For 40 years, elites in rich and poor countries alike promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. Now that the evidence is in, is it any wonder that trust in elites and confidence in democracy have plummeted?
NEW YORK – At the end of the Cold War, political scientist Francis Fukuyama wrote a celebrated essay called “The End of History?” Communism’s collapse, he argued, would clear the last obstacle separating the entire world from its destiny of liberal democracy and market economies. Many people agreed.
Today, as we face a retreat from the rules-based, liberal global order, with autocratic rulers and demagogues leading countries that contain well over half the world’s population, Fukuyama’s idea seems quaint and naive. But it reinforced the neoliberal economic doctrine that has prevailed for the last 40 years.
The credibility of neoliberalism’s faith in unfettered markets as the surest road to shared prosperity is on life-support these days. And well it should be. The simultaneous waning of confidence in neoliberalism and in democracy is no coincidence or mere correlation. Neoliberalism has undermined democracy for 40 years.
The form of globalization prescribed by neoliberalism left individuals and entire societies unable to control an important part of their own destiny, as Dani Rodrik of Harvard University has explained so clearly, and as I argue in my recent books Globalization and Its Discontents Revisited and People, Power, and Profits. The effects of capital-market liberalization were particularly odious: If a leading presidential candidate in an emerging market lost favor with Wall Street, the banks would pull their money out of the country. Voters then faced a stark choice: Give in to Wall Street or face a severe financial crisis. It was as if Wall Street had more political power than the country’s citizens.
Even in rich countries, ordinary citizens were told, “You can’t pursue the policies you want” – whether adequate social protection, decent wages, progressive taxation, or a well-regulated financial system – “because the country will lose competitiveness, jobs will disappear, and you will suffer.”
In rich and poor countries alike, elites promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. To get there, though, workers would have to accept lower wages, and all citizens would have to accept cutbacks in important government programs.
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The elites claimed that their promises were based on scientific economic models and “evidence-based research.” Well, after 40 years, the numbers are in: growth has slowed, and the fruits of that growth went overwhelmingly to a very few at the top. As wages stagnated and the stock market soared, income and wealth flowed up, rather than trickling down.
How can wage restraint – to attain or maintain competitiveness – and reduced government programs possibly add up to higher standards of living? Ordinary citizens felt like they had been sold a bill of goods. They were right to feel conned.
We are now experiencing the political consequences of this grand deception: distrust of the elites, of the economic “science” on which neoliberalism was based, and of the money-corrupted political system that made it all possible.
The reality is that, despite its name, the era of neoliberalism was far from liberal. It imposed an intellectual orthodoxy whose guardians were utterly intolerant of dissent. Economists with heterodox views were treated as heretics to be shunned, or at best shunted off to a few isolated institutions. Neoliberalism bore little resemblance to the “open society” that Karl Popper had advocated. As George Soros has emphasized, Popper recognized that our society is a complex, ever-evolving system in which the more we learn, the more our knowledge changes the behavior of the system.
Nowhere was this intolerance greater than in macroeconomics, where the prevailing models ruled out the possibility of a crisis like the one we experienced in 2008. When the impossible happened, it was treated as if it were a 500-year flood – a freak occurrence that no model could have predicted. Even today, advocates of these theories refuse to accept that their belief in self-regulating markets and their dismissal of externalities as either nonexistent or unimportant led to the deregulation that was pivotal in fueling the crisis. The theory continues to survive, with Ptolemaic attempts to make it fit the facts, which attests to the reality that bad ideas, once established, often have a slow death.
If the 2008 financial crisis failed to make us realize that unfettered markets don’t work, the climate crisis certainly should: neoliberalism will literally bring an end to our civilization. But it is also clear that demagogues who would have us turn our back on science and tolerance will only make matters worse.
The only way forward, the only way to save our planet and our civilization, is a rebirth of history. We must revitalize the Enlightenment and recommit to honoring its values of freedom, respect for knowledge, and democracy.
This week on Uncommon Knowledge, host Peter Robinson mediates a discussion between PayPal founder and Stanford Professor Peter Thiel and Velocity Capital Management founder and journalist Andy Kessler on the state of technology and innovation in the United States over the past four decades. Thiel argues that, outside of computers, there has been very little innovation in the past forty years, and the rate of technological change has significantly decreased when compared to the first half of the 20th century. In contrast, Kessler asserts that innovation comes in waves, and we are on the verge of another burst of technological breakthroughs. Industries covered include education, medicine and biotechnology, as well as robots and high tech.
Stephen Moore, fellow at the Project for Economic Growth at the Heritage Foundation, the author of Trumponomics: Inside the America First Plan to Revive Our Economy (All Points Books (October, 2018), and President Trump’s pick for the Federal Reserve Board, talks about the role of the Fed and its current policies.
Andrew Yang, entrepreneur, founder of the non-profit Venture for America, 2020 presidential hopeful, and the author of The War on Normal People: The Truth About America’s Disappearing Jobs and Why Universal Basic Income Is Our Future (Hachette Books, 2018), talks about his presidential bid and his proposal to provide a universal basic income to all.
So technological change is an old story. What’s new is the failure of workers to share in the fruits of that technological change.
I’m not saying that coping with change was ever easy. The decline of coal employment had devastating effects on many families, and much of what used to be coal country has never recovered. The loss of manual jobs in port cities surely contributed to the urban social crisisof the ’70s and ’80s.
But while there have always been some victims of technological progress, until the 1970s rising productivity translated into rising wages for a great majority of workers. Then the connection was broken. And it wasn’t the robots that did it.
What did? There is a growing though incomplete consensus among economists that a key factor in wage stagnation has been workers’ declining bargaining power — a decline whose roots are ultimately political.
Most obviously, the federal minimum wage, adjusted for inflation, has fallen by a third over the past half century, even as worker productivity has risen 150 percent. That divergence was politics, pure and simple.
The decline of unions, which covered a quarter of private-sector workers in 1973 but only 6 percent now, may not be as obviously political. But other countries haven’t seen the same kind of decline. Canada is as unionized now as the U.S. was in 1973; in the Nordic nations unions cover two-thirds of the work force. What made America exceptional was a political environment deeply hostile to labor organizing and friendly toward union-busting employers.
If Jeff Bezos walks into a bar, the average wealth of the bar’s patrons suddenly shoots up to several billion dollars — but none of the non-Bezos drinkers have gotten any richer.
.. Since the 1970s, however, the link between overall growth and individual incomes seems to have been broken for many Americans. On one side, wages have stagnated for many; adjusted for inflation, the median male worker earns less now than he did in 1979. On the other side, some have seen their incomes grow much faster than the income of the nation as a whole. Thus C.E.O.s at the largest companies now make 270 times as much as the average worker, up from 27 times as much in 1980.
.. similar disconnect between overall growth and individual experience seems to lie behind the public’s lack of enthusiasm for the current state of the economy and its disdain for the 2017 tax cut. G.D.P. numbers have been good in recent quarters, but much of the growth has gone to soaring corporate profits, while median real wages have gone nowhere
.. But how do facts like these fit into the overall story of economic growth? To answer this question, we need “distributional national accounts” that track how growth is allocated among different segments of the population.
.. Producing such accounts is hard but not impossible. In fact, the economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman have already produced estimated accounts with considerable detail over the past half century. The main message is one of growth going disproportionately to the top and not shared with the bottom half of the population, but there are also some surprises in the other direction. For example, the middle class, while still lagging, has done better than some common measures indicated thanks to fringe benefits.
.. In a reasonable world, then, something like the Schumer-Heinrich bill would become law in the near future. In the real world, of course, the proposal will go nowhere for the time being — because Republicans don’t want anyone to know what distributional national accounts might reveal.
.. By now everyone knows that conservatives routinely yell “socialist!” whenever anyone proposes doing something to help less fortunate members of our society — which is a key reason so many Americans now think favorably of socialism: If guaranteed health care is socialism, bring it on. But the right doesn’t just cry foul at any attempt to limit inequality; it does the same thing whenever anyone tries to talk about economic class, or measure how different classes are faring.
.. My favorite example here is still former senator Rick Santorum, who denounced the term “middle class” as “Marxism talk.” But that was just an especially ludicrous version of a general attempt on the right to suppress talk about and research into where the economy’s money goes. The G.O.P.’s basic position is that what you don’t know can’t hurt it.
And to be fair, progressives like the idea of distributional accounts in part because they believe that more knowledge in this area would help their own cause.
Millennials needn’t worry about retirement, Alicia Munnell, 75, writes, as long as they “are willing and able to work longer than their parents and grandparents did.”
It may not be surprising that younger Americans, who will largely be responsible for cleaning up the financial wreckage the boomers are leaving behind, are not particularly enthusiastic at the prospectof working longer and harder for the same quality of life enjoyed by previous generations.
.. the proximate causes of millennials’ financial difficulties, such as the Great Recession and the dot-com bubble: “Millennials entered the labor market during tough times.
.. The “good news,” as she calls it, is that retirement is a long way off and that simply by working into their 70s, millennials will be able to make up a lot of lost ground.
.. Between 1989 and 2016, the real median income of houses headed by people younger than 35 increased by just 4 percent. That’s just about enough to keep pace with overall inflation.
.. The problem is, however, that many prices have been rising much more rapidly than the pace of inflation. Prices are rising fastest for the things that are absolute necessities: Health care. Food. Housing. Education. Things you literally need to survive. As a result, households have to take on more debt to make ends meet.
.. By asking millennials to work to age 70 you’re treating the symptom, not the underlying disease.
.. Selling American elites, who tend to be older and wealthier, on the notion that the young just need to work harder is easy. But the idea that workers urgently deserve an across-the-board pay raise — a raise that would come, often, from higher payments from those same older and wealthier people — is a much tougher sell.