The post-neoliberal malaise

I spent much of last week in the UK, in part at a conference entitled “Beyond Neoliberalism”, organised by academics Noam Maggor and Gary Gerstle, professor emeritus at Cambridge university and a Harvard fellow, whose book The Rise and Fall of the Neoliberal Order helped set the frame on the history of our old economic order and the possibility of a new one. (See my review of his book here.) I’m lucky to have Gerstle as my Swamp Notes respondent today (this will be my last Note for a month, as I’m going on book leave through June).

While the conference was held at Cambridge, it felt a bit like Bidenomics in exile, hosting several ex-administration officials and progressive think-tankers with close ties to the Biden White House, as well as many sympathetic post-neoliberals from Europe, Asia and many parts of the global south.

There was much discussion about what will become of the post-neoliberal world order now that Donald Trump has co-opted some of its core ideas, from re-industrialisation to stronger antitrust enforcement, while the Democratic party is split evenly between economic populism and what I’d call a new supply side “abundance” agenda. I’m referring here to Ezra Klein and Derek Thompson’s book, which is to my mind mainly about deregulation and making government more efficient. As I wrote in this column, it offers some interesting ideas but is ultimately slight because it doesn’t take on issues of concentrated power. Still, it is being held up by many on the left as a new organising philosophy for the Democrats.

Unfortunately, I came away from Cambridge feeling that neither side has a winning message yet. Ultimately, I think the outcome will be decided by which side can best react to the complex economic and geopolitical challenges facing the US right now. Consider here the following three points.

First, inflation is set to rise, possibly quite sharply. With Trump’s tariffs having been ruled illegal, and the so-called Department of Government Efficiency a failure, it’s unlikely that the US government is going to be able to find many savings or much additional revenue to offset the fiscally disastrous “big, beautiful bill” (aka huge tax cuts for the rich). That means that the White House may look to run the economy hot for a while to try and inflate away some debt, particularly at a time when foreign buyers of US T-bills are becoming scarcer. Any kind of industrial policy favoured by populists gets tougher when deficits are higher, and inflation is rising. On the other hand, it may be easier to sell the idea of housing deregulation — something favoured by the abundance crowd — to create more supply (and potentially ease inflation) at such a moment.

Second, manufacturing won’t create the jobs we need. One of the things that even fans of industrial policy agreed on in Cambridge is that such strategies must move beyond manufacturing. As Harvard professor Dani Rodrik pointed out, while we need to produce some critical goods for reasons of resilience and national security, technology is fast replacing factory jobs not just in the US but in China, where robots are being deployed at scale. Add AI-related job destruction into the equation (see my latest column on that) and you really need a good-job strategy more focused on the high-end service sector. This isn’t something that I see the abundance folks really addressing in a clear way, but it could be at least partially answered by bolstering the care economy in a way that economic populists favour. See the column I wrote a while back on that topic.

Finally, concentrated power is a huge obstacle to change. As Vanderbilt professor Ganesh Sitaraman, an antitrust expert and former adviser for Senator Elizabeth Warren, pointed out at the Cambridge conference: “Forty years of neoliberalism have created a powerful group of corporations and individuals who represent a kind of civil oligopoly that is very difficult to challenge.”

Indeed. I’m amazed, for example, that amid greater inequality than we have ever seen, there is really no politician on the left, aside from perhaps Bernie Sanders, clearly echoing the FDR style outcry against oligarchs (as he put it back then, “I welcome their hatred!”). Of course, since the 2010 Citizen’s United decision in the Supreme Court, it’s tough to welcome hatred from potential political donors, which is deeply challenging for Democrats who want to portray themselves as champions of working people. Consider, for example, how little real criticism you’ve seen of Trump’s tax bill, and how several Democratic senators got behind Republican efforts to move stablecoins into the formal financial system, which I’m convinced will be the root of the next financial crisis. The crypto community is a huge and growing political donor on both the left and the right.

Gary, you’ve pointed out to me that the New Deal wasn’t created in a day — or even in a few years — but was an up and down process which took the better part of a decade to really gel. So, my question to you is this: where are we in the process of crafting a post-neoliberal consensus? How many more years will Democrats wander in the political desert? Are Republicans under Trump going to create a bad movie version of the new political paradigm? Or is there something entirely unexpected coming down the pike?

Recommended reading

I’m going with an all-FT list this week, as there are so many good pieces.

• My colleague Gillian Tett looks at the “revenge tax” hidden in Trump’s big, beautiful bill. Foreign investors in the US, beware.

• The always smart Andy Haldane argues that we need to think less about GDP, and more about upward mobility. I would agree.

• And Sarah O’Connor warns that surveillance has come for white-collar workers. I think she’s right that this is going to reduce innovation, and I also think it will encourage yet more smart people to look for jobs outside large corporations. Who wants to be watched 24/7?

Gary Gerstle replies

Thanks for these thoughts, Rana. Building a new political consensus or political order is a complex task that takes a long time. Though the core idea that would sustain the New Deal order — namely that a strong state was necessary to manage capitalism in the public interest — first broke with force upon American society in the 1890s, it did not triumph until the 1930s. Progressives enjoyed partial victories along the way, but also suffered plenty of defeats.

Similarly, the neoliberal intellectuals and policymakers who came together in the Mont Pèlerin Society in 1947 to oppose state-managed economies like the New Deal spent much of the next 30 years in the political wilderness. Yet, neither the would-be New Dealers nor the neoliberals despaired. On the contrary, they clung to their core principles with steadfastness, confident that their moment would come. Like Mao Zedong, they would ultimately benefit from having committed themselves to the long march.  

Steadfastness matters because it is hard to know when the opportunity to gain power will present itself. Consider, for a moment, the Democratic party of the 1920s, hopelessly divided between its urban and cosmopolitan voters in the North and its agrarian and white supremacist supporters in the South. Many thought the party might never win another presidential election.

Yet the Great Depression that began in 1929 scrambled everything, discrediting Republicans policies, forging a solidarity in the Democratic party that had seemed impossible, and positioning Franklin D Roosevelt to win two 1930s elections that would make the New Deal dominant force in American politics for forty years. Herbert Hoover never got over the shock of that transformation.

The policymakers behind Trump are trying to deliver a similar knockout blow to Democrats now. Indeed the shock and awe of Trump’s first hundred days closely resembles that of Roosevelt’s legendary first hundred days. Will the Maga brains trust succeed in transforming their movement into a political order? They well might. But I would not bet on them unless they improve on an incoherent economic programme that, at present, is composed mainly of tax cuts for the rich and (ever changing) tariff schedules. Indeed this toxic brew is much more likely to produce a financial crash than a sturdy economic foundation for an enduring Maga political order.  

If a crash comes, will the Democrats be ready? The Biden administration was full of ideas for building a progressive political economy: major investments in infrastructure, reshoring manufacturing, the Inflation Reduction Act, and antitrust measures against monopolies.

But the administration also experienced two intersecting failures. First, its policies to counteract excessive corporate power and reduce economic inequality did not fire the imaginations of its supporters. Why not? Inflation, in my view, is too simple an answer. And, second, the Biden administration encountered a cynicism towards government, and towards the “Deep State,” much deeper and more widespread than it had anticipated. No progressive movement can succeed without restoring popular faith in the positive uses of government. That restoration, much discussed at our Cambridge conference, has become, perhaps, the central progressive political challenge of our time.