Friday, January 27, 2017

LaGarde at Davos on Disgruntled Middle Class

In this CNBC article, IMF Director Christine Lagarde asks why no one listened to her when she warned about income inequality earlier. She goes on to call for "policies that would help this disgruntled middle class." Below are a couple of excerpts.
"Christine Lagarde, the managing director of the International Monetary Fund (IMF), is still incredulous as to why no one listened to her warnings about income equality and the effects that it could lead to.
Speaking at a Bloomberg hosted panel at the World Economic Forum in Davos, she was reminded of a plenary speech that she gave at the event in 2013.
"It did not get much traction," she said. "Well, I hope people will listen now," she quipped."
. . . . 
"She concluded that it was now an opportune time for global lawmakers to put in place the policies that would help this disgruntled middle class."
My added comments: This is something we talked about quite a bit here as we followed clearly rising resentment fueling the Trump campaign. This is really not as mysterious as it appears to seem to the elite class. The average person does not pay that much attention to all the issues and causes that the elite class has the time and money to get involved with. Most people don't have time to study those kinds of issues because they are busy trying to make a living and don't see any connection at all to what the elite class feels is important to their daily lives (climate change, progressive global taxation, etc.). They want a decent job to be able to support themselves and their families.
Beyond that, many people don't really trust the organizations and institutions that are important to the elite and tend to view them with suspicion rather than admiration. They tend to think they are more part of the problem than part of any solutions that might improve their lives. Trust in mainstream media is at an all time low right now as well.
At this point, the elite class has pretty much lost the trust of this group of people who are not likely to listen to any solutions they put forward no matter how well intended. Until the elite class (like those who meet at Davos) understand that most people are not interested in their ideas or solutions, they will probably continue to be puzzled because everyone they know in their circles is interested. 
The best solution is for them to spend some real time listening to the people that puzzle them with true respect. You can't address the concerns people have if you don't really understand them and you have to get out of the bubble you live in to do that. I doubt this is likely to happen. Just looking at polls and only listening to fellow elite explanations of why people feel this way won't provide real answers. Jim Rickards kind of points this out recently in some amusing tweets about Davos here and here.
What is more likely is that the elite class will just wait patiently with the expectation that Trump will have to endure a major financial crisis sometime during his term. At that point the door will be open to place the blame for the crisis on his policies. If that happens, the public mood could shift and be more receptive to their ideas for solutions (reject nationalism and populism).
This will be a key to watch for here over the next year. What happens if the crisis arises during Trump's term? Who will the public blame for it? Whose solutions will the majority of the public be willing to listen to? In a truly complex system, the answers to these questions are unknown. If no crisis emerges during Trump's term and he delivers decent jobs, the questions are somewhat irrelevant. In that case,Trump will probably stay popular and control the agenda for some time because the "middle class" trusts him more than they trust the "elite" class. Until he fails them, that probably won't change much. It really is that simple.

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