Donald Trump and Sen. Bernie Sanders are both channeling deep resentments over stagnant wages, rising income inequality and loss of economic mobility, and attacking the policy consensus favoring untrammeled free trade and unrestricted market forces.
Global capitalism, “free” trade, deregulation and emphasis on unleashing market forces: These comprise the economic liberalism that has been the consensus in both American political parties since the late 1970s.
The late Margaret Thatcher, who as British prime minister was a forceful and early advocate, often said, “There is no alternative.”
Doctrinaire communism went away with the collapse of the Soviet Union: It had never delivered on its promises. Other command economy models also faded. “Communist” China is one of the most vibrant capitalist societies on the planet. Thatcher seemed correct.
Or maybe not.
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Economic liberalism, or “neoliberalism,” is one of the foremost targets of both Donald Trump, the likely Republican presidential standard-bearer, and Sen. Bernie Sanders, who is challenging Hillary Clinton for the Democratic Party’s nomination.
Both men are loud critics of trade deals. This should get the attention of Washington, one “winner” state under today’s trade paradigm (while many others have been big losers, and would potentially face even greater job losses under the proposed Trans-Pacific Partnership).
Both also want to go after Wall Street rackets. They have attacked the government’s failure to insist on negotiations with big pharmaceutical companies to lower drug prices in Medicare D.
Each in his way is tapping into deep resentments over stagnant wages, rising income inequality and loss of economic mobility, the American dream.
The parallels shouldn’t be taken too far.
Trump says a great many things in run-on sentences, many bigoted and designed to offend. He is exploiting white racial anxieties that have nothing to do with economics. He is a demagogue.
Sanders, the more serious of the two, offers a dead-on assessment of the financial oligarchy. Many Americans are indeed getting a raw deal. But he lacks any plan to win Congress so that his reforms could actually be passed.
None of this deters their supporters. Trump has drawn in new Republican voters. Sanders’ success has pulled Clinton to the left, but she is still forced to defend the neoliberal record of not just herself but also her husband.
However this remarkable election turns out, it shows the economic policies that have held sway for more than 35 years are under unprecedented attack. Neoliberalism arose out of the troubled 1970s, marked by oil shocks and stagflation — low growth and high inflation.
While “Thatcherism” was being applied in Britain in the late 1970s, President Carter and Congress moved ahead with deregulation of airlines and railroads. The results were positive; the Staggers Act arguably saved the railroad industry.
President Reagan took neoliberalism even further, adding in deep tax cuts to spark the economy and encouraging big mergers, which helped set Wall Street on a tear. Paul Volcker’s Federal Reserve used a severe recession to kill high inflation.
By the time Bill Clinton won the presidency in 1992, he had to run as a “new Democrat.” This was marketed as “the third way” between runaway capitalism and socialism, but in reality it embraced neoliberalism.
Once in office, Clinton raised taxes slightly, leaving his successor with a surplus, while the 1990s saw one of the biggest jobs booms in American history. He backed and implemented NAFTA.
Despite human-rights concerns expressed as a candidate, President Clinton gave China trade privileges of Most Favored Nation status. This engagement laid the track for China to join the World Trade Organization.
He also signed deregulation of banking, including repeal of Glass-Steagall, the Depression-era law intended to wall off commercial banks from gambling on Wall Street.
Let’s be clear: Bill Clinton was following what had become economic orthodoxy, and he had plenty of help from a Republican Congress and Federal Reserve Chairman Alan Greenspan, a disciple of Ayn Rand.
But banking deregulation lit the fuse that blew up in 2008. And China’s unconventional trading practices — and size — disrupted the blue-collar middle class.
In fact, neoliberalism had been working for fewer people for some time. Wages have been stagnant or declining for some groups for 40 years. Millennials are graduating with heavy student debt and entering jobs that tend to pay less than their parents earned at the same point in their lives.
Neoliberalism is now closely identified with corruption and widening inequality, including runaway executive pay. Moguls lecture employees about cutthroat global competition, but there is no shared sacrifice.
With a mostly hands-off antitrust policy, neoliberalism unleashed vast consolidation of industries and resulting layoffs. It was good for shareholders. But to critics this represented looting the productive wealth it had taken a century to assemble.
Wall Street was most to blame for nearly bringing on a second Great Depression, yet it avoided serious punishment. The gridlocked other Washington did little to bring relief to average Americans.
No wonder the economic status quo has made enemies in both the tea party and among liberals, although they differ sharply on responses.
And neither Sanders nor Trump have focused on the biggest issue short of climate change: the coming threat to many, even most, jobs from robots and automation.
If the system doesn’t reform itself, people will seek alternatives. And the hunt might not be pretty.