For the past several years, I have been trying to write more about outcomes and less about theories and policy prescriptions. But, like anyone, I have a core set of beliefs on economics and a lot more.
Economics is not a science; it is a social science, deeply intertwined with the human condition, psychology, politics, and all of that. And that gives it an amorphous, sometimes squishy feel. So, you really can’t get away from speculation and inference. And I sometimes think that, rather than run away from that squishiness, I should embrace it.
I will do that today for a bit by giving you some of my random musings about populism and work. This is going to be sort of a sketch of what’s in the back of mind whenever I am writing on this website.
The frame
OK, here’s how I would frame it.
Source: Economic Policy Institute
See that discontinuity that started in the mid 1970s – where the productivity line diverged from compensation? That’s been a huge overhang in the US for 40 years. And I would postulate that this chart is the root of a lot of angst and insecurity that has led to today’s populist backlash.
In the 1970s, it created a lot of turbulence. But that was a short period. Since that time, the turbulence has been tamped down by an increase in household debt, facilitated in large part by a secular decline in interest rates.
The way I look at the lines is not through the prism of inequality, but the prism of insecurity. That means that, in my mind, the further and further those lines diverge, the greater the breadth and depth of economic insecurity is.
Now, people were aware of their increased economic insecurity pre-Great Financial Crisis. I’m talking about things like the at-will nature of employment in the US, where you could be fired for anything at any time. There’s the risk shift of retirement from defined benefit to defined contribution plans. And there’s the decline of unions and the offshoring of jobs that have reduced labor’s bargaining power. I’m talking about all that stuff. It has made life for the average American worker more precarious.
While that stuff was happening, there was no populist crisis. We had Perot after the S&L crisis, yes. And Patrick Buchanan made a go at a sort of proto-Trump style political run. But, the 1990s proved less traumatic and populism faded. Moreover, the equity bubble didn’t touch enough people to re-fuel populism because middle class wealth is in housing. And house prices went up in the aftermath of the tech bubble’s implosion.
So, if you had asked people, pre-crisis, how they were doing, they would have said things were good. The crisis changed that irreparably. It exposed people to the fact that their economic security was less than they had realized – that they could be fired at a moment’s notice and left penniless, their house revoked. Thrown out on the street and forced to rent as they repaired their lives, people began to question ‘the system’ where their lives were turned upside down, yet no one was held accountable.
Populism
So, for me, that’s how I understand populism. It’s an outgrowth of an economic trauma that caused people en masse to realize that their economic security was woefully lacking, that middle class folks were one financial crisis away from being thrown out of a job and home, penniless and blamed for ‘living beyond their means’, making them bereft of all human dignity.
What would you do in that situation – if it were you, your relative, your neighbor, or your friend? I think you would turn against the status quo, rejecting it as corrupt, empty. And you would turn toward the fringes for answers.
Now, look around you, to the UK, the Netherlands, Germany, Greece. That pretty much describes the situation for much of the middle class everywhere. Moreover, if you look back at large economic traumas in history – particularly the 1930s – you find the same shift away from established parties and established doctrines. That’s the breeding ground for populism – a sense that the world is fundamentally broken because it’s not meeting your basic needs for health and personal, emotional and financial security.
In the US, I don’t know how the Republican Party does it. But it has campaigned on political platforms that are anti-basic need – especially anti-health security and economic security. And they get nearly half the votes. In the next downturn, that strategy will fail though. And I predict that, if a President Trump is in office, he will get the blame. And his policy prescriptions and those of his party will be blamed. The same holds for Europe, in Germany or the UK, for example.
Work
Do I have a policy prescription in mind? No, I don’t actually. But I do have a thought bubble I want to run by you. It’s this: Work is dignity. Work is health. Some philosophers and even economists have talked about this. And I think it’s in the vein as my comments above about economics being a social science. But, if you think of the populist backdrop through this prism, it makes sense.
I think we are hard wired to want to work. Being idle might sound fun. But, ultimately it leads to an increase in destructive behaviors and depression. I would love the economics profession to explore the psychology of work more, because in a world in which people are touting technology as freeing us from work, I believe the thought that work is dignity stands as a reason for alarm.
Many jobs are busy work, yes. But jobs give structure. And they can give meaning too. Optimally, you can get both structure and meaning in your work. But, my point is that moving to a world of potentially less work is fraught with peril for that reason. And, a world in which people are thrown out of work en masse is a world of psychological and political chaos. This is the world the Great Financial Crisis and the European Sovereign Debt Crisis brought us. And it is the world we risk returning to in the next cyclical downturn.
For me, the policy prescription is clear: make the social safety net less porous; Increase health, economic, emotional and personal security. And help people find work – work that can give them structure or purpose, preferably both. I think it’s too late for advanced economies to re-orient around those concepts before the next downturn hits. And so, I fear what the repercussions will be politically, economically and militarily.
That’s my thought bubble for Tuesday. Your comments are welcome.