I read this story after watching 3--4 hours of Jennifer Burns
interviewed by Lex Fridman in his YouTube channel. (You can easily find
the interview if you're interested). Jennifer Burns has apparently
written a biography of Milton Friedman and another one of Ayn Rand.

I was struck by the title of the story (in the subject of this post).
Has inflation ended neoliberalism? What does she mean exactly? The
story is not deep---it's likely written for people who already
understand the subject deep enough. I'm asking myself now---what is neoliberalism (more exactly)? Is it ended? I'd like to understand.

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How Inflation Ended Neoliberalism—and Re-Elected Trump
Jennifer Burns, WSJ
Nov. 15, 2024 2:43 pm ET

Do you think we'd have these price increases had there been no pandemic?
How much did the supply chain issues impact the rapid rise in pricing?

At the time, Trump squarely placed the blame on China for this (even
naming the virus after them). Now crickets. About a year ago, evidence
came out in congressional hearings that the US was involved in funding
gain of function research in the Wuhan lab that is believed to be the
origin of the COVID leak.

Ergo the US may have helped fund the very lab that caused all this
sheet. If that's the case, perhaps it helps explain why the US gov is
no longer talking about the subject? In any event, if I, in fact, caught
the virus from China, the least my government can do is allow me to buy
a BYD car from them. They make awesome low-priced EVs! Woooo

How Inflation Ended Neoliberalism—and Re-Elected Trump

In the 1970s, skyrocketing prices spurred free-market reforms that
promoted economic stability. In the 2020s, they fueled Trump’s comeback.

By Jennifer Burns, WSJ
Nov. 15, 2024 2:43 pm ET

Inflation is remaking America—again. It looms above all competing explanations for Donald Trump’s comeback. Despite the widespread belief
that the worst economic cost of curing inflation—a steep recession—had
been avoided, it turned out the political price had yet to be paid.

The power of inflation to destroy a political establishment emerged
clearly in the 1970s, when a decade of rising prices transformed
American society and politics. High rates of inflation ushered in an age
of neoliberal economic policies focused on free markets, free trade and globalization. Mr. Trump’s election, to be sure, marks a repudiation of
this consensus. But ironically, this final break from neoliberalism came because both left and right ignored its signal achievement: decades of
stable prices that insulated our fractious democracy from the pressures
and strains that today threaten to tear it apart.

John Maynard Keynes said the best way to overturn “the existing basis of society” was to debauch the currency—wisdom he attributed to Vladimir Lenin. The 1970s illustrate his point. While the rest of us think of
disco, wide ties and Richard Nixon, economists know this decade as “the
Great Inflation”—a steady and sustained rise in prices for nearly a
decade, at a rate that in some years exceeded 10%. Not coincidentally,
the decade also saw the dawning of globalization, financialization, accelerating inequality and a powerful new taxpayer politics, all of
which can be traced directly to the rise in prices.

It was America’s inability to control inflation that shattered Bretton
Woods, the postwar currency system that bound the major trading nations together, ushering in a new era of globalization. Central to Bretton
Woods were fixed exchange rates and capital controls, both of which gave governments considerable leeway over foreign investment and trade. The
system couldn’t hold as the U.S. dollar inflated and lost value. Under Bretton Woods, other governments could trade their dollars for gold, and
they did so with increasingly frequency. Fearing the Treasury would run
out of the precious metal, Nixon slammed the gold window shut, killing
Bretton Woods in the process.

Instead of a managed, regulated currency system, the U.S. and the rest
of the world moved to a regime of floating exchange rates, in which
currencies traded against one another in global capital
markets. Emerging alongside new computing technologies, this new system
of fluid currencies accelerated globalization and underwrote the first
serious challenges to U.S. manufacturing from abroad.

At the same time, pervasive inflation meant skyrocketing interest rates,
which pushed the economy toward financialization and simultaneously
deepened inequality. Because it was easier to earn interest from
accumulated capital than reinvest in factories and infrastructure, major corporations turned away from manufacturing and toward financial
markets. The CEO of U.S. Steel, once a linchpin of American industry,
announced that it “was no longer in the business of making steel” but
“in the business of making profits.”

In 1980 Congress hastened this process, along with sweeping deregulation
of the financial system, by passing the Depository Institutions
Deregulation and Monetary Control Act. This wasn’t the brainchild of free-market economists or the Reagan administration. Rather, the
legislation was signed by Jimmy Carter and drafted in response to
complaints from consumer advocates and commercial banks, which chafed
against interest-rate caps. They pointed out, and rightly so, that the
wealthy were able to benefit from high interest rates by using private
banks and sophisticated investment vehicles.

Financial deregulation in this context was a move toward equality. Yet
in the end, financialization mainly benefited financiers. Along with globalization, it pushed the U.S. economy toward the FIRE industries
dominated by educated professionals—finance, insurance and real
estate—and away from the stable manufacturing jobs that predated inflation’s rise.

California residents gather in support of Proposition 13, 1978.
Photo: Sygma via Getty Images

In turn, this rising inequality ignited a populist reaction: the tax
revolt of the late 1970s, epitomized by California’s Proposition 13 in
1978. This was a fierce new homeowner politics that, like the push for financial deregulation, stemmed from a mismatch between existing policy
and the new era of inflation.

Property taxes in many states tracked assessed value, calculated
annually. When prices were steady, these taxes were predictable and
manageable. When this tax rose by 7%, 8% or 11% because inflation had
driven up home values, the result was rage. Pensioners and retirees,
among others, feared the government would tax them out of hearth and
home. Shaped into ballot initiatives by conservative political
entrepreneurs, this rage fueled a durable political uprising that capped property taxes at a percentage of purchase price. The resulting fall in
state revenue would hit education hard, again driving inequality.

Subtly but surely, the ways Americans made a living, managed their
economic institutions, traded with other nations, and understood the
role of government transformed. The existing basis of society, for many,
was overturned.

But what happened next? After the Great Inflation came what economists
call the Great Moderation—roughly 25 years of global price stability,
with no major recessions, stretching from the mid-1980s to 2007. The new economic orthodoxy that emerged, which critics called neoliberalism,
took inflation as a core concern. To varying degrees, both political
parties embraced a standard menu of lower taxes and reduced spending and regulation, while monetary policy took priority over fiscal policy in
managing the economy. At the heart of the neoliberal order lay a
commitment to low inflation and rules-based monetary policy. Unlike
previous eras of American history, financial shocks and crises—of which
there were plenty—didn’t cause high inflation or deflation.

This isn’t how we remember the 1980s, 1990s and early 2000s, because we
often focus on the unfolding of the stories that started in the
1970s. We see the rich getting richer and the poor getting poorer, the
decline of manufacturing, the birth of a new global economic order. But
in the sweep of American economic history, it is a remarkably long
period of stability. The disorder and divisions of the late ’60s and the Watergate era subsided, the political system functioned at a level that
seems enviable today, and while some economic losses persisted, others
were repaired.

Yet in recent years, a new elite consensus has emerged that blames neoliberalism for all our social, economic and political problems. Since
the 1970s, the story goes, Americans have traded a stable, regulated
mixed economy for the Wild West of unfettered capitalism. The essence of
this story is true: The 1970s did inaugurate a new economic era that
rewired the existing basis of society through globalization,
financialization and the rise of conservative economic populism. Yet
rarely does this story grapple with inflation, the fundamental cause of neoliberalism’s rise and many of the changes it wrought.

It’s tempting to leave inflation out of this story because the lessons
it offers often aren’t ones we want to hear. For one thing, inflation
can be ignited by government spending, as the Covid-19 era
demonstrates. When we like the reasons we’re spending or regard it as necessary, we don’t want to hear about the negative
consequences. Moreover, fighting inflation is painful. What broke the
back of the Great Inflation was the Volcker shock—the 1982 recession
caused by Federal Reserve Chairman Paul Volcker’s deliberate policy of setting interest rates high enough to reset the price level and end the
cycle of inflationary expectations. Along the way, unemployment reached Depression-era levels in key industries, and many never recovered. This
is the worst-case scenario today’s Fed sought to avoid at all costs.

Yet in the early years of the pandemic, policymakers brushed aside
concerns about emerging inflation as a relic of the past, perhaps
believing they were in a new world where the old lessons didn’t
apply. Because neoliberalism is so often framed as a failure by both
left and right, few stop to consider why new ideas and approaches to the economy emerged after the 1970s, why they lasted so long, and what they
may still have to offer. With Milton Friedman vilified as an
arch-neoliberal, few noticed that pandemic relief programs approximated
what he called a “helicopter drop”—a policy intended to create
inflation. That isn’t to say relief payments were unjustified, and
Friedman would likely have supported some of them. But they were
undertaken with little sense of their potential downside, economically
or politically.

That inflation came down without a recession is a triumph for economic
policy; that it emerged at all is a failure of both economics and
politics. Although he has inflation to thank for his victory, Mr. Trump
shows little understanding of its dynamics. Many of his proposed
policies may reignite the price rises he promised to cure, and the rise
in year-over-year consumer-price inflation to 2.6% in October is a
warning sign. Yet whether inflation sparks again or recedes, leaving
Mr. Trump’s election as its only legacy, one thing is sure: We are
standing at the precipice of another great social and political transformation—because money matters, even when we wish it didn’t.

Ms. Burns is an associate professor of history at Stanford, a research
fellow at the Hoover Institution and author of “Milton Friedman: The
Last Conservative.”

Source: https://www.spritzlerreport.com/post/how-inflation-ended-neoliberalism-and-re-elected-trump

PS. I post the source on this website because the original one from the
Wall Street Journal is behind a paywall.

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