Today’s Wall Street Journal edition featured an opinion piece by Greg Ip suggesting that the emergence of populism currently sweeping through major western governments has less to do with the fallout from various global financial crises than a backlash to globalism and its impact on blue-collar real wages.
It is a convincing read that can be found here.
Mr. Ip writes:
“Crediting the crisis for populism and its economic aftermath may also muddy the policy response toward issues left over from the crisis (such as the culpability of financiers) and away from more potent drivers such as the stagnation of blue-collar wages, in particular outside big cities, and the economic, cultural and social dislocations that accompany high levels of uncontrolled immigration.”
The importance of understanding the underlying root causes for today’s emergence of populism is that it will help us understand the conditions that will either propel it further or cause its influence to recede.
Globalist institutions and open borders are quickly moving out of favor in western politics, at least for the intermediate foreseeable future. The pendulum is in motion. Multilateral free trade deals are getting renegotiated or scrapped altogether. Anti-immigration parties are gaining favor even in some of the most socially left-leaning nations on the planet.
The bulk of economic data centering on student loan debt, economic mobility, and the true costs of sustaining a higher standard of living than the previous generation do not bode well for those expecting political populism to recede anytime soon in my view.
Central banks are fueling populism by targeting higher inflation at all costs while simultaneously disguising the perceived appearance of higher prices for everything that matters with price indexes so heavily adjusted they could make the most seasoned carnival game operator blush with envy.
We now find ourselves in an era containing nearly unaffordable housing, health care, child care, and higher education for the average American coexisting with a supposed (phony) low inflation crisis peddled by establishment economists and Wall Street to maintain continually rising financial markets at the expense of real wages and savings. This is not easily pinpointed by the masses but it is nonetheless as true as elementary school math.
Additionally, the more cultural related catalysts fueling populism are also indicating persistent staying power for a backlash against identity politics, political correctness gone mad, and censorship of free speech.
Public official intentions on both the left and the right suggest the conditions underpinning populist political forces will continue to foster an environment of governments and central planners heavily intervening in the economy, throwing caution to the wind on fiscal and monetary restraint, and rejecting the globalization forces which previously kept the lid on inflation for a generation.
I hereby reiterate my most persistent macro theme that “populism is inflationary” and here to stay until further notice.