In a Time of Universal Deceit, Telling the Truth is Revolutionary.
Saturday, April 13, 2024

The power of economic resentment

A screen above the floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average, Friday, June 24, 2016. (AP Photo/Richard Drew)
A screen above the floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average, Friday, June 24, 2016. (AP Photo/Richard Drew)

The United Kingdom’s stunning vote to leave the European Union was driven by much of the same sentiment that fueled Donald Trump’s insurgent march toward the Republican presidential nod: A rejection of economic globalization and the elites who favor it by those who feel left behind.

Many economists warn that the British vote to leave the EU, dubbed “Brexit,” could cripple that nation’s economy — just as many say Trump’s ideas would stifle U.S. growth or even trigger another recession.

Millions of voters have defied those concerns. The Brexit vote and Trump’s widespread support reflect a sweeping rejection of expert opinion in advanced countries. Yet that rejection itself could raise the likelihood of further economic harm, some economists warn.

“At some level it is a cry of frustration but one that could end up hurting an already economically harmed part of the population,” says Eswar Prasad, an economics professor at Cornell University and former official at the International Monetary Fund. “That is the remarkable irony here.”

At first glance, the U.K. and U.S. economies look comparatively healthy. Both have low unemployment rates. Both have recovered from the Great Recession better than either continental Europe or Japan. Yet in both countries, those figures conceal underlying weaknesses.

David Blanchflower, an economics professor at Dartmouth University and a former policymaker at the Bank of England, says average weekly pay in the U.K., adjusted for inflation, remains 7 percent below its most recent peak, reached in 2008.

Stark regional differences are also evident in both countries. London has boomed in recent years along with its thriving financial sector, and home prices in the city have soared. By contrast, steel plants and coal mines have closed in Northern England and Wales.

A similar economic divergence is visible in the United States: Thriving technology startups have invigorated a handful of cities such as San Francisco, Seattle and Denver. But jobs and incomes have grown more slowly in other metro areas and in rural areas.

“It’s like Trump going to West Virginia and saying it’s all going to be great,” Blanchflower said. “Trump can’t help them. But you can see why they would want change.”

Colin Montgomerie, 54, who lives in Maybole, Scotland, and voted to leave the EU, says stagnant pay was a driving factor for many voters like him.

“I work at the NHS (National Health Services), and I received a 1 percent raise last year,” he said. “Before that, my last raise was so long ago I don’t remember when it was.”

In the United States, paychecks have recovered from the recession but have risen much more slowly than they did beforehand. And both countries took much longer to recover from the downturn than they did after past recessions.

William Galston, a senior fellow at the Brookings Institution, said Brexit voters were “startlingly” similar to Trump’s coalition: More likely to be older, with less education, and more likely to oppose immigration.

Listening to British television coverage of the vote, “I could have shut my eyes and altered the accents, and I would have thought they were talking about the American election,” he said.

The “Leave” supporters argued that Great Britain’s economy would improve once it threw off excess regulation imposed by Europe and was no longer yoked to continental Europe’s moribund growth.

“We have two governments, and we are being told what to do effectively by someone who doesn’t understand us at all,” said Matthew Corby, a 40-year-old software developer in London. “We have very little influence over this.”

Yet many economists say U.K. companies may face new barriers to their exports in Europe after they leave. The EU will want to negotiate tough terms with Great Britain to discourage other countries from leaving the union. Many companies, particularly international banks, which have a huge presence in London, could shift thousands of employees from London to Paris or other cities on the continent.

“Why would you locate in the U.K.?” asked Desmond Lachman, resident fellow at the American Enterprise Institute and former IMF official. “You don’t know what kind of access you’ll have to the (EU). Why not just wait?”

The British pound fell roughly 7 percent in value against the dollar by Friday afternoon. Such a decline raises the price of imports and could spark inflation. Fred Bergsten, founding director of the Peterson Institute for International Economics, said the U.K.’s economy will likely slip into recession next year.

Economists have raised similar concerns about Trump, who has threatened to slap huge tariffs on imports from China and Mexico. Those tariffs would likely raise costs for U.S. consumers, economists say, and are unlikely to return many factory jobs to the United States. Instead, many factories would shift to other low-cost countries.

Trump and Brexit supporters express eagerness for change, regardless of the warnings from experts.

“There’s a trust issue here,” Galston said. “A lot of the pro-Leave people said, ‘Why are they so confident that if we put ‘Britain first,’ it’s going to be worse than what has happened to us when international treaties and laws and regulations have shaped our economy?'”

Bob Johnson, 70, discussed the vote Friday at a pub in Maybole, Scotland. Unlike most Scots, he supported Brexit.

“For a lot of folks this was a protest vote,” he said. “Protesting being taken for granted, protesting not having their voices heard.”


AP writers Jonathan Lemire in Maybole, Scotland, and Leonora Beck in London contributed to this report.


Copyright © 2016 Capitol Hill Blue

Copyright  © 2016 The Associated Press. All Rights Reserved