Rod Emmerson on voters who are mad:
Also at the Herald Liam Dann goes one mad more: It’s a mad, mad world
From Britain, to the US to Australia, voters are punishing politicians. Why the anger and what does it mean for markets?
Even after the shock result, financial markets could have shrugged off the Brexit vote, says Greg Peacock, chief investment officer for investment fund NZAM.
But despite what the stock exchange numbers might suggest, they haven’t. Instead, there is growing unease about what happens next as a new wave of political volatility spreads across the Western world.
The UK is in turmoil, Australia is in turmoil. Who is next? Donald Trump and the US elections are looming large. Then there is Italy, where Prime Minister Matteo Renzi has offered angry voters the chance to chuck him out with a referendum on political reform in October. And what about New Zealand – could we follow the trend?
“What we are seeing is a push back against, some would say, the whole post-World War II movement – globalisation and free trade,” Peacock says.
What does this mean in New Zealand? The deepening discontent doesn’t seem to have reached us yet to any extent, apart from a lift in poll support for NZ First.
Mark Lister, head of research at Craigs Investment Partners, says “the Brexit was a wake-up call for politicians and investors and I think we’ll see plenty more of it.
“It’s simply a reflection of the fact so many people feel like they are missing out on their share of the boom.”
We’re used to hearing this kind of thing from left-wing commentators and politicians. But neither Peacock nor Lister has a political axe to grind. Their analysis is matter-of-fact and born of concerns for investors.
So how will investors react? The property bubble is likely to at least plateau and possibly burst in the not to distant future.
Auckland University professor of macroeconomics Prasanna Gai has worked for the Bank of England, Bank of Canada and advised our Reserve Bank. Nearly 10 years on from the global financial crisis we are still suffering the fallout, he says. And there are echoes of the 1930s.
We have allowed central banks to “shoulder all the burden” and politicians’ failure to confront the big structural issues may be coming back to bite them.
“You’ve got a confluence of three factors,” he says. “Firstly, productivity growth everywhere is unusually low. That’s a consequence of a misallocation of resources in the boom which preceded the global financial crisis.”
Then there is debt.
“Global debt levels are at historically high levels … because debt has served as a substitute for income growth pretty much everywhere.” Then you have the central banks with very little room left to move and “a substantial rise in economic uncertainty as well as policy uncertainty.”
What we are seeing is “protectionist discontent”, he says.
So where to from here.
…people are looking for political leaders who promise to put their local interests first even if that might not be in their greater long-term interests.
…economic concerns lurk. We have already seen global trade declining for about 18 months, Peacock says.
There is a risk of political uncertainty extending and exacerbating that trend.
“So you look round the world and say which economies are vulnerable to global trade,” Peacock says, “China is top of the list.”
That is ominous for New Zealand, which is increasingly reliant on China. It’s a connection that has in many ways buffered us from the worst of the post-GFC economic mess.
So far in New Zealand, political revolt hasn’t been big a factor, Peacock says. “But if you saw NZ First rising in the polls it wouldn’t be a great surprise.”
NZ First has already risen in the polls and is abnormally high for this time of the electoral cycle – recently their support has surged leading in to an election.
Jennifer Curtin, University of Auckland associate professor in politics and international relations, points out that we have already seen one example of revolt with the Northland by-election – where voters handed the Government a resounding defeat.
“Peters is the perfect kind of centrist, protest party independent style candidate,” Curtin says. “He has the power of rhetoric and the charisma to draw people to him from both the Left and the Right.”
I doubt that there are many people who seriously think that Peters and NZ First can do anything significant about sorting out housing or the economy, Peters is simply adept at attracting protest votes – the ‘pox on all the parties’ vote.
But in the US, the UK and Australia people aren’t voting for who might be best able to manage things, as Emmerson shows it is the UP YOURS vote that is on the rise, even though people know it is promoting people who look like they are more likely to make things worse rather than better.
At the moment it is looking like Peters will be holding the balance of power after the next election.
But this is a relatively quickly evolving situation internationally, so how things look to voters now may be nothing like how they look to voters leading into the next election.
We will have seen perhaps a year of an Australian Government with teetering support.
And the US president will be the status quo establishment Clinton (that may want to rebel against) or the anything goes Donald Trump.
And the UK will have elected a new Government as well.
Lastly, will Peters last the distance? He is a shadow of his former self in Parliament. He may be waning, or he may be marking time saving himself for another big campaign next year.
At least we don’t have to worry about political upheaval here while the world goes mad around us.