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The Yellow Vest Protests are a Canary in The Coal Mine

Civil unrest has broken out in France as a global economic downturn is just getting underway. The significance of this warning sign should not be underestimated.

The Yellow Vest Protests in France (les gilets jaunes) were never about a fuel tax. This was made clear when Macron caved in to their initial demands and cancelled it. Nor is this merely an expression of Macron’s unpopularity (though a 25% approval rating certainly doesn’t help). A deep undercurrent of discontent has been rising in western Europe, and the conditions which are fueling it are set to accelerate.

A 2015 study which compiled data on nearly 100 financial crises since 1870 observed that far-right parties are the primary beneficiaries of financial crashes. Further research demonstrated that wealth inequality exacerbates this trend.

When living conditions deteriorate and a population is frightened, people tend to gravitate towards strong leadership and groups which offer a sense of collective identity and order. National, religious, and racial heritage provide low hanging fruit. The left typically underestimates these forces, and overestimates the power of their own ideologies. Also their contempt for tradition and authority undermines their ability to organize much beyond brief shows of collective force (Occupy Wall Street for example).

Researchers have found that populist surges are usually temporary, and that within five years voting patterns usually return to their pre-crisis status quo. However in the aftermath of the 2009 financial crisis the response was different. This time around populist movements were still on the rise a decade later, and were gaining strength as a new crisis approached. Why?

Most of the money created by central bank stimulus over the past decade was funneled to the wealthiest strata of society, who mostly reinvested it rather than spending it into the economy. As a result inequality levels increased globally. In 1980 the top 1 percent held close to 10 percent of the wealth, by the year 2016 this share had doubled to 20 percent in the United States.

As central banks begin reversing stimulus (quantitative tightening), money is being sucked out of the economy faster than it was injected. Monetary and credit conditions are being tightened simultaneously into a crash. As this crash unfolds, and living standards are meaningfully impacted, we will see upheavals throughout the West make the yellow vest uprising seem quaint. History will remember them as a canary in the coal mine.