Angrynomics

© Eric Lonergan and Mark Blyth 2020

This book is copyright under the Berne Convention.

No reproduction without permission.

All rights reserved.

First published in 2020 by Agenda Publishing

Agenda Publishing Limited

The Core

Bath Lane

Newcastle Helix

Newcastle upon Tyne

NE4 5TF

www.agendapub.com

ISBN 978-1-78821-278-6 (hardcover)

ISBN 978-1-78821-279-3 (paperback)

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Typeset by Patty Rennie

Printed and bound in the UK by TJ International

Contents

Acknowledgements

Introduction: from economics to angrynomics

DIALOGUE 1   Public anger and the energy of tribes

DIALOGUE 2   The moral mobs and their handlers

DIALOGUE 3   Macroangrynomics: capitalism as hardware

DIALOGUE 4   Microangrynomics: private stressors, uncertainty and risk

DIALOGUE 5   Calming the anger: from angrynomics to an economics that works for everyone

Conclusions

Postscript: angrynomics in a pandemic

Further reading

Notes

Index

A man is about as big as the things that make him angry

WINSTON CHURCHILL

Acknowledgements

A great many colleagues and friends have contributed to the thinking behind this book. Many of them will disagree with much of what follows. We have benefitted hugely from reading and discussing many of these ideas with Martin Wolf, Martin Sandbu, James Mackintosh, Adair Turner, Angus Armstrong, Roger Farmer, Carolina Alves, Anand Menon, Michael Burleigh, Frances Coppola, Daniel Mytnik, James Hanham, Simon Tilford, John Springford, Dave Fishwick, Jenny Rogers, Tony Finding, Tristan Hanson, Juan Nevado, Megan Greene, Simon Wren-Lewis, Kate Raworth, Roman Krznaric, Sony Kapoor, Alev Scott, Rupert Taylor, Clare Patey, Stewart Gilchrist, Nigel Kershaw, Kevin Riches, Matthias Matthijs, Jonathan Hopkin, Stephen Kinsella, Holly Goulet, Joe Hanrahan, Kimberly Witherspoon, Sarah Russo, Vicky Capstick, Rose McDermott, Carys Roberts, Wade Jacobi, John and Shelley Sawers and Matthew Lawrence.

Some of the policy ideas – such as dual interest rates – have been road-tested in the Financial Times and on Twitter. In the latter forum, we have greatly benefitted from the reflections of Brad Delong, David Andolfatto, Nick Rowe, Tony Yates, David Beckworth and Chris Dillow. Fran Boait and Stan Jourdan at the not-for-profit, Positive Money, have influenced our thinking on policy, as has Gregory Claeys at Bruegel. Steven Gerrard, at Agenda, has once again helped with great insight and care.

Eric would like to acknowledge his partner Corinne Sawers’s intellect and sparkle, which has challenged and aided him at every turn. His daughters, Gina and Maia, are a constant inspiration, as is their nonna, Corinna Salvadori.

Mark would like to acknowledge his wife Jules steadfast refusal to engage with anything that he writes. Perhaps this book may prove the exception.

ERIC LONERGAN

MARK BLYTH

Introduction:

from economics to angrynomics

Strong societies can bounce back from a punch in the face. Consider Iceland. If the run up to the financial crisis of 2008 was a party, Iceland was party central. Four Icelandic banks went on a frenzied international expansion and grew their balance sheets (they bought stuff in the hope that it would go up in value) to ten times the size of the economy. When those banks went bust, they took the whole of Iceland’s economy down with them. An epic punch in the face if ever there was one.

They may have been reckless, but Icelandic bankers and their co-workers had brains. When everything crashed, a lot of those brains went home and played video games – it’s dark much of the time in Iceland. And then they hit on something. Online gaming is a global industry that requires a lot of computing power. Computing power makes heat. Heat needs to be cooled. So why not stick the servers for online gaming, Bitcoin mining, and a host of other things, in the ground in Iceland (the clue is in the name), and run the show from there? Which is what they did. Iceland had supportive institutions that didn’t throw unemployed people under a bus, which allowed them to rethink their options and redeploy their capital.

The financial crisis hurt, to be sure, but given those institutions it also encouraged the growth of a whole new set of ideas and innovations that brought the country most screwed by the 2008 crisis back to its feet faster than almost all the others. By 2016, Iceland had fully recovered. Wages were higher than before the crisis, unemployment was low, and consumer confidence was high. Tourism was booming, in part because the crisis a decade earlier had crashed their currency, so it was a cheaper place to visit. Ten years later and the crisis seemed like a bad dream. Icelanders had never had it so good.

It was a different kind of punch in the face when in 2017 waves of angry protests broke out, and in greater numbers and with greater voice than any that had happened in 2008. That anger was triggered by revelations in the so-called Panama Papers, which revealed tax dodging on an epic scale by Iceland’s political and economic elites. The country that had suffered together through the crisis, had united for an improbably successful football run in the 2016 European Championships, had stuck by each other, and had come out ahead . . . suddenly got angry. People came [to the protest] because they were so furious said Jonas Haukdal, a Reykjavík ice-cream maker. We thought we were over all that . . . we thought the scandals were behind us, that we knew what was ethical again. And then we find our prime minister has money offshore, and kept it quiet . . . It was like a betrayal.¹

A similar story unfolded in France in 2018–19. Despite the weakening of austerity policies across Europe and growth returning to France, out of seemingly nowhere hundreds of thousands of WhatsApp-enabled yellow jackets took to the streets in protest. Ostensibly energized by a rise in the tax on diesel fuel, which hits poorer commuters especially hard, their demands expanded, and their networks spread beyond France, all based around a rejection of the cosy consensus engineered by their political elites. In 2019, the citizens of Hong Kong also rose in protest, as did the citizens of Chile, and for many of the same reasons – a disconnected elite, rising inequality and skewed advantage.

But this comes as no surprise. Neither that politicians lie, nor that ordinary people get angry at the disconnect between their lives and those of their elites. Indeed, we simply take it for granted that we live in an angry world. This is now the most conventional of all conventional wisdoms, the explanation for events the world over. Oh, well people are very angry over in Germany, Austria, France, the United States, the UK, Indonesia, Hong Kong . . .. Not only is seemingly everyone angry, but everyone assumes that we understand why – that anger is obvious. But is it? Is all anger the same? Why anger, and not passion, or fear, energy, or optimism? In Angrynomics we are seeking to make sense of what appears at first sight to be an incoherent outpouring of a primitive emotion.

When economics becomes angrynomics

To understand what angrynomics is, let’s first start with economics. Economics is a set of ideas, a map, that tells us how the world of markets and exchange works. It is also a description of the world in which we live. If the world of economic theory, the map, accurately describes the terrain in which we live, then it’s a good map. Are these economic maps any good? That’s an open question. In the very few bits of the world where economic theory is directly applied, for example in central bank forecasting departments, highly complex models of the economy called dynamic stochastic general equilibrium (DSGE) models are populated by what are called representative agents. These agents are supposed to be people, but they are strangely ageless, sexless, tasteless, non-ideological, and they live forever.

In this emotionless and timeless world, the economy is nothing more than the number of workers, multiplied by the number of hours worked, plus the amount of capital (machines, technology, etc.) that they work with. That’s it. There’s no politics, no concern over who gets what and why. As these fictitious economies mature, they accumulate more capital and all the agents get richer, and as they do, they work less. This is a very comforting world, but is it the world in which most of us actually live? Does the map mirror the territory?

In the world we inhabit, it appears both true that society as a whole has never been richer, and yet most of us seem to be working more. As for the distribution of income, the Federal Reserve Bank of St. Louis describes how in its model the last workers to be hired by a business should receive pay that is equal to their contribution to the output of that business.² This sounds pretty reasonable. But this doesn’t seem to mirror reality, either. CEO pay has rocketed to hundreds of times that of employees, many of whom have not had a pay increase for decades, when you adjust for inflation. Clearly power matters here, but power is nowhere to be found in our modeled world. Indeed, the distribution of wealth has not just become extreme, but politics has become the playground of those with vast wealth. Billionaires spend millions protecting their interests, or supporting their personal, often eccentric, agendas – such as secretive hedge fund managers bankrolling the Brexit campaign.³

Economics is a powerful map of the world. But the map that we have been working with for the past 30 plus years – what the economist Dani Rodrik calls the neoliberal map – works in theory, in models, but increasingly fails to describe what most of us experience and care about. That is, a world of seemingly ever-tighter budgets, ever-rising costs (despite being constantly told that there is no inflation), and ever-increasing stresses in and beyond the work place. At some point, the disconnect between our experience of the world and the model used to explain it has to come to a head.

Economics as it stands can’t seem to explain why the pressures of life appear to be intensifying, at the same time as income per capita is rising. Nor can it explain why pensioners, whose incomes depend upon the number of workers in work paying taxes, reject immigration more than any other group, when they forgot to have enough kids to keep it all going? Why do we see the rise of nationalism everywhere when we hear that globalization, on average, has made us all richer? One part of that answer lies in this disconnect between what is assumed to be going on in our models and what is actually happening in the world as it is. A second part lies in another disconnect, which is the inauthenticity of the elites pursuing steady progress in GDP per capita to the rest of us who witness dramatic and disconcerting societal change.

Elites are nothing new. It used to be the case that political elites were defined by who they represented. Labour and social democratic parties represented the interests of workers while conservative and liberal parties represented the interests of business. By the 1990s those relationships began to breakdown and a new politics emerged throughout the developed world where such left and right divisions were increasingly thought to be arcane and irrelevant relics of the Cold War. In its place emerged a new politics where politicians ceased to represent core constituencies and instead sought to capture a so-called median voter who acted like the representative agent in our economic models.

These voters cared not for economic conflict, but supposedly cared for post-materialist values and good governance, which parties duly agreed to supply. The big policy stuff was best left to experts in international organizations and independent central banks. Politicians supplied less policy and yet pretended to represent everyone’s interests while doing so.⁴ This was the world of the 1990s and 2000s, wonderfully described as the Great Moderation in 2004 by then Federal Reserve Chair Ben Bernanke, whereby the elimination of politics at the hands of technocrats had delivered prosperity for all.⁵ There were, as we know now, rather large flaws with this view of the world.

Chief among them was that material concerns never went away. Parties simply stopped admitting that they existed. The UK economy doubled in size from 1980 to 2017. Over the same period use of food banks increased 1000 per cent. In much of the developed world, inequality rose throughout the 1980s and 1990s, dipped for a decade, and shot up again after the financial crisis. Over the same period global corporations simply stopped paying taxes. The same elites that confused the real world for the world in their economic models lost their credibility with the voters that they portrayed themselves as representing.

Then came Iraq, dodgy-dossiers, 45 minutes claims, and Afghanistan – the war without end. Followed by the celebration of finance as the engine of growth, which blew up in our faces and which was swiftly followed by state funded bailouts to save the assets of the already rich. A bailout paid for by the already squeezed with the shift to austerity policies that in some cases saw 30 per cent cuts in local services.⁶ Meanwhile in the metropoles, banks went back to earning billions and house prices worked like magic ATMs.

When politicians really needed to motivate electorates, they stopped making the case for deep-rooted economic change, and reverted to fear. In the euro crisis, populations were held in check by threats of renewed financial panic. In both the Scottish independence and Brexit referendums, the threat of losing what you have was used as a weapon to defend the status quo. Across central and eastern Europe, fear of migrants destroying our culture became the motivating meme.

You can’t expect real people – neither synthetic representative agents nor imaginary median voters – to put up with these disconnects forever. Eventually the gap between how we experience the world and the economic model used by elites to explain and justify it becomes too large to ignore and self-serving elites get called out. Welcome to that calling, the world of angrynomics, where real people are angry and have every reason to be.

Thinking and living in an angrynomics world

Anger, the most powerful human emotion, has become the arc that connects the dry, statistical world described by technocrats, policy wonks and politicians with the world as we experience it. Economics becomes angrynomics when on a macro level the system crashes and exposes the faultlines that have been covered up for so long.

This book explores how our political economy has given rise to anger: public anger, both moral outrage and tribal rage, and private anger. Together these forms of anger help us to understand the themes in this book. If economics describes the way the economy is supposed to work, angrynomics reveals what we actually experience, and why it matters to us. It helps us to make sense of global politics, tells us what to listen to, what to be beware of, and how we might seek to fix a broken economy.

The first distinction that we make is between public and private anger. Much research treats the two as equivalent, but in fact they are opposites. Public anger is often worn like a badge of honour. Icelanders protesting against a corrupt political class are emboldened by virtue. They railed against corruption and sought moral redress. Extinction Rebellion is fueled by the anger of righteousness. When people are publicly angry, because they are wronged, or they witness wrong-doing, they want it to be recognized and addressed. This is moral outrage.

Private anger resembles its opposite. It is often characterized by shame. People who are angry in their private lives, often seek counseling, rather than retribution. An angry colleague, a stressed parent, or an enraged driver – these are people in need of help, not deserving of redress.

But public anger itself is also two-sided. If moral outrage is its positive form, reinforcing and generating tribal identity is its opposite. Tribal rage is a primitive emotion, one that puts aside our moral compass in the name of action and to close ranks for protection against some other group. Think of a local derby match between fierce rivals. Chances are you’ll see an angry minority. Why are they there? Because they are the truest of fans. They wear their badge of loyalty aggressively. Indeed not only do they