Neoliberalism Died of COVID. Long Live Neoliberalism!

Photo: Spencer Platt/Getty Images The second millennium was nearly over, and so were global capitalism’s worst “financial troubles.” Or so one influential economist suggested in 1999.

To many, these first decades of Dornbusch’s golden age — also known as the “neoliberal era” — had looked gilded at best. The rise of independent central banks had corresponded with a fall in labor’s share of income. As policymakers prioritized price stability over full employment, they had condemned the most unskilled or socially stigmatized workers to perpetual joblessness.

On one level, Shutdown narrates the 21st century’s rebuke of neoliberal triumphalists like Dornbusch . Even before the COVID crisis, however, the technocratic justifications for the neoliberal program had largely broken down. The 2008 crash had revealed that financial deregulation and economic stability were more compatible in theory than in practice. The ensuing decade was characterized by slow growth, low interest rates, and scant inflation. In that context, prioritizing price stability over employment began to look perverse, even to independent central banks.

In these conditions, only “big government” could save global capitalism. No institutions but major central banks could stabilize bond prices. And nothing but massive deficit spending could plug the holes that COVID had punched in household income, business revenue, and consumer demand. Tooze presents a number of explanations for this phenomenon. But the primary factor is also the simplest: “epic government deficits could be financed without driving up interest rates” because “one branch of government, the central bank, was buying the debt issued by another branch of government, the Treasury.”

And these market failures were plainly resolvable! Money was no object. The pandemic had forced the Federal Reserve to reveal as much. “Bond vigilantes” could not actually hold the U.S. government hostage. The balance of power ran in the other direction. If the Fed wished to abet decarbonization by effectively monetizing deficit spending on a green transition, there was little investors could do about it. And this was only a bit less true for the European Central Bank.

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