What Was Neoliberalism? (Neon Liberalism #80, with Nick Hanauer)

"Neoliberalism" has become an epithet applied to almost everything. And yet it represented a real political movement, one that captured governance in America for decades.

Join Samantha Hancox-Li and Nick Hanauer, billionaire entrepreneur, civic activist, and co-author of Markets Built for Humans, as they discuss the origins of neoliberalism, how it broke apart under its own contradictions, and why economic growth depends not on trickle-down billionaires but strong wages for the middle class.

Neon Liberalism can be heard on Spotify, on Apple, on YouTube, on Amazon, and elsewhere via its RSS feed.

Markets Built for Humans

Markets Built for HumansArticle

Transcript

**Samantha Hancox-Li [00:00:00]**
"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men who believe themselves to be quite exempt from any intellectual influences are usually the slaves of some defunct economist. Madmen in authority who hear voices in the air are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas." That's John Maynard Keynes in his *The General Theory of Employment, Interest and Money* in 1936.

Now, as listeners of this podcast know, I'm interested in ideas, I'm interested in the power of ideas, and to talk about the power of a very particular idea — that is to say, neoliberalism — I am very excited to have on the podcast Nick Hanauer. Nick is a serial entrepreneur, capitalist, civic activist, author of a book, *Markets Built for Humans*, and critic of neoliberalism. So Nick, thank you so much for coming on the podcast.

**Nick Hanauer [00:01:26]**
Yeah, thank you for having me, Samantha. And boy, truer words were never said than that quote.

So, neoliberalism is an ideology, an economic ideology, that in turn was abstracted from what we call neoclassical economics. That's the formal theoretical framework that you would call today the orthodoxy. And so neoliberalism is the sort of rules of thumb, intuitions, heuristics that the society abstracts from this formal economic theory. And when you mush them together, it becomes effectively the ideology that — it is effectively the operating system of the world, and has been since the mid-70s, early 80s.

What might be helpful is for me to give an example, right? So the orthodox theoretical framework would tell you, for example, that the economy is an equilibrium system, which means if one thing goes up, another thing goes down, and that it's what's called Pareto optimal, which means that basically the stuff within that system has been distributed in the perfectly socially and economically optimal way. So that is the way that your typical economist looks at the world, that's how they picture the world. And within that framework it is true by definition — it's intrinsic to the mathematics of the system — that if one thing, like wages, goes up, another thing, like the number of jobs in the system, has to go down, effectively by a corresponding amount. So there is this set of formal technical ideas within the neoclassical layer, the formal theoretical layer, that turns into a heuristic like "raising wages kills jobs" — that if you raise the minimum wage it will harm the very people you're intending to help. So does that clarify the difference between kind of the scientific layer and the social and ideological layer?

**Samantha Hancox-Li [00:01:32]**
Okay, yeah, I like that discussion of how there's the high-church neoliberalism, right, the kind of stuff you might get from an economist or classically trained economists, but there's also this broader story, right, that kind of percolates out into the larger world that you say operates as rules of thumb for different people. And I'm curious what you see. Sure, yeah, go for it.

I think so. We're probably going to be circling back around these questions all this time, but I also kind of want to ask a historical question, which is: where did these ideas come from, and how did they become dominant in our national culture?

**Nick Hanauer [00:04:00]**
So many, many books have been written about that, and the short story is that in the 30s and 40s and 50s, as the Soviet Union gained power and influence around the world, and as China took their dark turn towards communism — you know, when it was bad, right, and it was a dark turn, let's be honest — a bunch of, in many ways well-meaning policy intellectuals and economists thought that it felt like that was coming to the United States, some kind of authoritarian statist thing. And it felt to them like things like Social Security were a slippery slope towards authoritarian communism, or something like that. And so they organized, famously. They built something called the Mont Pelerin Society, where they all met, and they were free-market thinkers — Milton Friedman, Hayek, many familiar names — and they organized around a set of free-market principles, which were not all bad, but over time morphed, got morphed into stuff that was worse, and got weaponized by powerful moneyed interests into what we now know as neoliberalism. And the idea that if you cut taxes for rich people, if you reduce regulation on powerful people, and if you suppress wages for everybody else, that somehow it will all magically work better for everybody.

And so in the early 70s and 80s, people like Ronald Reagan and Margaret Thatcher grabbed on to this set of ideas and ran with them. And certainly the United States and many countries in the West embraced this set of pro-market, anti-state ideas. And the bad thing that happened, I think, is that in the United States in particular, both political parties bought into this framework. The Democrats were slightly less terrible, and you can see the differences, actually, in the data. There's a really big difference between growth rates under Democratic administrations and Republican administrations.

It's worth talking about, but to a certain extent, Democrats were in favor of basically a kinder and gentler form of neoliberalism. They didn't have an opposing or alternative theory of growth, and so for 50 years, effectively both parties have enacted policies on this basis, and that has resulted in the largest upward transfer of wealth in the history of planet Earth. Approximately $80 trillion since 1975 in income has gone from the bottom 90% of Americans to the top 10%.

**Samantha Hancox-Li [00:09:00]**
So I want to complicate that story a little bit, or at least throw a complication at you, right, because you talk about the threat of communism, which I want to be clear is real, right? International communism was quite a real thing that happened. It's not made up. But you say Friedman and these others, they start organizing in the 40s and 50s, but their ideas don't really come to the fore until there's a crisis, right? The stagflation crisis in the 70s.

**Nick Hanauer [00:09:06]**
Right.

**Samantha Hancox-Li [00:09:08]**
Correct. So there is like a real economic catastrophe that is happening, right? Where — like today, we're like, "oh my god, inflation is reaching 4%," right — and they had inflation, 10%, 20% inflation, combined with an unemployment rate that is like twice the unemployment rate that we have today. And the economic models that they had at the time, the kind of Keynesianism that was popular at the time, didn't seem to be able to get them out of the crisis, right. And neoliberalism comes in, and the crisis very much does end, right. And today people look back on the 90s kind of fondly, right, they're like, "I like that economy, I'd like to have more of that 90s-era economy." So I'm curious what you —

For sure, yeah. There is a certain advantage to having an answer ready in a crisis. Now I think we are entering a time where it feels like we're in a crisis and nobody seems to have any answers to it, which has been kind of strikingly disconcerting.

**Nick Hanauer [00:09:57]**
Oh, yeah, no, there we go, boom — someone has got an answer.

Okay, but you've got to remember that the economy — like, the best was the Clinton economy, right, which was a less neoliberal economy than the Reagan economy. Clinton raised taxes on rich people, right. But I mean, Samantha, you're absolutely right, and Friedman said it explicitly: in a crisis, the ideas that are laying around are the ones that you're going to grab on to. And they were prepared, no one else was prepared, and they had a set of answers for how to get out of this malaise. There were some things they said were true, some things weren't, but they were the only people, they were the only game in town. And because just doing what we were doing harder didn't seem like the right answer to most people. So that's history, that's how it works.

**Samantha Hancox-Li [00:11:28]**
There's something building under the scenes, according to you, right, that has come to a head in recent years. So we have stagflation in the 70s, we have the Volcker shock, they break the back of inflation, we enter the neoliberal — or, you know, neoliberalism with a human face of the 90s — but what's going on in the neoliberal economy?

**Nick Hanauer [00:11:28]**
We do have an answer. Well, what's going on is inequality, right? The dominant feature of the neoliberal economy is rising inequality and slower growth. Secular stagnation is not something we had under the old Keynesian world. But in an economy where a few people are getting richer, and where everyone else's incomes are effectively flat or down, you created a different set of problems, right? A different set of crises. You obviously create a crisis of demand. You create a crisis of deficits.

One of the things that very few people understand is that a huge part of the federal debt that we face today is a consequence of wage suppression, right? I think the most important socioeconomic fact of our time — and these are RAND Corporation numbers — is that the median full-time worker today earns in the range of $65,000 a year. If that person had maintained their same share of the economy since 1975, instead of earning 60 grand, they'd earn about 120 grand. So imagine what the tax base would be like if the median worker earned twice as much, right? Like, we don't have deficits.

And so there's that crisis, and there's the crisis of the way in which concentrated economic power turns into concentrated legal power, which turns into concentrated political power. So now we have a crisis of democracy, which we did not have in the 50s and 60s and 70s.

**Samantha Hancox-Li [00:11:28]**
Well, in the 50s, we might have had a crisis of democracy, depending on the color of your skin, a little bit.

**Nick Hanauer [00:09:57]**
Of course. For sure, obviously. Although I think it is true to say — you can fact-check me on this — that the high point of wealth for African Americans was in the 70s. It's gone down ever since.

So anyway, now we have a different set of crises that the neoliberal economy has created. And I think what's important for folks to know is that the neoliberal paradigm failed spectacularly on its fundamental claim, which is: if you do it this way, you'll have more growth. Through the 50s and 60s, the country was growing GDP — which, by the way, we should come back to, because it's a terrible measure of welfare, but it is what we commonly use — we had growth in the four to four-and-a-half percent per year range. As soon as the neoliberals took over, it dropped to three, and now it's at two. So growth rates in the United States are about half of what they were when union density was high, taxes on rich people and big corporations were very high — all the things that the neoliberal neoclassical economic framework tells you are terrible for the economy.

**Samantha Hancox-Li [00:15:38]**
Right.

**Samantha Hancox-Li [00:11:28]**
This is something I want to linger on. You know, when I was young, I heard about people talking about economic growth, and it's like, "oh, it's 2% or it's 3% or whatever," and I was like, what does this matter to me? I couldn't really answer that question well. I went out there a little doubtful on that claim. But I've come to believe economic growth is really important, right? Economic growth is how we get more stuff, more technology. It's how we got mRNA vaccines, right? This progress of technology. It's why I'm able to talk to you on the other side of the country, right, for pennies — I mean, I don't know how much this costs, but it's not a lot, pennies of data, right.

So the difference between 2% economic growth and 4% economic growth is actually kind of stark. You can check my numbers on this — an economy that's growing 4% a year is doubling in size like every 20 years, something like that. An economy that grows 2% a year, you've got to add a couple decades onto that doubling speed. And that is an accumulation of new possibilities for living that is appreciable in a human lifetime. And so if there is a policy — and it would drive you crazy about these neoliberals, right, as they talk about "oh, secular stagnation, this is something that just happened, it's like the weather, there's nothing we can do about it" — and that seems like, I don't know, kind of like, "oh, okay, that's a bold claim right there." I don't know if it's just the minimum wage.

**Nick Hanauer [00:15:40]**
Yeah, it turned out it didn't, but it is 100% — yes, exactly. No, it's a lot, and you do that 10 years in a row, it's really a lot, right? Yeah. All you've got to do is raise the minimum wage, that's it. Fixed.

**Samantha Hancox-Li [00:11:28]**
Okay, all right. What are the three policies? I mean, I've got to ask.

**Nick Hanauer [00:15:40]**
I'm simplifying, but I can name three policies, and secular stagnation goes away like that. It's not hard. I mean, look, the thing is, you can't sustain a dynamic economy if working people aren't sharing in the value created by enterprise, right? If nobody has any money, who will buy the stuff, right?

And if the minimum wage had tracked productivity gains since its former high-water mark, instead of being $7.25 an hour, it would be plus or minus $25 an hour. And if the minimum wage was $25 an hour, then the median wage would be far higher, and we would not be talking about secular stagnation, right? The secular stagnation comes from wages and productivity decoupling, because no matter how rich the richest people get, we cannot buy enough stuff, right? Like, I earn probably in the range of — I mean, 100 times, 500 times as much as the typical listener on your podcast, but I do not have 500 times as many pairs of pants, right? I just have more pants, I suspect. But no, I am definitely not the Imelda Marcos of pants. I have a pretty normal pants diet, I think.

But this is the problem: I get a haircut every six weeks, right? I could get a haircut every three weeks, but I don't need one. So when wealth concentrates at the top in the way that it has, there's 500 million fewer haircuts in the United States — or whatever, I'm just pulling these numbers out of, you know what I mean, right? Like, if everybody in America can afford to get a haircut every month at a hair salon, that's going to be pretty good business for the hair salons, right?

**Samantha Hancox-Li [00:19:41]**
Yeah.

**Samantha Hancox-Li [00:11:28]**
I mean, that's the famous quote from Henry Ford, right? That every factory worker has to earn enough to buy a Model T, because otherwise — who was going to buy all the Model Ts, right? Where's the profit come from?

**Samantha Hancox-Li [00:19:54]**
So, I don't know, you could be the Imelda Marcos of pants, maybe.

There's a book I'm quite fond of by Melinda Cooper and two other people called *The Asset Economy* talking about what they think is going on with neoliberalism. And part of what they say is, okay, we're going to achieve price stability, we're going to do that by kind of suppressing wages a bit, and we're going to increase the return to assets. And on some level there's something in it for the median American, because the median American owns assets, right.

**Nick Hanauer [00:15:40]**
No, no, that's not true. The median American does not own assets. That's just factually incorrect. I mean, maybe a tiny bit. I mean, 80% of the assets are held by the top 20% of the income distribution.

**Samantha Hancox-Li [00:19:54]**
There is enormous inequality, especially in assets, I'm not going to argue about that. But when I looked it up, my impression is that the median American has about $190,000 of wealth, you know?

**Nick Hanauer [00:15:40]**
Yeah, okay — I'll bet you that's the average. I'll bet you that's the average. I'll bet you $1 it's the average. And the average is very different than the median. The average is very different from the median.

**Samantha Hancox-Li [00:19:54]**
I'm not really a betting person. Let's see, we've got Wikipedia, "affluence in the United States." In the United States, as of 2019, the median household income is $60,030 per year, and the median household net worth is $97,000, right.

**Nick Hanauer [00:15:40]**
We're fact-checking ourselves right now. And — oh, yeah. No, you're right. Okay.

**Samantha Hancox-Li [00:21:50]**
Okay.

**Samantha Hancox-Li [00:19:54]**
So this is what I wanted to get at here: that there is some wealth that's held by the middle classes, right. So they see their assets appreciating, they've seen their home values going up, and they're like, "I like this." But the thing about an asset economy is that it really rewards the people with the most assets, far and away disproportionately, massively disproportionately. And so this is something where — well, we got started on this, like you said, 50 years ago, and people say, "I don't know, it seems all right," but you just compound that over time, decade after decade after decade, and now we're in this situation where it seems like inequality is completely out of control.

**Nick Hanauer [00:21:55]**
A little bit, correct. Massively disproportionately. Yeah, it is. Well, because it's an increasing-return system, right? These advantages and disadvantages compound.

So, can I create a little bit more context? I just want to say a little bit about what we're up to. So why are we having this conversation? We're having this conversation because approximately 15 years ago, I and a guy named Eric Beinhocker — who is now the executive director for something called the Institute for New Economic Thinking at Oxford University — had first what was an intuition and now a conviction that everything that we had been taught about economics was not true, that it was a pack of lies. And I was doing a lot of civic and political work. I had an uncommonly successful career as a tech entrepreneur and venture capitalist, which freed me up to do pretty much anything I wanted to do. Eric was also an entrepreneur, but he was a big deal at the McKinsey Global Institute, and then began to devote himself full-time to economics.

And what we could tell was that this whole way of understanding economic cause and effect was a pack of lies. And we got to work with a bunch of heterodox economists from around the world trying to figure out, well, if that's a pack of lies, what isn't? And it turns out that a ton of great scholarship has been done across a range of disciplines. It's not just economics, it's anthropology, psychology, physics, mathematics, sociology — across the spectrum — that answers these questions about human behavior, about the dynamics of human social systems, about the nature and origins of prosperity, in empirically grounded, scientifically defensible ways. And when you swap out all the nonsense assumptions that went into neoclassical economics with our best ideas about what's true, you end up with a framework of thought that is just completely different than the neoliberal slash neoclassical view.

And cause and effect basically reverses. Raising the minimum wage doesn't kill jobs, it creates them, when you look at the empirical data. If the economy is an equilibrium system, then it's true by definition: if one thing goes up, another thing has to go down. But if the economy is what we actually know it is — basically a complex adaptive system, a kind of ecology, an increasing-return system — then claiming that when wages grow, jobs will shrink would be like claiming that when plants grow, animals shrink. That's obviously not how the system works, right? When plants grow, animals grow, because animals eat plants, and the more plants they eat, the more they grow, and the more they grow, the more kids they have. And so this is why raising the minimum wage is not bad for the economy, it's obviously good for it, because when even people who work in restaurants can afford to eat in restaurants, that will be good for the restaurant business, right? Even if the National Restaurant Association would prefer to live in a world where everyone else is paid enough to eat in restaurants except the people that work in restaurants, which is what they would like.

So what we knew was that this whole way of understanding the economy was a pack of lies, and we got to work — and the center of this activity has largely been at Oxford University — to decompose what a paradigm is, and then organize all the new scholarship into a paradigm that we can use to challenge the old paradigm. And that's what market humanism is. That's what we're calling this 21st-century paradigm: market humanism. It is markets in service to humanity, rather than the system we have now, which puts humans in service to markets. And so this new paradigm is what frames all of our policy thinking and all the narratives and the things that we're discussing.

**Samantha Hancox-Li [00:27:56]**
Right.

**Samantha Hancox-Li [00:19:54]**
I'm really struck by some of what you talked about in there about how raising wages can create jobs, which I tend to find pretty compelling. I mean, you've talked a bit about how inequality is a kind of demand suppression, right? That as you gain more and more income and more and more wealth, you just run out of things to actually spend it on, and people just have their wealth chasing more wealth, right, rather than real productive opportunities — whereas an economy where the mass of people has more money to spend on more things incentivizes investment into producing real things instead of fake bullshit, to put it mildly.

There's a line, actually, from your book: "The evidence is clear: economies are wage-led, not profit-led. When workers do better, demand expands, innovation accelerates, and society as a whole grows stronger. By contrast, policies that claim growth trickles down from wealthy owners of capital have delivered inequality, stagnation, and fragility."

**Samantha Hancox-Li [00:28:16]**
Correct, correct, correct, correct. And yes.

**Nick Hanauer [00:28:30]**
Absolutely, yeah. That's about all you need to know about economics. Like, if you just ran around the world making economic policy on the basis of that, you couldn't go far wrong.

So one of the things that the new economics shows is that inclusion is not this liberal luxury to be afforded if and when we have growth. Inclusion turns out to be the technical mechanism that produces growth. And how could it not, right? When you deliberately include more people in more ways, more robustly in an economy, it gets bigger and grows faster, right.

And I want to describe a little nuance here, that that sounds like a pretty standard Keynesian argument, right? By Keynesian I mean: more demand. If there's more demand, then businesses have to hire more, and you get into this positive feedback loop of growth. This is, of course, true. But what's equally true and equally consequential is that innovation — and you articulated this quite well earlier — innovation is how we improve our circumstances, right? It's not GDP or money that is prosperity in human societies. It is the accumulation of solutions to human problems. That's what economic progress is. That's what growth really is — going from aspirin to aspirin plus antibiotics, that's growth.

But the neoliberal slash neoclassical way of thinking about innovation is sort of this great-man theory, right, that you have this genius who sits in a room and has this eureka moment, and then innovation comes from there. That is not how it works. Innovation is always combinatorial. It is taking a thing and adding it to a new thing in a novel way. So a rock — rocks basically were our first innovations, right. You can do a lot with a rock, especially if you bang on that rock in special ways. But if you take a rock and tie it to a stick, you've got an arrow, a spear, a hammer, an ax, a club — I could go on and on. You have chocolate, you have peanut butter, you put them together, magic happens. Everybody knows that.

And what that implies is that the more dense this network of people is, especially with differences mushing together, the more of the combinatorial possibilities are unlocked, which drives innovation. So not only do you get more demand when you include people more robustly, but you get more innovation on both sides. You get more innovators — more people who are part of that dynamical process of inventing things — but equally, now you have enough robust demand to support that innovation, right? You only get a pumpkin latte, which seems like an abomination to me, in a world which is sufficiently prosperous, where there are enough prosperous consumers, so that some non-trivial segment of them will purchase a pumpkin latte. Do you know what I mean? And so that is why inclusion is so important. It's not just more demand, it's more innovation and more support for innovation. That's what drives the flywheel of increasing economic progress.

**Samantha Hancox-Li [00:33:30]**
Progress.

**Samantha Hancox-Li [00:33:40]**
Yeah. Yes, yes, yes.

I also happen to really like economic history. There's a book — to simplify a very long, pretty dry academic book — called *Violence and Social Orders*. They argue that the foundation of modern economic growth is more open and inclusive societies.

**Nick Hanauer [00:33:50]**
Yes, we're — by the way, there were thousands of innovations that created the platform from which you could deduce the steam engine, right? The steam engine didn't come out of whole cloth. There were the people who invented metalwork and thermodynamics — the steam engine is the combination of a ton of other technologies, right? All he did was take a bunch of existing technologies and put them together in a novel way. And to be fair, that's a remarkable and important achievement, but he didn't invent the steam engine, right.

**Samantha Hancox-Li [00:19:54]**
Yeah, I think that's absolutely right, and it bothers me so much, right, to see guys like Elon Musk out there, and these other kinds of tech-right dudes who clearly think like, "oh yeah, there's like the 1% of people in history who invent things, and there's the 99% of useless mouths, and I am one of the 1%." And they project this back into history, and it's like, "oh, how did the industrial revolution happen? Well, James Watt invented the steam engine, and it came out perfectly the first time, and then boom, everybody started installing them." But the actual history of the steam engine is like, yeah, you know, it was an important innovation, but there are hundreds of important innovations that incrementally improved steam engines, and I could talk about it.

**Nick Hanauer [00:35:00]**
Innovation. Yeah, right.

**Samantha Hancox-Li [00:35:05]**
Yeah.

**Samantha Hancox-Li [00:34:59]**
Yes, that's right, it's this continual process of tinkering, of innovation, of people whose names are lost to history, possibly — or not, depending on the case, maybe — but who saw an opportunity to do things a little better, to solve a problem like you said, and also were in a situation where they were able to, and they could be rewarded for doing so, right, that they lived in a society where they weren't locked out of the future, right?

**Nick Hanauer [00:35:12]**
Yeah, that's right. That's right. And if I could bring this conversation back to why listeners should care — like, why is this not just technical nonsense that you and I are talking about? Because if you see innovation in the neoliberal way, rising inequality is no problem, that's just providing the incentives for the great men to do their thing. If what I said about innovation is correct, then that's bullshit. Then the policies that include more people more robustly — like investments in education, higher wages, healthcare — those are the things that support innovation, right. So you would do a completely different thing if you want more innovation, depending on the economic paradigm that you accept. And our basic argument is that if you want to have a society that can handle the great existential crises of our time — inequality, the climate crisis, and the challenge to democracy — you have to have an economic paradigm that is friendly to those things, not kind of organized to make them weaker.

**Samantha Hancox-Li [00:36:52]**
Right. Yeah, right.

**Samantha Hancox-Li [00:19:54]**
Yeah, I'm glad you brought up climate there, because it does seem like it's one of the great problems of our time. I mean, we can see just increasing disasters, right? Like the wildfires that turn the sky red, and it's like that just happens in the summer now, right. Or if you live in Pakistan and a third of the country is underwater, whatever — that's just going to get worse. So, climate, great crisis of our time, and you talk about it a fair bit in your book about how the neoliberal paradigm just missed it, like just whiffed on that particular one, and what you think a better way of approaching the climate question is. So I was wondering if you could talk a little bit more about that in detail.

**Nick Hanauer [00:37:15]**
Yes, so there's so much there. One of the fundamental problems of the neoliberal paradigm with respect to climate is that it can't but see these problems as optimization problems, where everything is a trade-off against economic growth. The canonical view of this is this idea that yes, we can address the climate crisis, but we're going to trade off on economic growth all the way around, and so what we have to do is decide how much of a climate crisis we should have versus economic growth. And this, of course, is absolute total nonsense. The climate crisis creates one of the biggest economic opportunities in the history of the world. Now, is it going to be good for the shareholders of Exxon? Maybe not, right? Okay, just to be clear, there may be no role in the future world for Exxon. But transitioning to clean energy is an unbelievable opportunity for economic growth.

And here's the thing: if you just look at the cost curves, in 10 years solar energy is going to be the cheapest energy that has ever existed in the history of the planet. And this is going to get too detailed and too technical, but if you actually look at the historical cost in an inflation-adjusted chart of coal or oil, these things have cost the same for 150 years relative to the other economy. If you look at a chart, they go like this across the chart for 150 years. You know what doesn't do that? Solar voltaic cells — they're going like that, right, because they're on a Moore's law curve. And now utility-grade solar is cheaper than any other source of energy. And again, in another 10 years, it'll be a tenth of what it is today. Actually, one of the really interesting questions we're going to have to start to answer quite soon is: what do you do in a world where the cost of energy is getting close to zero?

**Samantha Hancox-Li [00:40:22]**
Right, right.

**Samantha Hancox-Li [00:19:54]**
Investment advice from Neon Liberalism: don't buy coal, there's no future in coal.

**Nick Hanauer [00:40:39]**
Absolutely. Very, very, very cheap, very cheap. And you know, I was in a presentation with one of the most important people in the world thinking about this, a guy named Doyne Farmer at Oxford University, who has sort of pioneered modeling all this stuff. And he says that he thinks in five years the demand for hydrocarbons just falls off a cliff, because if you just look at the deployment curves of solar, wind, so on and so forth, we hit a tipping point where all of a sudden there's just not going to be — at any price, it's not going to be worth it to buy oil or coal or whatever it is. So I'm not sure when the exact right time is to go short on these stocks, but at some point — yeah, exactly.

**Samantha Hancox-Li [00:19:54]**
Yeah, I mean, we've already seen how transformative some of this technology is in terms of electrification, in terms of the improvement in battery density, right? Whether that's electric cars that can drive 300 miles and you can charge in your garage, versus all kinds of new consumer electronics, or micro-mobility, whether that's an e-bike or a scooter or a hoverboard or any of these things, I don't even know, right? Like, what else are we going to do with energy that is not too cheap to meter, but probably pretty cheap, right? That's an extraordinary technological transformation.

**Samantha Hancox-Li [00:41:43]**
Yeah, that's right. If you could time that, send me an email, I'll appreciate it.

**Nick Hanauer [00:40:39]**
Yes, I think — yeah. So I want to say three things about it. I want to say, first, that moving from an economic framework that sees growth as GDP — which is basically how much stuff you're burning, right — going from a growth mindset to a progress mindset unlocks a lot. So that's part of market humanism: saying if we understand economic progress as solutions to human problems, then there are all sorts of exciting ways that we may be able to dematerialize the economy and improve people's welfare without incinerating the planet. That's the first thing. And we have to be mindful of planetary boundaries and not just be for unbridled growth and unbridled consumption. So understanding progress as the accumulation of solutions to human problems is very important, and I just want to acknowledge that straight up, because there are people who care deeply about climate who have, I think, legitimate pushbacks on just this sort of unbridled "let's just grow and everything will be fine," because that's not true.

The second point is pushing back on the degrowth argument. First, they're just wrong on the facts, that there is a way to have economic progress and not incinerate the planet. But equally — and I think the bigger point is — unless we can get rid of all the humans on earth, there is no way to persuade this population that they should just say no to economic progress, right? Like North Korea — the North Korea plan, we just turn off all the lights and huddle in the dark. That is not going to sell.

**Samantha Hancox-Li [00:19:54]**
Not outside North Korea, not outside of North Korea.

**Nick Hanauer [00:40:39]**
No, it's not going to sell. And I realize that there's 10% of the American population on the far left who would be willing to turn off all the lights and huddle in the dark, but the other 90% are not going to buy that. And so what is so important is — I mean, I'm a lefty, your audiences are left — it is so important, it is crucial, critical, that the left has a theory of growth that can beat the neoliberal theory of growth, but that can accommodate all of these legitimate concerns about it. And that's why we built market humanism, right, because this is an academic and economic paradigm that addresses some of these concerns. And it's not going to be perfect, it's not going to be easy, and there's going to be trade-offs here and there. But the idea that we're just going to be able to turn off all the lights and hope for the best — that is just the worst kind of political thinking, and it is a guaranteed loser at the ballot box. And I don't know about you, but I want to start to win elections. I guarantee you, a degrowth platform will not work. It will not work.

**Samantha Hancox-Li [00:19:54]**
I would like to do a little bit more winning, that would be good.

So you've mentioned a couple times GDP, and some qualms with GDP, and I want to maybe make a counterpoint here, and you can tell me what you think about it. There's this argument from some of these economists, right, that prices are an information mechanism, where people express their preferences through their choices of consumption and production, and they tell you something about what people want, right. And so GDP is really correlated with — more GDP is giving people more of what they want. But that mechanism can break, right. And one example of it breaking, people will argue, is happening in China, where the number keeps going up, right, they keep on spending more stuff and investing in more things, but pouring more concrete in the provinces isn't actually, like you say, solving anybody's problems, right? Because there's become this gap from what money is spent on, which is directed in many ways by the central government, versus what the actual mass of people want. And there's an analogous thing happening in America where there's so much money concentrated at the top end of the spectrum that the votes of ordinary people in this information mechanism just don't weigh as much anymore, right? And so you can have — GDP can be a very useful measure when it's actually hooked to a functioning economy that, like you say, is built on the middle class.

**Nick Hanauer [00:40:39]**
Yeah, so I think you made a couple of really good points that I want to just amplify. So first, price is an information mechanism, right?

**Nick Hanauer [00:47:49]**
I think that's true, but GDP has weaknesses that are much deeper than that. And let me just name at least one incredibly obvious one, which is that if you and I were to go outside together and vandalize every car within eyeshot, GDP goes up. If one of us gets cancer, GDP goes up, right? What GDP can't account for is whether things are getting better or getting worse. All it does is account for the stuff moving around, right? So a tornado, great for GDP. War, great for GDP.

**Samantha Hancox-Li [00:19:54]**
As long as you're not getting bombed.

**Nick Hanauer [00:47:49]**
Yes, but even if you are getting bombed, it's good for GDP, right? And obviously that's the point. People are dying, life is getting shittier, but GDP is going up, right. And so as a measure of welfare, it is incredibly flawed, and it's gotten worse over time, both because the society has become more unequal, but also because so much of the stuff that's made in our economy is hard for GDP to account for. What GDP can tell you is a little bit about "more," but it can't tell you anything about "better," right? There are two elements.

**Samantha Hancox-Li [00:49:30]**
Yeah.

**Samantha Hancox-Li [00:19:54]**
So to bring this down to brass tacks, what's a good example of our economy right now where you think GDP is mismeasuring the usefulness of this activity?

**Nick Hanauer [00:49:41]**
Well, I mean everywhere and in every dimension. One of the terrible parts about GDP is that GDP can go up while the living standards of the vast majority of citizens go down, right? GDP can be concentrated at the top, and has been in our country for a long time. This is what's so frustrating to most Americans — they open the paper and it says the economy is booming, GDP two and a half percent, and you're like, "okay, fine, but I can't pay my bills, right? I'm going backwards." Look, GDP has gone up virtually every year for the last 50 years, and the circumstances of the median family in America have gotten worse for 50 years, right? This number has become uncoupled from what people experience in their daily lives. And so it is just a vastly inadequate measure of the economy.

And I've said somewhat controversially that I'd like to outlaw measuring GDP, because if you outlawed measuring GDP, you would have to measure some other things, like median wage growth — there's a whole bunch of things you could measure that would be a far better indicator of how things are going for the typical person than this dumb thing that was cooked up in the 1930s. Which, by the way, the people who cooked it up — Kuznets and these other people — were like, "never use this as a measure of welfare, just don't do it, it's a terrible measure of welfare, don't do it." But we used it anyway, and here we are. And we just adopted this darn thing and weaponized it, and now it's the only thing people talk about to determine if things are going well or not. This is dumb.

**Samantha Hancox-Li [00:51:56]**
Correct. Yeah, right.

**Samantha Hancox-Li [00:19:54]**
It was invented right as like a measure of potential war production, if I got my history right. GDP is a fascinating question, topic, history. I would love to talk more about it, but towards the end here — you know, we've talked about neoliberalism, we've talked about your proposal, we've talked a little bit about left proposals. None of those are in charge right now, right, in our country. Who's driving the bus? It's MAGA, it's Donald Trump, and they've provided a very different response in a lot of ways to this crisis, in some sense, that our country is going through. And they say, "yeah, everything is wrong, right, America has been stagnating, and why is it? It's because of immigrants, it's because of wokeness, it's because foreigners have been stealing from us, and we're going to do something about all of that." So I'm curious, what's your take on the authoritarian populist turn in America, and in many countries around the world?

**Nick Hanauer [00:52:35]**
Yeah, I think that what neoliberalism did is it provided the perfect breeding ground for authoritarian narrative. I think MAGA is unbelievably stupid and awful, but the people who embrace that movement are absolutely not wrong that they have been screwed. It is just a fact that if you were in the bottom 90% of Americans, this country has left you behind in all sorts of ways, but mostly economically. And if you have experienced your family's circumstances getting worse every single year for 40 or 50 years, whether the Democrats are in charge or the Republicans are in charge, at some point you conclude — who needs democracy if whoever is in charge just makes a few people richer and everybody I know worse off? And that's where authoritarian narratives come from, right? They come from some strong man or woman who stands up and says, "only I can fix this, and all these people are the ones causing your woes." And we just "other" people and blame them, and that's the oldest playbook in politics. We just created the perfect circumstances for it.

I've been writing about this since 2010 or something like that. It does not take a history PhD to know that if you make your society as unequal as ours is, this is going to happen. It's never not happened in history. So this is not complicated. And so now we're in this box where everybody's pissed off, nobody trusts the institutions anymore — and why would you? They have not delivered for anybody outside a few people at the tippy top — and everybody wants to burn everything down. And so a clown, a lying idiot like Donald Trump can get a lot of traction in this way. And we are paying the price today, and I think, best case, it will take a generation to fix the damage that is unfolding right now. This is not going to be a quick fix. You know, the thing about the second law of thermodynamics is it's very, very, very expensive and hard to create order in the universe, and very cheap to destroy it. And we're destroying it everywhere, and it is going to be super hard and expensive to fix it all.

**Samantha Hancox-Li [00:52:26]**
So that's an interesting perspective, because I feel like after Trump's election, a lot of elites — media elites, even some liberal elites — kind of saw this as like a big referendum on liberalism, and they were like, "I guess the American people demand authoritarianism, I guess MAGA has won the culture." And I think Trump has governed in that way, right, that he acted as if what people cared about wasn't affordability, they cared about all this crazy stuff he was saying about immigrants, right — "they are going to love us if we deport 20 million people." And I'm curious, what do you think of that more cultural narrative here?

**Nick Hanauer [00:52:35]**
Yeah, look, I think if you've persuaded people that the reason that you haven't earned more money over the last 30 or 40 years is because of immigrants, then yeah, you can whip people up into a frenzy over immigrants. It's not true, but it is not a logical impossibility, right? Like, you can make a case that that's true. And the reason that people aren't getting paid more is because of power. But look, the immigration thing is all part of this, right? The reason that we had so much immigration is that corporate America wanted it, because that's where cheap labor comes from, right. And if you want to stop immigration, start putting CEOs in jail for employing undocumented people — it'll stop in two minutes. It will end. This is not a hard problem to solve. Absolutely. You put half a dozen CEOs of big companies in jail for doing this, and you don't have a problem anymore.

**Samantha Hancox-Li [00:52:26]**
There definitely seems like there were some companies that enjoyed having an undocumented workforce, right? They didn't want to ban all immigration, but they didn't want people to become legal either, right? They liked that gray workforce.

**Nick Hanauer [00:52:35]**
But anyway, these narratives are easy to spin up in the right context. And we again — I was a big Barack Obama fan at the time, but the truth is that inequality got worse under Obama, not better. And the Democratic Party — Obama, I think, has to accept responsibility for this — has proved to a generation of voters that we are feckless corporate stooges too.

**Nick Hanauer [00:58:09]**
I mean, honestly, in my lifetime — I mean, Clinton was a little better, and I was alive when LBJ was around, but I was tiny — the Biden administration was the first non-neoliberal administration, really, in my lifetime. And as a consequence of their commitment to this middle-out vision, they did more on economic policy than anybody had done in decades. Unfortunately, what they couldn't get done because of a couple of horrible United States senators — they couldn't get anything done that would have helped people in the immediate here and now. So, no increase in the minimum wage, no increase in the overtime threshold, ended the child tax credit. I could go on and on with the list of things that they should have done to help people right now. And if they had done that, then we wouldn't have gotten Trump. But they didn't.

**Samantha Hancox-Li [00:52:26]**
Yeah, thanks, Manchin. Thanks, Sinema. Appreciate it. That's — you know, I try not to be a vindictive person.

**Nick Hanauer [00:58:09]**
May they burn in hell for all eternity. I'm very vindictive, I'm very vindictive.

**Samantha Hancox-Li [00:52:26]**
All right, we are almost out of time. Any last words for the audience here?

**Nick Hanauer [00:58:09]**
So here's what I think. I think if you care about these issues, we cannot win the day unless people like the people who listen to your podcast download stuff like this and read it, and take it seriously, and demand it from our policymakers and our electeds, right? That's what it's going to take — a grassroots movement of people being like, "you know, I will not accept neoliberal policymaking, I won't. You have to do better." And the new economics, as expressed in this booklet, *Markets Built for Humans*, is the way. And if we governed on that basis, you and I wouldn't have to talk about this stuff, we could talk about other stuff, we could talk about art.

**Samantha Hancox-Li [00:52:26]**
All right, well, there's something to drink to, anyways. Nick Hanauer, author of *Markets Built for Humans*. Thanks so much for coming on the podcast.

**Nick Hanauer [01:00:19]**
Thank you for having me. Thank you.

**Samantha Hancox-Li [01:00:30]**
Bye.