Striking workers may not want it, but for the first time in decades, the (im)balance of power between labor and capital seems to be turning in their favor.
A new “macro supercycle” is approaching, writes optimistic head of global macro at TS Lombard, Dario Perkins, and there is nothing anyone can do to stop it.
Neoliberalism gave us free trade, globalized supply chains, deregulation, smaller government, independent central banks, and the death of trade unionism (especially in the US and UK). The 2020s are shaping up for a partial turnaround. De-globalization, which began even before Covid-19, is set to accelerate.
The pandemic has underscored the vulnerabilities inherent in long and complex supply chains, while the conflict in Ukraine has shattered political alliances into regional trading blocs more clearly. Since globalization has reduced inflation, lowered interest rates and destroyed workers’ power, it is reasonable to think that deglobalization will have the opposite effects.
Perkins is far from the first to end the era of near-zero interest rates and relative price stability. For example, JPMorgan analysts called it “regime change” in June when they predicted that US inflation could average between 3% and 4% over the next decade, and Credit Suisse’s Zoltan Pozsar said. writes about the inflationary implications of a “commodities crisis” that could weaken the dollar’s stranglehold on the global financial system.
Perkins’ political economy is particularly spicy, however, and emphasizes the role central banks (variously described as “the ultimate guardians of neoliberalism” and “enemies of the people”) have played in suppressing workers’ power. in their quest for stable prices.
Economic historian Edward Chancellor made a similar point the other day. He argues that a decade of “monetary extremism” has given us little more than stock market bubbles, endemic debt, anemic productivity growth and “rising and volatile” inflation that is “much more painful for workers only when it was deemed too low”. .
But back to Perkins, who insists that “institutions affect macroeconomic outcomes, [which] in turn alter the balance of power”, while affirming that the central banks will be powerless to prevent the advent of a period of “de-globalization and secular recovery”.
In other words, Powell, Lagarde and Bailey may still be captains of the good ship, neoliberalism, but storm clouds are gathering and there is talk of mutiny below decks:
[Central banks] will try to prevent this secular transition, even at the cost of a recession. But a mild recession will not eliminate current labor shortages or tip the balance of power toward capital. Central banks cannot block structural changes, such as de-globalization, climate change and the “war economy”…
Existing labor shortages + de-globalization + structurally looser fiscal policies (especially on defense spending and climate change) + aging population = structural labor shortage, which will begin to displace the balance of power against capital for the first time since the early 1980s.
Perkins’ view of population aging draws on the work of economists Charles Goodhart and Manoj Pradhan, whose 2020 book The great demographic shift highlights how China’s shrinking working-age population and broader retreat from globalization may well lead to a “return of inflation, higher nominal interest rates, reduced inequality and increased productivity “.
But a few of Perkins’ other assumptions need to be unpacked. The first – that globalization is indeed in retreat – is hotly contested, as is the idea that workers will be able to secure wage increases above inflation, even taking into account labor shortages. planned by Perkins. Unemployment is already at historic lows, after all, but in many major economies the dreaded wage-price spiral has so far failed to materialize.
Finally, central banks may or may not be able to resist an epochal shift, but many of the political leaders to whom they ostensibly report don’t seem too keen on implementing economically rational or distributive policies anytime soon. It also looks like workers/consumers rather than businesses will end up bearing the brunt of the energy fueled inflation we see all around us.
Painful as it is to admit, we prefer JPMorgan’s assessment: that the so-called “Great Moderation” that just vanished will turn into what the bank’s analysts dub the “Great Instability,” a regime defined by “higher inflation, larger deficits, greater macro volatility and faster economic cycles”.
What all this means for the labor pie is not mentioned. We think we can guess though.