Saturday, June 25, 2016

Trump, Brexit, and the Failure of Mainstream Politics and Economics

The Brexit vote and the rise of Donald Trump have stunned the world.  Neither should.  They
are both the product of the failures of mainstream politics and economics, especially the overselling of both in terms of how they would benefit the world and more specifically, the middle and working class in the UK, the US, and perhaps around the world.
The roots of the Brexit and Trump begin in what some call the Neo-liberal restructuring of the world that begin in the late 70s and 80s with the rise of Thatcher and Reagan.  Faced with severe economic slowdowns in the UK and the US, the criticism was that the economically liberal policies of the welfare state had created high inflation and unemployment–stagflation.  The solution was to cut taxes, economic regulation, and weaken labor unions.  The theory–part of the supply side economics mantra–was that we needed to free up corporations to invest, to give them more flexibility to innovate, and to remove barriers to invest.
The Conservatives in the UK under Thatcher and then  Major and the US under Reagan and George H.W. Bush cut taxes, government regulations, waged war on the unions, and embraced international policies that took Neo-liberalism globally.  The result was GATT, NAFTA, the WTO, and other international free trade agreements that opened up the borders to capital and to some extent, labor mobility.  Yet Labor under Tony Blair and the Democrats under Bill Clinton similarly  embraced such policies, as did Cameron, George Bush, and even Obama.  All of them accepted as legitimate globalization as we know it, along with policies that embraced tax cuts and deregulation.
Even Obama–whom many Americans think as so liberal–really fell into this trap.  Upon taking office in 2009 he continued the economic policies of his predecessor that bailed out the banks but not the home owners after the 2008 economic crash, he endorsed TPP as a trade agreement, and otherwise  at best only made marginal changes in the Neo-liberal economic agenda.  Even the Affordable Care Act and Dodd-Frank were no more than market-orientated approaches to addressing social-economic problems.  Yes, the Republicans in the US obstructed Obama, but he never did really oppose even in his first two years in office with large Democratic majorities the core trajectory of Neo-liberalism.
This Neo-liberalism was politically solid by politicians and the major parties in Europe and the US as economically a win-win for all.  It was described as producing the greatest economic good for all.  Mainstream economists–sitting from the luxury of their tenured chairs or luxurious offices a top Wall Street, described free trade, globalization, and economic restructuring as economically efficient–both in a Kaldor-Hicks way (the greatest good for the great number) and Pareto (producing the winners without any or significant losers).  The few jobs lost in manufacturing would more than be made of by the benefits of free trade.  Together, orthodox economics and the mainstream parties sold the world, or at least voters in the US and UK, a story of economic prosperity.
Yet it never happened.  Somewhere along the line the economic benefits did not trickle down.  Wages have stagnated over the last 40 years, the gap between the rich and poor exploded, and the loss of manufacturing and other jobs has totaled in the tens of millions. The working class has disproportionally taken the hit, with the costs of Neo-liberalism falling on them while few of the benefits reaching them.
Now combine that with another political failure–the Bush War on Terrorism, He and Blair  launched politically disruptive wars in Afghanistan and Iraq that have destabilized the Middle East, creating the forces that have nurtured ISIS and the crisis in Syria that has now thrown millions of refugees across Europe. In the US, NAFTA helped destabilize the Mexican economy, creating the impetus for immigrants there to flee to the US for jobs.
The result is economic insecurity for many white working class, major parties largely blind to their fate, and a ready scapegoat of immigrants to blame.  Enter Brexit and Trump.
The Brexit vote is a statement that the status quo is not working.  The vote in the UK to exit was mostly in working class England.  In the US, the core of the Trump support was originally among white working class without college educations.  The same who supported Brexit, those who have lost out in the last generation or two  who perceive it is the immigrants who are taking their jobs.    The British Independence Party, Donald Trump, and others such as LaPen in France are appealing to economic insecurities, fear of immigrants, nationalism, and simply racism and religion.  And their appeals are effective.  Brexit gives credence to claims that trump has tapped into a phenomena that might put him in the White House.  Hillary Clinton, while enjoying many political advantages, seems largely clueless to the Neo-liberal paradigm of which she is a part.
Yes, all of this is disgusting, but given the failures of mainstream politics and economics to address or recognize the world it has created, the reaction here should not be a surprise.


  1. I agree there's a failure, and I think politics, leadership, the media, the public and corporations have all played a role, but I do not agree that the science of economics has failed. Economists have stated the solution, but the others have ignored economics science. Economics is clear that there are externalities; the goal should not be to maximize economic returns, the goal should be to optimize utility which includes not only economic returns, but also a clean environment, functional governance, workers' rights, economic security, et cetera. But politicians, leaders, the media, the public and corporate interests have all ignored theory and instead pursued only maximized economic returns. Now that we have climate change, dysfunctional government, lost workers' rights and increased economic insecurity, of course people are rebelling.

  2. Following the fallout of Brexit has been fascinating. Reactions fall along two lines: 1) the British people are idiots and they're xenophobes, too, or 2) David's analysis. I go with the professor here.

    Anybody who has spent any time in the UK knows it has been full of immigrants, especially south Asians: Pakistanis and Indians, for a long time. There is an undeniable and regrettable anti-immigrant tide rising in politics everywhere, but I think it is probably incorrect to say or think it is worse in Britain.

    Neo-liberalism and the trade system seem to me to be much better explanations for what happened.

  3. And Matt Taibbi of the Rolling Stone weighs in on the same subject.