History of an ideological movement, not economics
Review of The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era by Gary Gerstle
I am looking for an economics perspective of how effective neoliberal policies were and what should replace them. What I found here is a political history of an ideological movement, that is, how it achieved power, what it led to in the most general sense, and how it is in decline. If you want the politics, this is your book. If you want economic substance, you won't find it here except for oblique references.
Gerstle defines neoliberalism against the New Deal. On the one hand, arising in the Great Depression, New Deal liberalism posited that the “market” couldn’t be left to function on its own (it would result in destructive chaos, uneven growth, poor distribution), hence it must be managed by an active government. The New Dealers advocated strict controls, deficit spending (Keynes), labor negotiation via National Labor Relations Board, and the creation of a national welfare state. In terms of its morals, the “public good” should take precedence over private gain, while its policies should enhance opportunities for the individual. New Dealers had confidence in secular expertise; religion was an individual choice. To combat communism, Eisenhower didn’t dismantle New Deal order – he secured it, reasoning that in the Cold War with the eyes of the world watching a great competition between socio-economic systems, it was better able to provide for the working classes than socialism could do.
On the other hand, Neoliberalism rose in direct political opposition to the New Deal. Market forces needed to be unleashed without government involvement, not contained by bureaucrats. This required deregulation, free trade, and the free movement of capital, goods and people. It was a novel approach to solving social and political problems by relying on the “optimality” that the free markets would supposedly achieve without top-down direction. Maximizing individual freedom was the goal, not public or “collective” solutions. Like classical liberalism (laissez faire), self-interest would focus individuals on achievement, which would result in society reaching its full potential. In terms of morality, those who prospered deserved to do so due to their individual conduct, which translated as personal conscience, constant self-improvement, self-reliance, education, discipline, strong two-parent families, and industriousness. This was, in their view, healthier for society as a whole – the public-assistance way only promoted weakness and victimhood.
According to Gerstle, the conditions to establish this kind of political order required rich donors (e.g. the Koch brothers), think tanks (to develop content, arguments, and rhetoric), a rising political party, and the right circumstances to catalyze it all. The dominant party must bend the opposition to its will. Losing the capacity to exercise political hegemony signaled decline. In this way, the New Deal fell due to the racial backlash (following the “Second Reconstruction”), opposition to the Vietnam war, and relative economic decline (stagflation, Japanese competitiveness, and the OPEC oil embargoes). Moreover, the fall of communism enabled business to fight labor overtly, ending a long era of cooperation under Labor Board auspices.
While Carter was an “incipient neoliberal” with airline deregulation, ending the AT&T monopoly, etc., Gerstle continues, Reagan was the one who wove the threads together into a new political movement, providing a fantasy vision. In effect, he reconciled white supremacy, godliness, and a neoliberal market orientation by emphasizing personal freedom and antagonism to the New Deal state – the Federal Government was the new tyrannical force that was holding back economic growth. Forming a partnership with Jerry Falwell and the evangelical capitalists, he was working in accordance with God’s plan. He also used dog-whistle racism. His policies included tax cuts, rolling back regulations almost without thought-through criteria, but he kept spending on military defense, law enforcement, and prisons. Seeing his political success, the Democrats followed. Indeed, it was Clinton who institutionalized neoliberalism. An additional aspect that contributed to this movement was the “information revolution”, leading through the evisceration of the telecom regulations to multimedia giants as well as propagandistic conservative media, such as Fox News.
Finally, the financial sector was deregulated, which freed enormous pools of capital for investment and speculation; easy money policies from the Federal Reserve contributed to this. If anything, rather than promoting the growth of the manufacturing industries, as supply side economics promised, it led to the “financialization” of the economy, i.e. the manipulation of money to ensure profits, or “paper entrepreneurialism”; making things – the backbone of the rise of the middle class in the 1950s – lost out to the globalization of the manufacturing process and simple accounting high jinks. Not even the information revolution led to sustained growth on the order of the golden age of mass manufacturing for consumers (1945-1970). As a result, central banks and private financial institutions were becoming “the rulers of the world”. From the 1980s, the basis of economic growth was in the appreciation of real estate and stocks, that is, the rich got richer in a bubble economy that was essentially decoupled from productivity gains.
The last straw of the neoliberal regime, Gerstle posits, was the financial crisis of 2008. Though Obama did a good job restoring confidence in the banking system, he did so by government intervention and regulation of markets that had gone awry – the Fed opened the money spigot and the US became the lender of last resort for the entire world. Unfortunately, with real estate values and the stock market pumped up by the Fed, only a tiny elite continued to prosper. Poorer whites and minorities, seeing themselves excluded from this boom and living precariously as never before in a “gig economy”, became increasingly alienated and angry. In addition to a steep rise in drug addiction, politicians began to sell populist rhetoric, increasing polarization and a sense of grievance and outrage (blaming minorities and immigrants, free trade, what have you). The Democrats (representing the remnant of the New Deal) and traditional Republicans (neoliberals all) no longer had anything to offer: their policy solutions and rhetoric no longer resonated.
The result, of course, was the election of Donald Trump, whose policies appeared to combine neoliberalism with a desire to destroy the government (the “deep state”) with a complete lack of cogency; constant race baiting that was open rather than implied by dog whistle; even an authoritarian predilection that played out on January 6. On the left, there was Occupy Wall Street, Black Lives Matters and many other movements. Neither, it seems, were offering workable solutions that made sense to a struggling working class. Biden appears like a relic of the old order. That is where Gerstle leaves us – in a state of acute crisis, perhaps one of the worst political conjunctures of our lifetimes.
It isn’t that this lacks value or is uninteresting, but it is dissatisfying. For anyone who read the newspapers these last years, none of this is new. While it is useful to put it in political and historical context, that is far easier to do than evaluate how effective these ideologies have been not just on a macroeconomic level of GDP growth, but in the brass tacks of their policy impact. Furthermore, the book is largely descriptive rather than prescriptive – we get a sketch of the problems and no solutions. All in all, I found very little of what I was looking for, that is, the economics of it.
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