The Rise and Fall of the Neoliberal Order

Cambridge University's American History professor Gary Gerstle discusses his most recent book, about how the neoliberal order came about, how it is faltering, and the indeterminacy of what comes next.

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Transcript

Rob Johnson:

Welcome to Economics & Beyond. I'm Rob Johnson, president of the Institute for New Economic Thinking.

I'm here today with Gary Gerstle, who's an extraordinary thinker and writer. I see in reading his work tremendous what I'll call lateral pattern recognition and integration. He's the Paul Mellon professor of American History Emeritus and Paul Mellon Director of research at the University of Cambridge. He's an author of, I believe 10 or more books. He's won awards for American Crucible in 2017, Liberty and Coercion in 2015. He writes for the Guardian, The Atlantic Monthly, New Statesman, The Nation, [inaudible 00:01:18], many more.

We're here today to talk about his current project, an extraordinary book. And I will cite our mutual friend, Rana Foroohar, who has reviewed it recently in The Financial Times very enthusiastically. The name of the book is The Rise and Fall of the Neoliberal Order. And it is a, how do I say? Half century long portrait of how we got where we got. And I guess the off ramp where we might call Trump and Biden is something perhaps we can explore a little later. But, Gary, thanks for joining me. And I'll start off with, what inspired you? What did you see that you had to say that brought this book to the light?

Gary Gerstle:

Well, I think the inspiration came in 2016 and 2017. I am an American who lives in Britain and that meant in 2016 and 2017, I was dealing with two phenomena that I had never thought would happen. One was Brexit, the UK leaving the European Union. The other was the election of Donald Trump. These seemed to me to be seismic events in the history of the United States and the United Kingdom and the fact that they were happening ... there are parallels between those two events, and the fact that they were happening in both places suggested to me that this was quite an important event that had to be understood both internally in particular nations and transnationally.

So this became an effort to understand what had happened, not primarily by focusing on Trump and everything that issued from him, although there's a lot in that near the end of the book, but to try and make sense of the United States and it's odyssey over a 50 year period, beginning in the 1970s and '80s, and concluding with the 2020 election to make sense of what had happened in America.

And I use an idea that I took from an earlier work that I did, published long time ago before some of your listeners or viewers were born 1989, The Rise and Fall of The New Deal Order, which was an examination, a forensic examination of politics in society in the United States, from the days of The New Deal, Roosevelt in the 1930s through the 1970s. And I had this idea of political order, which we can talk about more of you wish, by which I meant a political movement that becomes so powerful and so dominant it's key ideas rule American politics, both when the party and movement is in office and when it's out of office.

An example of this is The New Deal order was established under Roosevelt in the 1930s and '40s, but it also flourished under Eisenhower in the 1950s and did not crack up until the late '60s and early '70s. So I became very interested. I had long been interested in how does a movement become an order? How does it compel its opponents to play by its terms? And part of the puzzle of understanding the neoliberal order in America and wanting to write a history of it was not simply its as sense under Reagan in the 1980s and then subsequently under Bush in the first decade of the 21st century. But how did the Democratic party become so implicated in this economic project under Clinton in the 1990s? How was the Democratic party in a sense captured by neoliberal principles and ideologies?

I had long been interested in that, but I thought couldn't really write a book about it until the neoliberal project began to fracture and unravel. And I took Trump's election in 2016 as being a major sign of its unraveling. So once I had a decline underway, that gave me the scope to write another rise and fall story, which is what I've tried to do in this book.

Rob Johnson:

So let's start with what you might call the rise. What are the ingredients. You're talking about, I believe you said starting in the '70s, we had the OPEC crisis. We had some rising inflation, which brought Paul Volcker to the office during Jimmy Carter's Presidency, problems in Iraq. What were the things that, how we say, preceded Ronald Reagan that you see as building blocks to this new?

Gary Gerstle:

Well, you mentioned a couple of them, which I'll come back to in a moment. Let me first say something about the core idea of The New Deal order, because it is its unraveling that allows the neoliberal order to take off. The core idea of The New Deal order was that capitalism left unmanaged, left free to do what it wished, capitalists able to deploy their capital really without limitation, the glorification of free markets. There was a sense that capitalism left to its own devices in that way was not going to work. It was too prone to bust, cataclysm. Too many casualties of the economic system, too much economic power concentrated at the top and too little for the people underneath. And so the goal of The New Deal became to establish a strong central state, federal government to manage capitalism in the public interest. Not to transcend capitalism, but to manage it in the public interest.

And Keynes economics became very instrumental and Keynes economics was very successful and smoothing out the business cycle. Laws were passed to strengthen labor, which allowed for redistribution from some profits from the rich to the poor, or at least to the organized portion of the working class, the middle class thrived and flourished. So these were some of the cardinal elements of The New Deal order, and it thrived from the '40s through the 1960s, but any political order has fracture points. It's a complex project containing multiple constituencies.

And one of the issues that The New Deal failed to address was race and racial equality, because Roosevelt in the 1930s required in order to get his progressive economic policies through, he required the support of the white South, which was a very important component of the Democratic party and the white senators and congressmen who often had seniority in Congress because there was no serious Republican competition in the South. They had seniority, they had power and they said, "We'll let your progressive economic policy pass. As long as you don't interfere with the racial hierarchies of Southern life," which meant don't touch Jim Crow, don't pass any federal anti-lynching legislation. Don't do any of that.

But Blacks responded to The New Deal and left the party of emancipation, the party of Lincoln, which had been the Republican party and gravitated to the Democratic party in large numbers, began to move North and began to declare that we are part of this party. You cannot ignore our situation. You cannot tolerate Jim Crow any longer. So the race issue that The New Deal had avoided comes to the fore in the 1960s. And this becomes one of the fracture points in the Democratic party.

And in 1964, Lyndon Johnson is faced with either committing the Democratic party to civil rights, racial equality, passing the Civil Rights Act of '64, the Voting Rights Act of '65, and then possibly losing the white South, which is in fact what happens over a period of years, or he could have continued down the road of white supremacy and Jim Crow.

He says, we can't do that any longer as a Democratic party. So race becomes one of the issues on which The New Deal order fractures, then a very unpopular and ill-advised war in Vietnam, tremendous anti-war protests, Democratic presidents were the ones who had escalated America's involvement in Vietnam. And that creates both an economic problem and a political problem. The economic problem is that it's super inflating the economy and Johnson can't do his domestic programs and fight the war at the same time.

And the political problem is that the war is not being won. It's being lost. And people, especially young people begin to ask really urgent questions about what the hell is American doing in Vietnam. And on that basis, a huge anti-war movement take shape, which sees the Democratic party in its liberalism as the fountainhead of war. So they have to go. They're not going to go to the Republicans, but they want more radical alternatives.

So those were cracks. And then we get to the economics of the 1970s, which is what you were referring to. And there are two basic alterations in the international economy of the 1970s that had not been there before. One is the United States is complete domination of the global economy, which it had enjoyed for 20 years after World War II comes to an end. America was the only economic power with its industrial base intact in 1945 and '46.

And the world is its oyster. It can do anything it wants to in the world, and American industrialists and capitalists like this, but they also understand the vulnerabilities because America needs to sell things abroad and it can't sell things abroad unless it helps the other economies of industrial nations get back on their feet again. So it is supporting the resurgence of Britain, France, especially Germany and Japan.

And in the late '60s and early '70s, they have industries in automobile manufacture, electronics, other dimensions that begin to compete with the United States and the United States industrialists have gotten a little fat on their dominance and were not really prepared for the competition when it comes its way. So there's a lot of decline in American manufacturing in industries that suddenly have very serious foreign competitors.

And the other big change in the 1970s is alterations in relations between the global north and the global south. The paradigmatic case is petroleum, oil, Saudi Arabia, Anglo American interests have controlled the oil fields of Saudi Arabia determining how much oil was to be ex extracted over what period of time, what the prices to be charged were going to be. And all this was done in the service of cheap energy for the industrial global north, heavily dependent on this petroleum.

And commodity producers in Saudi Arabia and elsewhere begin to say, this is a form of theft. This is our resource. We must exercise control over it. The 1970s is when OPEC ... OPEC is not new in the '70s, but it becomes a formal force in the 1970s. And so America is hit by oil crises, roiled by Arab-Israeli wars in the decade, petroleum flow, petroleum from the middle east is shut off to the United States for a period of time. There is panic. The panic is gotten over, but it's clear that the terms of trade on these commodities have changed.

Petroleum is going to be much more expensive and America was not ready for it because it had been used for a 60 or 70 years to the cheapest energy. So it gave no thought to insulation, efficient use of energy. If you're old enough, like I am to remember those gas guzzling cars, these beautiful cars made of tons of metal with these gorgeous fins and getting on their V-8s, getting two to four or five miles a gallon. And suddenly my goodness, that's not working anymore.

And so this further deepens the economic crisis of the '70s. And this is the third blow after race and Vietnam and the Keynesian toolkit, which had managed the economy well, which had spread distribution, which had regulated the business cycle. Suddenly the toolkit is not working anymore. And something that is not supposed to happen in the 1970s happens. And that is stagflation. You're not supposed to have unemployment. By the economic textbooks of the time, you're not supposed to have unemployment and inflation rising at the same time. They're supposed to move in opposite directions.

Rob Johnson:

Yeah. The Phillips curve they called it. Yeah.

Gary Gerstle:

The Phillips curve, the stagflation moment, no one really understands why it's happening. And this opens the door. There's a lot of unrest in America. The suffering is quite intense. And this opens the door to alternative ideologies, which had been there for 20 or 30 years. These were the neoliberals that I write about. The Milton Friedmans of the world. They are there. They have been talking their game for quite some time and they want monetarist policies. They want to get the government out of the economy. They want to free markets up to do their work. They want to unleash the power of capitalism without restraint.

Reagan is their communicator, their articulator. He's been studying these ideas for quite some period of time. We need to discard the idea that ... he was only a B movie actor. He might have been a B movie actor, but he was quite a sophisticated political thinker. He's ready to move. He's ready to put these ideas into political action. And he's got the common touch. As much as he disliked the policies of Franklin Roosevelt, he regarded Roosevelt as the most accomplished President of his lifetime. And he wanted to duplicate Roosevelt's success, but from the neoliberal or conservative side of the political spectrum, not from the democratic progressive side of the political spectrum. And that's how we begin to see the emergence of a new political order.

Rob Johnson:

That's a beautiful portrait. I must say, riding shotgun with you right now. I grew up in Detroit. I watched what was happening with those big fin cars. I knew that what had happened with the voting rights and Civil Rights Act meant we were going to get no adjustment assistance from Congress in Detroit because a Black majority city and so forth, how would I say, would've been like going back to the well. First, if it was Lydon Johnson or anybody thereafter, as you know, Nixon had the Southern strategy, which was playing on the other side, but I watched a city from the '67 riots on become unraveled. And I watched divisiveness in the state of Michigan, between Republican and Democrats.

And when I was a little one, my mother was working with a Detroit symphony and she knew George Romney, Mitt Romney's dad. And she knew Bill Milliken. Gerald Ford was kind of cut of the same cloth, what I'll call noblesse oblige Republicans. It's changed a lot. And then I went to college and I worked to help pay my tuition for the oil economist Morris Adelman at MIT. And I was his research assistant for two and a half years. And boy, yeah, that was all these things. The supply shocks and the turmoil. Charles Kindleberger was very good on petrodollar recycling and the global south adjustments and all of that. So you've done a very, I mean, in a very concise way, you've really hit on what I'll call the high notes of the provocations to transformation.

And, Reagan, as you were saying, was not a B level player. He'd been the Governor of California. He had a comprehension politics and I worked for Pete Domenici in my first job out of graduate school. I used to go to White House events and I was a big baseball fan. And I watched all the major [inaudible 00:17:52] guys come in-

Gary Gerstle:

Detroit Tigers?

Rob Johnson:

Detroit Tigers in those days, 68 Al Kaline. And what have you. Watching him with whoever has won the World Series, I'd go cause my friend Dale Petroski was a communications guy there. He's from Detroit. And he set up thing called the Mayo Smith Society for ex pat Detroiters that wanted to stay with the Tigers.

Anyway, we're going into that. And we're having a lot of fun, but Ronald Reagan, I saw him fall asleep at budget committee meetings. But when he was with the big radio announcers in the star baseball players, he was one of the most magnetic human beings I've ever seen alive. So there's a whole lot that you touched on here in painting this opening portrait.

Gary Gerstle:

Well, thank you. I treat Reagan very seriously. He did fall asleep, but he had a lot on the ball and he should not be underappreciated for his political significance and his political talent. And if you lived through Detroit, I mean, given that you've lived in Detroit you know the pain and suffering that the crisis of the 1970s inflicted on key manufacturing cities and centers in the United States. And Detroit probably got hit the worst of all, because it was such a center of car manufacturing, but you can multiply that story of Detroit 10, 12, 15 times of Northern cities. And then you begin to appreciate the magnitude of economic crisis, Cleveland, Ohio, Gary, Indiana, Chicago, Buffalo, New York. We can begin to multiply the number of places where serious hardship is really-

Rob Johnson:

They called it the Rust Belt.

Gary Gerstle:

Yep. And that's when it began to rust.

Rob Johnson:

That's right. Well, the tensions that were so vivid at that time were also what you might call a precursor of globalization. Michael Moore eventually made Roger and Me. And it was all about the anxiousness in Michigan as they saw the plants first moving to Mexico and then to Asia. And there was a, like you talk about the racial dimension, the white flight to the suburbs, Detroit was being turned inside out. And it was a very large footprint city.

I believe somebody told me it's more square miles than the five boroughs of Manhattan put together. But when it goes from 2.1 million people to under 1 million people, how do you keep that big footprint? And all the school systems, which require state and local taxes, real estate tax? How did you keep it all together? You didn't. We just watched it unraveling. And so around, what was it? H.W. Bush's administration, we're coming into the savings and loan crisis. We've had '87 stock market crash. There's an anxiety about derivatives and futures markets and all of that. Then Bill Clinton arrives, what does he do to what you might call, take the lead in the evolution of this neoliberal order?

Gary Gerstle:

He does take the lead. And I write in the book about, in some ways his deregulatory policies go further than Reagan's or what Reagan had achieved in the 1980s. And I'll speak about those in a moment, but let me mention one other element that's a very important part of the story. And that relates to the theme of globalization that you raised, specifically the collapse of the Soviet Union in the years 1989 to 1991, and the elimination of communism as the serious political ideology from the world.

And we can talk about China later. We can describe China as many things, but I wouldn't describe it today as communist. It became something other than that. And I treat the collapse of the Soviet Union and communism as important in two ways. One, it opened a large part of the world to capitalist penetration and capitalist globalization, because as long as the Soviet Union was a force in the world, if capitalism was to penetrate communist societies, it was going to do it on the terms set by the Soviet Union or by China in the same years.

But in 1989, the Soviet Union was a much larger influence in the world than China was beyond its own borders. And so a very substantial part of the world, Eastern Europe, the Soviet Union itself, Arab countries, where the Soviet Union had influenced various east Asian countries, African countries as well, some presence in Latin America, suddenly with the elimination of the Soviet Union, the world became global for capitalists in a way that it had not been since prior to the first world war. Since prior to the first world war, since prior to 1914.

So globalization has suddenly has a much bigger playing field and many more opportunities for investment, profit, everything we associate with free-market globalization. The other thing that matters in terms of the Soviet Union's collapse is it eliminated a constraint on industrialists and employers in the United States. And I would say in Western Europe too, because as long as the Soviet Union was a threat, it had a moderating effect on industrial and employer display of prerogative and privilege because there was a worry in the back of their minds that at some point, and in some way, workers would be drawn to communism. Workers would be drawn to a Soviet model.

They didn't think the Soviet model offered anything, but they worried that workers would be seduced by it. And if that happened, according to the theory of totalitarianism, once a communist regime was established, you couldn't dislodge it. That's what made communism such a feared force in the world. Now that theory of totalitarianism turned out to be wrong because you could dislodge communists and regimes. But the point is it was deeply believed, and that put a constraint on the exercise of capitalist prerogatives. Made industrialists and employers more inclined to share their wealth, more inclined to share their profits, more inclined to share progressive rates of taxation that are not imaginable in America today.

And this is an example too, of how Eisenhower was brought on board. The New Deal back in the 1950s, the tax rate on the highest marginal income group in World War II goes up to somewhere between 91% and 94%. Eisenhower overhauls the tax code in the early '50s. But he maintains the highest rate in over 90%. And there it stays. It's moderated a little bit by Kennedy in the '60s, but these rates remain very, very high until Reagan comes into office.

And the argument of the book is that in an international political economy and geopolitical situation where the Soviet Union was a real threat, capitalists were inclined to moderate their demands and inclined to compromise with labor in ways they otherwise would not have been able to do. And once that pressure to compromise is gone, this is when we begin to see a different kind of domestic politics, a different set of labor relations in the United States. This is important because this is a new world that is greeting Bill Clinton. And what I have to say about Bill Clinton is not just about Bill Clinton. It's about the situation in which he found himself.

And there's a lot of triumphalism that goes with the victory over the Soviet Union, a sense that any kind of government planning doesn't work. That Reagan and the neoliberals have been right. This is what we're going to do to free the economy from constraints. Let markets be markets, let capitalists be capitalists, let supply-side economics drive this, let investment drive this. And perhaps they'll be growing inequality, but the world of production and abundance that will be unleashed has got to lift all boats.

Clinton, when he comes into office, doesn't buy into all of this. He's got a quite radical healthcare plan that he intends to get passed. He's got some liberals and left-liberals in his administration like Robert Reich, Joseph Stiglitz was in his administration. George Stephanopoulos was also on the left. So there are left-liberal elements of his administration, but the spectacular loss of healthcare, the spanking he gets in the 1994 midterm elections, which is the worst defeat for a sitting American Democratic President, I believe since 1946, losing both houses of Congress, you got to go all the way back to Harry Truman's first midterm.

This becomes sobering. He is a political animal with well-developed political instincts. And he says, how am I going to survive? And he says, "The only way we can survive is by taking the Republican neoliberal philosophy of freeing up markets and somehow making it our own, doing it better than the Republicans will do it."

And thus proceeds a series of pieces of legislation that secure neoliberalism as a political order. It has an international component, the approval of the World Trade Organization, the embrace of the Washington consensus internationally. Domestically, he declares the era of big government is over. He reforms welfare in a way that reduces its benefits. I spent a lot of time on the telecommunications reform bill of 1996, which ends what had been a very robust tradition in America of the government regulating popular media in the public interest out of the conviction that the popular media was a property so valuable. It really belonged to the American people and cannot be the property of private corporations.

The Telecommunications Act of 1996 eliminates government regulation of the new media landscape that is rapidly developing. And then he goes on to deregulate Wall Street, repeals the Glass-Steagall Act in 1999, which has been one of the great achievements of The New Deal, separating commercial banking from investment banking. And then as one of his final acts, he signs off on the ensuring that the newly developed derivatives market would not be regulated in any meaningful way.

So if you add up all these elements of his policy together, we have to understand that he is embracing a neoliberal consensus, and he is really continuing the Reagan revolution, this time under Democratic party guise. And one of the most interesting elements I analyzed in the 1990s is the relationship of Newt Gingrich and Bill Clinton.

We know them to be sworn enemies. We know them to hate each other's guts. I don't think any two people in politics in the 1990s hated each other more than those two, but they worked together very closely on the Telecommunications Reform bill of 1996. And so Clinton, I call him the Democratic Eisenhower. And what I mean by that is just that Eisenhower had achieved the inversion, as just as Eisenhower had achieved Republican acquiescence to The New Deal order, Clinton is the key figure in achieving Democratic acquiescence to the Republican neoliberal order of the 1990s.

Rob Johnson:

That's fascinating. I remember I mentioned I used to work with Pete Domenici, and though it's a little later in time, after he had retired I had a meal with him and he said, "Isn't this a strange world?" I worked with him '84 to '86. He says, "It's such a strange world. I was further left than Bill Clinton, John Kerry, or Barack Obama. What? This is really upside down."

And I remember when ... we'll walk forward a little bit further. When I was in Detroit around the time of the 2016 election, one of the top aids to Hillary Clinton said she saw no prospect for winning Michigan first in the primary against Bernie Sanders and then against Trump. And when I asked why she said there are three pillars, NAFTA, welfare reform and criminal justice reform, and the people of the Detroit metropolitan area are not going to offset the outstate. They'll stay home. And that proved to be the case, but it's-

Gary Gerstle:

Yeah, well, I still wish he had spent some more time in Michigan because she didn't lose by a lot of votes, but.

Rob Johnson:

13,000 votes. And how would I say, and turnout relative to Mitt Romney versus Obama, was down 122,000 in the city of Detroit. That's a big portion of the city, because they only have about 900,000 people, but anyway-

Gary Gerstle:

And that speaks to by 2016, the neoliberal order has fractured and Hillary Clinton who had been so central to the construction of the neoliberal order is on the outs. And part of her journey in the 2016 campaign is coming to terms with her sudden marginality, not in terms of people who know her, but suddenly policies that she thought were the way of the world in America for the Democratic party are being looked at skeptically. And Bernie Sanders is as much a phenomenon of 2016 as Donald Trump. And in the book, I treat them as players of, excuse me, equivalent significance, one blowing up the neoliberal order from the left and the other trying to blow it up from the right.

Rob Johnson:

Let's cut back a little bit. Right after Clinton, you've got George W. Bush. We end up having the great financial crisis, which is handed off to Barack Obama. You'd mentioned race as being a big part. The first Black president, in some ways people were very hopeful, but that ended up during his reign, a Republican house, Republican Senate, and then Donald Trump. And I'm not deprecating Barack Obama at all. I'm just saying, in this context that you've described as the pillars. What are the drivers? What are the dynamics that you see, starting with George W. Bush and through the end of the Obama years?

Gary Gerstle:

Well, George W. Bush is a committed neoliberal. He wants to further free the market from regulation. And he also, he has egalitarian sympathies. He doesn't want affirmative action for African Americans, but he conceives of a homeowner policy, which is he imagines as the Republican equivalent of affirmative action. In other words, put a house within reach of every family in the United States. He understood that Blacks and Latinos were way underrepresented in terms of home ownership.

So he wants to expand homeownership as part of the American dream, Clinton had wanted to do the same and Bush's father had initiated some of this. None of this was a bad idea, except that it wasn't in any meaningful way funded by federal government support, because that would entail a kind of government intervention that by neoliberal standards was considered to be illegitimate. And so Bush goes in another direction, encouraging lending agencies, Fannie Mae and Freddie Mac to expand lending, vast expansion of the issuance of subprime mortgages, encouraging banks to loan irresponsibly.

So home ownership goes up, but it's not under very, very irresponsible financial circumstances, which has to do with the degree to which George W. Bush was wedded to market solutions, to social and political problems. And this is going to lead to the housing crisis and bubble of 2006, 2007. And that's going to become a critical element in provoking the financial crash of 2008 because by 2008, banks across the world were all involved in reckless real estate speculation and the issuing of all kinds of subprime mortgages.

I also spent a lot of time on Bush and Iraq. And here I focus less on the invasion of Iraq, which I think was terribly ill-conceived measure. One of the worst foreign policy mistakes in American history. But I focus not on that as much as reconstruction where neoliberal principles are once again being applied. The United States had good models for reconstructing countries torn apart by war, namely, Germany and Japan. It's got plenty of plans for doing this in state department drawers. They all remain in state department drawers.

The responsibility is handed to Donald Rumsfeld, Department of Defense to reconstruct Iraq and both Rumsfeld and Bush don't really want to be bothered. They say the private sector can do this better than government can. So we're going to hand this over to private sector. We're going to hand this over to private corporations, Paul Bremer, the man brought in to oversee this reconstruction was not well suited for the job, but insofar as he had any skills at all, he had acquired them being involved in what happened in Eastern Europe after the fall of communism. And there was shock therapy, introduce free-market capitalism of the stiffest sort as quickly as possible. Tough medicine will almost kill the patient, but will also cure them of this terrible, menacing weakness for state involvement in the economy and the privatization of reconstruction in Iraq deepened the catastrophe of Iraq and made Bush a terribly unpopular President.

And the combination of his mishandling of Iraq, and then the mishandling of housing expansion produced the crisis of 2008, all in a world in which neoliberal principles are not being seriously challenged by anybody. Get the government out of the way, let private market forces, private institutions, private corporations do their work. Now, I was one of those people who thought that Barack Obama could be a transformational President. And this is how I wrote about him in a previous book of mine. The new edition of American Crucible published in 2017, which has a new chapter on Obama. And I call the chapter, The Era of Obama.

I, like you probably didn't expect to see an African American President elected in my lifetime. And I thought there was something wondrous about this, that the United States perhaps was really making progress on one of its most serious issues, which is the issue of racial inequality and racial division. That made it difficult for me to deal with Obama in the context of this book, because I know as I was writing this book, I did not see him as a transformational President. And this may accord with something you were suggesting earlier. I saw him as not as a transformational President, but really the last of the neoliberal Presidents, the last person who wants to help the economy recover by neoliberal principles.

And how do you do that? Well, one of the things he does as he comes into office, which I grant was a terrifying time for anyone to come into office because of global financial system was at the edge of catastrophe. He brings back Bob Rubin's team, the key set of advisors, not Bob Rubin himself, but his key people like Larry-

Rob Johnson:

Summers and that, yeah.

Gary Gerstle:

Yes. He brings them back and they are the architects of his economic recovery plan. And it's an economic recovery plan that says our first obligations is to render the bank's healthy. That is far more important than saving people's homes, saving their mortgages, saving some of ordinary people's private wealth. And so there's a huge imbalance in the policies of his first year between money and revenues expended on saving the banks and what was not expended in terms of helping people keep their homes and stimulating the economy to the point where employment could recover with the same pace as the stock market was recovering.

And this divorce between the fortunes of Wall Street and the fortunes of main street are noticed by Americans of all sorts, white, Black, Latino. They understand that ordinary people are being asked to sacrifice, and the ways in which economic elite to had done so much to bring on this crisis were not going to be asked to sacrifice. And it's very striking in this regard that no banker was hauled before Congress to testify. No one was made to run the gauntlet of congressional hearings. No one went to jail for any of the misdeeds, and there were serious misdeeds leading up to The Great Recession.

And I think this hurts Obama over the long term, that he's associated with a political order that had done a lot of injustice to ordinary people, white and Black, and this is going to become a huge problem for him. Now, having said that, it also needs to be said that he had a burden as an African American President, that a white President of that moment would not have had to deal with.

And he was constrained and he felt constrained in terms of what he could do. He understood that the expectations for him were higher than they would've been for a white President, that the judgment of him being a failure would've come quicker. And there was a backlash against him, which began very quickly after the exuberance that was so manifest during the days and months following his election.

A backlash among many white saying there really shouldn't be a Black President in the White House. So this has to be said, and it has to be understood that Obama was operating under constraints that a white President would not have been operating under because the heritage of race and racial hatred and racial equality still hung over and still today hangs over very seriously the American Republic.

Rob Johnson:

Yeah. Now, and recently, David Sirota, a journalist made a podcast series that just won I think the award yesterday for the best podcast of the year, for last year, is called Meltdown. And it was about exactly what you just described, the financial crisis and who got paid and who didn't. But the meltdown in his title is not the meltdown of the financial markets. It's the meltdown of trust and faith in expertise in governance, as a result of the Obama-led bailouts.

And by the way, to give Obama a little more relief, much of the design of TARP and financial bailouts before the financial reform in Dodd-Frank were already baked in the cake by the Bush administration. And so and the former Goldman Sachs treasury secretary, Paulson, and a lot of their, what you might call taking the hand off when things had already been designed and implemented to a great degree, which didn't give them as much discretion at the margin to build their own plan.

But when Tim Geithner was talking about foaming the runways, Joe Stiglitz was standing up saying, "The polluters are getting paid. What about the rest?" And with globalization, with white people in the Rust Belt suffering, as well as Black people, they're starting to say, "Now we got a Black president, what's this elitism taking care of the guys who made the mess?" As people in Detroit said to me, "Our real estate crashed. We never had a bubble." And then it went down and went down to the ... I mean like four-bedroom houses were selling for $5,000. People just wanted to get out.

So I can see it was a very pivotable point in the deterioration of trust and confidence, but it's not something you can put all on Barack Obama's shoulders. It's much more systematically in motion. And as you said, the hair-triggered negativity towards him from the echos of racism are very profound.

Gary Gerstle:

I agree with that. And it also needs to be said that there was no organized left in American politics when Obama was elected President, as there would be by 2016 with Bernie Sanders. And if there had been [inaudible 00:44:43] and Elizabeth Warren, and if there had been an Occupy Wall Street left with national leadership, Elizabeth Warren and Bernie Sanders present in 2008, they are going to be a product of the crisis of 2008, 2009. And the loss of faith of existing political leadership that you are referring to, but they were not present in any significant form at that time.

If Obama had a left some thunder on the left, he would've been able to leverage a different kind of politics, perhaps in 2009 and 2010. When the thunder came, the political thunder, the political thunder then came first from the right, not from the left. It's going to come from the left, but this speaks to the deeper disorganization of the left in American life.

And the hangover of the Soviet Union's collapse in 1989 to '91. But if Obama had that kind of left present in 2008 of the sort that Biden had in 2020, and of course Obama had what Biden did not, which is supporting both houses of Congress for legislation, he might have been able to chart a different course. And that's also a way of saying one cannot put all this on an individual leader. They have to work with what's there. And one thing that wasn't there was a left able to flex its muscles in American politics. It just didn't exist in 2008, 2009.

Rob Johnson:

So now we've got Donald Trump in the White House, and I went on election night. I was in Detroit and I voted for Hillary Clinton along with one other person. All of these are people I went to high school with. They all had MD, JD, MBA or CPA. These were professional Caucasian people, and they all with one exception and myself had voted for Trump. And I can say to you, it was foreshadowed. When Joe Biden got elected, that same group, they all called me and it was unanimous for Biden.

But what I said to them that night was, Trump is a symptom. And Trump has ignited things by on the stage in the Republican primaries and after saying, this system is rigged, we got to change it. And nobody was saying that in either party is vividly, but I predicted that night. He's going to seduce you and abandon you. And what's fascinating to me is in light of this dynamic that you're writing about and all the underpinning, the structural evolution, what did Trump do? Where did he make mistakes? And then we'll go to where does Joe Biden able to find running room and what should he do now that he's our President in the context of all these disturbances?

Gary Gerstle:

Well, I don't think Trump expected to get elected. I think it was a media ploy. I think he wanted to further burnish his brand. And then he caught fire. We shouldn't underestimate a certain kind of tactical political brilliance in him, decades being media star and entertainer, he learned a lot. But he also was, he was a man for the moment and he had certain beliefs. There are many beliefs he doesn't take very seriously, but he had certain beliefs that had been with him really since the 1980s. He didn't believe in free trade.

He had always, since the '80s, he had been protectionist. He didn't believe in the perfection of markets, he had manipulated so many markets and so many contractual relations on his own. He knew markets were bringing together tricksters of one sort or another. And you triumphed in a market, not by fair exchange, but by imposing your will and suing the hell out of your opponents until they couldn't bear the cost of attorneys anymore. So but he had no fondness for markets and was not seduced by the neoliberal promise of market perfection.

And that allowed him to speak frankly about the problems of globalization and the unequal cost it was imposing on people. And also he took a very strong stand against one of the positive elements of neoliberalism, which we haven't talked about, which is its cosmopolitanism. If you are glorifying a world of free trade, free movement of people, free movement of capital, free movement of information, you're also probably going to celebrate a kind of cultural hybridity and cultural diversity. If you believe all those things, you're going to want to encounter the world and encounter other cultures and take a certain delight in other people's cultures.

And America during the neoliberal age became far more diverse than it had been in the era of The New Deal order when immigration in that was sharply restricted. And he did not like cosmopolitan America. He hated it. He loathed it, and he was able to turn his critique of globalization into a critique of minorities getting ahead in American life and taking the birthright away from the true Americans who were white, had been in this country a long period of time, whose ancestors were European of one sort or another.

So he becomes one of the forms that anti-globalization takes is a privileging of one's own ethnos or the ethnos associated with one's own nation. And the criticism of Obama that you mentioned earlier, he's part of the elite. What's worse than a white elite from the perspective of many poor white Americans as a cosmopolitan elite that Obama and Hillary Clinton and other people were thought to embody? And Trump becomes quite vicious in his attacks on cosmopolitan America.

And this unfortunately resonates pretty deeply with the white America that feels excluded from the benefits of globalization. And even though Trump in some respects is promising to constrain corporations in terms of what they can do, he's much more comfortable building a wall against rapist Mexicans than he is about curtailing the power of corporations in American life, because he was transparently about enriching himself and his own fortune.

And so the turn that he gave to this anti-globalization view was to privilege white Americans of yesteryear to restore America to its past greatness, which meant isolating America from the contamination of the world and isolating true Americans from the contamination of its own minorities. And he unleashed all this toxic poison into the American bloodstream. We now know that I think racism never really goes away. You can lock it up and keep it in a closet and keep it out of major discourse in American life.

But Trump had no interest in doing that. He was interested in provoking. The master of the provocation, throwing out one provocation after another. And then when he found a provocation that would really hit home, he doubled down on it without any regard for what effect that provocation would have on the future of American democracy and the future of the American Republic. And so he was able to identify racism as one of these provocations and embraced that point of view endlessly and deeply, and enabled a much more corrosive and much more racist public life in America from which we're still suffering.

But in the process brought a lot of people on board, and a lot of these people. And I'd be interested in hearing more about your friends in this regard. I don't know if they're your friends, but people you went to high school with, exactly, what was it that drew them to Trump? Certainly his declaration that the system was rigged hit home. His promised that he was going to drain the swamp hit home, but a part of his appeal was the rawness of his appeal. This was a man who would do anything, say anything. And I think a lot of people who voted for him understood that he was going to break a lot of things in America life, but that ultimately some system in America, some heritage of constitutional rules, some affection for the declaration of independence of the constitution would triumph in the end.

That somehow Trump would be domesticated, he would break things. And then the good people, and maybe the people you were talking about earlier would come in and clean things up and restore America to what it really needed to be. And what we found is that once you unleashed this wrecking crew, there really was no stopping them. And we are suffering deeply the ill effects of that wrecking today.

Rob Johnson:

Yes. Well, my friends at the outset were saying, and truthfully, I had come to the east coast, both for college graduate school and professionally, and that my children, I have two older children in their now in their thirties had thrived. Their children had stayed in Michigan. And even in college and the state, the public universities, even University of Michigan were very diminished in their funding, et cetera. And so they didn't see, without somebody shaking things up that their children actually were on a runway of opportunity.

And what they felt was that Trump had come right after his nomination in Cleveland to the Detroit economics club. And he didn't, "Pander to donors and corporate leaders." He said, "You guys are the example of losing jobs in Michigan, moving your plants to Mexico," et cetera. And even though they were all in the professional class, et cetera, they felt like somebody had acknowledged the devastation that in this case, the state of Michigan and the region had experienced without any adjustment assistance, without any acknowledgment.

And like I mentioned to you earlier, the great financial crisis was like a blow to them because they were already down and nothing came there. The bankruptcy of the city of Detroit, all kinds of people who had worked 45 years as municipal workers, had their healthcare cut off and their pensions cut down to $12,000 a year and they were outraged by all of that. And so I think it's in that context that they were in despair.

Gary Gerstle:

But I think part of what Trump hit home on was that how much your life chances were determined, whether you were in the districts of globalization benefiting from this neoliberal global economy or whether you were not. And that's something he understood very well. And he played very consistently to those who he felt had been left out and left behind. And I do understand that sentiment on the part of the people you're speaking about.

Rob Johnson:

Yeah. Well you get people like David Brooks who was writing books like Bobos in Paradise, Bohemian Bourgeois in Paradise. And he was talking about elite universities where people got advanced degrees to join, I'll call it the 1% and be their marketing men to the detriment of the Republic. And we're supposed to respect them as though, because they went up the ladder to the Ivy leagues or Stanford or University of Chicago or whatever that somehow it made them wiser.

And a lot of my friends said it didn't make you all wiser. It made you safer because you were accepted and trusted by the elite for not being controversial or disrupting what was happening. And David Brooks was writing about this well before Trump. And so I think there's an element of what is education and is it credentializing or is it educating? As the famous writer, Jane Jacobs, wrote about in her last book called Dark Age Ahead.

But I think like you said, it became unleashed. It got so wild and so out of control. And I think in that disorientation, it created the opportunity for what I call a gentle good soul kind of guy like Joe Biden, who kind of he'd walk up to a blue-collar worker and pat him on the shoulder. I worked in the Senate for six years. He had a common man kind of aura about him that allowed him to create what you might call through his authentic behavior, a sense of healing of those disturbances that you arrived at. But now it's almost feeling like the boat is swamped.

Gary Gerstle:

Briefly on Biden. Yes, tremendous empathy. And I think also the pandemic, which we haven't mentioned suited his skills very well because he is someone who had suffered immense personal tragedy in his life in terms of the loss of two children and the loss of his first wife. And he dealt with that by becoming not emotionally shut off, but emotionally available and empathetic in his ability to connect with the American people. It was really impressive in a moment of distress, in a moment when Trump was in complete denial about the ravages of the pandemic. And that certainly helped Biden to the White House.

For the sake of brevity, let me say about Biden that I think he understood that a political order had come apart that he could simply not duplicate Obama or Clinton, even though he admired those men immensely. He had to design a different kind of Democratic politics, more like The New Deal and The New Deal order than the neoliberal order of the 1990s or the Obama administration.

And he had, I can think quite interesting plans and I was impressed by them and wrote about this in the first six months. And also he had a left that he was in dialogue with and the Democratic party has prospered the most when the center and left of a Democratic party have been in serious dialogue with each other, is true of the 1960s and true of the 1930s.

So I had high hopes for him, but really, it's hard to be a transformational President and Institute a new political order when you don't really have a majority in the Senate. And in fact, he has not, and it would've been a very different Biden presidency with a real majority. And the lack of a majority has thwarted most of those ambitions, and the pandemic continues to be a difficult beast to master and the Ukraine crisis, which I think the Biden administration is handling well, but he's stalled on the home front and the domestic front.

And it's not because he's too old or not because he's demented, but because he doesn't have the political majority he needs to implement the kind of vision he wants for America. So I think America is in for an extended period of disorder before a new political order really begins to implant itself. And that political order may come from the progressive left or it may come from the authoritarian right. And I can't tell you at this point where our future lies, but that is the choice that Americans are going to have to make.

Rob Johnson:

Yeah. Well, we're in the, like your book says, the rise and decline of the neoliberal order. We're in the ashes after one waiting for the next thing. And anxious as I am, at least as I sense you are, but so let's conclude for today. I want to thank you. That was very, very clear, illuminating, excellent history. I enjoyed it just because I lived it. And I just felt like you brought a lot of the high points and you integrated things beautifully.

So I want to thank you. I want to tell my young scholars who are part of the audience that you are an example to them, your ability, and sometimes historians are, how do they say? Multidisciplinary inherently, but the way you integrate that and the sophistication you have in economics is a great model for the careers of some of those young people.

And I also want to invite you back for another chapter. As we see things unfold, I'd like to make another episode. How I say? Is what's now going forward, at least is fresh or a little behind us, but I can see you're a person I'd like to consult what I have questions about what's happening and how you see it in that deeper framework that you've written about.

Gary Gerstle:

Well, thank you very much. That's very kind and I'll be happy to come back if you want me back and thank you. Thank you for this opportunity.

Rob Johnson:

My pleasure. We'll meet again. Thank you.

Gary Gerstle:

Good. Thank you.

Rob Johnson:

And check out more from the Institute for New Economic Thinking at INetEconomics.org.

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