The Dominos and the Fall
America, the UK, and now Germany. Trump, Brexit, the AfD. An extremist wave sweeping the globe like an epidemic of the plague. I’d like to be able to tell you: it’ll pass, and everything will be fine. Instead, I think that you should (really) understand it.
So let’s discuss it.
Is it just a coincidence that the US, UK, and Germany (not to mention Turkey, Hungary, and so on) have all swung hard right in the last year or so? That suddenly one day, the citizens of three of the world’s richest countries woke up and decided collectively on extremism, for no underlying, connected, shared reason? Does that sound plausible? I think that the opposite is true: to any reasonable person, there is now a sharp trend very clearly visible. And as with any trend, there must be a cause.
What is that cause? It’s very simple. Painfully simple, in fact. These three countries have followed policies of extreme wage repression. Incomes deliberately weren’t allowed to rise. Let’s take them one by one, starting with the most recent example of an extremist swing, Germany:
“On 20 January 2000, trade unions and employers associations explicitly declared that productivity increases should not be used for increases in real wages but for agreements that increase employment.”
Germany decided to repress wages very deliberately, in order to raise employment, while lowering the price of exports. The UK repressed wages through “innovations” like zero-hours contracts, which raised employment, but in an empty way: people had “jobs”, but little actual work — let alone meaningful, good, beneficial work. And American wage repression is the most tragic of all: it dates to exactly 1971, the precise end of segregation, telling us that America never crafted a working social contract, and always depended on exploiting a powerless pool of low-cost labor, first black, now black and white alike.
Now of course each country has it’s own cultural issues, America has a long and terrible history of racism, for example. And yet culture can’t explain such similar outcomes in three very different nations, because they don’t share one. So culture alone isn’t the proximate cause, the trigger, the spark, that we are looking for — though it might be the powder keg, poverty detonating latent racism, xenophobia, hate, everyday rage normalizing its expression. And that tells us something vital: just fighting what Americans call culture wars, what the rest of the world calls norms and values, alone isn’t going to reverse extremism. It is going to take a genuinely better social contract. I’ll come back to that.
The proximate cause of extremist right swings is stagnation: stuck wages, flatlined lives, which mean human possibility going nowhere. As a simple example, Brexit was explicitly premised on promising people’s whose incomes had stayed stuck an extra $500 million a week in “savings” no longer paid to the EU. Trump vowed to “put Americans first”. And so on. The message of extremists resonates profoundly with people who have been at the losing end of repressive wage policies.
Why do countries repress wages? Because they believe that is the best way to maximize GDP. It sounds paradoxical, but it’s not. In Germany’s case, the belief was that more jobs, versus higher incomes, would lift growth higher. In the UK’s case, the belief was that lower incomes didn’t matter much at all, as long as the financial system was saved. And in the US’s case, the belief has long been that wealth will trickle down, therefore, lower incomes are acceptable, maybe even desirable, as long as the highest incomes are rising faster. Each of these nations has slightly different reasons for repressing wages — but the goal remained the same: maximizing GDP.
And that was the great mistake. Yesterday’s social contracts are beginning to fail, in profound and systematic ways. Societies are beginning to fracture along tribal lines. This is of course the first step on the road to war. Better social contracts mean eudaimonic ones. Ones that don’t just maximize GDP, but expand well-being. Let me make that concrete.
If, about twenty years ago, each of these countries had said: our social contract is going to target higher and higher levels of well-being, not just GDP, then what might have been the result? Well, there would have been fewer losers in society, and therefore less extremism. Those with flat or falling incomes might have received strong investments in public goods, social support, direct cash injections, job preferences, and so on — because all those things boost well-being. These three countries might have said that because repressing wages hurts people’s well-being, it isn’t a plausible model for the prosperity of societies to begin with.
And when you think about it way, it’s perverse, isn’t it? How could hurting people’s well-being ever achieve the goal of prosperity at all? By definition, such a means defeats its own purpose. That is the great problem with modern economics: it is so far up its own behind (pardon me) that it can’t see the daylight anymore. It has substituted perversity and folly for sense and reason.
I’m sorry. But I have to end this essay on a discordant note. These three countries aren’t the only ones where incomes are stagnating. In fact, incomes are stagnating everywhere. That predicts more, worse, harder extremism. Those nationalisms will inevitably begin to collide with one another. So this isn’t the end of the trend — it’s just the beginning. And that of course is precisely the road to atrocity.
In this way, the global economy is deeply broken. I don’t want you to be scared of it, but I do think it’s vital that you understand it. We are going to have to build a better global economy, around the fundament of expanding the well-being of each and every life. Not because I say so, or believe so. But because if we don’t, the dominoes of extremism will keep falling right into the abyss.