Whether we think of the last four decades in U.S. politics as the Reagan Era or, with an eye to global political-economic trends, as the era of neoliberalism, it is worth considering that the political regime with which we are all familiar may be coming to an end, with the current president as its final unraveling.
A little over a year since the election of Donald Trump, what we have seen is consistent with the theory that his presidency may be a “disjunctive” one. The term comes from the political scientist Stephen Skowronek’s structuralist theory of presidential politics, which suggests that certain presidents — such as John Adams, John Quincy Adams, Franklin Pierce, James Buchanan, Herbert Hoover, and Jimmy Carter — find themselves in an “impossible leadership situation” as “a president affiliated with a set of established commitments that have in the course of events been called into question as failed or irrelevant responses to the problems of the day” (39).
Assuming our democracy survives the next three years — which remains unclear so long as an unwell racist demagogue possesses executive power, supported by a blindly obedient mass following — what might come after the Reagan Era? The continuing global spread of illiberalism, perhaps aided by the rise of a more competent American strongman, is one possibility. But what is the progressive alternative?
What would American progressives like to see replace the collapsing ideology of neoliberalism?
This question has been a driving preoccupation of this blog since I started writing it in 2014. I still find it useful to frame the challenge for progressives in terms of the question I asked in my second post: If a progressive today were to write a book like Milton Friedman’s Capitalism and Freedom, what would it say? In order to lay the intellectual foundations for a new progressive era, progressives should be able to offer what Friedman’s book offered to the Reagan regime: a simple, rhetorically compelling, easily summarized general vision of politics and the economy — alongside a sample of bold policy proposals that embody the general vision and can serve as a focus of practical political action.
It now seems to me that the intellectual foundations for a new progressive era are finally coming into view. In recent years, a growing chorus of progressive voices — from Dean Baker, Robert Reich, Dani Rodrik, and Geoffrey Hodgson, to the legal scholars at the recently launched Law and Political Economy blog — have begun to coalesce around a simple, compelling idea about government and markets. At the risk of oversimplification, the basic thought is something like this:
The economic choice we face today is not, as the last forty years of our politics has suggested, between government and the market. In fact, as a closer look makes clear, markets are created by governments. The rules of our economic markets are established by our government through its laws.
Our markets are government creations, and the rules of our markets are political decisions. It is in our power as a democracy to fix the rules when they are broken.
For the last forty years, we have lived in the illusion that “the free market” means a set of market rules favoring the wealthy and powerful few at the expense of the freedom of the many. But nothing in the nature of markets requires the neoliberal economic policies our government has so often chosen.
It is long past time to bring our new Gilded Age to an end by rewriting the rules for our markets. We need market rules that favor the freedom of the many rather than the corrupt interests of an oligarchic few.
Below, I offer a few examples of progressive economic policies that might be seen as embodying the view of government and markets sketched above.
But first, let me note that this post is the first of a series in which I hope to provide more detail about the idea of markets as government creations — the idea that I am suggesting has begun to come into focus as an organizing principle for what might come after the neoliberalism of the Reagan Era. I had originally hoped to write up some of these thoughts into something more scholarly and formal, but it looks like that will not be feasible in the near future. Because the discussion of market rules as political choices appears to be gaining steam, I thought it would be better to simply publish what I have now.
The second post in the series, Markets Are Government Creations: An Introduction (coming Nov. 19, 2017), attempts to provide more explanation and illustrations of the possibly counterintuitive view of government and markets sketched above.
The third post, Markets Are Government Creations: A Resource Guide (coming Nov. 20, 2017), offers some notes on the intellectual history of the view of markets as government creations. Although the post is very rough, my hope is that it might point in the direction of useful resources for others. My sense is that some of the participants in this incipient political dialogue may be unaware of some of the other participants’ very relevant work.
The fourth post, The Intellectual Foundations of a New Progressive Era? (coming Nov. 22, 2017), tries to locate the idea of markets as government creations in relation to other economic and political ideas, and raises a few questions that may require further work.
The fifth post, The Tragedy of the Obama Administration (coming Nov. 24, 2017), looks back at the missed opportunity of the financial crisis, which might have provided an occasion for beginning to bring the Reagan Era to an end.
What are some examples of progressive economic policies that embody the general vision of markets as government creations, and market rules as the result of political choice?
It is an open question how broadly to sweep in selecting illustrative policies. But an obvious starting point would be the policies that Dean Baker has been advocating for years, including in his recent book Rigged (available at the link as a free PDF).
Baker draws attention to “five broad areas where the rules now in place tend to redistribute income upward and where alternative rules can lead to more equitable outcomes and a more efficient market” (9-10). I will simply list the five areas (quoting Baker) and note a few alternative rules:
1) Macroeconomic policies determining levels of employment and output: Lower interest rates tend to result in higher employment and higher wages. Yet the Fed errs on the side of higher interest rates — as though its inflation target were in fact a ceiling, and as though it is somehow obligated to prioritize price stability above maximizing employment, rather than giving equal weight to these mandates. There is nothing in the nature of a free market that requires an aggressive anti-inflation policy. It is a policy choice — as Baker says, “a commitment by the government, acting through central banks, to keep wages down” (10).
2) Financial regulation and the structure of financial markets: In the wake of rapid changes in information technology, “the United States and other countries have largely structured regulations to allow a tiny group of bankers and hedge fund and private equity fund managers to become incredibly rich” (10). Different rules could reorient the finance industry “to better serve the productive economy” (id.) and to reduce income inequality and the political pathologies resulting from the finance industry’s concentrations of wealth. As Baker notes, the so-called “deregulation” of the finance industry was nothing of the kind. It was the replacement of one set of rules with another. The rules can be changed again.
3) Patent and copyright monopolies and alternative mechanisms for financing innovation and creative work: Patent and copyright protections are government-granted monopolies — an especially obvious example of government creating the rules of the market. Conservatives sometimes object to progressive economic policies by saying that government should not be in the business of picking winners and losers. Patent and copyright are a clear illustration of the fact that when a government establishes market rules, it necessarily picks winners and losers — if not among individual firms, then among more general competing interests. The question is who will win, and who will lose. Different rules, which Baker describes, could result in less upward income redistribution alongside greater efficiency, innovation, and, I would add, freedom: for example, the freedom that creators do not have when they cannot tinker or innovate based on the innovations of others, or the freedom that a person lacks when unable to afford a needed prescription.
4) Pay of chief executive officers (CEOs) and corporate governance structures: Corporations are straightforwardly government creations. The historically unprecedented, inequality-compounding executive compensation practices that prevail today are not the result of some naturally occurring “market process.” If CEOs receive needlessly, inefficiently large pay packages, they do so as an indirect but systematic result of government policies that it is within our democratic power to change.
5) Protections for highly paid professionals, such as doctors and lawyers: Government policies unnecessarily protect professionals such as doctors, dentists, and lawyers from the kinds of competition — interstate and international — that blue collar workers have faced for decades. Changing these market rules would reduce the costs of professional services for consumers and reduce the incomes of professionals, which would in turn reduce our inequalities of wealth.
As Baker has continually emphasized, none of these are the traditional tax-and-transfer policies that usually form the focus of progressive political energies in the United States. Nor are they attempts to encumber “free markets” with government regulations, or to do away with markets entirely in favor of direct government action. In each area, Baker is arguing in favor of replacing one set of government-created market rules with another, better set of government-created market rules.
The areas noted above are not the only ones where market rules might be changed to reduce inequality and promote freedom. Other examples would include traditional progressive concerns such as strengthening the power of unions through labor law, which Baker also discusses (Rigged 30-31), and reforming anti-trust law to recognize the negative political and economic consequences of concentrated corporate power.
More unorthodox policies like the various possible forms of a job guarantee might also, at least arguably, be framed as changes in market rules rather than government “interventions” in the market. As Jared Bernstein has written, “if you’re okay with the Federal Reserve as the lender of last resort when credit markets fail, as was the case in the financial crisis of 2008, then you should apply the same standard to labor markets.”
Incidentally, some of the Consumer Financial Protection Bureau’s reforms of consumer credit markets could be seen as an example of what the progressive redesign of markets might look like — not surprisingly, considering that the CFPB was spearheaded by Elizabeth Warren, arguably the elected official whose arguments most closely reflect the post-neoliberal, progressive view of markets being discussed here. Echoing Baker, for example, Warren often speaks of the economic system being “rigged” against the middle class. It is surely no coincidence that Warren, like Reich and the contributors to the LPE blog, was trained as a lawyer. As discussed in an earlier post, the legacy of progressive-era “legal realism” has resulted in lawyers, unlike economists, routinely being exposed to the constitutive importance of legal rules and institutions in the economy.
More generally, the idea of rewriting market rules might be seen as a subset of the larger project of rewriting the rules of the economy, including through tax-and-transfer policies. The Roosevelt Institute’s 2015 Rewriting the Rules report, spearheaded by Joseph Stiglitz, takes this broader perspective — and in the process also points toward a number of progressive policies that might be associated with the view of market rules as political choices. As the Roosevelt Institute’s publications repeatedly emphasize: “Inequality is a choice.”
Some of the progressive economic policies that have been most widely discussed in recent years — such as a higher minimum wage and paid family leave — could also be viewed as reforms to the rules of the labor market.
At a stretch, it might even be possible to see certain forms of government spending as a kind of reworking of market rules. What if transfers to working families were reconceptualized as a “globalization dividend”? The economic premise of trade liberalization has always been, in part, that growth resulting from trade could be redistributed to compensate those whose lives were disrupted by foreign competition. This has, obviously, never happened. If the wealthiest beneficiaries of global trade were taxed at a higher rate, and the proceeds were spent on working families — either through direct government transfers, or indirectly through, for example, infrastructure investments resulting in blue collar jobs — could it make sense to think of such policies as redesigned market rules rather than government handouts? In the sense that increased income equality results in price signals that more accurately reflect the wants and needs of the public, could even a universal basic income be seen as a reform of market rules?
Possibly not. Not every progressive economic policy — much less every progressive policy in general — needs to be reframed as a reworking of market rules. Infrastructure investments and other government spending on public goods seem particularly hard to reframe in this way. But it may be possible to place more policies within the framework of rewriting market rules than is initially obvious.
Finally, at least as a potential source of political rhetoric, it is worth noting the countless everyday ways in which Americans are manipulated and exploited by market rules that we know could be different — because they are different in other countries, or have been different in the past. Examples would include our expensive and mediocre cell phone and broadband service, the ongoing proliferation of corrupt and nonsensical occupational licensing requirements, our lack of return-free tax filing, the profusion of noncompete clauses in employment contracts, and of arbitration clauses everywhere, our lack of control over the collection and selling of our private information, including by credit bureaus that can then fail to protect the information from hackers, possibly without any legal liability… The list could go on, and on.
After four decades of neoliberalism, there are countless examples of infuriating market rules that stand in the way of Americans’ freedom — usually under the guise of preserving an arbitrarily defined “free market” from government “interference.” These everyday corruptions could help to make concrete the ways in which our market rules are rigged against the public and in need of reform.
Other posts in this series:
- After Neoliberalism (Nov. 17, 2017)
- Markets Are Government Creations: An Introduction (Nov. 19, 2017)
- Markets Are Government Creations: A Resource Guide (Nov. 20, 2017)
- The Intellectual Foundations of a New Progressive Era? (Nov. 22, 2017)
- The Tragedy of the Obama Administration (Nov. 24, 2017)
 Up to now, I have generally avoided the term “neoliberalism” because I associate it with the anti-liberal academic Left and its largely unhelpful politics. Contrary to recent articles by Jonathan Chait and Dani Rodrik suggesting that the current use of “neoliberalism” in the United States might descend in some way from a 1982 article by Charles Peters in the Washington Monthly, I suspect that the term arrived in our current political-economic discourse by way of American radical-leftist academics who imported it from Europe, although its roots may extend elsewhere. (When Wendy Brown talks about the term “neoliberalism,” she is not thinking of the Washington Monthly and Paul Tsongas. She is thinking about lectures by Foucault in 1978 and 1979.) But as the term continues to spread, I have no interest in opposing it. It’s as good a term as market fundamentalism, Reaganism, or Thatcherism for describing the political-economic ideas of Hayek, Friedman, and Buchanan, among others, and the political movements, policies, and climate of thought that resulted from and surround their work.