top of page
Search
Writer's pictureCredence Capital IIM Lucknow

Why we got it all so wrong

Read anywhere, and both Brexit and Trump’s victory come as “stunning upsets”, “shocking”, and “unexpected”. Financial markets moved massively when the outcomes became clear, only to revert to pre-result levels within days, or even hours. One nagging question that made me write this piece was, how did we all get it so wrong? Why did so many scientifically conducted polls not catch the underlying reality? And why has the world suddenly become so irrational?


The common theme in the two polls was that one side or outcome was clearly preferable over the other, according to pundits. We as rational intelligentsia and expert opinion-makers so strongly advocated the UK to remain in the EU, and the US to elect Clinton as the president.


Exact opposites happened.


The artificial perfect world: why the exact opposite happened


Rationalists opined that leaving the EU will cost UK tens of thousands of jobs, slow GDP growth by 1-1.5% points, disrupt trade and capital flows, and weaken the pound significantly. All this was true perhaps. But the point we missed was, who does all this matter to? Banks? Yes. Large corporations? Yes. Government? Yes. A housewife? A sewage cleaner? A butcher? An old pensioner in a small village whose grandchildren are losing jobs to foreign migrants? Maybe no.


Trump’s anti-trade and anti-migrant stance also created similar studies which projected dire consequences if Trump came to power. We, who are used to explaining everything using numbers and logic, said that his plans would cost billions of dollars, multiply national debt, and lead to job losses. And we thought most people think the same way because this is the rational way of evaluating the choices.


The reality is, we have no idea how the majority of people think. People whose incomes have anyway not multiplied under a “saner” administration, don’t care about GDP growth falling 1% or even 5%. People who lost jobs to other countries do not care how much the stock market moves, how much more or less the large companies that moved to those jobs abroad make, and what happens to national debt or whatever. Someone promised to bring back those jobs, and some plan to keep migrants away (even is that’s as ridiculous as building a wall), and that does matter to the majority. It’s not always the high level rational numerical argument that makes a difference at a micro level.


But what about the apparent moral transgressions of Trump? Shouldn’t people have worried about that? The answer to this may perhaps be best summed in a statement by Trump supporter I read somewhere, “I’m not electing the Pope.”


Project Fear: why we couldn’t catch it in polls


Until even one day prior to Nov 8, the average of major opinion polls put Clinton ahead of Trump by over 1% point. Ditto for Remain over Leave, for the UK. The trends were also broadly in favour of Clinton and Remain. In fact, the release of a tape where Trump used objectionable language against women, and death of Jo Cox, the pro-Remain MP in the UK, both gave a shot in the arm to Clinton and Remain camps. And polls reflected that. Then why was the outcome so starkly different?

Amidst all other theories, the one that I find most plausible is that the voters of Trump and Leave were not openly admitting their support for Trump and Leave. And this was thanks to what at places is called Project Fear.


Supporting Leave and Trump was demonised to the extent that people who, for whatever reasons including the ones written above, simply became mute about their preference. A lady I spoke to in New York about what she would do on November 8th, did not give a direct answer on who she would vote for. She at first just criticised politicians in general, and upon slight persuasion, became critical of Clinton’s economic plan and revealed her lack of trust in her. The maximum that she gave in was to admit that she “was a Republican supporter”, but did not fail to qualify it with enough “buts” and “ifs” to avoid the impression of preferring Trump. I am sure as hell she went and voted for Trump, and knew back then that she would.


So many other women, including those from minority communities, did actually vote for Trump. The only statement that I think turned out to be spot on, was “the silent majority”. Majority or not, it certainly was silent.


Similarly, a Leave supporter would get shouted at for being “xenophobic” and “anti-growth”. Various studies by economists, bankers, and politicians showed UK GDP growth suffering due to Brexit and predictions such as these were rubbed in the faces of Leave supporters. Little wonder then that Leave and Trump supporters simply went silent about their vote, and polls simply did not catch them appropriately.

- Umang Khetan

60 views0 comments

Recent Posts

See All

Why Central Banks Matter

An essay. Financial markets nowadays seem to be driven by (expected) central bank action more than anything else. Barring major events...

Comments


bottom of page