Economist says ‘contract’ between ‘rulers and ruled’ is broken, portending social unrest and anti-establishment rise

Thursday, March 31, 2016 by

(Bugout.news) A noted libertarian-leaning economist has said that the social contract between the world’s ruled and those who rule over them has been shattered, sparking massive distrust and anger among the masses and leading to the rise this year of unconventional presidential candidates.

In addition says Steen Jakobsen, chief economist at Danish investment bank Saxo Bank, it’s possible that the world has reached the a nadir in terms of political ambitions, investments, capital expenditure, employment, inflation and overall growth, which could usher in massive social unrest in the months and years ahead. And, as reported by CNBC, he believes this marks the end of “planned economies” that came into fashion following the fall of the Berlin Wall.

In a research note he issued recently, Jakobsen said the ratio between employee compensation to gross domestic product in the United States is now at the lowest point in history (this comes on a day when reports noted the annual salary of Google CEO Sundar Pichai hit $100.5 million last year). That’s a key reason why he believes Donald Trump has risen to the top of the political hill and why American voters want anyone but a so-called “establishment” candidate.

“Hillary Clinton cannot win the U.S. election. She is the epitome of the establishment class, of the elitist order,” he wrote in his note. “Trump, on the other hand, is so far away from being a politician that he represents chaos in a world of order, and this is what U.S. voters want.”

This break in the traditional “social contract” can also be seen in antipathy towards how the world’s central banks are handling the economy, Jakobsen said.

“No one cares about the (Federal Reserve). No one knows about the anchoring of inflation expectations. No one knows what the Fed is doing,” he told CNBC in an interview this week.

“We have glorified central bankers in the world today who have behaved like rock stars. Some of them like (European Central Bank President Mario) Draghi clearly enjoys being in the limelight. But the effect of what they do, the marginal impact of what they do, is deteriorating and massively so,” he added.

He says such anti-establishment attitudes are also leading to rising nationalist sentiment in many European countries, sentiments that are also tied to a string of terrorist attacks by Islamic extremists.

“The market will not like this, and as stated, the price for this transition is that Wall Street will need to do worse, partly because of a transfer of income to Main Street and partly due to the need for an increase in capex, but this is a good thing,” he said in his note.

“The alternative is more of the same emergency nonsense we have lived with over the last eight years.”

Earlier we reported that this political unrest, coupled with growing economic disparity and job losses due to low growth and robotics will indeed create more social chaos in the near future.

In practical terms, according to an August 2014 analysis by Standard & Poor’s, as the income gap has widened, it has created an undercurrent of social unrest that, should the trend continue, will worsen – perhaps even to the point of civil unrest.

A degree of inequality is to be expected in any market economy. It can keep the economy functioning effectively, incentivizing investment and expansion–but too much inequality can undermine growth,” the analysis notes.

“Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring,” it continued. “Keynes first showed that income inequality can lead affluent households (Americans included) to increase savings and decrease consumption (1), while those with less means increase consumer borrowing to sustain consumption…until those options run out. When these imbalances can no longer be sustained, we see a boom/bust cycle such as the one that culminated in the Great Recession.”

See also:

CNBC

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