As we watch market values plummet and politicians debate – at last – the proper relationship between government and finance, an era in American history is ending. It wasn't understood as an era during its time, and it never had a name. Its name, though, was on the tip of our tongues: It was the Neoliberal Era.
Neoliberalism began with Ronald Reagan and continued for 27 years through George H.W. Bush and Bill Clinton to George W. Bush, and it rested on one fundamental principle. Financial markets, which are knowing, efficient and flexible, should have more power to decide public policy than democratic governments do.
Primacy of financial power
Neoliberals disagree with one another on numerous issues. They even differ on the particulars of the role that government should play in making public policy. But they agree on the primacy of financial power over government.
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Doctrinaire Neoliberals – Margaret Thatcher, Ronald Reagan and George W. Bush – followed conservative economist Milton Friedman in attacking government.
“Government is not the solution to our problem. Government is the problem,” Reagan said, and then his government paved the way for Wall Street to grow.
The more conservative Neoliberals built on a contradiction: They required government patronage, but repudiated government. The current Wall Street bailout fits neatly into this tradition.
Pragmatic, softer Neoliberals – Clinton and Britain's Tony Blair – envisioned a somewhat different role for government. Still subordinate to financial markets, government was to play a constructive, supportive role.
Tone versus emphasis
The differences between conservatives and liberals in the Neoliberal Era, however, have been differences of tone and emphasis. In 1992, Clinton promised to “put people first.” Instead, he appointed as his Treasury secretary Robert Rubin, who put Wall Street first, just as Ronald Reagan had.
Since Clinton's election in 1992, political debate has largely been confined within the Neoliberal framework, accepting the fundamentals of Reaganism and Clintonism and renegotiating the terms at the margins. Even Clinton's calls for universal health care were neoliberal: They promised to create a more flexible, mobile, and adaptable work force.
Clintonism agreed that markets are creative, dynamic and wealth producing, and he defined government's role as merely corrective – a safety net. The purpose of government was to “grow the economy.” Eventually, the benefits of deregulating finance would trickle down to all Americans.
Bipartisan Neoliberal Era
The bipartisan Neoliberal Era in America, from 1981 until last week, was devoted to economic growth, finance capital and the creative use of debt. The gray, dreary, and boring politics of economics was enlivened by a circus of sex scandals and culture wars.
Conservatives praised God, country and family, even as they undermined communities by subjecting them to the sovereignty of the market. Liberals argued for privacy, procedure and pragmatism, but rarely declared substantive values.
While parties and pundits staged food fights, they agreed, quietly and with minimal fanfare, to let financial power set the parameters of public policy. As they argued about gays, guns and abortion, both parties agreed that good public policies were those that won the confidence of the markets.
Shadow boxing over values enabled the two parties to retain their separate brands despite the similarity in their basic philosophies: Politicians propose, but markets dispose.
For the liberal wing of Neoliberalism, politics consists of techniques, procedures and questions of how. Mocking Bush II as incompetent, Democrats presented themselves as competent managers. They criticized Bush for failing to plan for the war in Iraq, appointing fools to deal with the devastation of Katrina and mismanaging the economy. They promise that they'd do better on all scores.
Central questions of power
What Democrats didn't say, however, is more eloquent than what they did say. They indicted conservatives for pursuing their ends incompetently, but it follows that they didn't consider the ends to be the problem.
Democrats abetted the war in Iraq; the deregulation of finance, bankruptcy “reform” and the concentration of financial power. Confining politics to matters acceptable to Wall Street, the Neoliberal Era diverted attention from the central questions of political power – who has it and what is it used for?
If we'd understood the Neoliberal Era, what our parties and leaders shared, citizens might have responded differently, asked different questions and expected better answers. We would have realized the silliness of complaining about political polarization in Washington when, in matters of fundamental import, the choice was between the Democratic former CEO of Goldman Sachs and the Republican former CEO of Goldman Sachs: Robert Rubin or Hank Paulson.