Apr 1, 2023 - Economy

Why neoliberal measuring sticks don't work anymore

Illustrated collage of measurement lines and a hand holding a list with abstract circles.

Illustration: Aïda Amer/Axios

Neoliberalism is dead; globalization is in retreat; we've now entered a new world where deep geopolitical tensions get surfaced in protectionist trade policies, no matter who sits in the Oval Office.

The big picture: Economists and globalists are, predictably enough, convinced this is very bad news.

Why it matters: Despite the fact that politicians and the public at large have put neoliberalism decisively behind them, technocrats still use the old regime's measuring sticks to gauge the results — creating a tension that will inevitably result in a lot of failure and recrimination.

Driving the news: As Axios' Neil Irwin reports, economist Adam Posen — a truly global grandee, having worked variously for the U.S., U.K., German, and Japanese governments over the years, as well as the IMF — has written an unflinching and much-read takedown in Foreign Policy of post-neoliberal U.S. economic policy.

  • Posen cites "more than two centuries of well-researched history of foreign economic policies" in defense of his claim that decoupling the U.S. from China is deeply misguided and counterproductive.

Context: Posen's essay arrives in the wake of the publication of a 564-page book published by the World Bank bemoaning the sorry state of economic growth in emerging-market and developing economies.

  • Axios' Courtenay Brown reports that the Bank diagnoses "a lost decade in the making" — unless globalization is re-embraced and an indicator called "the growth rate of potential GDP" manages to come up from its current depressed levels.

Between the lines: The Bank is effectively doubling down on the neoliberal view that economic growth is the most effective way to achieve its goals, which include "eliminating extreme poverty, reducing inequality, achieving higher growth, [and] combating climate change," per the introduction.

  • "Addressing these priorities requires the same recipe: sustained and robust investment and productivity growth," the authors write.

What they're saying: In his introduction to the book, outgoing World Bank president David Malpass breaks out the old hits from the 1990s. "Monetary and fiscal frameworks should prioritize inflation, debt, fiscal prudence, and financial-sector stability," he writes.

  • His unopposed successor, globe-trotting former Mastercard CEO Ajay Banga, tells Axios' Hans Nichols that his goal is to mobilize "trillions of dollars a year" in private-sector investment in the developing world.
  • There's a word for that kind of profit-seeking capital flow from rich countries to poorer ones: Globalization.

The other side: Biden administration officials show every sign of having moved on from such thinking. National security adviser Jake Sullivan said at a Hewlett Foundation event last weekend that he was focused on the American middle class, as "the foundation of our capacity to project strength in the world, just as it is fundamental to the sustainment of our economy."

  • "We can't just look at aggregate economic numbers," added Heather Boushey, a member of the Council of Economic Advisers.

The bottom line: As of yet, there aren't any agreed-upon post-neoliberal yardsticks that can be used to judge whether the new policies are proving more effective than the old ones.

  • In theory, global wins can come even without large gains in aggregate GDP or total factor productivity. But economists naturally focus on such indicators, in the absence of alternatives, and are therefore going to have a very hard time seeing any such wins.
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