Symposium | Beyond Neoliberalism Part II

Economics: Looking Back to Move Forward

By Elizabeth Popp Berman

Tagged Biden AdministrationEconomicsneoliberalismprogressivismThink TanksTrump Administration

The November 2020 presidential election marked a moment of real optimism for those looking for a politics beyond neoliberalism. Democrats, buffeted by four years of the Trump Administration and facing existential threats to democracy, seemed to finally acknowledge that the policies of the Bill Clinton and Barack Obama years would not be enough. Supported by a resurgent left, and facing an unprecedented pandemic, the new Biden Administration explicitly promised to represent the progressive as well as the centrist wing of the party.

The year since Biden’s inauguration has demonstrated, though, just how hard moving beyond neoliberalism can be. Ambitious proposals for long-needed domestic investments and voting rights have hit an apparently insurmountable wall. There are still reasons for optimism: Biden has appointed a remarkable number of progressive judges, and his picks in antitrust policy have clearly challenged the neoliberal consensus. But in an environment in which Senator Joe Manchin’s vote marks a hard limit for how progressive legislation can be, skeptics of neoliberalism need to think beyond Congress as they seek to build power. And to do that, they need to understand how neoliberalism captured not just the right, but the center-left of the policy spectrum in the late twentieth century.

How Left-Neoliberalism Was Institutionalized

Neoliberalism is often, and appropriately, associated with the political right. As Quinn Slobodian has elegantly narrated, its original strand descends from Mont Pelerin, where an international network of economists, businessmen, and other thinkers launched a conservative project aimed at restructuring government to “encase” the market.

But for progressives, a different strand of neoliberalism has proved equally constraining. This later strand, which we might call left-neoliberalism, has a policy orientation that is pro-market but also pro-redistribution. It sees the role of government as creating rules that allow markets to function well (promoting free trade, pricing externalities), while redistributing through progressive taxation. It also seeks to leverage market mechanisms, like choice and competition, in government itself, and designs policies with an eye toward efficiency. While supportive of a government safety net, it prefers targeted benefits to universal ones; while believing government should regulate industry, it favors incentives over rules.

The signature policies of the Obama Administration—the insurance exchanges of the Affordable Care Act, the school-funding competition of Race to the Top—and its near-misses, like the Waxman-Markey cap-and-trade bill, were firmly in this left-neoliberal wheelhouse. And many criticisms that the progressive agenda has run up against in the last year—that any child tax credit should be means-tested to limit its cost, that most student loan debt is appropriate because of the economic returns to higher education—come from a similar place. Such limits on progressivism do not come from conservative think tanks, or free-market ideologues. They are internal to the Democratic Party, and often undermine Democrats’ ability to act at all.

This branch of the neoliberalism tree has been relatively underexplored, though Stephanie Mudge’s impressive Leftism Reinvented tackles its macroeconomic side. But it has a history distinct from Mont Pelerin neoliberalism, and it became the default way of thinking among Democratic policymakers through very specific channels—channels that had little to do with electoral politics. Understanding how left-neoliberalism became so influential, and the pathways through which that influence is reproduced, is key to figuring out how to displace it.

The Rise of an Economic Style of Reasoning

In a new book, Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy, I describe what I am here calling “left-neoliberalism” by a different name: an “economic style of reasoning.” The economic style of reasoning is a loose approach to policy problems that is grounded in the academic discipline of economics but has traveled well beyond it. It is often perceived as politically neutral, but it nevertheless contains values of its own—values like choice, competition, and, especially, efficiency. Today, its dominance as a framework for thinking about policy problems is often taken for granted, but this has not always been the case.

The economic style has two core stances whose implications have played out in a wide variety of policy domains. First, it maintains a deep appreciation of markets as efficient allocators of resources. Its adherents acknowledge that markets are imperfect, and that their failures need to be corrected. But the economic style produces a tendency to view policy domains through a market lens, and to introduce market-like elements (like choice and competition) into areas like education and health care that have not, historically, been viewed primarily as the domains of markets.

Second, the economic style places a very high value on efficiency as the measure of good policy. Once a particular objective has been democratically chosen, a good policy is the most cost-effective means to reach it. Policy goals themselves can also be evaluated through the lens of efficiency: An appropriate level of regulation, for example, is the one that will maximize net benefits to society. Efficiency, here, is understood as politically neutral. Any objective can be achieved in a more or less efficient manner, and who would advocate for inefficiency? Yet centering efficiency often means displacing other political values such as equality and robustness, or ignoring the politics behind the process of identifying efficient policy decisions. Nor is it clear that decisions made in the name of efficiency actually make government more cost-effective in practice.

Centering efficiency often means displacing other political values such as equality and robustness, or ignoring the politics behind the process.

Between the Lyndon Johnson years and the Clinton years, this economic style of reasoning spread across Washington. While policies associated with it—pollution taxes, for example, or transportation deregulation—were once seen as downright heretical by legislators and the public, over time they came to seem entirely natural. Soon, it was skeptics of the economic style—those who advocated for health care as a right, or who were more concerned about corporate power than market efficiency—whose views became marginalized.

While advocates of the economic style counted both liberals and conservatives among their numbers, the style’s primary proponents were not representatives of the Chicago School or strong skeptics of government. Instead, they were people who believed in the role of government and wanted to make it more effective. They traced their origins to places like the RAND Corporation and Harvard’s Department of Economics.

These advocates of economic reasoning understood themselves as working to make government better. But as “partisan efficiency advocates,” in the phrase of economist Charles Schultze, they often found themselves allying with small-government conservatives against liberals who had a different vision of government—who argued for universal social services on moral or political grounds; who wanted government to provide services directly, rather than efficiently voucherize them; or who thought that building market mechanisms to limit pollution would be less effective than regulating corporate behavior. Over time, proponents of this economic style gained lasting influence—in part by displacing these competing voices.

In recent years, we are finally seeing a resurgence of progressive policy proposals that break beyond the bounds of the left-neoliberal economic style—that is, that are truly post-neoliberal. These include the Green New Deal, proposals to break up big tech companies, and universal childcare plans—all of which are well outside the old left-neoliberal consensus.

Yet there are clearly many barriers to actually enacting such proposals. Organizing and electoral politics are of obvious importance to the long-term success of post-neoliberal politics. But the lessons of the past also suggest we focus on less obvious sites—the graduate programs, think tanks, and bureaucratic offices that, collectively, produce and reproduce the conventional political wisdom.

Introducing a New Way of Thinking to Washington

The story of how conservative Mont Pelerin neoliberalism spread into U.S. politics has been well and frequently told. Advocates of free markets and a state focused on ensuring them developed their arguments at the University of Chicago and elsewhere in the decades after World War II. Eventually they gained allies who could fund an ideological movement that would build influence through Washington think tanks like the American Enterprise Institute and conservative legal groups like the Federalist Society, and that fully came to power with the 1980 election of Ronald Reagan.

But the economic style of reasoning—the source of left-neoliberalism—was building influence of its own during these decades. Two distinct communities first introduced it to Washington: a group of systems analysts from the RAND Corporation whom Robert McNamara brought to the Defense Department, and a network of industrial organization economists, loosely centered at Harvard, whom Kermit Gordon helped to establish a base at the Brookings Institution.

These economists and fellow travelers gained influence gradually, through a process that was less intentional and strategic than that of their Chicago neoliberal peers. But over time, their efficiency-centric worldview was built into policy spaces along three different paths.

Law and Public Policy Schools

First, the economic style of reasoning took hold in parts of academia that supply many policymakers, advisers, and idea-generators: law schools and public policy programs. The industrial organization economists began introducing their way of thinking to law schools during the 1960s, starting with antitrust law and industrial regulation. By 1973 most major law schools offered classes in economic theory, and all of them were teaching antitrust and trade regulation “with a substantial amount of economics.”

The economic style was even more integral to the new public policy schools founded in the late 1960s. While public administration dated back to the nineteenth century, it was intended to train competent, neutral bureaucrats who would shy away from policy recommendations. The new policy schools, by contrast, reimagined that mission by training RAND-style systems analysts—that is, people who would make policy recommendations, but on supposedly neutral grounds: by evaluating the cost-effectiveness of competing proposals. They trained these policy analysts in a mix of microeconomics, statistics, and operations research.

All this meant that by the mid-1970s, law school graduates and masters of public policy typically had some basic exposure to economic reasoning—exposure that they took with them to Washington. As one policy school founder observed in 1990, the “cumulation of so many persons using the same language . . . has inevitably changed the character of public discourse on many issues.”

Think Tanks and Policy Research Organizations

Economic reasoning also spread within an expanding space of think tanks and research organizations that generated policy proposals and supplied political appointees. The systems analysts who started in Kennedy’s Defense Department expanded into social policy spaces with the Great Society. They championed the formation of new think tanks like the Urban Institute, and successfully advocated for evaluation funding that would provide steady streams of resources for everything from RAND’s Health Insurance Experiment to brand-new organizations like the Manpower Demonstration Research Corporation (MDRC).

The industrial organization network found a particular home at Brookings, in a program on government regulation of economic activity that ran from the late 1960s to the mid-70s. Here, ties were built between academia and policy spaces. The program published new arguments by economists, many of whom served in Democratic administrations, for deregulation of transportation and other industries, and supported the careers of young scholars like future Supreme Court Justice Stephen Breyer, who would go on to play key roles in the deregulatory movement.

The rise of conservative think tanks, which pioneered a new style of fast-moving policy advocacy in the late 1970s and strongly shaped the Reagan agenda, has drawn more attention from scholars. But the massive expansion of liberal think tanks and research organizations—which mostly took the economic style, with its appreciation of efficiency, cost-effectiveness, and the power of choice and competition, for granted—played a similarly important role in shaping the space of future policy conversations. Where the American Enterprise Institute might advocate for regulatory relief, and the straightforward rollback of environmental rules, Brookings preferred “regulatory reform,” and cost-effectiveness analysis of the same rules. Their logic was slightly different, but the outcome was often the same: policy recommendations at odds with those of environmental groups. The difference was that Brookings was supposed to be an ally.

Government Offices from OIRA to the CBO

Finally, the economic style of reasoning gained a lasting home in specific government offices, old and new. This began as early as 1965, when Lyndon Johnson required agencies to adopt RAND’s Planning-Programming-Budgeting System. This move led to the widespread creation of “policy shops” in the federal agencies.

These offices—whose descendants range from the Office of the Assistant Secretary of Planning and Evaluation at HHS, to the Office of Regulatory Policy and Management at EPA, to the Office of Strategic Planning and Policy Analysis at the FCC—were created to evaluate policy proposals through a cost-effectiveness lens, and were often led by economists. Over time, they became sources of market-friendly proposals from Nixon’s health insurance plan to EPA’s emissions trading to the FCC’s spectrum auctions, and often served as a base from which such proposals were championed within their agencies.

The spread of the economic style into government bureaucracy continued over the next 15 years. During the 1970s, the antitrust agencies reorganized and expanded their economics offices, hiring modern, PhD-holding economists. And in 1980, OMB’s Office of Information and Regulatory Analysis (OIRA), which reviews cost-benefit analysis of government regulations with an eye toward improving their efficiency, was created.

Congress, too, saw its reservoir of economic reasoning expanded when the Congressional Budget Office was established in 1975. The CBO, led by economists, would not only set boundaries on action with its “scores” of legislative proposals, but would shape the space of debate with its annual book of budget options.

A Lasting Source of Power

What all this meant is that by the time Carter was elected, what we might call left-neoliberalism was already becoming dominant in the spaces that produced Democratic policy proposals and Democratic political appointees. Its assumptions about the virtues of competition and its dismissal of corporate power produced policymakers like deregulator Alfred Kahn, a self-professed liberal who could also say, “I’d love the Teamsters to be worse off. I’d love the automobile workers to be worse off.” Its conventional wisdom—supportive of deregulation, skeptical of antitrust, favoring cost-sharing and means-testing in social programs, and encouraging market-based solutions to environmental problems—had been built into the policymaking infrastructure.

When more liberal appointees, like President Carter’s assistant attorneys general for antitrust, pushed for policies outside this comfort zone, they found themselves boxed in by staff committed to a new intellectual paradigm. And this new paradigm would remain in place for the next 40 years.

Lessons for Today

We continue to see the influence of this well-established infrastructure today. Stories about tensions between Biden antitrust appointees and permanent staff, arguments against student loan cancellation by prominent think tanks, and the role of the CBO in handicapping the Build Back Better bill all highlight how the economic style is still built into the fabric of policymaking in ways that are particularly constraining for progressives who want to move beyond neoliberalism.

It reminds us that while generating new ideas is important, and progressive appointees are worth celebrating, long-term change requires more work. Some of that work is about movement-building, electoral politics, and moving the needle so that Joe Manchin isn’t the 50th Senate vote. But some of it is about building space for alternative intellectual frameworks within the policy infrastructure, so that broadly neoliberal ideas aren’t simply taken for granted by the people who make, and react to, Democratic policy proposals.

This work is already moving forward. Sometimes it might mean building alternative organizations that are less beholden to the status quo. The Open Markets Institute, for example, is a small think tank that takes a strong anti-monopoly stance and has acquired outsized political influence over the last few years. Its current level of visibility developed only after it parted ways with New America (then the New America Foundation), where it was formerly housed; there, some donors objected to its strong criticism of the tech industry. Since becoming independent, it has been freer to criticize the efficiency-centered consumer welfare that has limited the scope of antitrust policy.

Sometimes this may mean creating nurturing intellectual movements that can shape future policymakers by exposing them to alternative ways of thinking. The Law and Political Economy Project at Yale has not only generated enormous intellectual energy but has led to the creation of similar groups in the law schools at Berkeley, Harvard, Stanford, and elsewhere, as well as changing classroom instruction. While policy schools have not yet seen a parallel movement, they, too, find themselves enrolling students who are hungry for alternatives to the status quo, and may be ripe for a parallel effort.

Sometimes it may mean identifying spaces in government itself that can serve as alternative bases for advocating a different way of thinking about government. Some agencies, like the Consumer Financial Protection Bureau, have been associated with a view of policy that is relatively attentive to power—not a neoliberal concept.

And sometimes it may mean pushing left-neoliberal spaces out of their efficiency-focused comfort zones. We can see this happening when the Brookings Institution publishes briefs supporting student loan cancellation (alongside those arguing it’s poorly targeted) and when the Council of Economic Advisers includes skeptics of neoliberalism among its members. We can even see it in the economics discipline itself, where interest in topics like labor market monopsony and the racial wealth gap are pushing the boundaries of what count as legitimate topics to study.

Building spaces for post-neoliberal frameworks into the policy infrastructure won’t get Democrats a more progressive 50th senator. But it would have important long-term effects. Progressive appointees wouldn’t have to fight as hard against staff married to the status quo of the last 40 years. Ambitious policy proposals would still be attacked by interest groups, but would be less susceptible to watering down by internal “allies” locked into an efficiency-centric view of policy. And new policy ideas—the ones floating by on the policy stream—would include a broader and more visionary range of possibilities. None of these changes would be a short-term fix. But this is a long-term project. Neoliberalism itself took decades to put into place; it’s much too early to give up on its replacement.

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Read more about Biden AdministrationEconomicsneoliberalismprogressivismThink TanksTrump Administration

Elizabeth Popp Berman is associate professor of organizational studies at the University of Michigan and author of Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy.

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