Angrynomics (3)

In their book called Angrynomics, Eric Lonergan and Mark Blyth write about the problem with seeing labour as commodity.

In such a world the domestic political process becomes seen as a sham. You can have an election, but you can’t change anything. The local political elites may know this – and they may not even like it – but when you don’t have your own currency and central bank, what can they do? You can neither devalue nor inflate nor default, so you have to cut your way to prosperity, which doesn’t work. It is entirely logical under such conditions that electorates will get angry and seek alternative solutions. 45

The United States is an interesting contrast insofar as while it now has full employment, the benefits to growth are far from evenly spread and the recovery, has not really been a recovery except in terms of the employment rate. Or take healthcare as another stressor: In the United States you really have to worry about healthcare, it’s a personal consumption expenditure. Your employer, if you’re lucky to have one that still does this, pays for a bit of it and you pay for a bit of it, and increasingly the employers have been paying less and less of it.

In that type of labour market, you’ve got much more sensitivity among workers to their real wages than in, for example, Italy where you can get by on €1,200 a month, because healthcare is not something you have to worry about as an impoverishing out-of-pocket expense. You simply cannot get by in metropolitan areas in the United States on $1,200 a month without falling into poverty. So although there are common global themes behind the public reaction to perceived economic injustice, there are very different micro-stressors at work in different geographies. 47

Current political trends are, in part, a confused reassertion of the nation-state to mitigate the consequences of unconstrained capital flows and the power of business more generally- But the deep economic sources of legitimate public anger remain unaddressed – our failure to deal quickly and powerfully with recessions despite knowing how to do so, and the major surge in inequality in income and wealth that has happened across the developed world as capital prospered as labour stagnated. 49

Polanyi s insight boils down to this simple point; the more that you try to treat wages as a price, as just another cost to minimize, the greater the social reaction against market exchange it provokes. 65

To sustain the economic fiction of labour as a commodity coming up against a political reality which is that if you treat people like a sack of potatoes, they end up throwing the system into the fryer. 66

Allowing capital to be free to find its highest return has costs. Huge flows of capital, and rapid reversals, caused a series of increasingly severe booms and busts across the developing world. 77

Capital would be more efficiently allocated, and at one level, it was. But what that means in real terms is that investment leaves capital-rich countries and ends up in capital-poor countries, such as China. Western firms benefit from this, as do their shareholders. Consumers in western countries benefit from cheaper goods, but the investment that would have happened in their country now happens elsewhere, which is a cost. This is why trade is now such a contentious issue. 78

The bottom 80 per cent were effectively paying for the mistakes of the top one per cent, while in the process bailing out the assets and incomes of the top 20 per cent – right across the world. It was, as I described it at the time, “the greatest bait and switch in human history” as the private sector liabilities of the banking system ended up being put on the public balance sheet of states as more public debt, which was then blamed by the political classes that had allowed all this to happen on a crisis of “overspending” by states that simply didn’t happen in tie first place. 85

Technology has been a huge facilitator of competition and disruption in lots of industries, not just in telecoms, but increasingly in retail and other sectors. So, the inequality we see in income and wealth has a mirror in the returns to capital itself. Rapid innovation, scale economies, and competitive markets push down one end of the distribution to be sure, but they also generate big winners at the other end. 99

Globalization, technological change, margin suppression, the reclassification of employees as contractors as firms face stiffer competition, and the intensification of competition all increase the uncertainty felt by workers, even in supposedly well-paid and secure employment. One does not have to be a member of the precariat to feel precarious. And feeling precarious as a permanent state is a giant insecurity generator. 101