Is Neo-Liberalism Over?

An Ideology Fades, Sort Of...But Not Entirely

Ideology is the enemy of sanity in public life. It’s an intellectual straitjacket; it ignores the complexities of the world. Principles are better, but even benign ones like “liberty” or “democracy” require caveats. When Barry Goldwater said in 1964 that “Extremism in the defense of liberty is no vice,” he was wrong. Liberty without responsibility results in chaos. Democracy without an educated electorate descends to mob rule. There are few absolutes when it comes to running a Republic. And so, when a prevailing ideology—an absolute—begins to lose altitude, it is worth noting. That is happening now to Neo-liberalism. As David Leonhardt writes in the Times:

Many political elites — including campaign donors, think-tank experts and national journalists — have long misread public opinion. The center of it does not revolve around the socially liberal, fiscally conservative views that many elites hold. It tends to be the opposite.

What a lovely paragraph. And note the humility of the qualifier: it tends to be the opposite. Leonhardt isn’t the first to come to this conclusion—others have begun to note the frailties of Neo-Liberalism—but elegance counts. Of course, to appreciate what’s happening here, we need to unpack what “Neo-liberalism” is, because it’s easily misunderstood.

In its original and purest form, Neo-Liberalism was an economic thesis—a revolt against “progressivism,” against the restrictions that government activism imposed on free enterprise. The philosophy was nothing new—it had been called Social Darwinism and laissez faire in previous Industrial Age iterations—but after the 20th century triumph of welfare statism it acquired a reactive urgency. Starting with the “Austrian” economists Von Mises and Hayek, and made popular by libertarian academics like Milton Friedman in the 1950s, Neo-liberalism defined the era dominated by politicians like Ronald Reagan and Margaret Thatcher. In its most popular form, it soon descended from theory to ideology. There were Ideots like Arthur Laffer, who drew a graph on a napkin that purported to demonstrate that lower taxes led to greater economic growth. Turned out, they didn’t always. When Ronald Reagan tried to lower taxes in the 1980s, he promptly blew a massive hole in the budget—and quickly had to raise them again. The latter part of the equation was vehemently ignored by many conservatives, but Reagan raised taxes as much as he lowered them (in 1982 and again in 1984). Nor did Reagan do much of anything to limit the reach of government…except in the mythology that soon enveloped that intermittently befuddled President. (Bill Clinton actually reduced the size of government more than Reagan did.) Neo-liberalism had been reduced to “No Tax” pledges, but Republicans couldn’t quite bring themselves to eradicate the welfare state. So they stopped caring about fiscal responsibility. Dick Cheney famously said, “Reagan proved deficits don’t matter.”

There were aspects of Neo-Liberalism that proved attractive to Democrats, beginning in the 1970s: Free trade and government deregulation. Both were necessary reforms, within reason. Jimmy Carter began it, deregulating the airline, railroad and trucking industries. (Reagan got the credit for all that, as he did for Carter’s aggressive actions to wipe out inflation—a lesson that might not be irrelevant in 2024.)

Free trade—the diminution of tariffs—recognized a new reality: the globalization of the economy. The theory, largely true, was that lower prices on imported goods helped create prosperity. Hence, Walmart. Deregulation recognized that sedimentary layers of confusing and often conflicting regulations had built up over the course of the 20th century, regulations that shackled everything from rebuilding infrastructure to truly safeguarding the financial sector. (Philip K. Howard has spent a career chronicling the atrocities caused by the conjunction of an overweening government and an over-litigious legal system—if you haven’t read him, you should read this.)

In a way, Bill Clinton was the ultimate Neo-Liberal Democrat—but, happily, he did it inconsistently; he was no ideologue. He promoted free trade and deregulation, but he proved the Laffer Curve was nonsense: he raised taxes in 1993—and moved aggressively to balance the budget—and the economy boomed. Free trade had mixed effects, though: it led to the collapse of American manufacturing in some crucial sectors (computer chips, iPhones, electronic appliances etc etc…). And deregulation arguably went too far: Clinton’s refusal to clamp down on the exotic derivatives emerging in the financial sector led to the Wall Street crash of 2008.

Many of Clinton’s choices were ratified by Barack Obama, who also raised taxes on the wealthy, but he mitigated the Great Recession economy with deficit spending—and continued Clinton’s free trade policies. But there was a rising tide of distemper in the land. I road-tripped across the country for Time Magazine in 2009 and found that people were obsessed with China. They wanted to know what, if anything, Obama was going to do about the emerging economic rival. He never gave that speech.

And then came Trump, who overturned the apple cart—sort of. He was a laughing, greedy Lafferite, lowering taxes, dramatically, on the wealthy. (And blowing another giant hole in the deficit.) He offered a brutish, indiscriminate deregulation regime, attempting to gut the Environmental Protection Agency and other regulators. Even now he promises, outrageously, to give deregulatory bribes to companies in the energy sector who contribute to his campaign:

When Mr. Trump asked oil executives at Mar-a-Lago to donate $1 billion, people in the room said the former president told them the money that the industry would save in taxes and legal expenses after he repealed climate regulations would more than make up for the hefty contribution.

But Trump went off the Neo-Liberal reservation on trade. He placed tariffs on products from China. And Joe Biden seems to agree with him. He’s putting more tariffs on products from China. These are carefully targeted, but there’s been a flurry of anguish and pontification from Neo-Liberals, both Democrat and Republican. Steve Ratner, a Democrat, is gentler with Biden:

History shows that we should proceed with caution. While there are political and security reasons for tariffs, America’s new protectionist stance will raise prices, limit consumer choices and risk our growth.

In the Wall Street Journal, where Neo-Liberalism is a cult, William McGurn harrumphs:

But capitalism…is better not only when everyone plays fairly. Even when nations cheat, protectionist retaliation harms those who impose it—such as tariffs that raise the price of foreign steel. While those tariffs may make things better for U.S. steel producers, they make things worse for the many more Americans who consume steel, from construction companies to car buyers. Some critics liken tariffs to trying to defeat your enemy by blockading your own ports.

I’ve been accused of Neo-Liberalism in the past and I plead guilty as charged, in a limited way: I’ve been a free trader and deregulator. Both seemed to make a lot of sense, in terms of efficiency—a term that was a conservative totem 100 years ago, when manufacturing went mass. In the late 20th century, industry moved to where it could be done most cheaply. That’s how capitalism works: the Third World, especially Asia, had a comparative advantage when it came to menial labor. And capitalism proved, once again, to be the greatest eliminator of poverty in human history. Walmart and Target and Costco brought down prices for the middle and working classes. By the 1990s, the world was becoming a less severe place. Limited economic freedom came to Russia and China; there was a fleeting hope that free enterprise in the former communist world would lead to liberal democracy. I spent a month in China in 1993 and when I came home, Bill Clinton asked what I’d learned: I told him that more than a billion Chinese were living dramatically better than they ever had before. (I also told him that he couldn’t live in China because of his allergies—the air was foul beyond imagining.) Clinton himself had made a similar—courageous—argument at a UAW hall in Detroit in 1992, in favor of the North American Free Trade Agreement: the old manufacturing jobs are going away. You’re going to have to educate yourselves for the next level of tech jobs in the 21st Century.

There was truth to all of that, but not so much as the ideologues believed. And now, the free trade pillar of Neo-liberalism is fraying; protectionism has become bipartisan. Joe Biden has decided to double down on Trump’s tariff regime, especially with regard to China. Republicans like Josh Hawley and Marco Rubio are joining Dems like Elizabeth Warren to put forth protectionist legislation. The obituaries for economic Neo-Liberalism abound, but may be a bit premature: no-new-tax extremism is as popular as ever in the Republican Party. And the Neo-Liberal era has brought the realization that government-run social engineering programs just don’t work very well. As Daniel Patrick Moynihan predicted, straight cash transfers to the poor—like the child tax credit—are more likely to alleviate poverty than government programs designed to change behavior.

Where does sanity lie? Well, I remain a modified, limited free trader. There is some validity to the warnings about a return of the protectionist craze of the 1920s, which led to the punitive Smoot-Hawley tariffs, which lead, in part, to the Great Depression.…but Biden’s attempt to repatriate the manufacture of certain products, like computer chips, required for national defense industries, makes sense. We can’t continue to depend on Taiwan for those, especially if Taiwan can’t really depend on us to defend it against a Chinese assault.

But the labor leftists who think an efflorescence of blue-collar manufacturing jobs is in the offing are deluding themselves. I will never forget interviewing steelworkers in Chicago in the 1970s: they were making good money ($18 per hour, if I remember correctly), had great fringe benefits courtesy of a strong union—but none of them, not one, wanted their kids to be steelworkers. It was noisy, dirty, dangerous work. They wanted their kids to have tech skills; they wanted their kids to work computers. That was their vision of progress. The past and current romanticization of blue-collar, trade union labor by left-intellectuals is the flip side of Neo-liberalism. They’re ideologues—Ideots—too.

Neo-liberals also were on the right track about suffocating government regulations. They were very much on the wrong track when it came to taxes. In fact, I suspect that taxation is a much better answer than regulation when it comes to tamping down unwanted behaviors. It certainly worked with cigarettes. I would rather have a minuscule tax on financial derivative transactions—the Tobin tax—than a convoluted regulatory regime that is incapable of keeping up with the genius greedheads who create exotic new financial products. I’d rather tax pollution than try to regulate it.

Those would be great centrist reforms, but don’t hold your breath. The lasting residue of Neo-liberalism is likely to be a Lafferite aversion to new taxes. Still, we are at a moment of profound intellectual change, a near-religious ideology is being modified by worldly experience. That is a matter of real significance. It will take a vigilant, careful President to supervise the transition. Biden’s ambition in undertaking it should be appreciated—but he will have to more respectful of the market. Industrial policy—promoting specific products, like electric cars—is often a bridge too far. The markets’ “hand” doesn’t have to be totally “unseen,” but it does need to be respected.

The Other Half of Leonhardt’s Equation

Being a good New York Timesman, Leonhardt doesn’t spend much time on the social conservatism that has led the working class toward the Republican Party. That’s because it involves race. Liberals aren’t aloud to acknowledge that they’ve been wrong on identity politics, especially racial preferences. Biden’s speech to the Morehouse graduates last week had some wonderful patches of uplifting rhetoric, but it was militantly archaic in its view of race relations. Jason Riley of the Wall Street Journal contrasted Biden’s speech with the one delivered by Barack Obama to the same audience in 2013. Obama stressed opportunity:

“There are some things, as black men, we can only do for ourselves.” …Mr. Obama said that too many young black men in the U.S. continue to make bad personal choices and then blame others. “And I have to say, growing up, I made quite a few myself,” he noted. “Sometimes I wrote off my own failings as just another example of the world trying to keep a black man down. I had a tendency sometimes to make excuses for me not doing the right thing. But one of the things that all of you have learned over the last four years is there’s no longer any room for excuses.”

Wow. Obama spoke truth to potential. Indeed, Morehouse graduates—and I’ve known more than a few, and they are excellent—have had the corporate and government and media worlds drooling over the prospect of hiring smart young black men. Everyone, especially the white working class, knows this. Except liberals. They aren’t allowed to acknowledge progress of any sort. So we have Biden presenting a racial nightmare:

“You started college just as George Floyd was murdered and there was a reckoning on race,” Mr. Biden said. “It’s natural to wonder if democracy you hear about actually works for you. What is democracy if black men are being killed in the street?…”

Mr. Obama told Morehouse graduates that if they act responsibly and make good choices, they can live productive and fulfilling lives in a society that has never had more to offer them. Mr. Biden suggested that the graduates see themselves in George Floyd. “If black men are being killed on the streets, we bear witness,” Mr. Biden said. “For me, that means to call out the poison of white supremacy, to root out systemic racism.”

White racism exists, of course. But systemic racism? I’m not so sure. We eliminated race from the law in the 1960s. That system—segregation—has been replaced by a national campaign to include black people into the mainstream of society. The results aren’t perfect, but the effort has largely succeeded. And if black men are being killed in the streets, it seems fair to point out that vast majority of them are being killed by other black men. And it seems even more fair to point out that all too many of those doing the killing have been trapped in a culture of poverty, raised in fatherless homes. But you can’t say that if you’re a white liberal—and the white working class is hip to that. They see the graduates of Morehouse presenting the news on TV, and prosecuting criminals in courtrooms, and running for office, and winning. They see far more interracial couples in TV ads than exist in real life. They simply do not buy the left-wing academic notion of oppressed black masses. The fact that Democrats refuse to acknowledge racial progress impedes their political success, including among the growing number of blacks and Latinos who no longer want to be assumed victims.

All Hail David Ignatius

Along with Tom Friedman, Ignatius has been doing the very best reporting about the tragedy in the Middle East. In this column, he lays out a very plausible plan for peace. He includes a rather juicy nugget, as he often does—Ignatius has the intelligence community wired like no other journalist:

A sign of the Iranian-U.S. dialogue is that when [President] Raisi’s helicopter crashed on Sunday, Iran requested urgent help from the United States in locating it, and sent a map showing the likely site, according to a knowledgeable official.

It is good to know—better than good—those channels exist. They reduce the possibility of disaster. Eventually, they may lead to something resembling peace.

David has a splendid second life as well, as a writer of spy thrillers, which somehow manage to predict new developments in tradecraft and spy technology while keeping you riveted to the page. He has a new one out called Phantom Orbit, which I haven’t read yet but surely will this summer. Sanity Goddess and I have devoured every one of his books.

Pitch

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Riley

https://www.wsj.com/articles/bidens-demoralizing-speech-to-morehouse-grads-obama-achievement-racism-ee5fefb5?mod=opinion_lead_pos6

Gaza Ignatius

https://www.washingtonpost.com/opinions/2024/05/20/gaza-war-endgame-us-saudi-arabia-hamas-israel-iran/