What was neoliberalism?

The mythical era of mass deregulation and growth-at-all-costs

The term “neoliberalism” has been kicked around academic circles for a couple of generations now, meaning different things at different times.

More recently, though, it became a term used in mainstream political discourse. The events of the last few years — including Bernie Sanders’ self-described socialist challenge to establishment Democrats, Donald Trump’s successful reversal of the GOP’s support for free trade, and the progressive reaction to Trump winning — have generated even more discourse about “neoliberalism,” mostly from those who position themselves as critics of it. The Hewlett Foundation, which is relatively large and influential, runs an Economy & Society grant program that’s explicitly framed around critiquing neoliberalism. The program provides money to a bunch of progressive nonprofits, plus the conservative American Compass think tank.

Plenty of the people who’ve taken this money don’t particularly agree with Hewlett’s framing of the “neoliberalism” concept. But nonprofits need money, and if playing along with the grantmaker’s framing is the way to get grants, then they’ll do that. So in good neoliberal fashion, there have been a lot of incentives recently to invoke “neoliberalism” as a bogeyman.

I think this whole process is worth deconstructing on a number of levels and for a number of reasons.

Nobody is 100 percent sure what anybody means by “neoliberalism,” or whether we’re all using it the same way. But the backlash against neoliberalism has, I think, mostly served in practice as a way to tell people that it’s okay to do sloppy economic analysis or say things that aren’t true. One of my most contrarian views is that accurate policy analysis is badly underrated, in part, because most organizations don’t actually have the capacity to do it. So excuses for sloppy thinking and denying the existence of tradeoffs tend to be popular.

I want to explore this idea of anti-neoliberalism as cover for bad analysis in more detail over the next few weeks. But it’s useful to start by asking what people mean by neoliberalism.

Where “neoliberalism” comes from

There is evidence of the term “neoliberalism” going as far back as 1898, but I think the closest thing to its current usage dates to the late 1940s and is captured by a 1951 Milton Friedman essay titled “Neo-Liberalism and its Prospects.”

The basic idea is that through the 19th Century, there was a political economy of classical liberalism — the rule of law, property rights, free trade — that had its origins in the Enlightenment and the American and French revolutions and that had a somewhat fraught relationship to democracy. Then came a world war, a Great Depression, and another world war, all of which involved massive levels of state intervention in the economy. Large swathes of the world went either fascist or Communist or were physically destroyed by fighting. But even places like the United States and United Kingdom adopted price controls, wage controls, export controls, and all kinds of other things. In the US, for example, new housing construction was basically banned during the war to ensure construction materials were available for wartime use. Because new construction was banned, many cities also put in place rent control, because you couldn’t very well accuse rent control of stifling new construction at a time when construction was illegal.

One school of thought was that while all these measures were adopted as a means of wartime necessity, it was good that they happened and the war was just laying the groundwork for the construction of a better society over the long haul.

In Europe and Britain, in particular, the post-war years saw the emergence of many state-owned enterprises, especially (but not exclusively) in fields like aviation, telecommunications, and utilities. Welfare states also expanded in many places, as taxes had been raised to pay for the war, but then wartime spending needs melted away.

“Neo-liberalism” was essentially the opposite of this optimistic view of postwar political economy. Neo-liberalism held that we should bring back classical liberalism in a somewhat new form. Friedman, for example, was closely associated with the view that the Great Depression was caused by bad monetary policy. He saw these central bank errors as a genuine blunder by classical liberals, one that served to discredit classical liberalism when, in fact, classical liberalism was mostly correct but just needed better monetary policy.

Western economies grew really fast in the 1950s and 1960s, so there wasn’t much political momentum for a “back to liberalism” project at that time. But inflation, which had been slowly-but-surely rising in the sixties, skyrocketed in the 1970s. Multiple oil shocks brutalized western economies. And it was clear that Keynesian demand-side management didn’t have an answer to the combination of high unemployment and high inflation. Ronald Reagan’s election (along with Margaret Thatcher’s in the UK) signaled a new era of economic policy — a neoliberal era — that people are now very excited about overthrowing. But what was that era like?

Did neoliberalism even happen?

This is neoliberalism, according to the Hewlett Foundation (emphasis added):

Neoliberalism—the free-market, anti-government, growth-at-all-costs approach to economic and social policy—has dominated policy debates in the United States and much of the world for the last half century. But it has outlived whatever usefulness it might once have had, and today its free-market fundamentalism causes more problems than it solves. From skyrocketing wealth inequality to the climate crisis to systemic racism, neoliberalism offers no credible solutions for society’s biggest challenges. We need more than just new policy ideas to confront these seismic issues, we need a major shift in the underlying terms of debate about the economy and society. We need a new intellectual paradigm that reimagines what’s possible and offers economic justice and prosperity for people around the world.

This is definitely not the only definition of neoliberalism out there. But even though there’s so much discussion of this concept, Hewlett is the only place I know of that is specifically paying people to talk about it, so I think their framing is particularly noteworthy. And Jennifer Harris, who runs their economy and society program, is a broadly influential person — a recent New York Times profile, perhaps overstating her influence slightly, described her as “the quiet intellectual force behind the Biden administration’s economic policies.”

It’s 2024, so a “half century” ago, it was 1974.

And it’s worth asking: Is it true that since 1974, policy debate in the United States has been dominated by a “growth-at-all-costs” brand of “free-market fundamentalism”?

I don’t think that actually is true. Technically, the biggest pieces of environmental legislation passed just outside that window — the Clean Air Act in 1970, the Clean Water Act in 1972, and the Endangered Species Act in 1973. But it’s pretty clear that environmental regulation is a lot stricter in 2024 than it was in 1974. The Americans With Disabilities Act was passed in 1990. Land use regulation — which was explicitly called “growth control” when it was new — has grown dramatically stricter since the seventies.

The idea that for the last 50 years we've been on a manic quest for growth is confused. In reality, we’ve seen during that time period increasing levels of political influence wielded by people (mainly environmentalists and NIMBYs) who are skeptical of economic growth. It’s true, as skeptics of growth sometimes note, that internal policy disputes in the 1950s and 60s rarely featured pushback on the grounds of the necessity of focusing on economic growth. But that’s not because anti-growth sentiment was stronger in the past — it’s because back then there was almost no one in a position of power who was arguing for explicitly anti-growth policies. Degrowthers have obviously not dominated American politics since the 1970s — we have had economic growth — but growth has been slower because anti-growth ideas have gotten some real purchase over the last 50 years. The Hewlett thesis statement about this is backwards.

Even something on the real leftward margins of discourse in the pre-neoliberal era like the 1966 Freedom Budget proposal from a coalition of key Civil Rights leaders is an explicitly pro-growth proposal:

That Hewlett Foundation formulation about growth-at-all-costs is a little extreme, and so clearly wrong that I think they must not have spent very much time thinking about it, even though it’s been the basis for millions of dollars in grants. But more broadly, “everyone knows” that the neoliberal era has been an era of deregulation, even though it’s also pretty clearly true that the overall scope of regulation is larger in 2024 than it was in 1974. So what actually happened in this new neoliberal era?

Neoliberalism as a vibe

I do think it’s true that there’s been a clear vibe shift around neoliberalism over the last 50 years. While Dwight Eisenhower and Richard Nixon were eager to emphasize their acceptance of the New Deal regime, Ronald Reagan liked to make free market quips like, “The nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help.’” He served eight years in the White House and had a same-party successor, which is rare. Even more strikingly, Bill Clinton seemed to accede to the vibe shift. He promised that Democrats were now “New Democrats” and that “the era of big government is over.”

However, the era of big government did not, in fact, end.

Since Bill Clinton’s time, Social Security and Medicare has grown due to an aging population. Medicaid has expanded several times. The ACA exchanges were created. SNAP benefits have become more generous. For that matter, Ronald Regan only very partially rolled back the Great Society.

But it’s definitely true that Reagan had anti-government vibes and that Bill Clinton seemed to say that Reagan’s anti-government vibes were basically correct. And while Joe Biden has not done nearly as much as Barack Obama to expand the welfare state, he absolutely contested Reagan and Clinton’s assertion on the level of vibes more vigorously than Obama did — his administration contends that the government should be helping with all kinds of stuff, from semiconductor manufacturing to equipping your house with a new heat pump to arranging daycare for your kid.

Related to the neoliberal vibe shift is not so much a reduction in the quantity of regulation as a change in the stated purpose of having regulations. Far from pursuing growth-at-all-costs, regulations of the neoliberal era typically have an explicit anti-growth purpose and say quite plainly that they are advancing some important non-growth goal. The Consumer Safety Product Commission concedes that their rule to make table saws safer will impose a cost on the economy; they just maintain that the public health benefit of fewer severed fingers outweighs the cost. More typically and more consequentially, environmental regulations posit that the higher cost of something or another is a price worth paying for cleaner air — or, more recently, to combat climate change.

The world as it is

I don’t want to say that neoliberalism is just a vibe. Clearly a lot of things changed after the Reagan Revolution.

Notably price regulation, which used to exist across many sectors of the economy (airfares, interest rates at banks, natural gas, trucking fees), largely went away and is now common basically only in the electric utility sector. As Binyamin Appelbaum describes in his 2019 book “The Economists’ Hour,” the prestige and policymaking clout of economists went up a lot. Labor unions stopped having bipartisan support. Antitrust regulation adopted a new set of standards. Financial regulation stopped trying to deliberately promote fragmentation of the industry. Every president from FDR to Nixon either used price and wage controls or (more commonly) threatened to use them as an inflation-management strategy, while from Carter onwards this was done using fiscal and monetary policy.

Things definitely changed. And the Trump and Biden administrations have in a real way mounted a kind of challenge to this neoliberal order — mostly by reversing the Appelbaum process of deferring to mainstream economics in the policymaking sphere, but also with a lot of talk about new paradigms and threats to impose new doctrines in the antitrust sphere or revive price regulation.

But I do think it’s notable that the people leading the charge against “neoliberalism” are often tilting against things that literally did not happen. There was no growth-at-all-costs approach to overthrow. A recent American Prospect article co-produced with the Roosevelt Institute says that “neoliberalism has been disastrous for America’s political economy, as austerity, privatization, and deregulation have led to crippling wealth and political inequality.” But what austerity? Budget deficits have been consistently higher post-Reagan than pre. Deregulation we’ve discussed. There were certainly a lot of privatizations in the UK, but the United States never had large-scale public ownership of companies and in key areas — postal services, water utilities, airport management — we have less privatization than Europe.

And this is really my big problem with the anti-neoliberalism movement and its growing influence in Democratic Party politics. I think there are a lot of sloppy thinkers in this group, and I also think a lot of people who are not necessarily sloppy thinkers themselves become sloppier when they start operating under this banner.

The primary rhetorical function of invoking a decades-long neoliberal consensus is to elide the policy differences between George W. Bush and Barack Obama (or Ronald Reagan and Bill Clinton), as if it’s inconsequential that one man tried to privatize Social Security and the other delivered Medicaid to millions of poor families. Of course, there really are things they agreed on, and it’s fair to point that out and critique it. But the move from specific arguments to the generalized “neoliberal” bogeyman is deliberately sloppy, because its purpose is to make two governing agendas that were actually quite different sound the same. And everything that follows from that premise tends to be sloppy itself.

For the next post in this series, I’m going to talk about trade policy, where there really was a consensus that has now been disrupted. Trade is both central to the critique of neoliberalism and also paradoxically marginal to its big picture definition. And the people in the anti-consensus camp are struggling mightily to decide exactly what it is they are want to say about it.