Is neoliberalism dead?
By Scott Sumner
Many fans of the new populism are trumpeting the death of neoliberalism. It is true that President Trump and many other leaders of the new right are opposed to neoliberalism. It’s also true that both the Democratic Party in the US and the Labour Party in the UK are moving away from Clinton/Blair-style neoliberalism.
But these political facts (which I do not contest) do not in any way mean that neoliberalism itself is in trouble. Let’s begin by looking at the year when Presidents achieve their major economic initiatives:
Do you notice a pattern? With the exception of Nixon in 1971, presidents rarely achieve their biggest economic initiatives after their first year in office. So what was Trump’s major initiative in his first year of office? Obviously the corporate tax cut, which is about as neoliberal a policy as one could imagine. Even the welfare states of Western Europe have adopted this sort of policy reform. We were late to the party (one of President Obama’s biggest mistakes).
Trump’s fans pin their hope on reversing “globalization”, by restricting the free flow of people, goods, and capital. But will Trump succeed? Consider:
The areas where Trump controls immigration (such as refugees) make up only a tiny percentage of all US immigrants. Most immigration is beyond his control. I expect legal immigration to remain at a level of just over 1 million per year, as during the Obama administration (albeit down slightly from the peak of fiscal year 2016.) I think Trump’s policies are harmful, but there will be no meaningful change in the way that immigration is transforming America. (Actually, I’d argue that immigration is not really transforming America as much as critics assume, just as the immigration from Eastern and Southern Europe had less of a negative long run impact than people feared at the time. Indeed the impact was probably positive.)
So what about illegal immigration? That’s hard to measure, but in 2017 the Trump people insisted that border arrests are the metric to look at. So I took a look at border arrests and noticed that they did indeed plunge in early 2017 (orange line). But I also noticed that they began rising again in late 2017, and are now back up to the average levels of the Obama administration—about 50,000/month (red line). So Trump seems to have failed to make a permanent mark on illegal immigration. Of course there are also lots of people overstaying visas, etc., but I see no evidence that that sort of illegal immigration has declined either. And again, the Trump people said border arrests are the metric to watch.
What about stopping the free flow of goods and capital? I expect Trump to also fail here, for several reasons. To actually stop globalization, Trump would need to do two things. First he’d need an all out trade war. And then he’d need to avoid resolving the trade war. I believe the probability of an all out trade war is less than 50%. And even if an all out trade war occurs, I think there is a 90% chance it would be resolved within a year, and there’d be some sort of face-saving agreement where all sides could claim victory (although of course everyone would actually lose, as little would change despite all the disruption.) The likelihood of both an all-out trade war and a failure to resolve the war is so low that I think it overwhelmingly likely that Trump will fail to reverse globalization. The US will continue to run massive trade deficits, indeed even bigger than under President Obama.
To conclude, neoliberalism is indeed rapidly losing support among intellectuals on both the left and the right. But there is almost no evidence that countries are going to actually walk away from neoliberal policy regimes. (Note that protectionism and opposition to immigration does not poll well in America.) Instead there will be a sort of kabuki theater show of resistance to neoliberalism, but the trends the anti-neoliberalism crowd worried about will just keep on happening.
PS. While some might argue that President Trump actually favors free trade, I see almost zero evidence for that claim. How would free trade help industrial workers in the rust belt (in the view of protectionists like Trump, Navarro and Bannon)? Yes, Trump once claimed that he favored zero tariffs all around, but I don’t count his public statements as “evidence”. Tariffs are already close to zero in developed countries—does Trump seem happy with that outcome?
PPS. I don’t believe that immigration will make America more diverse, nor do I think it will make the electorate vote more Democratic. That’s because immigration from Asia and Latin America has made earlier immigrants from southern and eastern Europe seem less different, more “white” than they seemed in 1924, when immigration was restricted because America seemed to be becoming extremely diverse. By the 1950s, that same ethnic mix was viewed as homogeneous. Intermarriage rates are now so high that the day will come when both Asians and middle class Hispanics will be viewed as culturally “white”. Fifty years from now America will still be about 75% “white”, in terms of people’s perceptions. (The black population will stay around 13%) Diversity is a state of mind.
And as immigration brings in people who don’t vote Republican, it makes existing residents more likely to vote Republican. Thus each party will continue to win roughly half of the vote.
Alex Tabarrok has a related post