Category Archives: History

Class struggle à la droite

Populism is boosted by economic crises, but its roots are cultural.
By Claus Leggewie – Populism is a method. It works by mobilizing an imaginary homogeneous entity called ‘the people’ against an equally ill-defined and generally despised ‘elite’, thus radically simplifying the political and social field. Such simplifications have served to orchestrate conflicts since the 19th century and in particular during economic and cultural crises—on the left, in terms of a class struggle against the powers that be; on the right, in terms of a confrontation with an ‘other’, be it foreigners or minorities.

Sometimes these two tendencies have gone hand in hand—for instance, when migrant workers have been portrayed as wage-squeezing competitors. In fact, though, a populism that purports to be about solidarity with the ‘common people’ always promotes social disunity.

As a catchphrase in political debates, populism may be useful; a productive analytical concept it however certainly is not. The ‘people’ our modern-day, nationalist populists champion are no longer defined socioeconomically (as in the ‘proletariat’). Rather, the populists employ ethnic constructs (such as Biodeutsche or français de souche), which suggest a homogeneous community with a shared ancestry, a long history and a solid identity.

It is to these ‘people’—not the actual, pluralist demos—that populists ascribe an authority which exceeds that of institutions: ‘The people stand above the law,’ as a slogan of the Austrian ‘Freedom Party’ goes.

In this view, there is no legitimate ‘representation’ through democratic processes. Instead, ‘the people’ form movements which back charismatic leaders and legitimize them retroactively by means of plebiscites. Right-wing movements may be diverse, but what they all have in common is a worldview that is utterly authoritarian (and usually patriarchal and homophobic too).

One’s own nation, ethnically defined, takes center-stage—think ‘America first!’ or La France d’abord! more>

Saving Capitalism from Inequality

Robust middle incomes deliver the demand that businesses need to produce.
By Robert Manduca – After decades of praise heaped on “job creators,” viewers today may find it disorienting to see the consumer—and a middle-income one at that—cast as the hero of the economy, instead of the investor or the entrepreneur.

Yet Fortune, which produced the video in 1956, was hardly an outlier. In the mid-twentieth century, advertising, popular press, and television bombarded Americans with the message that national prosperity depended on their personal spending. As LIFE proclaimed in 1947, “Family Status Must Improve: It Should Buy More For Itself to Better the Living of Others.”

This messaging was not simply an invention of clever marketers; it had behind it the full force of the best-regarded economic theory of the time, the one elaborated in John Maynard Keynes’s The General Theory of Employment, Interest and Money (1936). The key to full employment and economic growth, many at the time believed, was high levels of aggregate demand.

But high demand required mass consumption, which in turn required an equitable distribution of purchasing power. By ensuring sufficient income for less well-off consumers, the government could continually expand the markets for businesses and boost profits as well as wages.

Conversely, Keynes’s theory implied, growing income inequality would lead to lower demand and slower economic growth.

The basic Keynesian logic of demand-driven growth came to be accepted across U.S. society in large part due to significant postwar efforts to explain, communicate, and popularize it. Proponents of Keynesian thinking worked hard to educate the public about the new economic theory and the possibilities of abundance that it foretold. A particularly compelling example is the book Tomorrow Without Fear (1946). more>

Updates from McKinsey

Climate risk and response: Physical hazards and socioeconomic impacts
By Jonathan Woetzel, Dickon Pinner, Hamid Samandari, Hauke Engel, Mekala Krishnan, Brodie Boland, and Carter Powis – After more than 10,000 years of relative stability—the full span of human civilization—the Earth’s climate is changing. As average temperatures rise, climate science finds that acute hazards such as heat waves and floods grow in frequency and severity, and chronic hazards, such as drought and rising sea levels, intensify.

In this report, we focus on understanding the nature and extent of physical risk from a changing climate over the next one to three decades, exploring physical risk as it is the basis of both transition and liability risks.

We estimate inherent physical risk, absent adaptation and mitigation, to dimension the magnitude of the challenge and highlight the case for action. Climate science makes extensive use of scenarios ranging from lower (Representative Concentration Pathway 2.6) to higher (RCP 8.5) CO2 concentrations. We have chosen to focus on RCP 8.5, because the higher-emission scenario it portrays enables us to assess physical risk in the absence of further decarbonization.

In this report, we link climate models with economic projections to examine nine cases that illustrate exposure to climate change extremes and proximity to physical thresholds. A separate geospatial assessment examines six indicators to assess potential socioeconomic impact in 105 countries. We also provide decision makers with a new framework and methodology to estimate risks in their own specific context.

We find that physical risk from a changing climate is already present and growing. Seven characteristics stand out. Physical climate risk is:

Increasing: In each of our nine cases, the level of physical climate risk increases by 2030 and further by 2050. Across our cases, we find increases in socioeconomic impact of between roughly two and 20 times by 2050 versus today’s levels. We also find physical climate risks are increasing across our global country analysis even as some countries find some benefits (such as expected increase in agricultural yields in countries such as Canada).

Spatial: Climate hazards manifest locally. The direct impacts of physical climate risk thus need to be understood in the context of a geographically defined area. There are variations between countries and within countries. more>

Updates from Chicago Booth

How multinational companies help spread recessions
By Bob Simison – The Great Recession a decade ago was one example of how economic cycles across the world can move in parallel, a phenomenon that economists don’t fully understand. It could be that a common event, such as a surge in oil prices, affects many economies at the same time—or perhaps linkages between countries transmit economic shocks from one country to the world economy.

One such linkage is multinational corporations,  according to Marcus Biermann, a postdoctoral scholar at the Catholic University of Louvain, and Chicago Booth’s Kilian Huber, who explore the role of multinationals in spreading the global recession by analyzing the ripple effects of one German bank’s struggles during the 2008–09 financial crisis.

Commerzbank was Germany’s second-biggest commercial lender behind Deutsche Bank. Losses on trading and investments abroad hammered the bank, especially after Lehman Brothers collapsed in September 2008. Commerzbank’s capital fell by 68 percent between December 2007 and December 2009, which forced the bank to reduce its aggregate lending stock by 17 percent. Biermann and Huber find that this pullback in credit available to German parent companies affected subsidiaries in other countries, thus helping to transmit the economic contraction. more>

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From the Revolution of 2020 to the Evolution of 2050

By Basil A. Coronakis – European societies are already on the move and 2020 will shape the direction that they go in. Within 30 years, in one way or another, the new world’s political condition will be settled.

The potential options for 2050 are numerous, from too extreme to everything in-between. The point is that whichever option is good, as well as whichever is bad, is a question that cannot be given a reply by either science or faith, but only philosophically.

However, since the “kings” of our society, and not the “philosophers”, will decide for the next big social step to take (or not),

Under the circumstances, we stand before two extreme scenarios and cannot say which of the two is the good and which is the bad, as we are all part of the problem. As a result, none of us can have an objective view. Therefore, will consider scenario A and scenario B without qualifying any.

Scenario A, which is likely to be the most probable as our “kings” are far for “adequately philosophizing”, and which although may have huge collateral damage and a generalized social upside-downs, in terms of long-term survival of humankind is not necessarily the worse.

Scenario A ends with an anarchy dominated chaotic social explosion that, when settled, will bring a new social order where the last will be first and the first the last. Of course, this will be the way of the “Parable of the Workers” from Matthew 20-16 in the New Testament but based on nature’s law of selection according to which the strong survives and the week disappear.

Scenario B is rather unlikely as it provides, after a smooth transition, that we will be living in the ideal city by 2050 – the contemporary version of Plato’s Utopia.

The so-called “in the between” will be simply a prolongation of the status quo, which ultimately will lead to scenario A, though with increased collateral damage. more>

Updates from McKinsey

Four ways governments can get the most out of their infrastructure projects
Best practices can help governments invest in infrastructure that expands the economy and better serves the public.
By Aaron Bielenberg, James Williams, and Jonathan Woetzel – Infrastructure—for example, transportation, power, water, and telecom systems—underpins economic activity and catalyzes growth and development. The world spends more than $2.5 trillion a year on infrastructure, but $3.7 trillion a year will be needed through 2035 just to keep pace with projected GDP growth.

National, state, and local governments are devoting increased amounts of capital to meet these needs, and for good reason. The McKinsey Global Institute estimates that infrastructure has a socioeconomic rate of return around 20 percent. In other words, $1 of infrastructure investment can raise GDP by 20 cents in the long run.

Gains from infrastructure are fully realized, however, only when projects generate tangible public benefits. Unfortunately, many governments find it difficult to select the right projects—those with the most benefit. Furthermore, infrastructure can provide social and economic advantages only when the capital and operating costs can be financed sustainably, either by the revenues a project generates or by the government sponsor. Too many projects become an economic burden and drain on finances when a government borrows money for an undertaking and neither its revenues nor its direct and indirect economic benefits adequately cover the cost.

Our framework includes four key best practices to help modernize decision making for infrastructure and to improve its social and economic impact. Each step is enabled by and contributes to a consistent, fact-based process for identifying and executing infrastructure projects. The first step—ensuring that projects yield measurable benefits—lays the foundation for all the rest.

  1. Develop projects with tangible, quantifiable benefits
  2. Improve the coordination of infrastructure investments to account for network effects
  3. Engage and align community stakeholders to promote inclusive economic and social benefits
  4. Unlock long-term capital

Consistent, transparent assessments are required to determine if infrastructure satisfies the elements of our framework—whether a project offers robust public benefits, is compatible with other projects and appropriately aligned with the community’s objectives, and uses the best long-term financing available. Thus, governments may have to invest in capabilities to evaluate the benefits of projects and commit themselves to transparent evaluations that include the necessary checks and balances.

Governments should assess their institutional capabilities against the framework’s elements, such as mapping current processes to develop infrastructure projects from concept to operation.

Can the government complete a structured quantification of public benefits?

Is there a way to assess the portfolio as a whole in light of the debt-management strategy? more>

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Another year of living dangerously

Twenty twenty will be another year of living dangerously if short-term policies continue to be pursued at the expense of long-term vision.
By Isabel Ortiz – The year 2019 ended with widespread demonstrations, rising inequality and a crisis of representation in many countries. The world is sleepwalking toward recession and a new crisis, while depleting the environment. Governments, and ultimately people, can reverse these alarming trends in 2020.

Sixty-one countries will have presidential or parliamentary elections in 2020. Many citizens are tired of conventional orthodox policies; they want change, and they will choose new parties as a way to achieve this.

This is an important opportunity to redress the current situation, but many of the new emerging leaders are far-right demagogues who blame today’s problems on social-welfare policies, migrants and the poor, while aiming to remove all remaining constraints on capital. As in the United Kingdom, many whom neoliberalism has harmed will vote for these politicians, making the world a more unequal and riskier place.

A lot will be decided in the United States, still the world’s hegemonic power. How US citizens (many without much knowledge of global affairs) vote in the 2020 presidential election will have profound consequences for the rest of the planet’s citizens.

The US president, Donald Trump, has already had a big impact on the world, eroding multilateral institutions, trade agreements and global initiatives as part of his ‘America First’ agenda. Despite the populist rhetoric, Americans in the main have benefited little. more>

The Battle for India’s Founding Ideals

By Madhav Khosla – These events come after much of India has been engulfed in protests over a new citizenship law that treats Muslims differently to those from other religions. These protests, which have seen tens of thousands march across the nation, began in universities. The government’s reaction was swift and brutal. It encompassed both prohibitory measures, such as Internet shutdowns and the prevention of public assembly, as well as reactive measures, which included detention and violence. In Uttar Pradesh, a state which is home to more Indians than any other, the tales of police brutality would send a shiver down any spine.

Sunday’s attack underscores two crucial changes taking place in the world’s largest democracy. The first is to the country’s formal legal architecture. India’s founders, as I have suggested in a new book, India’s Founding Moment, imagined citizenship to be unmediated by community affiliation. For them, to belong to the modern world was to belong to representative framework where each person was treated on free and equal terms.

Measures like the new citizenship law challenge and undermine this founding vision. The law enables “any person belonging to Hindu, Sikh, Buddhist, Jain, Parsi or Christian community from Afghanistan, Bangladesh or Pakistan” to become an Indian citizen, thereby explicitly excluding Muslims.

India’s Constitution guarantees the right to equal treatment. This right applies to all persons and not only to citizens. To pass muster, a law has to make an intelligible distinction between those that it includes and those that it excludes. Moreover, this distinction has to bear a rational connection to the law’s objective.

In this case, the stated objective is addressing the religious persecution of the enumerated classes. But the law does not capture this objective as it is both over- and under-inclusive. It does not provide protection to groups such as the Ahmadiyya Muslims from Pakistan and it assumes that all those who enter India from the specified classes are persecuted. This presumption is revealed by the fact that the law has no provisions relating to religious persecution at all, thus eliminating any link between the distinctions drawn and the declared aim.

As India is thrown deeper and deeper into a cycle of extra-constitutional violence, we should fear that the state and citizens will struggle to manage the situation. In such scenarios, the disorder and horror often follows a logic of its own.

If India continues to unravel in this fashion, there will be unspeakable acts on either side, untold truths that are hidden in every quarter. Even the most terrifying moves will be justified, even the clearest forms of evidence will be challenged.

In a world where public institutions and social harmony have given way, we will live under a state that claims monopoly over the exercise of force but no longer quite enjoys it. The state will deploy and exploit its power in every possible way, but, as in the case of colonial rule, the idea of legitimate authority will cease to have meaning. more>

Updates from Chicago Booth

Why central banks need to change their message
The US and European central banks thought they could manage their economies by bringing their secretive plans for interest-rate regulation into the light. But they didn’t account for an unreceptive public.
By Dee Gill – A lot of people don’t have a clue what central banks do, much less how the institutions’ ever-changing interest-rate targets ought to affect their household financial decisions. Recent studies, including several by Chicago Booth researchers, find Americans and Europeans oblivious to or indifferent to the targets’ implications.

This is a serious problem for policy makers. For a decade, monetary policy in many developed economies has relied heavily on forward guidance, a policy of broadcasting interest-rate targets that works only if the public knows and cares what its central bankers say.

“The effects of monetary policy on the economy today depend importantly not only on current policy actions, but also on the public’s expectation of how policy will evolve,” said Ben Bernanke, then chairman of the US Federal Reserve, in a speech to the National Economists Club in 2013. At critical times since 2008, forward guidance has been the Fed’s and the European Central Bank’s go-to tool for revitalizing their ailing economies and holding off widespread depression.

Forward guidance usually involves central banks announcing their plans for interest rates, which traditionally were guarded as state secrets. The openness is intended to spur investors, businesses, and households to make spending and savings decisions that will bolster the economy; typically, to spend more money during economic slowdowns and to save more when the economy is expanding.

Chicago Booth’s Michael Weber and his research colleagues, in several studies, tested the basic assumption that households will respond to forward guidance, and find it flawed. Most people, the researchers conclude, generally do not make spending and savings choices on the basis of inflation expectations. In personal financial decisions—for example, to pay or borrow money for a boat, refrigerator, or renovations, or to sock away funds for rainy days—words from central bankers hardly register. more>

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Capitalism’s Case for Abolishing Billionaires

Adam Smith wanted to keep the power of the rich in check.
By Linsey McGoey – Adam Smith is remembered as the patron saint of unregulated commerce, as the world’s greatest prophet of profit. His idea of the “invisible hand” has been used by countless economists and politicians to argue that capitalism works, despite its excesses and inequalities.

But this fairytale version is wrong. The actual Smith wrote of his dream for a more equal society, and condemned the rich for serving their own narrow interests at the expense of the wider public.

“The establishment of perfect justice, of perfect liberty, and of perfect equality,” he writes in Wealth of Nations, “is the very simple secret which most effectively secures the highest degree of prosperity to all the three classes.”

Today Smith’s call for “perfect equality” is either ignored or deliberately misrepresented.

But with 1% of the world’s population now owning half its wealth, that belief is being forcefully called into question. There are growing calls to abolish billionaires and their privileges, including preferential tax treatment, handouts to corporations, and grossly inflated executive salaries that are often subsidized by taxpayers.

Smith was scathingly critical of the wealthy’s disproportionate power over government policymaking. He complained about the tendency of the rich to shirk tax obligations, unfairly passing tax burdens on to poor workers. He heaped scorn on government bailouts of the East India Company. He thought dirty money in politics was akin to bribery, and that it undermined the duty to govern impartiality. He wasn’t alone.

The reality is that the historical case for abolishing billionaire privileges has a long heritage, stretching to enlightenment thinkers and the revolutionaries they inspired, including countless enslaved and working-class people in forgotten graves. more>