The world economy is like a supercomputer that churns through trillions of calculations of prices and quantities, and spits out information on incomes, wealth, profits, and jobs. This is effectively how capitalism works—as a highly efficient information-processing system. To do that job, like any computer, capitalism runs on both hardware and software. The hardware is the markets, institutions, and regulatory regimes that make up the economy. The software is the governing economic ideas of the day—in essence, what society has decided the economy is for.
Most of the time, the computer works quite well. But now and then, it crashes. Usually when that happens, the world economy just needs a software update—new ideas to address new problems. But sometimes it needs a major hardware modification as well. We are in one of those Control-Alt-Delete moments. Against the background of tariff wars, market angst about U.S. debt, tumbling consumer confidence, and a weakening dollar watched over by a heedless administration, globalization’s American-led era of free trade and open societies is coming to a close.
The global economy is getting a hardware refit and trying out a new operating system—in effect, a full reboot, the likes of which we have not seen in nearly a century. To understand why this is happening and what it means, we need to abandon any illusion that the worldwide turn toward right-wing populism and economic nationalism is merely a temporary error, and that everything will eventually snap back to the relatively benign world of the late 1990s and early 2000s. The computer’s architecture is changing, but how this next version of capitalism will work depends a great deal on the software we choose to run on it. The governing ideas about the economy are in flux: We have to decide what the new economic order looks like and whose interests it will serve.
The last such force-quit, hard-restart period was in the 1930s. In the United States, the huge liquidity crunch caused by the 1929 Wall Street crash combined with the Smoot-Hawley Tariff Act of 1930 to kill commercial activity and trigger the Great Depression. Bank failures swiftly turned into a mass failure of firms and industries; wages tumbled and unemployment shot up, in some areas to a quarter of the workforce. Despite the state interventions of Franklin D. Roosevelt’s New Deal program, the economic situation stabilized and returned to sustained growth only in the ’40s, when wartime re-armament delivered a huge industrial stimulus.
The computer built for the postwar period was solving to avoid a repeat of the ’30s. The software update was a new governing idea of full employment. Achieving that aim as the central raison d’être of the economy also entailed several hardware modifications. One was a policy of forcing wealth owners to use their capital locally by limiting their ability to move it out of the country. To maintain their profits, they were obliged to invest in technology that would increase productivity. In this virtuous cycle, high productivity allowed for high wages, which the state could then tax to fund social transfers. Combined with the government-spending power of revenues raised by high marginal taxes, America’s welfare state was born. Labor unions were seen more as partners in business enterprises, and political parties needed to appeal to the median, middle-income voter. These changes produced a political system in which the two main parties competed over a centrist consensus so bipartisan that people struggled to see the difference between Democrats and Republicans.
The New Deal did indeed avoid a repeat of the ’30s, but its software had a bug. If full employment meant running the economy hot to keep unemployment down, then eventually employers’ ability to keep their profits up by augmenting productivity would fail as workers’ demand for higher wages outstripped firms’ ability to pay them. By the mid-’70s, profits were falling as wages and inflation rose, so the U.S. investor class reached for the reboot switch. Holders of capital founded political-action committees, funded think tanks and media outlets to promote free enterprise, and helped get Ronald Reagan elected in 1980. Reagan busted unions and deregulated markets, accelerating the movement of capital from union strongholds to “right to work” states, which was effectively an onshore tryout of offshoring. Simultaneously, the Federal Reserve under Paul Volcker raised interest rates to almost 20 percent to squeeze inflation, a measure that induced a harsh recession, which disciplined labor further by raising unemployment.
As all of that implies, full employment ceased to be the governing economic idea. The software rewrite of this era instead made price stability, capital mobility, and the restoration of profits via globalization the new priorities. The hardware modification was to make central banks more independent—the better to enforce price stability and enable the recovery of profits. These new priorities were justified by Margaret Thatcher’s famous nostrum that “there is no alternative.” This reboot has come to be known as neoliberalism.
The computer was humming along again when I arrived from Scotland to attend graduate school in New York in the summer of 1992. The U.S. had entered a period that Ben Bernanke, then a Federal Reserve governor (and later Fed chair), called the “Great Moderation.” Globalization was good; finance was the future. Central banks had delivered sustainable prosperity, and the investor class saw its profits restored on a transnational scale.
Once again, however, the system had a bug. The increase in profitability came not only as a result of improved domestic productivity but also at the expense of once-stable industrial regions of the U.S., as jobs, skills, and capital flowed out. Meanwhile, the authorities had presided over the deregulation of financial markets, which supplied the economy with copious credit. But one effect of this credit was to mask a chronic lack of wage growth and a rising level of inequality.
That turned out to be a major hardware issue: Neoliberalism’s financialized solutions to economic problems became liabilities when the next crash came, in 2008, as a tsunami of credit became an earthquake of debt. The hardware modification of the era—independent central banks—saved the system with colossal bailouts of the private sector, paid for by the public sector in the form of ever greater debt and more stringent fiscal policies. This liquidity dump enabled the economy to stagger on through the slowest-ever recovery from a recession—but only by pushing the bulk of the costs of those bailouts onto those least able to bear them. Signs of profound public disaffection in Western countries started to show in 2016: first with the Brexit vote in the United Kingdom, then with Donald Trump’s rise in the U.S.
Trump has acted as a catalyst for the next reboot. His hostile takeover of the Republican Party was leveraged by a new, more working-class electoral coalition based on a populist politics of resentment. His antipathy toward China may lack analysis, but by articulating a sense that American workers had lost out in the neoliberal era, it gave voice to authentic grievance. Trump’s chaotic first term made only limited progress in forcing another reboot, but his second term seems likely to foreclose on the Biden administration’s interim solution of keeping the neoliberal system running with a limited New Deal–like reindustrialization in new sectors such as renewable energy. The Inflation Reduction Act was a significant reinvention of industrial policy, something not seen for decades outside a national-security context, but Trump is abandoning this sort of intervention. Instead, he has chosen tariffs as his singular tool for reshoring industry.
To the extent that the Trumpian approach coheres, the economy’s new goal is to benefit native workers by restoring carbon-heavy industrial jobs while removing immigrants from the labor pool and encouraging women to have more children and become homemakers. This is not so much the building of a new computer system as the retrofitting of several old ones—a version of what a critic of Thatcherism once called “regressive modernisation.” The MAGA economic ideal derives from a blend of the 1950s, which saw a huge expansion of manufacturing jobs for men, and the ’40s, when women were pushed out of the wartime jobs and back into the home, and immigration was tightly restricted. This boost for the native labor force is in turn yoked to a 19th-century, mercantilist “spheres of influence” foreign policy.
This hodgepodge of historical impulses speaks to the unsettled nature of Trumponomics. No new economic order is discernible, because the governing idea is still contested. The national-conservative movement, which seeks to rebrand the GOP as a workers’ party, has one vision, but other forces are also trying to shape this moment. The “Dark Enlightenment” wing of the tech sector is a player, too. Overinvested in AI and keen to grab government funding that was earmarked for elite research universities, the Silicon Valley billionaires imagine an economy that runs not as a return to hard-hat industry’s glorious past but as a posthuman future of automation and space exploration.
The problem with such projects is that we cannot go back, any more than we can leap into the future; we can live only in the present. The populist-right reset will fail because tariffs may spur some reindustrialization, but robots will be the main producers, not working-class men on an assembly line. And little suggests that most women will relish the return to hearth and home that is planned for them. The techno-futurist update has nothing to offer the great mass of humanity and would benefit only the tech lords most invested in its realization.
So we seem to be stuck, which is why this moment is so perplexing. The system upgrade is pending: The right is offering its regressive modernization as the update. The left has yet to figure out which one of three paths it wants to take.
One possibility is to stay put with the gerontocracy of the Democratic Party and wait for Trumpism to implode. That might happen, and the Democrats’ current position as the party of the institutionalist status quo makes this the most likely path. But this will be a losing proposition if no reversion to the mean of the pre-MAGA American politics occurs.
The effort by Representative Alexandria Ocasio-Cortez and Senator Bernie Sanders to rally an anti-oligarchy movement advocates for a second option, of left-wing populism. But whether this appeals to young men who have been drawn to Trump, as well as young women who poll as more progressive, and can create a broad-enough coalition remains to be seen.
A third approach is the “abundance” agenda, promoted recently by Ezra Klein and The Atlantic’s Derek Thompson, which proposes a progressive political program based on lower-regulation, pro-growth policies as a spark for renewed economic growth—though critics on the left accuse this approach of failing to confront corporate power.
To develop an alternative to the regressive modernization underpinning Trump’s reelection, the left must come up with a governing economic idea that can compete. Technocratic fixes of the old system look very unlikely to inspire a broad-enough coalition to defeat the potent, if unstable, electoral alliance that reelected Trump. The most promising avenue—one that could address the needs of millions of Americans who feel shut out of growth and prosperity and alienated from America’s governing elite—might be a fusion of AOC/Bernie populism with a more political, less technocratic version of abundance.
Regardless of whether such a project can materialize, we have to accept that a transformation is under way. A new economic order is forming—which means that it is not yet fixed and can still be shaped. But time is running out. As jumbled as the regressive modernization is, it could win the day if we do not come up with a different governing idea of what the economy is and whom it is for. And we need enough people in our democracy to agree that this new purpose is the right one. The ideas are there to be found. They just need politicians with the courage to try them.
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