In a nutshell
Mark Blyth argues the economic-political justification for Global Trumpism around the world is simple: debts are too high, wages are too low to pay the debt off, and inflation is too low to eat the debt. The Right Trumpist response is to blame immigrants and globalization for pushing wages down and wrecking the labor and product markets. The Left Trumpist response is to blame Capital and globalization.
In “A Brief History of How We Got Here and Why” and “Global Trumpism and the Future of the Global Economy“, Blyth sketches out the historical trajectory of the global economic systems, using a soft hardware/software metaphor to describe the global economic system and the ideologies that are adaptable with them. In order to adapt to the revised hegemonic economic goals of the era, we tend to switch between hardware with deflationary biases (capitalist/creditor’s paradises) and inflationary regimes (labor/debtor’s paradises), and we’re now in an interregnum between the two systems.
The big external twist this time is Climate Change. Outside of his slides & analysis, when asked during Q&A, he figures that Left Trumpism will win and we will eventually reconstruct a more localist/nationalist Bretton Woods-flavored system that is incentivized to take on Climate Change and other serious structural issues for narrowly-defined reasons. China is already taking its population health seriously as it plays economic catch-up with the western world at a breakneck pace, massively polluting itself in clear and visible ways; Europe’s Green parties are also mobilizing and building local experience tailored to their respective nation’s needs. Only America needs to follow suit- these three actors alone can transform roughly three quarters of global consumption.
Although it hasn’t been formalized in slides, during the Q&A on his Global Trumpism talk, Blyth makes a few bets that are also very interesting:
- He’s hopeful about climate change, for effectively accelerationist reasons. “$150 per barrel will create all kind of innovation in alternatives”. Within 10-15 years, he surmises that the climate threat will be so clear that the political will would generate more sweeping changes. Using the future poisoning of Miami drinking water as a potential example, he illustrates the old Churchillism that we will do the right thing after we’ve tried everything else.
- “Nobody knows the future except for what everyone knows about the future”- climate change, low interest rates still, low inflation, people will have high debt, and automation will continue to be a boogieman but broadly comes so slowly that it will be absorbed and barely actually noticed.
- Blyth’s early longterm domestic political order prediction: As part of the class (along with Zeihan) who ‘predicted Trump’, Blyth is asked to divine the future this year as well. His idea is that neo-nationalism continues to win elections. 2020 is Trump’s election to lose, for example; however, neo-nationalism doesn’t structurally solve economic problems and climate change will only continue to grow in importance. When the Left Trumpists/Greens take power, Green New Deal-like legislation will be attempted. If it appears to succeed, it will be valorized and institutionalized into a new structural Left; otherwise, the Right Trumpists will get another shot. Each rightward swing, he suggests, will be shorter for demographic and climate change-related reasons, eventually locking left. This seems optimistic to me, as the right wing appears to be extremely desperate, improvisational, and flexible in the current era. They could easily mutate into something with staying power and a climate-resilient policy.
Random: I had an odd dream last year that Jon Stewart (of the Daily Show) ran for President in 2024. What is it with comedians in politics all over Europe?
The Failures of the Current Economic System
Neoliberalism solves many of the ‘bugs’ that plagued the Bretton Woods system through the 1970s. In turn, the bugs of the Neoliberal system surfaced catastrophically in 2008. Instead of allowing for another 30 year reset, the political class resuscitated the neoliberal system at great expense. Those issues as we see them now:
(1) Neoliberalism eats labor markets, killing wage growth through a flexible global system
- Labor can’t push wages up, even at full employment
- Jobs can be moved abroad or automated
- Unions are absent or powerless to command greater share of output
- Immigrant labor gets politicized
(2) Neoliberalism eats product markets, creating massive price deflation by hyper-competition
- Margins are super thin in most sectors (except digital monopolists) so employers hate to pay more
- Incentive is to do anything except push up prices
- Product markets have seen ruthless deflation for 25 years
- Shareholder Value Ideology lowers investment
(3) Finally, the political cartel that made the post-war regime possible (center left/right parties) are eaten away by scleroticism
The political class broadly found a way to ‘save’ the financial system, at a steep financial (and legitimacy) cost. With limited ability to provide public services (largely due to socializing private bank debt), protect wages (due to the globalization of the labor system), or effectively levy taxes against the plutocrat class, the institutionalist governments flounder, and the system’s bugs continue to contribute to debt, leverage, and inequality problems.
Prior International Economic Systems
The following is a condensation of a few slides of his, basically word-for-word, setting the context of three different systems of “economic hardware” that the global economic orders ran on for the past century.
The Gold Standard Era (1880-1914)
- Problem: Capital mobility without inflation
- Policy Target: Price stability
- Mechanism: Open capital and current accounts
- Governance: Minimalist ‘night watchman’ plus violence
- Heterogenous National Economies
- Globalization 1.0 and profit-led growth
- Free financial flows and trade flows
- Flexible Labor Markets
- Low Taxes and Lower Transfers
- Gold standard is inherently deflationary
- Wages main channel of adjustment
- Gold hoarding shrinks global money supply
- War is incompatible with ‘sound finance’ and openness
- Postwar hyperinflation
The Bretton Woods Era (1945-1980)
- Problem: Restore post-war World Economy with USD
- Policy Target: Full Employment
- Mechanism: Open current but closed capital accounts
- Governance: Quasi-cooperative, Welfare State
- Homogenous National Economies
- Restricted Financial Makets
- COLA Contracts, Corporaatism, wage-led growth
- High Taxes and Transfers
- Construction fo local economy cartels
- Note: No one knows who runs the Central Bank
- Inflation and the real return on Capital
- Kalecki on labor markets and wage led growth
- Shift in K:N share over time
- Workers get ‘too’ empowered and Capital “goes on strike”
The Neoliberal Era (1980-2008)
- Problem: Controlling Inflation and restoring the value of Capital
- Policy Target: Price Stability
- Mechanism: Maximal Global Integration, open financial markets
- Governance: Globalist, welfare state residualist
- Globalization of Heterogenous Economies
- Open Financial Markets
- Flexible Labor Market
- Low Taxes and Lower Transfers
- Profit-led growth models
- End of local economy protections and cartels
- Note: Everyone knows who runs the Central Bank
- Debt, Leverage, and Inequality.
- Productivity and labor compensation decoupled.
- Even as the global middle class raises, top capital takes by far more of the pie than the entire developed world together
- Consumer credit skyrockets
- This time we bailed, rather than failed (reset) the System. The result is a giant volatility constraint, a decade-long recession in Southern Europe and wage stagnation in the US, high public and private debts, and populism (political ‘start-ups’ attempting to jump start a new system). $17 trillion in Central Bank interventions save the global financial system- with no inflation surprise. There’s no longer capital for “public services”.