I have finally got around to reading Eric Lonergan and Mark Blyth’s Angrynomics on a long-haul flight1 and I even find myself with some time to put down some thoughts about it. I’m also reading this in the context of the acrimonious Twitter debate on MMT that the NY Times article on the subject started and followed up by Nathan Tankus’ incredible report “Reimagining Demand Management and Price Stability in the 21st Century” so I’ll be making some references to MMT as well.
- It is a great read, crystalising political economy issues that I’ve read through the past few years in 170 pages with tremendous clarity. It covers a lot of ground, from the main ideas of Polanyi, Keynes, Kalecki, going over the debates on secular stagnation, varieties of capitalism, the link between technical innovation and social change, immigration and wages, and modern monetary policy (not necessarily MMT, but it does reference it as well). I could barely put it down and wolfed it in a few hours, which rarely happens for me.
- More books about policy and economics should be written as Socratic dialogues.2
- The book has the big misfortune of being released right before the inflection point of the COVID-19 pandemic, with only a short addendum about some of the policies being enacted around the world in support and how their ideas would help in this specific case. The book ends on an optimistic note that the anger seen over the past decades seems to have subsided with the pandemic, mostly because people were ordered/asked to stay indoors3, but it warns that how these policies are enacted are going to be critical in diffusing or strenghtening the anger in society. It goes without saying that this was writen before Jan 6th, 2021.
- As a consequence of being published before the recent supply chain, energy and inflation issues, it already needs a sequel! I need to catch up with both authors’ Twitter accounts to see what their opinions on the recent bouts of inflation are and how it squares with their policy recommendations (which somewhat hinge on low inflation conditions)
The books’ main idea is that (some of the) anger we find in society can be traced to the shortfallings of the economic setup of modern societies. They see two broad types of anger: public and private. Public anger itself can be split between moral outrage and manifestations of tribal energy. Tribal anger is what manifests during stadium fights between huligans or when nationalists or fascists attack migrant encampments, while “moral outrage” becomes apparent during political protests against corruption or anything that gives off the appearance of unfairness. The recent outpuring of anger towards Boris and the Cabinet Office organising more parties than the Ministry of Sound while the U.K. was hunkered and locked down is a great example of moral outrage4.
Lonergan and Blyth also make the case that while private anger is associated with shame and personal failings, it can be traced back to micro-stressors. Some of these stressors are enhanced and compounded by the same socio-economic systems that are driving public moral outrage. Amongst these stressors they count heightened anxiety due to uncertainty, which stems from:
- rapid technological advances, which makes any individual prone to being redundant and increases their cognitive effort, coupled with
- labour’s diminishing negotiating power (due to globalisation and a constant errosion of trade union membership), which reinforces said precarity of work and
- a tendency towards a concentration of power within capital itself (i.e. large companies like Amazon eating the margings of entire sectors, which then push the stress of low profits and low margins onto their workers in the form of cutting benefits/witholding wage increases)
- a decline in public services can also account for stress, especially in the U.S., where healthcare is prohibitively expensive and can leave people with crippling debt for the rest of their life, as one anecdote in the book shows.
Full-stack political economy
Lonergan and Blyth use a metaphor that I as a software developer turned policy-wannabe-wonk love: the capitalist system seen as a computer stack.
[W]e think of capitalism as a computer that has just had a massive crash. However, only a small software patch was installed to get it up and running again when what it really needs is a whole new operating system. Populism — of the left and right — is a recognition of that. Populists are the rogue code-writers of politics that thrive on anger. Unfortunately, they are shitty programmers.5
– (Angrynomics, p. 11)
In their metaphor, the institutional setup of an economy6 makes up the hardware of the economy, whereas the ideas that can are compatible with that economy make up the software. This is analogous to the idea of the Overton window and an appeal to take path-dependency seriously, and I can see the value of it — you can’t shift a social-market economy to a libertarian haven overnight, something that institutional advisors to Eastern European countries after ‘89 should have thought about more deeply.
That being said, borrowing both from my background as a programmer and from Donella Meadows’ Leverage Points in a System, changing fundamental ideas, i.e. shifting the framing of the debate can then shift institutions and society — changning the paradigm is the second most effective leverage point, and the ability to transcend paradigms is the most effective. In this framing, ideas are not the software, they are the CPU architecture, the foundational instructions which then limit and inform what both the hardware and the software can do. After all, neoliberalism has infiltrated and re-shaped institutions not only in the Anglo-Saxon world, but across Europe, with CDU running on Thacher’s “There is no alternative” slogan7. I will acknowledge that the “hardware” hasn’t completely converged, but better “inter-operability” is a given.
Play vs anger
Play being the antithesis of anger is a point that is made in passing, but which I think is very powerful. It brings to mind Pat Kane’s “The Ethics of Play”, which I have barely started but which has been warmly recommended to me. It is also to be compared with “The Liberalism of Care”, which argues for a return to the language and ethics of care as a way to heal liberal democracies.
Some shortfallings and disagreements
The authors are clear that they intended the book as a concise treatise and not an exhaustive tome on political economy, nor do they want to have a kitchen sink of solutions, but they give out a few policy solutions they see as potential fixes for angrynomics.
My main gripe with most of these solutions is that they are middle-of-the-road solutions after four dialogues which berate centrist politics and politicians. They explain this as wanting to present effective policies, rather than looking for optimal solutions, making the argument that more radical policies might not be in the Overton window of the U.S., which I accept as an argment but is a let-down after the pump-up of the diagnosis chapters.
Three things to fix and alleged non-starters
After four dialogues which make up a diagnosis of the anger, the authors come up with policies intended to fix three things: a) control inflation and regulate banks, b) address wealth inequality and c) finance a boom in sustainable industries to decarbonise the world economy (i.e. a Green New Deal).
The authors also consider raising taxes, introducing wealth taxes and international cooperation on stolen assets and tax havens as non-starters. The OECD deal on a global corporate tax floor might show that they were slightly pessimistic in this matter.
National Wealth Funds (NWF)
The main idea is that countries which are finding themselves in the situation of having negative or close to zero borrowing costs should borrow massively and buy equity in international markets, mimicking the Norwegian, Gulf States and Singaporean sovereign wealth funds. The proceeds from this equity fund would then be distributed8 to the bottom percentiles which hold little equity.
My main challenge to this is to their argument that sovereign wealth funds could act as activist shareholders which would give governments another lever to get companies to behave and align with policy.
This is not a completely perfect parallel, but a recent study by Baines & Hager into large private asset managers role as activist investors shows an incredibly paltry track record, especially when taking into account environmental shareholder actions.
The governance of these founds then becomes paramount, as it will have to constantly optimise between best returns for its ultimat owners and driving through shareholder votes that nudge companies in the rightdesired direction.
The issue of governance is where my second gripe with NWFs comes in: As the book itself argues, a large cause of the moral outrage and the tribalism that comes with it is a lack of a real voice for a large swath of the population. I am struggling with the idea that a milionth-part ownership in an NWF, a fund stewarded by the state (or a third-party) would give the disenfranchised a sense of real economic voice.
“Pension Fund Socialism” has been a concept since the 70s when Peter Drucker wrote about it. I am unaware though of any instance of a pension fund with a democratic governance form that gives soon-to-be retirees a voice as shareholders of the companies they are wittingly or unwittingly staking their old age on.9 Del Guercio and Hawkins have looked at the nature of pension fund activism and have found “no evidence to support motivations other than fund value maximisation”.10 (but it is an old study, to be fair)
To sum up, equity with no enfranchisement is as hollow as the democratic system the authors (rightfully) decry in the first few chapters of their book. BUT the stated goal of this policy is to address inequality, and in this sense it might very well be effective.
Dual monetary policy rates*
Love this idea — briefly, central banks should target differentiated rates for loans and for deposits. This should calm voices in savings-oriented cultures, like Germany. 11
The policy as described has an important asteriks:
By contrast [to a single, close-to-zero or negative rate], dual interest rates are win-win. If the central bank leaves deposit rates at zero, or say at 0.5 per cent, and this determines the money market rate which is the benchmark for deposits, savers are at least not being punished or are receiving a modest income. This is a huge improvement on the current negative “tax” on deposits. At the same time, to improve the lot of borrowers, the central bank lends to the banks at a steeply negative interest rate, conditional on the banks making new loans for productive investments by the private sector. [emphasis mine] Angrynomics, p. 149
In another paragraph, Lonergan implies that these rates or loans should be geared more specifically towards green economy sectors.
Interestingly, implied in this policy is another policy, which bears the scary name of capital controls, which is why I think the authors choose not to name it. Capital controls have a deeply negative connotation for free-market economists, but they essentialy boil down to regulating or encouraging banks to invest in certain sectors. This can happen through preferential credit rates (as proposed here) or through outright limits on balance sheet allocations for certain sectors
Data dividends are a market-driven solution to rein in Big Tech/Platform companies like Amazon and Facebook12 by the government intermediating the licensing of citizens’ data in exchange for these companies paying out for these rights or licenses.
I like this idea a lot. My only comment here is that I would lean in to opening up the possibility of multiple Data Trusts which can represent citizens in relation with these platforms. This can give citizens choice13 on the level of data exploitation they’re comfortable with and the returns they would like to see.
Different trusts could represent citizens in relation to different types of data and in relation to different platforms. These trusts could hypothetically represent users from more than one country, theoretically outsizing the negotiating power of a national data trust.
Helicopter drops and perpetual loans
No comments here, love this. In short, it advocates for central banks to acquire the capability to do direct transfers to population as a demand-management system that can countervail recessions.
This has received renewed attention (not just with the cheques the U.S. government sent during the first response to the pandemic) but as a core advantage and functionality of Central Bank Digital Currencies (CDBCs).14
Independent Fiscal Councils and Automatic Tax Increases
The authors suggest a few fiscal policy revamps, and reader, these are the policies that I struggle with the most.
The first is dubbed “Independent Fiscal Councils”, which in the word of the authors “seek to take the political antagonism and bickering out of fiscal policy and decide in advance of recessions what we want to do with tax and spend.” (Angrynomics, p. 150)
There’s two aspects that I like: First, automatic stabilisers are generally good, and second, having a buffet of shovel-ready mouse-and-seed-ready projects which are just awaiting financing for when stimulus needs to be spent is a good idea. Having to come up with projects when recession strikes is a bad way of doing stimulus, you end up with sub-optimal and pork-barrel projects, which end up hogging resources in maintenance with little benefit.15
That being said, pre-determining this spending and taking the “political bickering” out of it is an immense loss of democratic voice! Unless the authors are glossing over the election methods of these independent fiscal councils, they are depriving legislatures of one of the main levers of enacting their political programmes.
The second shift is a quick summation of Abba Lerner’s Functional Finance16: governments should borrow while nominal GDP growth is above the interest rate the government can borrow at and raise taxes when interest rates are above nominal growth.
While I agree whole-heartedly with this broad approach, I think measurement issues on nominal GDP growth are large enough to make this a difficult framework to follow.17 Moreover, as a point on the book’s coherence, the authors repeatedly state that raising taxes is either a political non-starter or the Achilles’ heel of MMT’s policy prescription:
“the MMT answer to inflation is to raise taxes. But for me that raises a question of politics. Who votes for higher taxes and then wins at the ballot box? […] Finally, income and wealth taxes, it should be remembered, were brought into the world not just to fight inflation or to raise revenue, but to fight plutocracy.” (Angrynomics, p. 129)
I find this uneasiness between conflictual, re-distributional policies on the one hand and win-win solutions on the other a weak point of the book. It’s not a critique per se, these are incredibly difficult question and the authors are the first to look at both the political and economic aspects of all the issues they discuss and they acknowledge the challenges head on. But at various points in the book, taxation is seen as a political non-starter, a necsessary tool to fight inequality and an automatic stabiliser to be used to fight inflation (i.e. when interest rates are higher than real growth rates)
Was anything missing?
As I said in the intro, the book is superb and covers a lot of ground, especially for such a short book. The cover is meant to represent anger, but it serves double duty to show that it kicks quite an intellectual punch. But it can’t cover everything.
Housing is barely mentioned, even though the increase in asset prices and especially in real estate is a main driver of wealth inequality, especially inter-generational wealth in the UK.I find this weird considering
- they mention land as one of Polanyi’s three fictive commodities,
- shelter is a base human need, so improper housing condittions or the increase in the share of income spent on housing is an important stressor and
- loose monetary policy coupled with a de-regulated banking system has lead to mortgages increasing their share of banks’ balance sheets in comparison to loans given out to productive non-financial companies (NFCs)
Labour’s negotiating power is also weirdly absent as a leverage point (it is however mentioned as a cause for angrynomics). I’m assuming this is due to their perceived incompatibility between the software of collective bargaining18 and the U.S.’ current hardware. I think the current wave of unionisation and strikes in the U.S. proves that partial compatibility could be reached.
I do feel there are two important directions here. If the authors are aiming to de-commodify labour (as per Esping-Andersen’s Three Worlds of Welfare Capitalism),then a UBI (which is what they see the Data Dividend as the pilot for) is a good start. De-commodification implies detaching a persons’ ability to live without relying on selling their labour at market prices.
From a Rawlsian perspective, however, the “social bases of self-respect” is one of the fundamental social goods that need to be distributed in a just society. (see for example Laitinen). The book argues that labour’s diminishing proportion of national income and their diminishing negotiating power are main contributors to the rise in anger. I believe we can rephrase that these factors have strongly affected the social bases for self-respect for a large share of the population.
The question then becomes whether society would better strenghten these bases of self-respect through redistribution through NWF and data dividends or whether apportioning a higher share of production through wages (or direct ownership in the companies they are working in) are required to offer these bases. I believe that as long as work is a fundamental part of life for most people, deriving a sense of worth through adequate payment rather than redistribution is critical for reducing societal resentment and anger.
Antitrust regulation is similarly absent, even as the book acknowledges the economies of scale and the monopolistic nature of the winners of the new economy.
Did it get anything wrong?
One of the weirdest bits of the book is their attack on the E.U.’s institutional setup contrasting it to Chinese flexibility. In their view, the Chinese central government gives regional governments targets and these governments then act to drive public sector innovation to new heights, whereas the EU is seen as a top-down bureaucratic, “one currency, one central bank, one policy target, one set of policies for all countries to follow” monster. This is straight out of Brexiteer propaganda (even though they thoroughly thrash the Brexit project).
Yes, the EU is a flawed project and it is more and more centralised, but that is not to say it doesn’t have embedded flexibility. Subsidiarity is one of the core principles of EU legislation and EU directives have to be interpreted and enacted into local legislation, giving local parliaments flexibility on whether these directives are interpreted loosely or gold-plated. Directives are another matter altogether.
Considering the imbalances that exist between monetary and fiscal centralisation and all the other quirks and vestigial appendices of the EU, this is a very weird point to make on Europe, but I am sure Blyth has a detailed view on the ills of this huge apparatus.
Moreso, the E.U. itself is conscious of the problem of having a mono-culture economic setup, hence one of the requirements for accessing MFF funds being the development a Smart Specialisation Strategy (S3) for regions. Smart Specialisation was centred on the idea of regions playing to their competitive strengths, evolving their regional economies through entrepreneurally-discovered new pathways.19
Great book. Needs a sequel. Would love to ask the authors some follow-ups.
On MMT, as mentioned above, I find some of the author's challenges weird, especially because from what I've seen recently on the debates on Twitter, MMT's cardinal sin to most economists seems to be to try to bring politics explicitly back into economics (not trying to make a strawman - I know there are other critiques as well). I'd like to gauge the author's perspective on this as well.
- I’m starting to see the appeal of those flight simulators where people step in cabins and emerge ten hour laters. ↩︎
- Maybe that’s why we like podcasts so much? ↩︎
- I had a similar impression so it’s hard to fault them on this. ↩︎
- I find it interesting that scandals around PPE “VIP lanes” and other fund misallocations had an incomparably smaller impact in terms of moral outcry. It’s quite easy to explain, as the injustice of politicians and SPADs partying while people were not allowed to visit elderly or dying relatives rings completely different to malapportioned public funds.Or maybe public anger is non-linear and the parties were a last straw. ↩︎
- Reader, unfortunatelly I too am a shitty programmer. ↩︎
- Here they refer to demand management regimes, educational systems, labour market regulation — what would make up the core of the description of the different regimes described by political economy framework known as Varieties of Capitalism (see for example the classic article by Hall and Soskice). I have based my MPA dissertation on the same framework to analyse fiscal responses to COVID-19 across four European economies. ↩︎
- As I’m writing this I’m realising that I’m re-litigating the convergence/divergence debate within the VoC literature — see for example Lee and Shin ↩︎
- I either didn’t read too closely or the point is not made if these proceeds would fund public services or be distributed as dividends. I can see good arguments for both. ↩︎
- Similarly, I don’t think there is any way you can send an email to Vanguard or Blackrock if you own their ETFs to ask them to sway a shareholder motion vote one way or the other. Though this is both technically and legislatively feasible. ↩︎
- Del Gercio and Hawkins, 1996 ↩︎
- Adam Tooze has a (characteristically) great rundown of the current inflation debate in Germany here ↩︎
- I’ll never call it Meta. ↩︎
- Wrting this I am becoming conscious of the potential problems with fragmenting this market. If platform companies act as monopsonies on the data market, then you need the market power of a rivaling monopoly to counterveil the price-setting power of the monopsony and avoid a race to the bottom. ↩︎
- See for example Bloomberg ↩︎
- A study by Atif et al. on China’s investment patterns in infrastructure comes to the conclusion that the sort of stimulus spending on large-scale capital projects is not a model for other governments, but rather is starting to constrain their growth by tying up resources in maintenance. ↩︎
- Great paper by the way. ↩︎
- Adjustments in GDP and GDP forecasts by the ONS have varied by a lot (but the gap is slowly closing, as more payments are digitised, so this might become a moot point soon). I can look up these differences if anyone challenges me on these points. ↩︎
- Uninstalling iWork to install WeWork with ButOnlyUnderCertainConditions add-on. We like to have fun here. ↩︎
- S3s have ended up as sometimes unimaginative documents, but the main intentions were clearly in the right direction. ↩︎