A fragile new political consensus




What comes after neoliberalism? The answer, according to Harvard economist Dani Rodrik, is “productivism” – a new consensus, seen across the political spectrum, that abandons globalism and laissez-faire capitalism for something more local and people-led. ‘State.

Why is this important: Productivism is a church wide enough to cover both Donald Trump and Joe Biden – as well as Boris Johnson, across the pond. That might give future productivists pause: Trump and Johnson weren’t 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 ordereconomic orthodoxy tends to transcend partisan lines.

  • Franklin Roosevelt’s New Deal welfare state 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 has also been embraced by liberals, including Bill Clinton and Barack Obama in the US, and Tony Blair and Gordon Brown in the UK.

And after: Productivism, Rodrik says, “trusts markets less, distrusts big business, emphasizes production and investment over finance, and revitalizing local communities over globalization.”

  • Trump’s tariffs on Chinese goods — kept in place by Biden, even though removing them would help him fight inflation — are productivist.
  • Just like those of Biden attacks on corporate profits.

The catch: While Keynesianism and neoliberalism both had strong academic foundations, productivism is more of a catch-all of populist intuitions. While one or two of these ideas may find support from people like Rodrik, there’s no overarching or particularly cohesive theory here.

  • “There are signs of a major shift towards an economic policy framework that is rooted in production, labor and localism instead of finance, consumerism and globalism,” Rodrik writes.

To note: A fundamental tenet of productivism is to attack large corporations that make a lot of money at the expense of consumers, especially when inflation is at its peak. (The word “greed” comes up often.)

  • Gas prices rose faster than oil prices after Russia invaded Ukraine and continue to trade at a premium even now that oil prices are falling. (See chart on page 12 of this brief.) Energy companies that refine crude oil into gasoline and sell it at a premium to motorists are therefore in the crosshairs.
  • Airfares are the main mechanism by which airlines try to reduce the demand for seats they are struggling to supply due to understaffing both on planes and at airports. Lufthansa, for example, has set a minimum fare of over $1,000 for a return flight from Frankfurt to London (90 minutes each way) – a classic case of poorer service leading to higher prices.
  • Mortgage rates are seeing profit margins near all-time highs, as measured by the spread between them and 10-year Treasuries. Just like gasoline, rates can go down, but they go down more slowly than they’re based on.
Difference between 30-year fixed rate <a class=mortgages and 10-year Treasury bonds. Data: FRED; Graphic: Axios Visuals” class=”axios-visual-newsletter-fallback-image” src=”https://graphics.axios.com/hermes/2022-07-07-1250-spread-between-mortgage/fallbacks/2022-07-07-1250-spread-between-mortgage-fallback.png” width=”1154″ height=”788″/>
Difference between 30-year fixed rate mortgages and 10-year Treasury bonds. Data: FRED; Graphic: Axios Visuals

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

  • Go back a year to May 2021, and while Treasuries had climbed 1.16 points since then, mortgage rates had risen 2.76 points, well over double the increase.
  • Treasury yields rose sharply on Friday. If recent history is any guide, this will push mortgage rates even higher.
  • It is not clear that the additional spread on mortgages means additional profits for the big banks; it could simply reflect conditions in the mortgage-backed securities market. But don’t expect such subtleties to find their way into political discourse.

The bottom line: Productivism is bad news for Wall Street as a whole, and good news for small businesses and local businesses, especially if they have the ear of their local politicians.

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