Worshipping at the Cold Altars of Neoliberalism

The London Economist keeps the faith and says the prayers, even though no one and no thing is listening; a draft for my April Project Syndicate column...

Worshipping at the cold altars of neoliberalism; by Stable Diffusion via NightCafe

I see that the neoliberal faith is still very much excessively strong in the pages of the London Economist:

The more that Americans think their economy is a problem in need of fixing, the more likely their politicians are to mess up the next 30 years. Although America’s openness brought prosperity for its firms and its consumers, both Mr Trump and Mr Biden have turned to protectionism and the politics of immigration have become toxic. Subsidies could boost investment in deprived areas in the short term, but risk dulling market incentives to innovate. In the long run they will also entrench wasteful and distorting lobbying https://www.economist.com/business/2023/04/10/americas-800bn-climate-splurge-is-feeding-a-new-lobbying-ecosystem. The rise of China and the need to fight climate change both confront America with fresh challenges. All the more reason, then, to remember what has powered its long and successful run… https://www.economist.com/leaders/2023/04/13/the-lessons-from-americas-astonishing-economic-record

There is a sense in which this final paragraph is absolutely perfect. 

It begins with a demand that Americans shut up and sit down—accept the dogma that the market giveth; the market taketh away: blessed be the name of the market. A flat-out prohibition against Americans’ daring to think that their economy has any weaknesses that should be addressed other than an over-mighty and over-interventionist government. It ends with a claim that America’s special prosperity in the past is due to its worship of the Mammon of Unrighteousness that is laissez-fair—a claim that took away the breath of at least this student of America’s long developmental-state history.

The penultimate sentence refers to three “fresh challenges” America faces: the security challenge from the rise of China, the growth and development challenge from the need to rejigger the global division of labor as a result of the rise of China, and the challenge of global warming. But the last of these is in no sense “fresh”. We are at least a generation late in dealing with it. And as a result of our lateness, economic damage from global warming will absorb much if not more than all of the world’s expected technological dividends over the next two generations.

All of these challenges are, from the perspective of the von Hayekian market, “externalities”: the market economy cannot deal with them because it does not see them. Nobody gets paid when successful control of global warming means fewer destructive floods in Pakistan and fewer and smaller typhoons roaring up the Bay of Bengal. Nobody gets paid when wars in the Pacific do not happen. And the enormous spillover benefits from the scales and the locations of the world economy’s R&D efforts and communities of engineering practice are both the principal drivers of absolute and relative economic prosperity and are invisible to the calculus of the market. To note the scale and urgency of such challenges, and then to pretend that they are not challenges that by virtue of their externality-character can only be handled at the level f the government, is major intellectual malpractice. Recall that Adam Smith saw the security need of a strategic advantage in numbers of professional seamen as overwhelming, and so supported the Navigation Acts requiring that trade goods be carried in British rather than in the cheapest ships. “Defense”, he wrote, “is more important than opulence.” Denouncing desirable security policies as “protectionist” was beside the point then, and is beside the point now.

The Economist’s denunciation of protectionism is paired with a profoundly mealy-mouthed “…and the politics of immigration have become toxic”. Either America should (as I believe) be allowing in more immigrants for they are highly productive and rapidly learn to love this country, or America should let in fewer because acculturation is already happening too slowly. The word “toxic” misinforms whatever half of the Economist’s readers falsely think it means the magazine agrees with them, and has no virtues except for reducing subscription cancelations by annoyed readers.

There is one and only argument in this last paragraph, and is rather gestured at rather than made. Behind “Subsidies could boost investment in deprived areas in the short term, but risk dulling market incentives to innovate. In the long run they will also entrench wasteful and distorting lobbying…” Is the claim that, while market failures from uncompensated externalities are bad, the government failures induced by activist policy attempts to correct them are worse. Thus Americans should cleave to “the market giveth; the market taketh away: blessed be the name of the market” even though it is false. Why? Because the government is a hammer, but the problems with the American economy are not nails.

It is here that the Economist’s misreading of American economic history matters. The American economic tradition is one of Hamilton-Lincoln-Roosevelt (Teddy)-Roosevelt (Franklin)-Eisenhower, who understood both the need for a developmental state and the dangers of such a state’s degeneration into rent-seeking. It is true that the Age of Eisenhower is now seventy years in the past, and that much American state capacity has been hollowed out in the long neoliberal era that began with Reagan. But on the other side of the scale is the fact that the laissez-faire policy framework that was inadequate for the mass production-mode economy of the 1950s is even less adequate for the bio and infotech-mode economy we are moving into today.

American needs not to reject but instead to make a success of its industrial policy in this decade of the 2020s. This time, really, There Is No Alternative.