Why would anyone want to be a neoliberal? It’s a hard question to answer today when the left and right both say they’re looking to put the neoliberal order behind us. But that makes it even more important to understand what made it appear so imposing not that long ago. To take us back to that moment, I spoke with J. Bradford DeLong. An economist at UC Berkeley and former member of the Clinton administration, DeLong now views the neoliberal project as a failure. But in 1999 he said it was “the only live utopian program in the world today.” We talked about neoliberalism’s origins, the sources of its appeal, and whether we have really moved beyond it. —Timothy Shenk
Timothy Shenk: I always think it’s best in a conversation like this one to start by getting our terms straight. So, how do you define neoliberalism?
J. Bradford DeLong: I try to draw distinctions between right neoliberalism and left neoliberalism, and Global North neoliberalism and Global South neoliberalism. Global South neoliberalism came from a recognition that state capacity was extremely limited, and so betting on globalization and integration—on the market rather than on the state—was the best way forward for humanity.
Global North neoliberalism is a different beast. It was the belief that social democracy had greatly overreached and had created a society in 1979 that was too bureaucratic, too rigid, and also too equal: the rich needed to be richer so they would be incentivized to create jobs, and the poor needed to be poorer so they would be incentivized to work.
Within the Global North, right neoliberals thought that any extra inequality was a just arrangement—that the poor really ought to be poor because they were shirkers. As Mitt Romney said, “I’ll never convince them they should take personal responsibility and care for their lives.” Left neoliberals thought that extra inequality was something to be greatly deplored and perhaps ameliorated.
So we have three tribes of neoliberals, all of whom think somewhat different things. As time passes, neoliberalism as a current bent toward the right-wing neoliberal. “The market giveth, the market taketh away. Blessed be the name of the market” thought reigned, because maintaining more complicated, nuanced ideas is hard—and because there is a lot of money, both in the Global North and Global South, which benefits from propagating the right neoliberal side.
Shenk: Let’s stop here to think about chronology for a minute. Your book, Slouching Towards Utopia, in which you follow the standard line that neoliberalism emerges in the 1970s, has a good account of why the social democratic project ran into stiff headwinds in that decade. But what I’m less clear about is why you think neoliberalism emerged as the answer to these problems.
DeLong: In the United States, it was a repeat of what happened to the Populist movement in the 1890s and 1900s: the left was broken on the anvil of racial animosity. The good Reagan Democrats of Macomb County, Michigan—UAW members, enormous beneficiaries from the mass-production economy and the New Deal—thought the Democratic Party was on the side of black people, and they didn’t like that.
The second piece is that inflation was viewed as the government breaking its social contract. The government is supposed to create an economy in which you can buy what you think you can afford to buy at the prices you expect to pay. Inflation breaks that for everybody. To deal with inflation, somebody has to become poor—unless you can do something extremely clever with monetary reforms and price controls and reset everyone’s expectations. So if we have to solve this problem by making some groups poor, who are we going to choose? A political moral philosophy that identifies a group has a definite edge over a movement that doesn’t. The Volcker-Thatcher-Reagan line is that we have sinned against the gods of monetarism, and someone has to be sacrificed—and it’s the manufacturing and construction workers and the miners. They could all lean into that, and provided they were lucky enough to win elections, they could then turn and point to the fact that inflation has been brought under control, and the government is no longer breaking its social contract.
Shenk: Okay, I get why you think neoliberalism would be appealing to Volcker and company, along with an important slice of swing voters. But what about you? Because by the Clinton years, it’s a term you seemed proud to apply to yourself.
DeLong: Did you ever read Theodore J. Lowi’s The End of Liberalism?
DeLong: It was extremely influential for presenting the idea that New Deal liberalism had turned into rent-seeking. The book argued things had become too bureaucratic, and that the government promoted those who managed to hang on to some new property form of wealth, and that new property form of wealth was not to the public benefit. I say this as I look around in Berkeley, California, at an entire neighborhood composed of single-family houses. In an earlier America, this would have been leveled and turned into eight-story apartment buildings like on the Upper West Side, or at the very least, triple deckers, cheek by jowl. It is because housing is so completely unaffordable that people are making two-hour commutes from beyond the Altamont Pass. A huge number of people around here are homeless. If one thing goes wrong with your life, you’re sleeping in your car. My Berkeley neighbors think of themselves as good leftists, and they also think they have a natural right to preserve the historical character of the neighborhood—never mind that the demand for housing in greater San Francisco is several magnitudes higher than what it was only thirty years ago.
Shenk: That critique—of not just the social democratic project, but also the regulatory apparatus that emerged by the 1970s—give us a sense of what you were against. But in 1999 you also called neoliberalism the only live utopian program in the world today. It wasn’t just a critique. There was a positive vision there too.
DeLong: Neoliberalism produced enormous wealth in the Global South. Deng Xiaoping decided that the Stalinist economics he was taught in the 1920s and 1930s did not work. He returned to an older Chinese tradition of wealth management and borrowed the entrepreneurial classes of Hong Kong and then Taiwan. It worked magnificently. Rajiv Gandhi, starting in 1985, dismantled the Licence Raj. That was also working extraordinarily well. And in the United States we had balanced the fiscal budget. Clinton’s sacrifice of his programmatic goals on the altar of fiscal responsibility appeared to have been a big success. We had rapidly rising real wages from 1994 to 1999 in the United States. That opened the fiscal dividend to start shifting back toward expanding public programs, and it might well have happened if Al Gore had not lost the 2000 presidential election five to four.
Shenk: You saw some of this firsthand working in Clinton’s Treasury Department. Looking back on the period, what mistakes do you think the Clinton team made?
DeLong: Clinton’s focus in 1993 on fiscal responsibility rather than prioritizing social investment was a huge mistake. Restoring America’s government to a sound fiscal basis is not worth doing if the long-run effect is to sacrifice those priorities so that George W. Bush can do another round of tax cuts. Obama sacrificed those priorities again in the desperate pursuit of a grand bargain only for Trump, Paul Ryan, and Mitch McConnell to do another round of tax cuts, with Republican economists lying about how they would boost America’s capital stock by 40 percent. It was a major mistake to think there was a good government caucus on the Republican side that would be able to block the undoing of our work.
What Clintonism turned out to be was not how Clinton started out. “Ending welfare as we know it” was accompanied by an enormous expansion of the Earned Income Tax Credit. And it did not actually diminish the funding that had gone into the Aid to Families with Dependent Children program, it just transferred responsibility for program design to the states. For two-thirds of the country, welfare reform was not a very big deal at all; blue state welfare systems continued as they had. In the red states, welfare reform was a long-run disaster. Clinton would say this disaster was partially offset by the fact that if you did get a job, you got a tax credit. Meanwhile, the public infrastructure investment part of the Clinton agenda was nuked by the so-called “centrist” Democratic senators.
To some degree, Clinton convinced himself that he is extremely happy and proud of everything that happened, but that’s not what the Clinton of 1993 would have thought or said.
Shenk: What about Robert Rubin, your old boss at the Treasury Department? You were calling yourself a Rubinite down to 2011 at least.
DeLong: Rubin is an extremely good manager; the only bad thing you can say about him is that because Goldman Sachs and Citigroup were so nice to him personally, he thinks they are more beneficial for the country than they are. But Rubin is not someone who sees income inequality as a virtue. To the extent that he put on a conservative mask, it was a way of coalition building, rather than a lack of understanding and concern for the experience of the poor.
Shenk: But, as you know, Rubin had plenty of critics from the left—including a number in the Clinton administration—who said that even if he didn’t view economic inequality as a virtue, he still was deaf to a vast slice of the country: basically, anyone above the poorest of the poor and below the richest of the rich. If you listened to Rubin, globalization would have seemed like a tricky but ultimately soluble dilemma for well-intentioned technocrats to manage. And that’s putting aside all the questions about the run-up to 2008—not treating the LTCM debacle [a hedge fund bailout in 1998] as a warning about the financial system’s fragility; fixating on a crisis that never came driven by a trade imbalance with China; and the fact that a congressional panel found that he “may have violated the laws of the United States in relation to the financial crisis.”
DeLong: Should we throw large amounts of money away on programs that do not work materially, because they seem to be important in a status sense for the lower-middle class? It’s a foreign argument to Rubin, and also to pretty much every economist. For Rubin, you’re playing the game and sometimes you lose; and if the rules of the game are good in general you really shouldn’t grouse too much about changing them. We lose some blue-collar manufacturing jobs in Macomb County that are going away anyway because of automation and in exchange we get clerical jobs in New York, and a bunch of global managerial and money-managing jobs that are worth a huge amount in terms of Americans’ income and America’s tax base. That’s the underlying view of the Rubinite embrace of globalization in the 1990s.
Shenk: Do you still consider yourself either a Rubinite or a neoliberal?
DeLong: I would not grab “neoliberal” unless prodded on the Internet. If it were possible to be a social democrat in left-neoliberal sheep’s clothing and be effective, I would be eager to be one. But my judgment is that joining and strengthening the neoliberal current is in the end not going to lead to a good place, because it’s already too strong. And you shouldn’t make social democratic arguments in neoliberal language. You should make social democratic arguments in social democratic language.
Shenk: So, you’ve gone from expressing social democratic impulses with a neoliberal vocabulary in the 1990s to expressing neoliberal impulses with a social democratic vocabulary in the 2020s.
DeLong: Yeah. It really is the case that market economies can crowdsource solutions to an awful lot of problems very effectively, and a lot of the time social democratic ends are best realized through market and neoliberal means rather than through bureaucratic command and control. But reinforcing the idea that the market is right, or the market is often right, leads you to the 2008 financial crisis and the Great Recession. It leads you to a world in which people respond to inflation during our pandemic reopening by saying that the market needs to bring the hammer down, because we have sinned against the gods of monetarism and so someone—the working class who become unemployed in a recession—has to pay. I definitely do not want to reinforce that current of thought. It’s already much too strong.
Shenk: Given that perspective, how do you think about the hawkish line that your former co-author Larry Summers has taken in these debates?
DeLong: This is mostly a technocratic dispute. Larry wanted a small recession early this year because he thought that was the best way to inoculate us against a big recession next year. When Putin attacked Ukraine, oil and grain markets went to hell, and we faced the possibility of Germany freezing last winter, and of mass famine in Lagos and Cairo, I moved over for two months to Larry’s position. Now I think he’s wrong to think that—the fact that inflation expectations are so rock solid is a strong sign that he’s worrying about shadows. His fears are possibilities, but these are very low-probability possibilities.
Shenk: In Slouching Towards Utopia and elsewhere, you’ve said that neoliberalism’s chief legacy is soaring levels of economic inequality. What do you think an effective campaign to rollback that inequality would look like? Do you think it’s even conceivable?
DeLong: Well, on the economists’ side, the wealth tax.
Shenk: Would that work politically?
DeLong: The problem is that a stable political-economic order is one in which the beneficiaries of government support do not see themselves as charity cases. As some have put it, the people of West Virginia do not want to be Medicaid recipients; the people of West Virginia want to be in an economy that provides them with opportunities so they can earn enough to buy their own health insurance. The best thing we have found for this is expanding the Earned Income Tax Credit even more.
Shenk: What do you make about the argument that we’re entering a post-neoliberal moment? If you define post-neoliberalism as a new comfort among Democratic elites for industrial policy, then clearly that’s the case. But if you look at the underlying factors driving global political economy over the last fifty years—the collapse of organized labor, the extension of global markets—it’s hard to argue that these changes have been reversed in any significant way.
DeLong: No. No.
Shenk: Then what do you make of a more cynical reading about the vogue for post-neoliberalism—for instance, that it’s an excuse for Democrats in Washington to describe useful but incremental policy changes as some kind of paradigm-busting revolution.
DeLong: You can say that neoliberalism is dying, but the new world is struggling to be born. As Gramsci wrote, “Now is the time of monsters.” But what is the alternative? The socialism of Friedrich Engels had a definite affinity with the steam-power economy, because it meant we all had to work together in big factories, in which we were each pretty much a cog for applying the power of the steam engine. It was clear that we were collectively massively powerful, capable, and rich, but individually, none of us mattered very much. So, we all dressed in identical blue overalls, called each other comrade, and shared things equally. It looked like the world was heading that way in the 1870s and ’80s, but the steam-power economy was followed by the applied-science economy, which was followed by the mass-production economy, which was followed by the global value-chain economy, which was followed by the info-biotech economy we’re moving into. There was an affinity between the applied-science economy and classical liberalism, and between the mass-production economy and social democracy, and between the global value–chain economy and neoliberalism. But I have no idea what the affinity political system for the info-biotech economy is going to work like or look like—except that I’m terrified it will be more to the liking of Peter Thiel than it will be to me.
Shenk: If I you think this info-biotech economy is the wave of the future, what else do you see when you look into the crystal ball?
DeLong: I tend to see lots of opportunities to do social democracy right, in a much less bureaucratic and annoying way. You use information technology so people no longer have to spend eight hours a day waiting at the welfare office or waiting three months to be denied benefits. Being under the thumb of bureaucracy, or of the market, is a lot less objectionable if you have the freedom to use your smartphone to figure out where your next customer might be or to make the bureaucracy actually serve you a bit. Yet that feels wrong to me because I also think that social democracy was stabilized and enabled by the existence of the mass-production economy, which entailed an awful lot of countervailing market power for workers in the form of the union movement. I want another six months to figure out whether neo-fascism is just a flash in the pan or in fact the wave of the future. I also want to see whether algorithms are a pro-equality or a pro-inequality way of managing social affairs. The smart thing to say is that yes, neoliberalism is, or ought to be, dead, but zombie-like, it still walks the earth.
J. Bradford DeLong is a professor of economics at the University of California, Berkeley. He was a deputy assistant secretary of the U.S. Treasury during the Clinton administration. His most recent book is Slouching Towards Utopia: An Economic History of the Twentieth Century.
Timothy Shenk is co-editor of Dissent.