Neoliberal > Populist 12/3
My views on economic policy for the working class
The neoliberal consensus in favor of indiscriminate trade liberalization and against government support for strategic industries is evaporating
Unfortunately, he is correct. The rest of Lind’s essay is a hatchet job against Paul Krugman, who himself can wield a pretty nasty hatchet. I come here not to praise Krugman.
Instead, I want to address the substance of the issue of neoliberal economics vs. populist economics. I take the neoliberal side.
In 2021 “neoliberal” as a pejorative tends to mean those who support traditionally progressive ends through the traditionally libertarian means of minimal intervention into the economy. Those ends include recognizably liberal or progressive ones such as shared prosperity and minimal standards of material security and comfort for all people as actualized in (for example) universal health coverage. Those means include recognizably libertarian or classically liberal ones such as free trade in the form of the elimination of tariff walls and other impediments to trade across borders, deep resistance to regulation, and a general embrace of a hands-off approach to economics that sees creative destruction as a necessary aspect of a healthy capitalist economy.
That is a reasonably charitable description. Now for my defense of neoliberalism.
Let us stipulate that many jobs that once provided income and dignity to people without college degrees have disappeared. New jobs for people without college degrees have been created, but probably not as many have been lost.
Jobs are created and destroyed as the economy implements better methods of roundabout production. Roundabout production includes using machines that make workers more productive, displacing some workers. It can also mean locating different stages of the production process in different countries.
The populist approach for addressing the jobs that disappear when new methods of roundabout production take over is to try to interfere with roundabout production. Although the original Luddites smashed machines, modern populists typically leave machines alone in order to focus on interfering with roundabout production that includes workers from other countries. Today, the same people who would ban imports would never think of banning self-service checkout.
I think that if you look at actual trade policies and subsidies for domestic industries, you will find that the cost per job “saved” is inordinately high. Timothy Taylor points to a meta-analysis that says
Trump’s national security tariffs cost steel users about $900,000 annually per steel industry job saved, a figure many times the industry’s average annual wage of $59,000 in 2019.
The first thing that a neoliberal economist notices about this is that you can save jobs at much less cost by providing a generic subsidy for hiring low-wage workers. While a tariff or industry subsidy binds low-wage workers to specific industries where their productivity is low, a general wage subsidy allows the economy to allocate low-wage workers to more productive jobs.
But the next thing that a neoliberal economist realizes is that we do not have to enact a subsidy to make hiring low-wage workers more attractive. Instead, we can “subsidize” low-wage workers by cutting the tax on low-wage work. The payroll taxes that are earmarked for Social Security and Medicare, including both the employer-paid and employee-paid portions of those taxes, penalize low-wage work. Rather than enact a subsidy, we could simply reduce that penalty.
The neoliberal economist looks at our tax system in general and points out that it penalizes work, thrift, and risk-taking, when in fact we should want to encourage all three. We would like to see the payroll taxes and all forms of capital taxation reduced, or even eliminated altogether. We want to move the tax system in the direction of taxing consumption, instead.
If the neoliberals had our way, the economy would provide workers without a college education with jobs at reasonable after-tax wages. By reducing taxes on labor, we would raise after-tax wages. By reducing taxes on capital, we would promote higher productivity, which would raise pre-tax wages. And unlike a populist economy where specific jobs are frozen in place with industrial policy, a neoliberal economy would be free to find the most productive use of workers.
I wish that we could run a controlled experiment, in which a neoliberal economy and an otherwise-identical populist economy operate side by side. I speculate that workers without a college education would have a higher standard of living and a greater sense of dignity in the neoliberal economy.
Unfortunately, it is not possible to run such a tightly controlled experiment. That exposes neoliberal economists to hatchet jobs from populists.