"Plenty of firms in America's protected markets were earning healthy rents from a system that was gradually destroyed by a long trajectory of deregulation and liberalisation (a process that ultimately went to far, alas). But this loss for entrenched interests at the expense of newcomers is, as I've suggested, a complicated thing, more complicated at least than bad guys making out at the expense of the good guys. "
You're getting towards the key part of this.
Under Fordism, those large rents were being spit up between owners of capital, managers and workers (the entrenched interests) fairly equally via union bargaining, fiscal transfers etc. When Volcker made credit very scarce, and increased the returns to capital holders, he shifted the balance of power to capital. What was really remarkable about it was that for the first time the Fed was willing to cause a serious recession, just to get rid of inflation. That was unprecedented. Workers are expendable, managers are expendable, but you need credit to survive. When interest rates went up to 20% that basically meant that the rents that had been split by workers and managers all went to the owners of capital, forcing the other two into a subservient position. It also weakened the equity market relative to the bond market, meaning that companies who failed to extract enough profits out of their companies to compete with the high rates of return in the bond market would be taken over through a bond-financed LBO. Managers were forced to either put the cuts on workers, or face a takeover and getting fired themselves. Obviously they chose to sack the workers.
The reason it gets pointed to so often is because it marked the end of the worker-friendly post-war compromise between labour, government and capital (Fordism) with capital coming out on top. When the rates were lowered again, capital retained its enlarged share of the profits and extracted it through the equity market, rather than the credit markets, while managers became adept at paying themselves out via large salaries and equity options. Workers just lost out.
You're getting towards the key part of this.
Under Fordism, those large rents were being spit up between owners of capital, managers and workers (the entrenched interests) fairly equally via union bargaining, fiscal transfers etc. When Volcker made credit very scarce, and increased the returns to capital holders, he shifted the balance of power to capital. What was really remarkable about it was that for the first time the Fed was willing to cause a serious recession, just to get rid of inflation. That was unprecedented. Workers are expendable, managers are expendable, but you need credit to survive. When interest rates went up to 20% that basically meant that the rents that had been split by workers and managers all went to the owners of capital, forcing the other two into a subservient position. It also weakened the equity market relative to the bond market, meaning that companies who failed to extract enough profits out of their companies to compete with the high rates of return in the bond market would be taken over through a bond-financed LBO. Managers were forced to either put the cuts on workers, or face a takeover and getting fired themselves. Obviously they chose to sack the workers.
The reason it gets pointed to so often is because it marked the end of the worker-friendly post-war compromise between labour, government and capital (Fordism) with capital coming out on top. When the rates were lowered again, capital retained its enlarged share of the profits and extracted it through the equity market, rather than the credit markets, while managers became adept at paying themselves out via large salaries and equity options. Workers just lost out.