Angrynomics. Eric Lonergan

next dialogue, we have been through two big iterations of this tussle between states and markets, between openness and democratic responsiveness, in modern times. The first set of rules was established in the aftermath of the Second World War and the Great Depression. The new rules were about limiting the reach of the market through controls on finance – making sure that capital is invested at home – targeting full employment to prevent the 1930s returning, and imposing high taxes and transfers across the economy in order to build a welfare state.

      This system, as we shall see, functioned quite well for about 25 years. But the flaw was that it generated inflation, and labour’s bargaining power eroded profits causing declining investment spending. The response to the stagflation of the 1970s – falling growth and rising inflation – was to “disinflate” by opening-up financial markets, privatizing state assets, deregulating businesses, thereby “freeing” capital from the constraints of the nation state to find its highest return. This was construction of what we call today the neoliberal order – what Rodrik calls “hyper-globalization”.

      If you were an investor in the years after the Second World War, you were bound to the territorial nation state, which meant that local labour could quite effectively exercise its voice through strikes to claim its share of productivity gains. But what happens if capital can go global? What happens if capital can exit the nation state but labour stays local? Or if they can move your job abroad, which is the same thing really? They take away the ability of labour to demand their share, along with their voice. And since the 1980s this is what has increasingly happened.

      Labour’s ability to demand their share of national income declined dramatically, and business entered a new golden age – as did inequality. The numbers are now so well-known as to be commonplace. According to the World Income and Wealth Database – the source with the most complete picture at a global level – the top one per cent globally captured as much income growth as the bottom 50 per cent of the entire world economy since the end of the 1980s. Across Europe the top 10 per cent have 37 per cent of national income. In the US the figure is 47 per cent, which is higher than in Russia. In the US in particular the rise of the one per cent has been accompanied by the collapse in the income share of the bottom 50 per cent from 22 per cent to 13 per cent of national income. The poor really have gotten poorer as the rich have gotten richer.

      In the UK after the crisis real (inflation adjusted) government spending fell by 16 per cent per person. At the local level it fell by nearly a quarter, with some areas losing nearly half, yes half, of their budgets.¹⁵

      You will not be shocked to know that the areas with the deepest cuts swung most heavily nationalist (to UKIP) at the time of the Brexit referendum.

      Given this, when we talk about the rise of tribal political parties emerging under angrynomics, we need to stress that this is absolutely not about reigniting a latent tribal political identity that is somehow genetically inherited. England, after all, has only been around in its modern form for a few hundred years. And yet here is a genuine sense in which much of the political class, everywhere, at a national level, feels both neutered and powerless in the face of globalization while nonetheless profiting from this skewing of incomes. Regardless of whether it’s left-wing or right-wing nationalism, the re-emergence of so-called “populism” then becomes phrased as the struggle to protect the nation and the national economy against “outside” forces that produce these inequalities. The Brexit campaign slogan of “Take back control” resonates for a reason.

      I think we can also see this very clearly in the 2016 US presidential election. It is very telling that the five states that were supposedly solidly blue-collar Democrat, but turned out for Trump, were the ones that suffered the most in terms of de-industrialization and the export of jobs. One of those states, Wisconsin, lost one third of its industry, not to Mexico or China, but to Southern “right to work” (union-free) states in the 1970s and 1980s as business migrated south. Wisconsin has been in relative decline for a very long time. NAFTA in 1994 and then China joining the WTO in 2001 accelerated that feeling of decline and actual job losses, and over time the Democratic Party coalition that tried to embrace unions, free-up trade, and profit from global finance all at once fractured. After all, these policies of trade openness and global capital were championed by Democratic administrations, but mainly hurt Democratic Party loyalists.

      These dynamics, and not just in Wisconsin, have been 30 years in the making. As I noted earlier, back in the 1970s, we had a world where labour unions were strong and because capital was local rather than global, they had real bargaining power against capital if they went on strike. In such a world workers could get a better deal in terms of how profits were shared, and we saw this in the data. Labour’s share of national income in the US peaked in 1973 and has been in decline ever since. That decline parallels the rise of a world where unions are all but extinct in the US and are much weaker than they were in Europe. Even German unions know that globalization starts 60 km outside of Berlin with the threat to move jobs to Poland should German workers ask for more than whatever their employers are willing to give.

      Similarly, in politics, parliaments are increasingly impotent with the important stuff given out to technocrats – to independent central banks, to the WTO, to the EU. The elected politicians are effectively governing over less and less at the same time as the stresses on their constituents, macro and micro, are increasing. We went from a world that was very labour friendly, relatively closed, and that provided a social safety net, to a set of institutions that generates a massive skew in the returns going to the very top of the income distribution while uncertainty for the majority increases – all while the media tells them that it’s their fault.

      ERIC: Okay, so the first clear source of legitimate anger is a loss of voice – anger as a response to being ignored, or having your voice taken away from you via an empty “democratic” ritual. Representative politics, through the emergence of a post-Cold War technocratic centrist consensus, stopped listening. This was compounded by globalization – particularly the free movement of capital and the inability of labour to negotiate its share – and in Europe, by the power grab of a centrist technocracy.

      You argue that these concerns pre-date the financial crisis and need to be seen in the context of 30 years of political and economic change dating back to the 1980s. At the same time, something manifestly went wrong in 2008, which you describe as “super-charging” these latent trends. The parable of the Garcia family, which started this dialogue, gave us a sense of this. Voice matters most if we have something important to say. Why did our political and economic elites have so little to say in response to the 2008 financial crisis?

      MARK: For me, the primary problem was who they listened to rather than what they had to say, and it wasn’t the Garcia families of this world who caught their ears. Rather, the failure of policy-makers to deal effectively with the recession following the 2008 financial crisis, and subsequently the 2010–15 euro crisis suggests that like income, listening skews to the very top. The euro crisis, much more than the crisis in the US, showed beyond any doubt that a policy of cutting spending in a recession only ever makes things worse. But they knew that already and went ahead and did it anyway. And then they doubled down on it, even when they saw it wasn’t working.

      The severe recession that began in 2009 triggered legitimate anger. In the United States, joblessness rose to the highest level of any postwar recession, and the recovery was tortuously slow. Recessions of this severity and duration impose terrible economic and social costs on the public. In Europe matters were even worse. Despite being the supposed home of ample welfare states, which have in reality been dying a death by a thousand cuts for the past 20 years in many cases, we haven’t seen economic devastation of this order of magnitude since the Great Depression. Greece instigated more spending cuts than any country and unsurprisingly they lost 25 per cent of GDP and a third of all jobs in doing so.

      ERIC: The most extreme case is Greece, but Portugal, Spain, and to a lesser extent Italy, saw similar economic and social damage. Much of southern Europe has experienced persistent youth unemployment rates of 30 or more per cent for almost ten years. Yet, this is completely unnecessary and is the result of grotesque policy errors. If we know one thing in macroeconomics, it is that mass unemployment is a terrible blight on society with long-term consequences, but it can be eliminated