I feel a little silly just typing that. I know what some of you are thinking – this cat is about to ignore around half of the macroeconomic theory built up over the last 80 years. Well I’m just getting started, so bear with me a while.
Firstly, this (click to enlarge):
If you ever wanted just one visual that encapsulates the inherent contradiction in post 1970’s capitalism, this is it. But what happened in the early 70’s to cause this disconnection? There are few theories and everyone favours their pet one, but I think it’s a mix of them all – the end of the Bretton Woods system of fixed exchange rates, the start of globalisation, oil price shocks, the beginning of the financialisation of the world economy and huge improvements in technology.
Now let’s look at the bigger picture of employment vs GDP per capita (for the US, data taken from the IMF’s World Economic Outlook database, using 1980 as the base year):
Note that the point of this is to show the separation, not what is happening at the margins, which still clearly indicates that a change in GDP correlates with a change in employment. Bar some recessionary blips, the trajectory of economic output has been far steeper than that of employment, which leads me to conclude that a significant feature of today’s economy is that employment no longer matters. And if employment no longer matters, then we can dispense with much of macroeconomic theory. If the long-run Phillips curve is indeed vertical (meaning that beyond a certain point, additional fiscal and monetary stimulus only leads to rising prices), then it is perhaps no surprise that, as I noted in this post, neither the Keynesian nor the monetarist approach is working to restore the economy to full employment. Further, what does “full-employment output” even look like now? There’s no longer any such thing. The old rulebook should be thrown away; it’s time to move away from old style left vs right economics, and find out what works today.
(I’ve updated the post to include this, from the same data set mentioned above; GDP per person employed. If employment mattered, ie if we expect to see a relationship between employment and output, this would be a much flatter line):
It’s my prediction that what will eventually replace neoliberal capitalism is a two-tier economy. We should stop giving our money to the financial sector, shop local, use public transport, cycle, recycle and use green energy wherever possible. With so many of us having less and less share of the economy, we need to make our share count. If employment no longer matters, let’s get to where our money doesn’t either. Let’s watch the mainstream economy collapse under the weight of its own contradiction – the idea that their income is somehow unrelated to our wages.