Who better than the big banks to tell us exactly how it is? The big six and the biggest banker of them all, Stephen Poloz, Governor of the Bank of Canada, are expressing the opinion that with the global economy slow down has come an era of radicalization. Folks are fed up. At the top of the age spectrum are young families who are hard pressed to make the down payment on the home they’ve always dreamed of. And toward the end of the spectrum, retirees are uncertain they’ll have enough money to secure a safe and reasonable retirement.
Those in the know, are coming clean about what middle class families can expect in the coming years.
As Governor Poloz explained to a group of Wall Street professionals last week, “the long-awaited rebound in global trade isn’t just delayed. It may never come.” Defending his and other central bankers’ decisions to keep interest rates at historically low levels, Poloz added, “If you think monetary policy is not working, ask yourself what would happen if interest rates suddenly returned to three or four per cent. Most would agree that such a move would trigger a recession.”
For retirees, that means consistent low returns on investments. Portfolios that were expected to turn a seven per cent rate of yearly return, are being scaled down to two or three percent. The only asset that is managing to grow is the home, and for younger Canadians, higher real estate prices are blocking new families from purchasing their first all-important residence.
Here’s Eric Lascelles, the chief economist at RBC Global Asset Management, in the Globe and Mail, musing on how the post-recession economic climate is changing the way people think and they way they vote:
“A combination of polls, election results, referendums and policy actions make the case that something new is now brewing. European elections are increasingly swinging toward politicians who sit outside of the comfortable middle of the spectrum. The U.S. presidential race is demonstrating the sudden viability of a surprising mix of far-left, far-right and outright populist policy views.”
As Lascelles points out the timing of sudden radicalization is puzzling. Since the crash of 2008, policy makers, regulators, particularly central banks, have tried to soften the blow to the average Joe or Josephine –of the worst global recession since the Great Depression– with a mighty concoction of cash injections, austerity measures, or rock bottom interest rates.
Whatever works, appears to be many governments’ motto. But these interventions in the economy haven’t exactly worked according to plan. “The flaws of modern capitalism were suddenly revealed,” says Lascelles. “Not only was unemployment skittering upwards, but the median worker was suffering from decades of wage stagnation.”
Since 2008, radical politics appeared, but on a limited scale and only in measured doses and in small countries like Greece. “How fascinating, then, that lo these many years later, the political revolution may be finally unfolding,” says Lascelles. He cites slow-growth in global economic activity, the rise of inequality, and that the attitudes toward the rich and powerful have curdled.”
Oh my! If these ideas were written by someone other than a chief economist of the Royal Bank, the reader might be wondering if they came from an outlier.
During the run up to the 2016 U.S. election, it’s not surprising that the far-right candidate Donald Trump, with no previous political experience, grasping at the presidential nomination for the Republican Party, has won the confidence of so many working middle class Americans.
Equally, the far-left Democratic candidate, Bernie Sanders, appeals to the millions of under-35 year olds who feel marginalized by the policy aftermath of the crash, measures that haven’t done enough for young working Americans to gain a toehold in the economy.
According to Lascelles simple growth may not be enough to fix these issues. “How to better distribute that growth needs to be on the table and “previously unchallenged assumptions about the merits of free trade and open immigration, the dangers of a high minimum wage, and the advantage of keeping taxes low on the rich and on corporations are now being reconsidered.”
These policies, for and against, are at the centre of both Trump’s and Sanders’ popularity because they speak to the conundrum of America’s shrinking middle class and its myriad discontents.
So much so that this Sunday’s New York Times Magazine’s lead story “In Search of the Middle Class,” questions the once unifying belief of most Americans; that is, if you “work hard and play by the rules” as Hillary Clinton put it during her first run at the presidency, “you’re entitled to at least a modest prosperity.”
But the number of Americans who identify as middle class is dropping. In fact, “the great middle class experiment,” of the last seven decades is disintegrating.
I grew up in Windsor, an Ontario town at the butt end of highway 401 and across the river from the great metropolis of Detroit. During my youth, we were pointed toward Detroit, with its lavish department stores, Motown music, Detroit Tigers, the Red Wings, and sizzling opportunities— not eastward to Toronto, which seemed a little dowdy in comparison. In the fifties and sixties prosperity reigned in both Windsor and Detroit. As the New York Times recently stated about Michigan blue collar workers: “probably no one in American history has achieved prosperity with the velocity of the men who grew up destitute in the Depression and by their 30s, had factory jobs that paid (in 2016 dollars) upward of $50,00 per year.
Back then, my home town, as in Detroit, was awash in new homes, two car garages, coloured televisions and an unflagging belief that conditions had no where to go but up. Of course, all that changed when American cars fell from grace with consumers, but it’s only lately, in places like Flint, Michigan where children are poisoned by the drinking water flowing from their taps and unemployment has reached all times high, that voters are turning to radical solutions.
After viewing the Democratic debate between Clinton and Sanders in Flint, listening to Sanders’ rebuttal of free trade deals and Wall Street capitalism, I wasn’t entirely surprised that he won the Michigan primary. The times they are a-changin’.
The big bankers are right. Yes, low interest rates helped, but not enough to quell the anger of those who have not recovered from the crash of 2008 and feel that they never will without pitching the old ways of doing business.
Here in Canada, there’s nothing we like better than wagging our collective fingers at the Americans, to revel in how superior we are, how level-headed. And yes, we have a new government that is moving quickly to ingratiate itself with the middle class, but having observed the fall of Detroit up close, I prefer to take heed of Poloz and Lascelles’ predications.
It’s sunk in that the recovery hasn’t worked for everyone and until it does expect radical solutions from the left and right to turn middle class heads.
