Bewildered by Brexit? Traumatised by Trumpism? Blame monetary policy

The reasons Americans are turning to Trump are the same reasons Britons voted for Brexit: A complete lack of growth and the failure of the authorities to fix it.

160905-trump-b

At the Beyond Borders festival at Traquair House last week, a panel of Americans discussing Trumpism agreed between them that America has "lost its soul". What other reason could it have for even beginning to think about voting for someone as totally nuts as Donald Trump?

They are wrong, of course. America hasn't lost its soul, it's lost its expectation of regular real wage increases. And it is behaving exactly as people who have made losses behave. It is doubling down to try and get those losses back.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Think of this simply in terms of money and it makes sense. There have been countless studies into the way we think about losses and the consensus is clear: we get much more pain from a loss than we do joy from an equivalent gain. Drop £20 in the street and you will lose more satisfaction than you would gain were you to randomly find £20 in the street.

The result is that we do everything we can to avoid losses. We are naturally cautious if we think there is chance of making a loss. And the really interesting bit: once we have made a loss once we are in a loss frame' things change; then we will take a bet that comes with the possibility of a much larger loss so as to not have to accept the original loss.

Advertisement
Advertisement - Article continues below

It is why people drive faster after a traffic jam than before one. It is also is one of the reasons people hold on to stocks long after it is clear they are no hopers (they wouldn't dream of buying them, but they won't sell them).

And it could be why those who feel that they have lost out from globalistion lost out as extreme monetary policy has made the price of assets they don't own boom; lost out as the bankers they blame for the GFC appear to have got away scot free; and lost out as rising public deficits have hit their public services appear to be prepared to bet on hugely uncertain and potentially volatile things that don't make much sense to those who haven't lost out. Hello Brexit. Hello Donald Trump.

This is a conclusion the US press are beginning to come too (I've seen articles linking Trumpism to classic financial loss aversion as first noted by Daniel Kahneman and Amos Tversky in the New Yorker and in the Washington Post). And we are coming to the same conclusion here.

In a debate at the FT Weekend Festival on Sunday, I sat on a similar panel to the one I listened to in Scotland. We came, I think, to the correct conclusion: Trumpism (loosely defined as the revolt against tin-eared elites across the West) isn't about soul or anything half as complicated. It's about low growth, the policies the monetary and fiscal authorities are using to try and fix low growth and the very depressing fact that those policies aren't working.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/economy/601066/money-minute-monday-30-march-grim-numbers-expected-from-the-us
Economy

Money Minute, Monday 30 March: grim numbers expected from the US

It’s a quiet week for economic data in the UK – but the US is set to release some grim numbers.
30 Mar 2020
Visit/economy/601039/australias-economy-is-about-to-meet-its-delayed-day-of-reckoning
Economy

Australia’s economy is about to meet its delayed day of reckoning

Fallout from the coronavirus outbreak looks set to end Australia's record-breaking streak of 28 years without a recession.
27 Mar 2020
Visit/economy/601027/money-minute-monday-23-march-will-whatever-it-takes-be-enough
Economy

Money Minute Monday 23 March: will “whatever it takes” be enough?

As we start to see the damage that the shutdown is doing, Money Minute looks at central bank measures to counter it.
23 Mar 2020

Most Popular

Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/stockmarkets/601101/has-the-stockmarket-hit-rock-bottom-yet
Stockmarkets

Has the stockmarket hit rock bottom yet?

The world's stockmarkets continue on their wild and disorientating rollercoaster ride. Investors are still gripped by fear. So, asks John Stepek, have…
2 Apr 2020
Visit/investments/commodities/energy/oil/601107/oil-shoots-higher-have-we-seen-the-bottom-for-the-big-oil
Oil

Oil shoots higher – have we seen the bottom for the big oil companies?

Just a few days ago everyone was worried about negative oil prices. Now, the market has turned upwards. John Stepek explains what’s behind the rise an…
3 Apr 2020