that was very labour friendly, relatively closed, and that provided a social safety net, to a set of institutions that generates a massive skew in the returns going to the very top of the income distribution while uncertainty for the majority increases – all while the media tells them that it’s their fault.
ERIC: Okay, so the first clear source of legitimate anger is a loss of voice – anger as a response to being ignored, or having your voice taken away from you via an empty “democratic” ritual. Representative politics, through the emergence of a post-Cold War technocratic centrist consensus, stopped listening. This was compounded by globalization – particularly the free movement of capital and the inability of labour to negotiate its share – and in Europe, by the power grab of a centrist technocracy.
You argue that these concerns pre-date the financial crisis and need to be seen in the context of 30 years of political and economic change dating back to the 1980s. At the same time, something manifestly went wrong in 2008, which you describe as “super-charging” these latent trends. The parable of the Garcia family, which started this dialogue, gave us a sense of this. Voice matters most if we have something important to say. Why did our political and economic elites have so little to say in response to the 2008 financial crisis?
MARK: For me, the primary problem was who they listened to rather than what they had to say, and it wasn’t the Garcia families of this world who caught their ears. Rather, the failure of policy-makers to deal effectively with the recession following the 2008 financial crisis, and subsequently the 2010–15 euro crisis suggests that like income, listening skews to the very top. The euro crisis, much more than the crisis in the US, showed beyond any doubt that a policy of cutting spending in a recession only ever makes things worse. But they knew that already and went ahead and did it anyway. And then they doubled down on it, even when they saw it wasn’t working.
The severe recession that began in 2009 triggered legitimate anger. In the United States, joblessness rose to the highest level of any postwar recession, and the recovery was tortuously slow. Recessions of this severity and duration impose terrible economic and social costs on the public. In Europe matters were even worse. Despite being the supposed home of ample welfare states, which have in reality been dying a death by a thousand cuts for the past 20 years in many cases, we haven’t seen economic devastation of this order of magnitude since the Great Depression. Greece instigated more spending cuts than any country and unsurprisingly they lost 25 per cent of GDP and a third of all jobs in doing so.
ERIC: The most extreme case is Greece, but Portugal, Spain, and to a lesser extent Italy, saw similar economic and social damage. Much of southern Europe has experienced persistent youth unemployment rates of 30 or more per cent for almost ten years. Yet, this is completely unnecessary and is the result of grotesque policy errors. If we know one thing in macroeconomics, it is that mass unemployment is a terrible blight on society with long-term consequences, but it can be eliminated relatively quickly with two simple policies of demand management: by governments cutting taxes and spending more money, and by central banks printing money.
But those countries in the eurozone who have no currency of their own can neither devalue their currencies to grow through exports, nor can they inflate their way out of trouble by bailing out their banks directly. As such, their elites appeared to have neither the vocabulary, nor the means politically, to meaningfully address these policy errors. After all, having signed up to the euro project, they can hardly then disavow it.
Given this, the Italian, Spanish and Greek political systems can offer nothing to their populations to convincingly address their concerns, even now, when the immediate crisis is over. It is abundantly clear that the Italian unemployment problem is cyclical. It has nothing to do with changing the laws in Italy. It has to do with aggregate demand management in the eurozone. The same is true of Spain and Greece, and if you accept this, there is a major problem.
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. Indeed, you don’t even have to be in the eurozone to end up in the same situation. Look at British politics and the Remain campaign’s fear-mongering message “there is no alternative” after several years of similarly destructive policies.
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