Symptoms of stagnation

This morning, I got a call about my recent road accident, which of course I never had. Which highlights an important fact – that capitalist stagnation is not merely about arid aggregate data on flatlining productivity, real wages and business investment but about everyday life.

If the cold calls aren’t about non-existent accidents, they’re about my computer viruses, unpaid tax, my pension, or the impending disconnection of my broadband. Fraud and mis-selling are on the rise.

Why? Because in a world of secular stagnation there are fewer legitimate business opportunities – which diverts some entrepreneurs towards crime. Of course, some people are wrong’uns who’ll be fraudsters anyway, and some are moral paragons who never will be. At the margin, however, costs and benefits determine behaviour and so stagnation promotes fraud.

This is by no means the only manifestation of stagnation. We see another in financial markets.

Historically, high asset prices have been a sign of optimism and of confidence in economic growth: investors piled into railways stocks in the 1840s or internet shares in the 1990s because they wanted part of a bright new future. The bubble of the 1920s, wrote J.K. Galbraith, was fuelled by “boundless hope and optimism”. High prices today, by contrast, are a sign of pessimism. The valuations of US big tech betoken a belief that monopoly power – that enemy of economic growth – is here to stay. And the (now-deflating) boom in crypto-currencies was (is) founded in part on the view that people would lose faith in fiat money – something only likely in a severe economic and political crisis.

The housing crisis is another pessimism-driven boom. The lack of alternative profit opportunities is diverting activity to property speculation, and the low interest rates caused by stagnation are the main reason for soaring prices. This leads to a vicious circle. Because housing is so expensive, youngsters have less to spend on other things, which further entrenches stagnation. And not just economic stagnation, but cultural stagnation too. Musicians and artists used to be able to live rent-free and so had the leisure to cultivate their craft. Now, they can’t. As I’ve said:  

Cheap housing gave us Blondie and Philip Glass. Expensive housing gives us Mumford and Sons.

Which isn’t the only way in which stagnation breeds a turn away from meritocracy. When industries expand rapidly, they create opportunities for people from humble backgrounds. The post-Big Bang boom in finance meant that an oik like me could get a decent job. Similarly, the growth in journalism in the 50s and 60s sucked in working class people, as did the booming tech sector in the 90s. When industries stagnate, however, opportunities are fewer so employers can be fussier about whom they hire – and that means excluding bright people from poor backgrounds. The careers of Dido Harding, George Osborne and Gavin Williamson are the tip of an anti-meritocratic iceberg.

Stagnation of course also has political effects. If the overall economy is stagnating, then for every area that’s improving, others are declining. Justin Webb (1’32” in) says towns like Batley and Hartlepool are “hankering after past glories.” Which echoes Will Davies’ point that voters are on an “unhappy, angry quest for something that had been mislaid.” Hence the disillusionment with mainstream politicians. One of Webb’s interviewees says:

Mill towns are all dying…there’s no real industry here…you could spend billions here and there’d still be no jobs…Politicians talk a good game but deliver nowt.

Traditionally, this has been fertile ground for the far-right. Markus Brueckner and Hans Peter Gruener conclude that, across Europe, “lower [economic] growth rates are associated with a significant increase in right-wing extremism.” Which of course vindicates Ben Friedman’s finding:

The history of each of the large Western democracies – America, Britain, France and Germany – is replete with instances in which [a] turn away from openness and tolerance, and often the weakening of democratic political institutions, followed in the wake of economic stagnation that diminished people’s confidence in a better future. (The Moral Consequences of Economic Growth, p8-9)

The symptoms of this aren’t all as innocuous as Churchill-worship and flag-waving. They include the manufactured attacks upon “wokesters” and support for a government which is attacking basic rights to protest and even vote. And of course Brexit. As Thiemo Fetzer has written:

Leave supporting areas (and leave voters) clearly stand out by being more deprived, having lower levels of income and life satisfaction, less access to high status-jobs, and living in areas with overall weaker economic structure…the critical mass of voters that tipped the referendum in favour of Leave did not do so out of an ideological opposition to the UK’s EU membership, but as a protest against the status quo.

All of which vindicates our old friend:

The mode of production of material life conditions the general process of social, political and intellectual life. 

Which is why I can’t support the de-growth movement. Shifting from (say) 2% to zero trend growth isn’t merely a small difference in degree. It has all manner of cultural and political effects, many of them unpleasant. And of course, there is a constituency which supports this – not just financial and political grifters, but social conservatives, (some) home-owners and parts of financial capital which profit from the ultra-low interest rates caused by stagnation.

What we need is an alternative to this – one which sees that the cause of many of our social and political problems is capitalist stagnation, and which offers an alternative to this. This need not be a very leftist programme: it should reprise Blairite themes of modernity, hope and optimism. Such a project, however, requires an opposition – which we do not have.

Comments

[aragon]

Life is hard in the Peanut Gallery.

You doomed only to see the big picture, with all the detail lost in the FUD.

https://en.wikipedia.org/wiki/Fear,_uncertainty_and_doubt

There is a very good article in the Guardian on Housing.

Cutting to the chase...

"For a while, this form of "residential capitalism" can support consumption even when incomes stagnate. But it is economically inefficient and drives inequality and financial instability."

Forty years is a long while...

But to borrow from Chess, we are in the End Game.

Not because of the Pandemic but we are simply running out of road...

Are those screams of 'Afford-ability' from the front?

Sure people will sacrifice their first born, to get and stay on the housing ladder. (Gaussian Cupola).

But like all Ponzi schemes there is a need for a constant stream of new marks to sustain the fraud.

And simply put rising house prices need falling interest rates.

But what is that ... a hard floor emerging through the mist. Zero bound!

Couple this to massive leverage and the emperor has no clothes.

Can direct funding like help to buy keep the show on the road?

Peanuts for all

Or if that's too subtle, our present situation in the North is your future in the South.

Speaking of the future the whole economy is a fraud. You could say a House of cards.

But that is for another day.

[aragon]

A contrast to ltr's posts now the Buddhist Monks appear to have stoped self-immolating in Tibet (They must be happy, now?)

https://www.spectator.co.uk/article/why-the-chinese-communist-party-fears-its-bloody-history

"But the pomp and glitz surrounding this week’s centenary celebrations belies an unsteadiness on the part of the party’s leadership. The CCP is, like a bully, deeply insecure at heart."

[ltr]

A contrast to ltr's posts...

[ When reading what is obviously rubbish, at least recognize that it is rubbish even if you decide to use it. Why deceive yourself? At least understand how stable China is and how admired is the government by the Chinese. Self-deception leads to making terrible mistakes.

Spectator on China is rubbish; at least know that.

https://fred.stlouisfed.org/graph/?g=FbV5

August 4, 2014

Real per capita Gross Domestic Product for United States, United Kingdom, Germany, France and China, 1977-2020

(Percent change)

https://fred.stlouisfed.org/graph/?g=FbV7

August 4, 2014

Real per capita Gross Domestic Product for United States, United Kingdom, Germany, France and China, 1977-2020

(Indexed to 1977)

[Lidl_Janus]

This thread has managed to go 40+ comments on the subjects of 1. economic stagnation and 2. China, and somehow the demographic brick wall China is about to slam right into, with all the attendant economic effects, has gone completely unmentioned.

(Well, now it's mentioned, but still).

[aragon]

@Lidl

What this one?

https://www.theatlantic.com/international/archive/2021/07/china-communists-demographics/619312/

"The demographic drag will be so severe, Mark Williams, the firm’s chief Asia economist, told me, that he thinks China’s economy will likely never surpass America’s."

Automation may resolve this issue.

Also China does not play nice with others. Their desire for world domination is showing.