We’re back to the 1930s politics of anger and, yes, appeasement

Echoes of a horrific decade are getting louder, and the UN climate accord is the equivalent of Chamberlain’s piece of paper

More than any other decade, the 1930s act as a reference point for just how bad things can get. Mass unemployment, totalitarianism, war: a repeat of these horrors is to be avoided at all costs. Eighty years after Neville Chamberlain agreed to Hitler’s demands over the Sudetenland, there is still no greater insult than to dub a politician an “appeaser”.

The determination in policy circles to avoid a return to the 30s helps explain why up until now it has never happened. Central banks slashed interest rates and turned on the electronic printing presses a decade ago because they feared a second Great Depression. Welfare states are more generous than they were when John Steinbeck was writing The Grapes of Wrath. Decades of growth have made societies wealthier; advances in medical science have made them healthier.

That said, the world is currently closer to a return to the 30s than it has ever been. The echoes are loud and getting louder.

Let’s start with the obvious. As it did in the period between the two world wars, something has gone seriously wrong with the global economy. The story of the past 20 years has been that of an unsustainable boom followed by a deep recession and the weakest recovery in history.

Central banks have applauded themselves for preventing Great Depression 2.0, but what they never admit is that they did so by creating asset bubbles. A prolonged period of ultra-low interest rates and quantitative easing – the bond-buying process that boosts the supply of money – led to a speculative frenzy for commodities, shares and property. Those bubbles are now starting to pop. Oil prices are crashing, house prices are flat, shares on Wall Street are on course to have their worst December since 1931.

In the 1920s and early 30s, there was a reluctance to give up on a conservative model of political economy: the gold standard, balanced budgets, a limited role for government and a belief that markets would deliver the best of all possible outcomes if left unhindered. Eventually, stark evidence of failure forced a rethink. Starting with Britain, countries came off the gold standard. Franklin Roosevelt introduced the New Deal. John Maynard Keynes explained why it was possible for unemployment to remain high. The economic problems of the 20s had prevented the full flowering of the technologies that appeared in the first few decades of the 20th century. It required a paradigm shift to full employment, capital controls and a fairer division of the spoils for that to happen.

No such reassessment has taken place since the global economy’s near-death experience of a decade ago. Governments are supposed to balance their budgets, money is free to go where it will, the banking system remains largely untouched, and the imbalance of power between capital and labour remains unaddressed. Growth has only been possible because of a buildup of debt. This proved unsustainable in the past and will do so again.

To make matters worse, the distribution of income and wealth has mirrored that of the period between the wars. Real wages – adjusted for inflation – have barely risen for those on low and middle incomes; such growth as there has been has been snaffled by the better off. If you own a home or own shares, the past decade has been good for you. If you are in a low-wage job with only modest savings, life has not been nearly so comfortable. All these factors – economic underperformance, the return to business as usual and the sense that we are not all in this together – have given rise to a different sort of politics: nationalistic, populist and angry. People in the 30s were susceptible to the cult of the strongman leader because parties of the centre-left and centre-right seemed impotent in the face of a financial crisis, triggered by the Wall Street crash. Now that cult – Putin in Russia; Modi in India; Erdoğan in Turkey; Trump in the US; Bolsonaro in Brazil – is back and for the same reason. Voters are no longer convinced that mainstream politics can deliver. Protectionism is back, and, although Trump’s trade war with China is so far more of a trade skirmish, the direction of travel is clear.

 The writer is economics editor of

The Guardian, UK

 

 

Were back to the 1930s politics of anger and, yes, appeasement

Echoes of a horrific decade are getting louder, and the UN climate accord is the equivalent of Chamberlains piece of paper

More than any other decade, the 1930s act as a reference point for just how bad things can get. Mass unemployment, totalitarianism, war: a repeat of these horrors is to be avoided at all costs. Eighty years after Neville Chamberlain agreed to Hitlers demands over the Sudetenland, there is still no greater insult than to dub a politician an appeaser. The determination in policy circles to avoid a return to the 30s helps explain why up until now it has never happened. Central banks slashed interest rates and turned on the electronic printing presses a decade ago because they feared a second Great Depression. Welfare states are more generous than they were when John Steinbeck was writing The Grapes of Wrath. Decades of growth have made societies wealthier; advances in medical science have made them healthier. That said, the world is currently closer to a return to the 30s than it has ever been. The echoes are loud and getting louder. Lets start with the obvious. As it did in the period between the two world wars, something has gone seriously wrong with the global economy. The story of the past 20 years has been that of an unsustainable boom followed by a deep recession and the weakest recovery in history. Central banks have applauded themselves for preventing Great Depression 2.0, but what they never admit is that they did so by creating asset bubbles. A prolonged period of ultra-low interest rates and quantitative easing the bond-buying process that boosts the supply of money led to a speculative frenzy for commodities, shares and property. Those bubbles are now starting to pop. Oil prices are crashing, house prices are flat, shares on Wall Street are on course to have their worst December since 1931. In the 1920s and early 30s, there was a reluctance to give up on a conservative model of political economy: the gold standard, balanced budgets, a limited role for government and a belief that markets would deliver the best of all possible outcomes if left unhindered. Eventually, stark evidence of failure forced a rethink. Starting with Britain, countries came off the gold standard. Franklin Roosevelt introduced the New Deal. John Maynard Keynes explained why it was possible for unemployment to remain high. The economic problems of the 20s had prevented the full flowering of the technologies that appeared in the first few decades of the 20th century. It required a paradigm shift to full employment, capital controls and a fairer division of the spoils for that to happen. No such reassessment has taken place since the global economys near-death experience of a decade ago. Governments are supposed to balance their budgets, money is free to go where it will, the banking system remains largely untouched, and the imbalance of power between capital and labour remains unaddressed. Growth has only been possible because of a buildup of debt. This proved unsustainable in the past and will do so again. To make matters worse, the distribution of income and wealth has mirrored that of the period between the wars. Real wages adjusted for inflation have barely risen for those on low and middle incomes; such growth as there has been has been snaffled by the better off. If you own a home or own shares, the past decade has been good for you. If you are in a low-wage job with only modest savings, life has not been nearly so comfortable. All these factors economic underperformance, the return to business as usual and the sense that we are not all in this together have given rise to a different sort of politics: nationalistic, populist and angry. People in the 30s were susceptible to the cult of the strongman leader because parties of the centre-left and centre-right seemed impotent in the face of a financial crisis, triggered by the Wall Street crash. Now that cult Putin in Russia; Modi in India; Erdoğan in Turkey; Trump in the US; Bolsonaro in Brazil is back and for the same reason. Voters are no longer convinced that mainstream politics can deliver. Protectionism is back, and, although Trumps trade war with China is so far more of a trade skirmish, the direction of travel is clear. The writer is economics editor of The Guardian, UK