Who predicted the rise of the populists? Part 3 – Dani Rodrik

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Dani Rodrik / Democracy / Economics / Edward Luttwak / Globalisation / Party System / Politics / Populism

Looking at who predicted the victory of the populists before 2016 helps us sift through the deluge of ex post facto rationalisations.

Third in this series is the economist Dani Rodrik. Unlike the other thinkers in this series Rodrik has not made a habit of prediction. While some of the predictions he has made have failed spectacularly. He appears not to have grasped deep political significance of his ideas until late in the day. Nonetheless, along the way Rodrik outlined a set of constraints on globalisation that shape the world of the populists and define the parameters for the mainstream response. In short – nation, democracy or global trade – we can’t have have all three.
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Who predicted the rise of the populists? Part 2 – Richard Rorty

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Democracy / Economics / Globalisation / Party System / Philosophy / Politics / Populism / Richard Rorty

Richard Rorty predicted the rise of populism

Looking at who predicted the victory of the populists before 2016 helps us sift through the deluge of ex post facto rationalisations.Second in this series is the philosopher Richard Rorty. His 1998 book “Achieving our country” contains a wealth of predictions about the future of American politics. Many  now appear uncannily accurate.

Rorty was a self-declared member of the “Old Left”. Its principle concern was economic equality. He contrasted it with the new “Cultural Left” that he believed would progressively undermine US politics. Eventually it would generate a far right populist demagogue or “strongman”. The parallels between President Trump and Rorty’s hypothetical strongman are difficult to deny.

One surprising aspect of Rorty’s analysis is its striking resemblance to that of the contemporary right. Both blame the rise of populism on the Left’s reflex multi-culturalism and internationalism. Both claim it pits the Left against the interests of its traditional constituency. Both believe the Left’s divisive rhetoric to be slowly undermining its links to its grassroots. They agree that attempts to assemble an electoral majority from fractured minorities are hopeless, and that the future of the Left depends the adoption of moderate nationalism.
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Who predicted the rise of the populists? Part 1 – Edward Luttwak

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Democracy / Economics / Edward Luttwak / fascism / Globalisation / Party System / Philosophy / Politics / Populism

Edward Luttwak predicted the rise of populists in 1994

Looking at who predicted the victory of the populists in 2016 helps us sift through the deluge of ex post facto rationalisations.

First in the series is Edward N Luttwak. His 1994 book “The Endangered American Dream” made a series of bold claims about the results of globalisation. He believed it would undermine the traditional parties of both right and left. In his view neither could address the concerns of the losers from globalisation. Their failure would eventually open a space for parties of the far right. Luttwak called these parties ‘fascist’.
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Seven reasons economics needs to start from scratch

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Business Cycle / Complexity Economics / Economics / Eric Beinhocker / Philosophy

There are a number of problems with mainstream macro-economics so fundamental that they require the slate to be wiped clean and the enterprise begun from scratch. Here is an incomplete (but growing) list of knockout issues with the conventional approach.

Economics can’t describe the Business Cycle Economics’ first assumptions prevent it from explaining its central phenomenon. The first question of the economy is the nature of the business cycle. Economics has no useful theory of the business cycle. In fact, since Walras (100 years) it has been impossible for economics to generate a theory of business cycle because it assumes that the economy is an equilibrium system. An equilibrium system can not self-generate cycles of any kind. link

Economics can’t describe the Global Financial Crisis The most widely used economic models in the run up to the GFC did not contain banks or a financial sector. That is to say that the models used by economists could not describe the most significant economic phenomenon of the last 50 years. Rather than discard their discredited theory economists have added a series of fiddle factors in an attempt to hide their failure. These models are still widely taught. link
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Low interest rates – a toxic medicine

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Economics / Politics / Quantitive Easing

nuclear_power_plant_control_room_full

Low interest rates are the solution to the problem of deficient demand in the same way that taking heroin is the solution to the problem of heroin addiction – quick acting, superficially compelling and yet totally wrong.

If there is one belief that unites the UK mainstream it is a belief in the benefits of low interest rates. The chief desire of successive UK governments has been to finagle lower interest rates by any means. Investors have traditionally demanded a premium from the UK, worried that it would inflate away its debt. This has driven up the costs paid by British businesses, leaving them less competitive against hard currency countries.

For this reason the condition of low interest rates has taken on a utopian character. Lower interest rates would make lower yielding projects viable for UK companies. This would drive down unemployment and bring the country closer to its true potential. The land of milk and honey was imagined to have perpetually low interest rates.

But we should be careful what we wish for. For we have entered the promised land and it is anything but a utopia. Interest rates have tanked across the developed world. The highest interest rate implemented by the four most important central banks of the high-income countries is just half a per cent – an extraordinarily low rate. The European Central Bank is at 0.05%. Rates almost as low as this have been in place in Japan for two decades. Sweden, Denmark and Switzerland are now experimenting with negative rates. And yet none of these countries are enjoying an economic boom.

The economist Larry Summers calls these conditions ‘Secular Stagnation’. But giving them a name has done nothing to fix the problem. If low interest rates have turned out to be a symptom of weakness not a herald of strength, why haven’t things turned out as planned? Why hasn’t our policy response to the downturn been more successful?

We have become so fixated on the consensus approach to economic management that its shortcomings have become invisible to us. Extreme and persistent changes in the level of interest rates boost the economy by stealing consumption from the future. They cause a one off, unfair redistribution of wealth between the generations and inevitably lead to permanent and lasting inequality. Adjustments to interest rates have become the prime method of wealth redistribution. Government usually acts to reduce inequality. But in this case huge amounts of money are being transferred from the poor to the rich, from the young to the old and from those who consume to those who save.

And rather than being redistributed by fiscal measures under democratic control the money is being allocated by central banks: supposedly apolitical actors, who have set out on this disastrous course at their own discretion.

We are slowly discovering that low interest rates are the solution to the problem of deficient demand in the same way that taking heroin is the solution to the problems of a heroin addict. First there is a buzz. Our symptoms recede temporarily. But its not long before we need another dose, and the long term effects are disastrous.
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The immigrant’s fallacy. The liberal case against immigration from poor countries.

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Adair Turner / Economics / Immigration / Rational Choice Theory

riots
Liberals traditionally see immigration from poor countries into the rich west as a win-win transaction. The immigrant increases their living standards. The host country gets new and enthusiastic workers willing to take the jobs that natives don’t want.

When migrants express dissatisfaction with their lot, liberals attribute it to xenophobia in the host nation. They believe that if discrimination could be eliminated, the frustrations and disappointments of immigrants would disappear with it. Thus liberals are obliged to attack the prejudices of their co-nationals until acceptance of migrants is universal.

But this view embodies a deep cognitive dissonance. Liberals look migration from two incompatible viewpoints at the same time. They evaluate a poor foreigner’s interests in absolute terms up to the moment they cross the border, but from that moment on they insist on a relative standard.

In fact, the socialisation of low-skilled immigrant into a rich country generates anger, bitterness and disillusion for reasons that have no connection with racism. Each newcomer to the West slowly ditches their old value system and assumes that of the host nation. As we’ll see, this inevitably darkens their experience of migration.

There are indeed good reasons to believe that relative position is the more important measure for those of us the rich West. In absolute terms, the welfare of contemporary welfare claimant far exceeds that of a middle class worker in the 1960s. If absolute measures were what mattered to us we would have shut down our welfare states long ago.

But if it relative status matters so much to liberals, why do they wish to import migrants into the very lowest rung of our societies? If the ‘jobs that no one wants’ are all thats on offer, then by their own account, most migrants were better off in their own countries.

If they are to be true to their core values liberals must treat low skilled immigration from poor countries with extreme caution. Potential immigrants are uniquely poorly placed to evaluate the pros and cons of migration.
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The business cycle : traditional economics account of its central phenomenon is simply wrong

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Business Cycle / Economics

The dynamic of the business cycle is the central mystery of modern society. During the twentieth century we experimented with a variety of techniques to smooth out its ups and down. This century has brought a different problem – so called ‘secular stagnation’ – characterised by consistently lower growth rates.

Mathematicians have long known the core models used by most mainstream economists to be incorrect, or at least, to miss the phenomenon they are meant to explain. Cyclical instability, the central phenomenon of the economy, is entirely missing from the models used by economists.

In other sciences adding a series of fiddle factors to a failed model to get it past evidential tests would be seen as fraud, in economics cheating leads to a Nobel prize.

Every model has its boundaries. Each covers a certain number of phenomena and leaves others out. The aim of every account of the business cycle should be to explain its characteristic qualities. The business cycle has irregular patterns of oscillations that vary over time in period and amplitude. They are neither completely regular nor entirely random.

For historical reasons conventional economics makes use of models with equilibrium at their heart. If the economic system were entirely self equilibrating then it would not generate cycles of any kind because if it were ever out of equilibrium the system would return directly to its equilibrium state and stay there. Economists have tried to address the problem by introducing the concept of external ‘shocks’. They imagine the equilibrium of the economy is disturbed by a series of external factors generating the kind of wave pattern we see in real world business cycles.
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The Populism Paradox: why the success of mainstream parties creates the conditions for their own destruction

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Democracy / Globalisation / Network theory / Party System / Peter Mair / Politics / Populism

mainstream parties populism democracy globalisation globalization peter mair

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cross Europe the mainstream parties that have dominated the continent for decades are fading. Their memberships are falling. Voter turnout is down. Those supporters they have retained are starved of enthusiasm. Meanwhile anti-system parties gain ever more vitality. The SNP in Scotland, UKIP in the UK, the FN in France go from strength to strength. Their simple messages calling for the repatriations of powers, together with their populist attacks on a ‘detached metropolitan elite’ are winning them growing support.

Here is the paradox – its the successes of the mainstream that strengthened those who want to destroy it. The growing international order has so narrowed the range of policies available to pro-system parties they find it impossible to build electoral appeal.

Why is this happening ? And why is it happening across the whole EU at the same time? Its often claimed that we are witnessing a re-run of the 1930s. Xenophobia and grievance are feeding off an unresolved financial crisis. There are always sections of society that seek to blame outsiders. Social harmony demands they know their proper places.

According to this view we should shut our ears. Populists have nothing to offer but incoherent rage. Every historical process has its losers – they end up as a footnote in the history books. Why should globalisation’s losers be different?

I think there is good evidence that this story is mistaken. The growth of the populists has far more significance than it allows. It results from deep tensions in our political values. Tensions we have ignored until now.

We have reached a turning point in the Europe postwar project. For seven decades we have worked for a stable and prosperous international system populated with national democracies. For the first time we face a choice : healthy democracies or the completion of the international project that has given us peace and prosperity. We can have one or the other but not both.

There are fundamental natural constraints that limit the development of all organisms and all organisations. As each entity develops it becomes more capable but less adaptable. These constraints limit the complexity of every living thing. It is these limits that the mainstream’s political projects are now encountering.
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What the Banking Crisis tells us about Unregulated Technology

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Economics / Politics

The table below parallels the discredited arguments that supported the hypertrophy of banking in the run up to the banking crisis (left hand side) and fashionable ideas from the US in favour of technological laissez faire (right hand side).

Banking

Technology

market participants should be left unregulated because
markets are efficient  information wants to be free
the prices generated by markets are perfect future technological development is determined/inevitable
regulators can’t set better prices than the market technology will always circumvent regulations or restrictions like DRM
market participants as a totality are smarter than any individual or sub-group because
the market prices assets perfectly  the hive-mind knows best
if we were to introduce regulations in our country
we would drive one of most successful industries overseas and our competitors will offer the same products anyway we would drive the industry of the future overseas and someone else would build it anyway
we must ignore the macro level, real world, long term effects of deregulation because
innovation in financial products is good for the economy  we can’t stand in the way of progress
this isn’t a matter for political control, these developments are inevitable, there is no alternative
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How “Vanguardism” generated Populism

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Democracy / Feminism / Party System / Populism

By definition radicals and progressives take positions rejected by the rest of the population with the aim of shifting the mainstream towards their viewpoint. Events sometimes play out as “progressives” hope. For example, five decades ago the first gay rights demonstrators put forth a viewpoint that was deeply repugnant to the rest of society. Their outlook is now mainstream. A vanguard took the lead on a social issue against majority opinion. Almost all of us now agree that they were right and the rest of us wrong.

The gay rights vanguard – the first demonstration 1969

But events sometimes play out quite differently and the vanguard fails. The composer Arnold Schönberg provides a striking example. A century ago he developed a radical ‘serialist’ alternative to traditional melodic music. “Within fifty years,” he claimed “the mailboy will whistle my tunes.” A hundred years later no postman on earth whistles his music, and its unlikely that any ever will.

The failure of a musical vanguard has few consequences, but as we’ll see, the failure of a political vanguard can be more problematic. It can destabilise our political system. The wave of populist political parties seen recently across the world can be partly attributed to this phenomenon.

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Who predicted the rise of the populists? Part 5 – Bernard Connolly

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Bernard Connolly / Democracy / Economics / Globalisation / Party System / Politics / Populism

Looking at who predicted the victory of the populists before 2016 helps us sift through the deluge of ex post facto rationalisations.

Bernard Connolly wrote The Rotten Heart of Europe in 1995. Connolly previously worked at the European Commission. He rose to head of the unit responsible for the European Monetary System and monetary policies. The book delivered a harsh attack on the European project for monetary union, and warned of disaster ahead.

Connolly saw the monetary policy as a political fudge that was created for one reason – to advance the geo-strategic goals of France and Germany. It was neither a rational economic scheme, nor as often claimed, a symbol of good will between nations. Both France and Germany planned to use monetary union to gain more control over international affairs.

With very different geo-strategic interests Britain had little to gain and much to lose from participating in monetary union. The design of monetary union made it brittle and prone to catastrophic failure:

  • There was absolutely no economic rationale for monetary union. No other trading area has adopted a single currency.
  • There was no support for the policy from the European populous. It could only ever be implemented as a top-down initiative.
  • The basic requirement for monetary union was missing. The people in every country must be prepared to let governments and central banks care more about economic conditions in the Community as a whole than their own country. That has never been the case, and the dynamics of the Euro ensure that community feeling is being progressively eroded.
  • Germany only agreed to monetary union if there was a ‘no bail out’ condition for the ECB. Germany is also unwilling to support a transfer union. A crisis of the kind that brought down the ERM was inevitable, but within the constraints of the Euro no resolution was possible.
  • The EC absorbed the French conception of politics. Its proposes “political leadership” over markets and the electorate. In a democracy this requires a uniform record of economic success if it is ever to be stable. Given the flawed construction of the Euro this was very unlikely to occur. If the political elite continued its allegiance to monetary union actors outside the mainstream would be inevitably created to take up the anti-Euro flag. This guaranteed political instability.

In 1995 Connolly was widely regarded as an eccentric with a grudge against the EC. Unfortunately many of his predictions have come to pass.

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Who predicted the rise of the populists? Part 4 – Peter Mair

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Democracy / Globalisation / Party System / Peter Mair / Politics / Populism

Peter Mair

Looking at who predicted the victory of the populists before 2016 helps us sift through the deluge of ex post facto rationalisations.

Fourth in this series is the Irish political scientist Peter Mair. Like Richard Rorty, Peter Mair’s politics were the Left but his critique now appears to anticipate views now more common on the Right.

Mair believed European democracy to be in crisis. The rituals of democracy remained, but its substance had been lost. Popular democracy depends upon bottom-up decision-making – the elite responds to the views of the grassroots. But, unnoticed by most, the political system had been put into reverse gear. Top-down processes had superseded the old bottom up ones. The elites had instead come to see their role as communicating the inconvenient realities of the new global order down to the grassroots.

Dani Rodrik’s globalist trilemma outlined in part 3 of this series tells us that globalisation erodes national democracy. Mair meticulously documented the mechanism of its destruction.

Globalisation was not the only process working against democracy. The 1990s politics of the “Third Way” pushed mainstream parties towards the centre. All major parties began to offer the same policies. This made the political system progressively more unstable. When the mainstream consensus failed to deliver, all the mainstream parties lost out. “Populist” parties were the beneficiaries, as the only parties to reject the consensus policy agenda.

The weakening of mainstream parties further damaged national democracy. They lost their connection to their voters. Enthusiasm for global integration had driven mainstream politicians to surrender the policies that had once defined them – the policies that originally attracted their grassroots supporters to them. A growing set of ever more moderate and attractive policy options were handed to the populist opponents of global integration.

Many aspects of Mair’s analysis played out during the UK’s Brexit referendum. The Remain campaign found itself out of touch with voters’ concerns. “Remain” received almost unanimous support from the elite, while failing to generate any enthusiasm outside of it. Remain campaigners responded to growing evidence of failure with ever sterner lectures delivered d’haut en bas. Mainstream UK politicians had fought for decades to keep the EU question out of UK national politics. Fatally, the referendum had let it back in.


Published posthumously in 2011, Peter Mair’s book “Ruling the Void” declared that the era of party democracy in Europe at an end. Political parties were growing ever weaker and popular democracy was dying with them. Mainstream parties chased the same voters with virtually identical messages. Parties were so detached from voters that they were increasingly vulnerable to attack from real grassroots movements.

It wasn’t always this way, parties once ‘gave voice to the people’. From the advent of universal suffrage onwards, mass-membership parties with strong, hierarchical structures dominated. They offered voters a joint identity – unifying them with shared social experiences and collective hopes. The party’s role was to translate its voters’ interests into government action. They recruited political leaders capable of exercising executive power and competed for control of the state via national elections. Parties were the conduit between people and politicians.

Judged by membership, mainstream parties have been in retreat since WWII. But the rate of decline increased sharply with the arrival of “Third Way” politics in the 1990s. The “Third Way” represented a new and radically different approach to politics. The left gave up on the representation of the industrial working class. It evaded traditional left-right social divisions. Instead it expanded its electoral appeal to the middle classes. The parties of the right responded to this intrusion onto their home turf by also moving towards to the centre. This was the era of “political cross-dressing”. All mainstream parties began to offer essentially the same programme. In the short term it appeared that it had dissolved old social tensions. But in the long term newly created divisions became apparent. Slowly but surely, the mainstream’s pervasive centrism set the “people” against the elites, and the populists against the establishment.

With all parties crowding the centre, elections ceased to be about policy. There was a choice between competing teams of leaders, but there was less and less choice in policy terms. Political competition was an “opposition of form rather than content”. It was intense and hard-fought, but it resembled a football match or a horse race – sharp, exciting and pleasing to spectators, but ultimately lacking in any substance.
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The Dictatorship of the User

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Uncategorised

Government supplied technology in its traditional form

There is a quiet revolution going on in the business world. Like so many others, it was started by US technology startups. Unlike most, this one may have deep implications for the delivery of public services and the future of our democracy. The visionary persona, whether in business or in politics, is under attack. These seers, standing outside their times, are imagined to see into the future. They take their visionary insights and make them real through force of personality. As the close cousin of the hero entrepreneur and ‘wealth creator’ it is perhaps surprising that the attacks this figure comes from within the entrepreneurial community itself. In short, experience has shown them that visionaries usually fail and that humility is a more useful characteristic for leaders whether in business or politics.

If Columbus is the acme of the visionary leader – someone so convinced of their destination that they raise the funds, the hardware and the team to risk their lives getting them there. Blank’s leader is more like the pilot of a raft passing down rapids. The founder fights to keeps the boat afloat just long enough for it to go where the current (or customer) takes it.

The assault on the visionary originated with the serial entrepreneur Steve Blank. He had noticed a pattern with start-up business plans. Bold plans for an ambitious new product would be announced. Funds would be raised against a business plan. A long term operational plan would developed and set in train. At some point the first working version appeared in front of users. As this point doubts begin to arise about the product. Users gave mixed feedback and requested changes. These doubts fell on deaf ears. No true visionary allows themselves to be knocked off course by a little thing like user feedback. It didn’t really matter anyway. Funds had been raised to build a particular product and the founders of the start-up would be held to that commitment. Eventually the visionary product hit the market to a bemused reception by its less than visionary customers. The startup then folded in a blaze of recrimination. Blank witnessed the same phenomenon over and over again – a rigid plan rolled on under their own momentum until they were crushed by their encounters with their customers.
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