This post is part of a series of posts that summarizes the book Angrynomics by Eric Lonergan and Mark Blyth.
If you found this post via search, it probably makes sense to start with the link to the full series, which is both here, and above.
Angrynomics and tribal energy
Tribal energy polarizes the electorate, threatens violence (the 6 Jan 2021 riot at the US capital is an example, the death threats to school board members around the country are another), and wins elections.
And it has its origins in our feelings that neoliberal capitalism works for a few and leaves the rest of us behind.
What makes capitalism capitalism?
Markets, trading, prices, etc have existed for thousands of years, so what makes an economic system capitalism?
Labour is a commodity?
Of primary interest is the idea that labour is defined as a commodity and an input to production.
Having said that, there is one very large difference between labour and other commodities.
Labour is THE commodity that has strong opinions about how it’s priced.
Other commodities seem indifferent.
Economic nationalism is push-back against this idea
Since what allows big businesses to treat labour as a commodity is globalization, which as we discussed previously dropped the income levels of entire communities in the industrial and manufacturing heartlands of first world nations, the obvious push back is “not globalism”, which is nationalism.
“Made in [fill in the blank]” becomes a rallying cry, but the people rallying around the cry tend not to have the capital to make it happen, the people who do have the capital to make it happen are the ones benefitting from it not happening.
Economies do NOT reach equilibrium at full employment
And of course, as we’ve now definitively known since the great depression, economies do NOT reach equilibrium at full employment.
In fact, the evidence of 1929 and 2008 suggests economies do not reach equilibrium at all.
If they did, how could external shocks (which actually were not external but were baked into the financial systems) cause the entire economic system to be on the verge of grinding to a halt without a massive injection of liquidity (money) from the currency-issuing governments?.
History of capitalism
Eric and Mark argue that there has not been one capitalism, but that over time, we’ve tried different configurations and setups, each of which had its inherent problems.
While Adam Smith, who is weirdly considered to be the father of capitalism, and not the father of economics, wrote his now-famous book in 1776, capitalism is considered to have gotten into full swing as the industrial revolution was well underway, even though Adam Smith wrote his ideas about what he saw, which means capitalism predates his book.
Capitalism 1.0: 1870 to 1930
From 1870 until 1930, the dominant ideas about capitalism were: economies reach equilibrium at full employment, sometimes “external” shocks cause problems, but since the economy will fix itself in time, the proper course of action is to leave it alone and wait for that to happen.
Eric and Mark call this configuration of capitalism, capitalism 1.0.
The failure of capitalism 1.0 was the widespread unemployment during the great depression.
Capitalism 2.0: 1945 to 1975
When the great depression showed us clearly that economies do NOT reach equilibrium at full employment, the British economist John Maynard Keynes offered a different set of economic ideas, which let us collectively adopt/create a different configuration of capitalism.
We decided to “tune” our economic policies to target full employment.
The set of ideas making up this configuration was: what drives prosperity is investment spending, investment spending to boost production grows the economy (good), investment spending for assets (real estate, stocks, bonds, etc) create asset bubbles (bad), and when private sector investment spending dries up, growing the economy requires the currency-issuing government to deficit spend to make up the difference.
The failure of capitalism 2.0 was the stagflation of the 1970s when we simultaneously experienced high inflation and high unemployment.
Capitalism 3.0: 1975 to 2008
When the combination of high inflation and high unemployment killed off capitalism 2.0, we once again re-tuned our economies, this time to target price stability.
And the degree to which this target of price stability permeated government policy can not be overstated.
We even went so far as to allow mergers and acquisitions that at face value seemed like “too large” a concentration market power, because the criteria used was “Will this merger likely raise prices for consumers? If no, approve it”.
The policy adjustments we made were: we sacrificed organized labour on the altar of price stability, deregulated finance, embraced globalization, and allowed “independent” central banks to do whatever it took to hit their interest rate (cost of money) target.
I put independent above in quotes because central banks operate under a government charter, and they are independent within the limitations of that charter.
So the various legislatures around the world who set laws for how banking works can expand or contract their “independence” at any time.
To be fair, two technological improvements were essential for successful globalization above and beyond the changes made to how we configured capitalism, and their contribution can not be overstated.
Specifically, the IT revolution starting the 1980s and believe it or not, the widespread use of the standardized shipping container, which was invented in 1957, but truly came into its own as the shipping lines built larger and larger cargo ships which caused the unit costs of international shipping to plummet.
The failure of capitalism 3.0 was wage stagnation, growing inequality, and high private-sector borrowing (which is what directly triggered the crash of 2008).
Then capitalism 3.0 crashed in 2008
And all over the world, capital was bailed out, labour was not, and some nation-states, most notably in Europe thought it would be a good idea to reduce government programs that put money in the hands of the people on the bottom half of the income distribution in order to pay for the government programs (bailouts) through which they had already spewed cash at the people in the top 10%.
As you can guess, that austerity only made matters worse.
NOTE: This next bit is not from the book Angrynomics, but rather is from the economist Yanis Varoufakis.
But even more interesting, when the “shadow banking” (institutions that acted like commercial banks but were not regulated like commercial banks) took us to the verge of our entire global financial system grinding to a halt and needing an emergency bailout from currency-issuing governments around the world, profits stopped being the fuel of capitalism and was very quickly replaced by central bank money (bailouts).