Gary Gerstle
Author and Professor, University of Cambridge

The Next Political Order

July 21, 2022 | 46:19

According to Gary Gerstle, University of Cambridge professor and author of The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era, we’re moving to a new political order. But will it resemble the welfare state that began with the New Deal? Will it be more like the capitalistic state of recent decades? Or will it be something else entirely? In this episode of The Active Share, Hugo speaks with Gary about what gave rise to the old orders, and what may be coming next.

Meet Our Moderator

Hugo Scott-Gall, Partner

00:39 Host Hugo Scott-Gall introduces today’s episode and guest.
01:40 Gerstle defines what a political order is.
03:00 How do you know whether something is a political order or not?
05:20 What does a political order consist of?
07:00 Gerstle discusses the New Deal and neoliberal era.
09:50 What causes change between these eras?
10:35 The past is always relevant to what comes next.
11:10 Why do political orders end?
18:40 The birth of the neoliberal order.
20:00 Why should the neoliberal order die?
28:00 What does the shape of the next order look like?
30:25 The four capitalist freedoms.
38:00 Three future political orders.
43:50 Closing words.

Hugo Scott-Gall:  Today I have with me Gary Gerstle. Gary is the Paul Mellon Professor of American History Emeritus and Paul Mellon director of research at the University of Cambridge. He is the author and editor of more than 10 books, including two prize winners, American Crucible and Liberty and Coercion. He is a Guardian columnist and has also written for the Atlantic Monthly, the New Statesman, Descent, The Nation, and Die Zeit, among others. He frequently appears on BBC Radio 4, BBC World Service, Talking Politics, and NPR.

His latest book, The Rise and Fall of the Neoliberal Order: American and the World in the Free Market Era is out now. Gary, thanks for joining us.

Gary Gerstle: Thank you very much for having me, Hugo.

Hugo Scott-Gall: Great. So, let’s get going. So, your thesis, The Rise and Fall of the Neoliberal Order, is very relevant, very important. And that’s what I want to ask you lots of questions about. First of all, I suppose a definitional question, how do you sort of define an order? What do you mean by an order? What makes up an order. You’re saying the neoliberal order. What came before that? So, lots of questions all at once, but definitional, what’s an order?

Gary Gerstle: Political order is a term I use to understand political time in intervals longer than what grabs the attention of historians and political scientists, most of the time, which are two-, four-, and six-year election cycles. Especially the four-year presidential cycle. These are obviously important. But sometimes they get too much attention in the sense that not every president is as significant as every other president. And not all change can be comprehended in terms of these four-year intervals.

So, the introduction of the concept of political order is meant to connote a set of political structures, institutions, ideologies that come to dominate American politics for a long stretch of time. And during the time when a political order is dominant, they structure in a powerful way a sense of what’s possible in politics. What can you do? What can’t you do?

One of the tests of whether a political ideology or a political movement has become a political order is what happens when the opposition party, not the dominant party that has built the political order, what happens when the opposition party comes into power. What happened when Eisenhower became president in 1952 after 20 years of Democratic presidents? What happened when Bill Clinton came into office in 1992, actually 1993, after 12 years of Republican rule? Did they try and dismantle the political ideas, the key policies, the ideological principles that had been dominant? Or did they feel at some level pressure to acquiesce to the ideas of their opponents?

And what’s significant about Eisenhower is this: when he comes into office as the first Republican president in 20 years he does not try and take apart the New Deal, as Republicans in the 1920s took apart Wilsonian politics from the 1910s. There was a big state in World War I that had been built by Democrats. And the Republicans come into the power in the 1920s, take it apart. There were many Republicans in the late ’40s, early ‘50s who wanted to do this.

But Eisenhower, when he becomes president, acquiesces to the core principles of the New Deal, even to the point of ratifying what, in retrospect, looks like an extraordinary taxation on the highest income earners in the United States. In the 1940s, the taxation rate on the highest marginal group had been in the 90th percentile. In the ’50s when Eisenhower is trying to bring some rationality and enduring character to the tax code, he endorses those rates. He does not return them to what they had just been before. So, he acquiesces to New Deal principles.

Similarly, as I study Clinton in the 1990s, I call him the Democratic Eisenhower because his role historically, I think, was to further and deepen many of the neoliberal reforms that Ronald Reagan and Ronald Reagan’s Republican party had put into effect in the 1980s. We can get into some of the details of those later, if you want to.

What does a political order consist of? It consists of a political party able to win elections on an enduring basis. So much so that the opposition party feels that in order to get back into power, it has to make concessions to the core idea of this dominant party. It’s not enough, simply, to oppose its own traditional ideas to those of the dominant party. It must do something to accommodate those ideas.

Hugo Scott-Gall: Is that why Thatcher’s greatest achievement is Blair?

Gary Gerstle: Yes, absolutely, yes. I don’t know if your listeners know this, it’s a second-hand rumor. In other words, we don’t have Thatcher saying this, but this is what Thatcher –

Hugo Scott-Gall: Doesn’t matter. Doesn’t matter.

Gary Gerstle: Well, like the best apocryphal stories, they’re too good not to be true, right. And so, we have a report, someone asked Thatcher what her greatest achievement was in her time in office, and she said Tony Blair. That illustrates the point beautifully. A political order consists of a party that is so powerful that it compels its opponents to play on its terms. It requires networks of policy makers. It requires a vision of the good life that sells important constituencies in the electorate on the virtues of this way of doing politics, in ways that endure.

A political order also has a core idea of political economy or two that are at the very center of its politics. One can identify these very simply with regard both to the New Deal order and to the neoliberal order. And they are, in a sense, the reverse of each other. The core principle of a political economy in the New Deal was that capitalism left to its own devices was too destructive to survive, either economically or politically. You need a strong federal government to come in to regulate the business cycle, to provide welfare of the causalities of the industrial system, to redistribute some wealth between the rich and the poor, to put ordinary people in the position where they would be able to enjoy their freedom by, for example, providing them with an adequate level of education.

Heavy government involvement in the economy was the key idea of the political economy for the New Deal. This was not to replace capitalism. This was to regulate capitalism for its own good and the common good, or so said the dominant ideology of the time.

The core principle of the neoliberal order is that government involvement in the economy is destructive to economic growth, to productivity, to the flourishing of markets. And the best thing that America could do to recharge an ailing economy was to get the government out of the business of trying to manage the economy. And thus, one of the key words of the neoliberal era is deregulation. You see this everywhere in the neoliberal era.

These are simple but powerful and generative ideas that a lot of people can easily grasp. And then it also becomes associated with the vision of what constitutes a good life. For the New Deal it was the idea that people really couldn’t enjoy their personal freedom unless they had a level of security, a level of education, a level of welfare that would provide them what they needed to really explore their individuality and their freedom.

And the vision of the good life for the neoliberal order was that people had to be free of government surveillance and intervention so that they could explore their individuality, so they could become entrepreneurs, so that they could innovate, so that they could experiment in ways that had become impossible under the heavy hand of extensive and intrusive government regulation. It’s not just political economy. It’s translating a political economy into a vision of a good life that people can understand that vision and then they also have an ability to cast votes on that basis.

Hugo Scott-Gall: Yeah. Of course, you said a lot of things there. I definitely heard the size of state, the role of state, the desired role of the state. And also, what I think I’m hearing you saying is what came before is a big influence on what comes next. And so, I understand we have the New Deal era and then we move on to the neoliberal era. What causes the change? Is it just a build of pressure? Is it this slow but inevitable swing of the pendulum? Or does it need a crisis to precipitate a moment of clarity of we don’t want this anymore, we want something else.

And I guess a crisis can come in many forms. It could be a financial crisis. It could be a war. It could be a pandemic. But does there need to be an external shot that sort of releases building pressures as maybe an order becomes stale and maybe it doesn’t, not necessarily betray, but it drifts from its original sort of founding purposes?

So, I’m asking you lots of things. But really what I’m saying is I think I’ve understood you right, which is the past is always very relevant to what comes next, and you can’t separate that out. Secondarily, at its core, perhaps, is the debate about the size and role of the state and what citizens expect from the state, either more or less. But really, I suppose, it’s a little bit of history, I think I’ve got that right. It’s a bit of history. Why do these political orders end and let’s just look at what caused the end of the New Deal era. And then we can—next question will be the big one, which is what is going to cause the end of the neo—what has caused the end of the neoliberal order? Let’s just address those points now, if that’s okay.

Gary Gerstle: I think economic crisis is crucial to understanding the breakup of an old order and the beginning of a new. It was true of the New Deal order when it came into existence as a result of the Great Depression. It was true of the neoliberal order when it came into existence as a result of the long recession and quite deep recession of the 1970s. And I associate the breakup of the neoliberal order today with the consequences of the Great Recession of 2008-2009.

Now to pick up on another element of what you said, political orders can get stale. We are people who, as humans, we like change. Too much of a thing, even if it’s a good thing, after a certain period of time may begin to feel stale. Things get ossified. And also, political orders are complex entities. You have to put a lot of different pieces together to make a political order work. And there are always tension points. There are always fracture points.

In the lead up to the crisis that’s going to produce the neoliberal order, there are two fractures that become very pronounced. Although I would say neither of them by itself does in the New Deal order. One is the issue of race. And the other is the war in Vietnam. Huge issues, both in the 1960s. The New Deal had never satisfactorily been able to deal with the issue of race in American life because Roosevelt, in order to get his progressive political economy passed, had to depend on the votes of white supremacists, southerners in the Senate and in the House of Representatives who were fully subscribing to Jim Crow.

And these white southerners who dominated the Democratic party was the only political party that mattered in the South in the 1930s, ’40s, and ’50s—this wing of the Democratic party said we’ll get on board with this progressive political economy as long as you [the Democratic Party] promise and guarantee that you will not interfere with the racial hierarchies of our region.

Now, Roosevelt doesn’t want to particularly do this. But in order to get his progressive political economy passed he has to. Understanding that at some point a bill will become due because African Americans switched their identity from the Republican party to the Democratic party in the ’30s and ’40s. They began to move North in large numbers. They began to become a significant voting bloc within the Democratic party. The issue of race, civil rights, racial equality was going to have to be addressed.

When it does get addressed, it begins to break apart two important constituencies in the Democratic party, one the white South, and the other African Americans. That fracture is intensified by the war in Vietnam, which is going very badly. The Democrats have to bear responsibility for it because even though they didn’t start the war, it started under Eisenhower in the 1950s, the Democratic party certainly bore responsibility for its escalation in the 1960s.

So, the New Deal order has fracture points. It has stress points, which are aggravated in the 1960s. And then in the 1970s come basic changes in geopolitics and the global political economy that make the continuation of the economic tool kit of the New Deal order impossible to sustain. One is the reemergence in the world of serious economic competitors to the United States. At the end of World War II, the United States was the only well-functioning industrial economy in the world. The only one that had escaped the ravages of World War II. Industry in America was unopposed globally. American corporations, the world was their oyster. They could do pretty much what they wanted with one significant exception, they could not penetrate the Iron Curtain or the communist world.

This changes dramatically in the 1970s. The U.S. had been actively building up its competitors or countries that would be competitors, most notably Germany and Japan, because it needed export markets for its goods. But by the ’70s these economies are so built up and are so efficient and are the beneficiaries of much of the latest machinery, in many cases, more efficient than what the United States had. They are becoming serious competitors to the United States. The 1970s are a decade in which foreign cars begin flooding into the U.S.—America’s signature industry, the automobile industry is now under challenge.

We’re all familiar with the rust belt or the concept of the rust belt. There was no rust belt before the 1970s. The belt of manufacturing heartland of America began to rust in the 1970s. Massive shutdowns in automobile manufacturing, steel making capacity, all sorts of other core industries of America.

The industrial crisis becomes an urban crisis because municipalities are now starved for funds. They’re losing workers, they’re losing taxpayers. The ills of poverty required more social welfare but there’s actually less social welfare to go around because the tax base is shrinking. And so, the economic crisis becomes a social crisis. Not on the scale of the Great Depression of the ’30s, but very serious, nevertheless.

Keynesian ideas for managing the economy are no longer working. The New Deal toolkit is failing. Things that are not supposed to happen in the economy are happening, most notably stagflation, which simply means inflation and unemployment are rising at the same time. Those two processes are meant to move in opposition of each other. In this time of crisis, this is the moment that ideas that had been in circulation but consigned to the periphery, begin to enter the mainstream. These are neoliberal ideas of Milton Friedman, and the neoliberal of Friedrich Hayek. These are not new ideas in the 1970s. They had been circulating, University of Chicago economics department, law school, other places for decades. Very smart people were working out the implications of these ideas and seeking policy applications.

But they are utterly irrelevant in American politics until the crisis of the 1970s. Suddenly, existing ideas no longer suffice. And ideas that are out there but which had been consigned to the periphery can escape their marginality. This is a moment when the mainstream of American politics and the mainstream of the economics profession are looking for new ways of thinking that will generate hope for a new path forward. This is the moment when neoliberal ideas flood in from the periphery to the center.

President Jimmy Carter is interested in them. And of course, Ronald Reagan, who had embraced these ideas decades earlier and was, himself, quite seriously thinking about neoliberalism, when he becomes president he says we’re going full speed ahead with these new ideas.

Hugo Scott-Gall: So, that’s great. So, that gets us to the birth of the neoliberal order. I guess we kind of know what happens next. You saw, I think, a defining feature of the neoliberal order era is the cost of money, the interest rates fell in a secular way. Maybe it was Volcker that slayed inflation, maybe there are other factors that meant some big disinflationary forces were brewing up. The cure for higher prices is higher prices. And you saw energy prices fall in the ’80s. In the ’90s you saw waves of technology take down the cost of things, improve the convenience of accessing things.

So, I guess I have two questions for you. One is it seems to me as someone who has lived the majority of their life in the neoliberal order, that there are—no order’s perfect, but there are quite a few big successful things about the neoliberal order. The world has not been engulfed in world wars where high numbers of people are dying. The world is overall becoming a safer place. Would you agree with my characterization of the neoliberal order?

But number two, I guess more importantly, you very eloquently described the birth of this order. But your book is about the death of this order. Why should this order that I’m just sort of being a big provocative to you, which was not perfect, has had some negative aspects to it, but has also had some very positive ones. Why should this order die? Why do you think it’s dying or dead?

Gary Gerstle: Well, I think no order has to die. Although, there is probably some statute of limitation on how long anything can survive. It so happens that the two orders I study each lasts 30 to 40 years. But I wouldn’t want to make that into a universal principle that this is somehow baked into what a political order is. I think we have to study history closely and we have to understand the fissure points within an order, the fracture points. And inquire into what is it that makes those fracture and tension points into contradictions and conflicts that cannot be resolved from within the neoliberal order itself.

I think there are definitely positive aspects to the neoliberal order. You’ve identified some of those qualities. It’s also associated with the IT revolution. An extraordinary revolution in technology and data management that has changed the way we live and changed the way we discuss things with each other. It’s, among other things, making this interaction that you and I are having possible with technology that did not exist 20, 25 years ago. The neoliberal age also was one in which many consumer products and services became cheaper than they had previously been.

But the neoliberal order also generated problems. I think the biggest problem is probably the issue of economic inequality and a dramatic widening of economic inequality during its lifespan. If we go back to the 1960s, an executive at a corporation earned, on average, 20 times what an average line worker or manufacturing worker made at that time. By 2000, that ratio had risen to somewhere between 200 to 300 times what an average worker was making.

I think the justification from within neoliberal thinking for this was that yes, inequality was increasing, but inequality was also making possible the generation of new enterprises, new industries, new technologies, new consumer goods. A neoliberal world was going to lift everyone’s boat. Everyone would benefit from this rise. And this turned out, I think, not to be the case. It turned out it mattered a great deal whether you lived in a globalized district of neoliberal economic activity or whether you lived in a district that was somewhere outside of these neoliberal districts.

I also think we have to pay attention to the role of the labor movement, the role of unions and their history during this time period. Under the New Deal order, there was what I call a grand compromise between capital and labor where capital agreed to share more of its profits with workers. There were worries then about the communist threat and the communist menace. There was a lot of thinking about the threat of totalitarianism, meaning a dictatorship that once established was so totalizing in its control that it could never be overthrown. The theory of totalitarianism turned out to be wrong [in that communist regimes proved susceptible to overthrow]. But it was deeply believed, and it was believed if a communist regime established itself abroad or even in the United States, it could never be overthrown.

And the threat of communism, I think, acted on a constraint on inequality, with the understanding that if America was to be successful as a defender of the free world and of the capitalist system, it had to persuade its people that it offered those people a better deal than what the communists were offering. Now, the communist threat, in terms of economic competition, may not seem like much of a threat today or from the 1990s forward. But Richard Nixon in 1959 felt compelled to go to Moscow to debate Khrushchev on whether the communist or capitalist system was a superior one. There was a moment in the 1950s and early ’60s when it was not entirely clear whether the capitalist world or the communist world would deliver a better living to the average citizen.

And this sense of competition, this sense of needing to keep the communists at bay inclined employers, capitalists, investment bankers to more of a compromise, to more of an inclination to share wealth with those lower down in the social order. And this led to what I and others have called the Great Compression, the narrowing of the gulf between the rich and the poor in America. This created, I would argue, a very robust middle class, which was probably one of the great achievements of the New Deal order during its heyday.

And the story of the 1990s and first decade of the 21st century is many parents in this middle class with secure, decent paying jobs, seeing that the opportunities that they had had were not available to their children or to their grandchildren, that the wages they were earning were not as good, the opportunities for their working-class careers were not going to be as robust. The opportunity to move into a secure middle class was not nearly as good. These are the circumstances that begin to generate questions in people’s minds about whether a lightly or non-regulated capitalist system is in the best interest of all Americans.

The imbalances between rich and poor in America not only become a political issue, they also become an economic issue about the adequacy of demand: do consumers have enough money to consume at a level that would support the vast economic and globalized system of production that neoliberalism over two decades had produced.

So, these are some of the fissures that are widening. And then comes the crash of 2008-2009 and the Great Recession, which is going to have, in political terms, very similar affects to the long recession of the 1970s.

Hugo Scott-Gall: So, you made the case, persuasively there, for we’re on the cusp of something new. It’s maybe taken a bit longer when you think the Great Financial Crisis was ’08, ’09 and we’re already a decade on from that, more than a decade. But you’re pretty convinced we’re at the end of the neoliberal order. I’m very interested as an investor what comes next. So, some of the things from your previous answers, that the pendulum swings back, and you talked about regulation. If you’re devil’s advocate, you say actually most people regard European economies and U.S. economies already quite regulated. There may well have been a wave of deregulation, but actually they’re pretty regulated.

Second would be on redistribution. Because that would be the obvious—the New Deal order was very redistributive. The neoliberal order was less so. But again, you can argue that certainly when it comes to income tax, the income tax bases are very concentrated, that a small number of people make up a large percentage of the tax base.

I guess, thirdly, around the role of the bigger state, the state in terms of GDP is generally quite high, not quite low. So, that’s just sort of three points just for the sake of arguing against you. Just kind of wondering what the shape of the next order looks like. I suppose as an investor the things I’m really thinking around are in the next political order, what makes for a successful company. I think, probably, there is some element of social utility, social contract that you need to be seen to be doing a good thing for society, making great products that people like or solving meaningful problems.

But there’s also the, not the idea, the question of how much of GDP goes in the form of corporate profit. How much is retained by companies versus how much is retained by government, how much is retained by individuals. I suppose the last thing is the cost of money that a risk-free rate, prevailing rate of interest, which has all sorts of information embodied in it. But it certainly has the idea of a risk premium. You can see over time real interest rates move around at somewhat of a glacial pace, but they do move around.

So, anyway, I’ve talked quite a bit there. But I am interested, I suppose, really—the point of all that is to say what do you best guess think is going to be the makeup of the next order when you write your next book about the end of the next order, what are you going to call it and what are the key aspects of it? And then I’ve got one more question before we finish, which is really around democracy versus autocracy. But that can wait. Let’s park that. Let’s do best guess next order, what should we call it, what are going to be the key characteristics and drivers of it.

Gary Gerstle: Well, before I do that, let me push back a little on your point about Americans living in a pretty highly regulated state of affairs already. It all depends on one’s perspectives. But if I were to go back to the 1990s and I look at the weakening of labor law and how much harder it is to organize a union in the United States than it once was. We can debate whether that’s a good or bad thing. But just the ability to organize a union has gotten much more difficult.

In terms of—you can interrupt me at any point if you want to take this in a certain direction. But in terms of where we’re going, I have a shorthand for understanding how much the world is changing. Sometimes I define the neoliberal order in terms of four capitalist freedoms, or four freedoms that are crucial to development of capitalism on a global scale. One is free trade across borders without impediment. A second is the free movement of people, which can be a humanitarian aspiration, but also is about the most effective allocation of labor to where it is most needed and most desired.

The free movement of information, I think we, in the days of 1990s techno-utopianism and in first decade of the 21st century when Thomas Friedman was writing the world was flat, I think many of us thought that the world was not only flat but would remain flat forever, meaning that one piece of information could travel from one point in this world to any other point in this world instantaneously without restriction, without limitation.

And the final freedom of the four freedoms is the free movement of capital. I mention these because if we look at what’s happening to each of these four freedoms, we see very significant changes over the last 10 years. True, as you suggest, the change in politics and political economy that came out of the 2008-2009 recession was much slower to take shape than the changes of the 1970s or the changes of the 1930s. We don’t get the political explosions, really, until the election of 2016. So, these are a series of delayed responses.

But I don’t think we should interpret the delay as meaning the significance of the changes is any less portentous. Trump and Sanders during the neoliberal heyday were politically irrelevant, utterly so. No one thought in 2000 that these two people would become the two most dynamic players in American politics for the 2016 presidential election. Both of them had no use for free trade. Trump has switched his tune on a lot of things, but he’s been consistent on not celebrating the virtue of free trade, really since the mid to late 1980s. He has remained consistent on that. He has always been skeptical about the virtues of free markets, in part because in his business real estate, no one knows perhaps better than him how important it is to fix markets in a certain way, so as to produce good results for a real estate developer.

But now as a result of the 2016 election and everything that’s issued from it, protectionism has become a legitimate political policy in ways that it was not during the neoliberal heyday. Very interestingly, Biden has not sought to reverse the limitations on China-U.S. trade Trump very controversially put into effect.

If we look at the free movement of people, we could talk about this endlessly. But let me just say walls are going up everywhere, impediments to the free movement of people. It seems to me we are moving out of an era in which the ability of people to cross border was a sacred concept. I think the climate crisis, the coming climate crisis, is only going to intensify the trend away from the free movement of people and toward intensifying the size and thickness of walls.

The free movement of information: we now confront a China that’s attempting to create its own internet world sealed off from the outside. In order to access it, you are directed (if the Chinese get their way) to go through certain gates, heavily regulated by the communist party, which runs the Chinese state. Russia is trying to do something similar, not with the same effectiveness. I think Erdogan in Turkey would like to do something similar, as well. We face the possibility that the world will be not a single digital world, but broken up into three or four regional blocs, each controlled by a regional hegemon. This was unimaginable, I think, when Thomas Freidman was writing that The World Is Flat.

Now we see, through the Ukraine crisis, quite dramatic limitations on the free movement of capital, immense Russian assets frozen in western banks frozen for the foreseeable future. American corporations and companies in Russia feeling the pressure to remove themselves and their investments from those locations. And also, the rising importance of national security in terms of thinking about what does the U.S. economy need. Is it okay to have supply chains that stretch all the way to China or do we need to produce these goods at home?

What does America’s national security require from its economy? That is a question that was not asked during heyday of the neoliberal order, for reasons you suggested earlier. It was, for many countries, a very peaceful time. One didn’t have to worry about these things. If you’re asking the question what does national security require from economies, what does it require from employers, what does it require in terms of which industries have to be in the U.S., it’s no longer such a great leap to ask this question: should there be controls on the movement and deployment of private capital?

It’s easier to imagine, today an industrial policy which was in vogue in the 1980s when Japan was riding high. By industrial policy, I mean a state directed series of investments that begin to structure the shape, size, and location of economic enterprises. That tendency still is in its infancy. But one can see a direction of travel. And I think the Ukraine crisis is accelerating trends in that direction, as it begins to influence the way in which corporations, banks, executives think about the world of risk in investment that is so important to their future.

And so, if we think of how much each of these principles of freedom, so important to capitalism in the neoliberal age are being questioned or being attacked or whether thinking about them is changing in some meaningful way, we can begin to glimpse the possibility that we are entering a very different kind of world economically and geopolitically than the one that sustained the neoliberal order.

Hugo Scott-Gall: I liked in the book, I like your characterization of free trade, free movement of people, free movement of information, free movement of capital, and all of those things. I don’t know when they peaked, when they were at their freest. But that’s not now. That’s in the past already. So, you can see the direction of movement. So, I guess the final question is around what is this new political order? And really, I think it’s implications for the cost of money which drives what you should pay for a set of cashflows, and then the ability of companies to generate those cash flows. Really, that is all intertwined.

I don’t know what you’re going to call the next order. Maybe you don’t, yet, either. Maybe we can get an exclusive and splash it now. But it feels like—we can’t hope for history to be neat and tidy. But what comes next feels a bit more New Deal than it does neoliberal order. Is that right? Do you think it’s a mesh of the two? Or is it something really quite different?

Gary Gerstle: Let me just put forward three future alternatives that I see as possible. One is—and I’ll speak more in political terms than in economic terms. But you can help me translate them into economic terms that will be of interest to your listeners. One path forward is the Trump path. That is an autocratic future, heavily ethno-nationalist. Another possibility is something resembling the New Deal. We saw this in the first six months of Biden’s administration and the quite ambitious schemes to use government to restructure economic and social life.

I would say the dreams and the ambitions of the first six months of the Biden administration were on a scale that exceeded anything in American politics since the days of the New Deal itself, the 1930s and ’40s. And also significant in that regard, is the reconciliation between Sanders and Biden. And the Democratic party, historically, has been most effective when the left and center of the Democratic party have been in a productive dialogue with each other. It’s true of the Democratic party of Woodrow Wilson of the 1910s, of Franklin Roosevelt of the 1930s and of Lyndon Johnson of the 1960s. It’s a clear model. When the Democratic party has been successful, they’ve been able to hold the two wings of the party in that kind of productive tension.

You saw this in the first six months of the Biden administration. The problem for Biden is he does not have a majority in the Senate. So, without a majority in the Senate, there’s very little he can do. Roosevelt was able to effectuate a New Deal on a grand scale because he had huge Democratic majorities in both the House and the Senate. And Biden does not have that. And we’ve seen his agenda stall, pretty much dead in its tracks, as a result.

The question is the Biden-Sanders Green New Deal venture, is it ephemeral, is it passing, is it something that can’t happen? Or is their first six months in office a sign of things to come? Not in 2022, but let’s say 2024 and 2028. I can’t answer that question. I can only pose it and note that the rollout of the Biden-Sanders project has been much weaker than the rollout of the New Deal in the 1930s. It can’t succeed without much greater majorities in Congress than what the Democrats now possess.

So, the question becomes—and here we get back to questions of political order: Can the Democratic party build a majority and become an electoral force of the sort it was in the 1930s and ’40s to compel the opposition to play on its terms? That majority currently does not exist; until it does, the Democrats will not be able to compel the opposition party, the Republicans, to play on their terms.

The third possibility is that we are in for an extended period of disorder, where neither an autocratic ethnonationalist politics is able to establish itself or a progressive New Dealish order is able to establish itself. In this third scenario, what we will see instead is an extension of the kind of paralysis we’re seeing with the gun issue, for example, which is not directly related to political economy. But is symptomatic of a political illness that is afflicting America at this time, which is that on issues that need to be addressed, that need resolution, issues of the most urgent sort—I mean, what is more urgent than making a society in which our children will be safe?—can in fact be addressed.

The paralysis of Congress on this matter is symptomatic of disorder. If Congress can’t find a way to act on this [the recent passage of a piece of gun legislation is a hopeful sign, but it is only modest and minimalist], we have to ask what else is it going to be unable to act upon? We can see paralysis, we can see disorder, and we can see America drifting in this state of disorder for some period of time. I don’t think the state of disorder is good for anybody. But it might be real.

So, I think the framing of the question of autocratic versus democratic GDP is too simple. The wildcard in this is if Trump is elected in 2024. Which side of that GDP battle is America going to be on if politically the country drifts to the autocratic side of the ledger. If that happens, what happens to the immensely powerful and creative private sector, of finance, of IT? Will they flourish under an autocratic regime? Will they reach some kind of rapprochement with oligarchic or autocratic forms of government? Or will they rebel and say this is not where the long-term future of America should lie?

Hugo Scott-Gall: It’s a fascinating series of questions to pose, as I think we wrap up and finish. I don’t pretend to have the answers to them. But I think where we’ve ended up is a logical series of questions about what the next order looks like, which I guess is a good way of ending, given where we’ve started. Which was tell us about what an order is. Now we’re debating about what the next order looks like. Which I suppose is information. At no point you suggested I’m not really sure the current order is ending. So, you’re very sure something is coming next. You’re just not exactly sure what it is. Which I think is the only rational position to have.

We’ve definitely explored what it could be and in our answering what it could be, we’re certainly ruling out some things about what it couldn’t be. So, I think it’s fascinating. It’s very important. It shapes so many things. Gary, thank you very much for giving us so much time.

Gary Gerstle: Thank you for having me. It’s been a really interesting conversation. I hope your listeners will find issues of interest that provoke reflection, engagement, and argument.

Hugo Scott-Gall: Yes.

Gary Gerstle: Truth be told, none of us know exactly where we’re going. If someone tells you otherwise, don’t believe them. I am convinced we are at an inflection point, moving out of one order into something else. So, thank you for this opportunity to discuss my ideas and my book with you. I appreciate the opportunity very much.

Hugo Scott-Gall: Not at all. Thank you. I was looking forward to it and I was right to look forward to it.

Gary Gerstle: Thank you. Thank you, very much.

Meet Our Moderator

Hugo Scott-Gall, Partner

Questions, Comments, Podcast Ideas?

Create an
Enduring Partnership

Our active ownership culture creates long-term client relationships by aligning with your interests and helping you achieve successful investment outcomes. Contact us to learn how we can partner with you.


Left Menu Icon

Subscribe to Our Blog Now

Want the latest insights on the economy and other forces shaping the investment landscape? Subscribe to our blog today.