• The politics of anger start influencing electorates, encouraging single-issue voting and an anti-establishment sentiment that upends traditional political structures.
Fourth, it turns out that the consequences are not just national, but also regional and global.
Low and insufficiently inclusive growth places considerable pressures on regional and global economic and financial constructs, with growing risk of fragmentation, as more participants lose trust in the implicit contracts that underpin them.
This doesn't just concern Brexit and, more generally, the challenges facing both the European Union and the euro zone. It is also about an international order that gives enormous privileges to the advanced countries (the core) in exchange for the expectation of responsible management.
The core gets to issue the world's reserve currencies (thereby exchanging bits of paper for goods and services produced by others), receives other countries' outsourced savings, and has de facto veto power in multilateral institutions. But the other side of this equation -- the expectation of responsible management -- has been shaken by a global financial crisis that originated in the core, recurrent European crises, an unbalanced policy response that is overly reliant on central banks and, more recently, anti-regionalization and anti-globalization rhetoric.
With no combination of smaller advanced countries and the developed world both able and willing to replace the malfunctioning global construct, the inclination is to build pipes that both bypass and lessen exposure to the core. You can see this playing out in China with the proliferation of bilateral payments agreements, the formation of the Asian Infrastructure Investment Bank and the New Development Bank, and the ambitious One Belt/One Road initiative.
The hope is that these efforts will end up reinforcing a revitalized global order. The risk is that they will fragment it.
Fifth, and perhaps most surprisingly, financial markets have become extremely comfortable brushing off all this unusual fluidity and uncertainty. This is made possible by the availability of ample liquidity and is underpinned by three beliefs that have proven remunerative on a recurrent basis: that growth, while low, is relatively stable and, therefore, predictable; that central banks will remain both able and willing to repress bouts of instability; and that the large sidelined liquidity, including the cash held on corporate balance sheets, will eventually find its way into the marketplace.
When combined, the main consequences of these factors are to make the low-level growth equilibrium increasingly fragile and unstable over time; to take to excess the decoupling of financial markets (and risk taking) from the real economy; to weaken forces of mean reversion; to increase tipping dynamics; and to open up a larger range of extreme outcomes, and not just negative ones.
The faster all this is internalized by policy makers and academics, the quicker the realization that growth fatalism is not just the wrong answer, but is dangerous, too. This is not to say that advanced economies do not face major challenges on account of demographics and technological issues, to cite just two. They do. But an important part of the recent growth shortfall is a self-inflicted wound that we can now better analyze, understand and solve. And the need to do so is getting more and more urgent.