Rationale issue 1 16 17

Contents 1 The Team 2 Editorial

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3 Openness and Closeness – Rethinking Economic Policy Direction in Europe 6 One More Word: Open vs Closed World 7 New Year’s Resolution: After a year of upset what next for liberal economic thinking 9 Time to revaluate tradition economic policies

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12 Deflating Credibility, Inflating Assets: The Economist and the Median Voter’s Views on Inflation 15 Donald Trump: How the meek shall inherit the earth 17 Succesful Populist Movements: Not so succesful afterall 20 America’s Rough Transition

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22 What is the way ahead for Brazil?

25 The case of Venezuela:The cautionary tale of consumption-based economic policy 28 Accumulation by Dispossession in India

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29 Interview with Professor Robert Michael

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Editorial

The World at the moment is at an extremely critical juncture. What Polanyi called the Great Transformation is trying to take over the world. While trade liberalisation and migration have led to an efficient allocation of resources, it has come along with increased competition and thus rising inequality and unemployment. This discontent and dissatisfaction have compelled people around the world to protest against the ruling elite. But unfortunately, this transformation is taking an ugly turn. Brexit and US Elections are the most recent examples of it. This issue of Rationale looks into various cases of the rise of populist forces all around the world and tries to explore the reasons for the same.

Jan Mazza discusses the emergence of a new political divide: Open vs Closed which span the traditional Left-Right divide. This is followed by an editor’s review by Vivien Cai. Edward Hockins highlights the antithesis of the liberal order and the need for inclusive growth and change in current economic policy. Yi Yang stresses upon the need to look at trade-offs in economic policy as a challenge to be dealt with rather than seeing them as inevitable, spurring the rise of populism. Ethan McCormac talks about the dissonance between the economists and the median voter on the issue of inflation with former ignoring asset price inflation. This ignorance leads to a discontent amongst the voters and might be one reason behind the rise of populist movements because failure on the part of the governments to see an inflation problem leads to the absence of any attempts to solve it. Roberto highlights the importance of stronger political and economic representation of the disenfranchised to prevent the rise of populism. This is followed by an extension piece by Pavan Rao, wherein he highlights the problems like lack of good opposition, casual voting attitude, the burden of appeasement on establishment politicians and the idea of scapegoat for the rise of populism.

Liam Wash stresses upon the rising inequality in the US due to Globalisation as the underlying cause behind the US elections 2016. Helena discusses, how Brazil’s wronged long-term macroeconomic policies paved the way for a right-wing backlash. Naufal Yudiana highlights the need to rethink economic policy to prevent the rise of populist forces. He uses the example of an unsustainable consumption-based economic policy of Venezuela without a coherent plan to expand aggregate supply.

Abhinav discusses the issue of ‘Accumulation by Dispossession’ using the case of land grab by the Government of India in the states of Chattisgarh, Jharkhand and West Bengal that led to the rise of Naxalism. Lastly, this issue ends with an interview with professor Robert Michael, founding dean of Chicago Harris. The interview provides an insight into the behavioral motivation of people during the Brexit vote and US elections.

I hope you will find this issue extremely thought provoking. I believe this will provide you with enough food for thought to think about the reasons for the populist direction the world political economy is taking. I am extremely grateful to the Economics Society for commissioning and funding the magazine. Lastly, I thank all my fellow editors (Vivien, Hana, Zikai, Jiin, Pavan and Sarah) for their support and contribution throughout. I also thank all my designers (Edward, Summer and Vignesh) for adding the aesthetic spark to this magazine.

Akhiljeet Kaur Editor-in-Chief

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Rationale Issue 1 16-17

Openness and Closeness – Rethinking Economic Policy Direction in Europe

By Jan Mazza Once again, the times they are a-changin’, a disappointed Bob Dylan would probably confirm.

Europe and the European Union are going through their most troubled times after WWII, characterized by a political, financial and existential crisis that has been pushing the prospect of “an ever-closer union” further and further away. The rise of far-right nationalistic movements, Brexit and the endless Greek economic collapse are only a subsample of its most apparent features.

Given the significance of these challenges and the poorness of economic results in the last decade, a great variance in European economic policies may have been expected. Yet the uniformity of supposed remedies has been stunning: constant budget cuts, pro-cyclical fiscal policies, an obsessive focus on competitiveness and governments leaning exclusively on monetary stimulus.

After years of conformism, however, the increasing threat posed by anti-System parties is paving the way for manifold paradigmatic shocks.

Whatever their political origin, analyses seem to agree on one point: Left vs Right is (at least partially) an

outdated distinction. The separation would now lie either between Openness and Closeness or between the Elite and the People. New governments and movements across Europe and the Western world are basing their economic proposals upon one of those interpretations (or a mix of the two).

Openness VS Closeness Openness versus Closeness is by far the favourite understanding of two relatively recent contributions appeared within two of the richest European economies: Italy and France. These innovations are different: they were implemented at government-level in the first case and at (a newly born) party-level in the second. Therefore, their scope and effectiveness (limited so far in one case, yet to be tested in the other) are hardly comparable. However, these experiences share significant structural similarities: • They involve centre-left parties/ movements unsatisfied with the traditional social democracy.

• They are sustained by young, likeable politicians.

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• They take place in countries with steadily declining economic performances and face the same political and budgetary constraints at the continental level.

• Their importance must neither be overstated nor overlooked: one could argue that these developments contain no inherent difference with respect to previous attempts to refresh the social democratic field (from Tony Blair on).

Only time will tell us whether this is the case. Whatever their final outcomes, though, it is worth analysing them more in depth to improve our understanding of economic perspectives emerging in the European centre-left.

Economic Policies with Greater Flexibility and Decentralisation Marco Simoni (left), political economist at the European Institute of the LSE and economic advisor of the Italian government, has introduced what has

Rationale Issue 1 16-17 been labelled “the Fourth Way”, a structure his effort to become the mic sectors, with a great focus on new balance between domain and next French President. Polls looked innovation and high tech. With this responsibilities of governments and harsh until current President Monrespect, it is evident the influence firms, promoted by Matteo Renzi’s sieur Hollande announced that he of recent contributions by the econeconomic policies. This approach would not run for a second mandate. omist Mariana Mazzucato (below) , builds on two pillars: (i) a strong In one week, his odds of election which highlighted the importance of confidence in the ability of markets had fallen from 16/1 to 5/1 (PadState-driven investments for some to promote growth and innovation dy Power). Last November, Macron of the most important technological and (ii) a revival of the responsibility published on Le Nouvel Observabreakthroughs of the last decades, of the State in actively backing the teur a list of eight “choc measures” coupled with the traditional view social contract. The latter translates that combine flexibility and a new that innovation boosts growth and, into a more active role of the State organization of work across sectors at least in the medium-term, emin determining and fostering strateto accommodate what he considployment. gic sectors (like high tech industry), ers the needs of French economy in in partial contrast with the official EU the XXI century. Macron’s solutions framework, severe towards any form to this impasse would affect a great of State Aid. The public sector is also number of French social reference in charge of a more traditional redispoint. The State should simply regutribution across winners and losers late some core features of each secof the economic game – a task which tor, allowing for a larger autonomy has become harder and harder as across agents. For example, labour globalization has been losing most law should set working time limits, of its approval across citizens. This a minimal wage and gender equalimore prominent public role is offset, ty, whereas decentralized bargaining in Simoni’s perspective, by typically at firm-level should be empowered. market-friendly targets: deregulatUnemployment benefits should be ed and efficient markets, fewer and extended to self-employed workers, more stable rules, lower entry costs include training programs, and their Threats to New Policy Direction to stimulate competition and lower size should follow an anti-cyclical Two main issues threaten this poltaxes. trend. More flexibility would also be icy direction. The first is economic. needed in terms of age of retirement There is no inherent economic law and working time: the well-known that guarantees that innovation will weekly 35 heures may be too many create more jobs than it destroys in for older workers and too few for the long-run, even if this has been young apprentices. the case so far. Erik Brynjolfsson and Simoni’s and Macron’s proposals Andrew McAfee , for instance, have share a general approach to the thoroughly studied the exponential challenges posed by the current ecopace of technological progress and nomic framework. The main printhe potential ways to deal with it ciples are on the one hand greater (from more investments in educaflexibility and decentralization to tion to spread capital ownership), better suit the increasingly heteronone of which seems about to be imgeneous needs of current complex plemented – as technology outpaces societies (both at a firm-level, with a not only economic adjustments but decreased role for collective bargaineven more the political process. Carl ing, and in the relation State-worker, Frey and Michael Osborne have with a reliance on the Scandinavian showed that 47% of 2013 US jobs Emmanuel Macron (above), former concept of flexicurity, a crasis of flexiare at risk of computerisation withinvestment banker and French Minbility and security, in dealing with the in the next two decades. The Bruxister of Economy , has recently quit downturns of the business cycles); elles-based think-tank Bruegel rethe Socialist party to found his own on the other hand, an increased role leased similar figures concerning movement, En Marche!, which will of the State in some specific econo-

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Rationale Issue 1 16-17 spectrum, the so-called populists or sus the People narrative is a radical European economies . anti-System parties? Much is yet to left (to stick to the old divide) proStimulating innovation, then, could be seen. Despite some clearly unconposal. If the far-left Greek Prime Minrepresent a double-edged sword: ventional intentions (concerning imister Alexis Tsipras has disappointed needed to not lag behind the evmigration quotas or foreign workers many of his supporters eventually er-moving technology frontier in the in British companies) derived in the complying with German-led austerishort-term, harmful for employment aftermath of Brexit, the new British ty measures, the Spanish movement in the medium and long-term, with Prime Minister Theresa May is a sort Podemos has lost much of its propelthe easily understandable conseof hybrid across the two understandling force after the last disappointing quences on the political and social ings of this early XX century divide. electoral results. The British Labour landscape.

Negotiations with the European Party seems quite far from achievThe second threat is subtler and afUnion will give insightful informaing power, whereas Bernie Sanders fect the issue of identity, apparenttion about her final preference, sefailed to be the American Demoly crucial in many of 2016 political verely constrained on one side from cratic candidate, despite pushing its outcomes. How far can governments the popular mandate toward Brexit political platform to the left. Still, a push decentralization, flexibility and from the solidly democratic and leftist political proposal, combining and fragmentation of economic liberal British tradition on the othits traditional Internationalism (or and social structures in liquid socier. However, the general direction, Openness) with the representation eties where youngsters, non-urban, likely to be shared by Donald Trump of popular classes, would probably non-college educated people and with his degree of unpredictability be needed to compensate the suboccasional workers, are more frewe have become accustomed to, versive leanings showed by a signifquently expressing their discomfort points toward a decoupling of free icant part of the rising populist right. with a fast-changing world that no movement of workers (to be stronglonger delivers an increase in living ly diminished) and free movement of 2016 has showed us that, although standards of the majority? Overlookcapital (to be preserved).

Whether not as fast as technological progress, ing this fundamental question (and this ambition will overcome political and definitely not as linear, even the role that technological devices constraints and social dissatisfaction the political landscape can change and social networks are playing and is, inevitably, an open question. In in swift and unpredictable ways. Yet will play in the amplification of this the meantime, many Eastern Euroif this can bring along a substantial anxiety) could prove fatal to our neopean countries (Poland, Hungary, turn in economic policies, few are liberal societies.

Slovakia) have been following a simlikely to complain. ilar path.

Populism – What Happened?

Somehow hidden from the Elites verWhat about the other side of the

One More Word

Open vs. Closed world

By Vivian Cai

2016 has been a monumental year; Brexit and Donald Trump’s election have just reaffirmed the increasing trend to “a new political divide”—open vs. closed. This is the idea involving anti-free trade and anti-globalization, which spans the traditional Left-Right political divide.

The trend was especially notable in current American politics; where Donald Trump is now famously associated with wall-building, Bernie Sanders on the far left has also ex-

pressed anti-trade sentiments, calling international trade agreements a “disaster for the American worker”.

Economists have long argued for the benefits of a free and open economic environment, citing comparative advantage in trade to maximize efficiency (for the uninitiated, it is worth looking at Chapter 9 of Tim Harford’s The Undercover Economist for an excellent introduction to this concept.)

It is not possible for trade to destroy all jobs, Harford writes, as a country needs to export in order to have mo-

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ney to buy imports with. But increasingly, the US is selling stocks and bonds in returns for goods from countries such as Japan and China, which also happen to be the US’s two greatest creditor nations.

Economically, the US is doing well today. What economists know, and the media generally leaves out, are globalization’s benefits to consumers, and to those working in export industries. There is great consensus among the economic literature that deficit does not block economic

Rationale Issue 1 16-17

growth, and that it is indeed favorable to utilize fiscal stimulus. But worrying deficit levels are much more visible than the long-term gains of expansionary fiscal policy (see Tan Yi Ting’s “Time to revaluate traditional economic policy prescriptions”). Efficiency gains in economics also do not account for inequalities in distribution. The fact is, as a blue-collar worker in the United States (as an example), one is increasingly feeling left behind by the sweeping changes brought on by globalization and liberal trade policies. It is easy, and not unreasonable, to blame the foreigners and the policymaking elite. Thus the Open vs. Closed divide can also be seen as a schism between the educated, liberal elite and the traditional working class. Bernie Sanders and Donald Trump are similar in that they’re both railing against the politi cal establishment, and attracting the

sentiments of disadvantaged, dissatisfied workers (or students, for that matter).

This new trend is not just seen in the US and the UK, where the typical Brexit supporters has about the same credentials as those of a Trump voter (white, working class, nationalist, distrust of foreigners). Poland gives an interesting case of the new divide in political identities. Its ruling party, Law and Justice (PiS), seems to outsiders like a startling mix of Right and Left identities. On one hand, it is strongly nationalist and Catholic: Eurosceptic, anti-gay marriage, anti-abortion, and appears to express a desire to control the press. On the other hand, it is economically progressive, promising child benefits, a cut to the retirement age, and distrust of big banks. It is deemed a strange beast—economically leftist and socially rightist.

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But in any case, its resurgence exemplifies the growing mistrust of foreigners and. the political elite—in this case, those Germans in the EU headquarters and the Poles who work with them A similar story can be found in Hungary, Austria, and most recently, in France. Anti-immigration, anti-globalization Marie Le Pen is currently the frontrunner in the election poll. She has expressed similar remarks about international trade, vowing to protect workers against “wild and anarchic globalization.

The changes are sweeping, and intensely worrying for many. But, to a student of politics and economics, it is also fascinating to see such chang es unravel. The new Open-Closed typology appears set to dominate economic and political discussions for the foreseeable future.

Rationale Issue 1 16-17

New Year’s Resolutions After a year of upset, what next for liberal economic thinking?

By Edward Hockin There is little doubt that 2016 has been a year to remember; a year that is likely to be ingrained in the psyche of many, but particularly those with a liberal conviction, for decades to come. A year that will be remembered for populist uprisings and a rejection of the liberal principles on which the political and economic order of the last few decades were built.

Trump and Brexit are the antitheses of this liberal order; they typify the general rejection of globalisation by many, especially by the poorest in society.

Extreme levels of income and wealth inequality are partly to blame for the toxic politics in the US and Europe we now see; fuelling the rise of anti-globalisation, anti-free-trade populist factions of the both the far right and the far left. Factions that have now dragged the UK out of the EU, and command the most powerful office of government on the planet.

And this context brings me to the central argument of this article; that economic inequality was overlooked by policy makers, and by the established order of economic thinking more generally. The economics of inequality was largely a fringe branch of economics, and has only become ‘fashionable’ in recent years.

Of course not all economists were blind to the problems that extreme inequality can cause, the late Sir Tony Atkinson had been writing on inequality since the late 1970s, but such perspectives were often drowned out or side-lined. More recently Thomas Piketty and Joseph Stiglitz have contributed significantly to this area of economics. Stiglitz in particular has emphasized the threat that extreme inequality poses to both democracy and economic growth. Academic discussion of inequality seemed to tick up again in 2014 and 2015, with a number of IMF The extreme levels of inequality of wealth in the US have fuelled the acrimoand OECD publications on the issue. ny towards globalisation that has given us President Trump

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Rationale Issue 1 16-17 change to acknowledge the problem of inequality, and to seek to address it does not require that liberal economic principles be wholly rejected; it is possible to address inequality and be economically liberal simultaneously. Government interventions can be targeted, rather than widespread, and tax systems reformed so thatinequality can be reduced whilst preserving the efficiency of competitive markets. The problems of political disillusionment felt by those in the deprived old industrial heartlands of the American Mid West and Northern England are problems associated with a lack of economic opportunity, and thus government investment in education and training may be desirable. Furthermore, shifting the burden of taxation from income (labour income and returns on capital) to wealth and inheritance may simultaneously reduce inequality of opportunity whilst improving the efficiency of both labour and capital markets. Such policies would, by ensuring that the benefits of economic growth are shared more widely, reduce antipathy towards free trade and immigration, thus maintaining the huge advantages of increased competition, consumer choice, and the diffusion of technology and knowledge that these yield.

As Andy Haldane has stated, economics has had its “Michael Fish moment” And now, after two events that only disciplines. The fact that there may in failing to foresee the 2008 crash (in a year ago would have been consid- be political impacts from econom reference to the infamous failure of the ered impossible, the mood seems to ic policymaking seems to be over- weather forecaster to predict the huge be shifting decisively, with articles in looked by economists, even when storm of 1987). Economic models are the Economist and Financial Times these political impacts can, in turn, “rather narrow and rather fragile” he now regularly paying attention to the have dire economic consequences. argues. A step change is required in reprob-ems associated with high levels Economic policymaking must also sponse to the shocks of 2016, with greatof inequality. Yet, just as the dismal science largely failed to foresee the 2008 financial crash, it again seems to have cottoned on to the problems of extreme inequality somewhat too late.

To learn from these failings, the economics discipline must now pay far more attention to issues surrounding the distribution of wealth and income, rather than simply total wealth and income. Perhaps inequality economics should be considered a branch of economics of its own, just as Welfare Economics and Behavioural Economics are. There must also be a change in mind set whereby economists pay more attention to the models and theories of other

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Rationale Issue 1 16-17 ate New Year’s resolution for the diser prominence given to inequality, tunity whilst preserving the benefits mal science is that it should become and its political consequences, in of free markets. Economics suffers less factional, less ideological and to economic modelling. And economic from the problem that it is perhaps be more open to apparently ‘fringe’ policymaking must also change, so unrivalled in being the most politischools of thought. as to focus more on inclusive growth; cised of subjects. As our attention ensuring greater equality of opporturns to 2017, perhaps an appropri-

Time to Revaluate Traditional Economic Policy Prescriptions

By Tan Yi Ying “There will be a giant sucking sound of jobs going South,” famously said populist third-party candidate Ross Perot in a 1992 US Election debate about the yet unsigned NAFTA, today trashed by the victorious Trump as “an absolute disaster”. Despite a general consensus today that the deal has had net positive economic effects, albeit smaller than expected, it seems that freer trade and globalisation has indeed let out a raucous.

In 2016, we hear chants of protest not just in the US but across much of what we call the West: “I want my Country back”.

No economic policy can claim sole credit for the populist revolts of 2016, but economics is the clear elephant in the room. Certainly, a significant part of insecurity today is attributable to (and is energetically stirred up using) long-standing anxiety surrounding demographic shifts, which motivates nativist populists such as the FN in France and the ‘Alt-right’ of America, as well as recent events igniting fears about Islamic terrorism. Yet, the commonly cited cause for Democratic defeat in the US election was not mass support for a Mexican border wall, but the collapse of the Clinton “blue wall”

in the rustbelt. Both right and left wing populists have rallied against distrusted establishment politicians and technocrats, some against a supposedly conspiratorial global elite whom they blame for economic inequality, stagnation and hardship. Indeed, historically and internationally, anger over immigration and social others has frequently been fanned over flames fuelled by eco-nomic discontent. However, it seems hard to pin the blame squarely on bad economics policymaking.

After all, good policies often entail trade-offs that pave the way for more sustainable and widespread gains— from time to time, ire may be unavoidable. While it is plausible that problems like the long-standing rise in inequality are attributable to economically controversial policies like widespread liberalisation and financial deregulation and that public discontent is sometimes generated from exposed public graft, much anger is also directed against policies for which there is much broader economic consensus and which are in general public interest. This is perhaps the key puzzle of populism.

A significant reason for this is that it is easier to notice short term pain than long term gain, whether due to

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Rationale Issue 1 16-17 loss aversion, negativity bias, or the condescending and out-of-touch eral trade deal was signed). Even if very nature of gains and losses. A and undermined support, but perworkers found new jobs, the impact spike in deficits is sharper and more haps to certain blind spots in policies on the economic environment of direct than results of fiscal stimulusthat have undermined effectiveness. such urban areas-not to mention the es on growth. The idea that bailouts The fact that the negative impacts of loss of community and social netand fiscal expansion allowed technotrade are concentrated means that works- were not as easily reversible. crats like Obama to avert the “greatgeography is significant when conSuccessful rejuvenation initiatives est economic crisis in history” is also sidering effects and solutions. Jobs in tired post-industrial towns, when a hard-sell considering that there lost from relocation may be a drop in they do occur, do not always cater is no actual basis of comparison to the vast ocean of job churn, but the directly to those who have lost out, a real “worst case”, and that many percentage loss of jobs is far more as revitalised areas are frequently have already experienced tangible significant on a localised level, i.e. in gentrified. and sometimes traumatic losses. the context of the industrial towns Moreover, the effects of job loss Trade and globalisation? A 2014 PIIE where they are lost. In Kenosha, cannot be mitigated entirely by restudy of NAFTA’s effects found that Wisconsin, a posterchild of Trump’s training and re-employment proalthough 15,000 jobs on net are lost “Brexit States”, 43% of workers were grammes, such as with the TAA. A each year due to the pact, the US employed by a single company, common complaint is in developed economy gained roughly $450,000 American Motors, in the 60s. In 1988, countries is that “the good union jobs in the form of higher productivity the loss of 55 000 jobs due to relocaare gone”. High paying jobs are scarce and lower consumer prices for every tion was of a percentage equivalent without a university degree- thought job lost. New exof against this port-linked jobs context, short employing the term retraining same skills pay programmes 15-20% more. seem unlikely to Cost savings improve wage from trade with prospects sigChina added up nificantly and to be $250 per this may account capita per year in for its relative the US by 2008lack of success. savings disproIn fact, Josh portionately Bivens of the enjoyed by the EPI shows that less well-off who trade accountconsume more ed for one-third of their income. of the rise in However, it is the college prelikely that unemmium between ployment from 1979 and 2013. factory relocations are more apparto the loss of 500 000 jobs in New Workers seem to have largely taken ent to individuals than diffuse cost York City. The story of the decline of up similar jobs that are as vulnerasavings from cheaper imports, alindustrial towns is familiar today: the ble or gone into low paying service most imperceptible without explicit loss of industry generates huge negjobs. Displaced workers may also studies. It may also be less intuitive ative multipliers to the detriment lobe unable to access new opportunito tease out freer trade as the main cal businesses, spurring emigration ties: they are unlikely to be mobile reason for new businesses or higher from declining towns which in turn and move to new jobs, according paying job opportunities rather than spins the vicious cycle. Arguably, this to Economists like David Autor. The attributing it to individual or domesimplies that effects on ancillary serTAA covered only a fraction of distic factors. vices, intermediate goods manufacplaced workers, and only a third enYet, if the past year has demonstratturers and surrounding community tered training programmes. Leaving ed anything, it is that dismissing businesses should have been considout individual circumstance perhaps populism as just public ignorance ered in mitigation policies. By conalso resulted in a policy where only is counterproductive. Undoubtedtrast, Trade Adjustment Assistance workers over 50 were eligible for ly, discontent is sometimes unwar(TAA) programmes focused narrowly wage insurance: despite the fact that ranted or overblown—but there is on workers who were directly emworkers who lost the most in lifetime at least a scintilla of truth behind ployed by firms that have relocated earnings were the young. The lack of negative reactions. Dismissal of such (and prior to 2009, discriminated arsuccess of mitigation perhaps worsconcerns has not just led to the conbitrarily against workers whose firms ened the situation as support lessdemnation of elite policymakers as relocated to China because no bilatened for the programme.

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Rationale Issue 1 16-17 Despite sincere efforts, such gaps in time: rural-urban brain drain limwill be winners and losers for even consideration may have contributed ited the potential of areas to catch beneficial policies. There have into help being branded as too little, up with the cities that sprang ahead. deed been attempts to help the lostoo late. ers. Still, it is perhaps worthwhile to Individuals reacted to the disparity An allegory for policymaking can per- in opportunity and the path-depenconsider trade-offs less as inevitable, haps also be found in China. From a dent development trends that reintractable truths and more as a seriutilitarian perspective, the policy of sulted are hard to force back. To take ous challenge for policy. There is meruneven development is unfaultable. advantage of preferential policies, it in going beyond the aggregate and A legacy of Deng Xiaoping, China’s certain localities competed to proutilitarian view of progress to take pragmatic moderniser, concentrated duce higher priced industrial goods into account context, geography, and investment and growth in the popu- even if they did not have the comindividual timeframes in assessment, lous East Coast indisputably contrib- parative advantage, contradictory to implementation and mitigation. This uted to an economic miracle and the the policy’s intended effect. Inequalapplies to current debates about rise of more than 225m new middle ity simmers under a many modern trade but also about the twin cause class households. Policymakers were problems, particularly if ethnic diof deindustrialisation- automation. focused on finding “objective eco- mensions are considered as Western The horizon (or spectre) of the third nomic truths” after the disaster of regions were populated by minoriindustrial revolution threatens not ideology-driven policies in the Mao ties that felt left out of China’s ecojust industry but routine service era- the policy was thus grounded in nomic miracle. Xenophobia exists jobs. As true as it was about globaleconomic theory such as Hirchman’s between urban dwellers and rural isation, automation is likely to bring g r o w t h overall gains, poles, Myrdand is unstopal’s spread pable. Similarand backly, people have wash effects acknowledged between the that there will core and pebe losers and riphery, and winners. While Williamson’s it is unwise to inverted U stop the admodel. These vance or adopt theories colpolicies like lectively pro‘Basic Wage’ vided justiwithout further fication that debate and regional inconsideration, equality inevpolicy responsitably rises in es should move initial stages beyond acof developceptance that ment and will structural shifts decline at more advanced stages of migrants, particularly as urban areas are inevitable and proposals for reeconomic development, with wealth become yet more congested and extraining programmes. More attenfrom the East would trickle down to pensive. In rural areas, the problem tion and re-search regarding transithe rest of the nation. The regional of “left-behind children” creates a tion costs of shifting workers across inequality between the East (which new dimension of socio-economic sectors is warranted. With such conreceived a host of preferential poli- problems- on individual timeframes, siderations in mind, a slowing the cies) and Central and Western belts even just a decade of lag-time crespeed of oncoming economic head(mainly relegated to primary indus- ated a generation of sufferers. Even winds and perhaps even traditional try), was seen as a temporary and as policies today aim to open up the measures like greater unionisation contained trade-off and less atten- West and to ameliorate inequalities, might make long-run transformation tion was dedicated to thinking of one wonders if such a magnitude of more sustainable. the actual mechanisms of regional ‘trade-offs’ would have been preThere is no stopping the tide, no spread. While the potential need vented had the mechanisms of difclinging on to nostalgia, nativism and for future state intervention was ac- fusion, micro-level reactions, demoprotectionism. Resistance to progknowledged, it was put aside as ear- graphic contexts and an assessment ress is not the way to go. However, ly intervention was believed to be of effects with regard to individual taking a step back may be important counterproductive to growth. for preventing dramatic reversals. lifetimes been factored in more con On the other hand, regional inequal cretely. ities have not been ameliorated with Experts have never denied that there

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Rationale Issue 1 16-17

Deflating Credibility, Inflating Assets: The Economist and the Median Voter’s Views on Inflation

By Ethan McCormac economic thinking says that inflation has been tamed in developed economies for the past two decades. In fact, many economists argue that inflation is currently too low and more attempts should be made to boost inflation. These economists are talking about a very technical measure of consumer price inflation. On the other hand, the median voter is worried about an increase in the price of their normal basket of goods composed of both consumption and investment goods. Included in this basket is the home mortgage, which is often the largest individual budget item of any homeowner. In other words, the median voter is worried about too much inflation eroding their standard of living and a declining standard of living does not make for a happy electorate. The dissonance between economists and the median voter on the issue of inflation is substantial. Understanding exactly how the median voter experiences and how the economist calculates inflation is of acute interest as the ivory towers of the world attempt to unpack and identify the sources of discontent that helped give rise to both Brexit and the election of Donald Trump.

Conventional

Wall Street, government agencies and economists take inflation statistics at face value and then use these statistics as an important data point for understanding the state of the economy. However, it is important to remember that inflation indexes are constructed, not directly observed.

Within these constructed indexes, the largest likely divergence in the understanding of inflation between median voter and the economist is with regard to housing prices. The housing component of the US consumer price index (CPI) is weighted as approximately 30 percent of the index and is primarily measured using a metric known as Owner’s Equivalent Rent (OER). The OER metric works by measuring the amount foregone by not renting out one’s home. OER consists of 24.4 percent of the CPIweighting, while actual rent reporting contributes a further 5.96 percent. The consumer price index only measures increases in the price of products consumed.

In fact, according to the BLS, the purpose of CPI is to calculate what is required to “maintain a constant level of satisfaction.” A house doubles as both a consumer and an investment good (i.e. an asset). CPI

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does not account for inflation in the investment proportion of the house.

The UK’s Office for National Statistics, which uses a similar method of OER known as renters equivalence, is even more explicit: “We prefer the rental equivalence method because it has the strong advantage of not including asset prices. This means that it is suitable as a measure of consumption.”

Recent experience suggests that rental rates increase less rapidly than home prices. Take, for instance, the United States housing market measured by the well-known Case-Shiller National Home Price Index, which, unrelated to CPI, attempts to pinpoint the national home price level in the United States. Home prices have outpaced rental rates and only briefly converged at the bottom of the home price drop following the housing bubble.

Another area for divergence in inflation calculation concerns the role of quality increases. Hedonic regressions are advanced economic techniques that allow for the accounting of advances in quality relative to the price. The idea is that if one measures the difference between similar, but not identical products in only dollar terms, such as a 2016 Ford

Rationale Issue 1 16-17 Mustang and a Model T, then the is certainly attuned to different in- puzzlement with voters as they fail inflation amount calculated will be flationary pressures as compared to to grasp how prices can be increasmuch larger than justified due to the urban blue archipelagos that did ing in terms of the dollars they are technological advances. To illustrate not. More research is needed into paid-in, while inflation is simultanethe point, an extreme example of a this area of diverging inflation rates. ously determined to be decreasing hedonic regression is as follows: For the struggling home buyer not once adjusted for quality increases

Imagine you buy a 40-inch TV in 1999 that is boxy with limited features. It costs $500 in 1999 dollars. In 2016 you buy a 40-inch flat screen with Wi-Fi and numerous other features for $1000 in 2016 dollars. Without a hedonic regression the price increase is 100 percent. Now, using a hedonic regression, the cost of a TV in 1999 with the same features and quality as the one in 2016 is estimated to be $1500 in 1999 dollars. In the CPI, the price has now decreased by 33 percent. Generally, most of the products hedonically regressed in the CPI are within the housing and apparel categories.

Geography plays a role as well. The 2010 US census estimated that 80.7 percent of the US population lives in urban areas. This heavily weights the inflation rate toward an urban bias because the rate is an average. The sea of red in the middle of the United States that elected Donald Trump

versed in the differences between the investment and consumption components of the price they pay for a house, a source of confusion may arise as home prices skyrocket while the CPI registers muted increases due to the CPI’s omitting of the asset component of a home’s price. Returning to the TV example, perhaps such adjustment is necessary to maintain a “constant level of satisfaction.” However, according to Federal Reserve data, wages have not increased 100 percent (on average). This likely causes a degree of

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by the CPI. At the end of the day, the median voter is disciplined not by the economic intricacies of CPI, but by the perception that their life is either getting better or worse. Furthermore, this perception is attuned to their entire basket of goods, not simply the consumption goods they purchase.

Although, CPI is a useful measure for determining constant state benefit levels to be doled out, CPI is symptomatic of the most glaring issue with government and economic inflation statistics. These statistics fail to account for inflation in asset prices. Despite two asset bubbles in twenty years and a possible third one in select equity markets (see the Shiller Price-to-Earnings Ratio of the S&P 500 chart), there is still no willingness on the part of economists or monetary authorities to attempt to understand how asset prices can inflate, much less if they are inflating

Rationale Issue 1 16-17 to dangerous levels. After all, a dollar economist that is able to create a refuture prospects. Technical econoplaced into the economy by the cenliable measure. mists and government statistics have tral bank does not discriminate. It can Asset price inflation alone cannot exlost credibility. Brexit and Trump are chase either assets or consumption plain recent political developments, symptomatic of this. This matters goods depending on who spends it. although it does offer some clues. because the failure to see an inflaThere are few available methods to Faced with economists and govern tion problem leads to the absence calculate asset price inflation and ment policy that ignores the asset of attempts to solve it. Economists the problem is likely to remain vexinflation component of their yearly and politicians can only continue to ing,albeit Robert Shiller’s work may goods bundle, it appears the median ignore the importance of asset price provide some clues. A great opporvoters have begun to tune out “exinflation at their own peril. tunity awaits the aspiring perts” and political elites in favour of risky propositions to change their

-Shiller PE Ratio Sources: US Bureau of Labor Statistics, UK Office for National Statistics, US Census Bureau, Federal Reserve Economic Data (FRED), Case-Shiller National Home Price Index.

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Rationale Issue 1 16-17

Donald Trump:

How the meek shall inherit the earth -15-

Rationale Issue 1 16-17

By Roberto Tabet judgement will be placed on their little bit of it so you can hate the othA year of political volatility is nearing opinion. As such, when the media er side. And it tastes kind of good. an end, leading to a year of interproliferated the image of misogynisAnd you like how it feels. And there national uncertainty. The rise of natic and racist voters behind Trump, is a gentle high to the condemnationalist and populist flair has led to one is not willing to publicly assotion. And you know you’re right, many determining what or who is reciate with such a “basket of deplorright? You know you’re right.” sponsible for this outcome. With the ables”. Thus, this fear of exclusion emergence of Trump, an outsider in and isolation lead to Trump supportFurthermore, the Democrats have the political process, those who felt ers becoming the silent majority. created a chasm between them and disenfranchised believed they could The existence of the shy Tory vote is the working class, as demonstrated disrupt the political process and have neither new nor irregular in politics. by the rust belt. The rust belt is an a chance to feel represented within In the 1992 United Kingdom, Genarea in the United States stretching the political sphere. Whilst the coneral Election, election polls gave the from the North-East down to the sequences of Trump’s election are conservatives 38-39% of the vote, Great Lakes and the Midwest, recurrently uncertain, the political es1% behind the labour vote, demonferring to the economic decline and tablishment now knows that represtrating a narrow Labour majority. rise in unemployment and poverty sentation in government is essential The final results, however, show the to a once powerful industrial sector. in facilitating a stable population and conservatives gaining 42% of the Major states located in this area inthat the voices of the downtrodden, vote, and a lead of 7.6% over the clude Michigan, Ohio, Pennsylvania, no matter their background, need to Labour party, winning their fourth and Wisconsin; key swing states vital be heard by those with power. successive general election. Invesfor any presidential nominee to have tigations from the Market Research representation in.

The Shy Tory and the Spiral of SiSociety found an error of 8.5%, with The economy of the Rust Belt sputlence: 2% of the data explained by Consertered 40 years ago, with jobs being From a cultural perspective, the vative supporters withholding their outsourced to places such as the Sun main factor that lead to the election voting intentions. Underestimations Belt, Mexico, or China. Furthermore, of Trump is the Shy Tory factor. Obof the Tory vote were seen again with the rise of automation, many served since the early 90’s, The Shy in the 2015 General Election, with factories were closed down, leading Tory factor is a phenomenon that most polls predicting a hung parliato the surrounding schools, houses occurs when Conservative parties ment whilst the actual result was a and stores to follow suit. The younggain a greater percentage of electorslim conservative majority. er citizens took flight to the coastal al votes compared to the equivalent cities or state capitals, helping create share in opinion polls. This could be The failings of the Left and rusted a massive decline in population, with because Conservatives tend to lie to memories: some seeing a 30% drop from 2000 pollsters, stating they may be undeWith the Spiral of Silence theory in to 2015. cided, when in fact they know fully mind, what can we say lead to the When it came to the approaches of well who to vote for. creation of a shy tory in America? the candidate, Trump took the iniHowever, why would such voters Well, for many this would be the rise tiative to reach out to the men and feel it necessary to actively lie to of progressivism across the western women of these communities and pollsters about their vote? Well, this world: an ideology characterized by promised to revive their economy can be explained with “The Spiral of an extreme desire for economic and through renegotiating the North Silence”. The Spiral of Silence, origsocial equality. However, what some American Free Trade Agreement inally proposed by German political see as a stalwart ideology of goodwill (NAFTA), a bill signed by Bill ClinScientist Elisabeth Noelle-Neumann and equality, many have seen it as ton in 1993 over the objection of in 1974, states that there is a tenan authoritarian movement, silencorganized labour; NAFTA has been dency for people to remain silent ing and sneering at those who have blamed for the loss of manufacturwhen their opinion differs from the a different opinion. Spreading to ing jobs to emerging markets. Towns majority view. This is due to a fear universities and colleges across the like Flint, where over 90% of GM’s of isolation, resulting from the idea country, it has become a movement employees were fired since the that one may be excluded from the of safe spaces, trigger warnings, and 1980’s, voted for Trump because he group due to their opinion. political correctness, limiting discuswas the best chance for them to gain We can see this fear of judgementsion at institutions where learning back their foothold in the American manifest itself in polling results with and development is paramount. I economy. Unlike Trump, Clinton took Trump supporters. According to a feel that the words of Stephen Colthese areas for granted, with places paper by Morning Consult, Trump bert are appropriate in this context: such as Wisconsin not receiving a performed 6 percent better in online single visit. This shows in places such polling compared to telephone poll“How did our politics get so poisonas Maycomb County ,who voted for ing. This implies that most voters are ous? I think it’s because we overObama in 2012, but gave Trump 54% only willing to confess their true perdosed, especially this year. We drank of its votes. In Ohio, only seven of 88 spective when they believe that no too much of the poison. You take a counites remained Democratic. GOP

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Rationale Issue 1 16-17 to offer arguments that resonated pollster Gene Ulm puts it best “DonThey aren’t interested in equal pay with the people, compared to the ald Trump brought a new calcuationfor women, so much as finding jobs right-wing populist narrative of ana new way of winning(these states), in the first place. The idea of free ti-establishment against the out-ofbut part of that was her colossal trade creating some local pain, but touch elites. Instead of echoing the failure.” Such a failure can be traced boosting society as a whole is one anger and resentment that Trump back to the divide between the Demthat clashes with the everyday realimanaged to tap into, the left needs ocrats and the working class. ty of seeing their jobs and livelihoods to focus on reconnecting with the This demonstrates conflict between being shipped away to lands were laworking-class, and create stronger the proposed policy and the harsh bour is greater and cheaper. political and economic representareality of this election. Hilary Clinton Progressives are right to be contion for the disillusioned and disenran on a campaign that stood for and cerned about the inequalities thatfranchised. By ignoring their anxietexpanded healthcare, equal rights persist within western society, creies, you take away possibility of the for women and the LGBTQ comating the foundation for the divisive shy Tory to have a voice, creating munity, and strong foreign policy. politics of the present day. outbursts and consequences as a Whilst these are all commendable However, by not targeting the ecomeans to find another way to comand important issues, the people of nomic issues that resonate with blue municate their fears. the Midwest find these to be distant collar America, the democrats failed concerns.

Successful Populist Movements: Not So Shocking Afterall

I

By Pavan Rao t is perhaps clear that, in our current times, political and socioeconomic instability have gripped our societies, and paved the way for the rise of what can arguably be described as ‘extremist’ or even ‘reactionary’ politics. One particular manifestation of this trend is the prevalence of ‘populism’. The aforementioned term has been thrown around a fair amount recently, but what exactly does it mean? Though applicable to various persuasions of politician and politics, it can be

taken, generally, to mean a strategy wherein (usually) a charismatic or contentious leader(s) galvanises the masses in a collective and unified condemnation of the status quo; it involves rallying those dissatisfied with the institutions and conditions of the day. But why have populist movements like the election of Donald Trump and Brexit in the UK been allowed to take such force? How can we explain the success of such movements around the world?

As considered in the above article, the ‘Shy Tory’ factor is one very cr-

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-edible explanation for the success of populist movements. However, I wish to present four further factors which, in my view, can also help shed light on the issue at hand. What I aim to highlight here, is the idea that the success of such movements is in fact not so shocking after all. Once we consider certain aspects of the circumstances under which such movements succeeded, their success seems no longer an aberration, but an inevitability.

For any political campaign, populist or otherwise, there is at least one opposition.

Rationale Issue 1 16-17 the Brexit vote of 2016, if there are enough of such voters, it adds up in a big way. This was perhaps corroborated by the fact that 6% of Brexit voters, after the election, regretted their decision (The Economist). This would have been enough to reverse the outcome. As demonstrated then, those who perhaps cast their vote not out of conviction, but with ‘a might as well’ attitude, do actually have the power to give a populist movement some small edge.

It can be argued that the ‘status quo’ or establishment politicians/ movements carry a burden of appeasement that populists or revolutionaries do not. What I mean by this, is that such groups have the unenviable task of appeasing all voters and sections of society. In contrast to this, the populists, often ‘outsiders’, need only vocalise their causes, and spread their message as vociferously While the success of the populist is working class Americans. It becomes as possible. This is the case by virtue discussed in great length, and the clear, then, that Trump was not of the fact that such movements are causes and consequences thereof waging war against the strongest of not representing the establishment analysed, the role of the opposition opponents, and so, his success beand the status quo; they are the outis sometimes forgotten. The first excomes more understandable. The siders who come in and make disrupplanation for the success of the popkey idea here is that inadequacy of a tive waves in an attempt to discredit ulist, therefore, is the inadequacy populist’s opponent can quite easily the establishment. They are under of the opposition. Consider Trump’s offer an edge to that movement. no obligation to appease everyone. opponent, Hillary Clinton. Plagued Perhaps similar to the idea of the ‘shy They need only gather the unquesby various scandals and allegations, tory’ syndrome, what I wish to prestionable support of those who align Clinton did not enjoy a blemish-free ent here is what I call the ‘surely they themselves with the cause, and campaign to say the least. She strugwon’t win’ syndrome. It is feasible no need not even attempt to please gled with maintaining the trust of the doubt, that many of those who side those who do not. What then results American people, and rhetoric of her with populist movements do so with is that the establishment, in their atdubiouscharacter often took centre resolute, and unwavering conviction tempt to be the ‘good side’ and apstage in the discourse of the day. of the merit of the populist’s cause. pease the majority, end up creating During the course of the campaign, But, there are also those who, alrifts and encounter conflicts. The old Clinton’s popularity faced substanthough empathise with, and perhaps adage, ‘Jack of all, master of none’ tial setbacks; at one point, her pereven agree with, many tenets of the seems appropriate here. This was sonal approval ratings dropped to a populist’s cause, do not wholeheartdemonstrated to an extent in the US 25-year low, with 56% of Americans edly and absolutely align themselves presidential election, wherein Trump stating they disliked the former Secwith any and all elements of the popperhaps sought only to galvanise the retary of State (The Economist). Givulist movement in their entirety. And disillusioned and rally the anti-estaben that seeds of doubt were plantit is some of these voters who give lishment (blue collar workers along ed in the minds of many Americans their vote to populism with somethe ‘rust belt’ is one example), while stemming from the various negative thing of a ‘might as well’ attitude, Clinton was tasked with not only restories surrounding her, it often bewhile seeking solace in the fact that assuring Democrats and supporters came quite easy for Donald Trump ‘these populists surely can’t win, so of the Washington legacy as it stood, to turn the tables , and present her it doesn’t matter if I vote for them’. but also with convincing the disenas the villain of the whole saga.It can While feeling the rush of conducting franchised masses that the estabalso be argued that many Americans a mini protest, and ‘sticking it to the lishment was still the best way. This felt a certain sense of disillusionman’, these grey area voters know is in addition to the fact that Clinton ment when it came to Clinton; her in their heart of hearts that their lithad to appease the rich, the poor many millions in corporate speaking tle protest is not going to swing the and everyone in between. To sumarrangement earnings were often election/referendum. However, as marise then, it can be argued that cited as cause for her detachment to demonstrated remarkably clearly in the emergent ‘good team’ have

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Rationale Issue 1 16-17 to be just that: the good guys, and but they cannot aggressively lay the politics. When we consider all of the appease all. The populists need not. blame on any one subset; ; they canabove, and many other factors, the The idea of a ‘scapegoat’ is key not create a clear bulls-eye at whom success of the populist movements when attempting to deconstruct the the public can target their rage. This is actually not that shocking after seemingly shocking success of popleads to the populist being able to all. It is but a symptom of growing ulist movements. It is my firm belief constantly peddle and circulate the disco-ntent in our societies with the that what makes the populist’s task same rhetoric, oftentimes someestablishment, and the instability considerably easier than the estabwhat violently, through the media, of socioeconomic conditions, which lishment’s is the idea that the radical allowing for the possibility of someonly seem to worsen year on year. outsider can often specifically target thing of a ‘forced indoctrination of Naturally, frustration grows. What, a group of individuals or some secthe masses’ through battering them therefore, becomes the responsibiltion/element of society on whom to repeatedly with the wrongdoings ity of the political elite and the eslay the blame. Humans, by nature, of the chosen scapegoat. This idea tablishment then, is not to gawk at are curious beings with a certain dehas been prevalent through most of the ‘shocking’ success of populists, gree of impatience; they live in the history. Perhaps the most infamous but to address those issues which here and now and demand answers example thereof is Hitler’s insistence impact the masses the most, not to things immediately. One manifesthat Germany’s socioeconomic woes neglect the lowest rungs of society, tation of this, is that when things go were the explicit fault of the Jews. He and regain the trust of the disenwrong, One manifestation of this, is successfully scapegoated the Jews franchised. It is perhaps the duty of that when things go wrong, humans to such an extent that, eventually, it politicians to divert attention from are uncomfortable till they can idenbecame the norm to associate any discrediting or fear-mongering with tify the source of their misery, and the regards to radical movements, have a recipient at whom they can and instead understand the sub“the radical outsider can direct their discontent. What this stance which fuels such movements. often specifically target a means for politics, is that whenever If a first principles approach is taken, a party or individual emerges claimand the root causes of contention group of individuals or some ing to having identified those culpaissues targeted, the electorate may section/element of society ble, the electorate sits up and takes not see their only hope lying with on whom to lay the blame.” notice. This is whence populists the outsiders, given the failings of derive their gumption. This is how the establishment. This is, of course, they grasp irrevocably the attention much easier said than done, and the of the disillusioned, disenfranchised and all failings of Germany with the salvaging of the public’s trust will be masses; they become galvanised givevil of the Jews. More recent exama long-term undertaking, particularen that they believe they have idenples include Trump’s scapegoating of ly given the dissatisfaction with the tified a guilty party, and have repreMexicans, Muslims, and a multitude political institutions as they stand. sentation from someone who will of other groups in his effort to rally Put in simple terms, until the world’s take the fight to them. On the other the conservative right and ‘Amersocioeconomic woes are rectified, hand, given the issue discussed earica’s downtrodden’. Similarly, with do not be surprised if populist movelier of the burden of appeasement, the Brexit vote, a significant part of ments gather more and more steam. the establishment cannot target a the daily rhetoric was the faults and As has been shown, their success is large group or section of society en wrongdoing of ‘all those immigrants’ neither a mystery nor a shock, but masse. In other words, they cannot using up the State’s resources etc. rather, something of an inevitability. establish a scapegoat, for this would What is clear then, is that, given the not be keeping with the aesthetic of possibility of scapegoating for the the ‘good side’ which the establishpopulist, and lack thereof for the esment often wants to maintain. What tablishment, it becomes easier for this boils down to then, is the fact the populist to target and localise that the populist can localise their their offensive, and in doing so, beloffensive, channel their cause and ligerently garner the support of the outrage at a specific target, and in disenfranchised masses. doing so, rally the masses behind them. Humans, sadly, rarely miss None of the ideas presented above the opportunity to pounce on an are particularly ground breaking or identified guilty party, regardless of undocumented. All of the above have whether they are actually responsibeen observable throughout history ble or not. The establishment canquite clearly. But, the need was felt not do this in a similar fashion. Of to bring these factors to light given course, ‘the good side’ can identify the apparent shock of many with recausal factors which appear to be at gards to the success and domination the heart of social issues or failings, of populist movements and radical

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Rationale Issue 1 16-17

America’s Rough Transition

By Liam Wash Non-interventionist foreign policies, calls for greater protectionist laws, a business tycoon on the road to the oval office and populist politics rising out of the South and Midwest; is this the early 21st century or early 20th century?

The success of President-elect Donald Trump in the U.S. 2016 election has sent reverberating shockwaves across the globe. His triumph over Hillary Clinton, the Democratic nominee and embodiment of the Washington elite, further underscores the current populist backlash against the political status quo and the rise of nationalistic fervor. Donald Trump’s shocking ascent to the highest office in the nation can only be explained by the wave of support from the economically marginalized and politically ignored hoping that their issues can be heard.

The recent escalation of economic inequality and effects of globalization has called into question the role and identity of the United States. Additionally, and perhaps more importantly, the disbelief of the media and ‘surprise’ rise of Trump only further lays bare the grave and overlooked cleavages splitting America in two. Trump’s surprising rise to the presidency is in fact not such a shock when one analyzes the recent economic and political trends that have gripped America in recent years.

The Great Division Globalization has left America divided between those who have benefited and those who have carried the burden. Trump’s policies have been focused on a number of key industries across the South and Midwest, which have been declining in the last twenty years. In Republican fashion, the President-elect has called for lower taxes and regulations, especially in the energy sector. Such limited-government policies not only aligned with the ideology of much of Appalachia, but Trump’s emphasis on reducing energy regulations is a clear signal that he is determined to bring back and promote the traditional industries of the eastern mountain region of the U.S., such as coal and natural gas. Trump has also been stringent in his support of renegotiating trade deals and building a more closed economic climate focused on domestic protectionism, taking considerable aim at NAFTA. Like much of the effects of globalization, most economists have generally assumed the passing of NAFTA in the 1994 has had “modest but positive impacts on U.S. GDP” with limited benefits spread thinly across consumers, but negative impacts highly concentrated in just a few manufacturing industries, such as the auto and appliance sectorstern states, revealing a deeper and more pressing problem in the American economy than a few failing industries.

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Rationale Issue 1 16-17 In analyzing data from the U.S. Cencreation of more jobs.

Trump’s strategy to invest more into sus Bureau and Federal Reserve, the More and more corporations have America’s failing infrastructure is a Pew Research Center found that the been testing new automated tech- sound policy, the reductions in cormiddle class in 1995, the bedrock nologies to reduce operational costs porate and income taxes chip away of American economic prosperity, and Trump’s policies could be the at his promise to eliminate the nearly had been slipping since the 1970’s, “The American dream rests on the ability for with median incomes across the entire socio-economic spectrum a generation to improve their economic standlower today than in 1999. Gains for ing in comparison to the previous, and to the upper class skyrocketed in the late 20th century, with over 50% inalways be climbing to turn rags-into-riches.” creases in incomes between 1970 and 2000, while lower and middle trigger to prompt a greater mech- 20 trillion-dollar debt in eight years. class improvements were appreciaanized adoption. While perhaps The Tax Policy Center has stated that bly thinner. Recently the growth on bringing some short-term gains, pro- Trump’s tax and investment plan incomes across the board has stagtectionist policies in the past have would lead to substantial increasnated, taking an especially hard hit been overall detrimental to Ameri- es in government spending; yet the after the Great Recession. In analyzcan wellbeing; rising consumer pric- power in proposing, even if highly ing median household wealth (ases, falling profits from the export unlikely to attain, these goals is what sets minus debts), the Pew Center sector, worsening international rela- grew Trump’s popularity. With their found that there is an even greater tions and the possibility of recession economic and political voices sibifurcation. From 1983 to 2013, upare all recorded outcomes. It is hard lenced, much of the unskilled middle per-income households saw their to imagine how Trump could sustain and lower class population turned to wealth numbers double, even with levels of 4% to 6% growth in this the claims and un-Washington-like the adverse effects of the Great economy. While Trump’s strategy mannerisms of Trump.

Recession. In comparison, middle to invest more into America’s failing Trump is a reaction against globaland lower income households saw infrastructure is a sound policy, the ization and economic malaise; a limited growth throughout the late reductions in corporate and income political bet for those who have lost 20th century, with the Great Recestaxes chip away at much in the last decades. His sucsion slashing their marginal gains To remedy these effects, Trump has cess stems from providing promises and sending their wealth portfolios called for the building of a wall, both and nostalgic dreams for those who back thirty years (Pew Research Cenphysical and economic, to protect have had little voice in Washington. ter). The frustration of this growing American jobs and harbor Ameri- There has been a distressing change disparity can be seen on both sides can businesses. While Trump’s addi- in the socio-economic order and a of the political spectrum especially tional carrot and stick plans hope to political backlash in many Western considering the strength of the Berprotect the average worker, slashing countries, from the United Kingnie Sanders campaign. The American the corporate tax rate from 39% to dom to the United States, and these dream rests on the ability for a gen15% and imposing of a 35% tariff on new administrations elected around eratio generation to improve their business which leave the U.S.; it is the globe illustrate the concerns of economic standing in comparison to hard to say if these policies will have many who have not benefited with the previous, and to always be climbtheir intended effects. Even if Trump globalization and free trade. We all ing to turn rags-into-riches. While is successful in corralling American wait in anticipation of Trump’s presthe validity of this tale can be criticompanies, it might not lead to the idency, but from this vantage point, cized, it nevertheless forms a piece creation of more jobs. More and it seems that this administration will of the freedoms Americans cherish more corporations have been test- be a turning point in American and and one Trump has latched onto. ing new automated technologies world history.

To remedy these effects, Trump has to reduce operational costs and In the wake of Donald Trump’s viccalled for the building of a wall, both Trump’s policies could be the trig- tory, there have been a wide variphysical and economic, to protect ger to prompt a greater mechanized ety of reactions: protest, disbelief, American jobs and harbor Ameriadoption. While perhaps bringing acceptance, and jubilation. America can businesses. While Trump’s addisome short-term gains, protectionist has recently undergone a vast partional carrot and stick plans hope to policies in the past have been overall tisan and socio-economic divide; it protect the average worker, slashing detrimental to American wellbeing; has been abundantly clear since the the corporate tax rate from 39% to rising consumer prices, falling profits early stages of the 2016 presiden15% and imposing of a 35% tariff on from the export sector, worsening tial campaign that neither candidate business which leave the U.S.; it is international relations and the pos- was going to unite the nation. While hard to say if these policies will have sibility of recession are all recorded there have been a plethora of protheir intended effects. Even if Trump outcomes. It is hard to imagine how tests and calls for recounts, I fear this is successful in corralling American Trump could sustain levels of 4% to is only deepening the divide. At this companies, it might not lead to the 6% growth in this economy. While time, we need not be hostile and

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Rationale Issue 1 16-17 reproachful, but rather to acknowlTrump’s economic policies focus on reforms are the only ways we can edge the underlying problems in our short-term amelioration, but, even move America’s economy forward society; the declining middle class as the leader of the free world, he instead of trying to cultivating some wages, the cultural cleavages in our can do little to change America’ ephemeral imitation of the past. society, and the costs and benefits of comparative advantage compared to Donald Trump’s presidency is not a globalization. In the coming weeks and years, there are a number of “Trump is a reaction against globalizaquestions we need to ask. tion and economic malaise; a political For the vast majority of Americans, bet for those who have lost much in we must ask how are we to reinvigthe last decades.” orate the economy and revert the shedding middle class. While perhaps more protectionist policies foreign countries or halt the growing surprise, but a reaction to a decades might provide short-term improvecapabilities of technology. Howevlong decline in American economments to our midwestern cities, er, Trump’s plans for infrastructural ic and international standing. In the what effects will that have on all coninvestment are a step in the right wake of his successful bid for presisumers and export-oriented sectors? direction. American policy makers dent, we must take the policies and I fear the creation of a physical and need to start making steps towards statements he made seriously, as economic wall will only further push long-term solutions. The tension bethey are key to understanding the American companies, already entween the haves and have-nots has divide in the country. Donald Trump joying an international reach in this characterized this divided election will only be president for another information age, to move abroad. stem from the tectonic frictions of four to eight years, but the issues And if pinned in, these companies economic change. Greater long-term that threw him into the limelight are will surely offset any additional costs investment in education, technologilasting problems that we need to through greater mechanization. cal improvement, and financial come together to fix.

Brazil’s long-term macroeconomic policies helped pave the way for the right-wing backlash.

Now, what is the way ahead?

By Helena de Moraes Achcar

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Rationale Issue 1 16-17 movements and parties have wiped hen Donald Trump won the Lula da Silva’s campaign for presiout progressive politics and taken US presidential elections last dency in 2002 relied on a promise for over the political scenario, becommonth, almost every comchange and continuity. Change was ing common-sense among the ormentator and pundit drew parallels needed due to grave social problems dinary people and even part of the with Britain’s vote in June to leave that affected one of the most uneducated middle-class. Particularly the EU1. Different analyses emphaequal countries in the world; howevagainst social programmes that have sized different underlying variables er, economic stability achieved in the lifted millions out of extreme poverthat had led to both outcomes, such previous government, which ended ty and addressed minorities’ rights as racism, anti-immigrant sentiment, fourteen years of hyperinflation, through affirmative policies, these and misogeny, the latter specific to could not be threatened. There was movements usually promote social the U.S. case. But when it came to great fear that Lula, perceived conservative ideas on the one hand economic analysis, most of them as a radical left-wing candidate and liberal economics on the other. seemed to agree on one thing. “It now-turned-president, would jeopIn this sense, apart from attacking was a revolt against the economic ardize the economic stability of the the rights of minorities, they defend order”, as The Financial Times put country and promote radical changes the supremacy of market forces, it, led by those who have not benethat would go against the economic with the privatization of public goods fitted from globalization, or, in other elite. The governability strategy adand natural resources, the view that words, the ‘disenfranchised’ white opted was to reassure the financial competition is the defining characworking-class voters who rejected sector and the economic ‘power that teristic of human relations, and the the ‘establishment’ and the elites be’ that their interests would not be belief in meritrocracy2, even in a who have ran it for the last thirty at risk. In economic policy terms, country where the gap between the years. The 2008 global financial crithis meant a fundamental departure sis, the deindustrialization of the from the traditional counter-hege“Change was needed due monic positions adopted by the PT Western economies, and increasing economic inequality are the conseand the continuation of orthodox to grave social problems quences of economic policies which policies promoted by Lula’s predehave mostly benefitted the wealthicessor. that affected one of the est. As history tells us, it is in these As such, in the beginning of its first most unequal countries in conditions that right-wing populist term, the PT government increased ideas and candidates flourish. They interest rates further, from around the world” offer simple solutions, in form of 24% to 26.5% p.a., and cut public inslogans, for deeper, structural probvestment to achieve fiscal surplus achaves and the have-nots is one of lems: the idea of ordinary people cording to the IMF prescriptions. The the widest in the world. ‘taking back control’, a rejection of financialization of the Brazilian econOne can point to several factors that ‘immigrants who steal our jobs’ were omy was further promoted by laws have led to the demise of the PT govpart of the rhetoric that characterthat would protect banks against the ernment and to the attack against ized the two campaigns, both in Britrisks of loans offered to companies3, left-wing progressive politics more ain and in the U.S. contributing to a situation characbroadly speaking. Corruption scanThe problem is not confined to terized by one of the highest profit dals engulfing PT, hidden agendas by America or Britain, or even to Mamargins banks have ever had in Brapowerful economic groups pushing rine Le Pen’s France or Hungary’s zil’s history. Throughout PT’s governfor Rousseff’s ousting, class hatred immigrant-bashing Prime Minister ment, interest rates were kept mostly against a party and a president who Viktor Orban. In Latin America, too, at two digit figures4, which contributbenefitted the poor, and finally the there is a sense that the region is ed to a vulnerable economy, depengovernment’s inability to tackle the moving right. Last year’s election of dent on foreign capital, with low leveffects of the international economic former businessman Mauricio Macri els of industrialization (around 10% crisis that hit Brazil especially in the in Argentina ending twelve years of of the GDP in 2014) and low levels first year of Rousseff’s second manleftist rule by the Kirchner, and this of investment. To be fair, apart from date. These alone cannot explain year’s replacement of the Workers’ adopting successful counter-cyclical one of the worst economic and politParty (PT) Dima Rousseff in Brazil are policies in the aftermath of the globical crisis in the history of the counperhaps the most notable examples. al financial crisis, in 2012 the govtry. They are certainly part of deepThe case of Brazil, especially considernment adopted a more heterodox er, underlying economic and political ering the arguably ilegality of the immacroeconomic policy which aimed causes that have not been tackled by peachment process that ousted the to promote and protect the national the thirteen years of the PT governpresident with the support of great industry. Rousseff’s economic team ment. So, what went wrong with the parts of the population, seems to be reduced interest rates to 7.25% p.a. economic policies of the Workers’ the most radical example in the rein order to encourage investment, Party that helped pave the way for gion. There is a feeling among prowhile promoting the depreciation of its own demise and the rise of rightgressives that a wave of right-wing the Brazilian currency, the real, ultiwing ideas and movements? ideas promoted by conservative mately trying to improve Brazil’s int-.

W

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Rationale Issue 1 16-17 ernational competitiveness in trade.

As a result of Lula’s promise of Right-wing movements who had Against the backdrop of the internachange through ‘alliances and nelong been advocating against social tional economic crisis, these meagotiations’5, reforms that had long policies that addressed the needs of sures did not succeed in boosting been advocated by the PT, such as the poor and the minorities gained the Brazilian economy. Most imporland reform, tax reform, and the strength in a scenario that seemed tantly, after decades of high interdemocratization of one of the most all too familiar to disenchanted Braest rates the business class in Brazil monopolized media in the world, zilians of all classes: economic receshad become accostumed to profit were never carried out. This is not to sion, corruption scandals, and the from financial rather than producsay that the PT government did not unfair and unequal structures that tive activities, especially from safe promote beneficial changes. In fact, have, despite all the changes proand highly liquid investments. The because of its conciliatory nature the moted during PT’s years, remained reduction of the interest rates progovernment was able to implement the same. voked a negative reaction both from successful social policies that lifted One could argue that Brazil’s case is the financial sector and from those forty million people out of poverpart of a broader scenario of finanwho were supposed to welcome the ty6, an unprecedented achievement cialization of the world economy and government’s latest decision. Given in Brazil’s history. Apart from cash the inability (or refusal) of governthe growing pressure from the renttransfers, the increase in the miniments to challenge the status quo. iers and an overall pessimism with mum wage resulted in life improveWith the rise of nationalist and rightthe economy, the government backments for the working classes and wing extreme ideas, the picture is tracked, using interest rates as a tool for those previously living in poverpretty gloomy worldwide. The road to control inflation, and promoting ty. However, instead of promoting ahead cannot be built without the fiscal adjustments and austerity polsustainable and more fundamental active involvement of grass roots icies based on the macroeconomic changes that would set the stage for movements. Apart from offering re‘tripod’ (inflation targeting, floating a prosperous and dynamic economy, sistance against austerity policies exchange rate, and primary surplus) PT made a pact with the conservative that slash workers’ rights, movein accordance with neoliberal ecoforces whereby their interests would ments should also come up with nomics. This, in turn, worsened the be preserved by orthodox economic real alternatives to policies that have situation of those who depended policies coupled with a lack of strucfailed. The moment is crucial for the most on the state. tural reforms. those who are interested in change As we can see, the interests of the Lula’s conciliatory way of governto engage in politics and help form financial sector were never really at ing, coined by political scientist Anmovements that would culminate risk, but neither were the interests dré Singer as lulismo, proved to be in a backlash against the right-wing of those who had always enjoyed a unsustainable when the 2015 ecowave that seems to be taking over priviledged position within the Branomic crisis set in. The conservative parts of the world, albeit in different zilian economy and society. forces were no longer interested in forms and shapes. a ‘conciliatory pact’ with the government.

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Rationale Issue 1 16-17

The case of Venezuela:

The cautionary tale of consumption-based economic policy

By Naufal Yudiana The rise of populist politicians across the Western hemisphere, from Bernie Sanders to Jeremy Corbyn, has led to calls to rethink economic policy.

In the UK especially, more interventionist economic policy; one which abandons fiscal austerity in favour of greater government spending and central planning of the economy has been embraced by the political mainstream. One central tenet of their ideology is a large expansion of public services, with greater funding for education and healthcare, and a focal shift towards expanding aggregate demand. Whilst the merits of this shift are yet be proven, the case of Venezuela functions as a reminder of the need for prudence in our future approach to economic policy.

According to Venezuela’s own Central Bank, the country’s economy shrank by 5.7% in 2015. Inflation rate in December 2015 was close to 270%; it is projected to be 450% in February 2016. Unemployment stood at 17% in May 2016, and approximately 80% of the population live below the poverty line.

The country is experiencing shrinking government reserves and the government reserves and the government deficit stood at 20% before the end of 2015. This has created tremendous economic suffering in the country, as the population experiences a stifling shortage of basic goods and supplies. Venezuela’s industries have grounded to a halt as they are unable to purchase supplies and materials. The govern

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ment has responded to expressions of grievance by suppressing dissent – millions marched against them for creating this economic crisis – yet Venezuela remains at a standstill.

Only a couple of years ago, the country appeared on the brink of demonstrating that an alternative economic model to the Washington consensus could succeed. Economic growth was steady; inflation was low and poverty was dramatically lowered.

Hugo Chavez, the country’s late Socialist leader was even able to (almost complacently in retrospect) sell petroleum to allied countries in the Americas at heavily discounted prices to expand his clout in the region.

But economic success was merely an illusion; Venezuela’s economic policy under Chavez and his successor

Rationale Issue 1 16-17 Nicholas Maduro encouraged unbalanced growth in domestic consumption levels and led to the economic crisis it is currently experiencing.

Admittedly, Venezuela pre-Chavez was an economic catastrophe.

Against this backdrop of a banking crisis, spiralling inflation and high poverty, the country elected, a revolutionary former soldier who was convicted of an attempted coup d’état. Hugo Chavez rode a popular wave of dissatisfaction about corruption and a backlash against the socalled “Punto Fujito” parties – which had been in power for forty years – to win a wide victory and soon embarked on a transformative policy course.

The Socialists’ period in power saw supplies and made the government competitive edge in any other sector some policy U-turns. But in general, a stakeholder in currency circulation. was further eroded by the governChavez’s socialists pursued, accordThus, when the value of mineral ment’s unwise decision to peg the ing to Javier Corrales and Michael product exports, which constitutes Bolivar above its market rate – sympPenfold, a traditional mix of “classic around 90% of the country’s total tomatic of the so-called ‘Dutch disstatism and populism” – focused on exports, shrank from $ 150 billion in ease’, where natural resources-ex“fiscal stimulus, expansion of state2012 to $ 60 billion in 2014, the govporting countries are incentivized to owned enterprises, and income reernment put a hold on the maximum overvalue their currency. Venezuela distribution to support constituents”. amount of US dollars that can be expractically subsidized import-purIndeed, Chavez initially ushered in a changed for. Essential goods quickly chasing in order to lower prices of period of relative economic stability. deserted supermarket shelves when goods for the poorest segments of The average rate of GDP growth was importers stop providing most items society – a policy that proves disas3.5% in 2000-2013 and relatively that Venezuela needs, and when they trous when the country runs low on stable compared to the tumultuous do manage to secure the foreign curforeign exchange reserves. decade of the 1980s. rency necessary to import the goods Paradoxically for a state-driven econChevz’s supposedly great success they are unwilling to supply them at omy, there was a dearth in investwas his social policy projects – called the prices imposed by authorities. ment in industry diversification and the Missions – which were targeted Real inflation skyrocketed. The peoeven in the oil industry. As a result, at low income groups. Great progple that Chavez and Maduro were there was a decay in public infraress was consequently made, but supposed to tend for the most, the structure, whilst private capital fled they caused public expenditure to poor, were hit the hardest. to escape expropriation and busiballoon, with social spending levels The Venezuelan model in contemness-unfriendly regulation. On a litper capita increasing by 314% beporary policy-making tle side note, Javier Corrales believes tween 1998 and 2006.

The debate on Venezuelan economthat ‘choking’ private industry was For example, Mission Barrio Adapic policy is ever more important as a not entirely unintended – he accuses tor which focused on health care, similar set of policy prescriptions enthe government of using under-permanaged to reduce mortality rates ters the political mainstream across formance in the private sector as an and create a quasi-universal health Europe and North America. Politiexcuse to nationalize it with the obcare system, yet the mission caused cians like USA’s Bernie Sanders, UK jective of advancing state economic an increase in public health expenopposition leader Jeremy Corbyn, control for the purposes of political diture from $200 in 1999 to $873 and French socialist Arnaud Moncontrol. in 2014 per capita in current US$. tebourg, propose such measures as But perhaps the most critical comWith private providers largely absent heavy taxation on the upper income ponent of Venezuelan economic polfrom the market, when crude prices groups, providing universally free icy under the PSUV has been price collapsed the health care system folhigher education and healthcare, and foreign exchange controls. Inlowed. and some versions of ‘helicopter troduced in 2003 to stem the flight On the other hand, the Chavez govmoney’, or printing money to give of capital, it created between 2 and ernment failed to develop alternadirectly to the people.

4 official exchange rates. This intive export industries. Any growth in These policies are not that far creased the amount of bureaucracy industry was directed to fulfil domesremoved from those of the that businesses had to navigate to tic consumption, and Venezuela’s Chavez-Maduro regime, and even secure US dollars for purchasing

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Rationale Issue 1 16-17 serve as reminders of such examples equality – but a distinction must be ing growth. as the UK in the 1970s – a protection- drawn between credible policy and If there is a lesson to be learnt from ist, labour-friendly and state-led in- economic illiteracy.

Venezuela, it is that any sustainable dustry, free and universal education Last, but not least, politicians across economic policy cannot focus on and healthcare, choking progressive the West have embraced the kind boosting consumption levels; it must income taxes. Contemporary radical of protectionism and hostility to also include a coherent plan to expoliticians favour, in effect, a state- foreign capital that Venezuela piopand aggregate supply, support inled economy over a tinkering state neered under the Socialists. There is novation and private sector growth, in the mould of Venezuela and oth- yet to be seen of the effects of this and help the economy adjust to er democratic-socialist or socialist recent trend, but it must be stated innovation and global economic that any attempt to shield obsolete economies. trends. Venezuela failed to do this There are several reasons why, just industries from globalization and by prioritising poverty reduction and like in Venezuela, policies of this technology can only harm producpolitical control over all else, and is mould are harmful. Firstly, whilst the tivity in the long-run, as Venezuela is discovering the consequences to its countries these proposals are ap- painfully witnessing. own peril. pearing in are significantly more de- Conclusions veloped economically, and thus can A solution for the Venezuelan econconceivably afford to borrow more omy must invariably include meaheavily without damage to their sures to liberalise economically, such credit positions, they do not have as lifting currency and price conthe advantages Venezuela possessed trols. This will cause great economin 1999 – an abundance of natural ic pain for a majority of the people, resources and low initial public debt eliminate savings and push inflation even further, but this is already a de among them.

Furthermore, the new left supports facto situation for the population. expansionary fiscal policy even in If anything, the regime will pay the times of economic growth to correct greatest price: a political one, and economic failures and inequalities: one which represents a surrender similarly, Venezuela’s level of public of their ideological doctrine. For the spending rose when the economy long-run, however, there can be a rose the quickest. There may indeed debate of how to pervade this crisis be a way to credibly invest in future again in terms of investments in industry and encouraging manufactur growth and correct economic in

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Rationale Issue 1 16-17

Accumulation by dispossession and the rise of belligerent resistenace in India

By Abhinav Chugh avid Harvey, an eminent Marxist scholar brought forth the concept of ‘Accumulation by Dispossession (ABD)’, which has thereon repeatedly been used to characterize the effects of neoliberal capitalism on the world. ABD consists of implementing neoliberal policies consisting of privatization, financialization, management and manipulation of crises, and state redistributions exercised mainly by what comprises the ‘state’. The role of ‘development state’ over the past few years has been under scrutiny because of this very concept in practice. Global capitalism in its’ neoliberal form has experienced a virulent and enduring problem of overaccumulation and practicing the concept of ‘eminent domain’ for land grabbing to over accumulate. These include the commodification and privatization of land and the forceful expulsion of peasant populations, suppression of rights to the commons; commodification of labor power and the suppression of alternative (indigenous) forms of production and consumption etc.

The case of Nandigram, West Bengal, India is a vivid manifestation of this phenomenon of land grabbing. It is labeled as a ‘pre-planned, state-sponsored massacre’ carried out by the People’s Tribunal on Nandigram ‘to teach a lesson’ to people opposing the SEZ project on their land. A similar uprising was experienced at the Singur Tata Plant by the locals.

D

Such an indifferent behavior of the state towards the needs of the local population have alienated a large section and led to the rise of Naxalism in the states of Chhattisgarh, Jharkhand and West Bengal. Naxalites are considered as the far-left radical communists, supportive of Maoist political sentiment and ideology. Their origin can be traced to the split in 1967 of the Communist Party of India (Marxist), leading to the formation of the Communist Party of India (Marxist–Leninist). It arose out of the alienation of tribal people in the state of West Bengal and soon spread to Jharkhand and Chhatisgarh. The state failed to provide autonomy to local dwellers of their own land and soon gatekeepers operating in the area dispossessed the tribals of their resources leading to the Naxal agitation.

Land grab in India is a sensitive topic. There have been multiple cases where infrastructure and development interventions to bring about modernity and generate employment in the region (Nandigram, West Bengal; Tata Nano Plant, Singur) have led to large scale collective resistance which has often turned violent and led to multiple stalemates for years. Such interventions often end up doing the opposite of what they achieved to do and worsen the situation in these areas. Even right now, there is a massive resistance against a new land acquisition initiative being carried out in the state of Jharkhand

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which was approved by the Indian government to let corporates buy the land there for extractive mining purposes. Forms of protest were advanced by diverse social actors who had in common poverty and exclusion.

This rise in the accumulation of alienation of the poor in India via accumulation by dispossession where they have not only been stripped of land, employment, opportunity, and access to resources but have also experienced a loss of social capital and networks due to displacement and alienation from their connectedness to the state. For most displaced people, the idea of the state is very distinct from what the State believes it is portraying through means of development. For them, the state is that of an oppressor which has stripped them of their basic essential rights.

From this very sentiment, arises the disgruntlement of the subjugated in the form of belligerent collective action against the State as we see highlighted by the previous examples.

The link needs to be established be tween the State and people at the grass-roots level where a better mutual understanding of one’s need are expressed where people are given a choice to express their ‘voice’. Solely State-Directed Development can turn into fascism before one even realizes in the name of development, where people’s rights are undermined and so is the very essence of democracy.

Rationale Issue 1 16-17

In Conversation with Professor Robert Michael

This interview provided insight into the behavioural motivation of people during the Brexit vote and the US elections. It suggests that perception of scarcity of jobs blurred people’s rationality and compelled them to take the unfortunate decisions. The interview discussed Professor Michael’s latest book ‘How Economic Principles and 18 Million Millennials can guide your thinking.’ He highlighted the relevance of Economics in making everyday decisions in our lives.

According to him, if we apply simple economic concepts like comparative advantage, economies of scale, and the discount rate into account when making crucial life decisions related to college, career, partners, health, and parenting, we would make smarter and much more sustainable choices. He uses the science of scarcity and choice to put light on the mechanisms behind human decisions.

Q: How exactly do we apply science of scarcity to human life situations?

A:Economics teachers generally don’t teach how to apply economics concepts to daily decision making. For decisions like choosing a life partner, thinking of economies of scale, complementarity, and substitutability can be useful. For example, when choosing a life partner, one needs to make decisions about income, consumption, savings, etc. The data suggests that complementarity might be more important. The book introduces these topics in a way that’s both useful and relatable. In general, we should lower the discount rate and care about the future more. I’m just suggesting that certain economic concepts might be useful in helping you come up with a well thought out decision that takes into account the future.

Q: Does the book assume any model of human behaviour to lay out the right method to make life choices?

The data doesn’t prove any kind of theory. People are not lab rats. I’m just objectively suggesting, without bringing in constraints like bounded rationality that applying these concepts can help you make decisions. I’m not making normative statements; people have the right to make your own

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personal decisions. I want to reach the average person, not just the exceptional, and make them feel as though even though they may feel out of place, there are thousands of people just like them.

Q: What are the chances of a hypothesis becoming redundant over time, due to evolving contemporary trends?

A: We can’t have very broad questions when conducting surveys; we need to start from a broad topic and narrow it down to very specific questions. Longitudinal studies can be great for contemporary social issues, like Roe v. Wade, which can be used for quasi-experimental analysis. When collecting the data, we need to look for things that sociologists, economists, and statisticians can use when conducting their own research.

Q: Is there a gap between academic research using longitudinal studies and the contemporary trends?

A: Yes, it takes at least 18 months to be published. In addition, we collect data on participants from when they were born, so we go through years of collection before publishing. We’re always compromising on currency and methodological limitations when doing this.

Q: How do you control for homogeneity and aggregation bias?

A: You can never create a perfect experiment that avoids those problems entirely. But these problems can be reduced to a greater extent if government data is used in the experiment or if the government itself is involved in the experiment. This is because people are more responsive to government surveys. Additionally, the government also has the authority to put penalties for lying.

Q: What are the difficulties faced in tracing subjects over years and how are these overcome, especially with regards to the attrition rates?

A: There’s very little attrition in my data because I pay the participants a little money each time I ask them questions. The general problem with data, but not mine, is that the sampling isn’t very good.

Sampling can be very difficult both scientifically and emotionally. Each participant represents a certain group of people.

Rationale Issue 1 16-17

Q: Based on your research in how the science of scarcity helps us make smarter choices.

What is the most important piece of advice you would give to the university students as they move on to the next stage of their lives?

A: Figure out what your comparative advantage is and do it. In addition, choose something that is appealing to you, taking into account preference and taste. ~

Therefore, drawing from the interview with Professor Robert Michael, it is possible that Brexit and the U.S. election results are indicative of people not making consistent efforts to lower their discount rates and figure out their comparative advantage and work towards it. They probably do not make sufficient efforts to plan things ahead of time in a structured, logical, and more sustainable way. As a result, they retaliate to the negative outcomes (for example lack of jobs in this case) by turning rightist and blaming the immigrants. In Professor Michael’s words: ‘‘These people definitely didn’t read my book.’’

By Hana Krijestorac and Akhiljeet Kaur

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LSESU ECONOMICS SOCIETY

ISSUE 1 16-17