Maybe it was The Matrix.
The sci-fi classic from 1999 gave the world the character of Neo, played by Keanu Reeves as a man awakened from slumber to a world that operates by completely different rules than he’d realized. He responded with a memorably profound utterance: “whoa.”
After the turn of the millennium, the “neo” prefix spread into the political and business worlds, with similarly eye-opening revelations about the way of the word. First it came to foreign policy with the “neoconservatives,” who broke with decades of limited engagement and isolationism.
Then it came to economics with “neoliberalism,” although that was not identifying a new trend so much as recasting an old one. Ronald Reagan was not a conservative, the argument went, he was rather putting a new spin on the liberalism that birthed the concept of free markets. Similarly, Bill Clinton was not so much a standard liberal, but rather a neoliberal who reinforced Reagan’s revolution from the standpoint of the Democratic Party. Whoa.
Now there’s a history of the movement to give proper understanding to what neoliberalism is, or was, in The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era. It’s by Gary Gerstle, the Paul Mellon professor of American History at the University of Cambridge, and it’s a sequel of sorts to a book he coauthored in 1989, The Rise and Fall of the New Deal Order, 1930–1980.
So what is neoliberalism? Why did Gerstle tell Fortune that Ralph Nader would want to punch him for some of the book’s arguments? And is neoliberalism really over with the presidency of Joe Biden, as the New Deal order came to an end under Jimmy Carter?
The distinguished historian talked to Fortune about it all, and more, including whether Biden will follow Carter as a one-term president.
The following interview has been lightly edited and condensed for clarity.
I really enjoyed your book, and I would say it’s actually required reading for anyone who’s trying to understand today’s really confusing economy. In one section, you talk about the “New Left” and how that emerged and ultimately became the forerunner of Silicon Valley and figures like Elon Musk today. How did the New Left contribute to the triumph of neoliberalism?
What I suggest in this book is that elements of the New Left in the 1960s and ’70s were drawn, sometimes unwittingly, to neoliberalism. Many New Leftists wanted to rethink the government regulation of business that had been built up during Franklin Roosevelt’s New Deal of the 1930s and ’40s because they thought government regulators had been “captured” by corporations. That required them to not just be anti-corporate, but at some level to be anti-government.
They wanted to break up this nexus of government and business, to free the individual who was shackled by these large institutions. [They said] you had to “free your consciousness” and, in the process, become something of a libertarian of the left. Steve Jobs fits this model. Once you’re talking about freeing the individual from government, you are edging into neoliberal territory, because government is now cast as an obstacle to individual freedom.
Ralph Nader offers another example of this tendency. If I called him a neoliberal or deregulator to his face, he’d probably punch me. But in some ways, that’s what his politics yielded, for he was crusading not just against corporations, but also against government regulators assisting the corporations. Many of “Nader’s raiders” held important posts in the Carter administration, and of course, Carter was the president who initiated the deregulation movement, before Reagan.
The big story of the year in markets has been the tech stocks coming back down to earth. So do you see a new order in tech emerging, with the market reacting the way it has?
The tumultuous decade that we have just lived through (2010–20) is a story of a political order coming apart. One can measure the fracturing of the neoliberal order in terms of the decline of the “four freedoms” essential to its vigor. These are not Roosevelt’s four freedoms of 1941, which had a social democratic character: Rather they are what we might call the four “capitalist” freedoms: free trade, free movement of people, free movement of information, and free movement of capital. Across the last 10 years, there’s been a measurable decline in the volume of international trade; both Trump and Sanders have made opposition to free trade and an embrace of protectionist policies popular. Meanwhile, both in the U.S. and beyond, walls against the free movement of people have been steadily rising.
Digital walls are also being built, by China and Russia and, to a lesser extent, by Turkey. Such developments were unimaginable during the heyday of techno utopianism—when Thomas Friedman and others were proclaiming that the world was flat, rendered indivisible by the internet. Finally, the war for Ukraine and against Russia has revealed how much governments are now willing to limit the free movement of capital. Massive Russian funds in Western banks are frozen; Western corporations that continue to invest in Russia may face severe penalties. Does this development presage a moment in which national security concerns everywhere trump the free movement of capital? That we now have to ask this question reveals how much we are already in transition to a different kind of political order.
What jumps out to me from that is that Roosevelt’s four freedoms are very different from these four freedoms you just laid out. Those were freedom of speech, freedom of worship, freedom from want, and freedom from fear, which implicitly include things like housing for the homeless or freedom from fear—well, we’re talking right after another horrific school shooting in America.
And so those four freedoms of the neoliberal regime that you described are all to do with what form capitalism should take, oriented around what form economics should take, versus what rights people should have.
You are right to call attention to a dramatic difference between these two sets of four freedoms. But then we also have to ask: In a moment when the four freedoms of capitalism are declining, what new creed is likely to take their place? The answer on the right is clear: the ethnonationalist populism represented by Trump and the forces that support him.
On the other side, progressives—an amalgam of centrist Democrats like Biden and leftists like Sanders—are trying to recover a spirit of reform redolent of the New Deal and of Roosevelt’s original four freedoms. In this moment of chaos and transition, it is impossible to know which of these two alternatives will triumph, or whether there will be a third way that combines elements of both.
We are seeing a lot of headlines about stagflation coming back (some on Fortune.com), and now the 2020s have a very 1970s-style feel to them in terms of the high inflation and stagnant economies and oil shocks like we’ve seen with the war in Ukraine. The American stimulus programs under both Trump and Biden have gotten employment from the pandemic back to where it was almost already, but now the stock market is really declining.
So in terms of the real economy of people working jobs, there’s been tremendous progress compared with 2008, but in terms of the financialized economy, the Fed hiking rates to combat inflation has thrown a shock into the market this year. So 2008 was definitely a moment of chaos, but is this also a moment of chaos that we’re living through now?
Yes, this is a moment of chaos, but one not entirely unrelated to the financial crisis that fractured the hegemony of the neoliberal order in 2008 to 2009. The pandemic and Ukraine have further called into question the principles of globalization and “capitalist freedoms” that undergirded that political order.
Your comments about the disjuncture between what you call the “real economy” and the “financialized economy” are really interesting. The real economy has gotten significantly stronger under Biden, and the asset economy has gotten weaker.
I’ve still seen too little commentary on the critical issue that this development raises: Namely, how should we balance the needs of these two economies against each other? During the neoliberal heyday, the answer was clear: Take care of the financialized economy first. But this approach left too many people in the “real economy” behind. What set of policies, then, would be required to put the Main Street economy on a par with that of Wall Street? What would such a political economy striving for such balance actually look like?
Runaway inflation is obviously not the answer, since the hikes in prices we are currently experiencing is good for nobody over the long term. I’d like to see the Biden administration put the question about how to balance the two economies directly on the table. By doing so, it will be able to draw attention to the current vigor of the Main Street economy—an achievement for which it is getting no credit.
Well, speaking of Roosevelt here, Joe Biden’s got a real hero worship of Roosevelt. And this brings me to my final question about your book, which is really, to me, an epic tale that starts with Ralph Nader, who you call a “point of origin” for neoliberalism on the left, then leads to Bill Clinton, this unlikely Democratic president who reinforces the neoliberal order, and now the Biden presidency.
You call Jimmy Carter “a man caught between two eras,” where you can see the inklings of the new order with a deregulatory drive that Reagan really took to the next level. I know most Democratic presidents don’t want to be a one-term president like Jimmy Carter, but do you think Biden could be caught between two eras as well, with some things that are just inklings now getting entrenched under someone else? Do you see him as a similar kind of figure?
Quite possibly. I think these transitional moments are hard for any politician to master. If we go back to the 1930s: Herbert Hoover, the president who presided over the Great Crash of 1929, was not a dumb man. To the contrary, he was one of the most accomplished men ever to ascend to the presidency. Yet he could not handle the reorientation of thinking that was required to respond successfully to the new challenges thrown up by the Great Depression.
The crisis of the 1970s that Carter faced was not of the same magnitude as the Great Depression, but it was significant. Carter saw the U.S. economy hit by major global shocks—Germany and Japan emerging as serious competitors to the U.S., and a dramatic rise in commodity prices, especially oil. Carter seemed to understand that American politics, as a result, required a new way of thinking, but he never seemed to be in command of a direction of travel. One day he was eager to bring a new neoliberal economy into being, the next day to invigorate a New Deal economy that was waning. His waffling cost him dearly with voters.
The economic crisis that Biden faces is on a par with what Carter faced in the 1970s. He, like Carter, understands that America is at an inflection point. And far more than was the case with Carter, Biden understands that the toolkit of policies used by his predecessors—in this case Clinton and Obama—no longer suffice. During his first six months in office, Biden unfurled a set of economic policies far more ambitious and coherent than anything that Carter proposed during his first year in office. Biden’s problem, then, is not vision and a clear direction of travel. Rather it is political weakness. How can one be a transformational president when lacking a majority in the Senate? (I call Joe Manchin a DINO—a Democrat in Name Only.) The president whom Biden most wishes to emulate—FDR—had huge majorities in both Houses of Congress. Biden will never get close to that level of power. So he may well be on his way to being a one-term president.
But that outcome is not baked in, even if the Democrats lose Congress in the 2022 elections. The ongoing radicalization of the Republican Party may yet do it in among independent voters who will decide the 2024 presidential election. Biden’s foreign policy team, led by Blinken and Sullivan, has acquitted itself well in the Ukraine crisis. The same cannot be said of his domestic policy team, which has acquired a Carter-esque air about it, more buffeted by than in control of events. A shake-up there may be overdue; Biden needs both better political advice and a figure in the administration to help him convey a sense that the ship of state is being steered confidently and well. Currently, I cannot identify such a figure in his administration.
Well, there’s a really hopeful note in your book, which is, if this is the beginning of a new way of thinking about the economy that comes out of a crisis, that’s happened before, and that has a way of taking on a life of its own and leading to a real transformation of a political order, as you put it. So even a one-term presidency from Biden could be the start of a new way of thinking.
Well said [laughs].
