We live in a material world
Economics still explains a lot.
Janan Ganesh in the Financial Times says that Economics can’t explain the populism of voters.
His main mistake is basic — and it makes me wonder if he’s being wilfully blind. He says that the American economy has grown a lot since the millennium so people shouldn’t be too pissed off with politicians.
Pretending that you can see economies in aggregate, as he does, misses the raging inequality that most commentators and economists acknowledge has ripped many societies apart in recent decades.
He thinks that 25 years ago we’d be surprised that:
But the problem afflicting both countries is spiralling inequality and income stagnation. Headline economic growth means little. It may be true that the American economy has grown quickly, and much faster than Britain’s. But real wages (taking inflation into account) are hardly rising in either country. Americans only get paid about $2 more an hour than they did in 2008. No wonder they vote against the status quo.
Over the same time period British wages have suffered their longest squeeze since the Battle of Waterloo. Your average Brit barely gets paid any more than they did in 2008. Sixteen years of wage stagnation will tend to make people question the economic model. £477 a week isn’t much - and even that number masks the extremes. Poverty and deprivation are rife.
And amidst this stagnation, the economies of both countries have grown. Where has all the money gone, people rightly ask. Even the flailing British economy has grown 40% in real terms since 2000, with about half of that expansion coming since 2008.
The following graph shows real UK GDP and wages rebased to 100 in 2000. After the global economic crisis in 2007-8 GDP fell, then kept rising, temporarily collapsing in Covid but then ending the period 41% higher than in 2000. Wages, in constrast, fell from 2008 to 2014 then climbed slowly up again until Covid, before falling again to near-2008 levels.
The US economy has grown even faster — it’s about 60% bigger than it was in 2000. Yet wages and incomes have basically stagnated. Mainly, the gains from this production have gone to owners of capital. The wage share of the economy has plunged.
The income of the bottom half of American societies has consistently fallen since 1970, while the income of the top 1% has risen almost in parallel. The top 1% now take home over a fifth of national income, while the bottom half get only 13%, according to the World Inequality Database.
Surprise-surprise, the era of wonky politics got worse as the 2000s progressed.
In both the United Kingdom and the United States, people feel that politics-as-normal has failed them, because — particularly in the US — they aren’t sharing in the economic expansion of the last few decades.
The US and the UK are among the most unequal countries in the OECD and the world, at 5th and 6th among OECD countries, behind Costa Rica, Chile, Türkiye and Mexico.
But against all this evidence, Ganesh still thinks that economic determinism, meaning the idea that the economy influences behaviour, can’t explain why people have voted so weirdly in recent years.
Economic determinism is soothing because there is a textbook answer to every problem: grow your way out of it. Invest. This was Joe Biden-ism. In fact, it is much of western liberalism.
But that isn’t what economics determinists say at all. Many of them — particularly on the left — argue precisely for redistribution rather than growth at all costs. Growth and investment isn’t a mantra. Joe Biden and most western liberals may have believed that growth and investment would cure all ills, but many economic determinists weren’t so naive.
Many of those who emphasise the importance of the economy ask that we share out incomes more equally, pointing out that angry, poor people often vote for extremes. In fact redistribution is exactly the goal of the burgeoning degrowth moment, which, whatever you think of it, is economically determinist.
As degrowthists would probably say, maybe 'economics' isn't just about how much cash is in your pocket — or even how rich you feel compared with your neighbours — but includes how much control you have over your work and life; whether you feel fulfilled and free. On these measures, Britain and America do badly. Calls to ‘take back control’ may have gone awry, but they represent a real demand for greater voice.
People who think that material interests drive a lot of behaviour generally don’t prescribe it as a textbook answer to everything. They know that people are unpredictable. Nor does anybody pretend that economics maps cleanly on to voter behaviour in some kind of one-to-one correlation. A large literature tries to tackle the interaction between the two, and as the economic determinist Louis Althusser famously said, “the lonely hour of the 'last instance' never comes.”
Ganesh concludes that “in fact, the causal link between economic performance and political outcomes has broken down in both directions” and that we should somehow conjure up more “civic sanity”. This is fantasy unicorn league stuff and doesn’t deserve much attention. How? Where will this civic sanity come from? How do we get it?
Civility is often code for the status quo - the mythical English village of yore where everyone knew their place, and where nobody complained about inequalities of race, gender and class. Instead of pleas to play nice, we need redistribution, which is about economics.
The link between economics and politics remains alive and well. An alienated workforce is suffering the worst pay stagnation in the history of capitalism, surrounded by fantastical wealth generation for a tiny minority who take home the spoils from a growing economy. In the absence of solutions from traditional parties, disaffected voters are unsurprisingly searching for answers wide and far.
Dan,
I think that a more drilled down look at the data is needed. As you say looking at "economies" as though they are sort of homogeneous, rather than divided into classes, amongst whom there is inequality is not serious. However, I also think its necessary to look at wages, not just in terms of individual wages, but household incomes. A look at individual hourly wages, and changes in them, misses com[positional effects. When large numbers moved into precarious employment that meant that changes in hourly wages did not properly reflect the fact that large numbers moved from secure jobs that wee well paid to insecure jobs that weren't. The hourly wage rates of the former could rise significantly, but would not change the reality that a large number of workers were no longer employed in them, but in low wage employment.
But, the same applies in reverse. The rise in hourly wages, now, does not properly reflect the fact that many workers have moved into better paid jobs, partly reflected in the fact that the Quits Rate was rising as workers simply moved to better paid jobs, now that tighter labour markets enabled it. The average pay increase for moving jobs has been around 14%. Having lived through the 1950's, and seen something similar in relation to my Dad's employment then, and still applying when I began work in 1970, this looks very familiar. In addition, most people live in households of more than one, ad as employment has risen, those households have more people in work, and worker more hours etc, so household income has risen more than is shown in flat hourly wage data. Its why consumer demand particularly in the US has continually defied economists expectations.
Finally, when looking at this income data, the petty-bourgeoisie, the self employed and small traders are often lumped in with workers. In Britain, and I expect the same is true everywhere, the size of that petty-bourgeoisie has grown by 50%, since he 1980's, reversing a trend that was put in place 200 years ago, and identified by Marx. That petty-bourgeoisie is characterised by its miserable condition, as Lenin noted, often much more impoverished than the average industrial worker. It is amongst that impoverished, but greatly expanded petty-bourgeoisie that the pool in which the populists have swum. In the recent years, as labour shortages have grown, providing the basis for higher wages, no such potential exists for that petty-bourgeoisie, and, on the contrary, in so far as they employ any workers themselves, they see their wages rise, the possibility of employing them reduced and so on. Its amongst that strata that the support for Brexit, and its tearing up of regulations and protections, and support for Trump arises, as also with the petty-bourgeoisie of the Gilets Jaunes in France.