Thu Aug 23rd, 2012 at 04:04:39 AM EST
It's been apparent for quite a while that the core myths of neoliberalism sit on the foundation of a neoliberal/right-wing narrative of what happened in the 1970s.
For many of the people now in power, the period of oil crisis and stagflation was a formative experience regarding economics. For people of my generation - not yet in power, but now adults in our 30s, sort of the middle of the voting populace - the 70s are the times we heard about from our parents and the media, with much neoliberal spin about unions etc.
Two interesting bloggers have brought up the 70s recently and there's lots of food for thought. Both posts are too long to quote in full:
front-paged by afew
First, as posted by Migeru on ET, Bill Mitchell has been thinking about how assumptions about unemployment and policy have changed:
Public service employment programs - what really have we go to fear? | Bill Mitchell - billy blog
I was clearing out some old filing boxes today - I am moving offices soon - and came across a conference proceedings from 1976, which I had picked up somewhere in the 1980s when my own academic career really began. It was entitled: Directions for a national manpower policy : a collection of policy papers prepared for three regional conferences and published by in Washington by the US National Commission for Manpower Policy in 1976. There was a chapter in it that I recalled fondly by US economist Charles C. Killingsworth entitled Should full employment be a major national goal. He was a long-time advocate of public employment programs and understood how lacking my profession is when it comes to caring about people. In terms of public service employment programs - what really have we go to fear? Answer: not much, unless you don't enjoy the most disadvantaged having a better life!
At times you could be lulled into thinking the article was just written. He begins by saying:
Tomorrow morning in Washington there is going to be an announcement of momentous significance. About 14 hours from now the Department of Labor is going to tell the waiting world what the new unemployment rate is. Part of its importance, of course, lies in the fact that this will be the last unemployment figure announced prior to the election. I'm not going to tell you what the figure will be. I will make a prediction that I think is completely safe. Whatever the number is that they announce tomorrow morning, it will be the highest unemployment rate of the entire postwar period after 18 months of recovery. Now let me say that again. The number that will be announced tomorrow will be the highest unemployment rate this country has experienced since World War II in the 18th months of a recovery from recession. I say that in all seriousness because I think that the point is that the current economic recovery has done less to reduce the unemployment rate than any other recovery in our post-war experience.
Charles Killingsworth takes his audience back to the late 1940s to focus on the unemployment rate - "not simply because of historical interest but because I want to try to identify some lessons from it".
Read the full post, it's interesting, although the second half is more about job guarantees than historical analysis.
The key here for me is that this is circumstantial evidence that points to a change of policy which matches the sea change in unemployment rate.
The change in unemployment rate is an important part of this post by Noah over at Noahopinion:
Noahpinion: Something Big happened in the early 70s
Dissertation successfully defended (it won't be official until I complete the byzantine formatting requirements, but that will happen in a couple days), so back to blogging slash getting ready to teach finance to MBAs...
Reading Paul Krugman this week, I found that a question that has often nagged me is nagging me more than usual. Take a look at these two graphs that Krugman put up:
Yes, I know that trends in squiggly lines can be illusions. They might not represent anything structural. "The trend is your friend until the bend at the end," as they say. But WOW, doesn't it look like there was some sort of trend break in the early 1970s? Also, that Krugman graph shows labor productivity, but if we look at Total Factor Productivity, here is what we see:
Now, this is not exactly couched in the careful, formal language of macroeconometricians, but it seems like Something Big happened in the early 1970s.
What was it??
There are lots of graphs (missing from the block quote) and lots of interesting, inconclusive thinking, please read it on Noah's blog. I don't want to bring the stack of graphs over, that feels like over-quoting.
The most interesting point for me is that Noah discards the neoliberal consensus, looking at the data, but finds it difficult to identify what happened in the 70s. But as he says, something big did.
My view so far, reading all this:
No more growth miracles | New Europe
- There were shocks to the system, notably Oil and Bretton Woods. These both implied greater volatility in trade costs and I think that caused problems in the workplace consensus between large firms and unions. That consensus had been built on the advantages of long-term planning, but the shocks to the system put some companies into immediate difficulty. Most importantly, it psychologically shocked the managerial class - planning was now less reliable - that both pushed them towards a shorter-term mindset and also made them want to dump risk onto workers. And much more than simply wage level, a lot of unions were established around mitigating risk for their members - this is the seeds of a big conflict.
- Japan and the Far East come online to the international trade system. This is a labour supply shock. As one commenter on Noah's blog notes, the canary in the mine was the garment industry - but it didn't stop there. These countries were pursuing a growth agenda as outlined here by Dani Rodrik:
Moreover, rich countries are unlikely to be as permissive towards industrialization policies as they were in the past. Policymakers in the industrial core looked the other way as rapidly growing East Asian countries acquired Western technologies and industrial capabilities through unorthodox policies such as subsidies, local content requirements, reverse engineering, and currency undervaluation. Core countries also kept their domestic markets open, allowing East Asian countries to export freely the manufactured products that resulted.
The currency undervaluation in particular prevented the system from destabilising, all the new labour in the system did not generate as much demand as it should.
3) The policy response to these shocks was not to commit to employment, but to look for a race to the bottom. At the micro-level this is about firms hacking back wages, benefits and security. At the macro-level this is a change of monetary and fiscal policy away from trying to maintain employment levels.
So that's where I got to, with "What happened in the 70s?" What's your view? Any thoughts? Theories? etc...
What's your view?