The Washington PostDemocracy Dies in Darkness

Twilight of the economists? More like twilight of the neoliberals.

Cecilia Rouse, chair of the Council of Economic Advisers, listens at a weekly economic briefing at the White House last week. (Amr Alfiky/Pool/EPA-EFE/Shutterstock)

This is a column about the possible decline of economists in the marketplace of ideas, so it seems fitting to start it by talking about a political scientist.

Yale University’s Stephen Skowronek has explained the Trump presidency better than other theories (including mine). His theory places Donald Trump in the “disjunctive presidency” bin, the same category as John Quincy Adams and Jimmy Carter: presidents who take office as the exhausted heir of a bankrupt political ideology. These presidencies, by performing so badly, are usually followed by “transformative presidencies” that lead the country in a decidedly different direction.

In an interview in October with the Nation’s Richard Kreitner, Skowronek suggested that if Joe Biden won, he might surprise people: “Joe Biden is possibly the least likely reconstructive leader you can imagine, and yet I’m not giving up on him completely.” He concluded, “In some ways, having a moderate with a reconstructive movement or coalition at his back is exactly where you want to be.”

Fast forward six months. Despite his smaller-than-expected victory, Biden’s policy ambitions have been big. His public statement that “the government isn’t some foreign force in a distant capital” is the most explicit rebuke of Reaganism in 40 years.

This has made it easy for commentators to define an administration that is less than 100 days old. One conclusion is that Biden cares much less about what economists think. According to Ezra Klein:

Biden has less trust in economists, and so does everyone else. Obama’s constant frustration was that politicians didn’t understand economics. Biden’s constant frustration is that economists don’t understand politics.
Multiple economists, both inside and outside the Biden administration, told me that this is an administration in which economists and financiers are simply far less influential than they were in past administrations. Some were frustrated by the change, others thought it a proper rebalancing of roles. But there is nothing like the axis of influence held by [Lawrence] Summers, Tim Geithner and Peter Orszag at the dawn of the Obama administration, or that Robert Rubin and Summers held in the Clinton administration

After decades in which economists and financiers have run rampant in the marketplace of ideas, could this be one of those dreaded inflection points? Has economics lost its policymaking mojo?

Color me skeptical. The intellectuals who have lost influence in the Biden administration are not economists; they are neoliberals.

Noah Smith has a long Substack post on Bidenomics that is worth reading in its entirety. He agrees that Biden represents a clear break from the old Reagan/Volcker paradigm of policymaking. What he also makes clear, however, is that many of the administration’s plans are grounded in economics. It is just not the neoclassical economics that traditionally dominated the discipline. Biden’s programs rest on more unconventional-but-still-very-legitimate views, ranging from Paul Romer’s endogenous growth theory to Hilary Hoynes’s work on cash benefits to Dani Rodrik’s arguments in favor of industrial policy.

These are all good economists — but they ain’t neoliberals. This is akin to my Washington Post colleague Ishaan Tharoor’s column about Biden’s deviations from neoliberal tenets: “The pandemic has illustrated the need for even the most laissez-faire of governments to bolster the social safety net and abandon older fears over deficits and ingrained biases toward austerity.”

What is striking in looking at the Biden team is not the absence of economists, but the absence of the finance dudes who would advocate for tax cuts and fiscal rectitude — you know, the policies that were traditionally perceived to benefit capital. In contrast, Biden’s National Economic Council Director Brian Deese told Klein as much when he said that the two biggest economic problems of the previous era are not exactly neoliberal priorities: “This growing economic inequality that persisted over the course of a couple of decades but really was laid bare during the pandemic [and] climate change; we’ve also seen the impact accelerating. And in our view, having an economic strategy that is unresponsive or agnostic to those issues is no longer a viable option.”

As someone increasingly interested in how systemic shocks can threaten economies, Deese seems to be on to something here. Investing in critical systems makes a lot of sense. Still, what will be interesting to see is how critics of this emergent paradigm respond. Unfortunately, those critics will not come from the Republican Party, in which Trump has crowded out most policy ideas. But as Smith notes in his column, there will and should be a “loyal opposition” that pushes back on these ideas at their weakest to prevent more serious mistakes.

One can already see some of those mistakes in their emergent phase. The flaws in the Washington Consensus may have been exaggerated. Maybe traditional infrastructure spending does not need to be as big as most people think. Maybe the prioritization of nationalizing supply chains and industrial policy is misplaced. And even economic inequality may be lessening as an object of concern. I am quite confident that the new administration’s embrace of trade protectionism and procurement nationalism will make their foreign policy harder to execute. If it extends to immigration, that would capsize Smith’s version of Bidenomics as well.

Ideally, what will proceed is a genuine policy debate mostly conducted in good faith. It has been a long time since the country has had one of those on economic policy. A long, long time.