I think the recent referendum in Britain is an example of asymmetric outcomes. In a small serendipity, in college, my senior essay was on the economic impact of the EU. (In another small serendipity, my advisor was Rick Levin, who chaired the Economics Department and later became Yale’s President. No, he didn’t remember me when I shook his hand a few years ago.)
In that paper, I argued that the EU was due to fail due to economic asymmetry. All countries would benefit from more free trade, I wrote, but some would benefit more than others. And, free trade would create havoc in certain nations as wholesale industries eclipsed. Could democracies gut it out, as many citizens lose work?
What I missed, however, was that asymmetries may exist within a country. Britain has done well with more free trade, but the benefits don’t seem to have trickled down to everyone is my sense. I think that explains why Cameron is out and folks like Trump and Sanders catch the eye of a voter. There’s a real human cost to free trade which doesn’t seem that free to some.
Free trade means that a country can progress and do better, but that jobs will disappear and move offshore. The bet is that people will retrain themselves and be willing to move for a new job.
In a slow growth environment wherein a tide isn’t lifting all boats, the environment will feel very zero sum. There are not many new jobs to which people can go. So, the anti-immigration sentiment in the western nations will only grow, IMO. That’s the political reality.
I do hope we all try to “rise above” politics and create an economic environment that is pro growth and also offers a safety net for others.
I’ve become a fan of raising the national minimum wage. That feels more efficient to me than empowering the federal government. I know a higher minimum wage has some costs if you believe the demand for labor is elastic. My view is that demand for certain types of labor is inelastic. I’m thinking of local based services jobs such as restaurants and retail. You cannot offshore those. You need people on site.
I don’t have any short term perfect answers. My fear is that if we don’t assuage the broader population, we are on the road to an unstable political situation that may ultimately lead to revolution.
I’ve blogged before that every empire comes to an end. It starts when people cannot provide for themselves or their children. That is when they become angry and begin to contemplate violence.
Sorry to buzz kill your Friday.