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.
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
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.
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
