'Global Trumpism': Bailouts, Brexit and battling climate change
Political economist Mark Blyth explains how the 2008 financial crisis led to political populism
* Originally published on October 15, 2019.
How did the middle class end up in perpetual debt? Why is there "no money" for infrastructure or social programs, but there is for waging war? And what does all this have to do with Donald Trump, or Brexit, or climate change?
If you're mystified about any of the above, then author and Brown University professor Mark Blyth can clarify things for you. He says it's helpful to use a computer metaphor to describe the economy.
In his lecture at McMaster University as part of the school's Socrates Project, Blyth compared capitalist economies to laptops: different makes, but similar in appearance. He argues these computers run just fine for a while — say, about 30 years. But all the while, there are bugs in the software that eventually cause the system to crash. Then you rebuild the hardware, fix the software, and reboot.
That's what happened in the 1970s and 1980s, when labour costs and inflation became a problem. The "system rebuild" included less powerful unions, more global trade, and central bankers who were put in charge of setting interest rates.
But this new system generated bugs of its own — among them, a runaway culture of lending, and a lack of wage growth among the middle classes, who did a lot more borrowing than they could afford.
Mark Blyth says this borrowing wasn't just driven by rampant consumerism.
"How do you get by when … everybody tells you there's no inflation, yet the cost of everything that matters is actually going up? Education, health care, all that sort of stuff," Blyth said in his lecture.
"And the only way you can fill in the gap is to borrow more money."
Cue the 2008 financial crisis
However, this time, Blyth says there was no rebuild. Instead, the United States Federal Reserve led a bailout of the big banks, domestically and internationally. The rich got much richer, the middle class got perpetual low interest rates to keep carrying their debts, and the poor had their social programs cut in the name of austerity.
Blyth contends this dynamic is what lit the fuse of global populism: the rise of leaders who appeal to public outrage, alienation, and lack of trust toward career politicians and traditional political parties.
"Your debts are too high," he said. "You can't pay them off, but you can roll them over. They're not going to be eaten away by inflation, and the people who brought you here have zero credibility."
Blyth compares populist leaders to rogue code-writers hacking into the software of a system that was never properly rebuilt after the crisis of 2008. This is not necessarily a bad thing, especially if it strengthens democracies.
"[Populism] is now part of the furniture.... It's already changed, so just get used to it. And let's remember historically that 100 years ago, the people who were the populists then, the people that everyone was afraid of, became the established parties in many cases," Blyth told IDEAS host Nahlah Ayed.
"So every now and again you have to have a little revolution, and that's what's happening now."
Populism is springing up on the right and the left, said Blyth. The difficult choices that need to be made about climate change could come from a left-wing populist movement not unlike the so-called Green New Deal proposed by younger American Democrats like Alexandria Ocasio-Cortez.
Looking at how things may unfold in the not-too-distant future, Blyth speculates "right populism wins round one."
"But ultimately, left populism wins round two, because left populism is the only one that takes climate change seriously," he concludes.
** This episode was produced by Sean Foley. It includes portions of Mark Blyth's June 2019 lecture at McMaster University, as part of The Socrates Project, an interdisciplinary hub for social engagement — and excerpts from his interview with IDEAS.