A brittle new policy consensus

What comes after neoliberalism? The answer, according to Harvard economist Dani Rodrik, is "productivism" — a new consensus, seen across the political spectrum, that ditches globalism and laissez-faire capitalism for something more local and state-directed.

Why it matters: Productivism is a broad enough church to cover both Donald Trump and Joe Biden — and also Boris Johnson, across the pond. That might give pause to would-be productivists: Both Trump and Johnson failed to get re-elected, and that's a real possibility for Biden, too.

The big picture: As Gary Gerstle explains in his new book, The Rise and Fall of the Neoliberal Order, economic orthodoxy tends to cut across party lines.

• The welfare state of Franklin Roosevelt's New Deal was embraced by conservatives such as Dwight Eisenhower and Richard Nixon, who even went so far as to support a universal basic income.
• The neoliberalism of Reagan and Thatcher was similarly embraced by liberals including Bill Clinton and Barack Obama in the U.S., and Tony Blair and Gordon Brown in the U.K.

What's next: Productivism, says Rodrik, "puts less faith in markets, is suspicious of large corporations, emphasizes production and investment over finance, and revitalizing local communities over globalization."

• Trump's tariffs on Chinese goods — pointedly kept in place by Biden, even though removing them would aid him in the fight against inflation — are productivist.
• So are Biden's attacks on corporate profiteering.

The catch: While Keynesianism and neoliberalism both had strong academic underpinnings, productivism is more of a grab bag of populist intuitions. While one or two of those ideas might find support from the likes of Rodrik, there's no overarching or particularly coherent theory here.

• "There are signs of a major reorientation toward an economic policy framework that is rooted in production, work, and localism instead of finance, consumerism, and globalism," writes Rodrik.

Worth noting: A core tenet of productivism involves attacking large corporations that are making a lot of money at the expense of consumers, especially when inflation is running hot. (The word "greedflation" often arises.)

• Gas prices rose more quickly than oil prices after Russia invaded Ukraine, and continue to trade at a premium even now that oil prices are falling. (See the chart on page 12 of this deck.) Energy companies that refine crude oil into gasoline and sell it at a markup to drivers are therefore in the crosshairs.
• Airfares are the main mechanism by which airlines attempt to reduce demand for seats that they're struggling to provide given a lack of staff both on planes and in airports. Lufthansa, for instance, has set a minimum fare of more than $1,000 for a return flight from Frankfurt to London (90 minutes each way) — a classic case of worse service resulting in higher prices.
• Mortgage rates are seeing profit margins near all-time highs, as measured by the gap between them and the 10-year Treasury bond. Just as with gasoline, rates might be falling, but they're falling more slowly than the thing they're based off.

By the numbers: 10-year interest rates were actually slightly lower Friday morning (before the new jobs data came out) than they were on May 19, but mortgage rates had risen by 0.45 points over the same time frame.

• Go back a year earlier, to May 2021, and while Treasuries had climbed by 1.16 points since then, mortgage rates had gone up by 2.76 points — well over double the increase.
• Treasury yields rose sharply on Friday. If recent history is any guide, that's going to cause mortgage rates to rise even more.
• It's not clear that the extra spread on mortgages means extra profits for big banks; it could just reflect conditions in the market for mortgage-backed securities. But don't expect such subtleties to find their way into the political discourse.

The bottom line: Productivism spells bad news for Wall Street writ large, and good news for small and local businesses, especially if they have the ear of their local politicians.