Do you hear the people sing? Singing the song of angry men?

By gaining the people, the kingdom is gained, and, by losing the people, the kingdom is lost.

The next crisis is coming. It will be a severe downturn for which we are unprepared. Economically unprepared – our traditional means of action, be it fiscal or monetary policy, are no longer effective or available. Politically unprepared – we are left with a fragmented political system where the dissenters to a broken social contract are now an emerging majority that is unable to articulate a set of rational policies. But worst of all, we are intellectually unprepared. For we have no coherent understanding of Western societies’ deep sources of frustration. It is high time for the developed world’s elites to shred the veil of denial, to confront the facts, to have the courage to hear the complaints of the majority of dissenters, to dare to speak out and act. For the next crisis is coming, and there is little time left to make sure it won’t turn into a full-blown political meltdown.

We are facing the failure of Western elite.1 They no longer are the best of us, but a stagnant ruling class. Blinded by unprecedented opulence, wrapping itself in political correctness, its chief concerns are preserving and increasing its power and privileges. In the process, it has severely limited the flow of social mobility, insuring its own decay and growing incompetence over time. This has led to an increasingly inefficient government, with no vision other than maintaining the status quo and catering to special interests. These special interests influence the government through various means to extract, protect, and maximize monopolistic type “rent,” benefiting a few at the expense of the many. This is in essence the opposite of both capitalism’s and socialism’s tenets, for it is simultaneously an abuse of free markets and a confiscation of resources from the many by a few for the few.2

The seeds of today’s unsustainable social pressure are many and go back decades. They are society-defining issues, results of long term ‘super-structural’ policies – or a lack thereof. They range from real estate, to health care, education, monopolies, over-financialization, unfair trade and uncontrolled immigration. The cumulative burden of the choices made in these areas has fallen disproportionally on the lower and middle classes. They have reduced upward mobility,3 making the world not only more “unfair,” but the future more hopeless.

Faced with the growing pain, but unwilling to tackle its causes, successive governments across the developed world have used and abused fiscal policy to buy political relief. Inflated and unfinanced social spending bought temporary social peace and votes, but progressively rendered the state powerless and indebted. With little fiscal room to maneuver, monetary policy eventually became the only game left in town. But propping up asset prices with interest rate cuts systematically enriched a few, reflated burst bubbles, promoted speculation and encouraged moral hazard. Eventually, even monetary policy became inadequate. In response to the last crisis, we took a leap into the unknown, embracing untried quantitative easing policies and kicking the can of economic problems down the road to the next recession. In the process we became addicted to easy, seemingly costless money. But quantitative easing has arbitrarily compounded the assets of the wealthiest, breaching our social contract. Though few yet recognize it, mishandled quantitative easing will someday detonate decades of accumulated social-economic discontents.

The wave of popular dissent, apparent from Brexit to Trump to new populist governments across the Western world, has already had major consequences. Yet it has been all but denied, dismissed and disregarded by the well-to-do and an arrogant intellectual elite. It is pictured as an irrational tantrum bound to self-correct, an abhorrent aberration, as if ignoring and disparaging an inconvenient outcome would make it go away. But seldom has a disease been cured, a problem resolved, by ignoring the symptoms. Indeed, more often, the symptoms are part of an unpleasant reaction triggered to defend a besieged system, restore a natural balance, as a necessary fever would render bedridden an infected body so that it could better kill off the harmful virus. But such an immune system reaction can all too easily slip into hyperdrive and kill the host together with the disease.

The popular backlash is the tip of the iceberg, resulting from decades of established economic dogma all but ignoring the current regime’s losers. It has just started, and the dissenters within the Western world progressively discover they are in fact a majority. Emboldened, they increasingly challenge their out-of-touch ‘elite’ and the globalized world paradigm that has so disserved them. As they gain strength and reach the levers of power, they start proposing short term palliative “gut”-driven policies that have often not been thought through, from imposing tariffs on partners with whom they have a trade surplus to trying to block migrants who then just get offloaded to neighboring countries with whom there is free cross-border movement of people anyway. While these measures may temporarily relieve the pain, or at least give the impression that globalization’s losers within the Western world are finally seeing their grievances addressed, they have not been articulated into any long-term coherent policy.

Here we stand, confused and unprepared, as the next crisis looms.


Facts do not cease to exist because they are ignored.

It is dangerous to be right in matters where established men are wrong.

It is time for the Western world elite to show some intellectual humility and confess their ignorance – before it is too late. They pretended they knew what was happening on the eve of the populist shocks. Now they pretend to know how we ought to recover once this irresponsible populist insurgence has receded. Yet the gap between reality and elite understanding has never been so important or so blatant. Holed up in their ivory towers, confident in the beauty of their increasingly elaborate mathematical models and intricate legal frameworks, which bear little relation to the real world, they have lost track of what prosperity even is, not to speak of how to achieve it, share it, and transfer it.

We need look no further than the last financial crisis to remember that elite assurances that they understand the systems they govern and are safeguarding the public interest have little worth. In fact, the last crisis demonstrated that all we thought we knew in macro-economics and finance risk management is essentially wrong.

When push came to shove, government decision-makers tried to prevent the worst by swiftly taking desperate measures. In the blink of an eye, they admitted that they had little idea of what was going on beyond the immediate issues they were scrambling to address.

The chief economist of the European Central Bank confessed he learned of the crisis by reading the morning newspaper. The Chairman of the Federal Reserve acknowledged that inflation was a “mystery.” Financial Times, 2017 For all their powerful intellect and lifelong dedication, the best we can say for the finest economic minds of a generation is that they were, for a while at least, brutally honest about how little they in fact knew.4

Despite this fiasco, remarkably little thought has been put into understanding what went wrong, the possible negative impacts of globalization and liberalization policies preceding the crisis or the side effects of the desperate measures taken to alleviate the worst crisis in a hundred years. In fact, if anything, a whitewashing exercise has taken place, denying the political implications of the measures that were taken, ignoring the collapse of the economic paradigms in the process.

It is past time for such reflection to begin in earnest. The extraordinary policies implemented in the heat of that moment have dangerously tilted the equilibrium of our societies. We continue to act as if economic issues are somehow disconnected from political ones. The intrinsically political nature of deciding what prosperity looks like, and how to make it sustainable, has been denied. With the rise of populism, the political part of political economy is coming back with a vengeance. Elite decision-makers are intellectually, even psychologically, ill-equipped to respond. Denial is not a sustainable policy.


In fact, laws are always of use to those who possess and harmful to those who have nothing: from which it follows that the social state is advantageous to men only when all have something and none too much.

As a society, we are and always will be faced with limited resources and unlimited needs. The questions of how we share what is produced, decide how much should be invested rather than consumed, or indeed how to reward the most productive among us is bound to always be contentious. These are by nature as much political as economic questions. For decades, policies meant to optimize economic outcomes have ignored political side effects. This is unsustainable. Economics interacts with politics, and an equilibrium in that interaction is what makes societies work.

This is why a social contract is needed. All participants must be stakeholders, and to be convinced that, even if the outcome is not equal, it is fair and that ultimately everyone is better off. This contract may not be a deliberate, voluntary agreement, but more of a tacit acceptance, that even though things are not perfect, they are both for the greater good of society and acceptable at a personal level, so that consequently we accept and adhere to it.

This has profound consequences for what a society can and cannot do without facing a breakdown of the social contract. An over-concentration of wealth and abuse of money printing, for example, would eventually undermine the legitimacy of property in the eyes of many, destabilizing society. Policymakers have to recognize such social constraints and aim for a process that is not only economically efficient but politically sustainable.

As there will inevitably be losers when the patterns of allocations shift – be it because of trade, or regulatory change – one first has to have in place a safety net to prevent people falling through during these periods of adjustments.

Then, as the winners of these changes accrue their profits, a mechanism must be put in place so that the losers can share in the gain. Otherwise, changes will not be viewed as win-win and strong localized opposition will develop.

Lastly, as much as possible, it is not equality of outcomes per se that should be the goal, but rather fairness, the equality of chances to be among the winners, at least so far as is reasonable and one can be said to deserve it.

The importance of fairness of chance is illustrated by growing disdain for elites who start to seem less and less brilliant. Vilfredo Pareto Pareto, the Italian social scientist, explained the differences between the bloody French Revolution and the relatively civil English evolution were due to the English elite’s willingness to absorb new blood into their ranks based on merit. The French aristocracy, on the other hand, jealously guarded its blue blood lineage and privilege. It was not a matter of material inequality. The French peasants guillotining their elite were, at the time, the richest peasantry in Europe. But they felt they did not share fairly in the nation’s wealth, and that, because of the strict division of classes, even the best among them would never be able to.5

In fact, while the sense of the word has been distorted in time, it is worth remembering that etymologically “aristocracy6 did not refer to a class of hereditary overlords, protected in their privileged position by a set of structural safeguards. Originally, the word meant government by the best. With each new generation, many of the children of the old elite would maintain their position, but there was room for the brightest and most ambitious of the lower classes to claw their way up as well.

That aristocracy became synonymous with hereditary government illustrates the extent of the Ancien Régime’s problems.

Unfortunately, there are many signs that the Western world has again forgotten these principles and alienated its working classes under a set of laws, regulations and market structures that always favor the same few while stifling the social mobility necessary for the rule by the best to be perpetuated.

For one, wages have been stagnating for the lowest-paid and exploding for the highest.7 This is unequal but under certain circumstances could be fair – so long as the children of lower classes have a decent shot of joining the ranks of the highest-paid. As it happens, mobility between incomes deciles has also been declining, making the distribution both less equal and less fair. It has resulted in a concentration of wealth and of wages increasingly unrelated to one’s ability. Sociologically and economically we have entered an increasingly inefficient allocation of our human capital, while at the same time creating relatively harsher condition for all but the most well-endowed.

It has been suggested that this is not important, for even if inequality has grown and social mobility decreased, the lowest among us still would be better off than before. This is wrong not only because real income calculations fail to capture the rising costs of necessities, but also because of the importance of fairness in the social contract. Wealth, by nature, is largely a relative thing. The numerical collective illusion called wealth, is, ultimately, society’s recognition of someone’s right to use part of its resources as a reward for past contributions to the common good.8

The recent rise of the populist parties must be interpreted as a belated recognition of the break-up of the Western world’s social contract. A majority has been left out. It has a smaller absolute share, lower mobility, and uninspiring change in its socio-economic conditions. No wonder then that the dissenters themselves are surprised by the audacity of their complaints, willing to challenge the self-serving elite and impose redress on behalf of the losers of globalization.

Protest Party Vote Rising (The Next Crisis)

Distribution of Wealth Since 1917, U.S. (The Next Crisis)

Personal Income Vs Income Concentration (The Next Crisis)

Social Mobility By Income (The Next Crisis)


… there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things …

The object of this book is to review and understand the causes of this state of affairs and create an intellectual canvas for analyzing and addressing the issues faced by this rising majority of dissenters. This requires a willingness to both review the facts in a new light, with the benefit of experience, and to discard the sterile pretension of political correctness.

Wealth inequality is perpetuating itself and becoming more extreme. Real estate, health care, and education have become less and less affordable. Excessive financialization has diverted resources from productive economic activity. Globalization has destabilized large segments of the public and rendered them economically obsolete. Industrial consolidation has hampered competition and rent-seeking special interests have successfully co-opted government. A decade of quantitative easing has further transferred wealth upwards in ways that affect many but are understood by few.

Along the way, this book examines the decades of policy choices in which these problems are rooted and offers a comprehensive tool-kit of proposals to pick and choose from in order to relieve the pain of the put-upon majority.

It is bound to make mistakes and offend in the process, even if it is not meant to. New solutions must be considered, even if some will prove erroneous or sub-optimal and, in turn, will have to be discarded.

These proposals are made not because they are perfect solutions, but because it is necessary to kickstart a debate about how to seriously address the grievances of globalization’s losers. Replacing the win-lose policies of recent decades with those that are truly win-win is the only way to prevent a looming, catastrophic political-economic crisis. The dissenters have now discovered they are the majority. They, and their pain, can no longer be ignored. They must be addressed in a rational and effective way.