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Comment                                                                                1 February 2017

Not understanding    

by Cees Bruggemans                 words 500

It isn't an easy proposition. But the thing that Zuma & Trump have in common is that they don't understand certain issues AND are willing to incur penalties for the broader population, provided their own mission definition wins through.

This rationale removes us from a modern democratic setting, regressing into the distant past how things were done. With loss of efficiency and net income gains. We are clearly getting off the path of decades, and enter an uncertain era in which we apparently welcome regression into past less efficient development paths, eroding our future real income & wealth gains.

 

Modern free trade concerns labour specialization, creating win-win situations between regions or countries where both sides gain. Except, that the allocation of free trade gains among populations is not uniform. There are winners who tend to be big, while there are also many losers. It is the allocation ruling free trade benefits that became too narrow, creating too many losers.

What is left are large swaths of population who lost out on globalisation. If those outsiders are not in some way compensated, they fall prey to populist politicians.

Two such rounds have now been fought, where Britain got her Brexit and America her Trump. His protectionist inclinations are old-fashioned. It shows a lack of understanding of how modern trade works, alternatively how to look after those not directly benefiting.

Workers who lose their livelihood due to technological change or trade are best assisted through better education systems longer term. But for now these are pipe dreams, and don't do anything for those who have lost out.

This aside of those who lost out due to the great financial crisis, whether house or work. Or the after effects of extreme low interest rates diminishing pension and insurance viability. This creates anger.

Migration tends to benefit receiving countries. But as we can daily observe, there are populations groups who do not appreciate this socially. When the pot boils over, as it clearly has been doing in certain regions, it is not simple to come up with solutions acceptable to all. The debates are vicious and divisive. And the personal tragedies many.

The global complexity has become too deep for average politicians to square circles. Populists see no qualms in going for rough solutions putting the clock back. And harming economies and the general income. The American economy cannot do without Mexican (agricultural) workers, and neither can the British without her Polish workers. But the clock has struck twelve.

At home, we have our own variety of populists who do not grasp market economics, instead wanting to physically redistribute. That will benefit some, but not the overall country which will regress. But when something looks too easy, why try the difficult road claimed to be the better one?

One would think Trump has advisors who will try to tell him differently, but that isn't necessarily so. Every new Administration has its own culture. Just like ours does.

 

Cees Bruggemans

Bruggemans & Associates, Consulting Economists

 

Website www.bruggemans.co.za

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