American Decline

How to Transform US Politics—and How Not To

By Michael Lind, Compact

wo major domestic challenges face the United States—one in public policy, the other in partisan politics. In public policy, the challenge is to replace the bipartisan neoliberal economic consensus, shared by both parties from the 1990s to the 2020s, with a new and equally bipartisan version of the older American tradition of national developmentalism. In partisan politics, the challenge is to restore the political—and extra-political—power of working-class voters in both parties, people who tend to be moderately conservative in their social views and social democratic in economics. These are two distinct, but related, objectives. Neither will be achieved without careful strategic thought by reformers on both the right and the left.

Neoliberalism from its origins has been a bipartisan policy consensus. It succeeded and replaced the similarly bipartisan New Deal consensus that lasted from the presidency of Franklin D. Roosevelt to that of Richard Nixon. Both “modern Republicans” like Eisenhower and Nixon and “New Deal liberals” like FDR, Truman, Kennedy, and Johnson took it for granted that the modern US economy was and should be a mixed economy, with private ownership and markets predominating in production, but with a role for state capitalism in providing infrastructure (highways, rural electrification) and also for cooperatives (rural electric co-ops like the Tennessee Valley Authority and the Lower Colorado River Authority in central Texas). Retirees, the unemployed, the disabled, and the sick would be saved from poverty by a mix of public benefits (Social Security, unemployment insurance, Medicaid, and Medicare) and tax-favored private benefits (employer-provided health care).

The New Deal system wasn’t planned in advance; it was a pragmatic mishmash of different programs with different constituencies, all of which sought to address problems caused by unregulated capitalism. Like social democracy and Christian democracy in Europe, the bipartisan New Deal recognized a need for the state to promote bargaining over prices between buyers and sellers, especially in markets where under “natural” conditions a small group of sellers utterly dominated buyers (or vice versa). Institutionalized bargaining, it was believed, was necessary in setting both utility prices and wages. Privately owned public utilities bargained with rate-setting public-utility commissions, which sought to reconcile the goal of universal electric, water, and sewage service with minimal profitability for private providers (there were also municipal utilities that embodied the principle of “sewer socialism”). In imperfectly competitive industries dominated by one or a few firms, collective bargaining between unions and employers, brokered by the government, was seen as a better way to set living wages adequate to support a mass middle class than a free-market race to the bottom or excessive government wage regulation.

The New Deal order, and its “social-corporatist” equivalents in Western Europe, created the first mass middle class in history in the three decades after World War II. But the same arrangements came to be blamed for the “stagflation” (combined economic stagnation and inflation) of the 1970s.

“The neoliberal diagnosis was wrong.”
In hindsight, it is clear that the neoliberal diagnosis was wrong.

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