Over the last few years, the question of immigration has become a dominant issue in the West. In the United States, immigration has emerged as one of the pivot points in the presidential election. In Europe, as well, immigration has become a political pivot. Immigration has always been a contentious issue. In the United States, where immigration was indispensable for the construction of the nation, the arrival of Irish Catholic immigrants in the 1840s created a profound crisis. The dominant Protestants feared the loyalty of the Catholics. Similarly, the arrival of Jews from Russia into Central Europe in the 19th century generated fears of the Ostjuden (Jews from Eastern Europe) who were culturally different and seemed impossible to assimilate.
The European definition of the nation as one’s place of birth and one’s culture made immigration particularly difficult. But in the United States as well, there is a serious fear that excessive immigration will cost the nation its culture. Those who trivialize or vilify this fear do not understand the centrality of culture to human life. Our community is what we are, and the shared values and beliefs are what make up the community. Immigration generates a reasonable fear that our shared culture will be lost, and with it, who we are. The fear that immigrants will not assimilate is the undertone of the immigration debate even in countries like the United States that were built on immigration.
But the recent surge in fear of immigration has a more specific origin: the crisis of 2008. And therefore it can only be understood as intermingled with other reverberations from that event. In 2008, the global economy underwent a massive shift away from extremely high growth that started in 1982. Part of the problem was simply the financial chicanery and miscalculations of the subprime crisis. But there was a deeper crisis. An economic boom creates vast inefficiencies, as huge amounts of surplus cash flow into the hands of people who don’t spend that money on food, clothing and shelter, but rather invest it to make more money. Most of the time this works, as the investment, with decisions made by individuals rather than the state, generates wealth and jobs.
But toward the end of a cycle, two things happen. Opportunities for quality investment decline and productivity falls. The early advances that drove innovations (railroads, radio, the personal computer) lose their explosive growth capacity as they turn from game changers into commodities with trivial value. At that point, the opportunities for prudent investment decline. Investors have a great deal of money, but money alone doesn’t generate high productivity.
The result is an intense search for investment opportunities. As there are few, mere speculative opportunities that would usually get passed over start to appear as investment opportunities. The search for prudent investment created the subprime crisis. The assumption was that housing was an absolutely safe investment. Home prices always rise. Investing in mortgages was a conservative investment, and investing in the more exotic derivatives of mortgages was prudent and produced a handsome return. The core assumption – that home prices would always rise – proved incorrect. But at its root was not the financial snake oil salesman, but conservative investors wanting a place to invest safely in an environment where safe investments had become hard to find. The snake oil salesman simply took advantage of the natural greed in us all, promising vast riches at no risk.
What occurred in 2008 was a massive decompression of the system. The subprime crisis was the trigger. Excess capital without promising investment was the problem. Capitalism is not kind, but it is efficient, and that excess capital was destroyed to such a degree that the state had to invent cash to cushion the immolation of capital. Instead of an explosive decompression as happened in the United States in 1929, there was an explosion, but it eased itself into a longer-term decompression.
That decompression meant investors were suddenly more cautious and without investment capital. Then came an extended period in which the consequences of the event began playing out. It was a massive event, so it has been playing out for a long time. A reasonable assumption is that a generation-long boom will be replaced by a generation-long systemic dysfunction. The pressures must balance out over time.
This is not the first time this has happened, but there was something unique in it. Since the 1980s, nations and economies have grown substantially more interdependent. This was cheered wildly when it happened, but what it created was a forest fire with no fire breaks. Interdependence in production and consumption – international trade coupled with the consequences of financial dislocation – was not confined to any one country. It became a global phenomenon. The irrationality of the idea that free trade and the free flow of money is essential to economic well-being was that any failure of the system meant that there was no place to hide. If everything rose together, everything fell together as well. Economic exuberance had its twin brother in ideological exuberance. There were few places that could protect themselves from the consequences of the economic shift, and all of humanity suffered simultaneously. It has not been the deep and wide agony of the 1930s, but a long period of dysfunction instead.
The dilemma of interdependence could be seen most clearly in international trade. Ideologically, the strongest exporters were the most efficient economies. They were also the most vulnerable to any systemic failure. When the United States and Europe could no longer purchase goods at the same rate as before, China, an export giant, bore the brunt. When it became clear in the slow evolution of things that China would not recover, the producers of the industrial commodities China had needed to satisfy Europe and America were staggered as prices for oil and other commodities plunged. Australia, Saudi Arabia and Russia were affected, among many others. And others waited in the wings, such as Germany and South Korea, both countries that export almost half of their GDP to a sluggish and even contracting global market. In a slow but unavoidable march, everyone has been paying a price for globalization, and it is not over yet. The strongest economy, the U.S., exports least as a percent of GDP among major economies. And since much of that goes to Canada and Mexico, the limited ability to avoid excessive interdependence has cushioned the blow.
I have been talking about nations as a whole, but a crucial dimension is that people within nations experienced these events differently. The wealthy lost a great deal after 2008. But what they lost was investment capital and not rent money. The blow for most was not existential. It didn’t change their lives. For those who used their money for consumption, the impact was substantial. As the trade crisis spread, people lost their jobs, and those who found new jobs were being paid a fraction of their previous salary. 2008 had a different impact on average citizens. But political control remained in the hands of the investor class, which had organized its thinking around the ideology of interdependence. It remained focused on the stability of the financial system rather than the surge in unemployment, underemployment and the public’s loss of buying power. This played out differently in different countries, but it played out almost everywhere.
The financial crisis became an economic malaise. The economic malaise created a social crisis. The social crisis generated a global political crisis. The class that had absorbed the existential blow of 2008 turned on the elite and their values. The elite, focused obsessively on their interests and ideology, failed to notice the revolt. Donald Trump in the United States,Brexit in Britain and numerous parties throughout the European Continent challenged the orthodoxies of interdependence and the pre-eminence of the interests of the financial class. This class and its allies were completely unprepared for a fundamental challenge to the pre-2008 orthodoxies. They were struggling to return to those halcyon days. Their challengers sensed that there was no going back and sought a completely different paradigm that appeared to be witless to the elite. But then the elite appeared brutally indifferent to any interests but their own.
The political upheaval was not confined to Euro-American society. It can be seen in the evolution of regimes into dictatorships, determined to retain the personnel in power. Russian President Vladimir Putin and Chinese President Xi Jinping are the great examples of this. As they shift to a more repressive stance, attacking their own financial elite, they gain popularity and power. Rather than a Trump or a Brexit emerging from the bottom, their intention is to appropriate the movement to enhance their power. This process of co-opting can be seen in Saudi Arabia and Turkey as well.
The issue that has been raised by 2008 is the importance of nations and the primacy of a national leadership to protect the interests of the nation as a whole and not the global system or the interests of the financial community. The re-emergence of nationalism is the logical outcome of the failure of interdependence. Part of the assumption of the pre-2008 ideology was that aggregate economic growth benefits everyone. Post-2008 ideology is that stagnation is paid for by the middle and lower classes. And this leads to a political showdown.
It also creates a situation where maximizing growth is not the primary interest. If the economy grows at 10 percent, but you are unemployed, your self-interest is not with maximal growth. If those above median income benefit from 10 percent growth but those below see their ability to consume contract, the conclusion is obvious. It is possible that free trade, for example, benefits the economy as a whole, but the benefits flow to the top and the costs are absorbed below. In this case, someone earning below median income will vote for someone prepared to sacrifice aggregate growth in the long run for higher incomes below the median for the next 20 years. That is precisely what the argument against the pre-2008 ideology is saying. Free trade may benefit the economy as a whole, but devastate a class. That class will accept lower growth to avoid the consequences of lower wages. For the pre-2008 ideology, this view is incomprehensible. But it has become the prevailing ideology of roughly half of Euro-American society.
A new ideology has emerged. It is not yet in power, but it is growing. It argues that the nation-state controlling and limiting its dependence is superior to interdependence. It also argues that the nation-state provides benefits globalism cannot: a sense of community, the preservation of culture, a sense of self. This argument says that humans without a nation are humans without a community. They are alone, lonely and helpless. And at the root is the argument that there are more important things than money.
In this context, the Euro-American opposition to immigration can be understood. There is a growing rejection of interdependence, and that is not only a trade issue, but a question of the preservation of the nation. A massive influx of immigrants, particularly illegal immigrants, is a danger to the lifeboat that was left after 2008 – the nation-state – the people I know and whose fate I share. Hostility toward immigration is simply one minor dimension of a massive shift in values and beliefs.
The elite condemns this as racist. Whether it is or isn’t, it is the response to the dominant ideology after 2008. The repercussions of 2008 have been milder and slower in coming than in 1929. But that has ground down the system all the more dramatically. Still a simple truth remains. The world after 1929 changed and was never the same. That remains true today. All regimes have shifted the way they operate, most democratic elites have been stunned by the changes, and their contempt for the incivility of their challengers is not enough to maintain the status quo.
2008 is appearing to be a defining moment in history, like 1991, 1945 and 1929. It is a generational shift in the way the world works.