The earliest U.S. Presidential campaign that I can remember is the Kennedy/Nixon race of 1960. I think every campaign since then I have heard some pundit describe as “historic.” These were supposed to be campaigns that fundamentally changed both how Presidents are elected and the course our nation took. In retrospect, calling these elections historic was hyperbole. If the term is to have any meaning, every big event cannot be historic in the sense that it represents fundamental change.
Not surprisingly, some commentators are calling the vote by the British people to leave the European Union (Brexit) historic. It is variously explained as the end of globalization, an uprising of downtrodden middle classes, racism, unbridled populism, or the rebirth of nationalism — a triumph over encroaching transnationalism.
To think about where the Brexit vote fits in the sweep of human history, I turned to one of my favorite books on big history, The Human Web: A Bird’s Eye View of Human History by William McNeill and JRR McNeill. The McNeills review the growing interconnectedness of human culture over thousands of years. They explain the growing complexity and integration of human society as largely a matter of human preference. “…most people, most of the time, prefer collective and personal wealth and power to poverty and weakness, even at the cost of subordination to rules and commands issued by distant strangers.” (p. 43)
The Brexit vote looks like a rejection of that preference by at least a small majority of British voters. The question from the bird’s eye view the McNeills take is whether this rejection is a temporary anomaly or a fundamental shift in modern society deserving of the term historic. Just because humans have opted for growing connectedness to gain greater wealth and security for centuries does not mean that this trend must continue into the future. Fundamental change may be afoot. Or, we may simply return to the previous path of integration and growth after this temporary crisis works itself out.
I will write about this crisis in three parts. In the balance of this blog, I will propose a simple explanation of the root cause of the Brexit vote. This root cause affects not just Britain but has implications across the planet. In Part II next week, I will explain an arcane bit of economic theory that infiltrates our public policy on economic growth and relates to the root cause of Brexit. Finally in Part III, I will suggest an alternative path forward for modern society in the concept of sustainable de-growth.
Two charts capture the essence of this problem facing us in the richer nations of the world today, including Britain. The chart above I discussed in one of the first blog posts I did for “Stirring the Pot” called Class Warfare. This graph shows the share of income in the U.S. captured by the top 10% of earners, a simple measure of income inequality. Ever since the middle 1970s there has been a dramatic increase in income share going to the wealthiest in our society and in Britain as well. Income and consumption for almost everyone in our society went up over this period, but it went up dramatically more for the richest. (Ironically, income growth was supposed to reduce inequality, a phenomenon called the Kuznets curve.)
There is no clearer picture of this change than in the second graph below, the median income of CEOs of America’s biggest companies. That median income is now almost $10 million per year, after adjusting for inflation.
Economists have long known that relative income is more important for a sense of wellbeing than absolute income. This is a key finding of happiness research. So even while the material consumption of most Americans has increased since the 1970s, many feel worse off because their consumption did not grow as much as the wealthiest in our society. Being richer in absolute terms yet poorer in relative terms breeds discontent.
Of course the dissatisfaction is much deeper than just income and wealth inequality. Many feel let down by the promise of post-World War II economic growth. This promise was greater human wellbeing from rising income levels, reliance on free markets to allocate resources (including greater international trade), and greater material consumption. For virtually all Americans these promises were fulfilled. By any measure – housing size, food availability, travel, health care, longevity, clothing, communication ease, or entertainment consumption – the vast majority of Americans have dramatically more than in the 1950s.
So if Brexit is a fundamental shift, an historic event, it is because it reflects a fundamental questioning of the economic logic Western society embraced after World War II. Growing income from free market economies alone may not be a path to human wellbeing. The British may be rejecting the global integration reflected in the European Union, even at the cost of losing growth in income and greater material comforts.
How did we get ourselves into this fix? Is this a product of inherent human nature? Or are there other ways to organize our society that humans might have chosen? In Part II, I will explore the ideas behind the theory of welfare economics to see how the pursuit of economic efficiency leading to greater inequality was justified. Some economists thus provided a rationale for the system that led us to this crisis of our age. Understanding how we got into this circumstance offers a more sustainable path forward.
*With apologies to Pitirim Sorokin, whose 1942 classic was entitled, The Crisis of Our Age: The Social and Cultural Outlook.