Slide 1

As a teenager at Rugby School, attendance at chapel was pretty much mandatory, forming part and parcel of a Pavlovian regime. If I wasn’t gawping at my unfortunate female classmates - who were in a tiny minority - I would be scanning the wall plaques in awe, commemorating an array of eminent past pupils. My gaze should of course have been lowered and bowed in prayer. Whenever my Housemaster spotted my wondering eye he would aim his icy stare in my direction and my head would snap down, as if shot by a sniper from behind.
I remembered one plaque that seemed rather isolated and desultory with a window drawstring dangling disrespectfully over it. On further investigation I discovered it was dedicated to Charles Lutwidge Dodgson, better known by his pen name Lewis Carroll, author of Alice’s Adventures in Wonderland. He was a master of wordplay and mathematics, inventing the forerunner of Scrabble.
Some believe that the so-called nonsense literature that characterised his work was his way of mocking a trend among contemporary mathematicians. They were debating illogical ideas such as imaginary numbers and the square root of a negative. It was anathema to the conservatively-minded Carroll, long before alternative concepts in quantum mechanics became commonplace.
In the sequel Through the Looking Glass, Alice steps though a mirror into a back-to-front world. It is reminiscent of the topsy-turvy future we face in finance. In some ways we are already there in that you are charged to deposit money in some currencies. Likewise a recent UK government bond issue had a negative annual yield; and it was over-subscribed. In other words you are paying the government to lend them money – go figure.
In many cases there is little choice. Insurance companies and banks have been driven by legislation to allocate money to ‘safe’ government bonds. Thanks to Quantitative Easing, interest rates are now too low for many pension schemes to meet their commitment to members. They cannot generate the income to pay pensioners and will eventually eat into capital to do so; the well will run dry as we live longer. It is of course different for government staff who can tax the rest of us to fund their retirement.
As we enter an inflationary period we are likely to see bond markets suffering. Bonds are key components of pension funds, purchased to generate income or yield. I was fortunate because my previous employers provided a fixed pension in retirement, known as a defined benefit scheme. One of them is even offering me a bonus to transfer it away to clear the liability off their books. I have calculated that the transfer value now matches my entire earnings while working at the firm; such is the extent of the financial distortion.
One of the few methods of protection in an inflationary scenario is provided by precious metals. Up until 2016 they had endured several years of pitiful performance and were out of favour. Many conventional investment managers are very sniffy about gold and silver, viewing them as unsophisticated or simply too volatile. Instead it is easier to regurgitate disparaging comments heard elsewhere to sound smart. Consensus-driven committees are all-too-ready to cling to negative sound-bites to avoid discomfort. They dismiss what they don’t understand to circumvent controversy and debate.
Economics resembles a cult rather than a science, where heretics are denounced and driven-out. It is no wonder that financial parlance includes words with religious overtones such as obligation and redemption. To be fair it is understandable for investment managers to become conditioned and cling to familiar assets like bonds as they have risen inexorably for the last 35 years. To put this into context the rally started during my adolescent daydreaming; a period that covers the entire career of most finance folk. The collective memory of the 1970’s has all but disappeared from the psyche of market participants. I for one relish interrogating retired City folk who were around at that time to tap into their wisdom.
A Hollywood blockbuster of Alice in Wonderland was released by Paramount Pictures in 1933. It is was an era of reflation as America abandoned the last vestige of the Gold Standard to counter the Great Depression. Bullion ownership was outlawed so there was little defence against the subsequent and substantial devaluation of the US Dollar. It was a time of big government, trade tariffs and major infrastructure projects to mop up mass unemployment. The politics of the époque bear an uncomfortable parallel with modernity. As stated in my book a decade ago, financial turmoil has a tendency to push opinions from a crowded centre to the far left and right, as the political pendulum oscillates to extremes.
Madness was a key theme behind Carroll’s publication, particularly for the enigmatic characters at the tea party. The Hatter was a reference to hat-makers who frequently went insane from their exposure to Mercury, which they utilised to cure felt. The character is reminiscent of central bankers who speak in riddles which they don’t know the answer to. Mad as a March Hare is a familiar idiom, relating to the animal’s excitability in the mating season. Its role was that of a messenger and is evocative of the financial press with its constant chatter over pointless minutiae, meanwhile missing the big picture. The soporific dormouse is akin to the investment community, sleepwalking into the next crisis as the next major trend unfolds.
At the end of the chapter Alice makes an indignant exit from the lunacy of the tea party, unlocking another door with a golden key to enter the rose garden. In the next article I will give my thoughts on the forthcoming flight of funds, entitled the Exodus to Equity. 

Toby Birch is managing director of Birch Assets Limited in Guernsey. Educated at the City University in London and a Fellow of the Securities and Investment Institute, he also holds the Securities Institute Islamic Finance Qualification and is author of The Final Crash: Addictive Debt & the Deformation of the World Economy (Pendula Press), written under the pen-name Hugo Bouleau.



Published: Thursday, 13 April 2017 11:02

Sparks in the firework factory

The “Uber economy” which has taken root over the last decade has changed the face of employment for millions.  In the UK, those classed as self-employed are set to outstrip those working in the public sector by 2018, by which time they will number about 4.8m people.

Some work in high-paid professional jobs, such as interim management or IT (iPros), however, many other - the so called “Precariat” - are in the low paid “gig economy”, what used to be called casual, or itinerant labour back in the 19th century.

Professionals and iPros often have formal written contracts and a reliable payment mechanism in place.  Self-employment for them, can be said to be a lifestyle choice. But speak to the Precariat, and you will discover that for them this isn't always the case.  As a result many do not have written contracts and late payments and defaults are common.  Low pay, limited resources and a fear of not gaining further work leaves the Precariat with little bargaining power when it comes to negotiating the terms of their employment.  This has resulted in diminishing their civil, political and economic rights, reducing them to supplicants, pleading for services and reliant on discretionary benefits, leaving them prey to ideologues from the extreme left and right.


The fight back begins

Technology helped revive the modern equivalent of the 19th century dockworker, but can it help bring 21st century working practices to this sector?  Is it possible to help the growing number of self-employed workers in the economy to be paid on time and to have written contracts for their work?

The answer is yes, if we take inspiration from action in the USA and good practice from unions in the UK and combine them with latest technology.

In New York State, the influential Freelancers' Union recently took decisive action.  They lobbied successfully for new state legislation which has been dubbed the 'Freelancing Isn't Free Act'.  This Act gives freelancers, who are billing for more than $800, the rights to a written contract (otherwise a default one is assumed) and the right to be paid on time.  It makes provision to levy substantial damages against employers who are habitual late-payers.  The Act was agreed in November 2016 and comes into force on 15 May 2017 and the legislation has been broadly welcomed. 

Unfortunately, whilst the UK already has Late Payments legislation, it is has limited effect for freelancers, who don't have bargaining power or wish to risk upsetting clients from whom they want further work.  As a result there are no real consequences for employers who treat freelancers badly or pay them late.

As a freelancer myself, I would like to see late payments triggering automatic third party action.  This would allow me to say ‘it is out of my hands’ to my client, and create enhanced bargaining power.

Some freelancers already have this.  The Musicians' Union is a good case study, as most of their members are self-employed.  If a client is late in paying them, instead of factoring the debt, they simply inform the trade union who then act on their behalf. The union has a strong reputation for getting results so it acts as a deterrent against late payment.

So how can this help the Precariat members of the gig economy or professional freelancers from suffering the same fate?

Few if any are in a union, as their perception is that unions are focused on employees’ rights, not freelancers and payments.  However, a solution may be at hand- if we were to take the existing late payments legislation and combine in a framework similar to that of the 'Freelancing Isn't Free Act', we could create a link to a third party which would chase up late payments by default, just as the Musicians' Union does.


The Magic Tally Stick

My proposed version of the Freelancing Isn’t Free Act would allow a freelancer to nominate a Late Payments Provider, (which is what the Musicians' Union are) to whom the lack of a contract or late payments would be automatically referred.

Technology can help us enforce this and do it at scale:  If you consider the market an untrusting environment with unknown players, the solution is to provide control collectively not centrally.  The technology that works best in such environment is Mutually Distributed Ledgers (aka the Blockchain).

An employer and the freelancer can use a Mutual Distributed Ledger to load up a copy of a standard contract which can be hashed and timestamped.  This will result in a trusted, stored copy.

The contract would have a number of parameters including payments terms.  The payment terms would be shared with nominated Late Payment Provider.  Invoices would then be issued against this contract and those terms. Like all ledgers it has two entries one for the debt owed and one from it has been received.

On top of the contract and invoice would be a smart contract, ticking away waiting for payments to be made.

If a payment is not made against an invoice within the stipulated time then a notification would automatically be passed to the Late Payment Provider.  This means that the freelancer could simply hold their hands up and state that matters are out of their hands.

The Late Payments Provider would recover the late payment and charge an administration fee.  The beauty of the scenario is that the system will pay for its self through administration and membership fees.

The Mutual Distributed Ledger network would consist of servers provided by the Late Payment Providers.  They could be unions, co-ops or private third parties.

The trade unions have expressed interest in the idea as it actually provides a legitimate and tangible reason, with immediate benefits, for joining a union if you are self-employed.

For UK, we could move beyond words of sympathy to concrete action for the growing number of workers in the “gig economy”, providing a secure and trusted platform that is in their corner and works for them.

A UK version of a ‘Freelancing Isn't Free Act’ is being proposed with cross party support as a Private Members Bill.  Our goal is to see if we can write in provision for Mutual Distributed Ledgers.

This is the first step on a long road to providing security for the precariat, and whilst legislation is not required to make this happen, it would help strengthen the relationship between low-paid casual workers and the state, perhaps going some way towards reduce the nihilism currently afflicting western democracy.

Philip Ross is a freelance Agile Business Analyst working in fintech. He is also a leading member of the freelancing community and author of publications on self-employment and the future role of co-ops and unions.

A useful resource for freelancers who are just setting out, can be found at


 [PR1]Not entirely my opinion

Published: Friday, 24 March 2017 09:27


The populist insurgency we are in the process of witnessing in the developed world is nothing short of revolutionary. It involves the rejection of the neoliberal world order that has dominated for decades, of unfettered globalisation, of ‘experts’ and of rent-seeking elites. The potential consequences of the current movement are far-reaching and profound. Understanding the causes will be crucial; as such, in this essay I provide some brief commentary on the common themes that I believe run through these disparate movements. For those seeking a ‘silver bullet’ to kill the beast of populism there are no answers here. Only significant behavioural change, with a greater focus on ‘fairness’ and reducing inequality, can help move away from conditions where ‘the people’ see themselves as being subjugated by ‘the establishment’. As we shall see in this essay, it is fair to say the people are right.

The Legacy Of 2016

2016 is simultaneously consigned to history and alive and well as I write in 2017. It is consigned to history in that, quite literally, it will be studied in the classrooms of the future as one of the defining years of the twenty-first century. Indeed, the ‘first draft of history’ has already been written, with a huge number of books having been released over the past few months that attempt to understand Brexit, Trump or Populism more broadly.[1] 2016 is alive and well in the Shakespearian, ‘what’s past is prologue’ sense; writing as I am on 21 January, we have experienced a week where the events of 2016 have started to become realised in a way which confirms their significance.

Theresa May was first to the lectern, confirming that Brexit means Brexit; there will be no associate membership, no half-way house – we are leaving the single market and are prepared to trade on WTO rules if necessary, for ‘no deal for Britain is better than a bad deal for Britain’. If EU negotiators are insistent on making an example of us for our insolent show of democracy, then the Treasury have confirmed all options are on the table, including slashing taxes and regulation in order to become a ‘Singapore’ on the shores of Europe. Sovereignty will be restored and once again Britain will be able to make its own rules, negotiate its own trade deals, and control its own borders. In other words, the choice (and voice) of the people on 23 June is being delivered. Unsurprisingly, Brexiteers loved the speech, and those who think voting to leave involves committing a particularly protracted and painful form of ‘Seppuku’ were not very happy.

Then we had the inauguration of Donald Trump on 20 January. Much was made of the importance of a peaceful transition of power, but there was little evidence of this in the arrests of over 200 activists from groups such as DisruptJ20 and Black Lives Matter or, more importantly, in the inauguration address from President Trump. Much like Theresa May’s speech days earlier, the rhetoric in Trump’s speech had an obvious subtext; I will deliver on the promises I have made. There was no evidence of a ‘pivot’ here. Trump repeated his vow – ‘Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs.’ Since the speech Trump has taken immediate steps to deliver on his promises, signing Executive Orders to withdraw from the Trans-Pacific Partnership and to build a wall on the Mexico border.  The inauguration speech and Trump’s actions since it, just like the UK government’s actions on Brexit, represent a victory for the populism that had defined 2016. A defeat for the hegemony of neo-liberal ‘Washington Consensus’ thinking that had defined the previous decade and more. It is almost impossible to overstate the political, economic, social and cultural importance of these two speeches.

The Overton Window

The ‘Overton window’ is a narrative device that means, broadly, the range of ideas that are acceptable to the public. We can see the Trump campaign as both a reaction to, and a cause of, a shift in the Overton window.

For those who have paid attention to what is not hyperbolically described as the culture ‘war’ in the US and the UK, the fact that the term ‘virtue signalling’ only entered mainstream discourse in 2015 is astounding, given how prevalent it now is. In summary, virtue signalling broadly involves support for socially progressive, ‘right thinking’ views, without any engagement in debate. The phenomenon is the child of social media, where people express shock and anger at things which they know not the first thing about (to take a UK example, what proportion of people who despair of a potential ‘hard Brexit’ could summarise in a sentence what the single market actually is, and how it differs from the customs union?)

The rise of virtue signalling is a result of a significant narrowing in the Overton window over the recent past, a remarkable achievement from ‘progressives’ to ensure that their beliefs are the only ones acceptable in mainstream discourse. Take as one example the issue of immigration; the only ‘acceptable’ view on immigration is that it is entirely beneficial – a dissenting view or even a debate is not permitted. To even raise a counter point (for example, to discuss issues around cultural assimilation of immigrants) makes you a racist. Attempting to raise the fact that boys are increasingly falling further and further behind girls in terms of educational attainment in a debate on gender equality makes you a sexist. Conservative commentators such as Ben Shapiro and Milo Yiannopoulos have been in many cases banned from speaking on college campuses (because of an interesting concept called ‘no platforming’ which has migrated from being applied to literal terrorists to those with right wing views). ‘Safe spaces’ are built where people can protect themselves from dangerous ideas; the left is not even interested in debating anymore, because they have ‘won’ the argument.  

It is not merely enough to believe these things – you are regarded with the utmost suspicion if you do not espouse them whenever possible (social media sites are increasingly nothing more than a platform for virtue signalling amongst millennials). Dave Rubin, a formerly left-wing talk show host, has become so disillusioned with the state of ‘his side’ that he has coined the term ‘the regressive left’, highlighting the extent to which the left, as a whole, have acted like a version of Orwell’s thought police. The problem for the progressives, which Trump ruthlessly exploited, is that the majority of Americans don’t actually agree with them. As loud as celebrities and vocal left wing activists shout about how great abortion is (one example being Lena Dunham recently stating she wished she had experienced one), 46% of Americans in 2016 described themselves as ‘Pro-Life’.[2] This silent majority might be mocked in popular culture, dismissed as (insert prefix)ists, and seen as being on the wrong side of history, but they can still vote. This narrowing of the Overton window, this treatment of people with personally reasonable views as ‘personas non gratis’, caused a reaction which was harnessed and embodied by Donald Trump.

Within a year and a half the Donald Trump campaign has caused a huge reversal of the previous shift in the Overton window, with rhetoric on immigration, Islamism, and trade that has not been part of mainstream acceptable political discourse in the United States for many years. Progressives, of course, did not see this coming. In a now-famous video clip, Ann Coulter in June 2015 expressed a belief that Donald Trump had the best chance to win the election of the declared Republican candidates. The remainder of the panel laughed so hard they nearly cried. She then stated she thought Bernie Sanders would be a more effective Democratic nominee than Hillary Clinton given the current political and economic climate – cue more laughter.[3] There is plenty wrong with Ann Coulter, but she spotted early what so many people could not envisage until the results started pouring in. Something, fundamentally, had changed in America that had allowed a brash, scandal-heavy reality TV start to become President of the United States.

Turning to the UK, John Lanchester wrote convincingly in July of the shift in the Overton window that led to the vote to leave the EU, noting how a movement that in 1997 (through the vehicle of the Referendum Party) contested 547 seats and did not get close to winning any of them managed in 2016 to gain more votes than any candidate, party or campaign in British electoral history.[4]  There had always been a fringe of the Conservative Party that had firmly believed in leaving the European Union, but it had never been seriously anticipated that we would seek to extract ourselves so permanently from the European Project. Indeed, Cameron only called the referendum (against the advice of George Osborne and Michael Gove) to assuage the Eurosceptic wing of the party and hence to heal divisions that had existed for decades. It was never seriously intended as an exercise in democracy, for it was not envisaged that the referendum could be in danger of being lost. Daniel Hannan recounts the moment he told an aide to Cameron he would be devoting himself to campaigning to leave the EU (rather than just on treaty reform). The aide’s response: ‘good luck with that’[5].

At various points in 2016 the implied odds of either a Trump Presidency or ‘Brexit’ were less than 20% - as the statistically minded of you will note this implies a joint probability of less than 5%. Just about everyone got it wrong. This is not too surprising; the events of 2016 were the result of huge shifts in the Overton Window that can be best represented as a rejection of the status quo (an idea with huge significance, as I will discuss later). There are now indications that the promises made by those who took advantage of this are likely to be, at least in part, delivered. This will cause significant outrage from those on the other side of the debate; for rather than a ‘shift’ in the Overton window it may now be best to describe two windows, separated by a vast chasm (and never the twain shall meet). For those who believed 2016 was the worst year in human history, all I can say is fasten your seatbelts.

Two Sides Of A Coin?

Nigel Farage had a particularly good 2016.  After seeing the dream he had built his career around achieved, he then found himself invited to Trump Tower to celebrate with the President-Elect, who had achieved ‘Brexit times 5’ with his victory over ‘Crooked Hillary’. Farage was later to have his name floated by Trump himself as a potential Ambassador to the US (much to the surprise of the incumbent, Kim Darroch). Trump and Farage have both drawn comparisons between the Brexit vote and the US Presidential Election, noting the anti-establishment and populist themes of the two campaigns. It is clear that there are common themes, most notably the focus on immigration; Trump promised to build a ‘beautiful wall’ to stop ‘bad hombres’ from Mexico, while Farage unveiled a poster saying Britain was at ‘breaking point’ due to free movement of people in the EU. However, Brexit campaigners including Daniel Hannan and Boris Johnson, alongside sympathetic publications such as the Spectator, have consistently rejected this link. Their view is that contrary to the isolationism and protectionism of the Trump campaign, the Brexit vote was the result of a desire for a global Britain, not shackled by the unelected and non-accountable bureaucracy of the EU. They point to the fact that all surveys since the vote have identified ‘sovereignty’ as the most significant reason for voting Leave, ahead of immigration in second.  Indeed, as a Leave voter on political grounds myself, I certainly don’t want to generalise or stereotype people who voted Leave. As it will become apparent, however, I do believe a lot of voters in both elections were influenced by a common theme (hint: it isn’t immigration).

So which is correct? Was Brexit a ‘populist’ movement (and what does ‘populist’ even mean)? And how do both of these seismic events relate to the rise of right-wing parties in Northern Europe (the National Front in France and the Freedom Party in Austria for example) and the rise of left-wing parties in Southern Europe (including Syriza in Greece and Podemos in Spain)? On this, I would highly recommend reading ‘The Populist Explosion’ by John Judis. Released in the middle of 2016, it was featured by the New York Times as one of the ‘Six Books to Help Understand Trump's Win’, despite its prediction that Trump would not win the Presidency because his nasty rhetoric would alienate too many of the electorate (what do experts know anyway?). Judis draws from the history of populist movements and figures in the United States to posit two distinct strands of modern populism, having in common the mobilisation of sections of the population against the ruling elites.

The first strand can be (imperfectly) defined as ‘left-wing’ populism, which involves a revolt of the working and middle classes against the ‘elites’ who are either acting in their own self-interest (which I will later discuss as ‘rent-seeking’ behaviour) or taking decisions on their behalf that the people disagree with. Syriza is a great example here – it rose up as a means of protesting against the radical austerity measures imposed by Germany on the Greek population, which contributed to a near-collapse of the Greek economy and youth unemployment of 50%.  Syriza was essentially a vehicle for ordinary Greeks to express a view that leaving the Euro may be preferable to the status quo. The second strand can be (again imperfectly) defined as ‘right wing’ populism, which introduces a third element; it involves a revolt of the people against elites because the elites are perceived to be prioritising another group (or groups) over them.  The National Front is a great example here, with Marine Le Pen amongst other things arguing that liberal elites in France and the EU are pandering to radical Islam, at the expense of French cultural and national identity. Geert Wilders and the ‘Freedom Party’ are another example, operating with a one-page manifesto that proposes closing mosques, banning the Quran and turning asylum seekers away.[6] It is worth noting that  ‘Left’ and ‘Right’ are imperfect descriptors here, as the two do not clearly map across the political spectrum. They are, however, better than useless, and the major parties that have embraced the two types of populism have tended to fit the descriptions relatively closely.

Trump clearly took advantage of this right wing populist sentiment, with proposals on the restriction of Muslim immigrants and a border wall to prevent ‘rapists’ from crossing into America. Indeed, his Inauguration address could not have been more explicit in its populism, noting that ‘we are transferring power from Washington, D.C. and giving it back to the people’.  Applying this framework to Brexit is more difficult due to issues around classification; there was undoubtedly a coalition of disparate interests that combined to force a ‘Leave’ vote. However, I think without a doubt the coalition can be seen as populist; it simply combined elements of both left and right wing populism. On the one hand you have the Farage wing of the coalition, focusing on the strain that immigration has put on the NHS and other national services. On the other hand you have people who argued that the EU does not best represent the interests of the people within its constituent nations (given, for example, the draining of sovereignty away from nation states, the neo-liberal policies of the European Central Bank or the cost burden of intensely bureaucratic institutions).  Issues with the ‘left’ and ‘right’ classifications appear more than ever here, given the largest proponents of the sovereignty argument were Conservatives, whilst a large proportion of the working class who traditionally would vote for Labour were swayed by the immigration argument. Indeed, turning back to the US, the willingness of a proportion of Bernie Sanders’ supporters to switch to Trump rather than Clinton (or at least not to vote for her) probably cost her the election, and suggests populists define themselves to a much greater extent as being anti-establishment than being ‘left’ or ‘right’ wing.

One aspect of populism we have very limited evidence on is what happens when it is successful. From Huey Long to Ross Perot, the track record in the USA for populist politicians is that they capture the imagination of the population for a brief time, achieve a degree of popularity but ultimately no electoral success. This is largely down to the electoral system, where a moderately popular Independent candidate will always struggle to win a state (Ross Perot won 19% of the popular vote in the 1992 Presidential Election but no electoral college votes). Many have engaged in ‘counterfactual history’ by speculating about what would have happened if Bernie Sanders, the perfect example of a left-wing populist, had won the Democratic ticket. Given his success in harnessing the legacy of ‘Occupy Wall Street’ and other socialist/anti-corporate movements, it is fair to say he would have had a good shot against Trump, but sadly (for his supporters) it was the existing political machinery (in the form of the incredibly partisan Democratic National Committee, which attempted to engineer a Hillary victory at any cost) that stopped him from being successful.

In Europe, the National Front has been a force in French politics for decades, but again has fallen short of any real power due in part to the two-round system that has allowed moderates on the left and right to combine and keep out Jean-Marie and subsequently Marine Le Pen.  Similarly, Wilders in Holland may be denied power even if the Freedom Party wins the most seats, because the electoral system essentially guarantees coalitions, and so far no party has said they will consider uniting with him. Whether these checks and balances are ‘anti-democratic’ is outside the scope of this essay, but they clearly restrict the success of popular ideas that come from outside mainstream thinking.

One example of populist success is that of Alexis Tsipras and Syriza, but this is not a hopeful template for populists; elected on a wave of anti-EU sentiment, Tsipras held a referendum on the bailout terms put forward by the ECB (which involved severe austerity measures). The Greek people voted ‘No’ to the terms, which was generally implied to mean the Greeks did not think continued membership of the Eurozone was worth implementing the measures. The ECB stared Tsipras down, emphasising the potential economic turmoil from leaving the Eurozone, and eventually the measures were agreed. Tsipras won on a populist platform, but backed down when faced with the consequences of implementing the will of the people. Sometimes the EU don’t even need to be involved in repressing the success of populist views – part of the success of Wilders in Holland is driven by the fact the Dutch held referendums in 2005 and 2016 on European treaties; both resulted in ‘no’ votes and both were completely ignored by the government. This means our very limited data set of successful populist movements points in one direction – no real impact on the status quo. This fits the image that many understandably have when confronted with populist policies (e.g. a cap on earnings, which Jeremy Corbyn apparently endorses); that of rhetoric which could not and would not be implemented even if those who espouse them gain power.

So what has changed? Clearly with Trump his success came partially as a result of a weak and divided Republican primary field, and once he won the Republican nomination he had both a guaranteed level of support from the Republican base and an opponent who was the perfect example of the ‘establishment’ he was trying to break down. He now has a mandate from the people and Republican control over the legislature (and most likely soon the Judiciary) with which to flex his muscles. With Brexit this is even simpler – decision making power was taken directly out of the hands of the legislature and placed into the hands of the people through a referendum. Those who campaigned for and won the referendum (Hannan, Carswell, Farage et al) didn’t create the populist movement, but they were astute enough to recognise and ride the wave, turning the referendum into an open goal for the Leave campaign. Clearly, however, the results in the UK and US are not simply the result of chance. Whatever caused the results is significant, and as previously highlighted it is looking increasingly likely that Theresa May and Donald Trump will take significant action to address this. Indeed, even the ‘failed populist’ Alexis Tsipras seems to have been emboldened by recent events, insisting in January 2017 there will be ‘not one more Euro’ of austerity accepted. Understanding this movement, and its implications, may be the most important challenge facing us at this time.

Take The Blue Pill

What has driven the recent sustained success of populist movements from across the political spectrum, when most past attempts at populism have been flashes in the pan? Can we really take common lessons from campaigns and politicians as disparate as Bernie Sanders and Marine Le Pen?

There is a scene in The Matrix which has permeated popular culture ever since the film was released in 1999. Once Morpheus has revealed to Neo that his version of reality is simulated, he offers him two pills; the Blue Pill, which would cause Neo to wake up in his bed and not remember that his life is a lie, and the Red Pill, where he would wake up and face reality, whatever that may involve. Many have focused on the Red Pill, using it at a narrative device for scenarios where people realise a painful truth / embrace a new paradigm. The crux of the film is that Neo chooses to keep his eyes open rather than go back to having them shut – he takes the Red Pill. It is a positive move, albeit one that a lot of characters later admit they wish they hadn’t made given the implications.

Back to reality, and people in the UK, US and Europe have increasingly been choosing the Red Pill. But unlike in The Matrix, what people are choosing is largely undefined. As the Remain campaign liked to point out, there was no ‘Brexit government’ in waiting that was able to implement official Vote Leave policies (indeed, the new Prime Minister campaigned for Remain, albeit lukewarmly). There was no manifesto - no clarity on what ‘Brexit’ meant in practice; there were threats of emergency budgets and a crash in markets and everyone being poorer and yet…people chose this profound uncertainty over the current relationship with the EU. In the US, people chose to elect a man with no political experience and no consistency in policies, over someone with decades of experience who had been preparing for the role since the early 1990s. There was no evidence that Trump would actually implement any of his policies – indeed, many attempting to explain his success note his supporters took him ‘seriously, but not literally’.

So people have not been actively choosing the Red Pill, for there has been no real clarity on what that means. Rather, we can see it as a profound rejection of the Blue Pill, which represents the status quo/the establishment. Anyone with any background in psychology or behavioural economics will know that human minds are not programmed to work like that; we exhibit ‘status quo bias’, which in lay terms can be translated as the fear of the unknown. Any departure from this behaviour is extremely noteworthy. One potential framework to explain it might be that of ‘loss aversion’, a phenomenon explored by Daniel Kahneman and Amos Tversky as part of their work on ‘Prospect Theory’. Experiments have shown that if you offer someone £50 or a coin toss to win £110 they will largely choose the £50 (i.e. ‘a bird in the hand is worth two in the bush’). However, offer someone a £50 loss or a coin toss to lose £110 and they will choose to gamble. This experiment violates the assumption of rationality in economic behaviour (as from an expected value perspective you should gamble in the first scenario and take the certain loss in the second). This proves that people are loss averse – they hate losing – and they take any opportunity to avoid that situation even if their choice may make things worse.

A further example would be the ‘Endowment’ affect, which has proven that people value owning something more than they would pay for it; a perfect example is the stock market, where people hold on to winning stocks even though they would never buy them at those inflated prices. Logically, you would expect people to ‘value’ the status quo of the UK’s membership of the EU more than they would ‘pay’ for it. In other words, if people voted to leave the EU we can be fairly sure that if the vote had been to join the EU on the UK’s current terms, the ’no’ vote ought in theory to have been a landslide (illustrating just how profound the disenchantment with the EU project had become).

Applying this framework to the current environment assumes that people at present believe their lives and situation to be a ‘loss’, and that they therefore have nothing to lose from flipping a coin and seeing what happens outside the EU, or with Donald Trump as President.[7]  And, basically, they’re right.


Left of centre economists such as Joseph Stiglitz and Thomas Piketty have done much to popularise the idea of ‘Rent-seeking’ behaviour in economies and markets. This theory posits that, while undeniably forces such as industrialisation and globalisation have been hugely beneficial at a macro level (and indeed have helped to lift many in the emerging world out of poverty), they have resulted in increased inequality due largely to individuals and companies engaging in selfish economic behaviour (rent-seeking). In lay terms, this concept represents attempting to maximise ownership of the total economic ‘pie’ rather than concentrating on increasing the value of the total pie (or indeed ensuring a fair distribution of its slices). Rent-seeking as a concept is a distant, more cynical cousin of ‘trickle-down economics’, which many on the right of centre defend (i.e. through the lens that making the richest richer is the quickest way to make the poor a bit richer as well).  A very common example of rent-seeking behaviour would be a pharmaceutical company taking advantage of patent law to monopolise production of a life-saving drug (allowing them to increase prices).

I’m no socialist. I’m not in favour of big government regulating every area of business and commerce. I understand companies have a duty to shareholders to maximise their return on capital. However, this concept of rent-seeking is important because it is representative of how the entire system has been progressively managed more and more for the benefit of the few rather than the majority.  During and after the Global Financial Crisis the US and UK governments really did use taxpayers money that could otherwise have been used on healthcare or education to recapitalise (bail out) banks, who in turn really did use that money to pay bonuses (or even in the case of PNC Financial Services Group, to purchase a rival within hours of receiving the money)[8]. Bankers who had committed fraudulent activity really didn’t go to jail, or even lose their jobs (Goldman Sachs received a string of fines for defrauding investors in their mortgage-backed securities, and yet Lloyd Blankfein, on whose watch it happened, remains CEO).[9] While the average taxpayer suffered due to the financial crisis they did not reap the benefit of the recovery; this was essentially all captured by asset owners (those with portfolios of shares and their own houses). Indeed, the share of GDP in America going to the labour force hit historic lows in 2014, and the share going to the top 0.1% has soared, and approaches 100% of all the recovery in total income since the lows of 2009.[10] The justifiable anger at the rent-seeking behaviour of bankers fed directly into the ‘Occupy Wall Street’ movement, which was a direct antecedent of the Bernie Sanders campaign that may well have been successful had the system not been rigged against it.

Charles Moore summarised this perfectly in the Spectator, writing that ‘the elites have constructed a world order which serves their interests, not those of their subject populations.’ He cites examples such as ‘transitional payments’ to departing European Commissioners (Mandelson reportedly was awarded £1m).[11] Another, microeconomic example is how companies globally have been allowed to systematically dismantle Defined Benefit pension provision over the past two decades because of issues of affordability (with a much better use of cash being spiralling pay for senior executives, dividend payments to wealthy shareholders or corporate acquisitions as ‘empire building’, naturally), ensuring that the Millennials starting their careers today will not be able to afford to retire. In a world where people in power see their economies and companies in narrowly financial terms (for example when setting minimum wage policies, benefit levels, or analysing profit and loss), and where there are few effective checks and balances against selfish or corrupt behaviour, the potential is rife for individuals to be forgotten or mistreated.

While selfish behaviour in economies is disappointing, it can also be expected to an extent (indeed, the famous ‘rational economic man’ is a selfish profit maximiser. Rather than selfish behaviour, by far the most disgraceful manifestation of this rent-seeking phenomenon must surely be the impact of the lobbying industry and the importance of fund-raising in politics. Although corporatism in Europe is rife (Daniel Hannan provides the example of how the change in EU regulation to favour diesel cars over petrol cars for ‘environmental reasons’ was entirely driven by the automobile industry, and the ‘science’ backing it was nonsense), this is one area where the US does truly lead the way. This is due in no small part due to the ruling of the Supreme Court in ‘Citizens United v. FEC’ in 2010, which ruled that restricting political donations from corporations is an infringement of free speech (as Jeremy Grantham has noted, this is surely not what the founding fathers envisaged when they thought of free speech). Since then the importance of money in politics has increased drastically; total outside spending on the 2008 Presidential Election campaign was c. $338m, but this figure had ballooned by 2016 to c. $1.7bn. The extent to which the views of ordinary people are marginalised has been proved by a Princeton University study; if a bill is favoured by the public it has a 32% chance of passing through Congress; if not favoured this figure falls to 30%. Not a staggering change, but surely in the right direction? This pales in comparison when you consider the other result of the study; when favoured by the richest 10% of Americans bills passed Congress at a 65% rate, and when opposed by the richest 10% the passing rate was essentially nil.[12] Money, it seems, talks.

The anger that has been directed towards bankers and the ‘elites’ is largely deserved. Other aspects of the anger (e.g. that directed against immigrants) are not deserved. But Trump was successful in part because he was able to harness all aspects of the anger coursing through society by using broad brush claims such as his promise to ‘Drain the Swamp’ (in my opinion the most effective piece of rhetoric of the campaign) and ‘Make America Great Again’. The result of the election should have been perfectly obvious to anyone who saw the initial results of a Reuters/Ipsos poll on the night before the election, when the odds of a Trump Presidency were 5/1. This poll asked for a yes or no answer to the following question: ‘America needs a strong leader to take the country back from the rich and powerful.’ The result? An astonishing 75% of 9000 polled answered ‘yes’. It was all over for Hillary at that point, or more accurately, it was all over for her when she became the poster-girl for the rent-seeking rich and powerful, and her opponent promised to ‘lock her up’.

The Fall Of ‘Davos Man’

Returning to specific and evident trends, and starting to look forward to the implications for 2017 and beyond, we can see common factors in the ‘Blue Pills’ that people have been rejecting. Largely, these factors relate to a particular worldview that has been completely dominant for the past few decades, and is now facing an existential threat. 

When I was a History student (for my sins) I dealt a lot with concepts of determinism. This broadly involved theories that highlighted the presence and importance of external forces that drove progress in a certain direction. In my final year I primarily researched the English Reformation, and one argument in particular I liked to refute was the idea that Protestantism was ‘inevitably’ going to become the dominant religion in England, because it is a purer form of religion (it had very little to do with Henry VIII’s libido, or Mary I’s early death, apparently). Inevitably, those historians who proposed this view were themselves Protestants.

One infamous example of misplaced determinism that is more relevant to the current situation is Francis Fukuyama’s 1992 neoconservative treatise ‘The End of History and the Last Man’; this argued that liberal democracy had proven since the French Revolution to be the best form of government, and as such it had inevitably ‘won’ the Cold War argument and would remain in place indefinitely. While ‘events’ would continue, there would be no seismic change and thus ‘history’ had to a certain extent reached a stasis. Fukuyama clearly had not anticipated (amongst other things) the rise of Islamism, which has provided the main challenge to the Western way of life since then.

A doctrine with close links to Fukuyama’s beloved liberal democracy that had, until very recently, been venerated in this way is neoliberalism. This doctrine, evident in the United States since the Second World War but accelerated on both sides of the Atlantic under Thatcher and Reagan, broadly encompasses a strong focus on laissez-faire economics, expressed through privatisation, deregulation, low taxes and free trade agreements. Over the recent past this economic framework has been essentially unchallenged under both centre-left (Clinton, Blair) and centre-right (Cameron, Bush) administrations. In essence, this economic framework had ‘won’ the argument, and changes in ruling parties did not affect its dominance. While there were no doubt positive implications of this (from an economic perspective taxes and tariffs are ‘inefficient’), there were also negative connotations, with financial de-regulation in the 1990s (primarily the repeal of the Glass-Steagall Act, which separated commercial and investment banking activity, in 1999) a primary cause of the securitisation boom which led to the Global Financial Crisis.

While few of ‘the people’ have engaged in the debate over neoliberalism from a theoretical perspective, plenty have felt its effect through the impact of globalisation. Globalisation has been seen for decades as an inevitable, and welcome, result of technological advances. This has been implemented through the ever-increasing power and remit of supranational organisations such as the International Monetary Fund, as well as the development of trading blocs such as the European Single Market. The spiritual home of the neoliberals is Davos, where the World Economic Forum takes place on an annual basis.  Samuel Huntington originally coined the term ‘Davos Man’ for the group of elites responsible for the maintenance of this worldview, noting “they have little need for national loyalty, view national boundaries as obstacles that thankfully are vanishing, and see national governments as residues from the past whose only useful function is to facilitate the elite’s global operations”[13].

As many are now noting, the inevitable rise of the Davos Men to the seat of power has been halted, and the concept of determinism has, once again, been made to look foolish. This is not simply a result of rent-seeking; there is a fundamental focus in neoliberalism on economic outcomes that prioritise the grand scale over the small scale, and as such do incredible damage to a huge number of people. An example is the concept of ‘comparative advantage’ which is used to justify completely free trade. If China is efficient at making toys and Europe is efficient at making cars, the most beneficial economic outcome for both parties is for China to focus on making toys and Europe to focus on making cars. Fine – but what about low skilled workers in factories in the UK who were employed by the toy industry?  Inevitably the answer given to that question is theoretical – ‘they can retrain’ rather than a practical solution. A huge number of people who voted for Brexit or Trump are from industries that have been rendered irrelevant by globalisation (American manufacturing, or UK coal mining for example). The theoretical solutions put forward by economic theory haven’t helped them; there are a huge number of ‘career unemployed’ who have been unable or unwilling to retrain after their job became redundant. As such, they’ve decided to roll the dice.

Nothing (or almost nothing) is inevitable. A nuanced point, but one that is important to make, is that the success of the current populist wave tearing down the walls of neoliberalism and globalisation is not itself inevitable in any sense. Trump and Brexit might not have happened for any number of different reasons (indeed the fact both have done remains astonishing): a million votes changed in either case and we would be telling a different story. But even if that were true, the broad themes that have been traced here would not be any less relevant. Ideas can be good or bad, or a mixture of both; sometimes good ideas prevail and sometimes bad ideas prevail – due to the subjective nature of good and bad as well as fundamental uncertainty in this world, these tend to even themselves out. But a significant reaction against a trend, or combination of trends, that advantages the elites over the people is the closest thing to ‘inevitable’ that I can think of over the long term.

Don't Take the Blue Pill 

So far I have attempted to argue that we are at a turning point; a ruling class of elite ‘Davos Men’ who engaged (or permitted others to engage) in rent-seeking, profit maximising behaviour have grown complacent over the past two decades, believing their neoliberal worldview to be an example of the inevitable march of history. In this behaviour they have neglected and mistreated the people who are the driving force behind their economies and companies, and allowed resentment to grow to the point where people are prepared to roll the dice and leap into the unknown rather than remain with the status quo.

But why have people rejected the Blue Pill? Surely there must be a more scientific reason than people simply having a feeling that the system is rigged against them (although it is) and that a variety of people are taking advantage of them (although they are). Almost inevitably it comes down to money in people’s pockets. Allowing real incomes of a large proportion of the populations of developed markets to stagnate will be seen in the post-mortem as the primary cause of death for the neoliberal worldview. For the fact is that research by the McKinsey Global Institute found that between 65% and 70% of people in 25 advanced countries saw no increase in their real earnings between 2005 and 2014.[14] This is during a period where executive pay continued to rise; indeed an EPI study noted that the pay of CEOs rose by 54% between 2009 and 2014, while worker compensation did not rise at all.[15] The Global Financial Crisis affected just about everyone in one way or another, and yet the US government stepped in to recapitalise banks rather than to stop home repossessions. The stock market boom that has followed since 2009 has primarily benefitted the wealthy (i.e. those with savings and/or significant pension provision). Meanwhile, the extraordinary monetary policy implemented by central banks has helped some (home owners) whilst ensuring that a whole generation cannot afford to get on the property ladder.  The current generation of working age people will be the first generation in hundreds of years to be worse off (in real terms) than their parents.

The McKinsey survey referenced above primarily focused on six countries; France, Italy, The Netherlands, Sweden, the UK and the US. The French may find it difficult to prevent Marine Le Pen from becoming President in 2017, and even if they do the successful challenger will likely be from the right, adopting some of her policies. The Italians have toppled their Prime Minister through a referendum which was ostensibly designed to implement sensible constitutional reform, and the Five Star Movement, led by a comedian, has the greatest popular support. In the Netherlands, the far-right Freedom Party are leading in the polls ahead of elections in March 2017. Far-right parties enjoy increasing support in Sweden, as well as neighbouring Denmark, both traditionally liberal countries. The UK voted to leave the European Union. The US voted a reality TV star into the most powerful office in the World. Some narratives can explain several of these populist movements (free movement of people in the EU, for example). But none can unite them all apart from cold, hard cash (or lack of it) – ‘it’s the economy, stupid’.

People have, for the most part, not been rejecting the Blue Pill because they are stupid. People have, for the most part, not been rejecting the Blue Pill because they are racist. The primary reason why a lot of people have been rejecting the Blue Pill is because in an age of prosperity, they are poor. And now, it seems, some politicians are being clever enough to start listening to them.

Looking Into The Abyss?

2016 is over, thank God!  Or at least that is the sentiment it would appear we are all meant to show. Twitter user @theweirdworld seemed to capture the zeitgeist by proclaiming, ‘2016 is like a montage of news footage you see in the beginning of a post-apocalyptic movie explaining how the world was ruined’. Much of the content in this essay may seem as alarmist as that Tweet. However, it seems a strange choice from the (apparently) perverse, twisted Director of 2016 to include in his post-apocalyptic montage (amongst other things) a significant rise in life expectancy in certain areas of Africa due to advances in HIV medication, or global poverty falling once again to its lowest level ever. You may, accurately, think I have little sympathy for the hysterical overreaction to the events of the year, but at the same time I have highlighted in this essay their profound significance. What particularly bothers me, I guess, is that the people expressing such dismay are broadly the elites (or at the very least the aspirational middle classes, who have no great cause for concern). Whether events like these are significant or not, they are not going to hurt the celebrity singers who boycotted Trump’s inauguration, or George Soros (billionaire), or George Osborne (currently writing a book about how awful this ‘age of unreason’ whilst earning hundreds of thousands of pounds as a circuit speaker and advisor to asset management firm BlackRock).

It is of course the very people who voted for this nonsense who will bear the brunt of the consequences”. That was intended to be read in a condescending voice, evoking images of the people who have prated it so many times, but I would be lying if I said it didn’t concern me in part. This primarily relates to the US, where there is a concern that Trump is merely an opportunist who will do nothing to help the people who elected him (indeed, the question of whether Bernie Sanders would have been a ‘better’ populist candidate will most likely not be going away any time soon as the Trump Presidency unfolds). The success of movements that harness justified anger and direct it at an innocent third party (broadly the ‘right wing’ populist movements) is clearly worrying and does indeed have echoes within twentieth century history.

But maybe the rise of populism won’t hurt the people. Indeed, even Stuart Rose, the Chairman of ‘Britain Stronger in Europe’ noted that if we left the EU wages for workers would likely rise (due to a decrease in supply). This impact on the average worker may turn out to be dwarfed by other negative connotations of Brexit. But maybe it won’t. If Donald Trump truly does ‘Drain the Swamp’ in Washington D.C., radically reducing the power and influence of lobbyists and corporate interests, shouldn’t we be happy? If the success of populist movements results in a much needed look in the mirror for the ‘elites’ which results in a greater focus on (for example) inequality, surely we will look at this period as the defusing of a bomb that, if unchecked, could result in full scale revolution.

The attitudes of the liberal, metropolitan elites (a group of which, I guess, I am a member) regarding the political upheaval of 2016 indicate an incredible level of paternalism and snobbery towards those who made the ‘wrong’ democratic choice. This attempt to stake claim to the ‘truth’ in political issues that are demonstrably not black and white is dangerous. Linking back to the idea of ‘virtue signalling’ and the ‘regressive left’, this attitude mirrors the cultural and social superiority that, for example, those with liberal attitudes towards sexuality now claim (hence the outrage when a baker doesn’t want to bake a cake for a gay marriage, or someone doesn’t virtue signal over their despair when people make transsexuals use the wrong bathroom). This ‘groupthink’ is alarming, and leaves us woefully unprepared to react to the unexpected. We should do better.

There is no ‘silver bullet’ to stop the current wave of populism. And that isn’t necessarily a bad thing. Populist movements should be listened to, because they are inherently representative of what people think and feel and should be considered part of ‘checks and balances’ on the actions and power of the elites in society. While there may not be a silver bullet, there is still an obvious path to take for those in power. Stop fearing the views of the people and start representing them. Embrace and trust in democracy. And for those not in power, all I can suggest is don’t demonise those who don’t share your world view. Be open and encourage debate of ideas rather than ‘groupthink’. If you see a knowledge gap then educate, don’t condescend. If you decry the views of the ‘deplorables’ you won’t shame them into changing their opinions; instead, the bifurcation of society will deepen, the Overton Windows will drift further apart, and one day you may find yourself facing them across the barricades.


[1] One book I do not reference in the remainder of this essay, but that is essential reading for anyone interested in Brexit, is ‘All Out War’ by Tim Shipman.




[5] Daniel Hannan, ‘What Next: How to Get the Best from Brexit’

[6] Ian Buruma, ‘Orange Alert’ in The Spectator, 28 January 2017.

[7] For more on Status Quo bias, loss aversion and a huge range of other biases and heuristics, read Daniel Kahneman’s ‘Thinking Fast and Slow’. It is one of the most profound things you will ever read.


[9] Michael Lewis’ ‘The Big Short’ is fantastic on this (the film is also excellent if you don’t have time for the book).

[10] Jeremy Grantham, ‘The Road to Trumpsville: The Long, Long Mistreatment of the American Working Class’


[12] Princeton University study cited in Jeremy Grantham ‘The Road to Trumpsville: The Long, Long Mistreatment of the American Working Class’

[13] Samuel Huntingdon, quoted in the Daily Telegraph



Published: Monday, 06 February 2017 12:10

“In space, no one can smell you stink.” 

2057 Macroeconomics Quip, Adapted from Alien (1979)

Pecunia non olet” ("money does not stink") is ascribed to the Roman emperor Vespasian (09-79 AD). When Vespasian’s son, Titus, ridiculed a urine tax that supported the family’s fortunes his father held up a coin and asked if Titus was offended by the odour.  Karl Marx extended the discussion, observing, "since every commodity disappears when it becomes money it is impossible to tell from the money itself how it got into the hands of its possessor, or what article has been changed into it.  'Non olet', from whatever source it may come."

Some major technological evolutions for money have included moving from social monies to commodity monies, to city-state monies, to gold, to fractional reserves, to central banks, to contemporary fiat currency.  Fiat, ‘let there be’, currency is an artefact created by national or federal governments.  Fiat currency consists of tokens that allow us to extinguish tax debts.  We trade those tokens freely in a geographic region where we are likely to meet people under the same tax system.  Fiat currency’s value lies in its ability to cancel tax debts.  Governments ‘back’ their currencies through their monopoly of force on tax payments, creating a semi-coerced community of taxpayers who confidently trade these tax debt cancellation bills of exchange with each other.

Evolving A Sense Of Smell

At the moment the dominant monetary technologies are quite visible paper & coins (about 3% to 8% of global fiat currency) and electronic deposits in bank accounts (most of the rest).  The much-touted next evolutionary stage is paper-less or electronic money.  Current interest in cryptocurrencies such as Bitcoin, has people pondering why governments don’t use them too.  Numerous central banks have declared their sincere, though careful, interest in moving forward with digital fiat currencies (DFCs) acceptable for taxation.  DFCs are emphatically not cryptocurrencies.  The underlying distributed ledgers might be similar, but the validation of transactions will be done by the central bank and not through a ‘mining’ process.  Further, the technology will be firmly controlled by the government who issues the currency, not left to an autonomous collective.

DFCs raise a unique opportunity.  Unlike contemporary fiat currency, each individual tax credit can be tracked.  It’s as if the serial numbers that already exist on paper money were being recorded in transactions so you could examine the entire history of the banknote you received in exchange for a newspaper a second ago back to its issuance by the mint.  Long Finance 2011 research by Gill Ringland, “In Safe Hands? The Future of Financial Services”, set out some scenarios that might broadly be classed as “Visible Hands” - a ‘top down’ structured control of finance by governments versus “Many Hands” - a ‘bottom up’ set of communities sharing “trade and honest commerce for all”.  For speculative futurists sniffing the future, here are two futures from StarFinanceDate 2057…

Visible Hands

These days virtually all states adhere to the Beijing-Brussels-Washington Consensus of 2021, i.e., like Star Trek’s Federation, governments control a ‘minimal’ fiscal policy within protectionist control of investment, though there are floating currencies.  Much of this began with the intensification of economic nationalisation sparked by Brexit and the US Trump administration in supporting moves to ‘take control back’ ranging from Colombia to Italy.  

For ages central banks claimed to be moving towards DFCs.  The Bank of England had been studying their use since at least 2014, followed by the Fed and most other central banks.  In 2020, the World Bank and the IMF forced Somalia to use a DFC.  The Soma-Tick transformed that war-torn nation’s prospects.

Suddenly, it was difficult for OECD central banks to keep dragging their glacial feet.  DFCs whipped across the globe.  There were some initial howls, not least from civil libertarians, but also from financial services firms used to taking their cut.  Still, the Somalian and Indonesian BOOMs (bit organisation of monies) convinced consumers of DFC robustness and they willingly ceded their data rights for convenience, lower transaction costs, and economic prosperity.  There were some high-profile arrests of entire criminal networks, bound together in court by their e-cash transactions.  If you don’t have something to hide, why would you object to a DFC?

Macroeconomists were thrown into turmoil.  The quantity theory of Money, MV = PQ, i.e,. the total amount of money (M) times the velocity of money (V) equals the average price level (P) times the level of output (Q), had virtually no empirical basis.  This was not surprising as the quantity and velocity had never been known with any accuracy.  DFCs provided M and V to a high degree of accuracy.  It turned out there was almost no correlation of fact to theory.  All that central bank navel-gazing and monetary prognostication had been so much augury and astrology.

Some of the other implications took a while to emerge.  Tax authorities began to take accuracy to the penny, resulting in thousands of tax evasion convictions before the 2022 Tax Accuracy Reasonableness Movement gained “+/-5%” riders on most DFCs.  Taxation over-precision attracted thousands if not hundreds of thousands of proposals to tweak the DFC systems to support various initiatives.  There were local town taxes, child taxes, land-value taxes, let alone distasteful ethnic and foreign visitor expenditure taxes.  DFCs could target complex algorithms to vary taxation on any transaction in real time.  One popular tax, only possible because of DFCs, was the geographic redistribution tax whereby the tax on transactions rose in wealthy districts.

As foreseen by 20th century commentators such as Ian O Angell, the ‘New Barbarians’ and the ‘Golden Geese’, i.e. the mobile wealthy, took flight to welcoming jurisdictions and offshore centres.  Gold and Bitcoin 7.0 values soared outside the reach of populist governments and their capricious taxes.  The paradox was that taxation over-control directly led to the vertical rise in cryptocurrency popularity.  The very consensus around control led to most global wealth ceding monetary control to algorithms rather than governments.  With the wealthy leaving, the remaining, non-mobile, fulminated, but too late.  A fundamental technology of social relations, money, had moved largely outside the hands of humans.  Human beings just couldn’t control themselves.

Many Hands

Many quickly forgot Occupy, the 2011 movement to reduce social and economic inequality worldwide.  No one forgot Seize, the 2020 movement to grab money from ‘the rich’ and give to ‘the poor’ with its slogan, “Carpe Pecuniam!”.  Back in 2016, ‘The DAO’ (decentralised autonomous organisation) was an investment fund project implemented on Ethereum blockchain smart contracts.  The DAO defined all its relationships with investors through embedded code in the Ethereum ledgers.  Due to a coding mistake, one party was able to extract funds then worth tens of millions of dollars to their own account.  The Ethereum community acted to overturn the mistake, but this emphasised ‘tyranny of the majority’ superseding ‘tyranny of the code’.

Autonomous collectives inspired Seize.  It’s well-known that Seize started as a peculiar combination of comedians impersonating bailiffs at rich people’s homes supported by populist politicians egging the comedians. Money laundering and tax evasion allegations, some false and some true, provided more fuel to the seizures as things spiralled out of control.  ‘Grasp & Snatch’ is today about as welcome a term as ‘Nazi’, but in its day was enough to have a mob tearing a rich house apart.   In association with The New Diggers and The New Levellers, Seize led inexorably to civil unrest and then to violence.

And what a wild ride it’s been.  A bit like the Irish bank strikes in the 1960s and 1970s, communities have soldiered on.  Popular frustration with perceived inequality and tax avoidance led the move from fiat currency to community monies.  Communities adapted and formed around new monies.  Community monies soldiered on, convincing everyone they had ‘taken back control’ from the central banks.  There have been some severe problems, for example the ‘infinite taxation’ some New Levellers imposed in north-eastern China, or the ‘audit your neighbour’ movement of eastern Indonesia that led to lynchings.  And some inappropriate starting parameters have resulted in some mini-Weimars.  Yet, these problems have been ‘local’ rather than ‘global’ thanks to the proliferation of central-bank-in-a-box blockchains that come with standard settings and safety controls for sensible communities.

What’s less well-known is that Seize’s ‘in a box’ technology relies on the same technology that failed The DAO.  However, the intense fragmentation into local communities and their monies has created strength in diversity rather than a single point of failure. They may be less efficient, and some have certainly had their problems, but the proliferation of community monies have all been underpinned by one new advantage.  Every unit of ‘money’ is tracked.  Ethical banks can assure people of the source and destination of the monies on deposit.  Solar credits and social good credits are transparent.  The provenance and chain-of-custody of goods matches the provenance and chain-of-custody of money.  

Follow The Stench; It’s Lovely, Clean Money

Some say there is no money in Star Trek.   That’s strange.  Money is a technology communities use to trade debts across space and time.  Doesn’t Star Trek’s mission, “to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no one has gone before”, bring the series into direct contact with communities exchanging debts?  Captain Jean-Luc Picard crows, “The acquisition of wealth is no longer the driving force in our lives.  We work to better ourselves and the rest of humanity.”  Yet dedicated Trekkies well know there are Federation credits, just perhaps not Federation cash.  The future still holds an innumerable number of communities, not least the trekkie community, using “technology to exchange debts across space and time”, i.e. money.  

Money has long been the way communities trade debts across space and time.  Whether new DFCs or community monies, the technology of money is changing, again.  The Sumerians based it on clay, the Egyptians on papyrus, the Lydians on gold, the Chinese on paper, the Romans and others on tally sticks.  Yesterday’s dominant technology, fractional reserve banking underpinned by central banks, is over.  Our new technology allows us to track money from source to sink, precisely. Jerry Maguire accosted everyone with “where is the money?”.  Today we accost everyone with “how does it smell?”.  And where might this lead?  Well, I for one am very concerned about the relative rates at which people create and secrete wealth and have been considering an on-the-spot punitive criminal tax that...

Professor Michael Mainelli is Executive Chairman of Z/Yen Group and Principal Advisor to Long Finance.  His latest book, The Price of Fish: A New Approach to Wicked Economics and Better Decisions, written with Ian Harris, won the 2012 Independent Publisher Book Awards Finance, Investment & Economics Gold Prize.



Published: Monday, 20 February 2017 12:14

I have in several of my posts on this blog pointed to what I saw was a coming breakdown in the dominant economic-political narrative, which is often given the unhelpful umbrella term of “neoliberalism”. The two big events of 2016, Trump and Brexit, have certainly shaken things up. We now have President Xi at Davos calling for Free Trade and a US Republican President Elect arguing against it! In the UK, people who claim to be Thatcher’s heirs are busy extricating us from what was once seen as one of her great achievements, the Single Market.

The level of uncertainty for investors and the economy at large is believed to be higher than in decades. The failure of economic forecasts makes daily news. For me, the problem is that each item of news, from a bank relocating to the EU from London or McKinsey investing in the UK, tends to be seen as an opportunity for confirmation bias on all sides of any argument. Any item is a heralded as sign of doom and joy to either side of an argument.

One of the first parts of any futures exercise is to look back. If you want to look forward Y years, look back Y to start. Some advocate that “as things are changing faster now”, you need to look back 2Y. In my experience, you need to add one other layer to ground the exercise.

I don’t argue that history repeats itself, but it often rhymes. So, I argue that it is important to look for historical precedents for the scale of challenge we may be facing in turbulent times. That may be 100 or even 500 years ago. In 2012, on this blog I compared the times we are living in to the fall of Sienna and the rise of Florence.

To avoid falling into the confirmation bias trap, I’d like to suggest some examples to illustrate how past periods have worked out, so as to support scenario developments that get beyond the doom/boom models and open our eyes to some possible plausible futures that may feel unreal today.

Consider the UK in 1906. The Liberals are elected with a large majority. A small Labour Party is on the rise and the Conservatives are in retreat. The great reforming government introduces the Pension, starts House of Lords reform. Clearly, Labour will grow into the opposition and the Conservatives will die out! It didn’t work out that way, did it?

In the 19th Century the Whigs and Tories swapped sides on Free Trade. It is argued that the 1906 landslide was in part caused by Conservative splits over Free Trade.

We think of the Democrats as the more Liberal/Left of the 2 US major parties, but it was the Democrats who opposed the abolition of slavery.

While both the Liberal and Conservative Parties in the 1900s were on both sides of the female suffrage movement, the Conservatives were the natural home of the antis. Yet it was votes for women that made the Conservative Party the most successful of the 20th Century.

It is often argued that history is written by the winners, and certainly the narrative can be misleading. Churchill having won the war was booted out of office by a massive Labour Landslide. In 1951, Labour's proportion of the vote was higher than in 1945, but it lost because of failure to reform electoral boundaries. In 1974, Heath lost the “who governs Britain?” election despite getting 1 million more votes than Wilson. Thatcher’s vote share was highest in 1979, declining in 83 and 87 yet getting larger majorities because of splits in the opposition.

There is much written (and tweeted) about populism, the 1930s, the Cold War and the Nazis as parallels with the time we live in, but mostly to support existing prejudices.

The last 2 republican victories in the US have both lost the public vote but won the electoral college.

In every period of significant change there can be both a cohort effect (Generation X Y Z…, baby boomers), but also a backlash. Some of the fiercest advocates of change become the most vitriolic opponents when they see how it works out. Only looking at the perceived trends and not thinking about potential backlashes can blind people to opportunities, threats and potential.

I make no claim to be able to see the future better than anyone else, but I am increasingly sceptical about people who claim unique insights as to why the electorate voted the way it did on Brexit/Trump and may well vote in France, Germany and the Netherlands this year.

As for a prediction for 2017, I think 1914 provides the best one: “It’ll be all over by Christmas”. Take that as you will.


Have a good 2017. Be prepared for the unexpected. The future is not what it used to be.

Published: Friday, 20 January 2017 11:35