I am going to focus on the U.S., and I will make three arguments: first, that there’s nothing wrong with the American economic system, but the politics are a disaster. Second, the central problem with the politics is that it has turned away from collective investment. And third, and this is my main point, that this turn away from collective investment is fragile, and is not deeply rooted in the society. In other words, the problems are not inevitable.
So first, on the point that there’s nothing wrong with the economic system: recently two very strong arguments have been made that there is something deeply wrong with the economic system, by Wolfgang Streeck and Robert Gordon. Both of them point to causes such as rising inequality, the rise of public and private debt, poor education, deteriorating infrastructure, and financialization. But if you examine these arguments carefully, they come down to politics. The rise of inequality can be addressed by higher taxes and by increased spending, as can the rise of public and private debt. The problem of poor education and infrastructure can both be addressed by investments into education and infrastructure, and if you address these issues you will have gone a long way towards bringing back economic growth. Financialization, many scholars have argued, was itself precipitated by the rise in inequality, and can therefore be addressed by addressing inequality.
In short, if you don’t educate your people well and you saddle them with debt and crumbling infastructure, you probably shouldn’t expect a populace that is capable of doing much innovating, and therefore you shouldn’t expect much economic growth. But all of these problems—investments in infrastructure, public education, redistribution—these are known and solvable problems. They are all problems of making collective investments into the country. The real problem behind all of these problems is that there has been a rightward turn in politics since the 1980s, which has made collective investment into American public institutions more difficult.
Let’s be clear: we are talking about neoliberalism. Neoliberalism is the movement to lower taxes, deregulate, cut social spending, and in general reduce the role of the government in the economy that took off in the 1970s and 1980s, and what we are seeing today is its fruits.
So those are my first two points: that it’s not the economics that is the problem, it’s the politics of having abandoned collective investment.
My third point is that this politics of neoliberalism is fragile. I suggest this for three reasons.
First, neoliberalism is recent. In fact throughout its history the American government has intervened in the economy often, heavily, and in redistributive directions. The U.S. is the country that pioneered progressive taxation, for example, and the U.S. had much heavier regulation in the market than European countries until 1980. Neoliberalism is not deeply rooted in American history, it is a departure from American history–although neoliberal politicians have been very successful at making it seem as if neoliberalism is deeply rooted in American history.
The second reason for arguing that neoliberalism is fragile has to do with the origins of neoliberalism. The rise of government intervention did not depend on the rise of labor unions, and the fall of government intervention did not depend on the fall of labor unions. Nor does it have much to do with business interests. In both cases, both the rise of government intervention and the decline of government intervention, the policies were a populist political response to real economic problems that were widespread in the country. In both cases, the responses did not actually solve the problems—in both cases it seems to have been heavy military spending that provided the stimulus that reinvigorated the economy—but this does suggest that at least from the 1930s to the 1980s, the American system had the capacity to listen to and attempt to solve problems that were causing distress among the public. What the people think matters.
So what do the people think? Interview and survey research finds that there is no deep constituency for free market policies in this country. A majority of Americans consistently answer that government has a major role to play in areas as diverse as reducing poverty, protecting the environment, and ensuring access to education and health care, and this has been true for decades. Americans do like tax cuts for the middle classes, but they have not signed on to an anti-environmental agenda, or to attempts to cut social spending or disinvest in infrastructure. The rise of neoliberalism was the result of Republicans anchoring their broader agenda in aspects of it that were politically popular (particularly tax cuts) but they have never been able to persuade the public to support the broader agenda.
So to sum up, I argue that the main problem causing lower economic growth is neoliberalism, that what the people think matters, and that the people do not like neoliberalism.
But there is an important caveat: what the people think matters, but what the people think is contradictory. They want tax cuts and they want more spending. This leaves a lot of room for maneuver for politicians who can reasonably claim that they are responding to democratic demands no matter which side of the equation they pursue, and this is why the neoliberal agenda has been so successful despite the unpopularity of its broader components.
One answer to the contradiction has been for politicians to simply abandon reality. Republicans have long promised that tax cuts would not lead to higher deficits because they would unleash great economic growth. Democratic politicians have generally been more cautious in their claims, but last year in the Democratic primaries we saw one politician attain a measure of success by suggesting that greater government spending would lead to rates of economic growth that no economist thought possible. Trump is the apotheosis of this urge, cheerfully promising to maintain Social Security and Medicare even as he cuts taxes. And neoliberalism can continue as long as this politics continues, that is, as long as politicians can hide the fact that tax cuts mean cuts in collective investment.
But there is only so long that even the most successful demagogue can deny reality. As economic growth stalls, as unemployment increases, as discontent spreads, eventually someone is going to start arguing for the strategies that worked at mid-century, even if it means raising taxes.
We have to be modest in our predictions—especially after our community failed so badly in predicting Trump. Still, prediction helps us orient ourselves, and so with that more modest goal in mind, I think what we ought to pay attention to is whether there are countervailing forces that can translate absence of support for free market policies into government—or, to put it another way, whether America is still democratic. If it is, then we do not have to worry about its economic future. And if it is not—then we have a lot to worry about.