The decline and fall of neoliberalism in the Democratic Party


If the Democrats have one thing in common, it’s their shared hatred of President Trump. His shocking win over Hillary Clinton and the subsequent madness of his rule have galvanized the party in a way unseen in at least a decade. Yet their unity in opposition masks lingering and deep fissures in the party.

From the late 1980s to 2016, neoliberal ideas held hegemonic sway among the Democratic elite. But the economy created by this ideology — and the ensuing crises — is a major reason why Clinton lost to Trump and the party is completely out of power today. This obvious failure has provided an ideological opening that the American left has been eager to fill.

Yet even the left-wing is divided about the best way forward. Should it follow Elizabeth Warren’s lead and promise a return to the trust-busting ways of the early 20th century? Or should it emulate the more sweeping, Nordic-style politics of Bernie Sanders? Or perhaps the Democratic Socialists of America are right and something even more extreme is needed.

In this series, I’m going address each of these factions in the Democratic Party, reckoning with their failures and analyzing their potential to transform the country.

Let’s start with the weakest of the bunch: neoliberalism.

To understand neoliberalism, you need to understand where it came from.

Neoliberalism is an understanding of the economy that has its roots in the old classical liberal tradition of John Locke, Adam Smith, and David Ricardo. Orthodox capitalism in those days — the “long 19th century” from 1789-1914, in the words of Eric Hobsbawm — meant property rights, free labor, low taxes, the gold standard, little corporate regulation, no unions, and austerity budgets. Such policy did not cause the explosive growth of the Industrial Revolution — in particular, early textile manufacturing depended utterly on cheap slave-produced cotton — but the ideology they embedded was a key part of 19th-century political economy.

The signature feature of this ideology was the “self-regulating market,” to use Karl Polanyi’s phrase. The idea was that if a government set up an orthodox framework, then the economy would run itself without any interference from the meddling hand of government, whose taxes or regulations might interfere with private profits, or reduce the political influence of business.

However, orthodox policy tended to produce an economy with highly unequal incomes, business concentration, unstable booms, and long, painful busts. As the 19th century progressed, America had steadily more ultra-wealthy people, more monopolies and oligopolies, and worse economic crises.

These fed off each other. When income inequality reached its all-time peak in the late 1920s, the worst economic collapse in capitalist history quickly followed — and orthodox measures only made it worse. The gold standard was a particular problem, as it strangled nations’ ability to reflate their economy by devaluing their currency and increasing the supply of money. Grinding mass unemployment — with barely any welfare state to soften the blow — created tremendous political instability that destroyed the governments of many countries.

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The decline and fall of neoliberalism in the Democratic Party

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