Physics, philosophy and why people don’t want “Centrism”

Physics & Philosophy

For a while, it seemed that “centrism” was back on the agenda. In the US, Howard Schultz, the “burnt coffee magnate”, was considering a run for Presidency and was only one of a long queue that included Beto O’Rourke and Michael Bloomberg (who has decided not to run). In Britain, renegade Labour and Tory MPs founded The Independent Group, designed to coral a fragmented anti-Brexit sentiment in into a movement, replete with the usual platitudes about a “new type of politics”. Every centrist potential presidential candidate is feted by the media as an answer to Trump and AOC; the TIG has actually had success in forcing policy changes from the Labour Party. It seems that, three years after the events that led to 2016, and two decades after the Third Way of Bill Clinton and Tony Blair, sensible politics was hoisting itself back into the public consciousness and relevance.

But here’s the problem: people don’t actually want “centrism”. Politicians on both sides of the Atlantic have taken onboard the very real desire for non-partisanship and somehow mangled this interpretation into support for centrism which is about as far from reality as they could be. It is unclear whether this misunderstanding is at least rooted in good faith about what ordinary people want, or whether it is part of a more sinister move to hijack the non-partisan agenda into something more appealing to those who only ever considered Trump and Brexit as aberrations. Indeed, from some parts of the spectrum supporters of these centrist trends are even preparing themselves for failure, by raising the red herring of “polarisation”. According to this, it is the public’s problem – they are too polarised these days to accept the logic of centrism. Shame on them.

There are two principal reasons why centrism is destined for failure, and none are the problem of the electorate. They are rooted in the two things which centrism stands for. First is compromise. There is some truth to the idea that the electorate is too polarised for compromise today; but this has always been the case. In politics, compromise has rarely been highly regarded since it inevitably results in the worst of all worlds, and usually are a by-word for kicking the can down the road. The Missouri Compromise or “Don’t Ask, Don’t Tell” come to mind for US history. The Barnett Formula, the EVEL answer to the West Lothian Question, and even the British opt-outs at Maastricht in 1992, are cases in point for Britain. The fact is that compromise is rarely satisfactory and tells of an inherently unstable equilibrium which as yet still needs to be resolved. Voters are quite tired of this given the questions thrown up by two decades of globalisation, automation and the 2008 financial crisis, and compromise is not going to answer them.

The second reason is that “centrism” above all (be it consciously or surreptitiously) is about defending the status quo – the exact opposite of popular opinion today. Whether Schultz or the TIG, advocates of the new politics are effectively trying to preserve a now discredited consensus around major issues of the day including free trade of the sort we have come to know, liberal immigration, a focus on GDP, the pursuit of “growth” and exports, keeping interest rates and inflation low and above all the protection of large corporates rather than SMEs. But that is from a pre-2016 world. Today the electorate, having been woke by the events of that year want something quite different – in a weird way, what they want is not centrism but extremism at both ends. Yes, they want to break the deadlock of existing parties, but they don’t want to return the consensus of old. Yes, they do not want the old “Left” vs “Right”, but neither do they want the compromise and consensus of the old “Centre”.

I have previously referred to what I call the Physics and Philosophy paradigm, and it is perhaps worth explaining more here. The problem with studying physics and philosophy is that each seems so different at the beginning and none of it makes sense until the loop completes at the end. Nothing makes sense until everything makes sense – whether in academia, business or anything else.

PhyPhi

Politics, too, is like this. At the beginning, one only sees things labelled for us as “Left” and “Right”, and the expanse of the political firmament is limited by lines of sight from traditional perspectives. Hence, at the beginning of 2016, this is what the American political world imagined it was seeing:

PhyPhi - pre 2016 politics

What we do not see at first glance is how these two ostensibly opposed directions may link up again at the other end of the circle. Yet if we tilt the planet up to peak behind, it is revealed what the political firmament had become by the end of the that year:

PhyPhi - post 2016 politics

Trump and Sanders were not, at the end, all too far away from each other in many of the crucial questions being posed on a number of areas such as trade, international companies and overseas cash-piles, and even infrastructure and healthcare. Both had moved right around the planetary orbit until they almost met again at the other side – the dark side of the planet invisible to the conventional commentariat sitting comfortably on the light side. And in that dark side are all the commonalities which are so hard to digest, principally amongst them the sense that the starting point for policy had to be the domestic and national, not the trade or people beyond the borders. In a sense, Trump and Sanders were in the “centre”, but a “centre” a world away from the “centre” prescribed by Bloomberg. The old centrists are wrong: their centrism was not being rejected due to cultural, regional and partisan polarization – it was not because the two sides were too different, but rather because they were too similar.

And this, ultimately, is where we are today. The TIG’s polling numbers have dramatically collapsed in the face of Nigel Farage’s new Brexit Party, declining from the mid-teens to low single digits since the party’s inception earlier this year. Bloomberg never ran. Howard Schultz has been non-committal about a presidential campaign and Democrats have been begging him not to run; the likes of known centrist Amy Klobuchar are failing to gain traction whilst complete outsiders like Andrew Yang are doing so. Yang, if anyone, is the 2020 heir to the 2016 dark-side-of-planet movement.

“Centrism” is an idea of a bygone age, one where the recent past was a story of success, where defending the status quo seemed like common sense and where just a small amount of compromise would be enough to navigate through foreseeable difficulties. But politics has changed in the last few years. Whether you are for or against Brexit, or whether you are for or against Trump or Sanders or Andrew Yang, the stasis engendered by the old “centre” is as irrelevant as defeating Communism or the Nazis. Although much of the mainstream media remain seduced by the familiarity of what was, voters on both sides have moved on; and most of them have now marched so far around the unseen side of the planet that only candidates who themselves see the future, will be positioned to reap its rewards. Centrism is dead; long live the Dark Side!

 

 

How all politics really works – in one simple chart

Introducing the General Theory of Government 

The events of 2016 were curious because of their dichotomy: on the one hand, they were such a shock to the political classes, on the other hand they were also entirely predictable. Yet the commentariat both then and since appeared to miss (or simply forget) the most basic and obvious premise of how all politics works: namely that the ruler has to offer the ruled a mixture of both material and psychological well-being. The desire for identity is as legitimate a concern as any amount of wealth, and any government that fails to provide one or the other over a long period of time will suffer the occasional revolt. Understanding this explains Brexit, Trump and any other examples one might care to mention.

I do not claim this to be revolutionary, but given its lack of profile and given the impending elections in the US which will doubtless cause another round of soul-searching, I think it is useful to visualize this concept in a simple, easy to comprehend model. With no further ado therefore, all politics can be represented in this single chart:

General Theory - basic model

The Wealth-Identity Trade-off Model

It should be easy to see where I am going with this. Into the x-axis goes all those things which politicians want to focus on: taxes, welfare spending, the cost of living. Into the y-axis are all those things politicians seem not to think exist anymore such as ethnicity, religion and language. And, in a democracy at least, any government which consistently offers too little of one or other of these parameters, will find themselves cast out. We have for perhaps too long been living in a world where the governing classes have not only mistaken how to deliver W (Sanders, &c), but completely ignored i (Trump, Farage &c). Political parties across the spectrum have spent the last few decades obsessing over the x-axis whilst assuming that the y-axis will tend to itself. Rectifying this will be, as I have alluded to before, the dominant theme of the next two decades at least in the West.

I would hope this is all intuitive enough not to need vast amounts of explanation, but in a series of posts I intend to outline the basic premise of the General Theory and specifically its core idea, the Wealth-Identity Trade-off Model (WITM™). I will go on to examine how and when a society ceases to function properly; what a society really comprises within the model (“Median Man”, or “MM“); and lastly look at some applied examples in the world today and perhaps yesterday.

What I am proposing is not in itself, I think novel; however like all good things I believe this theory synthesizes simple, intuitive ideas which have at best not been expressed before in such a manner, or perhaps may not have been coherently identified. To anyone who disagrees with this, or who have contrary opinions, I look forward to hearing them. Additionally, since these are blog posts which may one day find their way into a book, I will not footnote everything in detail. However I trust that enough is articulated to allow the reader to comprehend what I intend.

American poverty is neither urban nor rural – it’s small, mostly white towns

A vacant, boarded up house is seen in the once thriving Brush Park neighborhood with the downtown Detroit skyline behind it in Detroit,

It has been a year since Trump entered the White House, and eighteen months since the Brexit vote. Yet the media still display an astonishing lack of understanding about several aspects both of US wage stagnation, as well as how it interacted with voting.

The Brookings Institute came out with an important piece recently which has not received the attention it deserved. They produced five maps, showing the winners and losers in median wage change across the US between 1999 and 2016. Some of the results are obvious: the first map, of “winners”, shows that wages in the tech hubs and in government subsidised DC have done rather well; the last map, showing where wages have done the worst – step forward Detroit amongst others – is also a well-worn narrative.

But it is the penultimate map which should be most concerning. I have long argued that American liberals take far too narrow a view of poverty, and see the role of government as essentially providing urban answers to urban problems, which are the most visually obvious to those inside the Beltway. This ends up focusing on helping ethnic and other minorities, albeit usually in a less-than-constructive method. Altogether ignored is where much of the real poverty lies – as this map shows:

metro_20171012_alan-berube_fig4-struggling-v3

It repays some close study. The problem areas are not Detroit or Flint or Cleveland. The problems are that 10 urban areas of over 1 million inhabitants – and another 59 towns of between 100,000 and 1 million – have experienced median wage declines of 10% – 15% over the period. On the basis of this study, that’s 50 million people constituting the single largest group, and are not all names you would expect:

While the group contains a handful of large Sunbelt metro areas still laboring to rebound from the late 2000s housing crash (e.g., Miami, Orlando, Phoenix, Tucson) and a few major industrial centers in the Midwest (e.g., Chicago, Indianapolis, Milwaukee), small- to mid-sized urban areas predominate in this category. Most are manufacturing centers that lost significant numbers of middle-income jobs in the 2000s that have not been replaced, including 10 urban areas in Wisconsin, six each in Michigan and Ohio, and five each in Georgia and Indiana. A few have shown some green shoots in the 2010s after a rough decade, including Ann Arbor and Kalamazoo in Michigan, and Oshkosh in Wisconsin. Others, however, have slipped considerably since 2009, such as Charleston, W.Va., Davenport, Iowa, and Springfield, Ill.

This reinforces two lessons. The first is that the often quoted cliché about urban vs rural voters is a false one; neither America (nor Britain) are about large urban centres. By my last count, well fewer than half (43%) of Americans lived in conurbations of over a million people. Fewer again (33%) lived in cities of over two million. The genuinely rural population is also small (15%). Instead, real American life is about small market and post-industrial towns.

Politics focused on what happens in New York or LA, and contrasted perniciously against what happens “out on the ranch”, is not helpful to anyone. Reporters and politicians know all about the urban indigent, even if they do not do much about it; but they seem to know nothing of the small-town working poor. That is what Trump and Sanders were all about. It is also the case with Britain, as was identified in an excellent piece in 2007 by Blair Freebairn.

The obsession with reporting on urban areas is one I have discussed before in relation to media misinformation about street protests in the developing world.

Neatly compact urban street protests are highly photogenic and easily captured on camera. Crowds sell news … It is difficult for outside observers to empathize with anyone other than those who are so passionately occupying the capital. It also involves much greater effort and investment in time – time which is not afforded by the twenty-four hour news cycle.

The great tragedy is that the same misguided focus is applicable at home, where we discovered last year that journalists who should know better, did not.

The second lesson is the danger of economists and economic commentators continue to fall victim to the intellectual Tyranny of the Mean, whereby average numbers still form the focus at the expense of median data. What I should hope is by now a very commonly seen chart shows the disparity which still leads to the incredulous question: “who are all these poor white people?”

US_GDP_per_capita_vs_median_household_income

There is little sense in technocrats informing voters that their economy has been growing, or that living standards have been rising, when no-one recognizes it as such. The disparity shown here is not only obvious as a chart, but more importantly in how voters feel about the economy. Median calculations are not perfect, but a good starting point would be for all economists to rethink along median lines each and every time they put out a statistic or indicator.

All said and done, it seems to me most liberals have still not grasped the underlying lessons of the last few years. Obama, of course, had precisely zero to say on the issues that would come to dominate 2016 – he barely seemed curious about such trends, for someone so supposedly intellectual. Fighting the urban-rural battle is to continue the last war. Small white towns are where it’s at right now, and telling them they’ve been doing okay is not going to win any votes.

Not all imbalances are created equal

Trump Merkel

Finally, an opportunity to get my teeth into something classically “asymmetric”: trade.

A piece recently crossed my path, dripping with the complacency of either ivory-towered elites not thinking through the real world; or worse, a Koch-sponsored lobbyist who knows perfectly well the costs of globalisation but wants to hide it in the sophistry of undergrad economics in order to shift the conversation amongst those who do not know better.

It turned out, of course, to be by Dan Hannan, friend of a friend but also the kind of writer who has something of the over-enthusiastic undergrad about him, and is a paid up neo-con – hence the telltale signs above. It was misleading on a number of accounts, and I would go as far as to say, was quite mischievous.

First, the article starts by making fun of Trump’s complaint over German trade policy. Of course, broadly speaking the Germans are exporting a lot because they make great stuff. That’s fine. But the problem is that a good chunk of their competitiveness has nothing to do with their quality of manufacturing and everything to do with a form of currency manipulation, in the shape of the Eurozone. In this regard Trump is perfectly correct to say that they are “selling too much stuff” – just as many would accuse China of the same in recent years. I hope the author was not attempting to criticise the use of simple language for simple people.

Secondly, Hannan goes on to make this statement:

Incidentally, there is nothing wrong with having a trade deficit with Germany, or with anyone else. Germans can do only two things with the American dollars that they get for their goods. Either they can import American products, or they can invest those dollars back in the United States. At the moment, they are doing a lot of the latter – to everyone’s benefit. The trade deficit is matched, down to the last dime, by the investment surplus. That is why we talk of a trade “balance.”

This is not entirely correct. The fact is that because it is dollars and not any other currency, the Germans (or anyone else) can directly take those dollars and invest them elsewhere without the US being involved. This is the burden one bears for owning the currency of international trade, the “exorbitant privilege” of being the world’s only real currency. Of course this brings benefits to the US too, principally the ability to print as many dollars as they want and continue to borrow in it, without causing inflation or lowering their credit rating. Nonetheless, America does suffer uniquely.

Last is the issue that has been exercising Trump, Sanders, Corbyn et al (though sadly not Theresa May), namely that not all imbalances are created equal. It is all very well having a capital surplus to match your trade deficit; but the beneficiaries of a capital surplus – financial and real estate investors for instance – are not the same people losing out from the trade deficit. Capital inflows hugely benefit landowners and bankers, but don’t do so much for others.

For most large countries, it would be a pretty sad and politically unsustainable situation to rely only on capital inflows (though small entrepôts like Hong Kong or Singapore might fare better). It would almost certainly lead to unemployment and inflated asset prices – just as it has done in the US. And it won’t be the homes of unemployed steelworker in Bethlehem whose prices go through the roof either; it’s going to be the flats of white collar urbanites in Manhattan.

Herein lies the limitations of much classic economic theory. This is even before we get onto the issues of Europeans freeloading off American defense spending and so on. Really, the question is how on earth do we expect most electorates to digest enough of these nuances to make rational voting choices? With the likes of Hannan doing the talking, in all likelihood they never will.