January 12, 2015
Leg warmers, Hall & Oates, mullets, Spandau Ballet, big hair, Bonnie Tyler, trickle down economics, overalls, shoulder pads and Charlie – my God! – Charlie Haughey. The 1980s are everywhere at the moment.
More than anything, this was the week of the Ford Granada, Austin Princess, Timotei shampoo and the Boss. Charlie Haughey dominated the Irish airwaves again. Last Sunday, we were catapulted backwards to a 1980s Ireland, which is both instantly recognisable and profoundly different.
However, it was not just the Haughey-fest in Ireland that made me feel like wearing matching denim. In Europe the ghost of the 1980s is at large. Russia in the east is a threat again, while in the west, urban terrorists are on the loose. As separatist movements are emerging in many countries, the ECB has hinted heavily that it will print money and buy up all sorts of assets in an effort to get the moribund economy going again.
Let’s take the last point first – because this is an economics column, after all – and then see the link running through all these recent developments.
The new economic policy supported by all eurozone governments is an extreme example of trickle-down economics, the type of economics favoured by 1980s right-wingers like Margaret Thatcher and Ronald Reagan. Yet, today, this right-wing policy – making rich people richer – is being demanded by left-wing governments in France and Italy.
Think about it. If the ECB buys assets, who gains? Rich people, obviously, because they are the ones who own the assets. Poor people don’t own assets.
Therefore, if the EU’s key macroeconomic policy is to buy assets via the ECB’s quantitative easing (QE) effort, its key policy is designed to make rich people richer. The hope is that these rich people will spend and this spending will trickle down to poor people! Making rich people richer isn’t the unintended consequence of policy – it is the policy!
But there aren’t enough rich people to buy all the stuff, so it won’t trickle down. The rich don’t make the economy go round; the average person does, spending the average amount, on average things, all the time.
By voting for the fiscal compact three years ago, Europe has tied all governments’ hands behind their backs because it limits state expenditure. We know that state spending on health and education is the single best way of making societies more equal.
The EU has replaced these laudable initiatives with QE. Therefore, the EU has embarked on a policy of making countries more unequal.
As wages – the income of poor people – stagnate, a policy of driving up asset prices makes the ordinary guy feel more left out. And consider the consequences of implementing such a policy at a time when your economy is, unlike in the 1980s, exposed to competition from China.
European industry has taken the brunt of the competitive pain associated with the emergence of China. It is the average blue-collar worker who has suffered because he is in the direct line of fire. His job is on the line.
In contrast, the protected professional middle classes have benefited from China, because they get cheaper smartphones without their jobs or wages being threatened by workers in Shenzhen.
Now consider what happens when all this undermining of the average local worker happens at the same time as mass immigration.
Immigration affects different parts of society differently. For wealthy people, immigration means cheaper workers. Immigration is a win-win option for the rich. In contrast, for poorer people, immigration means direct competition for jobs, for houses, for welfare, for schools, for hospitals, for transport and ultimately for a stake in their society.
So it is not surprising that, all over Europe, we hear representatives of big business argue for more immigration. It makes sense for them to do so: they get cheaper workers.
When the local white population try to argue that they are getting squeezed by immigrants or their kids can’t get work because the immigrants are getting the jobs because immigrants are prepared to work longer hours, they are slapped down and labelled racist.
But what if the local white people are just trying to protect their own interest? Isn’t that what everyone does?
Sometimes, the people who attack the poorer white indigenous population for being racists are protected behind some university department or other (paid for by the taxes of the working poor) and have access to radio producers or editorial pages in the media.
My point is that opinion-makers are not threatened by immigrants, so they would prefer the United Colours of Benetton approach to society rather than the more gritty and realistic notion that if some people gain, sometimes, other people lose out.
Now consider when economic growth stops – as it has done in Europe. The cake stops getting bigger and starts to get smaller. The local population, which was worried about its place when there were opportunities, suddenly finds itself in an existential struggle. But who exactly are poorer people struggling with? Not the guys at the top, but the guys with them closer to the bottom.
The protected political class (wedded to 1980s’ thinking) don’t see that on the ground, immigration, competition and inequality have made people nervous and rudderless.
The average guy goes looking for someone who speaks his language and echoes his concerns. And who turns up? Someone like Marine Le Pen of the National Front in France arrives who answers his questions about immigration, ethnicity and the fact that his son is kicking around at home in a hoodie watching daytime telly. She seems to have the answers, not because she knows the score but because, at least, she listens.
Then some Muslim extremist, invoking Allah, murders people in a magazine that the average guy has never heard of, but this confirms to him that, even though Mustapha in the football club is the nicest guy you’d ever meet, there’s something’s not quite right with these Muslims. There are too many of them.
Maybe, they think, now is the time to vote for the new party. Having voted the same way all his life, the average guy considers giving the National Front a chance. The other shower aren’t listening anyway.
No, it’s not the 1980s, despite the cosmetic similarity and the lure of nostalgia. In Europe, we are somewhere very different, profoundly less stable and much more volatile.