New Book: Political Economy of Tomorrow

My new book, Political Economy of Tomorrow has just been
published, and it is available on Amazon. 
 The book is not a sequel to my first book, Making
Sense of the Dollar.
  There
is very little about the foreign exchange market in the new book.
 However,  it is not wholly new cloth either.  There is a journalist-cum-presidential adviser at the turn
of the 20th century, Charles Conant, that I introduce in the first book.
 He plays a modest role in a couple of the chapters, but in the new book,
his views are central to my story.  
What fascinates me most about Conant is that he laid out the basis of the US grand strategy for
the next 80 years. 
Yes, the original America First movement
and the rejection of the League of Nations after WWI, was a setback for the strategy, but it ultimately
prevailed.
The strategy
grew out of Conant’s understanding of modern capitalism. 
 That understanding was rooted in the analysis that
arose from the middle of the 19th century that the market economy’s biggest
challenge grew out of its success not its shortcomings. The success was
in producing more wealth than it knew what to do with or was able to absorb in ideologically acceptable ways.
  The surplus savings that some modern policymakers, like Bernanke, see as
a special outcome of the underdevelopment of Asia and OPEC’s capital markets and demographic conditions, Conant and his generation saw as a central and
generalized feature of modern capitalism.

The main political and economic challenge were
what to do with the surplus. 
 Conant suggested a multi-prong
strategy that included expanding social spending, creating new wants and needs,
infrastructure spending, and exporting
the savings abroad.  Conant was not primarily interested in portfolio
investment but direct investment.
 He thought building infrastructure abroad would boost those countries’
ability to absorb US exports.

Conant
anticipated Keynes by at least a quarter of a century.
  Conant’s views are codified in the
Open Door Notes, penned by John Hay the Secretary of State in the early 1900s,
and get institutionalized on a global scale after WWII.  The IMF, the
World Bank and GATT (and its successor WTO) can be
understood as the globalization of the Open Door.

I draw from the work of another economist that has also been largely forgotten: Harold Vatter. A little more than a third of a century before Lawrence
Summers resurrected the “secular stagnation” hypothesis, Vatter
demonstrated that net new capital investment was declining since after WWI.  Net new investment is new investment adjusted for depreciation.
 It is widely recognized that
capital investment is labor saving, but what Vatter emphasized was that it was
also capital saving. Technological advances were
contained in replacement investment, such as replacing a computer that
runs on a 286 chip with a Pentium, at a lower cost.

I retell the
story of the post-WWII economic and social history through these basic lenses. 
 What I am interested in is the social
relationships that shape the production and absorption of the surplus. There
were two broad attempts.  The first is
associated with Bretton Woods and the second with Reagan-Thatcher.
 I suggest that Reagan-Thatcher turned Conant on his head.  Rather than the
US (and Anglo-American economies) intensifying the surplus production and
surplus savings on a global scale, under what I dub the Reagan-Thatcher cash
register, the US (and the UK) absorbed the
world’s surplus savings and production by running large current account
deficits and capital account surpluses.  In
order to absorb the world’s excess savings, the Reagan-Thatcher cash
register also involved the creation of a financial superstructure.  This is the (financial) plumbing system that
Zoltan Pozsar, formerly at the Fed and
now at a Swiss bank, maps so eloquently.  
On another
level, I suggest that after the breakdown of Bretton Woods and the crisis of
the 1970s, capital went on an offensive and that offensive shaped the Reagan-Thatcher cash register.
  It accomplished three things:   liberated capital from the state (financial deregulation), broke organized
labor (men’s wages had already been decoupled
from productivity and inflation), and shifted the burden of retirement from the
employers to the employees (the move away from defined benefits to defined
contributions).    And in one of the recurring themes of the book,
nothing fails like success. The capital offensive was successful, and it led to the great financial crisis of 2008-2009,
just as a parallel move in the 1920s led to the Great Depression.  
In the second
half of the book, I turn from the forces of production to the social relations
more directly. 
 I focus on three fundamental
relationships:  women and men, employee and employer, and the citizen and
the state.  The focus is on how those relationships change to
accommodate the surplus capital.  I map out how those
relationships are changing, and suggest the significance going forward. Drawing
from others’ work, I tease out the relationship between hierarchy and scarcity
and between networks and the feminization of work and power.  
The framework looks at the growing bifurcation of employees between those
who can be creative, flexible, networked, well compensated and celebrate their
identities and those who are consigned to repetitive tasks, that lack
creativity, no not lead themselves to much flexibility, struggle to make ends
meet and cannot find themselves in their work.
  The disparity of wealth and income
will be chief characteristics of the new cash register that is emerging since
the Reagan-Thatcher cash register collapsed under its own weight, just as the Reagan-Thatcher cash register arose from
the ruins of the Bretton Woods cash register.  
This book is
not part of the genre, like Paul Mason’s “Postcapitalism:  A Guide to
Our Future (2016)” that proclaims the end of capitalism.  
   It does not accept that Uber and Airbnb or other aspects of what has been called
the “sharing economy” is the beginning of socialism or a
post-capitalist society.  To the contrary, there is very little sharing in
the “sharing economy, ” and it
essentially brings productive resources into the market economy (from the
non-market economy). Capitalism refers to a
society in which power emanates from the ownership and control of
productive power.  What is evolving is a new phase of capitalism and most
likely not its last phase.  
At the center lies a contradiction.  It is the contradiction between an
economic system that produces incredible wealth and yet the social organization
and ideology based on the scarcity that characterized most of human history.
 The incredible wealth and capital outgrow
society’s ability to absorb it in an ideologically
acceptable way, like children outgrowing their clothes.  Social
relationships change to cope with the surplus. 

Lastly, woven
through the book is a recognition that the existence of scarcity was understood as a key to the formation of
character.  
It meant
making choices and deferring gratification.  The advent of surplus is not
simply an issue of the political economy,
but also of psychological development. Changes in the outer world change the world within, as child rearing
practices change, and men take on greater roles
in the non-market economy, for example.  

What I have
sketched out here is an overview of the Political Economy of Tomorrow. 
 For regular readers of this blog, many of the themes
will not be new.  Indeed, to the extent that the book is new lies in
synthesizing a broad range of others’ work.  I pick up the earlier
discourse about surplus capital and trace it through our generation.  I
draw connections between things that are often not linked.  My first book
was about the global capital markets in general and the foreign exchange market
in particular.  The (2009) thesis was that the dollar would prove more
formidable than many US friends and enemies suspect.  The thesis has held
up well since the dark days of the Great Financial Crisis.  This book has
a broader vision and is a more of a road map that points to the direction
ahead by offering insight of the path we took.

Disclaimer

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