Dismantling the Dictatorship of the Highly Educated

In the affluent nations of northwestern Europe, people with university educations have taken over politics. Cabinet ministers with fancy degrees are nothing new, but more and more parliamentary seats have been going to college graduates. In some countries, the highly educated’s share of seats is completely unprecedented. In others, it hasn’t been this high since the 1800s, when politics was still an explicitly elite activity.

This data is from an important and surprisingly engaging new book, “Diploma Democracy: The Rise of Political Meritocracy,” by Dutch political scientists Mark Bovens of the University of Utrecht and Anchrit Wille of the University of Leiden. 1 Their focus is on a few countries in Europe, but similar trends are of course apparent in the US as well.

Part of the reason for this is entirely benign: Lots more people have been going to college, so of course more college-educated people are going into politics. Also, modern governments deal with really complex policy choices. It can’t be bad to have skilled, educated people making those choices, can it?

Well, it depends on which choices. Bovens and Wille argue that while domination of executive and administrative posts by the highly educated might be warranted, it’s highly problematic for them to dominate representative politics as well.

Consider the makeup of the lower house of the Dutch parliament. Of the 150 members elected in 2012, Bovens and Wille report that 145 (97 percent) attended college or graduate school and 137 (91 percent) had at least the equivalent of a bachelor’s degree. This in a country where only 39 percent of people aged 25 through 54 have a college degree 2 — and where the most important political leader of the 20th century was a guy with a high school diploma who had taken some stenography courses on the side. The shares did fall to 90 percent and 86 percent after this year’s election, but Bovens and Wille figure it’s too early and the sample size too small to declare a trend reversal just yet.

The problem with this mismatch between representatives and population is that, as Bovens and Wille write:

Educational qualifications are important indications of social status and they are very closely correlated with lifestyle, cultural attitudes, and political preferences. Like class or religion, educational background is an important source of political and social divides.

There are indications, in fact, that educational background is becoming the most important source of political and social divides. It has certainly become one of the best predictors of how people vote in some countries, the ranks of which the US appears to have belatedly joined in the 2016 presidential election. Some of this can possibly be chalked up to the highly educated holding more sophisticated, nuanced views than their less-well-informed fellow citizens. But a lot of it has got to be just that they increasingly live in different communities, send their children to different schools, work in different kinds of jobs, and spend their free time differently than those without college degrees.

That educational qualifications would replace older class distinctions is something that British sociologist and Labour Party activist Michael Young predicted in 1958. As I wrote in a column last year, the term that Young coined to describe this state of affairs — “meritocracy” — has gone on to be used with mostly positive connotations. But the world he described in his satiric novel “The Rise of the Meritocracy” was a dystopia, with the divide between those deemed to possess merit and the rest of the population (the “morons,” as Young’s narrator puts it) much starker and less forgiving than traditional social class divisions.

Bovens and Wille are well aware of this negative potential of meritocracy, and reference Young repeatedly in their book. They also cite Plato’s “Republic,” which seems to endorse putting highly educated philosopher-kings in charge of government. But they note that Plato had some interesting ideas for how to keep these “guardians,” as he called them, from hardening into a permanent ruling class: They couldn’t own property, and they weren’t allowed to know their children.

Short of such draconian measures, what can be done to address this rise of diploma democracy? One of the biggest stumbling blocks is that the less-educated are so much less likely to participate in or even pay attention to politics. One of the only forms of political activity in which there aren’t clear differences by education level, Bovens and Wille report, is watching political news on television.

Efforts to increase public involvement in the political process have for the most part only widened these gaps, as the highly educated are by far the most likely to take part in public meetings, contact their political representatives, participate in social media discussions, and the like.

This difficulty leaves Bovens and Wille with a grab-bag of disparate proposals for fixing things. Their suggestions include more civic education in secondary schools, more referendums, limits on lobbying, compulsory voting, direct elections for some governing officials (as opposed to electing representatives who choose the governing officials, as is customary in most of Europe), and even choosing some representatives by lottery.

When I asked them by email how the US stacks up versus the European countries they studied in “coping” with education-based political cleavages, they responded:

That of course depends on what you mean by coping. One way to look at it is through the lens of issue congruence between politicians and voters: Lesser-educated white Americans, for once, have a president who addresses issues they find important (whether he will fix them may of course be something else entirely). Recent research in the Netherlands has shown that issue congruence between the cabinet and the lesser educated electorate rose when LPF and PVV [populist, immigration-skeptic parties] took part in the coalition — resulting in higher levels of political trust among the lesser-educated.

Another way to look at it would be through the lens of political stability. Majoritarian systems, such as in the US or in the UK, suffer from instability and inefficiency because of abrupt shifts. Proportional systems with coalitions, such as in the Netherlands, Denmark and Germany, are a bit more boring, but in the long run they are better able to cope with newly emerging political cleavages and to absorb them more smoothly.

A key theme that runs through the book is that the political views of the less-educated deserve to be heard — even if some of them are offensive to, say, political science professors at leading universities. In the US, much elite discussion of the populist, nationalist, and sometimes outright racist attitudes unleashed by Donald Trump’s candidacy and presidency remains focused on how to make those attitudes go away. Bovens and Wille, whose own country’s populist revolt is now more than 15 years old, seem more interested in finding ways to accommodate such views without endangering liberal democracy. Perhaps we could learn something from that.


The US Is the Sick Man of the Developed World

Years Of Economic Decline Leave One Third Of Atlantic City's Resident In Poverty

What do the economists at the International Monetary Fund see when they look at the US? An economy in the midst of a long expansion (“its third longest expansion since 1850”), with “persistently strong” job growth, “subdued” inflation and something close to “full employment.” But also this:

For some time now there has been a general sense that household incomes are stagnating for a large share of the population, job opportunities are deteriorating, prospects for upward mobility are waning, and economic gains are increasingly accruing to those that are already wealthy. This sense is generally borne out by economic data and when comparing the US with other advanced economies.

The IMF then goes on to compare the US with 23 other advanced economies in the Organization for Economic Cooperation and Development.

The overall point is that the US has been losing ground relative to other OECD members in most measures of living standards. 1 And in the areas where the US hasn’t lost ground (poverty rates, high school graduation rates), it was at or near the bottom of the heap to begin with. The clear message is that the US — the richest nation on Earth, as is frequently proclaimed, although it’s actually not the richest per capita — is increasingly becoming the developed world’s poor relation as far as the actual living standards of most of its population go.

This analysis is contained in the staff report of the IMF’s annual “consultation” with the US, which was published last week. Another IMF report released last week, an update to its World Economic Outlook that downgraded short-term growth forecasts for the US and UK, got a lot more attention. But the consultation report is more interesting.

It is interesting not because the IMF economists have turned up shocking new information or have especially amazing ideas for improving the relative position of the US It’s just that as outsiders looking in (yes, outsiders who work in Washington, but still …), they at least offer a different perspective than one hears every day on Capitol Hill. For example:

Income polarization is suppressing consumption (see Alichi et al., 2016), weighing on labor supply and reducing the ability of households to adapt to shocks. High levels of poverty are creating disparities in the education system, hampering human capital formation and eating into future productivity.

What is to be done? Well, the IMF has suggestions, although they seem a little too sweeping to be helpful. Here are some comments on tax reform:

The US personal and business tax system needs to be simpler and less distortionary, with lower tax rates and fewer exemptions. The redesign of the tax system should aim to raise labor force participation, mitigate income polarization and support low- and middle-income households. Given the unfavorable debt dynamics and the resources needed to strengthen the supply side, tax reform ought to be designed to be revenue enhancing over the medium term.

On health care:

Health care policies should protect those gains in coverage that have been achieved since the financial crisis (particularly for those at the lower end of the income distribution). Doing so will have positive implications for well-being, productivity, and labor force participation. This, in turn, will strengthen growth and job creation, reduce economic insecurity associated with the lack of health coverage, and have positive effects for the medium-term fiscal position.

On one of the top priorities of the current US administration, deregulation:

In international comparisons, the US already scores favorably on regulatory barriers to entrepreneurship, trade, and investment. In addition, US-specific research on the evidence of negative economic implications of regulations is scant. Nonetheless, a simplification and streamlining of federal regulations as well as an effort to harmonize rules across states would likely boost efficiency and could stimulate job creation, productivity, and growth.

To sum up:

Reforms should include building a more efficient tax system; establishing a more effective regulatory system; raising infrastructure spending; improving education and developing skills; strengthening healthcare coverage while containing costs; offering family-friendly benefits; maintaining a free, fair, and mutually beneficial trade and investment regime; and reforming the immigration and welfare systems.

OK, right. We’ll take care of all that next week.

What’s interesting to me, though, is that most of these suggestions seem to come with the subtext that other affluent countries have devised approaches in these areas that the US would do well to emulate. I got into economic journalism in the mid-to-late 1990s, when the US was outperforming most other rich economies and policy makers in France, Germany, Japan and elsewhere were looking to New York, Washington and Silicon Valley for ideas on how to spur growth and dynamism.

The US still seems to hold a big advantage over the rest of the world (although China has made some inroads) in birthing and nurturing the global corporate titans of the digital age, which has to be worth something. It also, by the IMF’s reckoning, has a relatively healthy financial system. But on all sorts of other matters — taxation, labor markets, health care, education — the US has become more a cautionary tale than a shining example.

One major difference between the US and most of the rest of the developed world is ideological: People and politicians in the US are much more ambivalent about the modern welfare state than their peers in other wealthy nations and have been less willing to raise taxes to finance it. A report from the IMF or an opinion column by the likes of me isn’t going to change a lot of minds on that. Perhaps in part because otherwise their economies would have collapsed under the weight of all that welfare-state generosity, though, other wealthy countries also seem to have figured out better, more cost-effective ways of raising revenue, providing education, helping the jobless, fighting poverty, and keeping citizens healthy than the US has. This country has some catching up to do.


Trump’s Right: Germany’s Trade Surplus is Too Big


Germany’s gigantic trade surpluses are a problem. Almost everybody — including lots of Germans — agrees on that. But when President Donald Trump decries the US trade deficit with Germany, as he did this morning on Twitter, and declares that “This will change,” it does raise an important question: How can it be changed?

Apparently, Germany’s current account surplus (trade plus income flows) has kept growing even as the two nations perhaps most famous for their surpluses — China and Japan — have seen theirs shrink. In 2016, Germany’s current account surplus blew past China’s in absolute terms ($297 billion to $196 billion), even though China’s economy is three times bigger.

Germany’s bilateral trade surplus with the US has grown a lot too over the course of the current economic recovery, although it has shrunk a bit since 2015.

First of all, as an economic journalist, I am required by law 1 to state here that bilateral trade deficits like the one the US runs with Germany are not in and of themselves bad. I run a yawning bilateral trade deficit with my local grocery store, and that’s OK as long as I have enough income from other sources to make up the gap. When countries run chronic overall current account surpluses or deficits, though, there can be problems. As former Federal Reserve chairman Ben Bernanke put it in 2015:

The fact that Germany is selling so much more than it is buying redirects demand from its neighbors (as well as from other countries around the world), reducing output and employment outside Germany at a time at which monetary policy in many countries is reaching its limits.

Big trade imbalances can also lead to unhealthy and unsustainable financial flows, as happened with the US and China in the lead-up to the 2008 financial crisis.

So yes, Germany’s huge trade surpluses are a problem. On that we can (almost) all agree. What’s causing them? The president, who is very big on the word “deal,” offered this diagnosis in March:

Germany has done very well in its trade deals with the US, and I give them credit for it.

Here’s a fun fact: Germany has no trade deals with the US! All its trade relations are managed through the European Union. And yes, the EU ran a goods trade surplus with the US of $146 billion in 2016. Germany accounted for 44 percent of that, Ireland (where US pharmaceutical companies do a lot of their manufacturing) 24 percent, and Italy 19 percent. Then again, other EU countries such as Belgium, the Netherlands and the U.K. all run trade deficits with the US The EU does impose a lot of tariffs and quotas on imports, but so does the US, and these trade barriers are seldom cited as a reason for Germany’s big current account surpluses.Which makes sense, given that so many of them were already in place in the 1990s when Germany ran chronic current account deficits.

So what accounts for Germany’s big shift to surpluses? The two most convincing explanations are (1) the birth of the euro and (2) German frugality.

In the decades after World War II, West German economic policy makers made the strength of the country’s currency a top priority. From 1960 to 1990, the German mark almost quadrupled in value against the US dollar. Since merging the mark with the euro in 1999, though, Germany has had to share its currency with the rest of the euro zone. And since the financial crisis, that currency has been pretty weak — significantly weaker than the German mark would likely be if it were still an independent currency. German Chancellor Angela Merkel said as much in February:

If we still had the deutsche mark, it would be valued differently than the euro is now. But that’s an independent monetary policy over which I as chancellor have zero influence.

That sounds like a cop-out — and it is a cop-out! But it’s also mostly true. Germany’s influence over the trajectory of its currency is now quite limited.

Where German politicians can make a difference is in spending. This is by Marcel Fratzscher, president of the German Institute for Economic Research, aka DIW Berlin:

Germany has one of the lowest public-investment rates in the industrialized world. Its municipalities, which are responsible for half of all public investment, currently have unrealized investment projects worth €136 billion, or 4.5% of GDP; Germany’s school buildings alone need another €35 billion for repairs. Meanwhile, private investment in Germany’s aging capital stock has been weakened by many German companies’ desire to invest abroad.

Germany also has a perennially high household savings rate, is currently running big government budget surpluses, and has generally been wary of efforts to expand Europe’s monetary union into a fiscal one in which more burdens are shared across national lines. So the problem with Germany isn’t so much that it is exporting too much but that it is spending too little. I’m doubtful that President Trump can effect much change on that front. But maybe French President Emmanuel Macron can!

Bloomberg View

Why European Experts are Under Attack?


Across the Western world, the elite and the experts are under attack. This is especially true of economic experts, whose credibility took a deserved beating during and after the global financial crisis.

France is no exception to this tendency. In the first round of the country’s presidential elections in May, 45 percent of the vote went to anti-establishment candidates 1 — just shy of the 46 percent of the popular vote that Donald Trump got in the US.

Yet France is now led by not a populist but by President Emmanuel Macron, a polished, centrist product of elite educational institutions, the civil service and Rothschild & Co. who was the country’s economy minister from August 2014 to August 2016.

Macron’s new En Marche! party is rapidly gaining ground in the polls for next month’s legislative elections, giving him the strong prospect of taking full control of the government over the summer. If that happens, or even if he has to build a coalition with the center-right, Macron will then push for a set of expert-designed economic reforms aimed at getting France out of its long economic funk.

This is, first of all, an object lesson in how different electoral systems can process similar public attitudes into dramatically different political results. It is also going to be a fascinating test of whether those elite experts can actually get something right.

I’m guessing that in France they probably will — in large part because the conditions are so ripe. For the past few years, the country has been a leading candidate for the venerable title of “sick man of Europe.” Economic growth has been excruciatingly slow, unemployment stubbornly high. Yet some key fundamentals are strong: French workers are among the most productive in the world, with output per worker trailing only the U.S. among major economies. And, in sharp contrast to the situation in neighboring Germany, Italy and Spain, France’s working-age population is actually expected to grow over the next few decades.

The basic problem is that France hasn’t been putting enough of its people to work.

The standard economic-expert explanations for this (the European Commission issued a useful roundup earlier this week) are that French labor markets are too rigid, there’s too little competition in the economy, and taxes on business and labor are too high. During his stint as economy minister, Macron pushed for reforms aimed at fixing some of these problems, with limited success. Now he’s president, elected on a platform of reform. Presumably that means he’ll get further this time.

How much further he’ll get is of course the big question — France is notoriously resistant to market-oriented reforms. But while in past decades such efforts could be derided as forays into Anglo-Saxon cowboy capitalism, the models Macron can point to these days tend to be Teutonic or Nordic. The continental European countries to France’s north all have strong labor unions, well-developed welfare states, and usually some kind of job security for workers — and (with the exception of Belgium) they’ve all been doing a much better job of putting people to work in recent years than either France or the U.S. has. The keys seem to be flexibility and a focus on investing in the future instead of trying to preserve the status quo.

Again, it seems a tall order to think France can suddenly become as nimble as Denmark or Sweden. But it probably doesn’t have to. As is apparent in the above chart, France actually had a pretty healthy prime-age employment-to-population ratio at the time of the financial crisis. But the aftermath, and the drawn-out euro crisis, hit France especially hard. Now most signs are that those headwinds are easing and French economic growth is beginning, fitfully, to accelerate. In other words, Macron may turn out to be quite lucky in his timing. Cutting back on job protections would be less of a political minefield if companies are hiring, and growth would make it appear that his reforms are succeeding even before they really start having an effect.

There are two deeper labor market problems that seem harder to fix but could drive growth for years if Macron and his experts can find solutions. One is the large number of immigrants who are disconnected from the French job market. The employment gap between native-born and foreign-born is bigger in France than almost anywhere else in Europe. There’s no reason this has to be the case — in the U.S., immigrants are more likely to be employed than the native-born — but bringing more immigrants into the workforce could require big changes in labor-market regulation, vocational training programs and attitude. 2

The other issue is the huge number of educated, ambitious French people who have sought their fortunes elsewhere during the past two decades. As Philip Delves Broughton put it in the Wall Street Journal earlier this month:

Some time after the opening of the Channel Tunnel in 1994, during the long drear of the Jacques Chirac years, they began to leave. All those graduates of Paris’s famed lycées, Henri IV and Stanislas, and the products of its vaunted grandes écoles looked at what France had to offer and hoofed it, some for New York, a few for Silicon Valley, and a great thundering herd for London.

With Brexit, London is likely to become a tougher place for French nationals to make a living. The U.S. has recently become less welcoming to immigrants as well. Which means this is a moment of opportunity. French authorities are already working hard to persuade financial firms to move operations to Paris — an effort that was assisted greatly by Macron’s election victory. Reversing the brain drain will be tough, but even just slowing it would be a huge victory. A few tax cuts here, a few signs of momentum there, and maybe the tide could start to turn.


Getting Through the Long Post-Crisis Hangover

A picture illustration of crumpled kuna, Dollar and euro banknotes

While the financial crisis raged around them in 2008, economists Carmen N. Reinhart and Kenneth S. Rogoff were hard at work assembling historical tables and charts. In 2009 they published page after page after page of them in the wonky book “This Time Is Different: Eight Centuries of Financial Folly,” which became an unlikely bestseller.

The book’s basic message (other than wow, that’s a lot of tables and charts!) can be summed up as:

1. Financial crises happen, and have been happening for a long time whenever governments, banks, businesses and/or individuals run up too much debt. The 2008 crisis fits the pattern.

2. These financial crises are followed by economic hangovers that are much deeper and longer-lasting than garden-variety recessions.

3. Eventually, things get better.

I pulled my copy of the book off the shelf after Scott Winship, a social scientist now working for the Joint Economic Committee of the US Congress, asked this on Twitter after Friday’s strong jobs report: Who had “Slow steady return to normal after a deep financial-crisis-caused recession” in Econ Pundit Bingo?

Yeah, I think we can give that one to Reinhart and Rogoff.

As you may remember, the two — who are both professors at Harvard University — found themselves in a brand-tainting controversy in 2013 when a group of economists at the University of Massachusetts at Amherst redid the calculations in a 2010 Reinhart-Rogoff paper that linked government debt of above 90 percent of gross domestic product to slower growth, and found that once you corrected for “coding errors, selective exclusion of available data, and unconventional weighting of summary statistics,” the effect disappeared.

But just because that particular Reinhart-Rogoff conclusion didn’t quite hold up shouldn’t disqualify the entire oeuvre. And it hasn’t: The notion that a financial crisis hangover explains most of what we’ve been going through has some influential adherents. Claudio Borio, head of the monetary and economic department at the Bank for International Settlements, the global central bankers’ organization, devoted a whole speech to it in Washington last week. A sample:

The world has been haunted by the inability to restrain financial booms that, once they turn to bust, cause huge and long-lasting economic damage — deep and protracted recessions, weak and drawn-out recoveries, and persistently slower productivity growth. Such outsize financial cycles are best characterized by the joint fluctuations in credit and asset prices, especially property prices, as risk-taking ebbs and flows. And they tend to be much longer than “traditional” business cycles (say, 15-20 years rather than eight-10).

This view can be seen in part as a corrective to the argument made by a few conservative economists — I’m thinking of Stanford’s John Taylor in particular — that the weakness of the post-crisis recovery in the U.S. was due mainly to, in Taylor’s words, “regulatory expansion and policy uncertainty.”

Borio, though, presents his “financial cycle drag” hypothesis as an alternative to the gloomy “secular stagnation” theories advanced by former Treasury Secretary Lawrence H. Summers, among others. To oversimplify wildly: In a world of secular stagnation, we have financial bubbles and busts because the underlying rate of economic growth is so slow. In a world of financial cycle drag, we have slow economic growth because financial volatility is weighing on the economy.

Rogoff himself — who uses the name “debt supercycle” for what Borio is getting at with “financial drag” — described the relationship between the two in a 2015 essay:

All in all, the debt supercycle and secular stagnation view of today’s global economy may be two different views of the same phenomenon, but they are not equal. The debt supercycle model matches up with a couple of hundred years of experience of similar financial crises. The secular stagnation view does not capture the heart attack the global economy experienced; slow-moving demographics do not explain sharp housing price bubbles and collapses.
Ultimately, the debt/financial view seems more more hopeful. As the impact of the financial crisis fades, the prospects for growth improve — presuming we don’t get into another financial crisis. Here’s Borio again:

The financial cycle drag hypothesis does assert that the headwinds from the financial bust, while very persistent, are temporary. Moreover, one may also be skeptical, as I am, of the technological pessimism expressed by some observers. Even so, it is hard to be that optimistic if one considers the “risky trilogy” that is to a significant extent the legacy of the successive financial booms and busts the world has seen: productivity growth that is unusually low, global debt levels that are historically high, and a room for policy maneuver that is remarkably narrow.
So, yay, we’re not fated to be stuck with slow economic growth! But we may get it anyway.

1. Rogoff has been there since 1999; Reinhart, a former Bear Stearns chief economist, came from the Peterson Institute for International Economics in 2012.
2. Borio has been doing research on this topic since at least 2001.


Time to Restart That Old Capitalism Death Watch

The global capitalist system has been having a tough decade. We can probably all agree on that.

Lots of explanations have been offered for why things have been going so poorly: inadequate regulation, excessive regulation, excessive monetary easing, inadequate fiscal stimulus, inequality, “secular stagnation,” you name it.

Wolfgang Streeck has another possibility for you to consider: Maybe capitalism is dying.

Streeck is a German sociologist, the emeritus director of the Max Planck Institute for the Study of Societies in Cologne. He came there in 1995 after teaching for several years at the University of Wisconsin at Madison. Not long after his return to Germany, he also became involved in efforts to shape economic policy, mainly trying to “defend the German regime of worker participation, which was under pressure from Europeanization and globalization.” From an outsider’s perspective, those efforts seemed to have been moderately successful, but they left Streeck increasingly pessimistic.

“I used to be a reformist, I used to be a social democrat,” Streeck said when I visited him at his office on Friday. “I believed that with good policy you can make the capitalist wealth machine subservient to political objectives.”

Nowadays, he thinks the capitalist wealth machine is spinning out of control, and he’s been spelling out this belief in books that, somewhat to his surprise, have garnered significant attention outside Germany. First came “Buying Time: The Delayed Crisis of Democratic Capitalism,” which was published in Germany in 2013, in English in 2014 and is now out in an updated English-language edition. Then there’s “How Will Capitalism End?” — a collection of essays, most originally written in English, that was published last fall.

I haven’t read every word of the two books, but I think I can say with some confidence that there are no shocking revelations in them. “There’s sort of a very simple idea there, which is that everything that has a beginning has an end,” Streeck told me about “How Will Capitalism End?” In a Financial Times review of the book, Martin Wolf described Streeck’s “defeatism before supposedly unmanageable social forces” as “characteristic of a certain sort of intellectual.” Which is true, but this might actually be a useful sort of intellectual to have around from time to time.

“I believe in trends and in long-term tendencies, not in momentary cross-sectional comparisons,” Streeck told me. “I believe in history, not mechanics.” Economists are the mechanics. My favorite passage in “Buying Time,” in fact, is probably Streeck’s description of former U.S. Treasury Secretary Lawrence Summers as “the most influential service mechanic of the stuttering capitalist accumulation machine” — a description that Summers should really consider adding to his Twitter bio and putting on his business cards.

What’s nice about mechanics is that they fix stuff. But economic mechanics have been getting a lot of things wrong lately. That’s because, Streeck said, “the world has changed and causal structures have changed.”

Streeck works instead in a tradition that’s most often identified with Karl Marx but could also be traced to Georg Wilhelm Friedrich Hegel or even Ibn Khaldun, the 14th-century North African historian who wrote that great dynasties carried the seeds of their collapse within them. It doesn’t offer any repair manuals or even clear predictions, but it may help in understanding what’s going on.

Streeck writes that the three main symptoms of a crisis of capitalism are slowing economic growth, rising indebtedness, and increasing inequality in the leading capitalist nations. These trends have been in place since the 1970s; the financial crisis of 2008 merely accelerated them.

Conservative observers have also focused on the first two of those symptoms, arguing that the problem is voters demanding handouts and politicians too willing to accede. Streeck doesn’t buy that, writing in “How Will Capitalism End?”:

That the fiscal crisis was unlikely to have been caused by an excess of redistributive democracy can be seen from the fact that the build-up of government debt coincided with a decline in electoral participation, especially at the lower end of the income scale, and marched in lockstep with shrinking unionization, the disappearance of strikes, welfare-state cutbacks and exploding income inequality.

Streeck points instead to tax cuts for high earners and corporations, as well as increasing “institutional protection of the market economy from political interference,” as key culprits. The market has been given more and more freedom to follow its own internal logic, and that logic has led to an inevitable crisis. It’s only when democratic political forces can keep the market in check that it really delivers the goods as far as growth and prosperity, but in a global economy without a global state, those democratic forces don’t have much power.

At least, that’s my reading of Streeck’s argument. He doesn’t see a global state — or global Bolshevik Revolution — in the offing, and so expects a long, messy period full of Brexits and Donald Trumps. A big question is whether that would really threaten to end capitalism. Streeck himself writes that the modern capitalist system has been through repeated revolutions and transformations over the centuries, and that theories of capitalism have always been theories of crisis:

This holds not just for Marx and Engels but also for writers like Ricardo, Mill, Sombart, Keynes, Hilferding, Polanyi and Schumpeter, all of whom expected one way or other to see the end of capitalism during their lifetime.

They were all disappointed in that expectation. This is no guarantee that Streeck will be too, of course, but it does seem to be a hint that today’s troubles could be something other than harbingers of epochal change. There is another thing Streeck told me that we can probably all agree on, though: “We’re going into a long period where we don’t know what is coming.”


5 Reasons Germany isn’t Suffering in the 21st Century


Don’t get excited about the low unemployment rate, or high stock prices, Nicholas Eberstadt of the American Enterprise Institute writes in his latest gloomy screed, “Our Miserable 21st Century.” Don’t believe the ninnies at the New York Times who said that “Mr. Trump will inherit an economy that is fundamentally solid.” No, Eberstadt writes, “things have been going badly wrong in America since the beginning of the 21st century.”

As the Times’s David Brooks put it in a summing-up of Eberstadt’s piece on Tuesday:

For every one American man aged 25 to 55 looking for work, there are three who have dropped out of the labor force. If Americans were working at the same rates they were when this century started, over 10 million more people would have jobs. As Eberstadt puts it, “The plain fact is that 21st-century America has witnessed a dreadful collapse of work.”

This is all true — even though things have begun looking up since the beginning of 2015 as far as the labor-force participation rate goes. And it’s especially striking when you compare it to what has been going on since the beginning of 2000 in the country that I am currently visiting:

Germany Is Still Working

Civilian employment-to-population ratio, ages 25-54

In 2000, prime-age Americans were slightly more likely to have jobs than prime-age Germans were. Now they’re much less likely to. The gap is biggest among prime-age men: In Germany, 92.5 percent had jobs in 2015; in the U.S., only 84.4 percent did.

Things are, in general, going quite well in Germany right now. The lead story in this morning’s Sueddeutsche Zeitung, one of the country’s leading newspapers, is headlined “The Government is Swimming in Money.” The more-circumspect Frankfurter Allgemeine Zeitung went with “Biggest Surplus Since 1991,” but the story was the same: The federal, state and local governments of Germany took in 23.7 billion more euros ($25.1 billion) in 2016 than they spent.

Why has the 21st century been so much better for Germany than the U.S.? Here are some possibilities:

The 1990s were so much better for the U.S. than for Germany. In the latter half of the decade the booming U.S. economy was the envy of the world. Germany, still recovering from some dubious economic decisions made when West and East were reunited in 1990, was the “sick man of Europe.” What goes up tends to go down, and vice versa. Or something.

Germany undertook a bunch of tough labor-market reforms in the early 2000s. A lot of those reforms just involved making the Germany labor market more like the U.S. labor market (that is, more flexible) — so that can’t explain the difference — but there were also improvements to the country’s retraining and job-placement institutions.

Germany doesn’t convict nearly as many people of crimes, relative to the overall population, as the U.S. does. I actually got this argument from Eberstadt, who wrote last year in his book “Men Without Work”:

A single variable — having a criminal record — is a key missing piece in explaining why work rates and LFPRs have collapsed much more dramatically in America than other affluent Western societies over the past two generations.

The euro. Somebody I talked to in Frankfurt called this the “Navarro argument,” after President Donald Trump’s trade adviser, Peter Navarro. The weakness of other European economies keeps Germany’s currency weaker than it would be if the country still used the deutsche mark. As a result, Germany runs bigger trade surpluses than it would otherwise and German manufacturing jobs are preserved. German experts tend to agree with this analysis, and agree that it’s not healthy for the rest of Europe and the world. They just don’t think Germany can do much about it.

Germany thinks differently about employment than the U.S. does. The lines in the above chart diverged between 2007 and 2010 — the years of the financial crisis and Great Recession. In the U.S., corporations (and state and local governments) fired millions of workers. In Germany, cooperation among employers, labor unions and the government kept job losses to a minimum. There were pay cuts, and furloughs, and shortened working hours. But when demand from overseas began to come back, German companies and workers were ready to meet it. In general, preserving jobs is a much bigger priority for German employers and politicians than it is in the U.S. At times in the past — the 1990s, for example — this focus has seemed misplaced. For the moment, though, it’s looking pretty smart.