Farrar, Straus and Giroux

The gurus of neoliberalism urged everybody to follow the Anglo-Saxon model, but in reality the system relied on some key countries choosing not to.

In the wake of the 2008 crisis, the current account imbalance has fallen back – from 3 per cent of global GDP to 1.5 per cent. The IMF’s most recent projection sees no danger of a second spike but the conditions for this are stark: that China does not return to its old rate of growth, nor America to its old rate of borrowing and spending. As economists Florence Pisani and Anton Brender put it: ‘The only force that could finally rein in the continuous deepening of the global imbalances was the collapse of globalised finance.

information economy may not be compatible with a market economy

All that would be needed to blow the whole thing apart is for one or more country to ‘head for the exit’, using protectionism, currency manipulation or debt default.

Economists have tended to ignore non-market interactions: they are, by definition, non-economic – as insignificant as a smile passed between two customers in the Starbucks queue. As to the network effect, they assumed its benefits would be quantified into lower prices and distributed between producers and consumers. But in the space of less than thirty years, network technologies have opened whole areas of economic life to the possibility of collaboration and production beyond the market.

The most highly educated generation in the history of the human race, and the best connected, will not accept a future of high inequality and stagnant growth.

because semi-skilled jobs will become automated, leaving only high- and low-paid ones, global inequality will rise by 40 per cent. By 2060, countries such as Sweden will have the levels of inequality currently seen in the USA: think Gary, Indiana in the suburbs of Stockholm.

In Kondratieff’s theory, each long cycle has an upswing lasting about twenty-five years, fuelled by the deployment of new technologies and high capital investment; then a downswing of about the same length, usually ending with a depression. In the ‘up’ phase, recessions are rare; in the ‘down’ phase they are frequent. In the up phase, capital flows to productive industries; in the down phase it gets trapped in the finance system.
There’s more, but that’s the basic theory. In this chapter I will argue that it is essentially right, but that the present crisis represents a disruption of the pattern – and that signals this is something bigger than the end of a fifty-year cycle.

And there are waves within waves. To a surfer, waves seem to come in sets, growing in size, so that the sixth or seventh is the big one that you want to catch. In fact, this is just the result of a longer, flatter wave moving ‘through’ the short ones.

s consider in more depth these phases as Kondratieff describes them. The first, up, phase typically begins with a frenetic decade of expansion, accompanied by wars and revolutions, in which new technologies that were invented in the previous downturn are suddenly standardized and rolled out. Next, a slowdown begins, caused by the reduction of capital investment, the rise of savings and the hoarding of capital by banks and industry; it is made worse by the destructive impact of wars and the growth of non-productive military expenditure. However, this slowdown is still part of the up phase: recessions remain short and shallow, while growth periods are frequent and strong.
Finally, a down phase starts, in which commodity prices and interest rates on capital both fall. There is more capital accumulated than can be invested in productive industries, so it tends to get stored inside the finance sector, depressing interest rates because the ample supply of credit depresses the price of borrowing. Recessions get worse and become more frequent. Wages and prices collapse, and finally a depression sets in.