By Benjamin Picton, senior macro strategist at Rabobank
I Predict A Riot
‘I Predict A Riot’ is a song by UK indie rock outfit ‘Kaiser Chiefs’ from the mid-2000s. I was aggrieved to learn on Twitter recently that this is now “old people’s music”, but the message remains modern enough. Riots broke out in France on Friday following the police shooting of a teenager who had been pulled over and found to be driving without a license. President Emmanuel Macron described the killing as “inexplicable and inexcusable”, which it undoubtedly is. The incident has reignited smouldering social tensions in France, and led to the largest protests since the Yellow Vest demonstrations against rising cost of living and economic inequality. The FT reports that some 45,000 police and various armoured vehicles were mobilised to counter the demonstrations. That’s almost double the strength of Wagner PMC, which successfully marched to within 200kms of the gates of Moscow just over a week ago.
France has a long tradition of manning the barricades in the fight for social change, but it would be wrong to think these latest protests are simply a continuation of the Gallic love of a good riot. To paraphrase Tolstoy’s Anna Karenina: “All happy societies are alike; each unhappy society is unhappy in its own way”. Most observers of international politics would by now have identified a theme of growing discontent among disenfranchised groups across the developed world who have grievances about worsening economic inequality and perceived institutional injustice, but these grievances manifest themselves in different ways. Readers may recall the situation in the United States following the death of George Floyd in 2020, where one expression of popular dissatisfaction was the short-lived autonomous zones in Seattle and Portland, where protestors occupied parts of the civic centre and proceeded to set up their own anarcho-syndicalist communes.
Further popular backlash may be on the way in the United States after the Supreme Court last week struck down Joe Biden’s signature student loan forgiveness program. This presents a new social flashpoint, as it affects some 40 million (mostly) young people with precious little asset wealth and increasingly gloomy views on their future prospects in an age of declining real wages, extortionate house prices and ChatGPT. Indeed, students are a particularly fertile group for fomenting social unrest. Peter Turchin’s Elite Overproduction Theory provides a neat explanation for why this is the case, essentially contending that societies run into trouble when they start producing more ‘elites’ than the power structure can accommodate. In a recent podcast with Bloomberg, Turchin notes that lawyers are particularly troublesome because of their understanding of institutions and power structures. This perhaps informs the political theories of ‘Dick the Butcher’ in Shakespeare’s Henry VI, who suggests that “first, let’s kill all the lawyers.” After all, Vladimir Lenin, Maximilien Robespierre, Marius Pontmercy... All lawyers.
The news of the loan forgiveness program being blocked should have come as a relief to bond markets, where the $400bn cost would have added to strains on US Treasury yields. So far though, the price action has been muted and the US 10-year yield closed the Friday session little changed at 3.84%. Similarly, the Euro has seen little reaction to the events of the weekend in early trade today as it holds above the 1.09 level that it climbed to following a slightly softer core PCE number out of the United States on Friday. European stocks posted healthy gains on Friday, with the CAC index outperforming most peers.
Adding fuel to the fire of the situation in France was the response of the police union, which issued a communique that left-wing leaders have described as an appeal for civil war. Threats against the government by the police are an alarming demonstration of how deeply riven society has become, and calls into question the institutional capacity of the West to deal with social troubles of this kind.
My colleague Michael Every has written extensively on the tensions between liberal globalism and illiberal nationalism in ‘Age of Rage’ (2019) and elsewhere. This contest of ideas is playing out all over the world. Trump-Biden, Brexit-Remain, Bolsonaro-Lula or even the recent Greek elections. People are unhappy, polarization is ubiquitous, and it’s starting to show even in trivial ways that may have once been unthinkable. Turchin points out that throughout history wise leaders confronted with these social problems choose reform from above, in preference to being confronted with revolution from below. This was the case in Tsarist Russia when Alexander II emancipated the serfs, and in doing so delayed revolutionary fervour for 60 years.
But tensions are building in Russia also. Vladimir Putin’s grip on power looks decidedly less firm than it did a fortnight ago, even as recriminations begin and suspected Wagner collaborators are rounded-up. Putin’s strategy is an unambiguous appeal to illiberal nationalism, but can that approach survive economic calamity, internal challenge and a stalling war against a country that has largely rejected the nationalist view of a unified state for ethnic Russians? And what about the rest of the developing world where a dollar liquidity squeeze and other geopolitical tensions threaten stability?
There seems to be no prospect of any of these tensions abating in the near term. I predict more riots.