Adam Tooze's Blog, page 8

Chartbook #187: MLK’s economic radicalism & the strange birth of the Fed’s dual mandate

In the last ten years, the familiar boundaries of the political debate on the US have been challenged by a convergence of arguments about racial justice, economics and inequality.

This conjunction in its contemporary form dates back to the early 2010s when the ferment in economic debates in the aftermath of 2008 and the differential impact of that crisis on black and latino households, coincided with the election of Barack Obama, the Occupy movement, which spawned the 1 percent v. 99 percent discourse, the upsurge in interest in inequality supercharged by the success of Thomas Piketty’s book and the eruption of Black Lives Matter in July 2013.

A second phase of coalescence arrived with the mobilization against the Trump Presidency, the Green New Deal of 2018, the sudden salience of MMT, the differential impact of COVID and then, in 2020, the killing of George Floyd and the protests that followed.

It is a striking, for instance, how central concerns of racial justice are to the environmental justice and Green New Deal movement in the US. Environmental justice emerged in the US in the 1980 as a movement of communities of color that was separate from and at times opposed to predominantly white environmentalism and the organized lobby of “Big Green”.

Opposition to carbon pricing on the part of the environmental justice movement in the United States reflected the experience with such systems in California where they were seen as enhancing inequalities between majority and minority communities. This gives climate politics in the US a very different coloration to Europe.

One of the effects of this intersection of movements was also a reappraisal of history and specifically the social and economic justice components of the civil rights movement and the thinking and politics of Martin Luther King.

I tried to do justice to this in the Ones and Tooze episode that aired in time for MLK day on 16 January.

My guide on these issues has long been David Stein’s fascinating work on the economic policy thinking of the civil rights movement, the Freedom Budget, the full employment guarantee and Coretta Scott King.

The Freedom Budget was a radical Keynesian proposal to pursue a conjoined program of racial and social justice combined with full employment. In its thinking it was a remarkably cogent statement of left Keynesianism.

I attach the reader that I assembled from materials freely available on the web here:

[image error] Freedom Budget Extracts – 5MB ∙ PDF File

Teaching the topic I added readings from William Darity Jr, Darrick Hamilton and Mark Paul.

For the deeper background of the development of Black American economics and its approach to the intertwined questions of social and economic disadvantage and racism, check also this fascinating lecture by Nina Banks on the remarkable Sadie T.M. Alexander. In 1921 Alexander was the first Black American to receive a PhD in economics in America.

For this year’s Podcast on MLK day, I added to my reading Michael K. Honey’s To The Promised Land. Martin Luther King and the Fight for Economic Justice.

Honey does a wonderful job of unpicking the threads that make up King’s thought on social and economic matters and intertwining the evolution of King’s thinking about economic and social justice with his activism in support of organized labour.

As he shows, in the months that followed King’s assassination the United States saw not just rioting but a remarkable convergence of anti-war, social justice organizing in the Poor People’s Movement. Note the UAW banners demanding full employment and a guaranteed annual income.

Demonstrators from across the country converge on the National Mall in Washington, D.C., during the Poor People’s Campaign on June 19, 1968.

By twisted and circuitous routes ably traced by Stein and Patrick Andelic what emerged from this radical mobilization was, eventually, the Humphrey-Hawkins Full Employment Act, which was signed into Law by Jimmy Carter in 1978. This, in turn, is conventionally seen as providing one of the pillars of the Fed’s “dual mandate” for both price stability and maximum employment. As Lev Menand has recently argued that too may be an ex post construction. In the 1970s Congress actually prioritized credit expansion with a view to ensuring full capacity utilization from which maximum employment and stable prices (proof against deflation) would emerge as consequences. It was the currents dominant in global economics in the 1980s, not the mandate of Congress that made the Fed into the overarching macroeconomic regulator.

It was a twisted completion of that arc which meant that in 2021, in the aftermath of the COVID crisis and the upsurge of BLM, the Federal Reserve began to recognize the macroeconomic balance between inflation and unemployment as one that engaged issues of racial justice.

Source: Lorena Roque Rose Khatta, Arohi Pathak 2022

It seems that the arc of history bends towards the technocratic incorporation of once radical currents of political economy. It thus behooves us on an occasion like MLK day to push against this tendency.

As Honey drives home, it is convenient for mainstream American life to remember and honor “King and his organization, the Southern Christian Leadership Conference (SCLC)” for their brave struggle to “redeem the soul of America” by seeking equality before the law, integration, and voting rights for all. But we do not do King or his movement justice if we leave it at that limited agenda. They were radical and explicit in demanding that those liberal freedoms would mean little if they were not accompanied by a profound change in American society and the structure of its economy. That went well beyond the Fed incorporating black male unemployment into its macroeconomic dashboard.

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Ones & Tooze: Happy Birthday COVID

Three years ago, a new virus wreaked havoc on China and triggered a public health and economic crisis around the world. Today, COVID is still roiling China and destabilizing the world economy.

Find more episodes and subscribe at Foreign Policy.

The Hidden History of the World’s Top Offshore Cryptocurrency Tax Haven

The Bahamas represents how global capitalism can go very right, and very wrong, at exactly the same time.

On Jan. 3, as Sam Bankman-Fried pleaded not guilty in New York on charges stemming from the collapse of one of the world’s largest cryptocurrency exchanges, the FTX debacle became, once again, a U.S. story. The Bahamian backdrop to the last days of FTX has faded into the background. But the torrid affair between what was once touted as the leading edge of financial technology, or fintech, and the Bahamas—a nation of 400,000 people, spread over some 700 islands, 50 miles or so offshore of Florida—is not merely incidental. It highlights the way in which the wider Caribbean region has repeatedly functioned as a Frankenstein laboratory of global capitalism.

The Caribbean was the first region of the world to feel the full force of Western conquest and plantation slavery. In the 17th and 18th centuries, the Bahamas was a legendary base for piracy and smuggling. The 20th century brought the rise of American power and the struggles of the Cold War. Again and again, the fragile island chains have been wracked by hurricanes, volcanic eruptions, and earthquakes, all of which bring devastation but also prompt the churn of property and new waves of investment.

Every year, the spectacular beauty of the Caribbean attracts millions of tourists in search of sea and sun. Casinos and resorts jostle with the remnants of plantations, dilapidated factories, and freeports. Mega-yachts, fast boats, cruise ships, tramp steamers, tourist flights, and private planes enable people, money, and goods to circulate.

It is a region of extreme inequalities both between and within nations. The Bahamas, with a GDP per capita of around $30,000, is one of the highest-income countries in the region, featuring pockets of extreme affluence like that enjoyed by the FTX crew at the Albany resort on the island of New Providence. At the same time, the minimum wage in Nassau, at $250 per week, is that of a lower-middle-income country. That, however, is enough to attract tens of thousands of migrants from Haiti, who eke out an existence in shanty slums huddled around every Bahamian settlement and town.

Read the full article at Foreign Policy

Ones & Tooze: The Economic Philosophy of Martin Luther King, Jr.

Dr. Martin Luther King, Jr., was a towering figure in the history of American civil rights. But he also had an economic philosophy, and he expressed his ideas late in life about capitalism, communism and the right path for the United States. As Americans observe King’s birthday in the coming week, Adam and Cameron discuss his approach to economic policy and justice.

Find more episodes and subscribe at Foreign Policy.

Chartbook #186 Solicitous dictatorship. The political economy of authoritarianism – Aly v. Tooze revisited.

“In some periods they explain practically all major events, and in most periods they explain a great deal … But even greater than the causal is the symptomatic significance of fiscal history. The spirit of the people, its cultural level, its social structure, the deeds its policy may prepare … all this and more is written in fiscal history. He who knows how to listen to its message here discerns the thunder of world history more clearly than anywhere else.”

Regular readers of the newsletter will know my fondness for this clarion call for fiscal sociology trumpeted by Austrian economist Joseph Schumpeter in his essay “The Crisis of the Tax State” (1918).

How often it rings true. How telling is the priority given to military spending in recent US budgetary deliberations, for instance, or the lack of provision for family policy or childcare. How striking is the heavy incidence of indirect taxes that reinforce inequality in modern Germany. How revealing are the gaps in the fiscal net that open the door to offshore havens.

But there is a crucial, rarely noticed qualifier to Schumpeter’s thesis: the message of world history can be derived from the fiscal accounts only by “he who knows how to listen.”

This begs the question: what qualifies one to discern the thunder of world history in such obscure sources? It is one thing to see the world spirit on horseback in the form of Napoleon Bonaparte cantering through Jena in October 1806 on his way to crushing the Prussian army. But to read the world-historic thunder from the fiscal accounts takes a special kind of technical knowledge.

Seen this way, one can read Schumpeter’s famous passage as the manifesto for a new kind of expert, someone equipped with the right kind of knowledge to move back and forth between the details of the budget and the drama of world history. And what is the claim on their behalf? In the essay on fiscal sociology Schumpeter is making a claim to knowledge. He is proposing fiscal sociology as a causal and symptomatic methodology. But it is a short step from there to claiming that that kind of knowledge also confers power, or should do. As Clara Mattei has shown us, that idea would lead several prominent Italian fiscal experts into collaboration with Mussolini’s regime. What, after all, was Mussolini’s March on Rome, if not the thunder of history (admittedly, rather carefully stage-managed).

In the wake of World War I Schumpeter was part of a generation of economists developing a new macroeconomics. Over the years that followed Schumpeter’s call, fiscal sociology was braided with the emergence of a new economic vision in which the government budget was increasingly seen as determined by the interaction between political choices and the circular flow of national income and expenditure.

Schumpeter himself emigrated from the German speaking world in the 1930s and unlike in World War I, played no practical part in World War II. But the view of the national budget, in Schumpeter’s terms, as a key matrix for economic, political and social priorities helped in practical terms to organize the war effort. In the US and the UK the war is often regarded as a cradle for what some call the “Keynesian revolution in government”. If World War I gave us Schumpeter’s fiscal sociology, World War II gave us functional finance, the radical Keynesian reading of fiscal accounts entirely in terms of the state of aggregate demand, a perspective that echoes down to the present in the form of MMT.

Given the Keynes- and anglocentric focus of much intellectual-political history it is often left unremarked that the same process of expert development also took place on the Axis side in the war. The Japanese had a notably expansive approach to war finance. As I showed in Statistics and the German State (2001) the Nazi regime too developed an elaborate macroeconomic tool-kit that was intended to steer the rearmament drive and war effort. But, on their side too, the question of interpretation arose.

I was put in mind of this, when I came across an old post on adamtooze.com about the debate over Götz Aly’s controversial book Hitler’s Volksstaat (2005), which appeared in English as Hitler’s Beneficiaries. It is a fascinating book that seeks to offer a sweeping overall assessment of the balance of costs and benefits of the Nazi regime to the German population.

Hitlers Volksstaat reveals both the strengths and weaknesses of Aly’s scholarship. It is brilliantly original in its microscopic reconstructions. It takes a particular type of genius to realize the significance of Reichsbahn baggage allowances for the history of World War 2. But it was the bigger picture that really caused the sensation. Looking at the fiscal account, what Aly claimed was that ordinary Germans had paid only 10 percent of the costs of the Hitler’s wars. Their share was so low because they had benefited from two types of redistribution. A much larger contribution, 20 percent of the total, had been taken from the profits of businesses and higher-income groups in the Reich by means of progressive taxation. The Nazi regime had, in short, made good on some of its social promise. The rest – 70 percent – was paid for by plunder, first of the Jews in Germany and Austria and then of the entire economy of the rest of Europe.

Aly, you might say, followed the Schumpeterian injunction to the letter. 10-20-70 – those stark numbers were the thunder of world history. But was Aly really hearing the thunder? Or was, what he thought he heard, actually an echo inside his own head?

On the face of it, Aly was well equipped for the job of deciphering the fiscal apparatus of the Third Reich. He more than anyone else had focused precisely on the issue of expertise. He had done pioneering work on the complicity of doctors, statisticians, demographers and economists in the Nazi’s racial regime. Especially in Vordenker der Vernichtung (1991) – Architects of Annihilation in English – written together with Susanne Heim, Aly had written one of the most provocative and original contributions to history of Nazi Germany. It directly inspired both my first books. For some background on Aly’s interesting biography see this interview he did for Yad Vashem. If you can follow the German, this is a fascinating recent interview.

It is important to understand not just the factual claim that Aly was making, but also the political stakes.

For Aly, the fact that the regime demanded so little from the German population, confirmed that they were not in fact fanatical Nazi’s willing to sacrifice for their beliefs. Nor, however, were the majority of Germans coerced, as the left had claimed on behalf of the German working-class. They were, Aly claimed, bought off. They were the beneficiaries of a Nazi wartime welfare state funded by redistribution and plunder – first from the Jews and then from the entire population of occupied Europe.

Rather than heaving a sigh of relief and rejoicing in the fact that the Nazi regime was not sustained by fanatical ideological loyalty, for Aly this was cause for resigned despair. He was a veteran of radical politics in the 1960s, 70s and 80s. For him the data confirmed that the true continuity of German history was not fanatical beliefs of any kind, but rather the the persistence of a depoliticized populace clamorously dependent on the state. According to Aly, the “archetype of the German compatriot in the 20th century” is a grotesque figure: “Without stature, or much of a brain”, an individual who can hardly afford proper shoes, but who nevertheless keeps one foot firmly planted in a well-polished jack boot, susceptible to any ideology of salvation, endlessly mercenary and consistently irresponsible. Thus Aly characterizes the “ordinary Germans” who are the principal actors of his books. (If this sounds implausible, follow the footnotes to the original piece at adamtooze.com).

Strikingly, what Aly was offering was a materialist reading of German history in which the culprits of German history were not the usual suspects singled out by materialist analysis i.e. big business etc, but “ordinary Germans” themselves. On this point Aly was emphatic. He engaged in a deliberately polemical rewording of Max Horkheimer’s famous pronouncement: “He who wishes not to speak of capitalism, should hold his peace about fascism”. Aly rephrases this as: “He who wishes not to speak of the advantages for millions of ordinary Germans, should hold his peace about National Socialism and the Holocaust.” And he drove this point home, for instance on the occasion of the award of the Heinrich Mann prize in 2002, when in his acceptance speech Aly dismissed the continued public fascination with the responsibility of large capitalists. ‘Invoking the names of Dresdner Bank, Allianz, Generali, Daimler-Benz, Deutsche Bank, Krupp, IG Farben or Thyssen may serve to veil the real historical background of Aryanization in a cloak of anti-capitalism, but it cannot provide a remotely satisfactory explanation”. The background here was the revival of interest in corporate responsibility propelled by the battles over slave labour claims in the late 1990s.

Hitler’s Beneficiaries thus revealed, even more clearly than Aly’s earlier work, his fundamental suspicion of the 20th century welfare state, a suspicion that was common amongst the anti-establishment radicalism of the 1960s and 1970s. Previously, Aly had focused on the expert personnel that drove the modern biopolitical regime, eugenicists, medics, statisticians, economists. Now his critique was directed at the holy cow of redistribution itself. The welfare state, Aly wanted his readers to realize, was in Germany closely linked to predation.

Now, it should be said, that at least some of the historiographical trends of the period were running in Aly’s direction. Christopher Browning’s Ordinary Men (1992), for instance, showed how few of the German men involved in shootings of Jews in Poland and Western Soviet Union could be described as fanatical anti-Semites or Nazis. They went along and did their grisly job, out of small motives – the fear of non-conformity, fear of comparatively minor reprisals and disadvantages etc. In the right context, Browning believed, very ordinary people were capable of doing extremely violent things for very ordinary reasons. How that context – in this case the Eastern Front – was created was a different matter. Declaring war was a top-down decision, which then unleashed the. possibility of “ordinary atrocity” on a mass scale, which itself created a more extreme context for further atrocity etc. It was a terrifying escalatory spiral, which imposed a genocidal racial regime, and made racial perpetrators out of “ordinary men”, but it did not require genocidal racial ideology all the way down. So at least Browning argued.

On the other side of the coin, in the 1980s and 1990s, Nazi welfarism was being taken more and more seriously. In the 1980s Rainer Zitelmann gained notoriety by identifying a programme of top down social modernization at the heart of Hitler’s thinking – R. Zitelmann, Hitler Selbstverstaendnis eines Revolutionaers (Stuttgart, 1987).. Karl. Heinz Roth had long been pushing in the same direction, see K.H Roth, Intelligenz und Sozialpolitik im “Dritten Reich” (Munich, 1993). In a less contentious fashion Michael Prinz and Marie Luise Recker highlighted the expansive promises of postwar social largesse and egalitarianism made by the regime, see M.-L. Recker, Nationalsozialistische Sozialpolitik im Zweiten Weltkrieg (Munich, 1985) and M. Prinz, Vom neuen Mittelstand zum Volksgenossen (Munich, 1986). And in collaboration with Susanne Heim, Aly himself has explored the visions of social transformation by means of conquest and genocide that motivated key elements of the Nazi leadership. At the same time, work by social and labour historians substantially modified the view of German workers as victims of the regime.

So the interpretive drift was there, but Aly’s most spectacular claims flipped the balance entirely on its head. And they were a matter not of emphasis or reconceptualization, but of calculation: 10-20-70. Aly was bringing the thunder.

So did the numbers make sense? Had he read the message right? The short answer is no. Those who are interested in following the blow by blow may enjoy the original post, which details the exchange of reviews and brief public furore that ensued. Here I want to focus on the substance of the issues at stake.

To start with, Aly’s claim about redistribution between classes within the German population:

As Mark Spoerer pointed out, If you are going to infer tax burden you cannot do simply by looking at revenue flow into the state. To read the numbers in the fiscal budget you need to understand the society and the economy that have generated those flows. Aly’s attempt to demonstrate the redistributive effect of fiscal policy in the Third Reich was rendered misleading by his failure to consider the underlying development of income shares. It is certainly true, as he says, that business tax revenues rose more rapidly than tax on wages and salaries after 1933. But since business profits were soaring in large part as a result of government spending, this is hardly surprising. Once one allows for the underlying dynamics of income shares, which vastly outweighed the impact of taxation, his revisionism falls flat. It was not the working class but German business that was the big beneficiary of Hitler’s regime. Certainly Hitler’s economic recovery brought benefits for the entire population. Working-class families benefited from full employment. College graduates had job prospects. Peasants saw their incomes stabilized and were spared bankruptcy. But all of this was outweighed by the shift of national income towards capital. The business histories of recent decades may argue over the degree of coercion exercised towards business owners. But thanks to the work of Mark Spoerer, the fact that profits surged under the Third Reich was actually beyond dispute – M. Spoerer, Von Scheingewinn zum Ruestungsboom (Stuttgart, 1996).

As to the contribution levied on the Jews of the Reich, it was backbreaking. As it was intended to be. But they made up less than 1 percent of the German population. They were massively disadvantaged after 1933 and their wealth consequently depreciated. Hundreds of thousands of Germans benefited privately from the forced liquidation of Jewish property, the state took the profits. But a fire sale forced on a tiny and beleaguered minority is not how you finance a world-beating rearmament effort which by 1939 was already claiming almost 20 percent of GDP.

The truly dramatic claim Aly made was that when war began, the vast majority of the burden of the war was offloaded on the occupied territories.

Many of the territories that Germany occupied, like Denmark, the Netherlands, Belgium and France were rich. They clearly contributed on a large scale. Those exactions particularly of labour were the material driver of resistance to the Nazi occupation. But could they really have been large enough to provide 70 percent of the resources needed for total war? The answer, is clearly no. No war has ever been funded to this degree from external resources. To see how implausible the idea is, imagine for a second how unstable the international order would be if an aggressor could expect to fund anything like 70 percent of the costs of conquest out of conquest. War would pay for itself!

It does not. Nor did the Nazi regime seriously believe it would. Not before 1939, nor afterwards. Even at the moment of maximum victory such talk was cheap rhetoric, not reality. Of course, the regime intended to impose occupation costs and reparations but the overall balance was negative and, from the point of view of the regime, it was not only worth paying, it was historically necessary. History was struggle. Anyone who thought otherwise had succumbed to the post-historic blandishments of liberal ideology, one of the darkest weapons of world Jewry in its struggle with the Aryan race.

So how did Aly get the thunder of world history so wrong? He arrived at his topsy turvy conclusions, by treating war borrowing as though it imposed no burden on the German population. It would be repaid in the future out of reparations to be imposed on the defeated enemies of Germany. As Aly spelled out in a polemical exchange with me in the pages of the Berlin left-wing daily, the TAZ: “the credits taken up on the German capital market for the purposes of the war” allowed the regime to “postpone” inflicting the “real burden” on the German population, with the intention that these debts “should be imposed as soon as possible on the enslaved populations” of Europe.

The magical idea that borrowing allow societies to shift economic burdens into the future, or conversely, resources from the future to be teleported into the present, is by no means peculiar to Aly. It recurred a few years later in the equally wrong-headed argumentation offered by Wolfgang Streeck in his Adorno lectures, published as Buying Time. The fallacy originates in a conflation between micro and macroeconomic perspectives. An individual borrower may transfer purchasing power across periods, but societies as a whole cannot, unless they borrow from the “outside” i.e. from other societies. For everyone “buying time” there must be someone “selling” it. At a deeper level the attribution of such metaphysical powers to debt echoes the uncanniness of debt relations, a feeling of unease which is shared on the left, by folks like Aly and Streeck, as much as it is by conservatives.

This is where the question of expertise posed by Schumpeter’s invitation to fiscal sociology really bites: How to interpret debt and taxes? And this is where it becomes clear that arguments about this idea are not merely intellectual exercises, but endogenous to fiscal politics and our effort to make sense of them, in the same way that Schumpeter’s original essay was part of its context in the aftermath of World War I.

One of the first to truly skewer the alchemical fallacy of war finance by means of treasure was John Maynard Keynes in his pamphlet on How to Pay for the War published in 1940. But we should not fall into the fallacy of thinking that it took a surpassing genius of Keynes’s ilk to figure this out. Hitler’s Finance Minister Schwerin von Krosigk spelled out the argument perfectly clearly in his memoirs Bilanz des Zweiten Weltkrieges (Oldenburg, 1953), 323:

“The common argument that taxes burden the present whereas debts are carried by future generations, is false. The goods required by the fighting forces can only be provided from stocks accumulated in the past or from goods produced in the present. The burden cannot be transferred to the future.”

The managers of the Nazi war effort never imagined that they could offer a deal remotely as attractive as that suggested by Aly. Clearly, the resources for war, like any other economic activity, have to be found out of the current flow of production. The state could borrow from its citizens to finance its activities, but under conditions of full employment, such as those prevailing in Germany from the late 1930s, any large-scale increase in state activity, whichever mechanism is used to finance it, was at the expense of other economic activity, exports or private consumption or civilian investment. By the late 1930s the Nazi Ministries had a clear idea of “output gaps” and inflationary overhangs. The same labour and raw materials cannot be used twice. Nor can future labour or machine capacity be used in the present. Military activity must be sustained though real resource shifts through cuts to non-military public services and a reduction in consumption and civilian investment. What debt issuance does is to interpose a set of political pronouncements and contractual obligations, which may or may not hold out a more or less credible promise of compensation at a future date. But that too will come from future tax revenue flows. What debt does, no more and no less, is to establish a contractual agreement to tie an allocation of resources in the present to a mirroring reallocation of resources in the future.

Of course, the occupied territories did make a large contribution to the Nazi war effort. They were the “outside” from which the regime could extract resources, inefficiently, but on a large scale. Ironically, in accounting for these flows from occupied Europe Aly’s thinking is more clear-headed than with regard to Germany. When it comes to imports from occupied France, for instance, which were financed not only by occupation charges but also through loans to Germany imposed on the French authorities, Aly recognizes the entire flow, not only the bit paid through occupation taxes, as an immediate burden on the French economy.

When we properly account for Germany’s own contribution to the war effort, what do the foreign contributions amount to? In round numbers 25 percent, a figure I estimated in Wages of Destruction on the basis of numbers collected by Mark Harrison. More recent calculations by Hein Klemann revise that share upwards to 28 percent.

Source: Klemann

So the contribution of German society to the Nazi war effort was not 30 percent, as suggested by Aly, but 72-75 percent. Of course, the political bargain between the Germans who were saving and foregoing consumption and private investment for the war effort, was different from that imposed on the rest of Europe. But it was hardly, as Aly suggested, a “feel-good dictatorship”, or, at least, the good vibes were not attributable to the kind of crude materialist equation Aly drew up. By the later stages of the war, the Third Reich was a fiercely demanding, mobilizing dictatorship. It was a better-run but also intensified version of the total war economies of World War I. It was a gigantic national effort. In economic intensity second only to the even more demanding Soviet regime.

Crucially, what the Third Reich did understand, and in this respect it differed from the Wilhelmine regime, was the need to maintain a cohesive home front. To this end, it did far better at ensuring food rations for the entire German population. And it created a racial hierarchy of labour, in which Germans occupied a superior position. Not for nothing in the last thirty years, Volksgemeinschaft, or racial community, and “racial state” have become the key terms in historical writing about Hitler regime. These terms seek to capture the way in which structures of power and inequality were reorganized in racial terms. This squared the very real transfer of resources away from consumption and civilian investment with the construction of a new sense of cohesion and even of solidarity amongst racial comrades.

To see where the scholarly debate has gone since the 1990s there were two major english-language collections of essays published in the 2010s, on Volksgemeinschaft and the racial state, which are highly recommended.

In Wages of Destruction my focus was squarely on the resource shift i.e. the huge surge in military spending. This was the most dramatic ever accomplished in a capitalist state over a six year period in peacetime. This military-industrial surge came at the expense of consumer investment, housing above all, consumption. But this should not be interpreted simplistically, as a militarism v. consumption trade off. The military industrial complex was a giant social phenomenon. Constructing a modern, rapidly expanding army was a form of collective public consumption, shaping identities and delivering pleasures of all kinds as other forms of consumption do. Young men became soldiers. Many of them relished the experience. The reintroduction of universal conscription in 1935 was wildly popular. Older men returned to the ranks. Rearmament was not a process imposed by the state from the outside, against individuals, men or women, or families, it was an integral component of the Volksgemeinschaft, which was not just racially structured, but a nation in arms. To my mind, compared to the relatively rich literature on Nazi racism, we still lack an adequate social and cultural history of the Third Reich’s militarism that takes in its material manifestations and cultural accoutrements. At times it can seem that we know more about the afterlives of Nazi militaria than their original history.

Such a history might take inspiration from strands of work that explore the fascination exerted by the car and the aeroplane, for instance W. Sachs, For Love of the Automobile (Berkley, 1992) and P. Fritzsche, A Nation of Fliers. German Aviatin and the Popular Imagination (Cambridge Mass, 1992). And yes I’m painfully aware that those references are thirty years old! But in attempting to understand hegemony and regime stability whether in the Third Reich or other illiberal regimes, or for that matter in the West, we still struggle to move beyond approaches that crudely juxtapose material and ideological motivation, as though they were separate rather than inseparably intertwined. Think, rather obviously, about the debates about 2016, Trump and populism, or, my personal favorite, the fortuitous coincidence of the financial crisis of 2008 with the advent of the smart phone and modern social media. In the political history of American capitalism, Apple does a lot of work.

In any case, there can be no doubt that the development of private consumption and the generalization of consumer society in Germany in the 1930s was hemmed in by the regime’s priorities. But it was not stifled or completely repressed. A central priority for the regime was not to avoid making demands, but to do so in ways that did not trigger acute shortage or crisis. It enabled a modest prosperity on a mass scale and affluence for the elite. Nor should this balance be surprising. Looking back from 2022 to a debate that took place in Germany in the early 2000s about the 1930s and 1940s, I cannot help thinking of what we have learned from Asian experiences over the last thirty to forty years – first Japan, then South Korea and China. All of them have experienced growth driven by spectacular levels of investment, much of it publicly financed. This implies a lot of hard work and a concomitant squeeze on consumption. But this severe macroeconomic balance in favor of “jam tomorrow”, by no means prevented the development of a dynamic and innovative consumer culture. Fashion and trend-setting are cheap by comparison with a gigantic rearmament effort or infrastructure drive. You can have your guns or your high speed railway and you can have your Leni Riefenstahl flicks, your occasional summer outing, your “fast fashion”, your weibo, your TikTok and K-pop too. I do not mean to suggest any strong analogy between the two experiences. It is rather that in retrospect, the historical imagination that informed our debates about the interwar period in the 1990s and 2000s seems narrowly constrained by West European and American experience from the 1960s onwards.

And perhaps one can make the same point another way. Of course, consumption in Nazi Germany was not at the level of modern affluence. Nor did it prioritize consumption as the main driver of growth as was the case in the US or the UK for much of the recent past. But nor was the experience of Nazi Germany in the 1930s in any way akin to that in the Soviet Union. No Volksgenossen starved for rearmament, or even for the war effort. Indeed, the regime systematically awakened the promise of a German socialism to come, not the reality supposedly diagnosed by Aly, but a promise of an “economic miracle” that lay in the future, after victory and conquest were complete.

How then did it manage to maintain this tension? This is the important question posed by Birthe Kundrus in her effort to pull together the various strands of the debate.

What does need to be explained, however is how National Socialist leaders were successful in holding off overt disappointment for such a long time, and managed to balance the people’s ambivalence with the divergent hopes linked to the Volksgemeinschaft project and a people’s consumer society. My own explanation is as follows: in its consumer policy, the Nazi state used the emotional added value, the social utopian nature of consumption. This essence of consumption as a promise was a double-edged sword, however, not only because wishes must be fulfilled if they are not to turn into disappointment, but also because of the marked Eigensinn the Volksgenossen could have in their habits, and a degree of initiative the Nazi bureaucracy did not always expect. The regime therefore had to develop quite a sophisticated crisis management strategy. At its centre was the smokescreen of solicitude.

Kundrus illustrates this point precisely with regard to

Separation Allowance (Familienunterstützung). Separation Allowance was a grant for the maintenance of the families of soldiers conscripted during the Second World War. The Allowance was paid to the families of conscripted soldiers for their upkeep and was intended to compensate for the loss to dependants of the man of the family’s earnings. It was a generous amount both by international standards and by those of the German Reich. This was not only a sign of commitment to the families of soldiers in view of their sacrifices, but was essentially a reaction to the collapse of the home front in 1918. Aly correctly regards it as one of the Nazi regime’s ‘good’ social policy enactments. However, the Separation Allowance story did not end, as Aly seems to suggest, with millions of soldiers’ wives sitting at home in Germany, happy with all the money they had been given and feeling that Hitler was looking after them. … These families developed a sense of entitlement.

Neighbors squabbled and appealed to the authorities. The allowances that offered ready cash encouraged consumerist desires and frustrations.

Yet there was still hope and trust in the system, which constantly reiterated that it might not be able to fulfil individual wishes for a higher standard of living in the short term, but that in the long term it would all be possible. … But the concept of the Volksgemeinschaft had more than just a rhetorical dimension. It also offered a guide to action: it committed the Nazi regime at least to meeting the people’s basic needs; and it emboldened the Volksgenossen, as they wavered between obedience and self-assertion, to resist the rejections of their demands. … The example of Separation Allowance shows that every measure concerning social and economic policy, even if initially welcomed by the Volksgenossen, generally produced tensions as well as satisfaction. Or to put it another way: certain benefits met some of the population’s needs, but they also tended to create new wishes and, if these wishes were not fulfilled, there was a risk of social disintegration. This is where the Nazi bureaucracy and its crisis management came in. Loyalties were secured not just by material benefits, but also through the feeling people had that they were being looked after, even when there was dispute. … The longer the war lasted, the less the authorities were in a position to act as intermediaries. By the end, they could only defuse, not solve conflicts. Nevertheless, their solicitude was an important factor in ensuring that the situation did not lead to unappeasable social unease as had emerged during the First World War.

To return from the illuminating minutiae of Separation Allowances to Schumpeter’s vision of discerning the thunder of world history from the fiscal accounts, what Kundrus points us towards is the fact that the Volksgemeinschaft was never a static, achieved balance. It could not simply be read off from a clear and definite allocation of resources. It was rather enacted against a backdrop of insufficiency and shortage, through a constant oscillation between promise, delivery and expectation, mediated by optimistic visions of the future. The Volksgemeinschaft took on reality not in the form of the actual delivery of Volkswagens or apartments, but in the continuous negotiation more or less solicitious more or less argumentative, between the recipients of benefits and those who handed them out. It was this negotiation, not a simple policy of delivering material benefits, that kept a degree of optimism and future-orientated legitimacy alive.

When we think about regime stability today, be it in Ukraine or Russia, in China, Turkey, or for that matter in embattled Western states at moments of crisis, this idea of negotiation is a useful and necessary complement to Schumpeter’s grand vision of how to discern the march of world history from the fiscal accounts.

****

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Ones & Tooze: What FTX’s Collapse Tells Us About The Bahamas

Plus: What a recent breakthrough in nuclear physics means for the future of energy.

How did the Bahamas become a global center for money laundering, tax avoidance, and financial engineering? Hosts Adam Tooze and Cameron Abadi take up this question following the collapse of FTX, which had its headquarters on the island country. Also on the show: Is the fusion revolution really here?

Find more episodes and subscribe at Foreign Policy

Chartbook #185 Inflation and distributional conflict – in 2023 not 1973! Also a response to the debate around that Blanchard thread.

2022 ended with the West’s two major central banks somewhat out of step again. The Fed is slowing the pace of rate increases. Meanwhile hawks at the ECB are signaling further steps towards severe tightening, even as inflation across Europe begins to cool.

Thinking ahead, on 28 November, one of Europe’s most prominent economists, Olivier Blanchard, published a piece in the FT reviving his call from 2010 for the world’s central bankers to revise their commitment to a 2 percent inflation target. Back in 2010 along with Giovanni Dell’Ariccia, Paolo Mauro, Blanchard called for a 4 percent target. In light of our recent experience, Blanchard has come to view 4 percent as too high. Empirical research seems to show that 4 percent is the level at which consumers begin to get jumpy about inflation. Inflation becomes salient and with that salience, the organizing sense of price stability is lost. But a 3 percent target still seems better to Blanchard than 2. More specifically, he warns that

when, in 2023 or 2024, inflation is back down to 3 per cent, there will be an intense debate about whether it is worth getting it down to 2 per cent if it comes at the cost of a further substantial slowdown in activity. I would be surprised if central banks officially moved the target, but they might decide to stay higher than it for some time and maybe, eventually, revise it. We shall see.

The hawkishness of recent comments from the ECB plus this scenario of agonizing and brutal efforts to squeeze inflation down from 3 to 2 percent may help to explain why Blanchard chose to end 2022 by launching a twitter thread, which has since kept the economics social media scene buzzing.

Is it surprising that Blanchard should lay out these elementary propositions? Only, if you start from a straw-man version of monetarism in which inflation is always and everywhere (nothing more than) a purely monetary phenomenon.

Setting that straw-man aside, a model of inflation without active price-setting does not make much sense. Someone has to raise their prices and then others have to follow. Otherwise no inflation.

You might say that Blanchard’s list of participants in the inflationary struggle is rather limited. A historical inflation theory would also require us to consider other stakeholders, notably bond holders. But they come into play less as drivers of the process than when we consider the political pressure that might be brought to bear to “force” firms, workers and taxpayers to stop the inflationary spiral.

On the other hand, Blanchard’s statement that inflation is “fundamentally” the result of distributional conflict, makes a lot of people antsy because a pure conflict theory doesn’t work. An inflation theory ultimately needs some mechanism of monetary expansion, otherwise the real value of the money stock is sharply reduced etc etc. One reading is that Blanchard knows this and doesn’t feel the need to spell it out. Another is that there doesn’t need to be a conscious political decision to offer monetary accommodate to the inflationary struggle, because credit expands endogenously.

I don’t think that Blanchard is claiming anywhere that sustained inflation doesn’t require monetary accommodation.

Current system is one in which central banks and commercial banks largely provide loans on demand at quoted rates. Monetary accommodation is fairly automatic.

— Jo Michell (@JoMicheII) January 3, 2023

So, if all of this is simply common sense, what is the kerfuffle about?

Is the most surprising thing that Olivier Blanchard is referring to distributional conflict? Blanchard is a high-status figure with standing in mainstream ranks. Claudia Sahm picks up on this, illustrating her latest post with some rather striking imagery!

Stay-At-Home Macro

Olivier throws it down: the Fed does not decide what is inflation is, we do

Today’s post is my explanation and critical evaluation of a Twitter discussion that Olivier Blanchard began last week. These are my views and are expressed in my style. As he once noted, “We have different styles.” Yup. Any errors here are mine, not his…

Post-Keynesians Lavoie and Rochon immediately responded with a carefully worded tactical note on the question of whether the mainstream is once again appropriating postkeynesian views, or whether this might be the opening to more fruitful collaboration.

Meanwhile, Guido Lorenzoni and Iván Werning who hold jobs at Chicago Booth and MIT cheerfully chimed in to say that they had just finished a paper in which they had painstakingly demonstrated that wage-price spirals can happen in standard New Keynesian models and that an aggregate demand stimulus can, in fact, lead to lower real wages, but that running the economy hot may also be optimal.

So as Sahm points out, there is actually quite a lot of variety of thinking about inflation out there. Certainly, as far as Blanchard is concerned his willingness to talk about distributional struggle should be no surprise. He is a smart and open-minded person, more a door-opener than a gatekeeper. He was a student in Paris in 1968. He read Rowthorn, the British Marxist and sometime editor of Black Dwarf, and formulated his own version of the price setting model already in the 1980s together with Kiyotaki.

Bob Rowthorn put out a political conflict theory of inflation (that different sectors fight over total output) and Blanchard built on it. Here is Rowthorn's summary: https://t.co/1UG8VUfIsx pic.twitter.com/hWtXra6tlw

— Albert Pinto (@70sBachchan) December 31, 2022

Source: IMF

So, if the content and personage are not surprising, to me the really noteworthy thing about the conversation is its other-worldly quality. Blanchard’s argument for a 3 percent landing zone for inflation is well taken. He is no doubt right about that. And the current inflation is a major distributional event, like any 8-10 percent inflation must be, however short-lived (not to say transitory). But how much conflict are we actually seeing? How much struggle? Perhaps with the exception of the UK, where there is something akin to a general crisis of legitimacy, has there ever been an inflationary process more docile than this one?

The surprising thing about all the commotion created by Blanchard’s tweet on conflict inflation is that there is no significant conflict or wage resistance in advanced economies right now

— Matías Vernengo (@NakedKeynes) January 3, 2023

Outside the more conservative corners of European central banking is there anyone, anyone at all, who is seriously worried about wage-price spirals? Here is Isabel Schnabel the “German voice” on the ECB:

Real wages are also an important part of firms’ costs (“cost-push channel”). Real labour costs deflated by producer prices have fallen and profits have increased, suggesting that labour costs are not currently adding to inflationary pressures. 6/15 pic.twitter.com/pOIJBkqDg6

— Isabel Schnabel (@Isabel_Schnabel) October 1, 2022

As Schnabel says, real wages have fallen and now price inflation is cooling too, not just in the US but in Europe as well. The most powerful industrial trade union in Europe, IG Metall, settled for a deal which even The Economist magazine had to concede was an exercise in moderation. The service sector union, Ver.di with strong representation in the public sector may take a more militant stand. But since many public sector services aren’t directly priced, the feed through from wages in the public sector to prices is indirect at best.

This does not mean that the current inflation does involve elements of a social process that could metaphorically be described as struggle. But the “struggle” in question is between different groups of producers over the size of their mark-ups and how much they can pass through to their customers and ultimately households as final consumers, another group that Blanchard does not mention. This kind of supply-side driven inflation has been modeled in an interesting way by Isabella M. Weber† Jesús Lara Jauregui‡ Lucas Teixeira§ Luiza Nassif Pires.

But to call this kind of cost pass-through, “conflict inflation” is to stretch what classic political economy or sociology intended when it referred to conflict. In general at least, divisions between producers and arguments over mark-up, do not have the same strategic or political importance attributed, for obvious reasons, to conflicts between employers and employed, capital and labour. Even when price surges rip through the budgets of poor people, unleashing the discourse of a cost of living crisis and demands for price controls and excess profit taxes, the politics are those of welfarism and distribution, not the politics of power and control. You don’t have to fetishized the process of production to acknowledge the difference here.

In light of the current situation I can’t help feeling a sympathy for those who are impatient with arm-waving about conflict theories of inflation and wistful reminders of corporatist days gone by,.

I think that this whole discussion trivialises conflict theory, eg what conflict is, sources of econ power, or the relative strength of workers’ bargaining power (or lack thereof for decades). The timing is bad as well given that current inflation has not been wage driven. https://t.co/EqAAlhWP9J

— Andrew M. Fischer (@AndrewM_Fischer) January 4, 2023

To my mind the most remarkable bit of the Blanchard thread are the concluding points where he refers to what is simply plain old corporatism as a “dream”.

And then observes that what is lacking is “trust”, rather than organization, a balance of power and a political process that is open to the direct discussion of distributional issues, rather than deliberately and strategically closed against them in the name of higher values like “price stability”. In those lines power, interests and political economy evaporate and are displaced by social psychology, in the form of trust. If these are really the grounds for an inner-disciplinary reconciliation across the camps of economists, it is surely a suspect reconciliation at best.

And the puzzle is that Blanchard is far from oblivious to all this. See for instance his comments here:

On shocks, redistributive conflict, and inflation: A 1973 piece by the Bundesbank, thanks to @WendyCarlinEcon: https://t.co/vgc5J7tlBH
By arguing against second rounds, it implicitly asks workers to accept the real wage cut implied by the increase in the energy price (p9 of pdf)

— Olivier Blanchard (@ojblanchard1) January 3, 2023

Obviously, it is true that fighting the so-called second round reaction involves accepting the distributional status quo as a given. This was made abundantly clear in the reactions to Andrew Bailey’s comments about wage restraint.

But important as that point is, the more important question is why in 2023 we are still talking about a situation half a century ago. What we most urgently need is not so much a revival of conflict theories of inflation that were appropriate to the 1970s and 1980s. What we need is an adequate model of inflation and policy-making under conditions prevailing in 2023, of extreme asymmetry of bargaining power, deadlocked democratic politics and a consequent lack of social contestation, even when real wages are taking a painful hit. Wherever we stand on the politics of organized labour, it is incumbent on us to at least register the novelty of the situation.

****

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Ones & Tooze: Three Economic Stories to Watch in 2023

On this episode, Adam and Cameron discuss three things that could roil the world’s economy in 2023: the downturn in the U.S. housing market, the yield curve control of the Bank of Japan, and the debt crisis in Africa.

Find more episodes and subscribe at Foreign Policy

Chartbook #184 – Nostalgia for decline in deconvergent Britain

After a year of political turmoil and financial embarrassment, Britain ends 2022 shaken. There is a new spate of talk about national decline. Once again the UK is falling behind. The outlook is uncertain. It is symptomatic that Perry Anderson chose already in 2020, to author yet another gigantic essay for the New Left Review on the UK.

I generally avoid writing about the UK. My feeling about the country are too conflicted. But the discussion going on right now makes it irresistible. It seems as though half a century or more of debate are once again up for grabs.

Though the British elite had a first attack of nerves around 1900 as imperialist rivals emerged on the scene, the decline debate as we know it today originated in the 1950s, within the frame of US hegemony, at a moment when imperial humiliation in Suez coincided, as Jim Tomlinson has shown with the publication of new comparative productivity figures by the OECD. As Anderson explains, in the early 1960s, the original agenda of the New Left Review – then squarely based in the UK – was to respond to what at the time was a

gathering sense of crisis in Britain. This conjuncture was compounded of a growing realization of economic decline relative to capitalist competitors abroad; popular discredit, amid scandals and divisions, of the Conservative political regime of the period, culminating in its passage from Macmillan to Home; national humiliation at failure in suing for entry to the Common Market, vetoed by France; and widespread disaffection with, and ridicule of, the hierarchical social order presiding over these misfortunes.

Sixty years on, you might think that nothing has changed, at least not for the better. What I am afraid of, and what I fear that the revived talk of decline and declinism obscures, is that things have, in fact, changed, but for the worse.

***

Speaking personally, the question of “whither Britain?” has accompanied me throughout my life. As I will spell out in a sequel to this newsletter, it has indirectly shadowed much of my work. This year I’ve been involved as a Commissioner on the Resolution Foundation’s Economy 2030 enquiry. As a preliminary summation, in July the Foundation produced the Stagnation Nation report. This was put to good use by Will Davies in the LRB, one of the really worthwhile contributions to the current decline debate. The other essential piece to read is David Edgerton’s essay in the Guardian.

We need to talk about the state of Britain, the situation is dire. But the evocation of earlier debates about decline, debates which stretch back to the 1950s and beyond, is not just beside the point. It distracts from alarming novelty of the current situation. If you don’t engage with the data, the incoherence and repetitive structure of those earlier debates about decline, can seem to justify a relativistic or downright apologetic stance. Ding-dong exchanges between Brexiteers and Remainers have not helped to clarify the situation. Whilst Brexiteers chase the vanishing dream of “global Britain”, the national economic collapse that, according to “Project Fear”, was supposed to follow Brexit, never arrived either. That is not to say that the economic impact of Brexit will not be severe. The latest predictions are nasty. See for instance the CER. But the Brexit effects have not yet been fully felt.

More importantly for our purposes, the shock of 2016 cannot by itself explain what really ought to alarm us, namely the astonishing stagnation in productivity and real incomes that now stretches back over more than a decade. This stagnation, and this is the essential point, does not fall into the pattern familiar since the 1950s, of stop-start, of repeated currency crises and of more or less disappointing cycles of growth. Though it takes place at a high level of average income, the current stagnation is unlike anything in the last quarter millenium. The prospect of future damage from Brexit, only renders the outlook more bleak. In light of the UK’s situation and its likely future prospects, to indulge in the familiar back and forth between declinism and anti-declinism is to indulge in escapist nostalgia.

Perry Anderson in his mammoth NLR review of British developments over the last sixty years, asks the right question: is the question of decline still relevant?

How far did ‘decline’, as an organizing framework for analysis of developments in Britain, lose its purchase on them once ‘globalization’ arrived, in the shape of a common deceleration of growth and acceleration of financialization across the advanced capitalist world, with the liberation of capital markets, extension of supply chains and generalization of neo-liberal regimes that set in during the eighties? Could it be said, in Sartre’s terminology, that a double detotalization—of both unit and path of analysis—has since overtaken the particular line of enquiry – into the genealogy of decline – pursued by the journal (New Left Review)? The answer can only lie in the actual record of the economy, viewed comparatively, and of the agency of the state that has presided over it.

On the question of the British state, which occupies most of Anderson’s essay, there is much more to be said. But, on the economy, Anderson equivocates and misses the mark.

After reviewing the profoundly disappointing results of the last 15 years, he concludes:

Between 2007 and 2016, a labour-productivity standstill without historical precedent, at a miserable 0.09 per cent a year, costing an unexampled output shortfall estimated at close to 20 per cent of the pre-financial crisis trend. As for growth, over the same period per capita increase in gdp was just 0.19 a year. So far as renaissance went, Britain was back at square one.

This interpretation of the economy as subject to the recurrence of familiar problems helps to sustain Anderson’s claim that the NLR’s preoccupation with decline is still relevant. Britain’s national economic problems have not been resolved. But this begs the question. Are they the same problems? And is this the same pattern of underperformance?

With his casual gesture towards recurrence – “back at square one” – Anderson gives the game away. The British economy in 2022, is not back where it was at the end of a cycle of modernization efforts in the 1960s, or in the 1990s at the end of the Thatcherite project. That would be a far more optimistic outlook than that which it actually faces today.

For most of the last 60 years when critics have spoken of decline they have tended to exaggerate the extent of the malaise. GDP and per capita income actually continued to increase. In the 1970s they did so quite buoyantly. By contrast, since 2009 there is nothing exaggerated about declinist talk. For a significant part of the British population real incomes actually fell. The shocking novelty lies in the fact that decline and stagnation are not figures of speech, but a literal reality.

In posing the question of decline’s relevance, Anderson suggests that we must choose between an analysis centered on the general tendency towards secular stagnation affecting capitalists societies at large, and a historically rooted account of British decline as a national problem. That choice is false. What we need is an account of uneven and combined development which explains why after several decades of relatively parallel growth, the UK should have suddenly and sharply diverged from its own historical trajectory, including the entire history of the decline debates, and from the trajectory of its peers.

The UK may not be entirely alone in this experience.

In the postwar period, Italy and the UK were part of a convergence club. For Italy that was nothing short of a “miracle”. In 1987 – in the famous “sorpasso” – Italy’s GDP (by some measures at least) overtook that of the UK. The UK elite experienced that same convergence as “decline”. But this was what you might call, decline 1.0, not actual decline, but the experience of being caught up with by more rapidly growing European economies. Today, the UK’s problems are not those of Italy. The two economies are quite different. But, in both Italy and the UK, what we need to account for is not just slow growth, but growth interrupted. What both the UK and Italy are experiencing in the early decades of the 21st century, is something different, not growth-underperformance, so much as sustained stagnation, literal decline and repeated failure to recover adequately from severe shocks.

What we need to explain is something you might call deconvergence. Cumulated over time the alarming prospect is that rather than tagging along in the bottom half of the pack, Italy and the UK may fall out of the convergence club of advanced economies. We are not there yet, at least as far as the UK is concerned. But if current trends are extended further into the current decade, it will become hard to deny that we have entered a new era. To couch the current situation in the familiar terms of declinism and anti-declinism, to suggest as Anderson does that the UK economy is “back to square one”, obscures this reality more than it illuminates it.

***

The extent of Britain’s decoupling from the economic development of other rich countries is well captured by data for median household income per person – a good measure of “average” living standards.

This figure from ⁦@TheEconomist⁩ tells the story of #BrokenBritain really clearly pic.twitter.com/NmIzUKL48c

— Simon Hix (@simonjhix) December 17, 2022

To see how significant a departure this is from Britain’s own trajectory, data from the IFS are telling. Throughout the period between World War II and 2007, for all the back and forth about decline, real household disposable income in the UK grew relentlessly on a logarithmic curve. Since 2007 that is no longer the case.

.@xiaoweixu_ presents on the "dire" outlook for living standards.

Real household disposable income per capita is expected to be a third lower in 2027–28 than we might have expected in 2008. pic.twitter.com/B99nkIQ62U

— Institute for Fiscal Studies (@TheIFS) November 18, 2022

Disposable income is connected by way of complex and contested distributional mechanisms to real wages. Since the 2000s the UK has seen an unprecedented collapse in real income growth.

Source: Resolution Foundation

The collapse in real wage growth mirrors trends in productivity, which again show a sharp break with previous experience.

UK Productivity since 1970. Someone/something broke our economy pic.twitter.com/BB7eVpbtC8

— Richard Jones (@RichardALJones) January 5, 2018

Bear in mind that thee period 1971-2005 includes the entire cycle of 1970s crisis, Thatcherite revival, the shock of 1992, the Blairite revival. Whether the mood was declinist, revivalist or post-declinist, in succession, or all at once, it all averaged out at a steady trend of 2.3 per annum growth in labour productivity. In 2009 that trend snaps and a new era begins of near stagnation in labour productivity.

To see how remarkable this is, look at data not for the last 50 years, but for the last 120 years. We used to talk as though the 1970s brought a fundamental crisis in the British economy. And, clearly, there was a step down in labour productivity growth between the 1960s and the 1970s. Much of the neo-Marxist literature on the underlying crises of capitalism revolves around that Break. It was as nothing compared to the catastrophic deceleration in productivity seen since 2008.

Source: Tim Jackson

Applying a Hodrick-Prescott filter to long-run data, Nick Crafts and Terence Mills conclude that the current productivity slowdown in the UK is the worst not only in the last 120 years, but in the last 250 years i.e. since the industrial revolution of the 18th century.

It is a fundamental mistake, therefore, to conflate the UK’s current situation with earlier periods of concern about relative decline, or to talk as though Britain is back to “square one”, as though its situation was that of the 1960s when the New Left Review kicked off its illustrious run. This is a break on a much more serious level.

***

As Crafts and Mills emphasize. Identifying the break in labour productivity growth is one thing, explaining it is another. Crafts and Mills admit that a complete explanation is elusive.

The most obvious common factor in explaining the UK’s miserable trajectory is that it represents the accumulated consequences of a sustained failure to invest.

But as important as underinvestment undoubtedly is, it does not explain why the problems appeared as sharply as they did around 2008-9. Crafts and Mills point in addition to three more specific factors:

… a combination of adverse circumstances, itself unprecedented, may be responsible for a large part of the evaporation of productivity growth since 2008. The unfavourable conditions include the ebbing away of the ICT (information and communications technologies) boom, the implications of the financial crisis and, in the recent past, impending Brexit.

The first two at least can be related to the combined and uneven development of global capitalism as a whole.

The financial crisis of 2008 delivered a devastating blow to the UK financial sector, which had previously been a driving force of (measured) growth.

As Crafts and Mills point out, the banking crisis of 2008-9 was unprecedented in UK history. Unlike in the United States or Germany, the UK avoided banking crisis in the Great Depression of the 1930s. Furthermore, in the 1930s a new generation of technological innovation – electrification, motorization – gave a dramatic uplift to the UK economy, whereas in the early 21st century, the ICT revolution ran out of steam. As Crafts and Mills report:

the contribution of ICT capital to labour productivity growth averaged 0.82 percentage points per year during 1996 to 2007 compared with only 0.19 percentage points during 2008 to 2018 (The Conference Board, 2019). Similarly, the contribution of TFP growth in ICT production fell from 0.23 to 0.04 percentage points (EU KLEMS, 2017). 6 Cumulated over the 10 years from 2008, this implies labour productivity in 2018 was about 8.5% lower than if the earlier ICT contribution had been sustained

These are factors which affected the UK economy badly, but were common to most capitalist economies. And then, the UK suffered the self-inflicted wound of Brexit, which has further knocked back economic growth and productivity.

What is missing from the Crafts and Mills account is the factor of public policy. As John Burn-Murdoch of the FT has highlighted in a brilliant dissection of Britain’s current malaise, there is a starkly clear association between party of government and public investment in the UK.

The austerity squeeze of the Tory-led coalition in 2010 was not the first of its kind.

But the key point is that the British economy in 2010 was no longer in the state of earlier decades. The 2008 shock was unprecedented and as Burn-Murdoch emphasizes the shocks that lay ahead were more dangerous.

It would be presumptuous to imagine that we already have a complete explanation for the way in which global and local developments have converged in Britain to produce the deconvergent outcomes of the last 15 years. But it will help if we start by recognizing that this is indeed a new era. Declinist discourse always had an element of temporal confusion about it, but to continue to indulge in that shadow-boxing, in the face of discontinuities that register on the scale not of decades but of hundreds of years, is to reduce political and economic debate to national pantomime.

****

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Chartbook #183: The Christmas Tree & the great acceleration – from Strasbourg to Shanghai

Vogue cover by Salvador Dali December 1946

Christmas trees are BIG business.

Each year approximately 33 to 36 million Christmas trees are produced in North America and 50 to 60 million trees are produced in Europe. In the United States, there are an estimated 15,000 growers, which includes 5,000 choose and cut farms.

Over half of the trees grown in the United States are harvested in only seven counties — three in North Carolina, three in Oregon, and one in Michigan. The top producer, Ashe County in North Carolina, harvested almost two million trees in 2017.

This is a great graphic treatment by Reuters.

As Chastagner and Benson explain, the plantation production of Christmas trees belongs to the era of the “great acceleration” after 1945.

… Although some of the industry pioneers started to grow Norway spruce (Picea abies) and Scot’s pine (Pinus sylvestris) in Christmas tree plantations during the early 1900s, more than 90% of the trees being harvested in the late 1940s were still coming from forest stands. In 1948, the top selling trees were balsam fir (Abies balsamea), Douglas-fir, black (P. mariana) and white spruce (P. glauca), and eastern red cedar (Juniperus virginiana). These species were readily available from forests. There have been a number of major changes in the Christmas tree industry in the past 40 to 50 years. After World War II, increasing numbers of trees were being planted in plantations and in the late 1940s and early 50s growers started to shear trees to increase their density in response to consumer demands for higher density trees. In the early 1980s some large growers began using helicopters to transport trees from the field to their shipping yard to increase the efficiency of harvest and minimize mechanical damage.

Predictably denser planation production of trees engenders a variety of biological risks.

With the increasing expansion of noble and Fraser fir plantings, growers are facing a number of insect and disease problems including. Balsam twig aphid (Mindarus abietinus), balsam woolly adelgid (Adelges piceae), and the spruce spider mite (Oligonychus ununguis) cause unsightly needle discoloration and/or branch distortion and dieback. When populations are very high, balsam woolly adelgids can also kill Fraser fir trees. The three major diseases that currently limit the production and marketability of noble and Fraser fir Christmas trees are Phytophthora root rot and stem canker, current season needle necrosis (CSNN), and interior needle blight. … Long-term solutions to Phytophthora root rot and CSNN will no doubt come through breeding programs for disease resistance such as those that are underway in North Carolina and the PNW.

But Christmas tree production is also tricky from an economic point of view. The difficult thing about Christmas trees is that they take so long to grow!

As this excellent piece in The Hustle explains:

A Christmas tree begins its life as a seedling, which is typically purchased from a timber firm like Waverhauser for 50 cents to $1. When the tree is around 2 years old, it graduates from the nursery to the “big leagues” and gets its own 6’x6’ plot of land out in the field. Most Christmas tree farmers aim to plant ~1.2k trees per acre of land. What makes a Christmas tree an unusual crop is its extremely long production cycle: one tree takes 8-10 years to mature to 6 feet. During that time, it’s a financial black hole. “A lot of blood, sweat, and tears goes into growing a Christmas tree,” said Bert Cregg, a horticulture professor at Michigan State University. “You’ve got the cost of land, road construction, tractors, herbicide, fertilizers — and then all the labor it takes to plant and shear the tree.” But even if all goes well, Christmas tree farmers still have to forecast what the market is going to look like 10 years out: Planting too many trees could flood the market; planting too few could cause a shortage. History has shown that the industry is a case study in supply and demand:

In the 1990s, farmers planted too many Christmas trees. The glut resulted in rock-bottom prices throughout the early 2000s and put many farms out of business.During the recession in 2008, ailing farmers planted too few trees. As a result, prices have been much higher since 2016.

If you go back to the early 1980s you find grim warnings about a repeating cycle of overproduction that can be traced back to the beginning of plantation production in the 1950s. See for instance this dark warning from the 32nd Annual Forestry Symposium, Louisiana State University, Baton Rouge in 1983:

To look ahead we often need to look back. We need to ask certain questions…. Where are we? How did we get here? And the obvious question that is most important is …. Where are we going? Here in the South we are a new part of a larger Christmas tree industry that has existed for 50 years or more as we know it. Since World War II there has been a dramatic increase in plantation grown trees and a matching decrease in natural stand production. … In the mid-1950’s we had an overproduction of Christmas trees, which was centered in the state of Pennsylvania. This was at that time the plantation-grown Christmas tree center of North America. The center of this production has gradually spread out across the nation, and by the mid-60’s there was a large production area in the Lake States. Between 1965 and 1968 there was an over-supply period that caused great repercussions throughout the industry. Many people abandoned Christmas tree production then as they did in the 50’s. Over—supply and depression in the industry only lasted a few years as it did the first time, and the industry came out of the over—supply period in much better shape as far as the opportunity to profit in the production of Christmas trees. During this time cultural techniques and the quality of production have constantly improved. After the second over-supply period production seemed to spread more throughout the nation, and with the advent of the Virginia pine Christmas tree in the South during the early 70’s we have had a longer than normal period of prosperity in the industry. This prosperity still exists today, but how much longer it will be with us is the question today. There are storm clouds gathering and it appears evident that there will be a recession in our industry, the third since World War II. The success of recent years has bred a surplus in our industry as it has in all other agricultural industries. At the present time it appears that we are planting three to four times as many trees as we are selling. Most of us know this. However, the element of complacency is with us, or what we might call wishful thinking;”

With its 10 year lead times, the Christmas tree industry is a classic illustration of the cobweb model as spelled out in this nice blogpost at Source: Sex, Drugs & Economics

Ten years on from the shock of 2008, the US entered a period of exceptionally high Christmas tree prices, which we are still in today. The worry now is that high prices will cause demand to collapse, which will trigger a crisis in the industry. And who are the culprits? Not Gen Z, who are poor but love their Christmas trees. No, the culprits, inevitably, are “the boomers”!

It is older cohorts who are switching to plastic trees in greater numbers than any other cohort. And spend less than any other cohort on trees too..

Source: Trees.com

Of course, Christmas is not just about producing Christmas trees, the event involves a giant organizational effort at every level of the supply chain, stretching from the Malls of the world, to the factories and workbenches of Asia.

For a remarkable collection of social science articles on “organizing Christmas”, check out this issue of the journal Organization. Here Christmas is given the critical political economy treatment. As Hancock and Rehn write:

Throughout the 20th century the relationship between an increasingly Fordist regime of mass production and consumption, and Christmas, continued unabated. By the 1930s, department stores such as Macy’s in New York and Harrods in London were putting on lavish Christmas displays, while Haddon Sundblom’s iconic images of Santa Claus for the Coca-Cola Company ensured that what has come to be referred to as the ‘Anglo-American Christmas’ began to represent a model of global economic ambition and cultural aspiration. Indeed the increasing significance of Christmas to Western economic performance over the course of the 20th century is no better illustrated than by the acquiescence to business lobbyists by President Roosevelt in the recessionary year of 1939 and his controversial decision to move Thanksgiving in the USA back to the penultimate Thursday of November. This was in order to elongate the Christmas shopping period which traditionally started on Black Friday, the day after Thanksgiving.

So much for the economics of the industry. What about the history? Where does the tradition of cutting down and decorating fir trees actually come from?

Again, Chastagner and Benson give a succinct account:

The use of evergreens to decorate homes during winter celebrations dates back to Biblical times. By the 7th century, the pagan custom of using greenery to celebrate the winter solstice became a part of religious Christmas festivities, but it was in the 16th century that Germans in Strasbourg began cutting firs from local forests for display at Christmas. In later years, these trees were decorated with cutout paper flowers, fruits, cakes, tinsel and sugar. By the 18th century, Christmas trees were being decorated with wax candles and by the end of the century decorated Christmas trees could be found throughout Germany (2). Christmas trees were seldom used during the early years of the British Colonies in North America. Although emigrants from northern Europe brought their tradition of displaying Christmas trees during the celebration of Christmas to North America, it wasn’t until Hessian mercenaries joined the British forces during the Revolutionary war that there was an increased use of decorated Christmas trees. The Hessians, from the German region of Hesse-Kassel, were reported to have set up Christmas trees in the homes of families where they stayed. They were also noted for their festive Christmas celebrations, which are reported to have led to their defeat by General George Washington at Trenton, NJ on December 26, 1776. Among the earliest documented use of decorated Christmas trees in North America are a decorated and illuminated Christmas tree that was set up in a German commander’s home to the north of Montreal, Canada in 1781 and a tree that was displayed at Fort Dearborn, MI in 1804.

So the finger points towards “the Germans” or more precisely the Germans in Strasbourg, a city which since 1681, under Louis XIV, has been ruled by France.

Ok, so the French have Strasbourg, but the Anglosphere caught the Christmas tree bug from the Germans in the era of Queen Victoria and Charles Dickens, right?

That is certainly the story I was familiar with. Specifically, in 1841, Prince Albert, Queen Victoria’s beloved German husband, set up a fir tree at Windsor Castle for Christmas. And by the end of the 1840s, with an added push from the huge success of Charles Dickens’s Christmas Carol (1843), it had become an established tradition in England. From there it spread around the Empire and across the Atlantic.

Not so fast says historian Neil Armstrong! Writing in the journal German History he argues that we need to take a broader view than simply the Victoria&Albert connection.

This article examines the cultural transfer of Christmas customs from Germany to England in the long nineteenth century, and contextualizes the reception of new cultural practices by the English within the broader context of Anglo–German relations. Although the modern Christmas festival developed in parallel fashion in a number of countries, German customs, particularly the Christmas tree, played a significant role in the evolution of the festive season in England, and its configuration as a festival for children. The initial reception of Christmas tree rituals in England owed much to the activities of a small literary elite, who, particularly in literature for children, represented the Germans as an honest, simple and home-loving people, a theme which survived worsening Anglo–German relations in the late nineteenth century, and was a key narrative in the reporting of the famous Christmas truce during the First World War. It has also recently re-emerged in the popularity of German Christmas markets: they promote a vision of a timeless and authentic festival unspoiled by the taint of commercialism, which coexists alongside negative German stereotyping. The majority of nineteenth-century sources, however, failed to interrogate the German origins of the Christmas tree too closely, which encouraged the popular and enduring belief that Prince Albert introduced the Christmas tree to England. This reveals a strong tendency for imported customs to be naturalized and made palatable to the national story, and further complicates the process of trying to distinguish between cultural transfer and parallel developments.

And pause for a second, Christmas was German before there was a German nation state. Strasbourg, to which the tradition is ultimately traced, was under French rule from the late 17th century. The city was seized from France in 1871 as a result of the Franco-Prussian war, with many Alsatian residents loyal to France driven into exile (400k by 1910). Which means that whereas the British and Americans tend to credit “Germany” with the Christmas tree, French patriots in the late 19th century claimed the Christmas tree as a symbol of anti-German resistance.

See this illustration of the “Christmas Tree of the Alsatians and Lorrainers” even in Paris in the late 19th century.

As historian Susan Foley, explains, this Alsace and Lorraine Christmas tree event was: “Held annually in Paris from 1872 until 1918, the event aided children whose families had fled Alsace and Lorraine to retain French citizenship following France’s defeat in the Franco-Prussian War. It also provided an afternoon’s entertainment for a paying audience. The Christmas tree was strongly associated with Alsace, and the event was a spectacle of patriotism, widely reported in the popular press. Through music, verse, and performance, those present mourned “the Lost Provinces” and celebrated the patrie, mobilizing for the Republic the emotions roused by the loss of Alsace and Lorraine.”

So everyone agrees the origin is Alsatian but they argue over whether that means that it is German or French. As for the innocence of German Christmas, take that with a big pinch of salt. Check out what is surely the spookiest carol broadcast ever: the Wehrmacht live broadcast of German soldiers singing “Heilige Nacht” from around the Nazi Empire in December 1942. TRIGGER WARNING!

So as a schematic one might think of different Christmases overlaying each other:

An “Franco-German-European Christmas”, freighted with cultural and historical weight. Let us call that the“politico-sentimental Christmas”.

And there is an “Anglo-American Christmas” fashioned by 19th-century bourgeois culture and 20th-century mass commercialism and mass production – “organized Fordist Christmas”, which now extends through its supply chains around the world

And, by the late 20th century, we have “global Christmas”. The majority of people celebrating Christmas today may not even be in the North Atlantic world, its original cradle. Christmas is now a global commercial event.

To give just three examples:

In Turkey since the early 2000s, Christmas trees and Santa were adopted as a New Year’s celebration.

Awareness of Christmas arrived amongst the elite in Japan in the Meiji period. But it became more popular in the 1950s. It no doubt helped that General MacArthur chose Christmas day 1949 to declare an amnesty for Japan’s defeated war leaders. In the context of postwar recovery and growth, Christmas in Japan became an aspirational family affair, closely associated with America and celebrated with a large white cake – yo-gashi – topped with strawberries. As one American cultural sociologist remarked rather sniffily in the 1960s: “The loan-word carol (karoru)” came to include “ecclesiastical songs as “White Christmas,” “Jingle Bells,” and “Rudolph the Red-Nosed Reindeer.”“

And in China, Christmas has become an event for fashionable youth to camp out in the Malls and enjoy the decorations.

Indeed ahead of 2020, so enthusiastic were Chinese celebrations of Christmas becoming, that in 2018 the authorities tried to crack down and to demand priority for traditional Chinese festivals. And some brave Chinese shoppers are back in the malls today!

Whether the Chinese regime’s crackdown will work or not, as cultural anthropologist Daniel Miller argues:

…. Christmas has become central to three of the most important struggles that define being modern. The first is our relationship to family and kinship, the topic that was always at the heart of anthropology. A second is the problem of how we reconcile our desire to be citizens of the globe in its entirety without losing our sense of the specifics of local origins, or relation to the places we come from. And the third is our problematic relationship to mass consumption and materialism. I shall end with an attempt to construct a general theory of Christmas that combines these ethnographic observations of contemporary Christmas with the earlier historical materials.

Don’t worry, I am not going to try to lay out a general theory of Christmas here. But, wherever you are and however you celebrate, indeed, whether you celebrate or not, Chartbook Newsletter wishes you a very merry time.

h/t Becky Conekin.