinkers which, of course these three are also incapable of admitting. As with the NYT, the FT has lost clout. Telling the world it is dumb, even stupid, if it does not agree with you has become tiresome. One wonders what Nikkei thinks of its recent purchase.

In contrast, this blog post by a Clinton supporter is far more mature and reasonable. It is a tragedy for FT that its senior journalists cannot write something like this.

p.s.: (1) Just a month ago, I wrote the piece, ‘The beginning of history’ in MINT. In my view, it explains the election result rather well.

(2) The Republican Party kept its control of both the chambers of the Congress only because of Mr. Trump:

After months of fretting that Mr. Trump would weigh down incumbent Senate Republicans, his strength instead buoyed GOP lawmakers in battleground states. With no wave of support materializing for Democratic nominee Hillary Clinton to bolster down-ballot candidates, Republicans swept through swing states, including many that President Barack Obama had won four years earlier. [Link]

(3) This WSJ video is quite useful in understanding who voted for whom


6 thoughts on “Misunderstanding the verdict

  1. Not sure if you read Cullen Roche on http://www.pragcap.com but he is one of the guys who seems to have a good handle on how the US economic system really works. Would love to hear your views on what he is saying the in the link below that Trump instead of doing anything to help the lower middle and poor class in America, may be more of the same as the last 8 years.


    Tks Vivek


    1. Difficult to say if he will do what Mr. Cullen Roche says or tie his corporate tax cuts with some incentives for local job creation. My guess is that he will do the latter. But, I am really not interested in nor do I see much value in such anticipatory statements on policies. Nothing much to be gained in anticipating one type of policies or the other.


  2. Great write-up, and piece in Mint, Anantha. Funny thing is that my agreement with you on the issues is as vehement as my opposition to your proposed endorsement/suggestion of the solutions.

    But again, very good reading.


    1. Actually, on 2nd read, i think I would agree with you on most solutions too. Perhaps my disagreement is more on your seeming endorsement of the candidates and the animating feeling behind their popular support (in brief, the economic anxiety seems to be a veneer for rank nativist/racist tendencies).


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