TEACHING economics to undergraduate students has been made so much easier in the last five years. The foolishness of Brexit, and then the pandemic, keep on throwing up interesting material.
For teaching first-year students, the timing of the fuel panic is ideal – I can illustrate my discussion of how changing market conditions affect market behaviour with current news stories. There’s an exam question just waiting to be written.
In surfing a wave of populism, really to win office, and to have power and authority, without having a clear enough idea of how to use them, Brexiteers have benefited from what Eric Lonergan and Mark Blyth have called “angrynomics”.
That’s the title of their very short book, which explains why there is so much anger among the electorate. Their main claim is that people have lost trust in politicians, who have failed to deliver on their promises of a better society.
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Trust is needed everywhere in a market economy. We trust that when we turn up at a petrol station, there will be fuel. We don’t even expect to queue. The market will meet our demands as they emerge.
Take away that trust, because of small interruptions to supply, and suddenly, demand spikes.
Everyone wants to fill up their cars’ fuel tanks. And if everyone else is panicking, then economists will tell you that it’s rational to panic as well.
Except, panic isn’t rational. It may be predictable. It may be understandable, but it’s a response to anxiety and fear. All that economists are saying is that they can explain “panic” as the result of many people making the same decision at the same time.
For Lonergan and Blyth, people’s anger is the basis of their analysis, not something to be explained. They argue that political settlements have the reasons for their failure baked into them, so that they are features, not bugs.
They claim that the post-war settlement was biased in favour of workers, in a way which destabilised the economy through persistent inflationary pressures. They explain that the neoliberal settlement of the 1980s addressed these weaknesses, crushing inflation by deliberately weakening trade unions.
That has now failed, largely because it has weaknesses which are almost the opposite of the post-war settlement. Economic growth tends to benefit already rich investors. The financial crisis exacerbated the sense that the social contract has broken down, because bankers seemed to be rewarded for crashing the economy. That begat anger, and anger begat Brexit. And Trump (above). And perhaps the SNP’s sudden domination of Scottish politics.
POPULISM, often tribal, is one way for people to express their anger about the system. It involves the old trick of politicians telling their voters that there are easy solutions. Often those involve identifying other groups who can become the focus of anger, and the twisting of legitimate grievance to serve the politicians’ needs.
Nationalism can very easily be another route. The argument that all Scotland needs to prosper is to be separate from England can morph into the claim that Scotland is England’s last colony. You won’t hear that coming from the mouths of the civic nationalists in the SNP leadership.
READ MORE: Citizens, not state, would own Scotland's national pension fund
Angrynomics argues that mainstream politicians have often failed to take on populism because they are so wedded to technocratic solutions. They are willing to tinker, to enable small changes, or even big ones, like the US government’s infrastructure spending in the aftermath of the financial crisis. But they can’t easily speak to people’s everyday concerns. Incrementalism drives out imagination and creativity.
Lonergan and Blyth say this is a good time for a new intellectual framework for thinking about the economy, which would allow politicians to say they feel the anger, and that they have ideas for redesigning society so that it works for everyone.
Angrynomics ends up being a report of where we are – not a plan for moving on. Suggestions like the better regulation of banks don’t engage with work done over the last decade. Measures for tackling the monopoly power of the digital behemoths are firmly on the agenda of the Biden administration.
Of more substance is the idea of a national wealth fund. Central banks have been setting very low interest rates for 15 years. In this “new normal”, public authorities could borrow to buy ownership stakes in businesses.
Scotland has substantial weaknesses in having a slow rate of company formation and a very small proportion of high-productivity – and so high-wage – jobs. The economic transformation of decarbonisation will involve more organisations being set up, and more of those businesses being so good at solving problems and meeting the needs of consumers and other organisations that they create plentiful, well-paid jobs, throughout the country.
With current economic institutions, these organisations would need private finance. The most successful typically fall into the hands of private equity partnerships, the preferred vehicle for the rich to get richer. A national wealth fund would mean public equity partnerships. They would divert newly created wealth away from the rich, so that it reaches everyone.
For Scotland, this will involve borrowing powers, which the government doesn’t have yet. It will involve a larger, creative, imaginative government, acting boldly, and confidently, leading the country towards independence – and setting out plans for a greener, more contented, and more equal, society. Without that, will Scotland be able to reclaim its independence?
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