Bretton Woods and the Golden Age Of Capitalism

Last night I went to a presentation for William Mitchell’s and Thomas Fazi’s new book “Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World” . I am long familiar with Bill’s work, have read draft notes of his book published at his blog, Billy Blog. Thomas Fazi is new to me but I heard enough to buy his own book The Battle for Europe: How an Elite Hijacked a Continent – and How we Can Take it Back

The presentation was by Peter Ramsey, Professor of Law at the LSE and a blogger at the group blog The Current Moment:

This is neither a review of either book nor the presentation itself, which I did thoroughly enjoy. I think Peter did a stellar job summing the issues up. He was concerned that he was not an academic economist but I view that as a positive, since if this debate were to remain amongst only academic economists and interested laymen, who have put considerable work into to economics – such as myself – then the debate is lost. We need a far broader base rather than to be dismissed as dealing in complicated and obscure economic debates.

Anyway I really want to just make two comments here, one about Billy blog and the other about a question I asked in the Q&A.

I chatted with Bill in the pub afterwards and was asking about the effort into writing his blog.

Now, if you are not familiar with it, it is prodigious with high quality output, published 6 days a week, 4 of which are very well referenced arguments promoting and applying Bill’s take on the macroeconomics framework he co-founded, called Modern monetary Theory or MMT. Indeed I have not recently seen or followed any other blog in any area with the consistent quality of output from one person as his blog.

That does not mean I agree with everything he says, but I have certainly learnt far more from it, than I have found disagreement with. My learning method is to seek flaws and find challenges to whatever argument is presented, and see how the argument deals with them. I will get back to this just stated point in my following comment below, which was what I perceived as a challenge to his one of his arguments.

What really astounded me is that Bill claims that he tries to limit the time spent on each post to an hour, with a maximum of 90 minutes! If you start reading his blog you will realise why I am astounded. Many of his posts take around 15 or 20 minutes to read and digest! (Heck, maybe I am a bit slow, feel free to claim better). Clearly he does not included the actual research and he must have a very good index system, plus, I guess he knows how to touch type.

This, at least currently, is serving as an inspiration to me. I probably spend far more than 90 minutes a day on this field, including reading Bill’s blog, as well as many others, doing some other research, reading books and writing/building models (not ready to publish just yet), all slotted in amongst my many other commitments. I actually need to save some time on this and focus on other more pressing needs, as passionate as I am on this topic of evidence based macroeconomics. So I have resolved to when I have a clear idea write it up as soon as possible, limited to 90 minutes maximum and publish it, worts and all. I will note (for my own edification how long it took to write – 26 minutes so far, so the target is another 30 minutes, then the rest is references, proof reading etc.).

As a long-term programmer, I am a fast typist, but could far better, both for writing and programming, if I were a copy typist. In my typical maverick way, when I last learnt to type, I chose Dvorak rather than Qwerty. Have to think about that but need to properly learn one or the other soon. I will devote 30 minutes a day to that. I will report back as to whether that helps me writes these posts, if nothing else.

As for frequency of posts, I make no promises on that. I need to build up more content get some ideas in my head on paper to really see where they fit. I am thinking of getting together some like-minded economic thinkers into a group blog. But that is for the future.

Now onto the second comment.

An issue that has bothered me in the writings of MMT theorists is the relation of the “Golden Age of Capitalism” – the Post War to  the beginning of the 1970s period which operated under the Bretton Woods fixed exchange rate regime. Compare that to the post Bretton Woods floating exchange rate regime (from the 1970s till now) period, where MMT argues that states with sovereign non-convertible floating currencies have the largest available policy space. That has been the case in the post Bretton Woods era, (not immediately in some cases, and not at all, more or less with others, due to various attempts at currency boards, and in the Eurozone, the evolution to the Euro). So why was the Golden Age of Capitalism, with full employment, decent GDP growth, growth shared between wages and profits, the era that operated under a fixed exchange rate regime?

Now I was totally confident that Bill would come up with a decent reply, my point really being it should be more clearly stated and answered by Bill and others when writing books on the topics of Europe and states. I think sometimes these authors suffers from not seeing the wood for the trees and those new to these topics need to be shown the trees first.

I also added two elements. The first was that this growth was after the devastation and destruction of people and land. This, surely, made it easier to create full employment, given the tragic loss of other working age able-bodied people in the war, and, given, the need for huge infrastructure repairs, across Europe, for both the victors and losers, for significant growth. Given this, could we hope to go back to such days, since we far from having a deficit of workers and skills have the opposite (mostly) and we have a far better level of infrastructure (yes London roads are still terrible compared to most of Europe) than starting after the war.

Bill answered the first part of this question and Thomas answered the second.

Now I probably made my question clearer here than when I asked from the floor at the presentation, as both Bill and Thomas seemed to not fully address my question until I probed further. Was this due to my inadequacy in how I asked, or was this due to their frames missing the point, possibly thinking I was an anti-MMTer looking to find flaws in their views? I don’t know. I do often find people making interesting points but not answering my question even online and the question is there in black and white. I wont dwell on their initial responses, which whilst somewhat missing the point, I quite agree with anyway.

I will flesh out Bill’s reply with one addition of my own (clearly implied in Bill’s answer), that do not alter the substance of his reply. This addition is the Mundell-Flemming Trilemma which states “The policy trilemma, also known as the impossible or inconsistent trinity, says a country must choose between free capital mobility, exchange-rate management and monetary autonomy (the three corners of the triangle in the diagram). Only two of the three are possible. A country that wants to fix the value of its currency and have an interest-rate policy that is free from outside influence (side C of the triangle) cannot allow capital to flow freely across its borders. If the exchange rate is fixed but the country is open to cross-border capital flows, it cannot have an independent monetary policy (side A). And if a country chooses free capital mobility and wants monetary autonomy, it has to allow its currency to float (side B).” I chose this Economist quote, quite deliberately as it partly misrepresents the argument, which is not just about domestic monetary policy (interest rate management) but also domestic fiscal policy. That will be a topic for a future post.

Whilst states under a fixed exchange rate system need to earn the convertible base (in the case US dollars or the gold equivalent under Bretton Woods), they also had capital controls which prevented, mostly, capital flight and domestic currency destabilization and speculation. This did not prevent, in some cases, internal devaluation (austerity) or, failing that, currency revaluation (devaluation) but the rest of the time the social democratic policy of a mixed economy focused on full employment, with significant unemployment support (which was actually short-term in those days due to the full employment policies enable when possible), coupled with worker protection, and other welfare states provisions.

Now in the post Bretton Woods era there have been significant changes. Capital controls have been dismantled and the Monetarist/Supply-side Trickle-Down/Neoliberal ideology (there is no real empirical evidence for any of it), has also dismantled key worker and social protections and seek to demolish state regulation of the market and, with it, the whole mixed economy model that supported full employment.

We now live in a world of free capital and floating currencies and it looks like domestic monetary and fiscal policy suffers, with the increase of the capital share of growth and the decrease of worker share of growth. That is prior to the many new issues ensuing after the Great Recession of 2007/8.

Still it is not entirely clear to me how much of that Golden Age was specifically due to starting from both a lower infrastructure point and a surfeit of skills and workers, rather than this difference in the Policy Trilemma coupled with the Neoliberal versus “Keynesian” version of state governance. (I put Keynesian in scare quotes but this is also a topic for a future post).

So, with all this in mind, is it still feasible to get to the level and shares of worker in GDP and full employment?

Thomas answers yes but things will be different. The needs of today’s societies have changed to that period and require new and alternative skills and applications. The Job Guarantee and other state guided policies (such as Peoples QE – but drop the misleading label – Bill argues) can provide a range of jobs fit for social purpose that are invisible to the profit motivated private sector.

I want what Thomas (and Bill) says to be correct. One of the key thrusts of this blog is to investigate the Job Guarantee and other fiscal policy tools further.