The Trump fac­tor was wait­ing to hap­pen

The Star Early Edition - - OPINION&ANALYSIS - Sandy McGre­gor Sandy McGre­gor is a port­fo­lio man­ager at Al­lan Gray.

THE po­lit­i­cal shocks of 2016 are a man­i­fes­ta­tion of ris­ing public dis­con­tent about pre­vail­ing eco­nomic and so­cial con­di­tions. Sandy McGre­gor pro­vides some per­spec­tive. The vic­tory of Don­ald Trump is a vote for change

The vic­tory of Don­ald Trump in the US pres­i­den­tial elec­tion took the mar­ket by sur­prise. Mar­ket be­hav­iour sug­gests that while Trump’s vic­tory was un­ex­pected by in­vestors, it was not un­wel­come, as US share prices and the dol­lar ap­pre­ci­ated.

Trump won de­spite hav­ing in­sulted at one time or an­other al­most ev­ery con­stituency in the US. Per­haps he won be­cause Hil­lary Clin­ton of­fered noth­ing more than an­other four or even eight years of the same poli­cies, which many judge to have failed. Trump of­fered change.

A com­mon char­ac­ter­is­tic of any rul­ing po­lit­i­cal elite is an in­abil­ity to con­tem­plate, let alone im­ple­ment, rad­i­cal change. If you want change you must re­place the en­tire in­cum­bent lead­er­ship.

This is what hap­pened in the UK and the US be­tween 1979 and 1981 when Mar­garet Thatcher and Ron­ald Rea­gan came to power, es­pous­ing an eco­nomic phi­los­o­phy to­tally dif­fer­ent from the then-pre­vail­ing con­sen­sus. More dra­mat­i­cally, in 1989 com­mu­nist regimes in Eastern Europe were over­thrown by a pop­u­lar up­ris­ing and re­placed by mar­ket economies.

The elec­tion of Trump is fol­low­ing a trend we are see­ing in other democ­ra­cies. There is in­creas­ing pres­sure for change. Sec­u­lar stag­na­tion

In de­vel­oped economies the root cause of con­tem­po­rary pop­u­lar dis­con­tent is “sec­u­lar stag­na­tion”. These coun­tries have age­ing pop­u­la­tions and face ris­ing costs of pen­sions and health­care. Many coun­tries have made com­mit­ments to pay re­tire­ment ben­e­fits which they can­not af­ford.

Eco­nomic growth re­quires in­creas­ing pro­duc­tiv­ity. The dilemma faced by a re­dis­tribu­tive state is that it needs strong eco­nomic growth to be able to af­ford to make wel­fare pay­ments but, be­cause of them, it is not go­ing to achieve the growth it re­quires.

The legacy of the 2008 cri­sis was a bur­den of ex­ces­sive debt. The re­sponse to the cri­sis of 2008

There was a three-pronged re­sponse in de­vel­oped coun­tries to the cri­sis of 2008 and sub­se­quent sec­u­lar stag­na­tion: 1. Fis­cal dis­ci­pline is pos­i­tive

Fis­cal pru­dence has de­liv­ered pos­i­tive re­sults. The poster chil­dren of fis­cal dis­ci­pline are the Baltic States and Ire­land, all of which ag­gres­sively bal­anced their bud­gets de­spite the se­vere con­trac­tion their economies suf­fered as a con­se­quence. They ac­cepted short-term hard­ship as a price for sus­tain­able longer-term growth. Their economies rapidly ad­justed.

The Con­ser­va­tive gov­ern­ment in the UK cut its bud­get deficit ag­gres­sively, against the ad­vice of the In­ter­na­tional Mon­e­tary Fund, and now is one of the bet­ter eco­nomic per­form­ers in Europe. Germany never had big deficits and its econ­omy was only slightly dam­aged by the fi­nan­cial cri­sis. The coun­tries which im­posed fis­cal dis­ci­pline have been re­warded with bet­ter growth. 2. Mon­e­tary pol­icy fails

In con­trast to fis­cal dis­ci­pline, the great mon­e­tary ex­per­i­ment of zero in­ter­est rates and print­ing money has been a to­tal fail­ure. It has not cre­ated growth, be­cause one can­not re­verse the con­se­quences of ad­verse de­mo­graph­ics by ma­nip­u­lat­ing in­ter­est rates.

Rather it has had ad­verse con­se­quences on the way peo­ple save and in­vest, cre­at­ing as­set price bub­bles and a mis­al­lo­ca­tion of re­sources. 3. In­creased reg­u­la­tion sti­fles growth

Greater reg­u­la­tion has also had a nega­tive im­pact on growth.

In the US, Oba­macare and the Dodd Frank Act – which reg­u­lates the fi­nan­cial sec­tor – are ad­min­is­tra­tive night­mares, im­pos­ing in­cred­i­ble com­plex­ity on busi­ness. The Basel ac­cords to con­trol in­ter­na­tional banking are an at­tempt to solve the 2008 cri­sis in ret­ro­spect. The con­se­quences of reg­u­la­tion are higher costs to the con­sumer. Trump prom­ises dereg­u­la­tion

The Obama ad­min­is­tra­tion was a ma­jor pro­po­nent of in­creas­ing reg­u­la­tion of busi­ness. Trump prom­ises to re­verse this trend.

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