The Failure of Neoliberalism

Series on National Strategy, Post 2

This post is part of a series on U.S. national strategy. An updated table of contents is maintained here.

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You Lost…to Donald Trump?

How is it possible that America’s governing class—which sat atop the wealthiest and most powerful country in history—has failed so spectacularly that Donald Trump of all people has defeated it?

In 2016, Trump’s victory felt to many like an accident. But by now, it’s clear it wasn’t. Trump’s repeated success is a result of more than his personal “charisma”. He has completely gutted and remade the Republican Party, has left the Democratic Party impotent and wandering in the wilderness, and despite having actually identified many of the key problems the country is facing, has governed with incoherent strategy, incompetent administration, deplorable moral leadership, and flirtations with constitutional crisis and the end of American democracy.

The purpose of this essay is to provide an account of this failure.

(Photo by Win McNamee/Getty Images)

I argue that the only way to understand what’s really going on is to look past individual policies and personalities and this or that trend—to view what has happened as a structural failure of the bipartisan governing logic of a passing era—neoliberalism—a policy paradigm which narrowed the set of acceptable policy solutions to such a degree that large swaths of our national problems became unintelligible to its adherents.

To be sure, I’m not the first person to point a finger at neoliberalism—in its narrow definition a set of economic policies including low taxes, deregulation, privatization, and globalization. The economic Left has long critiqued it for an overemphasis on markets and mounting inequalities. More recently, segments of the New Right have criticized it for cultural betrayal—a globalist project that strips the nation of its sovereignty, weakens the cohesion of family and community, and elevates managerial elites at the expense of the community at large. Very recently, the progressive Left has introduced Abundance Liberalism and suggested that neoliberalism has actually facilitated over-regulation in certain sectors like housing, leading to unacceptable cost inflation and economic pressures on the middle class.

But all of these are fragmentary, and partisan, critiques.

In this essay I introduce a more fundamental framework motivated not by the Left or Right, but by the national interest itself. I argue that neoliberalism is best understood as a bounded epistemology that—while providing generally excellent solutions for market contexts and the exchange of private goods—ultimately failed because it lacked a theory of governance for non-market domains, in which the real challenge is not ensuring efficient market mechanisms, but deploying leadership to inspire and govern.

Rethinking the Standard Narratives

The commentariat has produced an impressive array of post-2016 diagnoses: white resentment, globalization backlash, educational polarization, digital media collapse, the end of truth. Many of these theories are not entirely wrong. But none of them is really diagnostic. They explain symptoms of failure in this domain or that. They isolate visible dysfunctions. But they don’t tease out an underlying logic that connects the dots.

The canonical narrative in this set, the neoliberal self-critique, was delivered by Paul Krugman. Writing in 2019, he conceded that economists had underestimated the localized damage of the China Shock and overestimated the labor market’s ability to adjust. The trade models were fine, he insisted—they were just too optimistic about the pace of retraining, mobility, and redistribution. In this narrow critique, neoliberalism did not fail in theory, just in execution.

Paul Krugman in the Oval Office April 14, 2013. (Photo: Adam Schultz/White House)

Yet this feeble self-explanation remains trapped within neoliberalism’s epistemic boundaries. It still assumes a happy equilibrium will be reached, so long as you wait. It doesn’t even hint at an awareness that neoliberalism’s underlying assumptions—about human behavior, institutional resilience, and the role of governance—might provide an incomplete understanding of human affairs. It goes no distance in explaining either the full panoply of political grievances that have been issued, nor the magnitude of the political disruptions that have ensued.

Other narratives—whether critiquing neoliberalism or just trying to explain Trump—fare little better. Cultural conservatives blame a culturally vacuous state and the rise of unbounded minoritarian individualism. Media critics blame algorithmic incentives and manipulation. Political scientists blame primaries, polarization, and the erosion of gatekeeping. The tech elite blame a managerial state they hardly understand. The progressives point to inequality and institutional sclerosis. Abundance Liberalism blames over-zealous regulation. Every camp has found its preferred failure. None has explained the underlying logic.

One of the most remarkable things about this landscape of commentary is how many analysts have contorted themselves and made all kinds of deep dives into niche areas looking for the hidden causes of Trump’s political success—as if it were an inexplicable mystery.

In fact, the first order explanation is entirely straightforward. It can be found simply by looking at the issues that explicitly animated Trump’s political platform and the grievances voiced by the groups that coalesced around him.

The centerpiece was immigration: a demand for border control, national sovereignty, and cultural integrity in response to decades of elite dismissal and technocratic abstraction. Trade came next: a revolt against global economic integration that seemed to benefit multinational firms and urban elites at the expense of industrial communities and national resilience. Then came the backlash against the cultural dominance of DEI ideology—a rejection of the moralizing tone, symbolic policing, and institutional reeducation campaigns that neoliberalism allowed to take root.

Beyond those popular pillars were more targeted frustrations: the scars of the aimless wars in Iraq and Afghanistan; the sense that America's foreign policy was no longer driven by service to the American people; and a rebellion against the bureaucratic sprawl of the so-called administrative state.

The analytical challenge before us is not to understand which issues got Trump elected—these are obvious—it’s to reach deeper to systematically explain these specific grievances—where they came from and why the neoliberal system not only failed to resolve them, but often enough to even see them.

The Origin of Neoliberalism’s Fervor

The intellectual roots of neoliberalism begin in an unexpected place—not in Wall Street boardrooms or Reagan-era campaign speeches, but in the postbellum trauma and political chaos of interwar Europe.

In 1922, Ludwig von Mises published Socialism, a book that argued economic planning by the state would inevitably fail—not only on technical grounds, but on moral and civilizational ones. His former student Friedrich Hayek expanded on that theme two decades later in The Road to Serfdom, warning that the more control a state exerted over economic life, the more it risked slipping into authoritarianism. Their target was not just Soviet central planning, but any regime—Left or Right—that concentrated economic power in state hands.

Unknown Soldier in World War I (Photo: Unknown)

Whereas Keynes, also shaped by the trauma of the Great War, sought to insulate liberal democracy from the destabilizing effects of market volatility through automatic stabilizers in domestic demand and international trade—von Mises and Hayek were animated by political visions of disempowered and coöpted elites, beholden to aggressive, militarist autocrats.

The DNA of their work was thus infused with an eschatological fervor, surpassing mere economic argumentation and inspiring an essentially religious commitment to markets, with dispersed decision-making and spontaneous order aimed to prevent any concentration that might lead to tyranny and armed aggression.

When these men and their ideas were transplanted to the relatively pacific United States in the 1940s and 1950s, they took root in the rather different climes of anti New Deal American conservatism. Initially marginal, their influence expanded with the formation of the Mont Pèlerin Society in 1947, sponsorship by business-owning families like the Kochs, and eventually grass roots groups such as the John Birch Society.

Through this period, American politics was still operating under the New Deal paradigm later known as embedded liberalism—a consensus that balanced private ownership of capital and free markets with robust state intervention, labor power, and social welfare transfers.

That order ran out of road in the early 1970s. State-owned firms and the over-regulated private sector were sclerotic and beholden to capture. Unions were blamed for rigidity. Expansive government spending collided with fiscal limits. Middle eastern embargoes constrained the supply of oil. Erratic macro policy responses caused inflation to soar, growth to stall, productivity to lag. Keynesian macroeconomic management simply proved an ineffective toolkit to manage this emerging set of problems.

The injection of neoliberal ideas offered a clean break. Deregulation, liberalization, and monetarist discipline promised to restore market signals, speed up adjustments, rein in inflation, and unleash growth. Where embedded liberalism had favored collective bargaining, capital controls, and countercyclical spending, neoliberalism championed tax cuts, free trade, privatization, flexible labor markets, and light-touch monetarist macroeconomic management. In the short term, a huge bevy of neoliberal policies were introduced—and they worked. Inflation fell. Investment returned. Global supply chains expanded. Productivity eventually surged. By the 1990s, under Bill Clinton and Tony Blair, neoliberalism was the only game in town.

The genius of neoliberalism lay in its ability to recognize and provide solutions to a particular subclass of collective action problems—those that could be priced, modeled, and bounded within an economic logic mediated by private exchange.

To be sure, neoliberalism was not a return to 19th century classical liberalism, which really was captivated by market fundamentalism in the crude laissez-faire sense. Quite to the contrary—neoliberalism worked so well in market contexts because it embraced the kinds of targeted interventions that smooth laissez-faire volatility and make markets sing.

With its fiscal, monetary, and regulatory models it established a more successful optimization of the relationship between capital and labor than any preceding model—and what followed was an unprecedented era of prosperity.

However, in part because of neoliberalism’s messianic origins and in part because it simply worked so well, it embedded itself not just into economic policy, but also into the worldviews and psyches of several generations of governing elites. This transformed neoliberalism from a set of ideas into a fully fledged policy paradigm.

A policy paradigm¹ is not just a cluster of policy preferences or ideological slogans. It is an underlying cognitive framework that governs how policymakers define problems, identify legitimate tools, and justify solutions. Policy paradigms are what make some problems intelligible and others invisible. They are what make certain solutions seem natural and others unthinkable.

The Deep Failures of Neoliberalism

The standard critique of neoliberalism focuses on its economic consequences: stagnant real wages, growing inequality, and financial volatility. These failures are real—but they are not its most consequential. They occur in the very domain where neoliberalism was, at least in theory, supposed to be competent: the allocation of rivalrous, excludable (i.e. private/market) goods. What went wrong in those areas was not the logic of the system, but poorly-tuned technocratic policies downstream from normal political dysfunction and capture.

The deeper failures—the ones that hollowed out the state and opened the door to populism—took place elsewhere. Neoliberalism did not simply misfire in the domains of public morality, institutional legitimacy, civic identity, or national strategy. It misrecognized them. It was blind to their structure, uninterested in their logic, and ill-equipped to govern them.

First, this is because neoliberalism never developed a robust theory of collective goods—goods that require shared effort, institutional design, and the suppression of opportunism in order to exist. It accepted the need for a state to provide some baseline public goods (defense, regulation, competition, legal enforcement), but it treated these as background infrastructure—problems of procedure, not politics—and took them for granted.

Second, it therefore lacked a theory of institutional generation. It could not see that the provision of collective goods and management of collective action requires more than policy outputs. It requires institutions and leaders atop them capable of cultivating identity formation, achieving group cohesion, imposing obligations, enforcing norms, allocating burdens and sacrifice, and generating trust, loyalty, and legitimacy. These are not reducible to policy problems. They are leadership and governance problems.

As we will see below, this failure expressed itself by generating massive blind spots and failures not only in domestic political economy, but also in moral leadership and even foreign policy, where the illiberal intent of states like Russia and China were rendered unintelligible and therefore went unmanaged.

Again, these weren’t policy failures. They were category errors. Neoliberalism tried to manage what needed to be governed. It saw culture as preference, strategy as interdependence, and identity as friction. And when those systems broke down, it offered nothing but metrics, markets, or managerial process.

The result was a paradigm unable to respond when its legitimacy failed. Even today, it still cannot name the problems that have hollowed out the institutions it claims to steward. And so it has stood unbelieving and uncomprehending as the system it built has unraveled.

Collective Action

To understand better why neoliberalism failed to govern, we have to understand what successful governance actually requires. At its core, governing a society means managing coöperation across diverse actors, over time, under conditions of uncertainty and change. That is the central challenge of collective action.

Coöperation doesn’t emerge automatically. It has to be constructed—by designing institutions that leverage biological predispositions, align incentives, suppress opportunism, and generate legitimacy. In market systems, coöperation is mediated by price mechanisms and contract enforcement. But in the governance of collective goods, those mechanisms don’t work because they don’t exist. What’s needed instead is political architecture.

Institutions that govern collective goods must not only figure out how to coordinate behavior to achieve collective results, but they must also solve two characteristic problems: free-riding and predation.

• Free-riding occurs when actors benefit from a system without contributing to it. It erodes trust, depletes resources, and breeds resentment.

• Predation occurs when actors exploit a system—symbolically, materially, or institutionally—for personal or factional gain. It distorts rules, delegitimizes leadership, and crowds out coöperation.

These aren’t fringe problems. They are the default state of unmanaged social systems.

Solving them requires more than good intentions. It requires systems that:

• Provide fora for the discovery of common problems and coordination

• Establish criteria of inclusion and membership, while managing boundaries

• Generate norms and rules credibly and consistently

• Allocate obligations and privileges fairly and visibly

• Punish or exclude members who fail to adhere or contribute

• Sustain legitimacy through shared narratives and mutual accountability

• Adapt to changing conditions without losing coherence

None of these functions can be reduced to market logic. They can’t be improvised. They must be designed. They require governance. And good governance, in this context, is not about optimization. It’s about leadership, legitimacy, and efficacy.

With this lens in hand, we can turn our attention back to the specific problems that confronted the neoliberal order and got Trump elected to examine how it perceived and reacted to them. This enables us to identify the through-line of what went wrong.

Catalogue of Failures

The catalogue of failures that follows—the issues which Trump rode to victory twice—should not be read as technocratic mistakes or ideological excesses. They are expressions of a deep structural misfit between neoliberalism’s governing logic and the demands of political life. In each of these domains, we observe a collapse not just of performance, but of institutional legitimacy and normative cohesion, the string of failures that compounded to produce the collapse, in the eyes of a critical fraction of the American electorate, of the political legitimacy of neoliberalism and the hunger for something—anything—else.

Immigration

Of all the domains where neoliberalism failed, none more directly revealed its blind spots and prepared the ground for its political demise than immigration. Here was a policy area touching on economics, identity, loyalty, and legitimacy—yet neoliberalism reduced it to labor inputs, aggregate output, and long-run efficiency.

Immigrants were framed as unalloyed contributors to GDP growth and demographic balance. But the cultural, civic, and institutional demands of incorporating newcomers—demands that existed not because the immigrants were inferior, nor because the Americans receiving them were racist or xenophobic, but rather because the integration of any human populations erodes common identity, social trust, and requires adjustment—were ignored.

The result was a classic free-rider problem: immigration advocates claimed the benefits of inclusion while not having to engage with, or even acknowledge, the civic burdens such inclusion imposes. The problem came not because Americans opposed immigration per se, but because they sensed that the system provided them no voice or standing to adjudicate the costs and benefits on offer.

Neoliberalism treated that sense as bigotry. But it was a signal of the breakdown of political legitimacy, which invited a backlash. And when elites failed to respond, that backlash found a champion to give it voice.

China

Neoliberalism treated China as a partner in market expansion. In doing so, it enabled the most structurally significant case of coordinated free-riding and systemic predation in modern history—actually helping to build up the greatest geopolitical threat America has faced in 200 years.

China used the access it was provided to Western markets to extract capital, technology, and political leverage—without accepting any of the liberalizing constraints the West naïvely assumed would accompany trade.

Neoliberalism’s failure to respond effectively was not a flaw in implementation—it was the logical outcome of a system that to this day cannot distinguish between open exchange and adversarial asymmetry. Strategic sectors were hollowed out. Institutions were compromised. Rules were manipulated. The neoliberal elite, committed to GDP growth and interdependence, still has no response.

The challenge China has become as a result is so significant that four essays in this series will be dedicated to understanding it, and finding the right strategy to successfully address it.

DEI

The DEI revolution did not emerge from within neoliberalism—it was a reaction to neoliberalism’s moral vacuum. But the institutions that adopted DEI frameworks were shaped by neoliberal logic: they had been stripped of moral content, rendered procedural, and trained to respond to crises through risk management rather than ethical clarity.

Into this institutional void stepped a movement that claimed to speak for the next frontier of justice—but often deployed that claim toward factional power and money. What began as a legitimate call to redress historical exclusion quickly evolved into a mechanism of symbolic redistribution and moral rent-seeking. Contracts, prestige, and institutional control flowed toward those best able to weaponize grievance. The unhappy individuals who fell afoul of the ever-changing dogma suffered public ridicule, the loss of their livelihoods, and perhaps the worst social punishment available—ostracism.

The core issue here was not just overreach. It was predation under moral cover. Institutions could not distinguish between genuine justice claims and those made in bad faith, because they had abandoned commitment to the moral frameworks by which such judgments might be made. In its effort to foster inclusion and diversity, neoliberalism had privatized virtue. It conflated the expansion of justice for the repressed with the evacuation of moral common ground. It treated morality as a matter of individual expression and legitimacy as a function of procedural compliance. It could not push back, because it had nothing to push back with.

And so DEI spread—not because it was universally embraced, but because the institutions it targeted had no defenses. What looked like moral reform was, in many cases, simply an unregulated transfer of institutional power to new elites who justified their ascent not through service, not even through accomplishment, but through grievance. In this way, the DEI revolution became a paradigmatic case of unchecked predation in the late neoliberal era, and an existential threat to many who concluded the only recourse was to take refuge with a protector who promised to eliminate the threat—and did.

The Wars on Terror

The wars in Iraq and Afghanistan have provided a narrow but deep current of distrust and delegitimation that has come increasingly to the fore as the young, frontline warfighters who fought in those wars are now assuming positions of leadership in the national security sphere. They have produced a dangerous reflex that is pulling America back from international commitments, at a time when international dangers are at all time highs.

Neoliberalism’s primary failure here was not going to war in a fit of white hot revenge. It was not the self delusion and shameful fabrication of casus belli. It was not the absurdly naïve expectation that functioning market democracies would spring forth once the thumb of autocracy was removed from tribal and sectarian societies. It was not because many good people died or were grievously wounded. It was not because we were unable to win these wars. The core failure was that neoliberalism was unwilling to win them.

Victory in war, however that is defined, requires more than resources. It requires clarity about ends, national unity in sacrifice, and institutional permission to meet ends with means. Neoliberalism provided none of these things. It allowed the wars to drag on in an endless annual cycle of modest objectives and even more modest results, a purposefully insulated home front, and a simple disrespect to a professional military that simultaneously had their hands tied and were asked to keep killing, and dying, for no clear reason.

A state that had once marshaled moral authority in the face of totalitarianism and successfully stood face to face with nuclear annihilation, now found itself mired in its own procedural and moral confusion in expensive but neglected wars—draining self trust and institutional legitimacy while neglecting the rapid rise of genuinely existential threats emerging in the heartlands of Eurasia.

Russia

Neoliberalism’s handling of Russia represents another paradigmatic blind spot. Its failure was not simply one of strategy, but of recognition. From the early 2000s onward, Russia under Putin increasingly signaled that it would not be integrated, liberalized, or constrained. But Western leaders continued to interpret its actions as irrational deviations, not intentional challenges.

When Russia invaded Georgia in 2008 and annexed Crimea in 2014, the prevailing response was disbelief. The liberal order, it was assumed, had transcended such behavior. Markets would discipline belligerence. Institutions would pacify ambition. War was obsolete.

But Putin’s Russia was not confused. It was coherent. It sought power, prestige, and the reconstitution of its lost empire. It used institutions instrumentally, and norms tactically. It free-rode on Western openness while aggressively asserting its own illiberal order. Neoliberalism had no framework to counter this because it had excluded adversarial logic from its understanding of the world. It assumed convergence when it faced revisionism. It answered aggression with summits and business deals.

And so deterrence collapsed—not because America lacked force, but because it lacked clarity. When war returned to Europe, it exposed not only the limits of NATO strategy, but the intellectual exhaustion of a paradigm that could not even name its enemies.

The Death of Neoliberalism

Policy paradigms like neoliberalism don’t fail only because they are unable to perceive and address the problems that confront them. There is an additional sociological factor at play.

Policy paradigms operate at the interface between ideology and interest. They embed a worldview and certain patterns of perception and thought within elite socialization, institutional incentives, and the standard operating procedures of government.

Thus, neoliberalism’s failure as a policy tool was compounded by its recursive failure as an institutionally embedded ideology, tied up in interest groups, powerful institutions, and the status and privilege of several generations of elites.

In order to recognize the accumulating catalogue of failures over which it was presiding, neoliberalism would have had not only to undermine its own logic, its own worldview, its own deeply held convictions about what works—it would have had to undermine its own privileges and fiercely protected status.

As Mancur Olson theorized in his work on institutional calcification, stable political systems tend toward the accumulation of entrenched interest groups. These groups figure out how to exploit the very predictability and supposed procedural neutrality of the system they oversee in order to advance their own narrow privileges at public expense. Neoliberalism, with its emphasis on technocracy and its suspicion of politics, was especially vulnerable to this process.

By the 2000s, much of the neoliberal elite had become effectively unaccountable. Many institutions appeared more extractive than generative. The public saw bailouts for bankers but foreclosures for homeowners. The revolving door between government and industry blurred incentives. Bureaucratic sprawl delivered neither efficiency nor justice. And the legitimacy of elite credentialing collapsed under the weight of policy failures.

Predictably but tragically, the usual neoliberal response has not been self-reflection and reform, but feverish bouts of motivated reasoning, doubling down on its flawed methodologies, and studied ignorance of the real world.

Beyond Neoliberalism—and Beyond Trump

Neoliberalism is not completely dead today, in the sense that many if not most of the individuals and institutions that defined it are still around and still doing their thing.

But for the purposes of planning our political future, neoliberalism is in fact already dead and buried.

As we’ve seen, into the vacuum it left stepped Donald Trump. His appeal, both real and symbolic, is centered on the domains that neoliberalism abandoned: identity, loyalty, borders, culture, tradition, power. He has given (the simulacrum) of voice to the invisible. He has broken the frame. He has rewritten the code—not with a new paradigm, but by crashing the old one.

Trumpism is not a foundation for renewal. It is a reaction, not a resolution. It is rhetorically potent but structurally incoherent. Populism channels energy, but it does not convert energy into form. Its mode is negation. Its method is disruption. Its machinery is grievance. While it exposes the failure of the old regime, it cannot build a new one.

Trump’s nationalism lacks strategy. His posture toward the managerial state is performative, not institutional. His economic instincts are mercurial. His cultural vision is reactive. His foreign policy sometimes sounds serious, but he lacks the courage to actually attempt to solve the immense challenges in this domain. The result is not renewal but noise—instability without realignment.

If we are to move beyond this impasse—beyond neoliberalism and beyond Trump—we must do more than reject what came before or what is here now. We must reconceive the field of problems entirely and come up with solutions and plan a future that will actually work. And that means stepping back—not just to examine the failures of recent decades, but to review again the deep intellectual and civilizational structure within which those failures occurred.

In the next essay of this series, I will place a proper accounting of America’s current threats and challenges in light of this deeper problematic, which I call the problematic of modernity. Only by returning to first principles—and by confronting the enduring structure of modernity itself—can we hope to chart a strategy equal to the demands of our time.

1. Peter Hall used the term “policy paradigm” which I adopt here. It is notable that other scholars including Thomas Kuhn (who also used “paradigm”) and Michel Foucault (who used “épisteme”) have also identified a structure of punctuated equilibrium on a certain stratum of human intellectual affairs.