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.


Brexit and Trumpism: the causes are the same

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.

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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.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.