Recessions and Political Economy

Peter Turchin on the way economic shocks change economic thinking:

There is an interesting parallel…between the Great Depression and the 1970s Bear Market. Both periods of economic hardship (although it goes without saying that the Great Depression was a much more severe crisis) were broadly interpreted as empirical evidence against the prevailing economic doctrine – the naked, laissez faire capitalism in the first instance, more cooperative relations between business and labor in the second. Yet it is much more likely that the primary mechanism, responsible for long-term economic decline/stagnation in each case, was the negative phase of the Kondratiev cycle, perhaps supplemented by exogenous shocks (eg, the 1973 oil embargo). Yet in each case a prolonged period of economic troubles helped to delegitimize the prevailing ideological regime.

You can see this very strongly in our responses to the Wall Street collapse of 2008 and subsequent recession. On the one hand many young people have decided capitalism is fundamentally flawed and the whole system needs to be scrapped and replaced by communism or something like it. On the other, millions of people decided the problem was elite corruption and the solution was Donald Trump.

"No system is perfect, and sometimes bad things happen, but history says neoliberalism works better than anything else" is not a winning argument these days.