The Sudden Death of the Neoliberal Consensus


We wake up. It’s the day after. Fear and anxiety mixed with bile rises up from the pit of the stomach to the throat. How? We ask ourselves. How could this be? How could a con man bluff his way to the White House? How could Americans elect a television huckster to the highest office of the land? How could hopeful dreams of breaking the glass ceiling be shattered by—of all people—a sexual predator? Are a majority of Americans really nativist and xenophobic?

Is the American republic under threat? Is it 1933 all over again? Is this how fascism comes to America?? What will happen when the man takes office? Do brown people need to fear for their life and limb? Will Homeland Security turn into an intrusive state police kicking down doors and intimidating nonwhites? How resilient are the institutions of the constitutional republic? And what lies in store for the liberal international order that Trump has threatened with a bludgeon?

I don’t have an answer to any of these questions. Trump is an absolute wild card. The next four years could be a farce. Or they could be the late 1930s. We just don’t know.

A friend of mine asked me if there is a genuinely insightful narrative to explain what is happening in the West. Here is what I wrote:

Over the next few days, we’re going to be bombarded by a million explanations. I want to suggest a rule of thumb as we sift through them. Any good explanation must explain the geographic, temporal and class distribution of the turn to populism in the West; including and especially, dogs that did not bark. (For instance, American race relations cannot explain the developments in Europe.) With that in mind, I’d like to put forward an explanation that builds on the insights of Karl Polanyi, Dumenil and Levy, Case and Deaton, and Eric Hoffer.

Polanyi argued that society responds to the whiplash of the global market economy by clamoring for protection. This works largely through the labor market whose disruptions threaten to annihilate the body social. In his reading, the connection between the political and the economic goes through the labor market which is where society lives.

Dumenil and Levy have shown that the neoliberal counterrevolution was a political project to resurrect the liberal international economic order. The rise of neoliberalism can be traced to the stagflation crisis of the seventies which opened the way to a revolution from above. The counterrevolution was consummated in the nineties as the center-left largely abandoned pro-labor policies and in the process established the neoliberal consensus wherein there were no centrist alternatives to the rigidly pro-wealth, pro-finance, pro-globalization, anti-welfare, anti-inflation policy mix.

The neoliberal consensus held as long as the world economy was in the up-cycle; that is, until the outbreak of the Western financial crises. During the up-cycle the unshackling of the global economy had amplified the medium-term (8-30 yr) financial cycle in wealth, credit, and asset prices. The down-cycle that followed, whose amplitude was equally large, led to especially deep and long-lasting balance-sheet recessions that decimated the labor market; that is to say, the body social. (The unemployment rate in many Continental nations is still in double digits.)

All was not hunky-dory during the up-cycle either. The addition of Asian workers, especially the Chinese, to the effective global labor market, suppressed wages and employment in the West. The result was redistribution of income from the rich world lower and middle classes up to the rich and the highly-skilled and out to the low-income working class (captured in the so-called elephant curve of global income gains, see chart).


That these twin developments hurt the great white beast is an understatement. Case and Deaton uncovered evidence showing an epidemic of self-destruction in precariat white communities in fly-over country. They documented that there have been an astonishing half-a-million excess deaths in this demographic as a result of suicide and drug overdose since 2000.

Eric Hoffer argued that decaying political orders swell the ranks of the frustrated who are ready to demolish the political center and start over. What happens in a mass-movement is that differentiated individuals are marshaled by a demagogue into an undifferentiated, solid mass of identical particles, that is then deployed as a bludgeon to demolish a decaying political order.

I believe what we have witnessed is the sudden death of the neoliberal consensus in the precise manner expected by Hoffer. The West has seen two previous periods of extended economic crises: 1930s and 1970s. The present crisis has much more in common with the general crisis of the 1930s than the 1970s. And that is very, very scary.

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