Graph to Explain Brexit & the Appeal of Trump

On my list of future blogs was this topic except that I never had a convenient succinct coathanger on which to hang it. That is, until this morning when I serendipitously discovered a blog on a little known backroom economist called Branko Milanović. 

First, there was Thomas Piketty, the rock star economist. Now, in the mould of the dismal scientist, comes Milanović, rescuing economics from irrelevance.  

Main picture:  Branko Milanović

Underpinning the current wave of discontentment with the political order is the galloping inequality between the rich and the stratas below them. This phenomenon has ushered in an era of stalled incomes for the bottom 80% for a quarter of a century whereas the top 5% have witnessed wealth beyond belief.

Unseen and unnoticed has been a redistribution of wealth across the globe. The testament to this process is the glittering new cities of Asia but more specifically in China. Globalisation has been largely responsible for the growing egalitarianism between countries especially China vis-à-vis the West and the elevated levels of inequality in the West.

Chinese city

Chinese city

As one author puts it, “It also shows that inequality within countries is now becoming more significant than inequality between countries for describing the state of the global rich and poor. This is at the heart of the populist uprisings of 2016.” Milanović adds, “Our incomes are increasingly determined globally, but our political space is national.

For me, the last few words of his comment undervalues it importance. Let us take Greece as an example. Being part of the EU allowed the irresponsible Socialist Government of Pasok – Panhellenic Socialist Movement – to borrow money at the favourable EU interest rates as if their probity was Germanic. Instead, they behaved like a recidivist alcoholic. Their promises of reform were all lies. They even resorted to fiddling the national accounts.

Greeks queing up outside banks

Greeks queing up outside banks

As a counter, the EU should have possessed more political control to prevent the abuse of the system. In effect the economic system was out of sync with the political system. In reality, all supranational bodies such as the UN, the AU and the EU are toothless talk shops as they are unable to hold reprobates to account.

This growing egalitarianism between countries is occurring in another way too: migration. The flood of refugees into the West can be distinguished between economic and political refugees. In South Africa’s case, the Zimbabweans are in the main economic migrants with a smattering of political dissidents. The same applies to the Hispanic settlers in the USA. Europe’s refugees hold mixed motives – political & economic. The rising Nationalism is Europe is a direct result of the rising tide of these refugees.

Migrants crossing the Mediterranean - Distanation Europe

Migrants crossing the Mediterranean – Distanation Europe

In the case of the USA, the suppression of wage increments for low skilled workers has also been occasioned by this flood of illegal immigrants.

In a world without borders and passports, economic migrants would first sweep towards the cities as is reflected in urbanisation stats around the world, but then to distant countries. Without artificial constraints, human populations flow to locations where it is to their advantage.

This is Milanovic’s curve.

Officially it is called the Milanovic Curve but The Elephant Curve is the more common sobriquet

Officially it is called the Milanovic Curve but The Elephant Curve is the more common sobriquet

This single chart which succintly describes 30 years of world economic history even has a catchy sobriquet, “The Elephant Curve.” Being pachydermically shaped, it lines up all of humanity according to their incomes (at least between 1988 and 2008). The good news: Everyone has gotten richer. The less good news: Some have gotten richer much, much faster than others. They are the ones on the elephant’s trunk. Those just below them, in the 80th and 90th percentiles of income, have fallen way behind on growth. According to Milanović and his co-author, Cristoph Lakner, this is largely working- and middle-class Americans and Europeans.

The chart does not assign causation, but it is easy to point one’s finger at the, er, elephant in the room: globalization as alluded to above. It’s “a plausible narrative,” says Milanović. “The gains from such big forces like globalization are never going to be equal for everybody.” Using the graph as a tool, one could postulate that in the USA Bernie Saunders is proposing to cut off the trunk by taxing the rich, whereas Mr. Trump suggests that protectionism could push down the animal’s back.

Mexican Border.

Mexican Border.

Should we become depressed and slit out wrists? NO! I am not a believer in divine intervention but all systems self-correct over a period of time. That is not to bemoan the current iniquitous situation, but rather remain hopeful that this correction will occur shortly.

Do not hold your breath because the change has been occasioned by a low frequency wave.

But dynamics could change that.



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