Review of The Scourge of Neoliberalism: U.S. Economic Policy From Reagan to Trump
At 272 pages, Dr, Jack Rasmus’s new book, The Scourge of Neoliberalism: US Economic Policy From Reagan to Trump, is a big little book. To understand its importance, a comparison to another big little book by John Maynard Keynes, The Economic Consequences of the Peace, is helpful.
Economic Consequences grew out of Keynes’s participation in the post-World War I peace negotiation as an English representative. When Keynes discovered the extraordinary punitive nature of the peace being imposed upon Germany he walked out in protest. His book explains why.
Economic Consequences begins with a careful, common sense explanation as to how the economies of Germany France and England had become interlocked and interdependent which we would now describe as a global economy in the making. So to punish one, in this case Germany, was to punish all. Likewise, the punitive economic sanctions imposed upon Germany were so severe that Keynes predicted that a political monster would arise in Germany. That political monster was ultimately embodied in the person of Adolf Hitler.
The Scourge describes how our home-grown political monsters came into being, with Rasmus doing a great job with the economic history that helped to create these monsters. His baseline is that economic structures are not static, but constantly changing to control evolving economic and political challenges.
Rasmus divides the American economy since 1900 into three periods: roughly before World War I, during and after World War II, and the Reagan era, which kicked off neoliberalism. In the two World War eras, America faced a happy challenge: how to manage America’s growing economic might so it would become an unsurpassed superpower. The first restructuring made U.S. capitalists an equal partner with British and European capital; the second, during and immediately after WWII, made the U.S. a global economic superpower. The third era, was, and is, an unhappy time for America’s policymakers as they were faced with real challenges and decline. Their goal was now to defeat domestic challengers, such as unions, as well as global challengers, such as Japan and Germany, for decades to come.
The stage was set for the third era in the early 1970s. Unions were extremely powerful and had made unprecedented wage gains of up to 25 percent in the early 1970s. Meanwhile, America could not compete with Japan and Europe due to its lagging and aging industrial infrastructure. So the policymakers faced a real dilemma. Their reaction came to be called neoliberalism, which is neither new nor liberal, but a marketing term exploited by an all-too-compliant intellectual class.
Neoliberalism is essentially a set of crude policies that maintains high short-term profits at the expense of long-term profits and prosperity for all. The policymakers did not want to plunge, say, 35 percent of GDP into research and development and infrastructure upgrades because that would cut into their profits. Instead they took the easy way out: they cut taxes for businesses and the wealthy; they destroyed unions; they offshored U.S. manufacturing to low-wage countries; they repealed decades of important regulations; they destroyed real pension plans for the lower 90 percent; robbed Social Security; they onshored cheap high-tech help from foreign countries; they unleashed rivers of capital across the globe; they let the banks gamble with financial instruments; they destroyed public education and crippled the young with more than $1.5 trillion in student loans; they poured at least $5 trillion of virtually free money into the banks and investors from the Fed and on and on.
The Democratic Party’s response to all this was appalling: one campaign promise after another was broken and the lower 90 percent were faced with an active enabler of neoliberal policie, Bill Clinton, or a passive enabler of neoliberal policies, Barack Obama.
Rasmus also excels at showing the economic consequences of these policies: stagnating incomes and standard of living for the lower 90 percent; grotesque income inequality; a rotting infrastructure; and lack of access by the lower 90 percent to adequate housing, healthcare, transportation and education. America has become a second rate country with an angry precariat.
Rasmus’s discussion of war/defense spending is illuminating. At no time since 1900 was any country a military threat to the United States. That ended in 1812. And yet, beginning with Reagan and continuing through Obama/Trump war/defense spending has gone through the roof. Why?
First, war/defense spending is an easy money conduit for the Fortune 500 since, by definition, there is no foreign competition. Likewise, it is a great way of funding research and development without calling it that: Who would be willing to pour tens of billions of tax dollars into IT to make, say, Bill Gates rich? Finally there was a tacit acknowledgment that since America could not compete economically then it would continue to compete militarily. Rasmus demonstrates how this is a complete policy dead-end.
This war/defense policy created the dilemma of double deficits. That is, how can America cut taxes and increase war/defense spending? Answer: the double deficit. The U.S. agreed to allow its allies to import significantly more to the U.S. than the U.S. was exporting to them but to fund this chronic and growing trade deficit the allies agreed to buy by large quantities of U.S. debt to close the gap in deficit spending. Likewise taxes for businesses and wealthy investors have been cut by $15 trillion since 2001, which also pushed the domestic deficit through the roof. But this rising debt generated huge interest payments, which the Congressional Budget Office estimates in ten years will be about $1 trillion in interest payments alone per year. Meanwhile the lack of real research and development investment by the U.S. led to low productivity growth which in turn led to the further compression of wages/income for the lower 90 percent.
Then, finally, there is what I call the China Challenge, which demonstrates the dead end of this policy choice. Several years ago, China announced its 2025 policy plan, which would put China in the lead of new IT development such as G5, cybersecurity and artificial intelligence. This is a real and significant threat to military leadership by the U.S. because new IT developments have obvious and long-term military applications. This prompted Trump’s trade war with China that ultimately collapsed.
As trade war talk intensified, the purchase of American debt by Asian countries slowed; equally important the Chinese stopped buying American agricultural products which was one of the core political constituencies of Trump: Midwest farmers, large and small, many of whom went bankrupt, started screaming at the Trump administration to back off from China. So Trump backed off, despite his public announcements that he had won the trade war. The Chinese will steam ahead to become the world leader in IT while the U.S. falls farther and farther behind.
Another important policy dead end is the Greenspan “put.” The Greenspan “put” is to maintain low interest rates through the Federal Reserve. Those low interest rates allows multinationals to achieve high profits on their foreign manufacture subsidiaries. How? Low rates keep the value of the U.S. dollar low and therefore the exchange rate value of the foreign currency of multinationals in the country of their operation high. This allows the multinationals to “buy” more dollars and thus return more profits in U.S. dollars to their main offices. It also allows U.S. exporters to other countries to sell more, raise profits, and beat out competitors. But the low interest rates allow financial institutions to gamble in financial speculation, which has prompted one asset spike after another and the inevitable collapse of the same, such as the dot.com bust, the savings-and-loan collapse, and the subprime meltdown. Each collapse becomes more severe than the previous one, but the regulated banks and the unregulated banks, shadow banks, continue to speculate in financial assets because of the billions of dollars in immediate profits.
Likewise, the low interest rates benefit major businesses by allowing stock buybacks, dividend payouts, mergers and acquisitions and offshoring of jobs. Little if anything goes into the real economy in the U.S. to improve productivity and create full time jobs for Americans.
This makes financial markets more more unstable and requires the Federal Reserve to pump more and more money into the system—trillions of dollars which should have gone into real jobs in the real economy in the U.S. Instead, they went into stock buybacks, mergers and acquisitions, dividend payouts, offshoring of manufacturing units, and the hoarding of hundreds of billions of dollars offshore by major multinationals. Apple alone is hoarding over $250 billion in various countries outside of the U.S.
And then the problem becomes that even a modest spike in interest rates causes a collapse in assets such as 35 percent decline in the stock market in 2018 which prompted a fight between the Fed and Trump. Trump “won” so the Fed lowered rates, which only means the next collapse will be more severe than the last one.
Rasmus also does a good job of describing the natural and structural changes that are coming to the economy. The key driver is energy production which has moved from water to coal to gas and oil, and is now moving toward solar and hydrogen production. At each stage of this transformation of energy production, the economy has to be retooled and refitted to meet the challenges of the transformation in question. This stretches many businesses to the breaking point, i.e. bankruptcy.
The energy component is changing at the same time that IT development is pushing economic structures into a whole new dimension through artificial intelligence, cybersecurity, G5 Communications Systems, and biotechnology. The problem is that neoliberalism has no answer to these significant problems and has no means of dealing with, for example, what I’ve called the China Challenge. Bloated with debt, major multinationals cannot, and will not, make the necessary investments required to meet the challenges of these new developments and remain competitive.
Rasmus pushes the future even farther by describing how our political institutions are becoming more and more distorted and less and less democratic. The means of making America oligarchic is through a multitude of devices such as the electoral college, the U.S. Supreme Court, gerrymandering, voter suppression, and the rivers of money that flow from the 1% throughout our political institutions, utterly corrupting them.
Photo by Sundry Photography/Shutterstock.com
Even a great book has flaws. Missing from The Scourge is a discussion of how the war on drugs—originally launched by Reagan which continues to this day—is a potent weapon of neoliberalism to permanently disenfranchise tens of millions of poor people of color from any meaningful participation in U.S. society by labeling them felons. The obvious economic and political use of the drug wars is to criminalize a potentially political disruptive segment of our society and make sure that the U.S. has no obligation to help them with decent jobs, housing, education or healthcare.
As with the drug wars, students loans, now at $1.5 trillion, disable a large potentially politically disruptive element of society from political activism by forcing them to spend much of their lives managing debt.
Rasmus’s relentless drumbeat that the future only holds endless job losses to automation is true, but there is a deeper issue. Automation, artificial intelligence and other IT developments, could free up critical and needed human resources to meet the challenges of the future. Think about climate change. Think about the tens of millions of jobs that could be created that are not only necessary but fundamental to avoid the coming environmental collapse.
Rasmus is a powerful advocate for Medicare for all, but should also consider that this also would demand huge human resources—the training of thousands of healthcare workers in the U.S. Healthcare workers, like IT workers, are onshored by the thousands. We must train our own to take on the difficult task of caring for all throughout the country and not just in wealthy areas along the coasts. The lack of access to quality health care by the rural poor is criminal; it is not a “mistake” that many of Trump’s most ardent supporters are the rural poor.
Finally, I wish Rasmus would provide a glossary. Such terms as median versus average income and negative interest rates, continuously escape me despite the fact that I’ve read about them in context at least 10 times.
But overall, The Scourge is a powerful, important book. We ignore it at our peril. Z