I read an article recently, which described how the financial crisis of 2008 mostly hurt the middle classes. It’s rather obvious really, but I suppose sometimes we don’t see the forest for all the trees. But let’s take it step by step, so that it becomes clear to everyone that nothing ever happens in a vacuum: To bail out the bankrupt financial sector cost a lot of money and austerity was only ever going to be a drop on a hot stone, given the scale of the problem. The real damage was caused by the subsequent lowering of interest rates, which led to even more borrowing. According to the IMF, the global economy is now more deeply indebted than before the financial crisis (total debt worth 225% of world GDP in 2016, 12 points above the previous record level reached in 2009).
Clearly, we are not headed for another crisis, but rather we are still very much stuck in the previous one. All that’s happening now, is the final act of where the real carnage will come to bear. And this is where it gets really interesting and to understand how this will all unfold, we are going to have to swallow the red pill (as Neo does in the sci-fi classic The Matrix to stay in Wonderland). Once you expand your mind and consider the unthinkable, it actually becomes quite clear as to what is going on. And it all has to do with an economic concept called the “Util”.
You see, what some very smart economists just couldn’t figure out some many decades ago, was why people attributed a value to living in a house that is bigger than their neighbours. In other words, we can actually assign a real and measurable value to envy or glee. What does this have to do with the financial crisis, The Matrix and predicting what is to come? Very simple: the rich got richer, the middle class didn’t (and are now on a relative scale much worse off), and the poor, well they have always been ____ (please insert your favourite expletive here). Thanks to asset price inflation on one end, and austerity on the other, the difference between have and have not is now so far off the scale, that it is having some very big cultural effects.
What happens when 1% are extremely happy and 99% are really pissed off? Elections, and with mainstream parties ostracised for allowing this all to happen, a tsunami of voters just want change. Any change, the more different the better and it is surely no surprise that we have now gone back to a very divided political landscape of the extreme left and the extreme right. What happens next? If history is any guide, there is no good that can come out of this. And it seems that for so long as we place a value on jealousy and greed, we may have an ongoing problem.