Excerpts from “Mark Blyth: How Austerity Brought Us Donald Trump”

Recently, Jacobin Magazine’s podcast The Dig posted an episode consisting of a conversation with Mark Blyth, a professor of political economy at Brown University and the author of Austerity: The History of a Dangerous Idea. I found Blyth’s thoughts — delivered at a live-taping before an audience in Providence, Rhode Island — to present an incredibly interesting and challenging view of economic and political history over the 20th Century and a sharp diagnosis of how we arrived at our current political moment. I really deeply encourage everyone to listen to the whole episode (here’s another link) and, if you’re so inclined, to contribute to The Dig’s Patreon. For those who might not be able to listen in or want a taste of the conversation before they listen (as well as just for my own reference), I have transcribed a number of excerpts from Blyth’s thoughts. The excerpts have been lightly edited for clarity, and to elide a few digressions that Blyth goes on in the middle of some of his points. The excerpts are (with timestamps in parentheses):

(3:17–6:44) —Blyth on how the disconnect between the political class and struggling Americans enabled the rise of Trump.

(9:28–17:14) — Blyth’s “macro-story” of how and why the broad prosperity of the post-war “Golden Age” was replaced by the neoliberal “creditor’s paradise”

(25:23–27:39) — Blyth on the appeal of a “bullshit artist” like Trump

(29:57–35:49) — Blyth on why the nationalist/racist right has had an advantage in capturing populist anger over the modern economic condition

(44:02–46:59) — Blyth on why politicians kept up with austerity even after the crisis

(47:10–52:32) — Blyth’s history to the European financial crisis, and how it wound up discrediting the European left.

(1:00:38–1:05:30) — Blyth on the causes of German hyperinflation prior to World War 2

(1:05:59–1:11:40) — Blyth on Germany’s non-crisis austerity, and how the left fails in making the argument for accepting refugees

(1:12:33–1:16:07) — Blyth on why promises to bring high-paying manufacturing jobs back to wealthy nations are lies

(1:24:35–1:28:54) — Responding to a question from the audience, Blyth on the role racism played in electing Trump


We started to have completely different lifestyles, even within a city the size of Providence. We would consume different foods. We would value different kinds of relating to the products that we consume.

We live in these micro-worlds, which are incredibly income-skewed.


There’s a kind of political class. And this is where I’m actually very sympathetic to what the people who put Trump in power say, because they’re right about this. There’s a political and economic elite that only talks to each other. They live in certain neighborhoods, they travel to certain cities, they talk about certain things, they consume certain goods. One of the most interesting things that happened on the email hacks of the Democratic Party was when they got Podesta’s email and somebody — I can’t remember who it was, it might have been Tom Frank — did a search by place name. You know what the most common place name was? Martha. For Martha’s Vineyard. Followed by the Hamptons. Followed by New York. Followed by San Francisco. You’ll be waiting a long time ’til you get to Cleveland or Baltimore.

So this is this very, very enclosed, self-referential group of people who somehow think they are somehow representing both the politics of the left and the people who would benefit from those politics. And then we get to the absurdity of the election, where you’ve got the main candidate for our side coming out and saying “Everything is fine, we’ve got full employment!” Somewhat brushing over the fact that 94% of the jobs created since 2008 have been agency, contract, part-time and usually without benefits. They celebrate the fact, they’re like “wages are growing again!” — you’ve got two quarters to 60% of the population whose wages have been stagnant for 25 years! I mean, take your head out of your ass and look around!

Or in other words: get out of Whole Foods. Go to another supermarket. And you’ll find that your claims that “everything is fine” rings hollow.

Now go with the Republican side on this one. Yes, they’re the grave-diggers, they’re the ones who have been doing all the bad stuff…really? Who modernized derivatives? Who deregulated finance? Who signed NAFTA? Who made promises to the unions in this country and then completely broke them and never attempted to do anything to repair the damage? That wouldn’t be our side.

I expect the Republicans to be Republicans. I do not expect our side to be aiders and abettors.

Guess what happened. Everybody in those five states — the “Blue Wall,” who were so safe that we didn’t even need to go visit them or even talk to them or listen to their concerns — finally found a champion. A tribune. Someone who at least said the words that said to themselves but that we were unable to say. That’s why it happened.


Here’s sort of the macro-story that I think makes sense. So, back in the 1940s through the 1970s — the so-called “Golden Age,” right? And why was it the Golden Age? Because growth was 3%, the top end of the income distribution came down, the bottom end went up and everybody moved up together. The national income here doubled, in France it tripled, in Italy it tripled, and it was the growth of the middle classes. It was the growth of your parents who got everything for free, who are now voting for right-wing nasties so they can get tax cuts.

(I hate Boomers. I really do. It’s an issue with me now, right? But we’ll put that to one side just now).

In this process you have a bit of an economic problem. Which is: once you have decided that the one project you need to continue is full employment — because if you don’t, you go back to the 1930s and fascism and et cetera — when you basically overcook labor markets, you don’t just move up the median wage, you drive up the reservation wage at the bottom. And the only way businesses can keep up with this is to constantly push up prices.

So, guess what? By the time you get to the 1970s — as a guy named Michał Kalecki had predicted in 1943 — wages go up, prices go up, wages go up, prices go up, wages go up, prices go up.

Now the thing about inflation is it is a tax on profits. So if your expected rate of return on an investment is 5% and suddenly inflation is 7%, you might as well bomb your house. It’s gone. On the other hand, if you’re a debtor, right (Boomers again, folks!, right?) if you had a big-ass mortgage in the 1970s and you took it out in a 30-year fixed and it was 5 or 6 percent, and inflation went to 12%? Brilliant! You’re basically laughing all the way to the bank because the debt was being eaten, right?

So, it was a debtor’s paradise. It was labor’s paradise in the sense that wages were always increasing and business had to do the adjustment. Inequality was low. Variable corporate profits were low. Wages had never been higher in real terms. Parliaments were the type of thing that really mattered. Central banks, no one knew who the hell ran the central bank in 1972! It was Arthur Burns, but nobody knows who that was, right? And basically this was the world.

Now, basically, capital — this is the neoliberal term — says this is bullshit. The right to manage has collapsed, number one. Property rights are meaningless in this environment. Returns to assets are completely variable on inflation, which is basically caused by governments constantly accommodating the wage demands. So what we need to do is bust this. So they did.

So you start the Reagan and Thatcher revolutions. You take square aim at labor. You want to destroy labor’s possibility of resistance.

Now why? Because in the Golden Age, when you have to deal with labor — because you’ve got limits on what capital can do, it can’t run around the world doing whatever it wants — you kind of have to bargain with the people are making the stuff. The only way you can increase your profitability, even without inflation, is by constantly being productive. So you have high investment rates. You have high taxes, high investment, most of the taxes are paid by the people in the middle given the income distribution, and that’s re-circulated in high consumption and it keeps the whole model going. And it was a lovely model, but it blew up because of inflation.

So what do the powers-that-be do? They decide that basically price stability is the thing. Without price stability, there’s nothing. Inflation is the worst of all possible things. And people voted for this despite the fact that half their mortgage had just been eaten away by inflation, which obviously was a boon. And then you have the Reagan and Thatcher revolution.

Now you understand that for thirty years you had independent central banks, the WTO; you break labor’s ability to resist. Because productivity continues to do this, but wages do this. Basically for everybody except the top 20%, this is what happens. That’s this era of capital. That continues for 30 years.

So you end up with this complete reversal. Since the 1970s, we’ve dumped 13 trillion euros, dollars, pounds and yen into the global money supply. There’s no inflation anywhere. They say that interest rates are going to go up. Bullshit. No they’re not. They can’t! Because the Fed can do what it wants in what’s called the short end of the curve — it can do money market operations to basically influence credit over the short term — but in the long term it’s influenced by basically the demand and supply for credit globally. And what do we have? We have a world where everyone has gotten old. What do old people do? They consume less and they save more. And if they’ve been part of that neoliberal revolution, and they’ve been saying “well, I don’t agree with Reagan, but I love my tax cut. Where’s my 401(k)? Jesus, what is the level of the stock market?”

They’re over-saving. And so is Asia. And so are the Germans. So you have too many savings and too few investment opportunities. So the real rate of interest — what they call in central bank speak “R-star” — has collapsed. So you have no inflation, you’ve got interest rates on the floor, this is why this becomes a huge pain.

How many of you are in debt? How many of you are in more way more debt than you’d like to be? Right, and you’re the intelligentsia, forgive me, who are here tonight. Now think of everybody in the supermarkets that I go to that aren’t Whole Foods. The ones who’s wages are getting constantly squeezed, whose hours are becoming zero-hour contracts, the ones who are really living on the edge. Think about the fact that if they take on one credit card worth of debt, or they have one medical bill it can send them completely over the edge. You have no way of raising their wages. And if your wages don’t rise, and your debts are there and your debts — particularly the student debts — are guaranteed by God himself that you can never default on them — you’re a debt peon.

So we have a world in which rather than the debtor’s paradise we had in the 70s, we have a creditor’s paradise now.

Now let’s think about populism. What is populism? Populism is when people wake up in that environment one day and say, “I’m working harder. I’m getting squeezed more. I’m constantly being told we need to be more flexible. My parents went to university for 50 bucks at Berkeley and got the greatest minds in the world coming from World War Two refugees. And then they got 1968, they got to take a year off, check themselves out, do S-courses and generally be idiots. They now own 75% of all the financial assets in the world, and we’ve got nothing! What the hell just happened? And why do I need to pay for everything from ever-diminishing wages?”

Now, if your political classes in the mainstream can’t actually even articulate that that’s a problem. That that’s something you need to acknowledge to people, to actually say “yeah I kinda know that your life sucks,” because all you do is live in this bubble — this reified bubble of people who go to Whole Foods and talk to each other about whether something is organic or not — then you’re not going to get it are you? You’re not going to see it. You’re not going to go even — go to north Providence! Right? Get out of the east side! Go and look at places that have like mobile signs that your network would never carry. Places where you go and see people actually going to pawn shops every week and cashing in what little valuables they have to make ends meet. Where you’re paying 10% on check-cashing agencies and you go to payday lenders.

The majority of Americans earn less than $22 an hour. And that’s the average! Now think about the skew at the top, because you’ve got people that earn thousands of dollars an hour, so that means that average is actually being dragged up. Most people are actually worse off than you can imagine.

Now if your mainstream political parties cannot talk about that. Can’t acknowledge it. They come out and say “It’s great! We have full employment! It’s fabulous! We’re defending Obama’s legacy!” And you wonder why people who aren’t shopping at Whole Foods are like, “what the fuck am I missing?” That’s why the populists are winning. Here. Britain. France. Everywhere.


Let’s appreciate how this stuff happens. Because if you recognize how complex, fractured, and sort of weird the whole thing is, it makes what’s happening now and who got into power not so weird. Because it’s that moment, it’s that moment of uncertainty where people who have in a sense have been crying into a deaf ear for so long that the minute anyone comes along and says “Oh yeah, you guys got totally screwed. You used to have assets in the middle of the country, and basically people on the coasts came in and kind of sold them off and then reintermediated that through the banks that they just kind of like boosted, and then that turned into a bunch of housing bubbles, and then when that got bust, they got bailed out and you got screwed again. You got nothing. You got a diet of like austerity, but never mind, they got bailed out. And now they own everything and they’re telling you, every time you open up the media and the papers and whatever, that all your jobs are going to be replaced by robots. How do you feel?” I mean, seriously.

The class background I come from is very simple, it’s called: the Army, prison, or drugs. Right? That’s pretty much the options, I’m not exaggerating. Now, if I grew up where I grew up and stayed where I stayed, and a Trump-figure came along, yeah, I could see myself going for it. It’s not stupidity. Because everybody in my life experience who has come to my state — as we’ve developed a meth epidemic, a healthcare crisis, our budgets have collapsed, our schools are shit, we can’t fill the potholes in our roads — and every government comes in and cuts more and more. And everybody comes in every four years — both Republican and Democrat — and goes, “Vote for me! Jobs! Vote for me, it’ll be great!” So you do this the first time you’re like, “eh, alright,” and the second time, “eh,” the third time you’re like “you’re just a bunch of liars! You’re total liars!” After six iterations, someone comes in and you go “They’re a bullshit artist, I know they’re a bullshit artist.”

But what’s the upside with a liar? Nothing. What’s the upside with a bullshit artist? Hope. Or at the very least schadenfreude. Because you know what, you guys will share my downside for a change. That’s very powerful.


Back in 1944 there’s a guy called Karl Polanyi (who I ripped off shamelessly in my first book; he did The Great Transformation, I did Great Transformations…) In Chapter 21 of that book, he says it all: Liberal internationalism leads to national socialism.

This is something Bannon gets, by the way, he totally gets this. The minute you try and turn the whole world into a balance sheet and everything in it a commodity, it turns out that labor — labor is not a bag of porcini mushrooms. It actually gives a shit about its price. And if its constantly going down, and it can constantly see other porcini mushrooms that aren’t going down, it gets a little bit annoyed. And land and capital, and sort of all the things that we kind of take as the primitives of the world, when they’re all commodified, when Boston becomes a place that’s too expensive to live in (which is mental if you think about it on any level, they should be giving that place away…) … So basically when you turn everything into one giant market, and everything is a commodity, and you’re actually in competition with people on the other side of the planet for the work that you do, then what do you crave? You crave a kind of localism, you crave a connectivity. You want to be part of a community. And the one thing the right has locked up. Way more than the left ever has because we’re all internationalists, we’re all cosmopolitans. But we’ve got that weird kind of cosmopolitanism where cosmopolitanism starts with the notion of equality, and the notion of equivalence, and a notion of, basically, friendship. But whereas what the right has is, “Yes, we’re the same. We’re the same, but you’re not. And that’s fine, you can have your not-land, but it’s not our land.”

Now, democracy operates in those spaces which are national spaces. So those two things together — uncertainty reduction, plus the fact that the default container for politics is the nation — privileges, I think, a right-wing reaction. And its also because for the past twenty-five years, the mainstream left has been so useless at messaging, it’s not even clear where you would even sign up for the alternative. I mean, please tell me: who is the French left, what’s their address, where can I meet them, what their policies might be? I mean, it’s truly pathetic.

You know the guy who looks like Inspector Clouseau, who is actually the President of France? Pop quiz: So, Bush’s — Bush the younger, Bush the fetus, the one who used to be in the government — his lowest-ever popularity rating was 29%. Which basically meant, one in three people still thought Iraq was a good job, right? And you wonder where the madness comes from…Clouseau’s approval rating: 4%. You have to try hard to get to 4%. I mean Donald says all the things Donald does, and he’s still gets to like 40%, which is truly remarkable. So when you’ve done such a crap job messaging and actually standing for things that people might get behind, you know, there’s no surprise.

Now, let’s bring Bernie into the conversation. What did he do? He basically — in our language, given our concerns, given our values — he articulated everything that they do. But he put it in such a way that we went, “shit, yeah, that’s right, that’s obvious we need to do something about that.” And what happened? The elites of our party cut his legs off. That’s it, stone-cold truth. We know this.


On a micro-level if you’re not that smart — and I mean this in the sense that politicians really are not that smart. They may be well-meaning or whatever, but you know, think about it: one minute you’re the MP for Martha-Ted-Ville, your party gets elected to government, and suddenly you’re the Cabinet member who’s responsible for a portfolio of let’s say education. What has actually prepared you for this? Right? Nothing, right? It’s complete nonsense, right?

So most finance ministers have no idea what they’re talking about. Literally, it’s written down, they read it out, and then they go have lunch. Right? That’s how the shit works.

So why does it get so bad? Partly because of that. Partly because everybody believes the simple analogy, and the simple analogy is this: Well, we’ve got a crisis; why do we have a crisis? “We’ve got a crisis because we spent too much.” Well why have we spent too much, I wasn’t aware we were spending too much. Well we have, I mean if you think about it, people have been telling us for years that government spends too much. Oh yeah, that’s true. And if you look at it right, we’ve got all this debt. How much debt have we got? Well think about America. America has like, and this is pre-crisis figures, America has 40 net, 60 gross percent of GDP. Well what’s that in dollar terms? Well, in a 15 trillion dollar economy, that’s about nine trillion dollars, ten trillion dollars.

We have ten trillion dollars in debt?! That’s mental! That’s crazy! Yeah, I know it’s nuts; well actually now because all the bailouts and the whole thing, we’ve now got 100 percent. So there’s seventeen trillion dollars in debt. That’s bonkers! I mean, if you were a family, you have to tighten your belt, you’ve spent too much you have to reel it in, this is how you do it.

Now a couple things we should always be aware of. Number one: States are not families. States with nuclear weapons are not families. States that can bring immigrants in, before they get weird about it, and then tax them over the next ten generations while the economy is growing are not families. You don’t get to issue your own money. You can try, but it’s not going to go well. States are not families.

But to explain all that, you need to actually take that extra step and explain it. Whereas if you just say, “Well, if my family gets into trouble, what we need to do is tighten our belts. So we all need to tighten our belts.”

Well yeah, but you’re not wearing the same trousers. When they tighten their belt, they die, and when you tighten your belt, your gigantic belly has a little pinch. Because that’s inequality. So who’s exactly doing the tightening? Well, it’s the people who are going to suffer when government services are cut, not the ones who rely wholly on private sector alternatives already.

Oh and of course, we should always cut, we shouldn’t raise taxes because that would be bad, right? So you can see exactly how this thing plays through. So, who votes again? Oh that’s right, it’s the old and it’s also the old and the rich. So the following is true: it is absolutely true that not all old people are rich. But it is absolutely true that all rich people are old. And they all vote. So what are your incentives as a politician?


Here’s the short version of what happened in Europe. The Germans used to say this, “This is a crisis of Anglo-Saxon capitalism, our banks are much more prudential, and we don’t do this shit.” Really? The largest unbacked derivatives desk in the world, the most levered institution in the world is Deutsche Bank. Which is why it’s still shit. Commerzbank is not much better. If you take Commerzbank and Deutsche Bank together, it’s 120 percent of GDP, their asset footprint. Those assets are nothing more than credit claims on everything from derivatives to car loans, and that’s it, that’s the whole thing. And if it goes south, you blow up the German economy.

The top 3 French banks, just before the crisis: 232 percent of GDP. The top 4 British banks in the same period: 458 percent of GDP. The top 3 Icelandic banks: 1,000 percent of GDP.

Remember that thing with the United States having debt-to-GDP of 100%?

So let’s do a little calculation here. If you have a mortgage — let’s say the average house price around this neck of the woods is about, keep it simple, $250,000. Let’s say you earn $50,000 a year. That means your debt-to-GDP ratio is, have a guess. Five times the United States. Because if the United States is a $17 trillion economy and there’s $17 trillion debt, that’s 100. If you have $50,000 and you have $250,000 outstanding, you’re five times as levered as the United States.

Deutsche Bank, on an average Tuesday during the crisis, was running 66-to-1 leverage. Which meant a turn against its assets of 3% rendered it technically insolvent. So how did it survive? It lied.

Anybody here from Providence College? Ruth Ben-Artzi, her brother was a mathematician who blew the whistle on Deutsche Bank, and was hung out to dry for five years. Finally got $7 million in a whistleblower settlement because he said that they had lied about the state of their derivatives book. They were actually bankrupt in the crisis. Now this is the type of thing you have to go through if you really want to explain to people what the fuck is going on.

So the Greeks wake up one day, change government, decide to tell the truth that their budget deficit is twice as big as it is. They’re filled with old people, they don’t make very much, and the euro is expensive so its hard to be a tourist in Greece; you go to Turkey instead.

So the world’s depressed, the bank are freaked out, they go, “Shit, I need to get rid of my Greek stuff,” because obviously they’re bankrupt, they can’t pay this. Now, if I get rid of my Greek stuff and I’m running 50-to-1 operational leverage — a 2% turn against my assets wipes me out — I can’t book that loss. I need to sell something first to cover that loss in anticipation of the loss I’m going to sell. So I look around and go, who looks Greek? Portugal. So I’m going to have to bump Portugal, so I start dumping Portugese assets.

Now you’re all part of the same trading network, you’re all other traders and bankers, and you see yields on Portugese starting to go up, and you’re like “oh shit, I need to get rid of that stuff,” and you start to dump it. But you don’t want to make a loss on Greece and Portugal, so you need to sell something that’s still got value. Ireland! So you start to dump Ireland. And then suddenly, you’re like who owns Greece, Portugal and Ireland? Spain. Remember the Picts?

The problem with Spain: Spain’s big. If everybody dumps Spain all at once, and Spain goes to zero, the assets of the European banking system evaporate in an instant.

So, given that nobody has their own printing press anymore because of the Euro — great idea, that one — you can’t inflate your way out of trouble. You can’t swap your bonds for cash you can print. You can’t actually devalue because you don’t have your own exchange rate, and you can’t default because you’ll blow up the world. So the only thing you can do is basically: tighten the belt.

Now you don’t want to do it. You know its going to be counterproductive. You know that it’s going to not just hurt, it’s going to eat away huge parts of your GDP, you’re going to end up with more debt rather than less. But if the price of saving the European banking system is basically 3–4% of Eurozone GDP, in the form of Portugal and primarily Greece? From the point-of-view of the European elites, that’s a price worth paying.

Except it was meant to rebound, it was meant to be short-term pain. It wasn’t meant to take a generation worth of people — who are now unemployed at a rate under the age of 35 of 40% in some countries — deprive them of skills, earning, investment, and everything that has gone on, and basically turn their lives into a bit of a shitshow. And then they see people flying to Brussels and dining out, and having that sort of Whole Foods life again, and everything’s fine and they’re told that Europe’s on the mend. And they obviously know Europe is not on the mend.

In Greece, they tried the left-wing alternative, they went for Syriza. And Syriza said “Enough! We’re not going to do it! No chance! That’s it! You guys! Not going to do it!” What did they do? They did it. Because they don’t have a printing press, they can’t default, and they can’t inflate.

So what did that do to the credibility of the left?

Welcome to Europe.


The first real historical story of the inflation wasn’t written until 1970. And prior to that it was all folk songs and family stories about “oh, during the Great Inflation, your Great Aunt Batina buried hamsters in the garden and practiced black magic” or whatever you did, right?

And it was all just anecdata, there’s nothing there. And then the story grew up in the 1970s — a period when you had inflation in the global economy — about how this was the worst thing ever, and look at what happened. And that totally justified the Germans basically squeezing at a time when everyone else was boosting — “we’ve been here before!” — and riding out what was then a relatively mild recession and saying “see, I told you that was the thing to do.”

Now the funny thing is, if you actually go back into it, the whole thing back in 1923 was a deliberate government policy. What actually happened was the Germans woke up every morning after the Weimar Treaty was signed after World War One, when they lost — they didn’t really lose, what happened was the Americans showed up and they went “Ah, God, do we have to keep doing this? It’s just pointless at this point” and they basically gave up. And when they gave up, the expected reasonable terms, and the French said non!

So the French basically wrote a treaty where 40 cents of every mark that was going to be produced for the next 20 years was going straight back to Paris. That’s nice if you’re Jean-Claude, isn’t? I don’t need to work very hard, 40 cents of every day’s going to be paid for by Fritz over the border! That’s fantastic! How do you think Fritz feels about this? Not too good.

So the German economy is quite dynamic. They’ve got a lot of capital flowing in from America after the war, you’ve got the Roaring Twenties. Have you ever seen the film Cabaret? Captures a little bit of that. And everything’s going well basically, but it’s kind of not; it’s short-term credit and things aren’t really solved from the Weimar political conflict. And the government basically decides, “Right, let’s screw the French.” Because if I’m getting up every day and spending 40 cents of every single mark that I’m making and handing it over to these guys, to hell with that!

So they allow their exchange rate to just plummet through the floor. And when they do that, the cost of imports and the cost of borrowing and capital and etc and all that, it goes through the roof. And it generates a huge inflation.

Now the whole thing is, “This wiped out the middle class’ savings.” No. World War One wiped out the middle class’ savings, there were none already. That’s why after the war they were so pissed off. So all this did was basically take a hammer to what was already a broken system.

But it had an incredible payoff. In doing that, the French basically couldn’t get anything out of the economy. The entire system ground to a halt. So the French invaded part of Germany and occupied land — way to go, made you look really good — and the Germans went “what the fuck is this?”

At that point, the Americans showed up — and why did the Americans show up? Because we’d been lending the French money, and the Germans money, lending everybody money, and we wanted our money back.

So there was a guy named Dawes. Dawes came along –worked for Morgan, of course — and said, right, you guys all go to your corners. Here’s what we’re going to do. The French are going to take 20 percent less. So you’re over there.

So here’s what we’re going to do. We’re going to do a seniority swap in the debt hierarchy. Whenever you have debt in financial markets, there’s a thing called the hierarchy of seniority ladder. You heard this in the financial crisis; bonds were junior, mezzanine, senior, right? Basically it’s about who gets paid back first.

What they did was, they swapped commercial credits and war credits. So the French got paid first, and then the Americans said, “no, no, no, we get paid first. Commercial credits get paid first.” Suddenly there’s seniority to commercial credit.

What was, before World War One, the growth economy in the world? The Germans. What was the one that had caught up with the Brits in 40 years? The Germans. What was the one that, if the Americans hadn’t actually joined in, probably would have won World War One? The Germans.

So, we’re looking for returns, we’ve got tons of capital, we just start pouring it into Germany. Welcome to the Roaring Twenties.

Now you get to the end of this period. We’ve got the Wall Street boom going on at the same time, and the Federal Reserve says, belatedly as usual, “Maybe we should jack up interest rates, because all the stuff going on in the stock market, it’s bonkers, it doesn’t make any sense. We need to stop people borrowing on margin and spending all the money and so on, it could go bad.” So they pushed up interest rates to 7%.

The real rate of return on German investments was about 5%. So what happens? Remember seniority of commercial credits? All that money sucks out of Germany, flies back into America. Where do you think it goes? Straight into the stock market. Welcome to the Wall Street crash.

And then in 1929, the Americans restore seniority to the war credits. So the French — now that the German economy has blown up not once but twice — actually says, “Now you pay me back.”

There’s a guy called Hitler who said, “Enough.” Strangely resonant at that time.


The austerity link into Germany is a weird one, because their austerity is self-enforced. It’s baked into the cake, it’s the whole thing of controlling labor costs.

So in the decade prior to the crisis, German industrial wages — probably the most efficient workers in the world, who work with the biggest endowments of capital in the world, it’s incredibly productive — their wages haven’t risen for a decade either. So although there are a lot of transfers in the system — particularly around families and children, it’s a big welfare state — for industrial workers it was kind of the same shitty story everywhere else. Their wages weren’t going up

Why? Because for them globalization happens 60 km outside of Berlin. It was called Eastern Europe. So you don’t like building that Golf in Wolfsburg? We’ll move it to Prague; we’ll make a 20% cost savings. So what do you think German unions do? They never ask for a pay rise.

So it wasn’t crisis austerity, it was baked into the cake. And if you look at the returns to German capital? Boom! Look at returns to German workers? Meh. So that fragility is built into it.

So if you remember that this is what’s going on everywhere — that skew to capital. You’ve got politicians who are either blind to this — willfully blind to this — or don’t think it’s a problem that all the returns are going one way. And the backlash to that is the moment we’re in now.

So, you know, “Merkel deserves credit”? I mean, I don’t know exactly what that means. Because the AFD isn’t coming out of nowhere. The AFD is coming out of a massive amount of cultural, racist resentment, et cetera, absolutely, but also by the fact that you’ve finally got a platform that’s outside the mainstream parties. Because they’re all in a bloody coalition and all agree with each other almost permanently. You’ve got one party that says what everybody’s thinking, which is “this isn’t right!”

Now, take the refugee one. If you want to handle this right, why didn’t Merkel go on TV and say the following: Germany is incredibly old. They’re almost as old as the Italians. The average German is about 44 years old. So they’re not exactly fecund, right?

The replacement rate in the population is 1.4. The only way you’re going to pay the pensions everyone promised each other — which is basically a replacement rate of 80% of your final wage — is if you have a lot of new people coming in.

Now, you’ve got a chance to take in the Syrians. The Syrians invented merchant capitalism. Steve Jobs’ father was a bloody Syrian. Right? The Lebanese and the Syrians are the people who invented all of the good shit to do with markets. If you’re going to take anybody in a crisis, you should be bidding for them. That’s what you need! And they will have kids! And those kids will pay the taxes so that you will still get your pension!

Did Merkel say any of that? Does anyone say any of that? Does anyone on the left even make that argument? And it’s the only argument worth making.

You’re going to immolate, you’re going to destroy your own country through your own conservatism.

Because an economy is nothing more than the number of workers, the amount of capital they have, and the number of hours they work. That’s it.

All the bullshit, all the math, all the models, strip it all away; that’s the end of it. Why is the United States, with 300 million people, 25% of world GDP? Because we’re ridiculously, retardedly productive.

Are we more productive than the French? No, but they trade it off against time because they’re smarter than we are. They don’t work insane hours. They get to pick up their kids at a decent hour and walk them home from school with a baguette and its fabulous.

All of the rich countries make different tradeoffs around this. But basically that’s the story. But we don’t have enough kids. And if you’re going to make promises to the current generation, you need to have something coming in the back to fulfill that promise. And nobody makes that argument.

So you might find it weird that I’m sort of banging on Boomers and generational stuff and all the rest of it, but really I’ve come to the conclusion that so much of this is at the heart of this. That there is this inter-generational shift.

I’ll finish this with a little bit of micro-data about my own family. I have a father-in-law who is retired, and he’s German, very German. He has a savings account which is separate from his retirement account. He saves from his retirement.

What the fuck is that for? I mean, have you cracked eternal life? Is it sort of like, you have the Fountain of Youth and compound interest, and the two of them are going to take care of themselves.

You’re talking about a culture that does nothing but save. But when you have that much capital available, the interest rate has to go through the floor. So, it’s super cheap to borrow.

The bank has to make the rate of return more than the existing interest rate, which is on the floor. So where do you think those banks found that money? What did they buy to get that rate of return? Greek debt.

Now why can’t you explain that to your population? You know why the Greeks got all that debt? Because you lent it to them. And they bought BMWs with it, that’s how this went down.

But nobody wants to tell the truth.

Now bring that all that back to where we were before, what did we start with? A bunch of elites who for their own reasons only talk to each other and don’t want to tell the truth. Maybe they don’t know what happens, maybe they’re generally puzzled. Maybe they just can’t get it through their heads. But if Merkel is the last line of defense, and the shining example? God help us all.


Bernie? Yeah, he’s also a fucking liar. You can’t bring manufacturing back. It’s horrible, but you can’t. Let’s think about why.

Number one: See those great manufacturing jobs? They killed your dad with asbestos. Right? They were pretty shit. They weren’t great. Standing on a line in a toxic environment, and then having an average life expectancy of industrial workers below 60 years old? Yeah, it was better than the 1930s, but it wasn’t that great.

Number two: Germany. They’re shedding labor in the manufacturing sector. Because at the end of the day, there’s a thing that’s been going on since time immemorial, it’s called automation. And that’s what really does it. It’s not just the robots that are going to replace you, this has been going on forever.

In the industrial sector, capital substitutes for labor really efficiently. And everybody does it. Because if you don’t, the other firm will, and they will get your order and you will go out of business. So long as you have a competitive dynamic among firms, you simply have to respond to this.

So unless you’re going to get to a world in which you really shut off the economy from the rest of the world — kind of India-style in the 50s and 60s — and you have three versions of the car, and you’re going to make those cars and they are the only cars you can buy, and that guarantees that those workers have jobs…I don’t see how you do this.

So, Germany is short 300,000 industrial engineers. That’s a lot. It’s a huge part of their economy. They’ve got an 8% surplus in terms of exports, they’re the largest quality-adjusted exporter in the world, even bigger than China. And yet there are only 180 million people. So it’s an incredible manufacturing sector. But the manufacturing sector as a whole over the past 20 years has been shedding labor. Because the high-end engineers you’re short of are hard to find. But the people who did the welding in the Volkswagen factory have all been replaced by robots.

There’s an inevitability to this. Anybody ever seen The Matrix? My favorite line from The Matrix: “That, Mr. Anderson, is the sound of inevitability.” That’s what happens.

Now, also, as country gets richer, what happens? It demands more services. So even if your wages are low on average, the country is getting richer, which is very much what we’ve experienced. So yes, Providence has lots of massage parlors (not those ones) where you can get a message that will cost a hundred bucks if you’ve got that money to spend.

Now here’s the thing about services: it’s very hard to add robots to services.

So that aging population? The fastest growing job in the United States? Elder-care nurse. Second one is home help. Third one is short-order cook. Short-order cook, you can robotize that. But how many of you want, or even contemplate your parents being helped in and out of bed and looked after by a machine? Never going to happen.

So, you’re not bringing back manufacturing. The solution is to close off the economy and basically produce shit that nobody wants. And you’re also going to blow up all the good bits of globalization, which are everything from the fact that we all carry iPhones to the fact that 1.2 billion people globally are no longer dirt-poor. It’s a bit of mixed bag. That complex stuff kind of sucks.


He lost the popular vote, it’s absolutely true. Because basically LA, New York, and a bit of Miami, and a bit of Houston vote massively Democrat and actually show up. But the rest of the country does not…you can walk from Miami to Ohio without ever touching a blue state. So the popular vote is meaningless, as far as I’m concerned.

You’ve got to win. That’s the most important thing. And when your heartland falls down, and half of those counties voted for Obama not once but twice, and turned to this guy you’ve got a problem. Because they didn’t suddenly wake up and say “fuck me, I hate black people!” Because they voted for one twice.

It’s so easy for the center-left to turn around and say, “oh, it’s all racism.” Yes, of course that rhetoric was used. Um, the Republicans had a thing called “the Southern Strategy.” They’ve been doing this since 1970. It’s nothing new.

My friend Jonathan Kirshner did a piece in the Los Angeles Review of Books which said it beautifully: “It is absolutely true, and in fact it’s important to recognize, that not everyone who voted for Trump was a racist. It is absolutely true that every racist who bothered to vote, voted for Trump.”

So the only question is, was there suddenly an couple million violent racists? Or was it the fact that you had 8chan, 4chan, Breitbart, and a whole bunch of technological infrastructures, amplifying something that had already been there to a new level? Capitalizing upon that. Channeling that as yet another feed into this incipient coalition and movement which was just there for the picking, and that we couldn’t see, that we couldn’t find, we couldn’t trip over it if it was right in front of us.

Finally, let’s just assume that everyone’s just a racist all of a sudden. What’s your public policy solution? Are we going to put them into a naughty chair? Shame them? Say you’re a bad person? Because I don’t think they give a shit.

So, if it’s not economic, we really have a problem, because we can do something about that. And I don’t actually think that this country that I joined 26 years ago, that I’ve spent my life in, that hopefully I will spend the rest of my life in, actually suddenly became violently racist and that explains everything.

For one simple reason: it provides an exculpatory narrative to the Democrats. That everything they’ve done has been fine. Banking deregulation, all of it. All the bullshit they’ve done on trade. All that stuff. We don’t have to examine that! Because we won the popular vote, we didn’t do well in turnout, and they’re a bunch of racists.

If that’s your diagnosis, short the Democrats. They’re going nowhere.

So there are people all over the country who are racist; there’s loads of French people who are racist! There are loads of Brits who are racist! The question is does that actually tip elections? And does that really drive the things that we’re thinking about?

And to me it just makes much more sense that if I’m looking at stagnant wages for 25 years, meanwhile I see through my television, through my experience, through my mediatized culture, the bullshit celebrity culture that we live in that there is a tiny number of people not just ripping everyone off, but when they do it they get bailed out by the government that I’m voting for? That’s going to cause a problem more than the fact that Billy Bob, or whoever it is, is a bit of a racist.

Racism is a continuous variable, it’s not a discrete variable. It’s not on or off and suddenly you have more. Racism comes up in lots of different ways. And essentially, when it comes down to it, everybody is a little bit racist in the following sense: everyone likes difference until it’s a threat to you.

So here’s my example of this. You live in Lewisham in London, and you go to the local public schools as you call them here, there’s a very strong possibility that English is not the first language in your class. So you take your kid to school, and it’s in a multi-lingual background.

Now me as a bourgeois two-percenter who sends a kid to the French school, oh I’m totally down with that. But it’s not French, it’s Urdu. So you’re not comfortable with that. And you have no private-sector alternative.

And the only people who say that that’s a problem are the National Front. Does that make you a racist?

Many thanks to Jacobin, The Dig, and Mark Blyth for producing such an excellent discussion!