The Tragic History of Neoliberalism

Don’t buy revisionist attempts to rehabilitate it. Instead, push for a bold progressive populism.

Friends,

I rarely ask you to look at charts. Today is an exception. This one is from the Economic Policy Institute. It compares the typical American’s pay starting just after World War II (light blue line) with the nation’s increasing productivity since then (dark blue).

The chart shows the widening divergence between the rise of pay and the yields from productivity.

In the first three decades after World War II, the typical American’s pay rose in tandem with the nation’s growing productivity. The benefits from higher productivity were broadly shared.

But then, starting in the late 1970s and dramatically after 1980, pay barely grew, even as productivity continued to soar. The benefits from higher productivity went increasingly to the top.

Why?

I’ve been looking into this question for a long time.

I’ve also been living it, as head of policy for the Federal Trade Commission under Jimmy Carter, secretary of labor in the Clinton administration, and an economic adviser to Obama. I’ve chronicled this in my upcoming memoir, Coming Up Short.

Much of the answer has to do with a giant upward shift in power.

It started in 1971, with a memo written for the U.S. Chamber of Commerce by Lewis Powell exhorting corporations to play a far more active role in American politics. They did, and their increasingly active role paid off, at least for their CEOs and top investors.

It continued through Reagan’s tax cuts and deregulation, his legitimization of union bashing, and the emergence of corporate raiders who insisted that corporations maximize shareholder value above all else.

And onward through George H.W. Bush and Bill Clinton’s North American Free Trade Agreement, their support for China’s accession to the World Trade Organization, and their deregulation of Wall Street.

And then through George W. Bush’s tax cut — again, mainly for big corporations and wealthy individuals — and Barack Obama’s bailout of Wall Street after it nearly destroyed the world economy.

Deregulation. Privatization. Tax cuts. Free trade. Stagnant pay for most. A soaring stock market for the top.

That’s the legacy of neoliberalism.

It also brought us Trump — who exploited the anger and resentment stirred up by all this and pretended to be a strongman on the side of the working class (while quietly giving the emerging American oligarchy everything else it wanted, including a giant tax cut; he’s readying another as you read this).

Now some neoconservatives, posing as “moderates,” are hijacking the story and trying to rehabilitate neoliberalism.

Consider David Brooks, who wrote recently in The New York Times that:

— “wages really did stagnate, but they did so mostly in the 1970s and 1980s, not in the supposed era of neoliberal globalism.” (Brooks is wrong. Look at the above chart. Pay did begin to head up again in the 2000s but the pay-productivity gap has continued to widen.)

— there was “a return to higher productivity and higher wage growth, from 1994 to today. That is to say: Median wages have grown since NAFTA and the W.T.O., not declined.” (Wrong again. Look at the chart.)

— “the inequality gap is not as great as one might think.” (Well, I think it significant, and most analysts agree.)

— “the basic approach to economic policymaking that prevailed between 1992 and 2017 was sensible and … our job today is to build on it.” (Sensible only as compared to Trump’s first and second terms. But as I said, hardly sensible when you consider that widening inequality combined with unbridled globalization, deregulation, and union-bashing contributed to the rise of Trump.)

Neoliberalism should not and cannot be rehabilitated.

We need instead a strong, bold progressive populism that strengthens democracy and widens prosperity by:

— busting up big corporations,

— stopping Wall Street’s gambling addiction (e.g. replicating the Glass-Steagall Act),

— getting big money out of politics, even if this requires amending the Constitution,

— requiring big corporations to share their profits with their average workers,

— stopping climate change by getting out of fossil fuels.

— strengthening unions, and

— raising taxes on the super-wealthy,

— to finance a universal basic income, Medicare for all, and paid family leave.

Those now trying to rehabilitate neoliberalism won’t like any of this, of course, but we cannot return to the path we were on. It will just lead to more Trumps, as far as the eye can see.