Mark Blyth explains post-WWII economics

about 1 month ago
CLICK CC for accurate English subtitles. Professor Blyth explains how American-led global capitalism has run two successive "software programs" since WWII.

English subtitle

Mark, we talked about
this before we went on air.
This is an ambitious project we
are going to commence.
Help our audience
understand post-World War II
economic order,
America and Europe,
the prosperity that came with it,
and how
that transformed in the
1970s and 80s and
90s to the economy
we have now that
leaves many Americans
and many Europeans
not only dissatisfied
but enraged.
Alright, let's get started.
In 1943, in the
basement of the London
School of Economics,
there was a Hungarian
economist by the name
of Kaletsky and he wrote a
seven-page essay about
how what they were planning
to do after the war
--which was to
make full employment
the most important thing--
was going come apart at the seams,
and he predicted the 1970s.
So that's our
theory, and I'm going to
explain that to you
in terms of what happened.
So imagine
you're in 1945, maybe even 1946,
and the world is in ruins.
50 million are dead just from
World War II,
plus 20 million dead
from World War I,
the chaos of the 1920s
the 30s,
the rise of fascism.
Everything had fallen apart.
The U.S. was
60% of the world GDP,
60 % of world finance,
or 50% of GDP, 60% of finance.
It’s huge.
Everyone else is dollar-short,
so what does the United States
decide to do?
Along with its allies
at the Bretton
Woods conference in 1944
they said,
“We can't go back to
just free markets
and people doing
whatever they want
because that was disastrous.”
If you let money,
particularly finance, just do
whatever it wants,
it causes huge instabilities.
It chases profits in the
wrong places.
-It creates rivalries.
Create rivalries.
So what we need to do is
create national economies.
Those national
economies will restrict the flow
of finance and will enable
us to tax and spend,
and create a kind
of hothouse that
will force domestic
investment to a higher level.
And the policy target
became full employment.
We were not going
to allow the unemployment
of the Great
Depression to come back
because that
leads to communism and fascism,
and that
ultimately is bad, bad,
bad for business,
so that was the target.
Now what did Kaletsky say?
He said if you do this,
you've got a
problem because if
you isolate the
economy and you
close it off to
financial flows and
you make people
invest at home,
you're going to create a hothouse,
and what that's going to do to
labor markets is it’s going
to make wages more
and more expensive over time.
You're going to bed
up the wages and
people at the top end
of the wages are
going to be able to say,
“Hey, full employment!
It doesn't cost me
anything to move job to job
and I'm just going
to ask for more
and more and money.”
Well, the only way that
business can deal
with this is if it
pushes up prices to match,
so what
started to happen in
the 1970s was exactly
what Kaletsky predicted:
that wages and
prices would rise
together in a spiral.
We called it inflation,
and the problem
with inflation is if
you're an investor,
it's a tax on what
you do because it
lowers your profitability.
It increases
uncertainty over the
returns you're
going to get in five
years or ten years.
So, essentially,
the business classes of the
West went on an investment strike.
They stopped investing because of inflation,
and when that happened,
you had this simultaneous increase in
unemployment and inflation,
the classic stagflation of the 1970s.
All of this was in
this seven-page piece
in a political
quarterly in 1943.
He predicted the whole thing.
Now that takes us to the 1970s.
What happens: this is the Reagan
and Thatcher revolution.
If you want to think about
capitalism as hardware,
computer hardware,
it can run various software programs,
and the 1945 to 75
software program
was all about
full employment,
and that created inflation and
that created the
investment collapse,
and that created
the conditions for
businesses to say
we need new software.
The new software was
the neoliberal software.
We're going to do
the exact opposite.
We're going to target
price stability.
We're going to care about inflation
more than anything else.
We're going to
allow banks to do
whatever the hell they want.
Get rid of the New Deal regulations.
Get rid of silos.
Get rid of all that stuff,
and we're going to create a
world of globalized markets,
and capital flows,
and supply chains,
and it’s going to be awesome.
It was awesome,
but that system too had a flaw.
-What was that flaw?
Well, the flaw was the
same as the one before.
Once you allow capital to
seek its return,
it will try and seek its return,
and if that means
that you shut
down industries in
your areas and then
move them abroad,
then so be it.
And if that's a market dynamic,
and one firm
does that,
and makes profits,
and investors buy
their stock because
they’re making more profits,
if you don't do the same thing,
you're going to get thumped.
And that empowered central banks,
disempowered parliaments,
congresses and the people.
Absolutely, because at
the end of the day,
capitalism is run by
investors and firms.
And once those firms
go global as
they did beginning
in the 1980s and
increasingly in the 1990s,
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
saw in 1979,
which continues all
the way through the
present day,
such that 60% of Americans,
in real terms adjusted for inflation,
haven’t really had a
wage rise in over 30 years.
So was that period right after
World War II an anomaly?
Total anomaly. Nothing like that...
We look back on it as if that
was the natural order of things.
It was not the natural order.
-Absolutely it was not,
and something else we do
then is we also
generalize from the
inflation of the 1970s
and say,
“Well, we always have to guard
against inflation,”
but look what's
happened since the
financial crisis.
Central banks around
the world have
chucked about 13 trillion
dollars in the
global money supply,
and there's no inflation anywhere.
Both the way the world worked
from the 1940s to the 70s and the
inflation of the 70s
were unique, weird,
historical events.
Where we are now is
more like where capitalism
has always been.
Translate that into
the politics of our day,
both right and left, in this
sense of revulsion
or dissatisfaction
with the economic hardware
you just spoke of?
So think about it this way:
If you have a system
whereby profits will
go to the highest return,
if you have
a system whereby capital
is free to move
around wherever it does,
it's going to go global.
It's going to seek
the highest return.
That's going to basically
mean that there's
going to be disproportionate
rewards for
people who are on the
right end of that trade,
and less rewards for
those on the other.
That's the wage
stagnation problem.
Now let's bring this
down to sort of a
basic level everyone
can relate to.
If you were around
in 2005 and 2006,
you probably had the
same problem I had,
which was getting through
the front door
because I had so many
damn credit card
offers blocking
up the doorway
because what we did was...
finance’s assets
are our liabilities.
We forget this:
It all sums to zero, right?
So I have a condo in Boston.
The mortgage is what
the bank likes.
They don't want the condo.
I hate the mortgage;
I like the condo, right?
Your debt is their asset.
Your debt is their asset.
So what happens when we
just get stagnant is
we fill it in with credit.
We become credit-card nation
and so long as
credit is free,
so long as it's easy,
and everybody's under
the illusion that
you'll always have more
money in the future
and jobs will
always give you
more etc., etc.,
everyone loads up on
private debt,
and in the financial crisis
we found out how fragile
that was, so what
we're doing now is the collapse
of that second regime,
that second order that
went from 1980 through
the financial crisis.
It wasn't allowed
to fail in the same way
the [crisis of the] 1970s was.
There was no reset because the
central banks stepped in
and bailed [out] the whole system,
and what we've been doing
is basically keeping
a system that's
been on life support
for 10 years
chugging along, hoping we can
make it out of intensive care.
The problem with that
is that the people
whose wages haven't grown
are still in debt, and the ones
who have made off with
the most have even more.
That's what's behind
this politics.
It's not about left.
It's not about right.
It's about the fact that
wages haven't grown,
debts have gone up,
there's no inflation
to eat away the
debt this time,
and that’s what
creates this politics.
-You didn't think
we could do it, did you,
ladies and gentlemen:
condense almost
65 to 70 years of global
economics into one
segment of this spectacular
Take Out podcast.
Mark Blythe just did it for you.