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October 2, 2024 - 7:00am
Far from the brawl that some expected during tonight’s vice-presidential debate, J.D. Vance and Tim Walz gave Americans a civil and substantive display of policy differences. On everything from abortion to guns to democracy protection, both men held their ground but at times also noted where the other came from a different perspective in good faith.
They also proposed different policies for handling the economy, which voters consistently list as their top issue. But present in these conversations was an unstated but notable shift in the two parties’ economic philosophies: a rebuke of the neoliberal consensus, or an unwavering commitment to market-driven solutions, which has had a hold on both Republicans and Democrats for decades.
Republicans began shifting away from neoliberalism during the Trump era, in which the former president challenged the idea that “what’s good for markets is good for America”. In tonight’s debate, Vance echoed many of the same themes. He pledged, for example, that in a second Trump term, their administration would penalise companies that ship jobs overseas. And in one memorable moment, he ridiculed Ph.D. economists who had criticised Trump’s economic plans, saying these people were the same ones who said 30 years ago that sending jobs abroad would benefit America. Vance additionally highlighted his support for one specific Biden policy: the president’s decision to keep some Trump-era tariffs in place.
But Walz took multiple opportunities to depart from the old consensus as well. He touted the Biden administration’s signature policy accomplishment, the Inflation Reduction Act, as the “biggest investment” in creating jobs across the country by “taking the EV technology that we invented and making it here.” He agreed that the US needs fair trading partners and, like Vance, lamented the outsourcing of American manufacturing jobs. Both men also notably agreed with the idea that “housing is not a commodity”.
We don’t have to reach too far back to find a time when politicians of both parties were far more reticent to embrace this approach to the economy. During the Obama presidency, the Tea Party backlash to government interventions in health insurance prompted the president to avoid more sweeping reforms and instead create a marketplace system in coordination with insurers to help expand coverage. His 2012 Republican opponent, Mitt Romney, memorably said that “corporations are people,” and his running mate was best known for an unwavering devotion to shrinking the size and role of government.
However, both Vance and Walz — and the two parties more broadly — have begun to understand that many Americans are not happy with the status quo that has enriched corporations and big banks as wages everywhere else have stagnated. Polling shows that voters in both parties hold dim views of free trade, and many support tariffs to protect US businesses from unfair trade practices as well as workers from unfair labour policies. They also want the government to prioritise “getting tougher with China” on economic issues rather than trying to build a relationship with them.
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Subscribe“Whichever campaign wins the election, we can be certain of one thing: the old conventional wisdom that markets know best, which prevailed in Washington for decades, is likely gone for the foreseeable future“. It will be back. You fight against markets at your peril.
Well said. Too many people think governments can be like superheroes, sweeping in to right every wrong. But most of the time they make things worse, not better. Governments have a role, certainly, but running a country’s economy is not one they should try to play.
I take your point, but giving away the west’s manufacturing capability to China was definitely not a pro market move.
No one gave it away, it just couldn’t compete. Everyone’s happy to buy products from China for a price they’re happy with. They can either have cheap prices or jobs.
We did give it away:
1. Our Western governments allowed an unreformed China to join the WTO despite concerns it would not respect intellectual property and would continue to subsidise its sprawling state conglomerate to dump product here. China has stolen vast amounts of IP, dumps product, and continues to get free access to our markets.
2. Chinese made often isn’t cheaper. Our governments apply carbon taxes to products made here but not on imports from China. Our governments make our own products artificially more expensive only to see production and all tax revenue move to China. A case in point is steel: before energy taxes Port Talbot made cheaper slab than Chinese imports. The blast furnaces closed forever yesterday.
3. Our governments have chosen to have the highest energy prices in the world even before taxes are added. Manufacturing, data science, modernity itself, is built on cheap energy and despite public protest we are building fabulously expensive energy systems. Our governments are forcing remaining industries – even cutting edge AI – to offshore.
4. Not everyone is happy to buy from China. Not least our military and security services. From metals to electronics, supply chains for many materials and advanced components are monoplised by our largest strategic competitor. We still cannot eliminate China from key sensitive infrastructure a decade after it was realised we needed to.
5. Chinese made won’t remain cheaper. China’s stated goal is the monoplisation of industrial supply chains through high investment, market saturation and destruction of competitors. As China’s industrial assets age and future investment is focused in higher value added sectors of its economy, prices will rise. Europe isn’t going to onshore industry thanks to legislation and there are no other large nations with the requisite discipline and organisation to industrialise like Europe, Asia and North America did.
6. The sticker price isn’t the whole price. The social cost of managing entire towns and cities wiped out by industrial decline costs close to 2% of GDP in the UK. That’s a third of all VAT revenue. If the gross margin on a product is 100%, that means the input UK price could be 20% higher than a Chinese competitor and still hlbe cheaper overall when all external costs are included if VAT reflected the differential tax impact of products sourced from China.
Quite a response, but doesn’t really address mine.
1) I’m not talking about intellectual property. The jobs lost were in manufacturing.
2) “Often isn’t cheaper”:doesn’t amount to much of an argument.The things people buy at retail are cheaper than what can be produced in the West. Those lost jobs went long before carbon taxes arrived.
3)) Ditto energy costs when these jobs first started going overseas.
4) Military and security is not part of the everyday life of people in the West. It has no bearing on the cost of a refrigerator or clothing.
5) It remains to be seen whether Chinese products remain cheaper in the future. We’re talking about jobs lost, what has been.
6) Not even worth addressing I’m afraid.
The fact remains, the West couldn’t compete. The choice is jobs or cheaper products. We can’t have both. I don’t like it and I don’t support what happened, but it’s the reality.
I have been in manufacturing all of my life and I can’t agree with the gist of what you say, although some details are correct.
1). Manufacturing is a cut-throat business, not a theoretical science. China has got to where it is by being more cut-throat than us – I would say better but few would agree on principle.
2) China is cheaper. In you steel example Port Talbot was being subsidised to the tune of £1 million per day to keep it alive and, more so because it supplied the neighbouring car sheet plant at Trostre on a special price basis. Trostre could be the next to close. China has bought up the scrap in the world market and it is marginally cheaper to make steel from scrap than from iron.
In general, China is much cheaper. Try buying a T-shirt made in the UK, if you can find one. The cotton is imported, the labour works for 37 hours per week, with overtime pay, with maternity leave, with people staying at home because they don’t feel like working, with almost no breaks. There is no bullying to make them work harder. The effluent from the process can’t be discharged into the nearest river and must be carried away for disposal – at a high cost. There are government inspectors touring around imposing changes to the manufacturing process for various statutory reasons, etc, etc.
3) Yes, you are correct.
4) Yes, but business is business in manufacturing.
5) Yes, you make a monopoly, you increase prices and the someone else takes over, India for example. (India just opened a new blast furnace).
6) Yes but 20% is no where enough to make a difference. I just bought a Chinese multimeter for electrical work for £8. I would say that it would cost £100 if made in the UK.
In principle I agree with you. My factory was closed because we were too far away from the markets and Germany was the centre of our world then. Today German companies have moved to Slovenia and Slovakia and German industry is depressed. This is what happens in a market economy and this is why Marxism is so attractive to young minds – because it seems to protect everything, although it doesn’t.
The question was, however, if offshoring was a conscious decision or just happened. It was the former. That China can produce cheaper goods now and why is besides the point. There are good books about why and how this ‘neoliberal turn’ happened in the late 70s.
Excellent points on both sides. UnHerd at its best in this discussion.
As an electronics engineer, I have to agree about multimeters. These used to be really expensive. Now what was once high end kit like digitial multimeters and vernier calipers can be had for under £20. The productivity gain across the economy from this sort of gain almost certainly outweighs any jobs lost in the UK (where there’s no way we could make them for that price).
“Protecting jobs” is one of the political phrases I’d ban if ever put in charge (though I really shouldn’t believe in banning speech). All you ever do is sacrifice one set of jobs for another.
For twenty years the Chinese state pushed down the value of its currency via market manipulation. The US establishment allowed that to happen despite the devastating consequences for poor Americans so that Wall Street could profit and, tbf, in the belief that a richer China would somehow discover liberalism – an idea that’s about as plausible as the notion that they can pay Iran not to develop nukes, or turn the medieval tribesmen of Afghanistan into Islington feminists by shooting at them.
the Chinese state pushed down the value of its currency via market manipulation. The US establishment allowed that to happen
I’m not sure what you mean by “allowed it to happen”. Could the US have stopped it?
Of course it could. Companies chose to relocate, different choices are always possible.
What is meant by the establishment here?
Of course. China should at least have been threatened with expulsion from the WTO.
In some ways what we’re seeing with China and the US has clear echoes of Japan/US in the 1980s where Japan was accused of dumping goods on the West. And the US response seems not dissimilar (though China’s a much larger economic challenge and much less aligned to the Western systems in most ways – Japan had far more respect for intellectual property).
My gut feel is that China has already peaked (property bubble deflating), much as Japan did after about 1990.
And the problem with that is that everyone chooses cheap prices until they have no jobs.
Globalisation has been a disaster for the West. China is challenging economically and militarily, and for what? The cheaper prices just enabled people to spend more on houses so the next generation can’t afford to buy, or even start families.
The cheaper prices just enabled people to spend more on houses so the next generation can’t afford to buy, or even start families.
What people you’re referring to? I’m not sure it made much difference to buying a house. What gets you into a house is job security and the ability to manage the loan. How did that cheaper prices stop the next generation buying a home or having a family?
Low prices mean low inflation. Low inflation means low interest rates under the current inflation targeting policies. Low interest rates allow people to spend more on houses. More money to spend on houses causes house prices to rise. When this occurs over decades it means the next gen cannot afford to buy and so struggle to start families. Which, at least in the UK, is what has happened.
There’s other factors as well of course, and you could argue that interest rate setting and choosing not to effectively include housing in the inflation measure are Govt choices and are not due to globalisation. But it’s interesting they’ve made those choices during a period of neoliberal economic policy dominance.
In anything other than the shortest run jobs are better than cheap prices.
But the danger of protectionism is this. That your domestic manufacturing industry becomes more and more backward. Just what happened to British industry in the last century of Empire; a rusting away from which it has never recovered.
Absolutely. For one the jobs must be real, where there is a real relationship between product and buyer. Protectionism has never worked, as you point out. So if people want more jobs and more secure jobs then the manufacturer needs a strong market. With wage demands, hours, unions, etc, they can’t compete overseas. That leaves a domestic market who must pay more for items. But they can’t afford it with competitive wages. What’s the way through it all? .
That’s not really how it went.
First of all, every single advanced economy developed through protectionism for the reason that you mention. The US, for example, did this because in its early days it would have been swallowed by much more productive European industrial powers otherwise.
By the same token Western production was not simply allowed to go abroad. But this changed during the neoliberal era when it was decided that capital accumulation had to be maximized. This was done by reducing labor costs as much as possible, setting up complex supply chains and financialization. Underlying is of course a desire to evade welfare costs: through quite a lot brutal struggles Western workers had achieved some basic rights like an 8 hour work day.
However, the last part – financialization – is essential because it more or less means that producer countries have to sell their stuff for dollars, which they are supposed to reinvest in ‘wall street’. That way the West, the US in particular, could sell its industrial base and still maintaining a dominant position as the world’s casino.
You may not like it but it was absolutely a pro market move.
Absolutely agree. They shouldn’t be allowed near it because 1) they don’t understand it, or they play with it for the sake of ratings, and 2) they simply don’t have the skills and experience to take part in it.
Absolutely.
Governments shouldn’t run anything that isn’t a natural monopoly because it makes them susceptible to producer capture – as we’ve just seen in the most blatant example in history.
The role of government is defence, representation, regulation and arbitration. Adding anything else creates a conflict of interest that ends, sooner or later, in bankruptcy. France is nearly there; we’re not far behind.
the old conventional wisdom that markets know best
Typical of the sort of end-of-things statement we constantly hear that soon disappears when it turns out not only to be wrong, but senseless.
The markets are “the market”. It doesn’t know best because it’s nothing in particular to do such a thing. It’s an animal that constantly moves and reshapes according to outside forces: investment, buyers and social dynamics. If something threatens its drive it adjusts, if it takes a wrong turn it resets, if no one wants its product then it dies (except with socialism where the government pumps blood into a dead animal). It’s like evolution, those with the best fit for the future survive. It’s a totally organic beast that is not going away.
The article isn’t talking about the market disappearing, its talking about moving away from the assumption that markets always give the best outcome in every circumstance.
The article isn’t talking about the market disappearing
Neither was I. I’m pointing out that there is nothing to “know best”, or to give the best outcome. There is only one outcome and that’s like the water sloshed around in a bowl finally finding some equilibrium and settling.
It is not that any economically literate thinker on the Right side of the political aisle is questioning Adam Smith’s fundamental truth that the wealth of Western nations could not have happened without free-market competition as its driving force. But certain aspects of the global economy in the early 21st century have led some to question whether a tipping point has now been reached where downsides are starting to outweigh upsides. I myself am one of many old-school conservatives who have had to rethink some long held assumptions about the economic facts of life. The biggest shocker, for me, has been the emergence of Woke Capitalism – something I never saw coming. https://grahamcunningham.substack.com/p/globalism-vs-national-conservatism
Basically the shoes now on the other foot, or soon will be. The West had the advantage of knowing how to be wealthy, now everyone does and the advantage is lost.
Back in the late 1980s when I was a young lawyer working in Tokyo I read a lot of books about how Japan’s industrial policy was brilliantly conceived and executed.
Books like Japan as Number One: Lessons for America, by Ezra Vogel. Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It, by Clyde Prestowitz. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, by Chalmers Johnson.
Those books did not age well. The Japanese stock market peaked in 1989 and Japan’s economy has never really recovered. Certainly no one thinks Japan has lessons to teach us now. Industrial policy was shown to be ineffective in Japan’s success or failure. Other factors were at work.
Now industrial policy in China takes credit and blame for what has happened to the American economy, and we in the United States expect our government to respond with industrial policy of our own. Both Donald Trump and the Democrats (I won’t say Kamala Harris, as she doesn’t seem to be involved) have put plans and ideas in play.
I don’t think industrial policy matters any more today than it did in previous decades. The global economy is a complex adaptive system, and they are devilishly hard to deal with. Incentives quickly become perverse. System gaming and rent seeking are inevitable, even out and out scams. Trillions can be wasted without much effect.
That’s not to say that industrial policy cannot be effective. But it has to be done with the skill of an aikido master, who uses his opponent’s skill against himself. A government has to subtly nudge the power of the market to do things a little differently. It can be done, I think, and argue in my book on innovation in carmaking. But bluntly swinging a meat axe isn’t going to work.
I agree with your assessment of industrial policy. The best book I ever read about Japan is “Dogs and Demons: Tales From the Dark Side of Japan” by Alex Kerr.
Japan destroyed itself with too much debt – remember a square mile of Tokyo being worth more than all of California?
Japan also a tenth the size of China.
So it is mostly the rhetoric that changed. In practice Western economies were always an opportunistic mix of deregulation and regulation under neoliberalism. Market discipline was never really meant for big capital.