The Guardian‘s economics editor, Larry Elliott, has employed Giovanni Arrighi’s seminal The Long Twentieth Century to help explain the current state of the U.S. economy:
Giovanni Arrighi in his book The Long Twentieth Century argues that there have been four major phases of capitalist development since the Middle Ages, starting in Genoa and moving on to Holland and Britain before the start of American dominance during the Great Depression of 1873-96.
It was during this period, Arrighi argues, that commerce started to play second fiddle in Britain to finance, just as it had in Genoa and Holland when their phases of pre-eminence were drawing to a close. The financialisation of the American economy in turn can be traced back to the mid-1970s, so by this interpretation of history, the dotcom collapse of 2000-01 and the financial crisis of 2007-08 (with the military entanglements in Iraq and Afghanistan sandwiched in between) are part of a much longer term development. According to this thesis, the concentration of economic power on Wall Street, the stagnation of incomes for all but the rich, the structural trade deficit, the military overreach, the switch from being the world’s biggest creditor nation to its biggest debtor add up to a simple conclusion: we are in the twilight years of the long American century.
Such a conclusion is contested in Washington but may help explain why, as Albert Edwards of Société Générale puts it: “Unprecedentedly strong monetary and fiscal stimulus has led to unprecedentedly weak recovery.” This will worry Bernanke, who made his name explaining how policy makers could avoid repeating the mistakes made during Japan’s lost decade and can anticipate the dire consequences of a period of deflation for a nation wallowing in debt.
Read the full article here.