Over the past few years, there have been more and more friction and contradictions, both at home and abroad. A new round of game has begun between states, and there are strong social contradictions within different countries.
Western countries, from Britain to most of Europe, have changed their leaders almost once, to the election of President Trump and his new moves. Both finance, the Internet and the real economy have emerged. Millions began to rise globally.
What is the root of this contradiction? In our opinion, it is the global economy that has widened the gap between the rich and the poor. The interests of voters (the general public) and leaders (the elite) have become inconsistent. This will also become the problem for global economy in the next decade to solve.
Why are we saying populism has reached the same level in world war II?
In the past few decades, populism has been a forgotten word and there is no vioce talking about it, except in some developing countries, such as Venezuela, the Philippines and so on. In developed countries, long periods of time have passed.
But in recent years, this momentum has begun to rise, and we can see from the chart that the Japanese have reached the height of 1930, which was followed by a world war. The figure is based on the percentage of votes cast by all the political parties in the developed world. Including the United States, Britain, Japan, Germany, France and so on. Of course, the statistics will be different, and the situation in 1930 is not exactly the same as it is now. However, we hope that you can understand from the picture below how serious the global economy is today.
In essence, the gap between the rich and the poor is widening. Peijing University published a report in July 2014 that the Gini coefficient in China reached 0.73. The richest 1% families have the same wealth with the poorest 34.6%. The lowest 50% families have only 7.3% of the property. According to the Gini coefficient, if the gap between the rich and the poor in China is really above 0.7, it will be one of the countries with the biggest gap between the rich and the poor in the world.
Let’s look back at America. Since the beginning of globalization in 1980, the share of wealth among the top 0.1% income groups in the United States has risen sharply, while the share of wealth among the bottom 90% people has fallen sharply. At this rate, by 2020 the top 0.1% people in the United States will have more wealth than the bottom 90%. This is a terrible number. The wealth of the 0.1% heads is the same as that of the 90%.
The gap between the rich and the poor has been widening since the financial crisis in 2008. Asset prices became more and more expensive when the global central bank began a new round of leverage. Properties in Shanghai and New York, the American stock market, or the famous art works have all reached a record high price. The wealth of those who own assets is increasing. People without assets have lower purchasing power. In the era of global liquidity easing, holding cash is the worst asset. Inflation will dilute your purchasing power in the long run, and cash will become less and less valuable.
Today, in China, rich families with several houses enjoy a first-class life, while people who can’t afford to buy a house are increasingly unable to buy. Especially when the deleveraging begins, expectations for income growth are also falling, leading to less and less possibility of buying assets at current prices.
I believe many people have the feeling that a decade ago, although the income is low, they can finally buy assets through a substantial increase in income. As for today’s post-90s generation, the possibility is getting lower and lower unless there is a big round of adjustment in asset prices.
In fact, the world’s richest 26 people have the same wealth as the world’s poorest 50% people. The wealth of the world’s billionaires grew by 12% in 2018, while the wealth of the world’s poorest half fell by 11%! The widening gap between the rich and the poor will inevitably lead to the rise of Populism!
What’s the root of the gap between the rich and the poor?
First, we need to understand what is driving wealth and economic growth? The growth of the economy is mainly due to technological innovation, which has brought about the improvement of labor productivity. In fact, the economic growth in the past ten thousand years has been very slow for a long time.
Because most of society is in the farming age. Stanford university professor IanMorris has led a study over the past decade to look through modern technology and restore economic growth in the past tens of thousands of years in human history. The economy has not grown much in the past ten thousand years. Because the global economy was long in the farming age, growth was very slow. Technological advances have only begun to erupt in the past few hundred years.
Why has the economy grown so fast in the past 200 years? An important reason is the emergence of modern financial products. We can understand that there is an increase in leverage through financial tools. This lever is like an accelerator that magnifies economic fluctuations. By leveraging the financial system, the economy, which may have grown only 1%, could be enlarged to 2% or more. The more rapid effects of wealth produced positive feedback and continued to advance technology. At this time, money played a decisi ve role in economic growth.
In today’s words, the entire global economy has entered a round of commercialization. Commercialization will quickly lead to the optimization of social division of labor and greatly increase efficiency. The advantage of commercialization is that it is a thinking that stands on the whole, not an individual. It can be said that the commercialization of the financial sector has brought about a round of global development.
Technological progress has also become an accelerator, which is promoting social development at a higher speed. So the entire global economy, driven by the two accelerators, one is a technology lever and the other is a credit lever. We’ve seen the speed of the technology lever in the last two rounds of the Internet bubble.
Many companies are able to grow at geometric levels in the context of technological innovation. The global plutocrats are not capitalists who have accumulated wealth over decades. It is the young people who have spent ten years in a great business after graduating from college. This is impossible in the past 200 years.
With the two accelerators, the gap between the rich and the poor has widened.
Any country has a long way to go from a low rate of marriage to a high rate of marriage. At the time of the low rate of marriage, the overall level of education and awareness in society is also very low, and most people do not know what good it is to borrow money to develop. Many people feel very scary when they hear that they are carrying tens of thousands of dollor in debt. The whole society is missing the basic knowledge of economic principles. By the middle of the year, most of those who had improved their rates had succeeded. They began to carry out various types of education. At the same time, with the development of society, the level of education has been greatly improved and there is gradually a deep understanding of the theory of economic development.
In the past few years, the rate of social failure has increased rapidly, and by this time the economic operational framework of the bridge water has been accepted by many financial practitioners. People finally understand the “monopoly” investment theory: to buy assets in the early stage, to hold cash in the later stage.
The 2008 financial crisis accelerated the gap between the rich and the poor.
As a result of the financial crisis in 2008, the world’s major central banks have accelerated the release of liquidity to solve the debt problem by optimizing their assets. Federal reserve chairman Ben Bernanke learned the lessons of the slow release of liquidity from the great depression and responded relatively quickly to the 2008 financial crisis.
And not just a liquidity release, there are three quantitative easing policies before and after. The federal reserve has released the most liquidity twice in its history. One was the 1929 great depression and the other was the 2008 financial crisis. And as we can see from the following picture, the release of liquidity is faster at this time!
In fact, it is not just the federal reserve, but all the major central banks in the world are conducting easing monetary policies. The surge in liquidity pushed up global asset prices. As a result, the gap between the rich and the poor has increased.
On the other hand, the outbreak of the mobile Internet has accelerated the progress of science and technology and the division of labor around the world. The mobile Internet can penetrate every corner of the world at the fastest speed, greatly increasing the efficiency of the social division of labor. Old money, the financial representative, and new money, the Internet representative, became the biggest beneficiaries since 2008. In terms of housing prices in the United States, New York and San Francisco, which are dominated by finance and the Internet, have all reached a record high. Detroit, which is dominated by traditional manufacturing, has been in the doldrums for a long time.
As you can see, financial and technological leverage accelerated after 2008. The end result is that the gap between the rich and the poor is widening. The gap between industry and industry has been marked, and the gap between the countries has widened.
Global economic challenges for the next decade: how to balance the global economy
When the interests of the voters and the elites of society are not consistent, there is a massive outbreak of violence. The democratization of global society means that the voice of voters is becoming louder and louder. The general public found that their interests were not protected and began to seek change.
In any stage of society, the wise and the elite are the minority. Most people belong to the “mob”, and their IQ will be reduced in group fever. Groups are not good at reasoning but eager to act. These actions will eventually be the product of some kind of emotion.
Today, the voting power is in the hands of groups. The election of leaders, and even the promotion of policy, became a game of mass voting. Whether you are an ordinary person or an elite, whether you are a primary school culture or a doctor, whether you are a wealth or a social class, everyone has a vote, the same vote.
In the next decade, the global economic development will depend on how to balance the interests of voters and the interests of ordinary people at the bottom. Globalization has brought about the optimization of social division of labor, and the Internet has brought about a global increase in efficiency. But behind these is the accelerated concentration of social resources. Both individuals and companies and countries, wealth is quickly concentrated in the heads.
In this process, the world needs not only to balance internal contradictions, but also external game. Everyone is an individual in a group. At the same time, the pace of scientific and technological innovation will slow down as the global quantitative easing of the withdrawal and the aging of the population.
These contradictions will become the main theme of global economic development in the next decade. In history, each rise of the Populism will inevitably bring about major changes in policy direction and even lead directly to war.