Europe Is in More Trouble Than You Think: What the elite experts all have in common is the failure to grasp dynamic shifts that have taken place in our societies.

Author:Munchau, Wolfgang
 
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What the elite experts all have in common is the failure to grasp dynamic shifts that have taken place in our societies.

Remember Sam Wang, the Princeton professor who famously put Hillary Clinton's chance of winning the 2016 U.S. presidential elections at between 98 percent and 99 percent? Or the various pre-Brexit polls in the United Kingdom that had Remain so far ahead that Remainers effectively stopped campaigning? Or the various Italian pointyheads who kept reassuring their international audiences that the Five Star Movement would never get to power?

One of the reasons why the so-called populists have become so successful on both sides of the Atlantic is the persistent tendency of the liberal elites to underestimate them. The deep issue is not the failure to get a result right or wrong on election night. It is about the failure to understand what is behind the growth of anti-establishment forces. That failure is systemic. We keep getting it wrong. And when we do, our tendency is not to blame our underlying models but seek comfort in conspiracy theories, or blame the allegedly right-wing press or Russian interference.

The simple truth is that Professor Wang relied on a silly model that fails to capture the underlying political dynamics of today's United States. The same is true of the majority of opinion pollsters in Europe as well. Many macroeconomists are still reliant on rational-expectation-based economic models that have no hope of capturing the dynamics of our complex |post-crisis economies. I would agree with the assertion that Brexit is a tragedy for Europe but it is specifically a tragedy for the economics profession because its massively exaggerated warnings about the economic impact of Brexit were unmasked. The International Monetary Fund, the OECD, the UK Treasury, and the Bank of England look no better than Professor Wang. What they all have in common is a failure to grasp dynamic shifts that have taken place in our societies. Their models are the alchemy of the twenty-first century.

If you want to get a better sense of what is going on, you might want to spend some time in less fashionable parts of eastern Germany or northern Italy. These are, by comparative European standards, wealthy regions. But East Germans have been through a long period of de-industrialization, brain drain, and rising immigration. The hope of catching up with western Germany is lost at least for the current generation. This is where the Alternative for Germany (AfD) has its deepest roots. The core of its membership are angry older people, who feel overwhelmed by the fast social changes around them: the extremely visible rise in immigration...

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