Julius Krein, editor of the quarterly American Affairs, argues that Japan has disproved much of the economic consensus the West took for granted, from fears of deficits to the case against industrial policy, and that nothing has yet replaced it.
Krein, a conservative thinker who drew attention when the first Trump administration began, keeps his distance from the administration and judges its policies case by case. He gave the interview for the book "The Tectonic Shift in American Political Thought: Where Does the Post-Trump World Go?" AERA Digital published an excerpt.
He describes the postwar bipartisan order he wants to move past as the "neoliberal consensus." In his words, it combined faith in free markets and an individualist approach to the economy with a highly interventionist foreign policy.
The foreign-policy failure was the most visible to voters, he says, and Trump attacked it hard. Hillary Clinton's 2008 primary defeat, he argues, rested on the same ground, including her support for the Iraq war.
The economic side is harder for people to see but probably more important. For years, especially on the right but also among center-left figures such as Bill Clinton, there was intense worry about fiscal deficits.
“Japan, quite brilliantly, disproved a great many economic theories.”Julius Krein
Japan carries a huge national debt, and it has also shattered the theory about the combination of fiscal and trade deficits. Even so, the Republican Party and the whole political spectrum believed deeply in monetarist theory and in Milton Friedman.
After the 2008 financial crisis, people who had worried about deficits suddenly said the banks had to be rescued and trillions of dollars spent. Nobody cared about the deficit anymore, and the money was spent. Inflation barely moved, and still has not. Interest rates did not soar; if anything, they are too low.
Trickle-down and two lost decades
He calls this trickle-down economics. Inequality was always justified by the claim that growth lifts all boats. Japan's "lost decade" is often discussed, he notes, but the United States has had two lost decades of its own: growth came from bubbles that burst, and real growth was very low for years while inequality widened sharply.
It was the combination of inequality and low growth, more than inequality alone, that shook many people's faith in the postwar idea that unleashing markets and limiting the state was the best policy. In practice, he says, it did not work.
He makes the same point about trade. The United States long dismissed the idea that a government can plan growth, run industrial policy, pay subsidies and develop an economy through a carefully built strategy, calling it a controlled economy that could not work.
Then the U.S. watched Japan do it, and now watches China do it far faster, at far greater scale and under a very different government. Japan, even at its sharpest economic rivalry with the United States, rested on a deep alliance and a democratic government. China has none of that.
Krein sees this as the main reason trust in the postwar economic consensus, shared by both parties, has collapsed. Nothing has yet appeared to take its place and set a direction.
That is what the magazine sets out to do, he says: bring in people from left, right and center and ask them to think about new problems from an ideological vantage point different from the one that long dominated the debate.
The publication has always focused on policy, he says, and it did try through shared acquaintances to push the administration toward its thinking, as anyone would. That produced almost nothing.
Over eight months, and especially after the events in Charlottesville in August 2017, he decided to write an essay stating clear opposition rather than continue a conditional defense of Trump. The underlying policy agenda and the core problems are unchanged. If politicians want to read it, he welcomes that, but the magazine depends on no politician, Trump included.