David Leonhart is NYT article He calls this “new centrism,” with politicians from both parties increasingly supporting ideas like protectionism and subsidies for manufacturing, policies that are said to be necessary because neoliberalism has failed.
The new centrism is a response to these developments and an acknowledgment that neoliberalism has failed to deliver. As Biden’s national security adviser Jake Sullivan puts it, the idea that the old approach would bring prosperity is Said“Promises were made but not kept.” In its place a new worldview was born, which we will call neo-populism.
Democrats and Republicans alike have grown skeptical of free trade. On Tuesday, Biden Announced The Chinese government has raised tariffs on several Chinese-made products to counter Beijing’s subsidies. Some Democrats and Republicans have also come to support industrial policies in which the government seeks to address market imperfections, such as legislation on infrastructure and semiconductors.
But is that true? Has neoliberalism failed? And can industrial policy lead to stronger manufacturing growth? Let’s look at the evidence:
Manufacturing output has not grown at all in the past decade, under either the Trump or Biden administrations. Industrial policy doesn’t seem to be working.
In contrast, during the so-called neoliberal period of the 1980s, 1990s and 2000s, industrial production grew strongly.
So why did industrial policy fail? Let’s start with the most important element of neo-populism: protectionism. Protectionist policies are based on the myth that trade deficits are caused by “unfair trade policies”. In fact, the deficit is caused by a mismatch between domestic savings and domestic investment. Populist policies tend to result in large budget deficits, and therefore reduce the national savings rate. This often leads to even larger trade deficits, since the current account deficit is by definition equal to the difference between domestic savings and domestic investment.
NX = S – I
Not surprisingly, Trump and Biden’s economic policies have failed to reduce our nation’s trade deficit, even as a percentage of GDP.
None of this is surprising: Latin America has seen the failure of populist economic policies for decades. What is puzzling is why many in Washington think the solution to America’s problems is to emulate the policy approach that Argentina has pursued for the past 80 years: huge budget deficits and protectionism.
P.S.: Here are some pictures of Juan and Eva Peron. Ask any Argentinian how their policies helped the working class.
