“Economics After Neoliberalism” describes an economics that uses public power to solve public problems. In other words, it is political economy. This does not mean that it is not “economics.” To the contrary, it means that Naidu, Rodrik, and Zucman have revealed an important truth about the discipline. By using economics as a technical tool to achieve public priorities, they demonstrate the inevitability of value decisions and create new possibilities for a politics willing to embrace it.
Economics without politics denies important realities about public life. Real-world developments driven by social and political motivations are chalked up in its models as “market failures” and “asymmetries.” It assumes the righteousness of its underlying framework of an equilibrium chosen by the preferences of market participants against other explanations that are understood to be ad hoc or irrational. Making this the basis for public policy is, to use our term for discussion, “neoliberalism”—its own kind of politics.
These assumptions limit a more complete use of economics. A nearly endless series of trade-offs accompanies every significant policy decision. Properly identifying or quantifying these trade-offs for economic purposes requires a hierarchy of values for them to be discovered, sorted, and prioritized. For example, recent studies have identified the inability of workers’ skills and experience to transfer between sectors as a significant labor market “adjustment cost” of expanded trade. But why is the labor market, instead of the expanded trade, presumed to be the source of the cost? Workers who have built up years of institutional knowledge and located their families in particular regions should not be expected to adapt well to conditions that require them to start over. The frictions caused by the expectation that market equilibrium requires workers to start over are so numerous and inherent that it might be more appropriate to flip the burden of proof and make “adjustment costs” the primary institutions of analysis, instead of the purported market benefit they serve.
The alternative Naidu, Rodrik, and Zucman propose is to understand political and social qualities such as these as the “embedded. . . institutional prerequisites” behind every supply or demand curve. While including these prerequisites is necessary for any economic analysis, they require a normative evaluation to be fully understood. What does our economy currently produce? What should it produce? How do we facilitate development in this direction? For labor market “adjustment costs,” how did the decision to expand trade affect the character of the economy? As Philip Pilkington has written, accepting this necessity should make economics less like a “science” and more like “an exercise in social logistics.”
Where neoliberalism can only observe public problems related to the operating of market processes ex post facto, economics after neoliberalism begins with the problems and builds or changes institutions in order to solve them.
An economics proceeding from this insight should liberate the political right to pursue its own goals more thoroughly just as much as it energizes progressive economists. The possibility that economics after neoliberalism could help identify and resolve problems that Naidu, Rodrik, and Zucman reject as an “illiberal, nativist turn” provides new policy grounds to consider and reveals a contradiction in the essay’s application of their proposal.
Consider reductions in life expectancy, one of the problems their essay raises. This would be more precisely described as a decline in male life expectancy and should be seen alongside the underemployment of working-age men in the U.S. economy. The reduced availability of jobs providing remunerative and geographic stability for men has profound effects on health and well-being for men, as well as entire families. For example, the loss of such jobs means that young adult men in particular are less marriageable and delay or forego family formation, contributing to falling rates of fertility and reduced social stability for men and women alike. Service sector employment often does not compare in terms of stability, productivity, and value-chain position, even if pay remains nominally constant.
Many of the social problems ascribed to globalization, automation, and resultant reduction in manufacturing jobs find their sources in how they have changed the working lives of men and their families. An economics that prioritizes solving this public problem would evaluate trade-offs not often considered by critics of neoliberalism on the left. For example, it would understand the economic effects of low-skill immigration not by the increases in consumer demand created by new earners in the market, but by their composition of employment and who they compete with. Or perhaps it would understand the receipt of cash welfare and refundable tax credits not by their ability to increase purchasing power, but to motivate or sustain labor force attachment.
Consider also the composition of business investment. The rise of business investment in financial and intangible assets rather than physical capital, such as equipment and machinery, has stunted U.S. economic development. Financialization earns profits by lending money to other sectors to invest, instead of the business sector making profits by its own investment. Digitalization earns profits through its ability to earn rents off of platforms that often extract more value from consumers than they create. In other contexts, we would call this kind of private gain at public expense “arbitrage,” but it has come to characterize the norm.
Value-neutral markets make no distinction between normal growth and “growth” that destroys productive capacity. Solving this problem will require valuing development itself, like what John Kenneth Galbraith once described as “technical progressivism for its own sake.” The considerations that should follow from this goal include those that are typically non-neoliberal, of course, like understanding the shortsightedness of businesses speculating on financial assets. But they may also lead to uncomfortable choices for left critics of neoliberalism. Industrial development is inextricable from national security. Doing it well will look more like competing in new space races with China than decarbonizing old factories. Productivity is its orienting value, not equity or social justice. The primary aim of industrial policy is better-organized capital, not the universal empowerment of labor.
If this pattern of identification is considered “right wing,” then economics after neoliberalism clearly supplies the right with new material tools to promote its vision of the common good. Neoliberalism constrained the right’s use of positive law in economic policy to areas sufficiently “outside” of the market, for example in the requirement of full-time work for welfare recipients. The framework proposed by Naidu, Rodrik, and Zucman to define economic policy as the provision of public goods would expand this justification to new areas. Work requirements on welfare imply the availability of productive work for its recipients. Pro-family cultural values imply an economy conducive to family formation. Corporate tax cuts imply a requirement to invest capital in the physical economy. Public benefit requires public obligation.
That critics of neoliberalism on the political left might object to the policy implications of these priorities reveals an important possibility—and a contradiction. Economics after neoliberalism could be worse for their stated goals than the economy during neoliberalism. Progressive social causes have become the lingua franca of consumer marketing for large corporations. The management of consumption patterns that sustain corporate earnings requires the creation of new tastes and the liberation of purchasing power for them. Social change can make for profitable business. On climate, the rise of digital technology giants as the national champions of the neoliberal economy provides the most significant example yet of commercial viability without physical economy presence. On inequality, large-scale transfer programs that ensure purchasing power parity across incomes are entirely consistent with neoliberal market institutions, and indeed have expanded during the same period of market liberalization described by the essay. If progress by these standards comes to be understood as political instead of natural, it may very well be changed by democratic society.
Therein lies the contradiction. The right may yet break with neoliberalism more than the left will. In their presumption of the righteousness of their goals and exclusion of certain technical tools from use, Naidu, Rodrik, and Zucman reveal they have not dealt with this possibility. Indeed, if the consideration of substantive values such as the primacy of family formation is denied because it violates a procedural norm, then we are right back where we began. Avoiding value decisions on the grounds that they are “illiberal”—not because they are wrong or technically infeasible—denies the essentially political framework that the economics proposed by the essay requires. “Economics After Neoliberalism” demonstrates this much; for that it should be applauded, and then put to better use.