If you are at all interested in economics you’ve probably heard of Branko Milanovic, the Serbian/American Academic and writer who like Thomas Piketty focuses his research on global inequality and the way that income is unevenly distributed around the world.
To be honest I tend to find this data glib and self serving – usually used as a kind of tool to foist other ideas onto you – about how the author thinks that wealth should be distributed and how they want you to think.
This means that their research tends to be focused on the ends of the income curve, how the rich get more than everyone else and the poor get less and how that is unfair.
But things it seems are starting to change – the rich are getting richer and the poor it seems are getting richer too. The first bit of the last sentence is neither news nor interesting but the second bit is both news and interesting.
Here’s why – think about the economy not as something that is infinitely expandable, like an inflationary universe, but something which is elastic, like a balloon. If you compress one part of it, it will bubble somewhere else, if you stretch it too far it will break.
This means that if two areas of the global economy are growing – then somewhere else the world must be shrinking.
The chart below – which is part of Milanovic’s work tells the story have a look:
The numbers across the bottom (the X axis) shows the bands of income – essentially a measure of how wealth is distributed by percentile and the numbers on the vertical axis (the y axis) show you the rate of growth in the past couple of decades.
The chart is usually used to illustrate two points – first the massive growth in wealth of people below the 55th percentile, which is the effect of 400 million people being lifted out of poverty in China and Sub-Saharan Africa and the massive rise in wealth of people in the 95th percentile and above.
This is true – the chart shows that, and as a human and a student of economics, it’s a fantastic recommendation for capitalism, but that’s not the bit that I am interested in.
Look at the chart again, have a look at the collapse in wealth in people in the 55th percentile to the 85th percentile. It’s spectacular and economically speaking, disastrous.
Instead of calling them the 55th to 85th percentile, lets call them what they are: The Middle Class.
That’s me right? I’m that guy, Caucasian, Mass Affluent, University Educated and in steady employment my entire life. And if you are reading this on Linked In or Facebook it’s probably you too.
Here’s the nasty truth this chart reveals: Our income hasn’t kept pace with the rest of the world, in fact its collapsed. Read that bit again, our income has collapsed and what’s really scary and there are no signs that’s going to change soon. Or ever.
So let me be really clear about this: The growth in the wealth of the super rich and the very poor hasn’t been funded by an even redistribution of wealth – it has been taken from the middle classes. Week by week, drop by drop, like a burglar stealing an entire beach a handful of sand at a time, its gone and it wont be back.
Its not like this theft of the future was done under the cloak of darkness – it was dones in plain view of everyone, but it was masked through the lens of asset price inflation.
You see in most western countries the people whose income has collapsed tend to own property. That property has been increasing in value and promoting a kind of false promise of wealth – which tricks people into think that everything is OK.
Now I don’t have a significant problem with this – I tend to think that this is nature of things and you can either get on with changing your personal circumstances, or suck it up, turn on Netflix and have another Tim Tam and pretend it all isn’t happening.
But as I like to think about almost everything– it’s a bit more complicated than that.
While I think its becoming clear that the time of the easy ride for the white middle classes male is ending (the signs are everywhere – if you haven’t noticed then that’s your fault) the ending of this ride is going to have a profound effect on the world, not just banking and finance, the one that I work in, but all worlds everywhere.
(I want a codicil in here: I don’t think making life harder for white middle class males is a bad thing. I quite literally believe in a meritocracy. If you are good enough, hard working enough and committed enough then you get the rewards, the idea that success is based on gender or advantage is appalling to me.)
But if this is all true – that we are facing the end of the white anglo saxon male middle class dream – we are also going to face the other two horsemen on this particular apocalypse, Populism and Nationalism.
Lets deal with the rise of Populism first.
If we are going to talk about Populism, we’d first of all better have a working definition – it isn’t about what’s popular, populism in this context means “ the idea that virtuous citizens are being exploited,” usually by vested interests or the elites or a Government which is out of touch with the populous.
It’s not always a bad thing – it can be a very fine thing if you treat Democracy as a process – a kind of tool of self balance which allows the leaders of a country to swing about like a pendulum until a moderate balance is eventually reached.
Or it can be a very bad thing. Populist movements paved the way for Nazi Germany, Mussolini’s Italy and you could argue at the moment; Jeremy Corbyn’s rise in the British Labor party and Brexit and its also behind the idea of Trump.
And while I was slightly surprised by Brexit, to be honest no one who looks at polling data was shocked by the Australia election was shocked by the result. The leader among swinging voters in the last elections polls was “other” anyone else but Shorten or Turnbull, who both failed to build a believable narrative with the public and relied on shoddy tricks to take their case to the people. We didn’t end up with a leader we believed in – we ended up with what the public thought were the lesser of two evils.
But let’s look into recent history, there have been a six elections in the three years decade in Western Europe, which tell a very interesting story.
In all of these elections – the centre left, centre right parties have won less than 50% of the popular vote.
All of them, we now have the real rise of parties like Syriza in Greece, Podemos in Spain, Le Front Nationale in France, The Freedom Party in Austria, the Alternative Fur Deutschland in West Germany and One Nation in Australia.
This means that the pendulum is swinging and swinging hard because people don’t think that the current system represents them.
Uh Oh – If the people think that the Government doesn’t represent them they tend to look for very simple solutions.
This brings us to Theme 2: Nationalism.
I happen to think that a bit of national pride is a good thing. Like standing up when you hear your anthem played at a sporting match, like building a truly great education or health care system, like having a set of country ideals built on mateship, a fair go or the idea that we can tolerate others and that you can start with nothing and build yourself and your family a future.
But that’s not always the way is it? Was Brexit a nationalist vote? I tend to think so. The “Coup” in Turkey. Probably. The rise of iron fences across Europe, our own Nauru Solution. Yep, all Nationalism.
To be honest the European Nationalism doesn’t bother me that much it and what’s happening on the Arab Peninsula I think is the kind of thing that we are used to – what is new and we don’t really know how to deal with is what happening in the South China Sea.
I take it everyone has seen China’s “red dash line “ map which claims the bulk of this area.
They appear to be deadly serious about this and it’s a type of nationalism which is frankly pretty scary – because its stupid, there is no reason for it apart from a grab of power and self actualization and a message of martial masculinity to send to the world.
The best we can hope for on this one is a negotiated solution in which the Chinese get to claim ownership but we have a right of use deal with them.
The worst is that they muscle up, claim its theirs and start to shoot at people.
Frankly both of them are pretty poor solutions in their own way.
I don’t really have a solution to this – and in terms of people who want to enter the real debate of politics and to roll up their sleeves and enter the fray – I am firmly in the coalition of the unwilling, it just goes without saying that if like Western Europe and the rest of the OECD you find yourself squashing the middle class there will be consequences and if you are China and you find yourself with a new middle class. You’d better have a narrative.