ADAM TOOZE Historian - Author - Critic - Blogger Tue, 22 Aug 2017 21:30:01 +0000 en-US hourly 1 ADAM TOOZE 32 32 Notes on the Global Condition: Crisis in the Heartland – Homage to Peter Gowan Sun, 30 Jul 2017 13:09:13 +0000 Recommending a brilliant non-reductive political economy of the Wall Street-City of London nexus and its role in the 2008 crisis.

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Interested in global political economy? US power? The crisis of 2008 and after? If you have a few minutes today read a short but brilliant essay by the late Peter Gowan that appeared in New Left Review in February 2009, “Crisis in the Heartland”.

Sometimes when reading one stumbles on a piece that is like a kindred spirit. In this case it seemed to me, reading Gowan a few weeks ago, that I had found a Doppelgänger, or rather the better double that I wish I was. Finishing a manuscript on the genesis of the 2008 crisis and its aftermath, I found that I was not just in agreement with Gowan, not just in agreement on ideas and sources, but in agreement at the level of which particular passages from which particular sources to quote. It was like reading a condensed, edited and improved version of my own draft chapters, written by somebody else, 9 years ago who did not have the benefit of hindsight that we enjoy but saw the world with what, at least to me, seems like brilliant clarity.

To see the basic source of my enthusiasm read this extended quote from the opening pages: “An understanding of the credit crunch requires us to transcend the commonsense idea that changes in the so-called real economy drive outcomes in a supposed financial superstructure. Making this ‘epistemological break’ is not easy. One reason why so few economists saw a crisis coming, or failed to grasp its scale even after it had hit, was that their models had assumed both that financial systems ‘work’, in the sense of efficiently aiding the operations of the real economy, and that financial trends themselves are of secondary significance. [4] Thus the assumption that the massive bubble in oil prices between the autumn of 2007 and the summer of 2008 was caused by supply-and-demand factors, rather than by financial operators who, reeling from the onset of the crisis, blew the price from $70 a barrel to over $140 in less than a year, before letting the bubble burst last June; a cycle with hugely negative ‘real economy’ effects. Similar explanations were tendered for soaring commodity prices over the same period; yet these were largely caused by institutional investors, money-market and pension funds, fleeing from lending to the Wall Street banks, who poured hundreds of billions of dollars into commodities indices, while hedge funds with their backs against the wall pumped up bubbles in coffee and cocoa. [5]

Breaking with the orthodoxy that it was ‘real economy’ actors that caused the crisis carries a political price: it means that blame can no longer be pinned on mortgage borrowers for the credit crunch, on the Chinese for the commodities bubble, or on restrictive Arab producers for the sudden soaring of oil. Yet it may allow us to understand otherwise inexplicable features of the crisis; not least, as we shall see, the extraordinary growth of sub-prime itself. We will thus take as our starting point the need to explore the structural transformation of the American financial system over the past twenty-five years. I will argue that a New Wall Street System has emerged in the US during this period, producing new actors, new practices and new dynamics. The resulting financial structure-cum-agents has been the driving force behind the present crisis. En route, it proved spectacularly successful for the richest groups in the US: the financial sector constituted by far the most profitable component of the American and British economies and their most important ‘export’ earner. In 2006, no less than 40 per cent of American corporate profits accrued to the financial sector. [6] But the new structure necessarily produced the dynamics that led towards blow-out.

This analysis is not offered as a mono-causal explanation of the crisis. A fundamental condition, creating the soil in which the New Wall Street System could grow and flourish, was the project of the ‘fiat’ dollar system, the privatization of exchange-rate risk and the sweeping away of exchange controls—all euphemized as ‘financial globalization’. Furthermore, the system could not have risen and flourished if it had not offered answers—however ultimately pathological—to a range of deep-seated problems within American capitalism overall. There is thus a rational, dialectical kernel in the superficial distinction between financial superstructure and the ‘real’ US economy. In what follows, I will first sketch the main elements of the New Wall Street System, and briefly show how its crisis took such spectacular forms. I will then argue that, to understand the deeper roots of the malaise, we do indeed need to probe into the overall socio-economic and socio-political characteristics of American capitalism as it has evolved over the past twenty-five years. I will raise the possibility of systemic alternatives, including that of a public-utility credit and banking model. Finally, I will consider the international dynamics unleashed by the present crisis and their implications for what I have elsewhere described as the Dollar–Wall Street Regime.”

Gowan then goes on to elaborate a brilliant sketch of the extended Wall Street-City of London financial complex. But he does not just offer an international political economy, he mobilizes Adrian and Shin’s essential paper, Tobias Adrian and Hyun Song Shin, ‘Liquidity and Leverage’, Staff Report no. 328, Federal Reserve Bank of New York, May 2008. Gowan must have read this brilliant dissection of the inner instability of the market-based financial system within months of its appearance. He appreciates not just its technical claims but their import for his wonderfully elaborated account of the political economy of the extended Wall Street system.

The poignancy of reading the essay is increased by the knowledge that Gowan finished it under the shadow of terminal illness. He died in June 2009. In memoriam, the New Left Review published this illuminating interview and an obituary essay by Tariq Ali.

With Gowan they lost what to my mind was the most acute analyst of the crisis on the left. He had all the pieces in his hands already in 2009.


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Notes on the global condition: the dollar funding crisis of 2008 and the Fed’s unheralded rescue operation Sun, 16 Jul 2017 17:41:56 +0000 How Europe's banks almost ran out of dollars and the Fed saved them. What are the implications for the politics of global financial governance?

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Prospect is publishing an essay next week on the anniversary of the failure of the Northern Rock bank in Britain in the late summer and early autumn of 2007. In the piece I try to place both the Northern Rock crisis and subsequent events in US in a broader frame.

The financial meltdown of 2007-8 was centered on the US. But it was emphatically not an exclusively American affair. Somewhere between 25 and 30 percent of US mortgage backed securities, depending on how you count and which mortgages you focus on were owned by foreign investors. The Chinese held the securities guaranteed by Freddie Mac and Fannie Mae. The Europeans held a huge slice of the more adventurous and risky private-label MBS. They were the leading force in sponsoring Asset Backed Commercial Paper vehicles.

The problem in 2008 was not just that the underlying mortgages were going bad. The more urgent issue was how the Europeans had funded their balance sheets. The sobering conclusion of the BIS was that at least $ 2 trillion were funded on an extremely precarious basis. Roughly $ 1 trillion were funded by money borrowed from America’s money market mutual funds. Another $ trillion were scrambled together from inter bank borrowing, swapping Euros, sterling and other foreign currencies into dollars and borrowing central bank reserves.

From August 2007 those interbank and short-term money market funding sources began to shut down. This affected banks on both sides of the Atlantic but it created a specific issue for the European banks whose overseeing central banks did not have limitless capacity to issue dollar liquidity, at least until the crisis. The reserves held by the Bank of England, the ECB and the Swiss National Bank were astonishingly small relative to the size of their financial sectors and the multinational balance sheets of their banks.


The risk that arose from this funding gap was that the European banks would be forced into a massive fire sale of dollar assets. In the process they would have suffered major losses and would have undone any effort by the US authorities to stabilize their markets.

How was this funding gap to be closed? The largest European banks with branches in New York could be supplied with liquidity directly by the Fed. And the Fed did so on a huge scale. European banks were treated on the same basis as American firms.

But even this was not enough. To supplement these measures the Fed activated the so-called swap lines, exchanges of currency through which the Fed supplies other central banks with easy access to dollar funding so that they in turn might supply the dollar funding needs of their overgrown banks. Though they have a history in trans-Atlantic finance, they had never been used on this scale before. They are the great institutional innovation of the financial crisis of 2008 and its aftermath.

The scale of Fed swap activity was enormous.

The total sums borrowed and repaid by the leading central banks were gigantic.


This crisis of dollar-funding and the actions taken by the central banks to contain the problem is the great “untold” story of the crisis. It will form a major strand in my forthcoming book, Sudden Stop, out in 2018.

Of course the dollar-funding drama and the swap lines are no secret to those involved. Amongst specialists, avid readers of BIS publications etc they are widely discussed. The swap lines are a subject of great fascination for specialists in international political economy, international monetary economics etc. One of the first on the case was Perry Mehrling with a blog post already in November 2008 and a stream of publications since. Zero hedge was all over the story. But in the larger narratives of the financial crisis and the Fed’s response they have been assigned a minor place. Why this imbalance?

  1. The swap lines are technical instruments, which viewed on their face might regarded as nothing more than an administrative nicety. They were all properly accounted for. The Fed held collateral at all times. It made a nice profit on the business. “There is nothing to see here!”
  2. More importantly I am convinced that they are displaced to the margins of our narratives of the crisis, by the prevailing interpretation of the crisis as a series of national events. Once the crisis was revealed to be not about the Sino-American imbalance, it was no longer seen as an event associated with globalization. If it was basically a crisis internal to American society and politics, an interpretation which the Europeans were only too happy to agree with, the problem that the swap lines targeted shifts out of focus – the acute dollar funding problem of the European banks.
  3. Furthermore, the central bankers involved were happy for their transnational liquidity support measures stay outside the public eye. Political support for domestic banks is hard enough to legitimize. Huge liquidity actions designed to support foreign central banks and foreign banking systems were not something that the Fed wanted to pitch to Congress in 2008 or at any point after that.

And yet since October 2013 the swap lines have been made permanent. The key central banks now have standing arrangements to issue currency to each other in unlimited amounts. As Mehrling likes to say: “Forget the G7, Watch the C6.”

Anyway, this is more context for the Prospect story. Check it out.

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Modern History: World War II, strategic bombing and the liberal-democratic mode of war. Wed, 12 Jul 2017 14:33:21 +0000 On Richard Overy's important book about thinking about strategic bombing in World War II.

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Strategic bombing has a claim to be the quintessential field of modern military history.

It has been the subject of a vast range of technical, political, historical, moral and philosophical commentary.

It’s a subject no historian of modern Germany can avoid.

In writing Wages of Destruction I had to grapple with it:

as one of the defining questions hanging over German rearmament in the 1930s,

because of its impact on the German home front from 1942,

as a key strand in the mythology of Albert Speer (he claimed to have overcome the effects of Allied bombing),

and because so many of the most influential sources that we rely on to write the history of the  Third Reich were generated by the highly self-critical after-the-battle analyses conducted by the Americans and Brits (including such future luminaries as J.K. Galbraith and “Nicky” Kaldor).

There is a common view of the bombing campaign that is highly skeptical as to its military impact. On that basis it poses a series of agonizing moral and ethical questions about the campaigns waged against Germany and Japan in World War II.

I don’t share this skeptical view of the military efficacy of bombing and Wages offered a sustained counter narrative: The crucial thing to realize is quite how immense the undertaking of strategic bombing is. It is arguably the basis of the modern military-industrial complex. It was a far bigger technological and material challenge than any of the antagonists originally realized. As a a result of resource limitations and decisions taken in the 1930s, the Germans never came close to building a war-winning air weapon. For me this is one of the fundamental reasons for thinking of Germany as incapable of mounting a truly comprehensive challenge to the global order in the mid-century – along with their insuperable naval inferiority. In a multidimensional global power system, Germany remained a one-dimensional military power. By 1943, first the British and then the Americans were on the point of developing a true air weapon. It cost a huge amount. It required major technological breakthroughs and it could not be done without extended and costly trial and error. Furthermore,  as always in military affairs, the results depend on how the weapon was applied. It is not just materiel and doctrine, but specific sequences of actions that matter. In 1943, when the RAF began sustained bombing of the heavy industrial region of the Ruhr, it had an immediate effect and panicked the Speer administration. The internal German records from this period leave no doubt about this. But after the devastating raids on Hamburg in the last week of July 1943,  the RAF switched to attacking Berlin. This was a disastrous error of military judgement. Then, in early 1944 the air weapon was concentrated on tactical and operational preparation for D-Day. From the summer of 1944, when the RAF and USAAF finally switched their full force back to Germany the effects were devastating and more or less immediate.

This reinterpretation has a variety of far-reaching implications. The prevalent critical view strikes me as a fascinating case of early, mid-century techno-skepticism. It should be seen in context of nuclear Angst, critiques of the military-industrial complex and what Mary Kaldor would call the “baroque arsenal”. It is also inflected by persistent and recurring worries about Anglo-American “military culture”. For Liddell Hart by 1944 the Allies were no longer soldiers but “iron mongers”.

Taking a different view of bombing’s efficacy also changes the terms of the moral and political debate about bombing. I didn’t fully explore those questions in Wages. I’m not going to attempt to do so here. Suffice to say that having made what I feel to be a persuasive case for the efficacy of the air weapon and its even greater potential, I feel differently about its use in winning the war against Nazi Germany. Indeed, being convinced that it worked and could have been even more devastating, I find myself powerfully drawn towards the rhetoric and passion of the “terrible swift sword” and “avenging angel” narratives. Since I am not able to properly account for this emotional-intellectual impulse and especially because I am in so many other respects so closely and personally identified with Germany, its target, I have found myself perplexed and tongue tied. I couldn’t bring myself to engage in the debate around Jörg Friedrichs, Der Brand (2002) (translated as The Fire, 2006).

One of the ways in which I have tried to escape this emotional and intellectual impasse is to think about air war in terms of a distinctive mode of war-fighting adopted by liberal democracies (that peculiar twentieth-century political formation). This helps me to rationalize my historical analysis and the strange spell of personal and emotional entanglement that the subject matter exercises over me. Obviously, there are plenty of sources of intellectual inspiration for this, from David Edgerton‘s brilliant writing on British military modernism to Carl Schmitt.

I’m still thinking about and developing this notion of a liberal-democratic mode of war. One of the places where I first reached for the category was in a review of Richard Overy’s book on the bombing war. Tooze Book Review Richard Overy ‘The Bombers and the Bombed’ WSJ Feb 2014


In the small world of Anglo-German history Richard Overy and I go back a long way. He has always been a courteous and helpful colleague, which is something for which I am truly appreciative. He was especially supportive when I was starting out. I am all the more grateful to him, because there is no disguising the fact that we disagree fundamentally about the history of Nazi Germany and about many features of the history of World War II as well.

Richard’s book on the air war is important and anyone interested in the subject or in World War II in Europe should read it. It really is an essential contribution. But this review attempts to articulate some of the ways in which I would tell the story differently.

Tooze Book Review Richard Overy ‘The Bombers and the Bombed’ WSJ Feb 2014

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America’s Political Economy: Class, the Republicans and the Fed Mon, 10 Jul 2017 12:22:13 +0000 Brilliant piece by Sam Bell on the nightmare prospect of Kevin Warsh as Fed chair and the class politics of macroeconomic analysis.

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Who will be the new Fed chair?

No doubt one should not exaggerate the significance of individuals. The Friedman and Schwartz approach to the history of American capitalism has its limits (Their monetarism combined with social theoretic naivety led them to attribute the Great Depression to personnel changes within the Fed system: wrong guys at the wrong time who didn’t see disaster coming and permitted deflation). The autonomy of those making Fed policy is constrained. We shouldn’t fall into the hero worship of Volcker, Greenspan, Bernanke. But, with all these caveats, the question of who runs the Fed matters.

Trump has to make a decision quite soon about the future of Janet Yellen as Fed chair and there are some scary alternative possibilities.

One of the most scary options is discussed in a brilliant piece by Sam Bell, which was highlighted this morning by the indispensable Alphaville. Bell offers a devastating dissection of the credentials of Kevin Warsh, the monetary policy equivalent of Jared Kushner.

Kevin Warsh is the son-in-law of billionaire and Estée Lauder heir Ronald Lauder. He is only in the frame as a potential Fed chair, because he was previously the beneficiary of a scandalous piece of favoritism by the Bush presidency.

Warsh center in White House with Bush 2004

In 2006, Warsh who had inadequate experience and credentials was promoted from the lower ranks of the National Economic Council to become the youngest person ever to join the Fed Board. It was, as Bell puts it, akin “to a president nominating a mid-level staffer (without a law degree) in the White House Counsel’s office to become Associate Justice on the Supreme Court”.

As Bell traces in meticulous detail, Warsh’s track record at the Fed over the years that followed was disastrous:

He had a watching brief for Wall Street regulation prior to 2008 which he turned into a platform for boosterism for the financial engineers.

Warsh was preoccupied with inflation even as late as September 2008, whilst Lehman was imploding.

He then promptly converted to the Wall Street bail out, assisting in the deal for Morgan Stanley that helped to save his former employers.

And then, by the summer of 2009, whilst unemployment was heading above 10 %, he was amongst the first to campaign for an end to unorthodox measures, giving priority to Wall Street over the assistance that the broader American public needed.

He made Bernanke’s life difficult in arguing the case for a more expansionary policy.

Bernanke, Warsh and Kohn

Unlike others on the Board who argued against dramatic expansion, he refused to allow his mind to be changed by evidence.

Warsh is unqualified, incompetent and would clearly be a doctrinaire disaster as Fed chair.

This is a great demolition job, but what makes Bell’s analysis truly eye-catching and thought-provoking is that he has a keen eye for the inflections of class language and rhetoric that permeate Fed debates.

The Fed is normally discussed as a technocratic organ. Of course, we discuss the outputs of the system both in terms of their overall effect and their distributional consequences. Notoriously, the New York Fed is deeply entangled with Wall Street. The regional Fed branches recruit members of their boards from their local business elites. But Bell’s analysis of Warsh’s approach to economic policy-making reveals the stark way in which the preoccupations and outlook of the top 0.0001 % inflect the macroeconomic analysis itself. In particular Bell brings class analysis to bear on the question of how one evaluates macroeconomic prospects and the famous Keynesian variable of “animal spirits”.

Bell highlights two unforgettable passages from Warsh:

“In one of his last meetings Warsh responded dismissively to a report from New York Federal Reserve President Bill Dudley about Dudley’s visit to upstate New York and how “a modest amount of additional stimulus could have outsized effects over the longer run by changing the dynamic from the current stasis to one in which additional demand growth led to employment gains that improve confidence.” Warsh joked:

“The report on economic activity in my neighborhood in Georgetown is strong. [Laughter] Also, President Dudley mentioned that he visited upstate New York, where I’m from, and he noted that the economy there appeared to be ‘hunkered down.’ That’s not a near term phenomenon — it’s been going on for about 40 years. [Laughter] He also noted that the economy there was at a tipping point, and that is true, but the only way it ever tips is over.”

Contrast this mocking fatalism about a working community — which, by the way, has seen its unemployment rate come down by more than three percentage points since Warsh’s nothing-can-help-them message — with the optimism of coming face-to-face with excited corporate directors. He told his colleagues at one of his first Fed meetings:

“CEO confidence — that look in their eyes, their view of the animal spirits — appears to be back in stronger measure than I at least have heard in some time. What then happens when CEOs go into the boardroom, as I think most of my colleagues around the table know, is that they tend to generate some excitement by directors themselves. Directors are really starting, in some regard, to go back to basics. One CEO said to me about a week ago, ‘Being a board member is starting to be fun again,’ and that is not something this particular CEO, who is on a lot of large-cap boards, would have said a year ago.”

As Bell says: “This is a blue-collar nightmare: policymakers measuring the economy by how much fun corporate boards of directors are having.”

What Bell has captured, as if in mid-flight, is Kalecki’s Maxisant reinterpretation of Keynes’s “animal spirits”.

In Keynes’s theory of investment activity, “animal spirits”, the “friskiness” of investors, their optimism and willingness to take risks is incorporated as something almost at the level of a “native concept”. Keynes was after all a theorist-investor. Kalecki politicized the argument by pointing out the crucial role that the concept of “confidence” plays in anchoring conservative economic policy. Bell shows us at the level of biography how class experience helps to shape Warsh’s disastrous macroeconomic analysis. No doubt this is easier in someone with as little formal economic training as Warsh. There is less mediating intellectual baggage to get in the way of habitus, the sense that you know how to read the look in a CEO’s eyes. (One can’t help wondering where Bernanke’s eyes were at that moment). But Bell’s piece, is a really useful pointer to the ways in which class experience and language inflects macroeconomics analysis and policy-making.

I’ll never be able to use the phrase “animal spirits” again, without thinking of Warsh and his locker room talk.

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America’s Political Economy: climate change, inequality and the value of (poor) lives Tue, 04 Jul 2017 12:00:12 +0000 How will global warming will hit the poorest counties of the United States?

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As climate changes and temperatures rise, who will hurt? At least since the 1980s and Ulrich Beck’s pathbreaking work on Risk Society, the question of the social stratification of risks has been posed.

At a global level it has long been obvious that some of the poorest nations will suffer most from climate change and that the US is amongst the least impacted countries. But does this finding hold across the US? Remarkably, a new study by the Climate Impact Lab (UC Berkeley, Rutgers, University of Chicago, and Rhodium Group, along with their research partners at Princeton University and RMS.) is the first to attempt to assess the effects across the US at the county level.

The results were published in Science and were reported in both the FT and the NYT.

The results are pretty eye-opening. Assuming a business as usual emissions scenario and no major breakthroughs in mitigation, every 1°C increase in global temperatures, costs the US economy about 1.2 per cent of gross domestic product. But these costs are very unevenly distributed. The impact on the Southern parts of the US by 2100 is predicted to be very severe indeed.


With the impact concentrated in the South, this also means that the costs will fall disproportionately on the poorest counties of the US.

Solomon Hsiang, Chancellor’s Associate Professor of Public Policy at UC Berkeley comments: “If we continue on the current path, our analysis indicates it may result in the largest transfer of wealth from the poor to the rich in the country’s history.”

Agriculture will be subject to wrenching changes. The classic midwestern areas of American agriculture will likely be devastated by diminished rainfall.

So far, so intuitive. On the face of it this seems like fairly conventional economic and agronomical analysis.

But if you follow the links to the Science paper you come face to face with the sheer weirdness of the interface between climate change and social science. I don’t say this to cast doubt on the seriousness of the problem. I am not a climate change skeptic. But an important paper like this prompts one to think about the dramatic challenge that the anthropocene poses for social, economic and political analysis.

The model they use to derive their shocking conclusions has the rather lovely name, SEAGLAS, which stands for Spatial Empirical Adaptive Global-to-Local Assessment System. As the authors write: “We developed the  (SEAGLAS) to dynamically integrate and synthesize research outputs across multiple fields in near-real time. We use SEAGLAS to construct probabilistic, county-level impact estimates that are benchmarked to GMST changes.” Specifically, the aim of the game is to provide a “probabilistic and empirically derived “damage function,” linking global mean surface temperature (GMST) to market and nonmarket costs in the United States, built up from empirical analyses using micro-level data.”

The drivers in the model are a set of relationships between temperature crop yields, labour supply, mortality, energy consumption and crime … yup, crime!

Apparently, people don’t commit violent crimes when it is freezing!

Those relationships are then used to estimate a range of scenarios for future temperature increases and rises in mortality and crime (differentiated by property and violent crime), declines in labour input etc.


This produces a rather ominous looking map of the increase in violent crime supposedly triggered by the temperature increase.

But the big issue is mortality. As the paper comments: “Rising mortality in hot locations more than offsets reductions in cool regions, so annual national mortality rates rise ∼5.4 (±0.5) deaths per 100,000 per °C (Fig. 3C). For lower Global Mean Surface Temperature (GMST) changes, this is driven by mortality between ages 1 and 44 and by infant mortality and ages ≥45 for larger GMST increases (fig. S13 and table S12).” To put an increase of 5.4 deaths per 100,000 in perspective, in 2016 mortality in the US was 823.7 deaths per 100,000 population. So a 1 degree temperature increase produces a 0.6 % increase in mortality. That may not seem like a lot, so what happens next is significant. To arrive at the overall estimate of economic costs “the value of nonmarket impacts (deaths and crime)” was “monetized” “using willingness-to-pay or accounting estimates”. In other words they are using actuarial estimates of various kinds derived from life insurance contracts etc. In particular they use the government mandated parameter of $ 7.9 m per life.

Once all the various impacts are translated into a common denominator it turns out that the “economic impact” of climate change above 2 degrees Celsius is, in fact, largely demographic.

Labour supply, crop production are all negatively affected by higher temperatures. Criminality, though it is positively correlated with temperature, washes out. The real hit to the poorer, Southern area will come from poor Southern people dying prematurely!

As the researchers comment: “The greatest direct cost for GMST changes larger than 2.5°C is the burden of excess mortality, with sizable but smaller contributions from changes in labor supply, energy demand, and agricultural production … “. They then continue in a truly remarkable qualification: “It is possible to use alternative approaches to valuing mortality in which the loss of lives for older and/or low-income individuals are assigned lower value than those of younger and/or high-income individuals (44), an adjustment that would alter damages differently for different levels of warming based on the age and income profile of affected individuals (e.g., fig. S13). Here, we focus on the approach legally adopted by the U.S. government for environmental cost-benefit analysis, in which the lives of all individuals are valued equally (37). Because the VSL (Value of a Statistical Life) parameter is influential, challenging to measure empirically, and may evolve in the future, its influence on damages is an important area for future investigation.”

Given that the headline of the research is that poorer parts of the US will be worst affected, this is a highly significant remark. Presumably, if one were to abandon the legally mandated requirement that all individuals should be valued equally, if, instead, one adjusted the value of life parameters fed into the model to take account of the fact that those most likely to die will be poor, the headline conclusion might be rather different.

In passing, in this technical aside the modelers acknowledge the brutally discriminatory realities of the century that lies ahead.

And there is more to come. “We have focused on the U.S. economy, although the bulk of the economic damage from climate change will be borne outside of the United States (42), and impacts outside the United States will have indirect effects on the United States through trade, migration, and possibly other channels. In ongoing work, we are expanding SEAGLAS to cover the global economy and to account for additional sectors, such as social conflict (30), in order to construct a global damage function that is essential to estimating the global social cost of carbon and designing rational global climate policies (7, 9).”

The “social conflict sector” will be fascinating.

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Reading Varoufakis: Frustrated Strategist of Greek Financial Deterrence Sat, 01 Jul 2017 12:04:55 +0000 How Athens threatened to blow up Draghi's QE, but didn't dare.

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Adults in the Room is a book that anyone interested in modern European politics should read. To say it is the best memoir of the Eurozone crisis is an understatement. It is a devastating indictment of current state of Europe and a fascinating inside account of the logic of reformist politics and its limits and why it keeps going anyway.

It’s a truly complex document for a variety of reasons:

It’s a highly personal even confessional memoir of recent history.

Varoufakis is an intensely self-conscious historical subject.

He has a pronounced aesthetic and writerly self-consciousness. One may argue as to taste.

He has an outsized ego and this was seized on by the world’s media, who made his persona into the target for vast amounts of public comment and criticism. He has reason to feel victimized.

He is also an academic and an intellectual with wide-ranging interests: political theory, social theory and economics.

And he is a political activist with a cause, DiEM25, to promote.

All of these interests and concerns inflect the text. All of them would be worth expanding on at some length. But I’ll focus on three of the more “substantive” aspects of his memoir.

The complex logic of the battle

Despite what at least one of the jacket blurbs suggest, this is not an account of how the “forces of capital have prevailed over the common good”. Varoufakis’s account of the Greek debt crisis of 2015 is not that of a death match between democracy and bond vigilantes. It cannot be simply because by 2015 Greece owed relatively little money to banks, insurance funds or hedge funds. Private debt holders had been repaid, converted or wiped out in the 2012 restructuring. 85 % of Greece’s debts were owed to official agencies and other European governments. Only 15 % was owed to banks and other private investors and Varoufakis started the debt negotiations by reassuring the private creditors that their interests would be protected. The struggle was with the governments of the Eurogroup and the troika “institutions” i.e. EU Commission, ECB, IMF. If this was a battle with “capitalism”, it was a highly mediated one and one in which Varoufakis actually tried to bring the “markets” and their spokespeople over to his side against the recalcitrance of the Eurogroup. Varoufakis’s gamble was to play the logic of the market against the “ideology” of the creditors.

This has a noticeable impact on his account of his dealings with London and Washington, on which more below. It also inflected his dealings with the IMF. The Syriza government resisted the IMF as a member of the troika and sought to curb the overbearing authority of its officials in dealings with elected Greek Ministers. But at the same time Varoufakis and his team tried to win the IMF as a center of macroeconomic expertise and orthodox “best practice” policy over to their side. Since the crucial issue was debt sustainability, Athens played on the Fund’s guilty conscience about the patently unsustainable debt deal the IMF had endorsed in 2010 and then re-endorsed in 2012. In so doing the IMF violated its own internal code of operations laid down after the Argentine debacle that barred lending to insolvent debtors. What Varoufakis wanted above all was for the IMF to announce that it was finally going to stick to its guns and to refuse any participation in a debt deal that was not sustainable, i.e. one that did not offer dramatic debt reduction. He was to be disappointed.

Varoufakis’s position, in the terms of Geoff Mann’s recent book, is the quintessence of Keynesian liberalism – and I say that approvingly. For Varoufakis the Greek debt crisis by 2015 was essentially unnecessary. It was, in Keynes’s terms, “a muddle” that clear-headed people of good will ought to be able to resolve, provided they have the right kind of leadership and are willing to make “brave”, “honorable” and “honest” political sacrifices.

In the Varoufakis account, the “muddle” starts with the panic-stricken reaction of European politicians to the recurrence in Greece in 2010 of the bank-debt crisis, which they thought they had put to bed in 2008-2009. The “muddle” arises because for reasons of political expediency, the politicians decided in May 2010 to hide their second rescue of the French and German banks by disguising it as “assistance for Greece”. Why? This was convenient for the banks, of course. But that was not the main reason. The main reason was that the politicians feared being punished by the electorate if they had to ask parliaments to endorse another round of direct assistance for the banks, which would have been necessary if the Greek debt had been immediately written down. So, instead, they asked for funds for Greece, which were then paid to the banks in various more or less direct ways. The result was that Greece ended up owing more not less money and owing it not to banks but to governments and tax-payers.

Once the baneful 2010 Greek program was put in place there was no going back. The narrative was set. The political investments were made. It was incredibly difficult to get to the 2012 the debt restructuring. It was predictable that it would be inadequate. What it did, was not so much to cut Greece’s debts to manageable levels, as to complete the substitution of public funds for private lending.

Once the troika structure was established in 2010, another logic came into play. This too was a logic of “power” or “technocracy”, but not capital in any obvious sense. The troika built an apparatus of control with which to oversee and discipline the debtors. That apparatus and its apparatchiks began to take on a life of their own. Much of the fury that animated Syriza and Varoufakis in 2015 was directed at the humiliating cavalcades of unelected technocrats who descended on Athens in their “convoys of Mercedes-Benzes and BMWs”. In Varoufakis’s kind of leftism,  questions of recognition, of sovereignty, dignity and equality are key. Poverty is grinding, but above all it is humiliating. The troika operated in Greece not a productive colony that it was exploiting, but a prison from which Syriza must lead the escape.

Beyond the self-serving logic of a bureaucracy bent on preserving its own authority and control, beyond the need of politicians to cover their tracks, what purpose does this apparatus serve? This is less clear. For Varoufakis, after all, the troika program makes no economic sense. On his “Keynesian” reading, everyone is worse off as a result of austerity. Greek oligarchs may have been relatively well protected. But they can hardly have been said to have profited from austerity. Greece’s banks were bailed out but they were kept on a drip. Varoufakis does not claim that the interests of the German economy were best served by the ruinous policy, though it was certainly convenient for some of its banks in the short-run. The main function of disciplining Greece, Varoufakis tells us, was to serve as a warning to the French of the price of fiscal indiscipline. In other words its purpose was to perpetuate and widen discipline. But that in turn was not so much an economic as a political problem. Berlin wanted to avoid the terrifyingly difficult distributional politics of even larger scale exercises in cross border bail outs and “transfers”. Holding the line in Greece was a way of containing what could have become a spiraling political disaster for the CDU and their coalition partners. The specific economic interests that this strategy served or the wider macroeconomic rationale is not spelled out. And it is indeed obscure. Varoufakis and any other reasonable economist must clearly conclude that Europe as a whole, including Germany, would be more prosperous under a regime that was more expansive all around. If it took a short, sharp debt cut in 2010, 2011, 2012 or whenever else, to get there, so be it. Only once in passing does Varoufakis point to a larger strategic rationale. In one conversation with Schäuble, the German Finance Minister revealed a morbid fascination with the pressures of globalization and the necessary adjustments Europe must make to its welfare state. As wee know, this is also a preoccupation shared by Chancellor Merkel. But with this vision in mind, Greece is once again a means to an end. It is the first country in which a comprehensive rollback of the European welfare state will be put into effect.

Whether this elaborate construction is a fully convincing characterization of the crisis is a question for another time. But it is this characterization, which allows Varoufakis to position himself as the clear-eyed surgeon, whose decisive intervention will resolve the conflict. Insolvency will be acknowledged. Greece will find a way out of its disastrous economic impasse. Greece’s humanitarian crisis will be relieved. But the stakes go beyond the social crisis. In a more general sense Europe’s reputation, “European civilization” will be restored – dignity, honesty, the value of ancient civilizations etc. One could hardly ask for a more classic instance of what are, in Mann’s term, the deep preoccupations of “Keynesianism”.

The insanity of the Europe’s deep establishment

Varoufakis does not stop at this general characterization of “the muddle”. It is never a good idea to look inside a sausage factory. But Varoufakis’s account of the operations of EU “decision-making” is truly shocking. He delivers a truly shocking anatomy of an apparatus bent on perpetuating its own bad logic and excluding alternatives.

The Kafkaesque absurdities of the Brussels process occupy the bulk of the book. But in a few brilliant pages Varoufakis helpfully breaks down the basic obstructionist tactics used against Syriza:

(1) The Eurozone runaround: In the Eurogroup meetings of the member states, the Germans have the upper hand. When you talk to Schäuble he refers you to the “institutions”. When you talk to the Commission, the lead EU institution, they nod and smile and then in the Eurogroup they are overruled by the nation states under the influence of Germany … and you are back to square one.

(2) Constructive proposals are simply met with silence. In the Eurogroup in particular it is a breach of protocol either to table specific proposals or to circulate them by email since this would require parliaments to be notified which would require them to be discussed. So the aim of the meeting is simply to draft a communique … of the meeting.

(3) External requests for data became a method not just of asserting control but of endlessly deferring a decision.

(4) Truth reversal – under which the Greeks were accused of time wasting whilst the troika and Eurogroup insisted on the need for a “comprehensive” solution that actually excluded the single question that was most fundamental i.e. debt restructuring.

(5) Blaming the victim: in which the ECB banned Greek banks from buying treasury bills because they were unsafe, and the bills traded at a large discount because the markets were unsettled by advanced warning that the ECB intended to strictly apply rules which it had otherwise been willing to bend.

(6) Demanding that Greece explore all possible avenues for reform, privatization and foreign investment, whilst applying pressure behind the scenes to ensure that potential outside investors such as the Chinese remained away.

It is a one sided account, no doubt, but illuminating as to how the agonizing process appeared to Athens.

Varoufakis is at pains, throughout, to stress his own desire to pursue a rational solution. He was not a Syriza insider and he describes himself as determined to overcome “archaic” and “boorish” leftism within the party. He stresses throughout his deep agreement with Schäuble. But this resulted in its own ridiculous spiral, in which Varoufakis sees both Greece and Germany as being caught.

Schäuble and Varoufakis agreed that Greece was insolvent. They neither of them wanted to go on pretending. But neither Varoufakis nor Schäuble had the mandate to negotiate a restructuring and/or Grexit. Furthermore, the position of both their principals, Tsipras and Merkel respectively, was unclear. Furthermore, Schäuble did not want to put Merkel in a position where she had to suggest Grexit to Tsipras, because Athens would leak this to the press and use it against Germany. So Schäuble briefed Varoufakis to tell Tsipras to open the door, by asking Merkel to deny rumors that Schäuble favored Grexit. On that basis they could then start a conversation without either the Chancellor or the Prime Minister having initiated it. But the ploy did not work. Merkel did not want to discuss Schäuble’s proposal. So when Tsipras brought him up, Merkel shut the conversation down, leaving Schäuble and Varoufakis in the lurch. In the end, for Varoufakis, Schäuble emerges as a tragic figure, caught in a political logic that denies the logic of his position and ultimately produces one pseudo-solution after another.

Against the craziness of the inner workings of the EU, it is striking how positively Varoufakis characterizes his interactions with the Anglophone world. His closest advisors are Americans, Jamie Galbraith and Jeff Sachs. The book starts with a Chandleresque description of an encounter with Larry Summers, who Varoufakis is at pains to present as a skeptical but benevolent mentor to the Syriza government. Would it have been “boorish” or “archaic” to recognize Summers for what he is? Varoufakis’s tastes are truly catholic. Britain’s Tory chancellor of the 1990s Norman Lamont is a friend. Varoufakis enjoyed chummy conversations with George Osborne. These judgements reflect Varoufakis’s personal tastes. But they are also an effect of the structure of his argument and narrative. Europe is caught in a tragic mechanism that blinds it to its own contradictions. Those not caught in the EU’s impasse – outsiders like British and American economists – can see more clearly, are able to imagine how to break the impasse and are thus able to sympathize with Varoufakis. In the background lurks Varoufakis’s belief in the need for a hegemon. Unfortunately, what Varoufakis seriously underestimates is the complicity of the Obama administration and the Geithner Treasury in the construction of the “prison” from which Syriza was trying to escape. In 2010 the Obama administration was determined that there should be no European “Lehman moment”. Washington ruled out restructuring and pushed the IMF into going alone with the botched first bail out. What Varoufakis is reluctant to acknowledge is that Europe’s “extend and pretend” was made in Washington as well as in Brussels, Paris and Frankfurt.


Breaking the deadlock

For Varoufakis the impasse that Greece was in in 2015 was basically a balance of force. If Athens was to escape it needed to shift the balance and it had to devise a strategy to do so. How Varoufakis proposed to do this is the real revelation of the book. It is a bit of a bombshell and it is surprising that its implications have so far not been more widely commented on.

The common view of Varoufakis and the kindest, was that he was an academic and intellectual who was out of his depth. He was a man who took the knife of logic and sweet reason to a gunfight. What the book reveals, or at least is at pains to make us believe, is that Varoufakis fully understood the power play he was caught in, but was prevented from revealing his own heavy weaponry by the divisions within the Syriza government and Tsipras’s slide into collaboration.

The part of Varoufakis’s arsenal that did become common knowledge was the secret plan to prepare a new currency system that would replace the Euro if it came to a “rupture”. This earned him accusations of treachery. But the parallel currency plan was really just a measure of self-defense and functional necessity. The far more dangerous weapon, was the one that Varoufakis proposed to direct against the ECB.

The ECB was key because it controlled the funding of the Greek banks. The banks were the core of the Greek oligarchy but they were also functionally essential for Greek economy and society. The ECB could shut them down. It would act through its local representative, the head of the Greek national bank Stournaras. Varoufakis is convinced that even as New Democracy’s grip on power waned in 2014, a holding position was being prepared involving the insertion of Stournaras as the conservative head of the Greek central bank, where he remains today. But the ECB’s lock grip went beyond control over the Greek banking system. It extended to the Euro area as a whole.

Three days before Syriza was elected in January 2015 Draghi announced a new policy of Quantitative Easing for the Eurozone. This was a measure of last resort against deflation in the Eurozone. But as a side effect it fundamentally altered the balance in the battle with Syriza. By buying the bonds of the other “peripheral” Eurozone countries, the ECB stabilized their debt markets and immunized them against contagion from Greece. QE had been hugely unpopular with conservatives and most notably in Germany. But it was behind the shield of Draghi’s QE that they were able to lay siege to Athens without fear of greater destabilization. They could prioritize the fight against political contagion without having to worry about the financial kind.

How could the Syriza government respond? Was there any way of piercing the QE shield? Greece was not included in the buying program. It could not stop Draghi. The response that Varoufakis’s devised was truly Machiavellian. The Greeks should exploit the divisions amongst their opponents. In particular they should drive a wedge between Draghi, who was trying to make the Eurozone work, and the German conservatives who both opposed QE and wanted to drive Greece out. When bond buying was proposed Draghi had faced legal challenges in Germany. The German constitutional court in February 2014 had referred the case to the European Court of Justice, which had given Draghi a waiver, but on conditions. The way for Greece to blow QE up was to trigger those conditions. What Varoufakis proposed was that Athens should default unilaterally on the Greek bonds that the ECB had purchased in 2010 and 2011 and that the ECB still held. They had not been written down like the rest in 2012. They were under Greek law. Their face value was c. $ 33 bn. If Greece imposed a haircut on those bonds, it would inflict a painful loss on the ECB. That would force it to reevaluate its entire portfolio of Eurozone sovereign bonds and it would throw the door open to a new legal challenge against QE from the right-wing in Germany. Greece would throw a spanner in the works.

Oddly, as far as I can see, none of the reviews to date have noted the significance of this extraordinary plan. Of course, people worried at the time about a disorderly Grexit.  But the discussion was couched in terms of general contagion, of which there was in fact little risk, so long as bond buying continued. I have read pretty widely in the newspaper coverage of the period, but I have seen no references to any targeted attack on the political and legal underpinnings of Draghi’s QE. Paul Mason, who was close to Varoufakis and Syriza, referred to the basic idea in one of his reports as the “nuclear button”. But he did not spell out its implications for the wider Eurozone or the way in which it was directed at sabotaging QE. If anyone can point me to references to this plan, I would be most grateful.

In any case, it was ingenious. It was potentially very powerful. It refutes the idea that Varoufakis was naïve. The revelation of this “Greek deterrent” seemed almost too convenient, too precisely calculated to rebut the main criticism leveled at Varoufakis. Was it a retrospective construction? Varoufakis tells us that he warned both Coeuré and Draghi about this plan and both reacted with alarm. I have made enquiries with well-informed sources close to Varoufakis and they confirmed to me that Varoufakis did indeed have the “legal authority” to default on the Greek bonds held by the ECB. “(T)he order was drafted”, but the faction within the Tsipras cabinet that wanted to avoid a break was too strong. Varoufakis was never allowed to make the critical threat at the right moment. Greece was driven to a humiliating compromise without ever having deployed its deterrent.

It was a dramatic plan. But what is striking is that Varoufakis nowhere discusses the likely repercussions of his strategy for the other stressed peripheral borrowers. As far as Portugal, Spain and Italy were concerned the Greek threat carried very real risks. Indeed, the entire point of Varoufakis’s proposal would have been to put them in jeopardy, thereby forcing Draghi and the Germans to back off. How this would have worked out politically, what consequences it might have had for the left in Portugal and Spain, are not questions that Varoufakis takes up.

Mason’s talk of the nuclear option is not wrong. But given Greece’s subordinate position, the threat would seem to be more akin to a “dirty bomb” than an ICBM. Varoufakis was proposing a way to unhinge QE from within, of heightening the political and legal contradictions within the Eurozone. Though the Tsipras government shrank from exercising the option, Varoufakis’s proposal lays out an escalatory logic internal to the Eurozone crisis, by which the politicization of economic policy might take on ever more radical, comprehensive and transnational forms.

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America’s Political Economy: 2007-2010 crisis hit lowest income groups harder than ever Fri, 30 Jun 2017 16:58:07 +0000 The financial crisis had an unusually severe impact on lowest income groups in the US.

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Quartz did a good write up of some research by the Minneapolis Fed on the differential impact of the recent crisis on different income strata. In general recessions hit top incomes hardest. They have the most to lose and their incomes derive disproportionately from profit which fluctuates most in crises. 2007-2010 hit top incomes hard. But what was remarkable about it was how badly low incomes were affected.

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Daily Notes 2017/7 Thu, 29 Jun 2017 18:30:11 +0000 Illinois budget crisis, Chinese stimulus, Brit real wages, Merkel's global popularity, BIS on globalization of labour market and wage pressure. Good day for charts!

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In the pile of charts and screenshots this morning were:

US Stuff 

On Illinois and its ongoing budget crisis.


I have very fond memories of a year at Champagne-Urbana in 2004. To see this makes my heart ache.

On the craziness of GOP health care plan. A natural experiment in political suicide.


On China’s double FISCAL stimulus in 2015 and 2017.

The World Responds to Trump

Amazing Pew report about global responses to Trump:



On the vast missed opportunity of trade in the Bay of Bengal. India’s trade with ASEAN barely greater than that of Australia!


On the impact of the crisis and new liquidity regulations on the US banking system:

BIS annual report on globalization

Bumper crop of great charts from the BIS annual report:


Sourced with thanks from FT Alphaville, WSJ Daily Shot, WaPo, BIS et al.

I’ll figure out an economical way to put this in a sensible oder next time.

Full links on twitter at @adam_tooze

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Notes on the Global Condition: How the IMF pulls its punches when it comes to Trump’s America Tue, 27 Jun 2017 18:10:20 +0000 The IMF's evaluation of the Trump administration's economic policies starts well but pulls it punches.

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Losing your bottle may be a Britishism but it was the first phrase that came to mind when I happened on the IMF’s 2017 Article IV consultation with the United States issued today, thanks to a tweet by  Karthik Sankaran.

The IMF does annual Article IV consultations with all its members. In respect to the larger and more powerful members it’s a delicate operation. With respect to the US, the stakes are particularly high. The US has the largest vote on the IMF’s board and Congress controls the largest part of the IMF’s budget. Generally the IMF aligns with the US, on issues like Ukraine, Greece. Given the advent of Trump things are clearly more difficult. This year’s Article IV consultation was always going to be interesting. Once the Trumpites wake up, one wonders, will it be the last? Reading the report, someone in the IMF seems determined to ensure that the IMF is not cut off.

The report starts well enough, coolly laying out America’s mediocre performance with regard to basic metrics of social and economic performance and well-being. In the graph, taller bars are better and red bars are more recent. The picture is predictably downbeat.

The report also lays out the reality-defying quality of the growth assumptions that the Trump administration has made into the basis of its forecasts. Never has an advanced economy with America’s current parameters experienced a growth acceleration in the way that the Trump administration predicts.

On the fiscal priorities of the administration, the IMF is also clearly critical.

By contrast, it has warm words for the Fed, which it describes as accomplishing a “gradual and well-communicated monetary normalization”.

But then the IMF flinches and it flinches badly, on environmental regulation, education, and on health care it pulls it punches in a truly remarkable way.

On regulations and the environment:

On education:

On health care:

On trade the IMF offers an evaluation of the administration’s position so at odds with the experience of the last 6 months that one wonders whether the Fund locked away its team in January in a media-free bubble, in preparation for crafting this paragraph.

Or did they find the last “adult formerly in the room” cowering in the corner of the Treasury, who was willing to sell them this line? What about TPP? What about TTIP? What about the menacing threats of NAFTA rebalancing that have materially disturbed the economy of Mexico?

Obviously, the IMF is in an unenviable position. Given the point that we have reached in recent weeks with regard to the Paris Treaty, NATO etc, the still optimistic liberal in me, is tempted to say that the other stakeholders in the IMF should speak up and guarantee Lagarde and her team that they will have the IMF’s back, in speaking truth to the US. Lagarde and Merkel are famously close.

But, of course, that would imply that the IMF would have to call Germany on its toxic combination of budget and current account surpluses and China on its barely-under control, credit bubble.

It brings home the fallacy of imagining that there is any Archimedean point in the “world system” right now, or, at a lower metaphysical level, a power center from which a credible claim to liberal hegemony might be articulated.

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Daily Note 2017/6 The Pre-Industrial Phillips Curve Thu, 22 Jun 2017 15:30:11 +0000 When did wages become responsive to macroeconomic conditions? The very long view.

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Central bankers everywhere are trying to decide how to respond to the tepid recovery – should they raise interest rates or hold off? In the UK, given political turmoil and Brexit, the decision is particularly difficult, resulting in major ructions at its last rate-setting meeting. See Wren-Lewis’s commentary.

Into this debate steps Andy Haldane, one of the most interesting central bankers around, with a striking speech in Bradford – a classic city of the industrial revolution – on the issue of the labour market and inflation pressures. The headline is that Haldane sounded more hawkish than people expected. But in the process of making his case he offers some interesting analytical material.

Haldane is an unconventional thinker and likes good charts. The star of his show is a remarkable chart showing the relationship between economic activity (output gap/unemployment) and wage inflation known as the Phillips curve. This is one of the classic charts in macroeconomics. What is new about the Haldane version is the timeline. To place our current post-industrial situation in context the Bank of England has constructed a Phillips curve that maps the entire history of modern capitalism from 1500 onwards.

The result is very striking. There is virtually no positive relationship between economic activity and wages in the Malthusian economy of the period before 1860. Then, as the labour market formalizes, population growth slows down and trade unions organize, a powerful positive relationship between economic activity and wage growth emerges that extends from the 1860s to the 1970s. Since then the relationship has broken down.

This is Haldane’s commentary: “Chart 11 plots UK Phillips curves over three periods: 1500-1700 (pre-Industrial Revolution); 1860-1950 (post-Industrial Revolution); 1950-1977 and 1977 to date (post-war period). In each case, wage inflation is measured on the y-axis and an estimate of the output gap on the x-axis. In the post-war period, the Phillips curve conforms to type. Since 1950, it has a clearly positive slope (less slack in the economy is associated with higher wage inflation) and an intercept which is positive (reflecting positive trend inflation). The Phillips curves covering the periods either side of the Industrial Revolution are more interesting. They share one important similarly and have one important difference. The similarity is that both are associated with an average inflation rate of around zero. This is consistent with the price level being broadly stable over these periods. The striking difference is in the slope of the Phillips curve. The post-Industrial Revolution Phillips curve has a conventional upward slope, similar to that operating after 1950. Higher growth or lower unemployment is associated with higher rates of wage and price inflation. The pre-Industrial Revolution Phillips curve is altogether different; it is as flat as a pancake. Indeed, it bears a close resemblance to the Phillips curves which have operated, in the UK and globally, since 2008. There are many potential explanations of this flatness in the pre-Industrial Revolution Phillips curve, including noisy data. And its similarity with the present-day Phillips curve may be purely coincidental. Nonetheless, this pattern is at least consistent with a shift in working practices, towards a more divisible, idiosyncratic workforce, having contributed to a flatter Phillips curve relationship. None of this evidence is definitive or decisive. Taken together, however, it is at least suggestive that recent trends in the nature of work may have had some bearing both on wage-setting behaviour in general and on the weak wage puzzle in particular. Shifts in working patterns seem very unlikely, by themselves, to have been the prime-mover of weak wages. But they have probably been a contributor in the past and, more significantly, are likely to continue to do so in the future if these trends, as seems likely, perpetuate.”

Some other charts from Haldane back up that basic narrative.

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