What Is the Anti-Trumponomics Agenda?

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1:54Stephanie Flanders:I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, what on earth is going to happen next. This week, we're actually taking a break from Trumponomics to consider the alternative. We discuss every week how Donald Trump is changing the US and the world, and we hear quite a lot from people who think he's taking us in the wrong direction, economically or sometimes politically, but we haven't spent much time on what a seriously alternative agenda of policies might look like.

2:29Stephanie Flanders:Do the critics think the answer to America's economic and political problems is simply to turn back the clock, go back to Obama and Biden-era policies? Or do these times call for an anti-Trumponomics that's just as disruptive and radical as what's been coming out of the White House? Well, the answer matters for Democrats in the US, obviously, who are hoping to win votes from the president's party in next year's midterm elections and defeat Trump's candidate in 2028, for that matter. But given that a version of MAGA-style populism is also building support and even in power now in many other parts of the world, not least Europe and the UK, anyone else should also be thinking about it as well.

3:12Stephanie Flanders:The official Democratic candidate for mayor of New York, Zoran Mandani, well, he has his answer. an aggressive left populist agenda challenging big business, grocery prices, big oil, all in the name of tackling the affordability crisis. And most of that makes the Democrat establishment extremely nervous. But what's their suggestion? I'm not sure we're hearing it from them or from mainstream politicians in Europe. Well, we're going to get into this with one of my favourite Substack columnist, Noah Smith, who wrote a column recently on precisely this topic. And I'm delighted to say he's joined me to discuss it on a sunny Friday morning in the first week of August.

3:54Stephanie Flanders:Noah, thank you very much for joining us. Thanks for having me on.

4:01Stephanie Flanders:It still pains me deeply that you're no longer a Bloomberg columnist, but I see your Substack is the second most popular Substack on economics and business, which is a brilliant achievement. And it's great that Trumponomics can still lure you on occasionally. That column of yours that caught my eye, I think the title was, Should Democrats Go Back to Neoliberalism? And I guess when we say neoliberalism, we mean the kind of market-oriented, centrist version of progressivism that we saw under Bill Clinton and Barack Obama. So let's start with that. I mean, should they go back to neoliberalism? Well, so you have to ask, what does neoliberalism mean in practice?

4:40and in practice it basically means let the free market do what it wants and then use government to sort of redistribute income wealth etc you know provide public goods like building infrastructure things like that and then after that just let it be it's a fairly simple idea i feel like the degree to which this was working well is underrated so for example one thing you saw was that the U.S. welfare state grew and grew throughout the late 90s, despite Clinton's welfare reform, the 2000s and the 2010s, with food stamps, Section 8 housing vouchers, EITC, child tax credit, and these welfare programs, which are either giving people the basic necessities of life or just giving them cash to buy whatever they want, and doing it in a way that didn't really discourage people from working, which is pretty cool.

5:32And so poverty in America had dropped quite a bit. And we haven't eliminated poverty in America. But if you look at the child poverty standard with a supplemental poverty measure, for example, it had dropped just a huge amount. Obamacare had reduced the number of uninsured people to a pretty low level. And health care had stopped growing as a percentage of the cost in the economy, actually. And college tuition, it's so expensive, except college tuition has flattened out and has fallen in the last decade or so. And economic growth has been mediocre, which means growth in living standards for the median person has been fairly mediocre since the 70s.

6:14It's not zero. The people who tell you that we got poorer since the 70s are just wrong. Wages definitely grew, but not at quite as great a pace as before. But, you know, the rest of the developed world did worse than us and was arguably considerably less neoliberal than us, but yet did worse on these median income wages, living standards for the average person. And so we're left asking, what was the big harm? I actually have problems with neoliberalism. I think there's ways we could do better. We could improve on that. But when we just look at the base of it, is this screaming for revolution? Is this something screaming to be torn up?

6:46And why? And that's the question that I think the critics of neoliberalism have largely failed to answer.

6:54Stephanie Flanders:There's a lot there, but I don't want to get sidetracked by that, because I think there's a broader thing, which I think about even from the time I was in the US Treasury was the last time we had a budget surplus. It was the late 90s, early 2000s, some of the latter part of that Clinton era that you talk about. And of course, we thought it was all our brilliant policies. And in the years after that, the fact that you continue to have decent growth, low inflation, policymakers, central bankers were all kind of congratulating themselves for having found the perfect policies, and some of those you could call neoliberal.

7:28Stephanie Flanders:But in retrospect, there's certainly a view that says they were just lucky. There were just some profound disinflationary forces that were supporting a much higher level of non-inflationary growth. Policymakers kind of helped things along. And as you say, there were some very helpful interventions in terms of tax credits and other things. But ultimately, it was a particularly benign confluence of global and technological forces, which enabled that non-inflationary growth, rapid growth of employment, particularly favored the US and that environment. The US was not penalized for continuing to run very large trade deficits, and other countries were kind of benefiting from selling a lot to the US.

8:13Stephanie Flanders:But under the surface, risks were building up, particularly in the financial system, which ultimately put us on a rather different path. But there were also things that naturally came to an end. Trade was never going to continue to become more than 100 % of the global economy. There were some things that were step changes in the global economy, which the US benefited from. They related to neoliberalism, but they were not going to endure. So I guess I would just ask you on that front, I mean, we look back at that period, but it's not clear that going back to those policies in one way or another is just going to take us back to that era, which has changed in an awful lot of other ways.

8:52Stephanie Flanders:The world has moved on. So what are the main things you see as having changed? So for a start, that China has gone through the expansion of the global labor force that produced a disinflationary wave and a kind of step change in the potential of the global economy. That's worked its way through. China's now got a shrinking workforce. It's got rising labor costs. There's no country that's waiting to sort of replace China, even if we continue to have the kind of open global economy that we had. We don't know what's going to happen with technological change, but it seems that the sort of balance of policies globally now is more likely to push up prices than to push them down.

9:34Stephanie Flanders:And we have these enormous investments that we would have to undertake if we were, for example, wanting to be serious about net zero. I mean, And it feels like there's some quite big structural changes that actually kind of make things more expensive going forward. I know the situation has changed, but in terms of the actual challenges we need to address, I think before we think about the optimal policies that we need to address a set of challenges, we should probably think about what those challenges are and boil them down in as simple a way as possible. So when I look at what those challenges are, I definitely think inflation right now is running at...

10:11over 2%. It's ultimately like, you know, 2.5%, 2.8%. I mean, that's a little bit higher than we're used to. It's a little bit higher than the inflation target. But if you look at historical inflation in the United States, it's still pretty low. We had those two years of inflation under Biden, but we're not having that level of inflation now. And then as for climate change, we can talk about that, how to allay climate change. I think if you get a lot of leftist critics of neoliberalism. They'll talk about climate change as the main reason why we need to throw out our economic system and pull in a new economic system.

10:44And we can talk about that, but am I getting it all? What else?

10:47Stephanie Flanders:Another thing I would add, which I think changes the sort of policy environment pretty fundamentally, is what's happened to borrowing and to the debt, public debt, since that era, which just constrains even the agenda for a neoliberal set of policies, does it not? Yes, I agree. It definitely does. I personally think that the national debt is becoming a major problem and needs to be dealt with. And there's only one way to deal with the national debt in the long term, which is austerity. And in the short term, you can do things like force interest rates to be lower or force banks to subsidize your debt.

11:28That's called financial oppression. Forcing interest rates to be lower is called fiscal dominance. And there's a bunch of shenanigans you can do to sort of put off the day of reckoning. But in the long term, you need austerity. And austerity is two things, tax increases and spending cuts. You must tax your people more and you must spend less to bring the budget into balance. I'm not sure whether austerity is neoliberal or not. I know that certainly most people on the left would associate austerity and neoliberalism together. I would not necessarily because I feel like neoliberalism is more related to sort of structural microeconomic policies about how we interfere in the market more than it is about macroeconomic policies about what we do with the national debt.

12:12But if you want to call austerity neoliberalism, that's one more reason to take a second look at neoliberalism because I agree that the debt is a problem.

12:19Stephanie Flanders:I suspect you probably don't want to call it austerity, right? I mean, it's fiscal control, fiscal rigor. Deficit reduction. You know, we can call it whatever we want, But I think austerity is a good is a good name because you have to be austere. You have to, you know, you get less stuff. You can't have your tax cut. You can't have your spending program. And people have to know that the debt is out of control. And so there's a limit to the amount of goodies we can get. And I think that to people's credit, in the late 80s and early 90s, we had that moment where people embraced austerity. I remember I don't really remember, but I've gone back and looked.

12:55But everyone in the 1992 election, Ross Perot, Bill Clinton, and even George H.W. Bush, was talking about the need for deficit reduction. And we had this big deficit clock up on the outer wall of a big building in New York. Everybody was talking about the debt, the debt, the debt. And people were willing to accept spending cuts and tax increases to stop that national debt because we were willing to accept austerity. We didn't use the word austerity. We just said cut the deficit. And maybe that's what we can say. Cut the deficit. But that's what we need. And so I don't know whether you want to call that neoliberal or not, but we do need it.

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16:38Stephanie Flanders:We don't need to get tied up on Labour. The reason I was pushback a bit on austerity, and obviously it's partly because I was sitting in the UK, when it was discussed in the 90s, it was not called austerity. When it was called austerity post-global financial crisis, it was associated, particularly within the UK, a Conservative agenda, which the same cuts would not have looked the same under a Labour government. But I'm also reminded, also in the 1990s, but when Sweden, for example, the Social Democrats were having to get on top of their debt situation, I was always struck by the way they talked about it, which was about, this is about having the fiscal independence to do the things we want to do progressively.

17:13Stephanie Flanders:And as long as I'm beholden to the global bond market, I am not free to do the progressive social democrat things I want to do. So if we do this hard work, it is actually a progressive policy because then you're not beholden to anyone and you can actually do what you want to do as a government. And there was a sort of an aspect of that with the Clinton agenda as well. I think the broader point is the things that we're talking about, you know, austerity is one thing. We would probably both agree that you would also want to move away from the kind of protectionist agenda. If you're following this kind of line of alternative policies, more neoliberal policies, you know, free trade or free air trade would be part of that.

17:51Stephanie Flanders:But does the alternative to Trump have to find some way to tap into the populist mood while still being consistent with these policies? Or do you think it's just a contradiction that we just have to persuade people that there's no need for populism because everything was doing fine before? Well, Americans and people in some other countries, too, are angry. And there's this idea that a lot of people have that if people are angry, what you need to do is you need to change your economic system. And I think this idea comes fundamentally from the industrial age and from Marxism and the fact that for a long time, conditions for the working class were very bad under industrialism.

18:33And the idea was that this was making people mad and that we needed to change our economic system to make people less mad. And that when we implemented things like unions, weekends, child labor laws, labor standards, welfare states, etc., people got less mad. And I think that was a major through line on a story in the 20th century, the story of class conflict and class conflict resolved through social democratic means as an alternative to communism, which was not an effective solution. You can tell that sort of potted story of the 20th century. It's certainly not the only thing that was going on, but it was certainly a big part of what's going on.

19:11But now I think that when people are getting mad in developed countries, we instinctively reach for that same story. We instinctively reach for a repetition of that 20th century story. We say people must be mad because they don't have enough stuff. They're economically deprived. But I think that by and large, that's not true. I do think people do get mad at economic things. I think people were mad about inflation. We got two years of, you know, five to 8 % inflation under Biden. And I think people were mad about that. and their right to be mad. But I think that overall, the anger that you see has to do with a lot of things that don't look like what people were mad about in like 1925.

19:52They're mad about social things. They're mad about the fact that they feel like their race, their religion, their gender, et cetera, is getting discriminated against because they have people yelling hate at them on social media and they have government policies that they feel are discriminatory towards them. They feel or they feel a loss of status in society. They feel just a general lack of comedy, lack of nationhood, et cetera, from all the screaming on social media that happens, even if they don't identify that as the culprit. But that's, you know, they feel like their country's against them.

20:23Immigration, people are super mad about. And we could talk about immigration as a neoliberal policy if you want. But I think the reason people are mad about immigration is not fundamentally economic. Immigrants don't hurt the native born workers. And when people say they do, I think it's a proxy. It's what they're really upset about is the fact that immigrants are changing their culture. Immigrants are changing their sense of what the nation is all about and all this social stuff. And there's this thing called the politician syllogism. It says something must be done. This is something. Therefore, this must be done.

20:58Trump's people have this attitude, certainly with respect to Trump's economic policies. They say, we don't like the way America's going. We have to do something. Trump flails around and just attacks everything in sight. They say, okay, that's something. Something was done. And it was done by someone that we perceive to be on our side, to be on our team in the great American culture war. And he did a thing. And therefore, that thing must have been good.

21:21Stephanie Flanders:I think we see it in polls that even when people give... The president, a lot of the benefit of the doubt, even on the economic things, even when he says he's going to bring business back to the US or he's going to prevent jobs from going. And then he brings in tariffs that actually make it harder to grow manufacturing in the US. You find that they know there's these overwhelming forces acting against them and even against Donald Trump. So they'll just give him credit for having tried because nobody else was trying. Just thinking back on the powerful argument you make about people thinking they need to respond economically to challenges, certainly political challenges, that have cultural and social roots and how counterproductive it is to be thinking you have to have a whole new economic plan to respond to things that are actually not economically rooted.

22:16Stephanie Flanders:So I guess one simplistic way of thinking, okay, what's the implication of your analysis is on the economics front, a party or politicians who want to be a realistic alternative to Trump or the thing that will come after Donald Trump, you wait for Trumponomics to implode economically because all that flailing around will ultimately show itself to be futile. and you concentrate on the cultural distrust that you face and you stick to that. And implicitly, your economic policy is that you're going to go back to Democrat policies circa, I don't know, middle of Obama's term. It's a simplification, but does that make sense or what's wrong with that?

23:05Yes, that's pretty good. But then I think that instead of saying, okay, guys, neoliberalism worked. Let's go back to that. I say that because it's provocative. I want to make people think about that. You spent 10 years saying that neoliberalism has failed and we need something else. How true is that really? Re-evaluate that baseline bedrock assumption that you had. Did that just come out of the Great Recession? Was it just a knee-jerk 20th century response to 21st century problems? Re-evaluate that. That's why I said that. First of all, I do believe that there's lots of things we need to do differently than we did in the 20th century.