The World According to Blyth, Keen & Curtis

Mark Blyth is a popular speaker. You have probably seen his talks all over YouTube. His specialty is explaining the politics of austerity (and why it’s a bad idea), and the rise of populism around the world, what he calls “Global Trumpism.”

I’ve seen several of his talks, and the ideas behind them are very simple. So I’m going to try and explain them in a straightforward manner below, sprinkled with a few quotes.

I’m also going to incorporate two other thinkers whose views are very similar and who fill in some of the gaps: economist Steve Keen and filmmaker Adam Curtis. Each has their own unique take on our situation, but all of their views gel together into one coherent big-picture summation of what has happened to the post-war world, and how we got into our economic predicament. I’m also going to add a few points of my own along the way where applicable.

The First Macroeconomic Regime 1945-1973

After the Second World War, nearly the whole world lay in ruins. Over 50 million people were dead. The architects of the post-war order vowed that they would do whatever possible to ensure that it would never happen again, no matter what the cost.

They realized that it was the economic dislocations and upheavals of the Great Depression–the joblessness, the inflation, the lack of a safety net, the radicalization of the population, that had ultimately led to the rise of Fascism and war.

At the same time, Communism was ascendant. Stalin had taken over Eastern Europe and was flexing his muscles. Mao and the Communists came to power in China. These two countries alone represented a significant share of the world’s total land area and population. They were joined by numerous smaller states–Cuba, North Korea, Vietnam–and numerous revolutionaries in places like Africa and Central America.

No one would support capitalism if all the gains went solely to the very top and most people were becoming worse off. So the post-war order would focus on one thing above all: full employment and social stability. Blyth uses the term “macroeconomic regime” to describe the set of policies that run the economy. The post-war macroeconomic regime was based around stability, Keynesianism, national economies, unionization, and especially full employment as the goal.

During this period, labor’s share of income went up, while capital’s share went down. This had never happened before. A prosperous, consuming middle class was created in the industrialized world. The results of this were spectacular. Here’s Blyth:

“Back in the day, from the end of World War two, from 1945 to about 1975, this is the golden era. It was the period where something very weird happened that never happened before. The top of the income distribution came down, the bottom went up, and the whole distribution jumped. This is when you got the birth of the American middle classes. This is when British Prime Minister Harold Wilson said to the working people in Britain, ‘You’ve never had it so good,’ and he was right.”

“And there was a unique combination of circumstances that produced that world. Mainly the reaction to the great Depression, fascism, world war two; and the success of the Soviet Union appealing as an alternative economic model after the chaos of the Twenties and Thirties.”

“So at the end of that period, we built a world that looked like this: The Cold War Era. The policy target was full employment, regardless if you were Sweden or the United States. That’s what the government cared about, because we saw the disastrous consequences of unemployment on a decade-long period.”

But there was a problem. This problem was articulated in 1943 by a Polish economist named Michał Kalecki who was working in the basement of the London School of Economics. His seven-page paper was called The Political Consequences of Full Employment. His paper effectively predicted what was to come in the 1970’s.

The Political-Economy of Kalecki (The Ad-Hoc Globalists)

The Old Macroeconomic Regime Crumbles: 1973-1979

We all know what happened next. The wheels came off in the 1970’s. Everything started falling apart the same year I was born–1973–which I’m sure was just a coincidence. But the question is, why did it fall apart?

Kalcecki’s explanation was that if you had a siloed economy of restricted capital and labor flows that targeted full employment, employees would take advantage of the situation to demand higher wages. If anyone can simply go out and get another job, businesses have to keep wages high to be competitive. But that eats into their profits. So they raise their prices to compensate. But rising prices eats into the workers’ pocketbooks. So the workers demand higher wages still. Businesses again raise prices to compensate for higher wages. Workers again demand more money to compensate for higher prices. And so on, and so on, in what economists call a wage-price spiral. More specifically, they call increasing wages pushing inflation up “wage push inflation“. Wage push inflation resulted from the full employment policies of the first macroeconomic regime:

Wage push inflation is a general increase in the cost of goods that is preceded by and results from an increase in wages. To maintain corporate profits after an increase in wages, employers must increase the prices they charge for the goods and services they provide. The overall increased cost of goods and services has a circular effect on the wage increase; eventually, as goods and services in the market overall increase, then higher wages will be needed to compensate for the increased prices of consumer goods. (Investopedia)

Blyth explains it this way:

“So what killed that first regime was inflation.”

“But it failed in the 1970’s. And the reason it failed was the following. Imagine you’ve decided that I’m going to target full employment, and that’s going to be my one policy goal. So you’re going to run a very tight, restrictive set of labor markets. And wages are going to get bid up, to the point that when you get to the late sixties when you’re running the Vietnam War off the books, your real unemployment rate is about 2-1/2 to three percent.”

“So the worst guy in your firm can leave work and then walk straight into another job and get a pay rise. The only way that firms can deal with this is by pushing up prices. So they push up prices, then what happens? Labor figures out they haven’t really had a pay rise. So they want more money. So they get a pay rise. So they want more money. And it all gets pushed up into inflation.”

“When inflation goes up and up and up like this, it becomes irrational to be an investor. So the investment rate collapses. Unemployment goes up despite the inflation. We get the great stagflation of the 1970’s.”

What high inflation and rising wages did was make it easy for people to service their debts. It was a “debtor’s paradise.” But creditors were not so happy. The value of their investments was eaten away by inflation. So they stopped investing, going on what was effectively an “investor strike.” The result of the dearth of investment due to high inflation was economic stagnation. Stagnation + inflation = stagflation.

“The Great Inflation of the 1970s destroyed faith in paper assets, because if you held a bond, suddenly the bond was worth much less money than it was before. But it was a brilliant time to be a debtor.”

“How many of you took out a mortgage in the 1970’s? You made out like bandits! Because if you have a 3 percent mortgage and there’s 10 percent inflation, it’s great; the bank was eating it and you were getting the capital gain. And then when you elected Reagan you locked in high real interest rates and your house increased in value. What a deal!”

So in the Blyth/Kalecki view, full employment policies, combined with an investor strike, caused the stagflation of the 1970’s. But there are a couple of alternate explanations I’d like to add.

One was the Vietnam War. That war caused a massive increase in government spending, as do all wars. At the same time, instead of raising taxes, they were being cut by the administration. Throughout history it has been the position of governments to “pay for” wars by raising taxes and/or borrowing.

I put “pay for” in quotes because MMT tells us that taxes do not fund government spending for war, or for anything else for that matter. So why the need for increased taxes? Because if the government is printing more and more money to pay for war costs, but it’s not “unprinting” money via taxation or soaking up the excess with war bonds, then you’re increasing the overall amount of money circulating in the economy. If you do this without a corresponding increase in productivity, then of course you will get inflation. It doesn’t help that the increased economic activity was mostly going to things that were being shipped halfway around the world to be blown up.

The other explanation is a sudden spike in the cost of oil. The formation of the OPEC cartel in the years prior cause the price of oil to triple overnight in the early 1970’s. Gas lines formed. The Arab Oil Embargo for the Six-Day war was another blow. This occurred as the U.S. hit domestic peak oil in 1972. Later in the decade, the Iranian Revolution would cause speculation in oil markets to raise the price once again (there was no actual supply shortage). It was the single largest transfer of national wealth in human history from the industrialized world to the oil producing nations of OPEC, particularly Saudi Arabia and the Gulf states. Interestingly, it was after this transfer of wealth that the threat of Islamic terrorism began to rise, funded by this money.

The price of oil tends to coincide with the change of macroeconomic regimes and financial dislocations. This is ignored by many economists.

Economists have a name for this phenomenon too. They call it cost-push inflation:

Cost-push inflation is a phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials. Cost-push inflation develops because the higher costs of production factors decreases in aggregate supply (the amount of total production) in the economy. Because there are fewer goods being produced (supply weakens) and demand for these goods remains consistent, the prices of finished goods increase (inflation). (Investopedia)

In this alternative view, full employment did not cause the problem. Rather it was an ill-advised war that the government refused to “pay for,” coupled with an unpredictable rise in the cost of the substance most dear to the economy–energy–as the result of cartel manipulation and geopolitical tensions.

Who’s right? What was the real cause? Hard to say, but I lean towards oil. If full employment was such a problem, then why did it take Kalecki’s prophecy thirty years to come true? Maybe because that’s when the energy costs spiked. The ugly conclusion from Blyth’s view, as I see it, is that is we cannot have full employment, otherwise inflation will inevitably be out of control. That is, we “need” a certain portion of the populace to be unemployed. I find this disturbing. It amounts to what is basically human sacrifice.

Inflation was running rampant. Stagflation. The Misery Index. Put on a sweater. Malaise forever. History’s greatest monster. You know the deal.

1970s stagnation (Angry Bear)

The system badly needed a reset. How was this accomplished?

The New Macroeconomic Regime 1980-2007: Neoliberalism

Blyth describes a macroeconomic regime as a sort of “software” written on the the “hardware” of capitalism. After 1980, a new software was written. Now, not only would full employment NOT be a goal anymore, but labor would now be “disciplined”–forced to accept declining wages, longer working hours, less benefits, less stability (and it’s converse-more “flexibility” for employers), more international competition, and so on. It was, essentially, a revolt of the elites rather than the masses; from the top down rather than the bottom up.

Instead of elected governments, policy was handed over to the central bankers, who were unelected. What they did was to “cure” the inflation by raising real interest rates to extremely high levels. This caused a terrible recession between 1979 and 1982, and unemployment rates to spike to over ten percent. But it did bring down inflation and reset the system. This coincided with the transition from the Democratic Carter administration to the Republican Reagan one.

“And what’s the solution to stagflation? Hand policy to central bankers, because they’re not elected and they can’t be thrown out of office, and they can jack up interest rates to twenty percent when inflation’s sixteen percent, cause a massive hemorrhaging of the economy and a constriction of credit and you get the big recessions that happened in the 1980’s. But it really reset the system.”

“There was a new software written onto that hardware, and that was the ideas of Thatcher and Reagan and the people behind them. That open markets, price stability, going global, that was they way you do it. That flexibility was good, that labor was bad. That the returns to capital had to go up otherwise what was the point of capitalism? That was the Neoliberal compact.”

In addition, markets would open up to globalization. Regulations would be abolished. Capital would be free to seek its highest return. Markets would be liberalized. Trade unions would be crushed. Banks would be deregulated. Taxes would be lowered. Labor would become flexible and footloose. Economies would remove tariffs and open themselves up to foreign competition. Labor would no longer be protected.

Globalization would neutralize the power of workers, because now if unions demanded more money, production would just move somewhere else. First it moved to the “right to work” states of Dixie, and then abroad to places like China and Mexico. Workers could no longer demand raises from their employers. This ended the push for inflation, because rising wages are what drive inflation. I’d also note that high oil prices led to new reserves being tapped, especially Alaska and the North Sea, breaking the power of the OPEC cartel and bringing oil prices back down.

As banks lent more and more money, and as capital was “freed” to seek it’s highest return anywhere in the world, the total amount of money increased. This drove interest rates down and down and down. The problem with low interest rates, though, is that it decreases the returns to capital. It also penalizes savers and investors, since their accounts are not earning much of a return. So how could high finance ensure adequate profits in a world of low interest rates and low inflation? The answer: leverage.

“Now here’s the problem, those interest rates go down over time because you make more and more financial transactions, you integrate different markets, you open up globally, so the pool of money gets bigger. As the pool of money gets bigger, the price of money falls. What’s the price of money? The interest rate.”

“So how do you make money on a declining spread? You pump up the leverage. And the banking system of the West became multiples of the underlying size of the economy. And it was all working great so long as everyone was revolving credit, whether it was your credit card, your house, the mortgage, the corporate loan book, whatever it was, so long as it doesn’t go bust.”

Instead of full employment, financial policy in the new regime would focus on something else–controlling inflation, aka price stability, above all else. At the very hint of inflation, central bankers stood ready to raise interest rates. The central bankers became household names as the ability of politicians to influence the newly globalized economy waned. Inflation went away, never to return. This now made the world safe for investors, but it made debts harder to service. It was now a “creditor’s paradise.” Even though inflation stayed low for decades, the 1970’s fear of inflation lingered on.

However, as Blyth points out, this fear was irrational; the long-term trend in interest rates was for them to go down. He cites statistics showing that the interest rate for government debt has been declining since 1350! In fact, literally the only period of high inflation we see in the data was the 1970’s, and yet all of our macroeconomic thinking today is based on that one short time period (when oil prices spiked, interestingly enough):

“You all watch Game of Thrones Right? Right; Game of thrones; ‘Hi, I’m the king, I’d like to borrow some money.’ I’m the Iron Bank of Braavos. You know what happens–everybody dies.”

“In that world, you have very high real interest rates, because if you get a bond from a government, they might rip you off. There’s no secondary market where you buy and swap different bonds around to offset the risk. So you have very high real interest rates.”

“The Italians and the Dutch come along in the 15-16th century and invent a secondary market for government debt. That starts to grow rapidly. The risk dissipates.”

“And then by the time you get to the 1700’s, real interest rates are below four percent. The Brits can issue a perpetual bond, a ‘forever’ bond to fight the Napoleonic wars at three percent and it’s oversubscribed. By the time you get to 1941, the real rate of interest is 1.88.”

“So the long-run real rate of interest rate for the global economy is two percent. Then there’s the 1970’s. All the inflation is in the seventies because of the unique confluence of events which was the post-war regime and its breakdown. But all of the economics we’ve ever learned is based on that one bit of the trend series. Everything else is forgotten.”

At the same time, wages in the wealthy countries stagnated. The labor/capital split now shifted. Labor’s share of income, formerly going up, now went down. Wages became decoupled from productivity. Real wages, when adjusted for inflation, remained flat for decades.  As the economist Thomas Piketty later asserted, if the rates of return to capital are higher than the overall growth rate of the underlying economy, inequality will dramatically increase without bound. This is especially true when wages are stagnant.

“Capitalism is run by investors, investors and firms. Once those firms go global as they did in the eighties and increasingly in the nineties, then the ability of domestic labor to demand their share of the profit split with capital really declines. And that begins the wage stagnation that we see in 1979 which continues all the way through to the present day, such that 60 percent of Americans, when adjusted for inflation, haven’t had a wage rise for thirty years.”

A small, coastal elite, who held much of the paper wealth, became fabulously rich. But workers who depended on labor for their income, particularly in places that had deindustrialized like the American Heartland or the English Midlands, were hard hit,faced with declining wages, dead-end jobs, shrinking government services, budget cuts, jobs moving to other countries, and mass immigration into their communities. At the same time, the costs for “non-tradeble” goods like education and  healthcare soared into the stratosphere. Although globalization resulted in cheap consumer goods, the costs for things like college, health care, child care, and later, housing, became an increasingly onerous burden.

With declining wages, how would consumption keep up? How would Americans pay for the rising costs? By using credit to substitute for the lost wages. And this wasn’t just true of individuals, but governments as well. Governments, too would lower taxes and make up for the difference by borrowing from the private sector. Here’s filmmaker Adam Curtis explaining the role finance played in the 1980’s:

14:00: “The interesting thing about the 1980’s is that everyone thinks that Thatcher and Reagan really were successful. But increasingly historians are looking back and going, ‘No they weren’t.’ They came in saying they were going to regenerate industry. But by about 1986-7 most of the industries in Britain and America had collapsed because of the economic experiment. So what Thatcher and Reagan did was they turned to finance. And they said, ‘Can you help us?’ And what finance did was to say, ‘We’ll lend the money.’ Wages weren’t going up. Wages were actually collapsing at that point.”

“So what happens is you had a switch and they gave power to finance. And finance came in and introduced the idea of lending on a much grander scale. The politicians allowed that because they facilitated all sort of new acts of parliament that allowed all that lending to happen.”

“So what you’ve got is a shift away from the idea that you were on a constant travelator of increased wages, increased security in the industries you worked in. Your income stagnated and it was supplemented by lending money. So finance got a great deal of power.”

“Now underlying finance is a deep desire to keep the world stable, to avoid chaotic situations. So we began to move into that world where were always trying to avoid risk. What then happens is that idea begins to spread out, not just literally in terms of you lending money. The idea of avoiding risk becomes the central thing in our society. And I would argue that weve all become terririfed of change. Which is conservative.”

And thus, beginning in the 1980’s finance became the new basis for the economy. Manufacturing, meanwhile, practically disappeared–felled by a combination of offshoring and automation. Service jobs, at lower pay, became the most common job type. At the same time, a college degree became a basic requirement for any job that paid more than minimum wage. And, finally, the main alternative to this system–Communism–collapsed and went under. Now, there truly was, as Margaret Thatcher put it, no alternative.

The problem was that financing living standards with debt was unsustainable, especially with declining incomes for the majority of wage earners:

“So how do people survive when wages aren’t growing? They borrow…In 2004 I lived in Baltimore. I went away for two weeks. I couldn’t open the door when I came home cause I had so many credit card offers…That’s why banking’s so big. Because every single one of us is running a deficit.”

“For everyone who fifty years old or older, do you remember a time when you didn’t have credit cards? For everybody who’s under fifty, that happened. We used to have this thing called the state that ran deficits for us and paid for stuff. But now you do it yourself. Through student loans. Through revolving lines of credit. Through borrowing from your house as if it’s an ATM. Because that’s what you’re using to fill in the gap.”

The problem with such skewed rewards to globalization was that the people at the top can only buy so much. They save much of their income. Meanwhile the bottom sixty percent have seen their wages stagnate and have been taking out student loans, mortgages, credit card debt, payday loans, etc. to make up for lost wages and shrinking public services. This leads to a fall in consumption once all the debts start going bad and people are tapped out and can no longer borrow against their incomes and the asset bubbles burst:

“Now this created a big problem. I like Mitt Romney, but there’s only so many fridges he can buy. You do have a basic consumption problem if you’ve been running your economy as we have for the past thirty years on credit. And if people’s wages haven’t been rising and they’re strapped with too much debt–which banks call credit, [because assets and liabilities sum to zero]–then they can’t service their debts. At the same time they’re being told if you don’t go to college you’ll never amount to anything, there’s no jobs for anyone who doesn’t have a college degree these days, you end up with a world where your share of the national income is falling despite the fact that the country has never been richer. And it’s not just this country, it’s every country.”

Here’s Steve Keen explaining how it was done under the new macroeconomimc regime:

“The fundamental engine that drove the apparent success of Neoliberalism until the crisis struck was an increasing level of private debt–leverage.”

“The reason that private debt matters is because credit is the source of a large part of demand.”

“When you borrow money, what you’re actually doing from banks is: the banks are creating money, creating a debt for you at the same time, you then spend the money you’ve borrowed, so that additional change in debt becomes a component of demand today. But of course with that change in debt that gets added to the level of outstanding debt, and you can have a process where that level rises over time.”

“In the UK’s case…from 1880 right through to 1980, there was no trend in the level of private debt compared to GDP in the UK, it never exceeded 75 percent of GDP. When Maggie Thatcher came to power it was 55 percent of GDP. The debt level from Maggie Thatcher rose from 55 percent of GDP in 1982, to 190 percent in 2008…The reason the crisis occurred was the rate of growth of debts went from positve to negative, and bang, you had a crisis.”

“So the bubble was caused by a rise in leverage, the crisis after it was caused by an absence of the same substantial level of credit simply because both households and businesses are unwilling to borrow at the rate they were willing to borrow when the bubble was going on and the banks aren’t so willing to lend either. So we’ve got a sclerotic effect from the level of accumulated debt. That’s the real story.”

Blyth summarizes the problem as, “Debts are too high, wages are too low to pay the debt off, and inflation is too low to eat the debt.” Leverage works so long as the debts can be paid. But once they can’t, the whole thing falls apart like a house of cards. Leverage also tends to raise asset prices, causing bubbles. This is what happened during the global financial crash 2007-2008. Here’s Steve Keen again describing what happened:

“What Neoliberalism allowed the West to do was to use leverage to dramatically add to total demand, but of course adding to debt at the same time. And then when we reached the situation where so many interventions which were debt financed went bankrupt, where there were assets that were overvalued and then collapsed and then wiped out the banks in the process, and where people realized that rather than house prices rising forever they sometimes fall so you get the hell out of mortgage debt, all those things came along and they became what I called the walking dead of debt…”

“…The levels of debt are the highest they’ve been in human history, and well beyond what we can service reliably, and also investment and consumption are both diminished dramatically because people don’t want to invest beyond their income levels which they do during a boom. So the only way to solve it is to get the debt level down.”

The Second Macroeconomic Regime Collapses: 2007–Present

The second regime collapsed during the Global Financial Crisis of 2007-2008. Why did that happen?

Blyth doesn’t explain the specific timing of it, but it’s interesting to note that this, too, coincided with a dramatic spike in the price of oil.

The fundamental cause, however, is easier to understand. The financial sector was leveraged to the hilt. The total assets were multiples the size of the underlying “real” economy of goods and services.

If enough liabilities go bad that they exceed the assets of a typcial bank, the bank goes under. QE bought up the bad assets.

Blyth explains the concept of leverage, assets and liabilities using the example of a mortgage:

“People confuse debt and what a debt is. It’s not just this bad thing. Debt on the public side or the private side is an asset. The people who got bailed out got their assets bailed out.”

“Now, a very simple way of thinking about this: I have a mortgage, you have a mortgage. That to a bank is a liability. They don’t want your house. They want the income stream coming from it. [That’s their asset]. My asset is my house. My liability is paying the mortgage. It all sums to zero.”

40 Years Of Income Inequality In America, In Graphs (NPR)

However, unlike the previous regimes, this time there would be no “reset.” There would be no new software written for the hardware of capitalism. Instead, banks and the wealthy were bailed out by taking their assets onto the public balance sheet through “money printing” and buying up junk bonds:

“In the 1970s the system failed. It had a heart attack because of inflation. The Neoliberals came along and reset the system. They wrote new software for the hardware. We didn’t do that in 2008. We let the money doctors come in. What they did was they pumped 13 trillion of Euros, Dollars and Yen into the global banking system to keep the system going. They had a heart attack, and we basically put them into intensive care for ten years.”

The corresponding rise in public debt sparked calls for “austerity” on the part of elites to bring down the government’s debt. But, even as the investor class was bailed out, savage austerity cuts would be aimed squarely at the poorest and most vulnerable members of society who had been borrowing like crazy just to maintain their living standards in the face of decades of stagnant wages and rising costs:

“When you bail out the assets of a bank, you’re bailing out the assets and incomes of the top twenty percent of the income distribution, particularly those at the very top. So when you’ve just done that, they’re not going to turn around and say let’s pay extra taxes because we got bailed out. No, they want to put that on the other part of the income distribution–the ones who are now being told, we can’t have this, you need to pay more, your education can’t be free, et cetera.”

With interest rates at practically zero, there was nothing for the central bankers to do to stimulate the economy this time. Instead of increasing government spending as prescribed by Keynesianism, politicians preached the need for “belt tightening” due to the rising debt. This had the effect of shrinking the economy:

“There’s no inflation in the system. Why? because labor produces inflation. And once you’ve globalized your labor markets, there’s no inflation anymore. Why can’t Janet Yellen bring inflation rates up? Why can’t Draghi bring interest rates up? Because there’s no reason to. There’s no inflation. When you do it, you’d simply slow down the economy. But what does that mean for savers? What does that mean for pension funds? Whoops!”

“Now, in my opinion, add this all together and you get populism. Debts are too high. Wages are too low to pay off the debt. Inflation is too low to eat the debt. You can’t play the trick you did in the 1970’s when you got a mortgage. It’s the other way around–this is a creditor’s paradise, not a debtor’s paradise.”

“The Left response is ‘blame capital, blame globalization. And they’re not blameless. The Right response is blame immigration, blame globalization. We can disagree on the immigration one, but they’re basically hitting on the same things.”

Enter Populism

The Neoliberal economic regime hollowed out the middle classes of the industrialized world, even as they raised incomes in much of the developing world. The “elephant chart” compiled by economist Branko Milanovich shows the incomes of everyone in the world from the poorest person on earth to the richest, along with the percent change due to globalization:

The graph shows that incomes for the poorest countries went up, from a pittance to something less than a pittance. The biggest gains represent the emerging middle classes of Asia. The American middle class was represented by the 65-80 percentile in the global distribution. Their incomes have taken a beating. And notice that the last four squares represent the wealthiest 10 percent of people on the planet. They’ve captured the majority of the growth under Neoliberalism, such that 42 billionaires now own the same wealth as the bottom half—3.7 billion people—of the world’s population.

“Guess what? The top 20 percent have made off with all the cash. And if you’re actually in the bottom?…it’s hardly budged since 1980. And that’s true for the bottom three quintiles. So sixty percent of the country hasn’t had a pay rise when you adjust for inflation since 1980. Meanwhile, people like me on the coasts, we’ve been lapping it up. I’ve been having lobster thermidor in the bath!..”

These declining living standards for the majority in wealthy countries gives rise to populism. Even as the country as a whole has never been richer, and the stock market and GDP are hitting new heights, workers are having a harder and harder time making ends meet. Their wages are declining. They are heavily indebted. Their formerly good and stable manufacturing jobs are replaced with low-paying “flexible” service jobs with no benefits. Digital technology is forcing people to become “independent contractors.” And now workers hear even those jobs will soon be replaced by robots. Blyth illustrates this phenomenon with a hypothetical Rust Belt worker named Gary:

“There’s a guy called Gary. Gary lives in Gary, Indiana. Gary [has] ten years in the union in 1989. He gets seniority. He’s a line supervisor with seniority, he’s turning thirty, he gets married, everything’s going great. And he’s getting $30.00 an hour, real [wages].”

“Now, who knows why, but they’ve been moving the plant and the equipment down South for a long time. China didn’t take most of the industrialization; the South did. Texas did. North Carolina did. So they’ve been losing a lot of the industrial base. But then they signed this thing called NAFTA. And the plant disappeared, the supplier plant disappeared, and the town takes an enormous economic hit.”

“So a lot of people move out. the tax base goes down. The schools get worse. And he bootstraps himself and says, ‘I’ve never relied on anybody; I’ll get another job.’ They were meant to retrain him as a computer programmer; that’s what everybody said, but the governor at the time really just gave a shit about tax cuts, so they just cut the budget for that and handed it out to people.”

“So then he ended up getting a job in a call center. So he went to $15.00 an hour. And then five years later the call center went from Indiana to India. And now Gary works in his dotage, very hard, long hours, for $11.67 an hour for the largest employer in the United States–WalMart. And every day Gary reads in the papers how him and all of his mates are about to be replaced by robots. Because you do, every day. Whatever sector you’re in in the low end of the labor market–automation, robotiztion, it’s going to happen.”

“And the guys on Wall Street who got bailed out with everybody else’s money, they love this. They’re going to make a fortune off this. All these internet entrepreneurs, [the] Uber guys, they’re the ones who will own the patents on the robots. And he’ll be thrown on the scrap heap with his mates. And the only person who articulates anything he actually gives a shit about is this guy Trump.”

“Now he knows [Trump’s] a buffoon. He knows he’s a reality TV star. But [Gary] has had politician after politician after politician showing up and saying ‘vote for me better jobs, vote for me more security,’ and life’s gotten crappier and crappier and crappier. So he has no reason whatsoever to believe a word they say. So he has a liar on one side, and a bullshit artist on the other. Which one gives you more possibilities?”

Communities around the country have gotten worse and worse outside of the coasts and major cities for decades. Many can’t even afford to maintain their outdated infrastructure. The main losers from the situation were the center-left and center-right parties who unanimously supported Neoliberalism. Under their watch, things have gotten worse and worse for at least half the population, and they are fed up.

So the fringe parties come to the fore. Despite their differences, their core planks are:

1.) Left Populism: Blame globalization, blame capital.
2.) Right Populism: Blame globalization, blame immigration.

Both sides essentially converged on the same basic program–turn inward, against globalization. They exploit the anger caused by debt and falling living standards. And sometimes they use racism and xenophobia to do it. We’ve seen this before. It’s the world the architects of the post-WW2 war order were so desperate to avoid, because they knew where it inevitably led.

“So what you have is a sort of debtor’s revolt against the world we’ve built over the past 30 years which is a creditor’s paradise. So what you see is a left wing expression and a right wing expression, a racist expression and a non-racist expression of fundamental discontent with the way the rewards of the system have been skewed over the past thirty years.”

The key is that there are no real solutions being offered to the above problems by the mainstream political parties, and the people in charge don’t look like they know what they’re doing. Meanwhile, the workers have done everything capital asked of them. They went back to school. They retrained. They took out huge debts for college. They became flexible. But their living standards didn’t budge. Life kept getting harder. Because the mainstream parties offered no alternatives that actually translated into improving the status of anyone besides the top 20 percent, people turned to buffoons and demagogues, and some of them are very ugly indeed. Trump, the alt-right and Brexit are all examples of this trend.

What is the Solution?

Mark Blyth and Steve Keen both suggest possible solutions.

Blyth opposes undoing globalization and turning inward to economic nationalism and tariffs. He notes that the wealthy countries of the West have not had enough children, and without immigration their economies will shrink.

Instead, he recommends the state take over the things that have skyrocketed in price. He recommends universal health care, universal free education and free child care. Do those things, he claims, and you will nip populism in the bud.

Keen’s prescription is more ambitious. He advocates using the money-issuing power of central banks for a “people’s qualitative easing.” He explains the concept by describing the money-creation powers of central governments and how it was used to make the banking sector whole:

“If you owned your own bank, and people accepted checks you wrote on your bank as complete payment of any debt you had, would you feel worried about a large amount of debt? And the answer is fundamentally no, because if you could draw checks on a bank you owned…when as soon as you gave that check to somebody else, they basically wrote off what you owed them, and they then used that themselves to exchange money with other people, you’d be on easy street. The only danger you’d face is creating so much of the stuff that you caused a bubble, that the economy itself fell over because you were importing too much from overseas and the trade balance exploded and so on. That’s the real danger of somebody who owns their own bank spending without limit.”

“But that’s fundamentally the situation that the government is in. Any region where the government produces its own currency, and of course the UK government has the Bank of England which produces Pounds…it can pay its debts with its own bank. Now we’ve put all sorts of legal restrictions on them doing this…”

“When the treasury records that it’s going to, say, spend 50 billion Pounds and it’s going to get 45 billion in tax, therefore it has a 5 billion dollar gap, it then issues bonds to the equivalent of 5 billion pounds to pay for that. And let’s say its going to charge an interest of 10 percent, which is far higher than current levels. So 5.5 billion pounds of bonds it issues.”

“Currently those bonds have to be sold to the private sector, which means there’s a transfer from the financial sector to the government of money, and then the government spends that money into the economy.”

“And then, of course, they’ve got a debt to the financial sector. But that debt is effectively paid for by the central bank–the Bank of England– crediting the accounts of these institutions that own the shares; that own the bonds they’ve bought off the government. So it’s an accounting operation all the way through.”

“And if the central bank actually bought *all* the bonds outstanding, which is pretty close to what it’s done with QE…We know that in 2010 or 2011 when the Bank of England began Quantitative Easing, the amount of money that it created for bond purchases off private banks and off private financial institutions was 200 billion Pounds. Now did you get your part of the QE tax bill that year? The answer is, no you didn’t. There was no QE tax. The central bank simply said, ‘we’re going to deposit 200 billion Pounds worth of money in financial institutions’ bank accounts in return for them giving us the ownership of 200 billion pounds worth of bonds, whether they’re government bonds or private bonds. So its just an accounting operation.”


So, what you can do is, as I said, the government pays its own bills with what fundamentally amounts to an accounting operation. They pay QE which is fundamentally an accounting operation. And the level of QE which was running at 200 billion pounds per year was on the order of 1/6 or 1/7th the size of the economy per year. That’s the scale that they can do.”

“So government money creation could be used for what has been called ‘People’s Quantitative Easing,’ or what I call a Modern Debt Jubilee. Use that money creation capability to give a per capita injection to everybody in the country with a bank account. If they are in debt at all then the money reduces their debt level. If they’re not in debt they get a cash injection, but that cash injection could also be made conditional on them buying shares from companies that were required to pay their debt levels down. So you could actually use it as a way of using government money creation capability to effectively rebalance this from a far too much credit, far too little fiat-based money to a more sensible balance of the two.”

“You can do that level of spending politically during something like the Second World War because it’s an existential threat and nobody in their right mind is going to criticize using government money creation to mobilize as many physical resources as possible for a particular objective that virtually everybody in the society supports…in the UK’s case the government’s deficit in the first year of the Second World War was 40 percent of GDP. Nobody stood up in parliament and said ‘we cant afford this bill because our children will be indebted for the future,’ because somebody on the other side would say, ‘we cant afford *not* to spend this money because if we don’t your kids will be speaking German.’

Adam Curtis isn’t an economist, but an observer of society. He describes the period we’re in now as “Hypernormalization,” a concept taken from the last days of the Soviet Union. It’s described as a state where everyone knows the politicians are lying, the people know they’re lying, the politicians know they’re lying, and the politicians know that we know they’re lying. But everyone is just going along with it because nobody knows how to do anything else besides make-believe. He also points out that finance desires a predictable world which is fundamentally conservative, and the power of finance means that this is what politicians support. This means that measures that would shake up the system are less likely to be supported.

The reason there are no mass movements against this situation, Curtis argues, is that coming out of the Hippy Movement of the 1970’s was an attitude that prized individual self-expression and not being told what to do by others above collective self-sacrifice. This made mass movements impossible, since they require people to sublimate their individuality to the goals of the movement.

Instead, advertising, and later, social media platforms, learned how to exploit this desire for self-expression while still finding a way to manage and herd large groups of people for the benefit of elites. It accomplished this though cybernetics:

28:35: “The genius of modern power is that it managed to what politics failed to do. Politics can’t deal with individualism, because how can you have a political party where everyone wants to be an individual and not be a part of something? What modern managerial systems managed to do was square the circle. Look at modern social media. It manages to allow you to feel that you are totally yourself, expressing yourself online…Yet at the same time you are a component in a complex series of very complex circuits that is looking at you doing that and saying, ‘Hang on, if hes doing that, then hes very much like these people here which we’ve categorized like that.’ So we can say back to that person in they circuit, ‘Hey if you’re doing that, would you like this as well?’ and you go, ‘Hmm, all right, because its a bit like what you’ve just done. And it makes you sort of feel secure within your individuality.”

“So what they’ve managed to do, increasingly, the modern systems of management, is accept your individualism and your expressiveness; allow you to feel that you’re being more and more expressive, while at the same time managing you quietly and happily so that you become part of a very large group that you don’t see, because you’re just a little component in the circuit, but the computers look at you go, ‘Oh, well, there’s about 300 million of those sort of types, we’ll put them in that group. And its not a conspiracy; a group of people going ‘We’ll do this.’ It’s a system that can see from the information that it’s reading from you and lots of other people the patterns that you are part of and saying, ‘Well we’ll fit them all together into that pattern.’

And its benign in their terms. If you talk to the tech Utopians from Silicon Valley, they will go ‘This is incredibly efficient.’ And they’re right. It’s an incredibly efficient way of managing the problem that politicians can’t manage, which is our individuality and our desire to be self expressive. It’s problem is that its fundamentally conservative because its feeding back to you more of what it knows you like…

With online systems, the way to get people to participate is to make them outraged enough so they go online and click. This puts us all into little bubbles where we only see ideas that we already agree with. And so, we get politicians endlessly fanning the flames of the “culture wars” and getting people upset, but nothing substantial ever really changes. The economy just chugs along, making the rich richer and the poor poorer, with people becoming more and more frustrated because seem to have little impact on government. This, he claims, is because they are being micromanaged in a way that they don’t actually see by tech utopians in the name of efficiency.

Finance, as he points out, wants stability, not change, and in this goal they are assisted by the cybernetic control systems such as Google and Facebook. This can keep people forever atomized in their own groups and prevent fundamental change. Instead, people’s frustrations are channeled to cultural issues, egged on by politicians whose prime goal is not to unite people, but to keep them continually divided:

48:28: I have a very cynical theory about Trump. As politics became…less and less substantial and less and less confidently able to change things and power shifted away to all sort of other things that we were participating in…Really what people like Trump are is, they’re not politicians, they’re pantomime villains. They’ve turned politics into a Vaudeville. And what they do is they come onstage and we go THIS IS OUTRAGEOUS!!! This is absolutely terrible! We type away on social media saying, ‘This is is really really really bad.’ And…a marketeer for online told me once, angry people click more. And clicks are gold dust. And really what those clicks do is feed modern power. And everything stays the same…

This makes huge profits for media conglomerates and Silicon Valley, but everything stays the same. Until when? How will the system reset itself? When will it? Can it? Will it take another world war? Or will things just continue to get worse and worse forever for the majority? Is there any alternative? That, it seems, is a question no one can answer.

Professor Mark Blyth on Post-WW2 Economics and Neoliberalism (YouTube)

Mark Blyth – Why People Vote for Those Who Work Against Their Best Interests (YouTube)

Mark Blyth ─ Global Trumpism (YouTube)

Professor Mark Blyth on Policy Goals, Trump, and China (YouTube)

Adam Curtis – Do We Really Want Change? (Under the Skin)

Burying Neoliberalism Before It Buries Us (Sputnik News)

5 thoughts on “The World According to Blyth, Keen & Curtis

  1. History has some examples of how it can end. With guillotines and/or by hanging the fascists from lampposts; or national bankruptcy, and the unpaid soldiers just walk away from their posts; or by a cataclysm of some sort: a Carrington Event that fries the internet, or a mass plague because of the defunding of the CDC, or the Yellowstone caldera blows, or a nuclear winter destroys the food supply.

    The most likely seems to be nuclear winter. With a burnout sociopath at the button, it could happen any day.

    • Which is exactly what the architects of the post-war order wished to avoid. Instead, all their work has been undone, bringing us right back to the brink, and with much less room to maneuver, as you point out.

      One quibble: nation-states cannot go bankrupt, only private entities can. Nations can only default on their debts. That’s often called bankruptcy, but bankruptcy is strictly a legal definition. I think it’s important to get the terminology right here.

    • Thanks for reading, I haven’t seen Blyth’s views summarized anywhere else that I know of, even though they’re fairly straightforward. I tried reading some of his books, but honestly their substance is appropriately conveyed in his talks which are much more entertaining and accessible.

  2. I expected QE would lead to inflation but no: apparently all the extra money has been given to people who don’t spend it. What they do with it is another matter. Presumably the endgame is to call in the debt, which of course can’t be paid, so the financial institutions repossess the country and become the Government.

    My most off-the-wall idea is about privatisation: the desire of the UK government to sell off public goods to anyone who’ll have them under any terms. I wonder if this is so that the organisations they’re in debt to can’t get their sticky hands on them. ‘National infrastructure? Nothing to do with me, mate.’ I say this because it’s the kind of thing that happened in the reign of King John…

    King Richard famously came to England for eighteen months, in which he delegated the kingdom to two Justiciars and sold off a heap of holdings to various barons to keep them real sweet. Everyone happy, he ran off to be a hero in the Holy Land. Then along comes John, and the Pope is all, ‘well, are you going to pay your dues to Rome?’ and John is like, ‘nothing to do with me mate, Richard sold all my land to the barons’. And John ends up offering England as a fiefdom to the Pope, and still the Pope gets nothing but title. Clever old King Richard, eh?

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