The Scourge Of Neoliberalism: US Economic Policy From Reagan To Trump’
Above Photo: From Jackrasmus.com
This is a book review of ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’ written by labor economist Jack Rasmus published by Clarity Press, 2020. The review is by David Baker with a brief commentary at the beginning by Rasmus. KZ
The book takes a different perspective than most to date on the subject of Neoliberalism. One of its major themes is that Neoliberal policies, which had dominated US economic policy since the late 1970s decade, entered a crisis with the crash of 2008-09 and the weak global recovery that followed. The Obama administration could not fully restore the Neoliberal project in original form, and the material conditions responsible for Obama’s failure to restore Neoliberalism on its original trajectory, it is argued, gave rise to the ascendance of Trump in 2016. Trump should therefore be understood as representing a more aggressive attempt to restore US Neoliberalism, albeit in a new, more virulent ‘neoliberalism 2.0’ form.
After three years of Trump, the book assesses the Trump more aggressive restoration effort, its ‘successes’ and where it still has thus far failed to restore. Nearly 100 pages of the book’s analysis addresses the evolution of Trump policies in Neoliberalism’s four major dimensions of Neoliberalism: Industrial Policy, Fiscal Policy, Monetary Policy, and External-Trade-Currency Policy.
The book also critiques most prior accounts of Neoliberalism and their excessive estimation of the role of Ideas in lieu of the role of material forces in its rise, evolution, and now emerging crisis as its internal contradictions have multiplied since 2000. Most accounts to date fail to distinguish the Ideology of Neoliberalism from its actual, historical practice, it is argued.
The book thus places more causation on material factors and forces explaining the rise, evolution, and now emerging crisis of Neoliberal policies in the US. It predicts Trump’s 2.0 restoration will ultimately fail.
The next to last chapter describes the material-technological forces emerging and developing in the US and global capitalist economies that will bring about that failure, now in development and soon to emerge in the 2020s decade full blown.
And in the final chapter, the unstable relationship between Neoliberal economic policy and the US political system is addressed. It is argued that Neoliberalism has always been incompatible with even the limited form of capitalist democracy in the US and the ‘west’. And that incompatibility has been intensifying since 2000 in the US. As it has entered a crisis, it is now becoming more clear that democratic forms, norms, and institutions are now giving way–creating Constitutional Crises in the ‘heartland’ of Neoliberalism (USA and UK)–that will lead to a US political system crisis next decade as well as economic.
The following is David Baker’s early review of the book, which is available at discount on this blog via Paypal, and available on Amazon and other public outlets by mid-January 2020:
Dr. Jack Rasmus
January 1, 2020
The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump, by Dr. Jack Rasmus, Clarity Press, January 2020 ; A REVIEW by David Baker, (forthcoming next issue of Z magazine)
At 272 pages, Dr, Jack Rasmus’s new book “The Scourge of Neoliberalism: US Economic Policy From Reagan to Trump” is a big little book. To understand its importance a comparison to another big little book by John Maynard Keynes entitled The Economic Consequences of the Peace, “Economic Consequences” is helpful.
Economic Consequences grew out of Keynes’s participation in the post-World War I peace negotiation as an English representative. When Keynes discovered the extraordinary punitive nature of the peace being imposed upon Germany he walked out in protest. His book explains why.
Economic Consequences begins with a careful, common sense explanation as to how the economies of Germany France and England had become interlocked and interdependent which we would now describe as a global economy in the making. So to punish one, in this case Germany, was to punish all. Likewise, the punitive economic sanctions imposed upon Germany were so severe that Keynes predicted that a political monster would arise in Germany. That political monster was ultimately embodied in the person of Adolf Hitler.
Although our present political monsters, Trump and the Republican Party, have not reached the level of Hitler, it was not a rhetorical flourish when Noam Chomsky called them worse than ISIS. The Scourge describes how our home-going grown political monsters came into being.
Rasmus excels at economic history. His brief account of American economic history since 1900 rings true. His baseline is that economic structures are not static but constantly changing to control an evolving economy as well as political changes.
He divides the American economy since 1900 into three periods; roughly Pre World War I, during and after World War II, and the Reagan era which kicked off neoliberalism. In the two World War eras, America faced a happy challenge: how to manage America’s growing economic might so it would become an unsurpassed superpower. The first restructuring, the Pre WWI restructuring was to make the US capitalists a co equal partner with Britain and European capital; the second, during and immediately after WWII, was to make the US a global economic superpower. The third era, was and is, an unhappy time for America’s policymakers because they are and were faced with real challenges and real decline; the goal was to defeat domestic challengers, such as unions, as well as global challengers, such as Japan and Germany, for decades to come.
The stage was set for the third era in the early 1970s. Unions were extremely powerful and had made unprecedented wage gains of up to 25% in the early as 1970’s . Meanwhile America could not compete with Japan and Europe due to its lagging and aging industrial infrastructure. So the policymakers faced a real dilemma: what to do? Their choice came to be called neoliberalism which is neither new or liberal but a marketing term exploited by an all too compliant intellectual class.
Neoliberalism is essentially a set of crude policies that maintains high short-term profits at the expense of long-term profits and prosperity for all. The policymakers did not want to plunge say 35% of GDP into research and development and infrastructure upgrades because that would cut into their profits. Instead they took the easy way out: they cut taxes for businesses and the wealthy; they destroyed unions; the offshored US manufacturing to low-wage countries; they repealed decades of important regulations; they destroyed real pension plans for the lower 90%; robbed Social Security; they onshored cheap high-tech help from foreign country; they unleashed rivers of capital across the globe; they let the banks gamble with esoteric financial instruments; they destroyed public education and crippled the young with more than $1.5 trillion in student loans; they poured at least $5 trillion of virtually free money into the banks and investors from the Fed and on and on and on.
The Democratic Party’s response to all this was appalling: one campaign promise after another was broken and the lower 90% were faced with an active enabler of neoliberal policies—— Bill Clinton—– or a passive enabler of neoliberal policies, Barack Obama.
Rasmus also excels at the economic consequences of these policies: stagnating incomes and standard of living for the lower 90%; grotesque income inequality; a rotting infrastructure; lack of access by the lower 90% to adequate housing, healthcare, transportation and education. America has become a second rate country with an angry precariat.
Rasmus is also gifted at demonstrating how this intricate web of policies create negative feedback systems and leads us into an economic and political dead end. Two important issues may help demonstrate how this is occurring. His discussion of war/defense spending is illuminating. At no time since 1900 was any country a military threat to the United States. That ended in 1812. And yet, beginning with Reagan and continuing through Obama/Trump war/defense spending has gone through the roof. Why? A variety of reasons.
First, war/defense spending is an easy money conduit for the Fortune 500 since by definition there is no foreign competition. Likewise, it is a major way of funding research and development without calling it that: who would be willing to pour tens of billions of tax dollars into IT to make, say, Bill Gates rich? So we label it defense spending. But third and finally there was a tacit acknowledgment that since America could not compete economically then it would continue to compete militarily. Rasmus excels at demonstrating how this is a complete policy dead-end.
This war/defense policy created the dilemma of double deficits. That is, how can America cut taxes and increase war/defense spending? Answer: the double deficit. The US agreed to allow its allies to import significantly more to the US than the US was exporting to them but to fund this chronic and growing trade deficit the allies agreed to buy by large quantities of US debt to close the gap in deficit spending. Likewise taxes for businesses and wealthy investors have been cut by $15 Trillion since 2001 which also pushed the domestic deficit through the roof. But this rising debt generated huge interest payments, which the Congressional Budget Office estimates in ten years will be about $1 trillion in interest payments alone per year. Meanwhile the lack of real research and development investment by the US led to low productivity growth which in turn led to the further compression of wages/income for the lower 90%. The US economy has become a zero-sum game where the gains of the upper percentiles are taken from the lower 90% and is part of the reason we have the grotesque inequality of income and wealth we have.
Then finally there is what I call the China Challenge which demonstrates the dead end of this policy choice. Several years ago, China announced its 2025 policy plan which would put China in the lead of new IT development such as G5, cybersecurity and artificial intelligence. This is a real and significant threat to military leadership by the US because new IT developments have obvious and long-term military applications. This in turn prompted Trump’s trade war with China that ultimately collapsed.
As trade war talk intensified, the purchase of American debt by Asian countries slowed; equally important the Chinese stopped buying American agricultural products which was one of the core political constituencies of Trump: Midwest farmers, large and small, many of whom went bankrupt, started screaming at the Trump administration to back off from China. So Trump backed off despite his public announcements that he had won the trade war. The Chinese will steam ahead to become the world leader in IT while the US falls farther and farther behind which critically impairs even its grotesque military supremacy.
The Chinese Challenge is just one example of how Rasmus demonstrates the long-term failure of neoliberal policy. Another important policy dead end is the Greenspan “put”. The Greenspan put is to maintain low interest rates through the Federal Reserve. Those low interest rates allows multinationals to achieve high profits on their foreign manufacture subsidiaries. How? Low rates keep the value of the US dollar low and therefore the exchange rate value of the foreign currency of multinationals in the country of their operation high. This in turn allows the multinationals to “buy” more dollars and thus return more profits in US dollars to their main offices. It also allows US exporters to other countries to sell more, raise profits, and beat out competitors. But the low interest rate also allows financial institutions to gamble in financial instruments which has prompted one asset spike after another and the inevitable collapse of the same, such as Dot.com bust, the savings-and-loan collapse, the subprime meltdown. Each collapse becomes more severe than the prior but the regulated banks and the unregulated banks—-shadow banks—— continue to speculate in financial assets because of the billions of dollars in immediate profits.
Likewise, the low interest rates benefits major businesses by allowing stock buy backs, dividend payouts, mergers and acquisitions and offshoring of jobs. Little if anything goes into the real economy in the US to improve productivity and create full time jobs for Americans.
This makes financial markets more more unstable and requires the Federal Reserve to pump more and more money into the system——– trillions of dollars which should have gone into real jobs in the real economy in the US. Instead, they went into stock buybacks, mergers and acquisitions, dividend payouts, off shoring of manufacturing units, and the hoarding of hundreds of billions of dollars offshore by major multinationals. Apple alone is hoarding over $250 billion in various countries outside of the US.
And then the problem becomes that even a modest spike in interest rates causes a collapse in assets such as 35% decline in the stock market in 2018 which prompted a fight between the Fed and Trump which Trump “won” so the Fed lowered rates which only means the next collapse will be more severe than the last one as the scared bankers well understood who protested against Trump’s non negotiable demand to lower interest rates.
Rasmus has a wonderful way of describing the natural and structural changes that are coming to the economy. The key driver is energy production which has moved from water, to coal, to gas and oil, and is now moving toward solar and hydrogen production. At each stage of this transformation of energy production, the economy has to be retooled and refitted to meet the challenges of the transformation in question. This in turn stretches many businesses to the breaking point, i.e. bankruptcy.
The energy component is changing at the same time that IT development is pushing economic structures into a whole new dimension through artificial intelligence, cybersecurity, G5 Communications Systems, and biotechnology. The problem is that neoliberalism has no answer to these significant problems and has no means of dealing with for example what I’ve called the China Challenge. Bloated with debt the major multinationals cannot and will not make the necessary investments required to meet the challenges of these new developments and remain competitive. It is a bizarre situation where one of the most undemocratic countries in the world is leaping ahead of us toward the new challenges that we are facing while the US becomes a second and perhaps even third rate country.
But Rasmus pushes the future even farther and describes how our political institutions are becoming more and more distorted and less and less democratic. The means of making America oligarchic is through a multitude of devices such as the electoral college, the US Supreme Court, gerrymandering, voter suppression, and the rivers upon rivers of money that flow from the 1% throughout our political institutions utterly corrupting them.
Even a great book has flaws. Missing from The Scourge is a discussion of how the war on drugs originally launched by Reagan which continues to this day is a potent weapon of neoliberalism to permanently disenfranchise tens of millions of poor people of color from any meaningful participation in US society by labeling them felons. The obvious economic and political use of the drug wars is to criminalize a potentially political disruptive segment of our society and make sure that the US has no obligation to help them with decent jobs, housing, education or healthcare. See The New Jim Crow.
The New Jim Crow brings up a related issue re Neo Liberalism: over determination of policies, that is a policy has multiple uses. As with the drug wars, students loans now at $1.5 trillion have the same result of disabling a large potentially politically disruptive element of society that the “drug wars” have: student loans disable the young from political activism, forcing them to spend much of their adult lives just managing debt. Likewise, as David Stockman observed the unrelenting march toward the ocean of debt called the deficit is a weapon to destroy socially important programs such as social security and Medicare.
Rasmus’s relentless drumbeat that the future only holds endless job losses to automation is true but there is a deeper issue. Automation, artificial intelligence and other IT developments, could free up critical and needed human resources to meet the challenges of the future. Think about climate change. Think about the tens of millions of jobs that could be created that are not only necessary but fundamental to avoid the coming environmental collapse. Every building and every parking lot in the United States should have solar panels on them; all of the hundreds of oil refineries must be dismantled; all of the tens of thousands of miles of gas and oil lines must be removed. Please see Bill McKibben’s description of this job creation which he has called World War III to emphasize the huge job creation and necessary fiscal injections on the level of WWII which soared from 35% to 70% of GDP.
Rasmus is a powerful advocate for Medicare for all but should also consider that this also would demand huge human resources—-the training of thousands of healthcare workers in the US. Healthcare workers, like IT workers, are on shored by the thousands. We must train our own to take on the difficult task of caring for all throughout the country and not just in wealthy areas along the coasts. The lack of access to quality health care by the rural poor is criminal; it is not a “mistake” that many of Trump’s most ardent supporters are the rural poor.
Finally, I wish Rasmus would provide a glossary. Such terms as median versus average income and negative interest rates, continuously escape me despite the fact that I’ve read about them in context at least 10 times.
The Scourge a powerful, important book. We ignore it at our peril. The utter daily degradation which results in the stunted lives of hundreds of millions of Americans is at stake, who now lash out at each other about such nonsense as race and gender while Trump and his kind laugh and the world spins out of control into environmental hell. In many of his other writings Rasmus has given a clear road map out of the dead end of Neo-Liberalism; at the risk of repetition it would help to have that map articulated again.