This year has marked three anniversaries. The first was the 100 year anniversary of the Russian Revolution. The second was the 30 year anniversary of the 1987 crash. The third was the 10 year anniversary of the financial crisis. Not that many people would be celebrating these anniversaries. Even the Bolshevik Revolution of 1917 received little celebration in Russia. During the Soviet period the 7th of November was a public holiday, but now it is a normal working day.
Too much time has elapsed since I last wrote down my thoughts and much has occurred in the interim. Interestingly a lot of what has happened bears the hallmarks of Populism, which we discussed last time. From a UK’s point of view, Theresa May decided that the only way to get her equivalent to the US’s ‘Freedom Caucus’ or John Major’s ‘bastards’ was to call a general election. At the time of the announcement she had a 17 point lead in the polls. As Harold Wilson once said “a week’s a long time in politics”. Four weeks must have seemed like an eternity.
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You can't pick up a paper these days without hearing about populism and how this type of politics is likely to affect markets going forward. So what exactly is it? The Oxford dictionary says that it is “Support for the concerns of ordinary people”, which doesn't really do justice to what people mean by populism. Wikipedia gets closer to the mark with: it “is a political doctrine that proposes that the common people are exploited by a privileged elite, and which seeks to resolve this.
One of the current buzzwords in economics is productivity. Philip Hammond will probably mention it in his spring Budget on 8th March. The reason why it has become so commonplace in the thoughts of policymakers is that it has fallen substantially after the financial crisis, and is considered to be directly linked to living standards. Many believe that a country can only improve its living standards by growing its productivity.
When speaking to Simon Ward last month we asked him whether there were any economic laws regarding the effects of zero interest rates. We asked because in other disciplines there are limits or restrictions that occur when you get to certain points. An appropriate observation in physics occurs as you get towards absolute zero, which is theoretically the lowest possible temperature you can reach. There are two possible relevant observations, as you get towards absolute zero you require more and more energy to get your substance down to that temperature.
Economists and central bankers forget at their peril that an economy is driven as much by psychology as it is by their mathematical calculations. According to Mark Carney as he addressed the Treasury committee of MPs, it was the swift action of the Bank of England which was responsible for the bounce in August's surveys of businesses and consumers. We would suggest that it was the speed with which we had a new Prime Minister and the confidence that she imbued.
Ever since the unfolding of the financial crisis in 2008, people have questioned the future of capitalism, and these questions have evolved. In October 2008 there was the outright statement that capitalism was dead. In recent months the question is more about why capitalism failed and allowed the financial crisis to occur. There is also the added question, politically driven and helped by the 'Occupy' demonstrations around the world, as to how capitalism has led to inequality?