Neoliberal Economics and the New Economics: A Critical Review of Theory, Evidence, and Hanauer's Five Rules of Thumb

1 Eastern Michigan University GameAbove College of Engineering & Technology EM520 Engineering Value and Economic Analysis Title: Neoliberal Economics and the New Economics: A Critical Review of Theory, Evidence, and Hanauer’s Five Rules of Thumb Author: Unais Ali 2 Contents Executive Summary ...................................................................................................................... 3 1. Introduction ........................................................................................................................... 4 2. Literature Review ................................................................................................................. 5 2.1. Defining and Describing Neoliberal Economics ......................................................... 5 2.2. Positive Side of Neoliberal Economics ........................................................................ 6 2.3. Negative Side of Neoliberal Economics ....................................................................... 7 3. New Economics and Hanauer’s Framework ...................................................................... 9 3.1. New Economics as a Response to Neoliberalism ...................................................... 10 3.1.1. Core Features of Neoliberalism and New Economics ...................................... 12 3.2. Rule 1: Economies are Gardens not Jungles ............................................................ 13 3.3. Rule 2: Inclusion is the Cause of Growth ................................................................. 14 3.4. Rule 3: The Purpose of the Corporation is Stakeholder Prosperity ...................... 16 3.5. Rule 4: Cooperation Beats Sociopathic Self-interest ............................................... 17 3.6. Rule 5: Economic Laws are Human Choices ........................................................... 18 4. Implications for Engineering Economic Decision Making .............................................. 20 5. Conclusion ........................................................................................................................... 21 References .................................................................................................................................... 22 3 Executive Summary This paper contrasts neoliberal economics with Nick Hanauer’s “new economics” and explores implications for engineering decision making. Neoliberalism is defined as a policy and ideological project centered on liberalization, deregulation, privatization, and fiscal austerity, justified by the claim that self-regulating markets and shareholder value maximization produce efficient outcomes. Recent empirical research shows that, although neoliberal reforms sometimes stabilize inflation and expand certain markets, they systematically raise inequality, worsen health and social outcomes, and strain democratic accountability. New economics instead treats the economy as a designed system whose rules can be rewritten to support inclusive prosperity. Hanauer’s five rules of thumb summarize this shift: economies are “gardens” that must be tended; inclusion is a driver, not a cost, of growth; corporations should serve all stakeholders; cooperation and trust outperform glorified selfinterest; and economic “laws” are human choices that can be changed when they harm society. By linking these rules to contemporary evidence on inequality, health, poverty risk, and institutional design, the paper argues that engineering economics should move beyond narrow efficiency metrics toward evaluation criteria that incorporate distributional impacts, externalities, stakeholder welfare, and long-term resilience. 4 1. Introduction Neoliberal economics has become the dominant framework for economic policy and institutional design in many countries since the 1980s, emphasizing market liberalization, privatization, and a reduced role for the state as the primary means to achieve efficiency and growth. This paradigm has strongly influenced engineering economic decision making by placing market prices, private profitability, and narrow cost benefit analyses at the center of project evaluation. Mounting empirical evidence, however, links neoliberal policies to growing inequality, social vulnerability, and democratic stress, which has led scholars and practitioners to call for economics after neoliberalism and for new institutional arrangements that explicitly target inclusive prosperity. Nick Hanauer’s new economics and his five rules of thumb offer an accessible but conceptually robust way to rethink how economies are designed, emphasizing inclusion, cooperation, and conscious rulemaking as alternatives to laissez faire. This paper defines and describes neoliberal economics surveys, and positive and negative outcomes using recent research, and then explains Hanauer’s new economics and five rules. 5 2. Literature Review The literature review situates this paper within contemporary debates on neoliberalism and emerging alternatives. It synthesizes theoretical and empirical work that defines neoliberal economics, traces its evolution as a policy and ideological project, and evaluates its economic and social consequences. By organizing prior research into the definition of neoliberalism, its positive contributions, and its documented harms, this section establishes the analytical foundation for assessing Nick Hanauer’s new economics and his five rules of thumb in the subsequent parts of the paper. 2.1. Defining and Describing Neoliberal Economics Neoliberalism can be understood as a cluster of reform policies, a developmental model, an ideology, and a set of economic theories that together extend market logic across society. Rutar describes neoliberal reform policies as those that liberalize trade, deregulate markets, privatize state enterprises, stabilize macroeconomic conditions through austerity, and reduce subsidies and progressive taxation. As a developmental model, neoliberalism promotes a package of these reforms to remake economies around competition and private entrepreneurship, often under the guidance of international financial institutions. As an ideology, neoliberalism valorizes individual responsibility, market competition, and private property, while viewing state intervention and collective provision with suspicion. The Stanford Encyclopedia of Philosophy emphasizes that neoliberalism goes beyond classical 6 liberalism by actively promoting marketization of domains such as education, health care, and social insurance. Neoliberal economic theories, associated with the Chicago School and related traditions, treat agents as rational utility maximizers and markets as largely self-correcting mechanisms, so that prices convey all relevant information for efficient allocation. Venugopal, in a widely cited conceptual analysis, argues that neoliberalism is best seen as a mobile concept whose specific content varies across contexts, but whose core remains the primacy of competition, financialization, and the restructuring of state market boundaries in favor of capital. Structural adjustment programs in Latin America, Africa, and parts of Asia, as well as Reagan and Thatcher reforms in the United States and United Kingdom, exemplify how this paradigm was implemented through deregulation, privatization, and welfare retrenchment. 2.2. Positive Side of Neoliberal Economics Supporters of neoliberal economics credit it with promoting allocative and dynamic efficiency, controlling inflation, and integrating economies into global markets. Trade and capital account liberalization are claimed to expand consumer choice, increase competition, and allow countries to specialize according to comparative advantage, thereby raising productivity and incomes in the long run. Rutar’s review notes that neoliberal reforms sometimes succeeded in stabilizing macroeconomic conditions, reducing hyperinflation, and attracting foreign direct investment, 7 especially in countries with previously closed and heavily distorted economies. Some sector specific studies show that deregulation in industries such as telecommunications and airlines lowered prices and expanded access, illustrating how competition can benefit consumers under certain institutional settings. From an engineering standpoint, this macroeconomic environment of lower inflation, greater openness, and more predictable rules can favor large infrastructure and technology projects by reducing financial uncertainty and enabling cross border supply chains and investment partnerships. Yet these advantages must be weighed against the distributional and social costs documented by critics. 2.3. Negative Side of Neoliberal Economics A large body of research links neoliberal policies to widening inequality, social precarity, and adverse health and political outcomes. Rutar’s global analysis concludes that, while the growth effects of neoliberalism are mixed and context dependent, its tendency to increase income and wealth inequality is robust across many cases. The Roosevelt Institute’s synthesis of United States data similarly finds that neoliberal tax cuts, deregulation, and deunionization have produced slower growth than promised and significantly higher inequality and lower labor mobility. 8 Card and colleagues examine how internalized neoliberal beliefs about personal wherewithal, natural competition, and government interference affect health and social wellbeing during the COVID 19 pandemic, finding that these beliefs are associated with poorer collective outcomes even when they sometimes boost individual self-efficacy. Hall’s analysis of neoliberalism, inequality, and violence argues that high inequality, produced in part by neoliberal policies, correlates with higher rates of crime and social conflict, indicating deeper social damage beyond income gaps. A Lancet commentary on neoliberal economics, planetary health, and COVID 19 adds that neoliberal capitalism has intensified socio ecological crises by promoting extractive growth models and weakening public health and environmental regulation. Giorgio’s study of economic freedom and poverty risk in European Union countries shows that certain components of economic liberalization, especially labor market deregulation, correlate with higher shares of people at risk of poverty, even when aggregate freedom indices improve. Work on economic inequality and the right to health argues that neoliberal corporatization and privatization undermine equitable access to care, especially in low and middle income settings. Together, these findings suggest that neoliberalism’s costs are substantial and extend beyond simple distributional concerns to questions of human rights and social stability. Figure 1 presents stylized Gini coefficients for the United States and the United Kingdom in a more regulated period and a subsequent neoliberal period, based on the inequality patterns reported in cross national studies and policy syntheses. It is an illustrative figure constructed for 9 this paper rather than a direct reproduction of a single empirical dataset and is intended to visualize the widely documented tendency for income inequality to rise following the adoption of neoliberal policy packages in both Anglo-American economies and other reforming countries. Figure 1. Stylized Gini coefficients for the United States and the United Kingdom before and after neoliberal reforms. 3. New Economics and Hanauer’s Framework This section reviews the emerging literature on post neoliberal and inclusive prosperity approaches and introduces Nick Hanauer’s new economics as a concrete reformulation of economic principles. It explains how new economics responds to the shortcomings of 16 3.4. Rule 3: The Purpose of the Corporation is Stakeholder Prosperity Hanauer’s third rule redefines corporate purpose companies exist to enhance the welfare of all stakeholders including workers, customers, communities, and shareholders, rather than maximizing shareholder value alone. Neoliberal corporate governance, by contrast, has prioritized stock prices and short-term returns, contributing to wage stagnation, regional decline, and underinvestment in long term capabilities. The Roosevelt Institute documents how financialization, stock buybacks, and weak labor bargaining power under neoliberalism have shifted income from wages to profits and concentrated power in large corporations. Public health work on economic inequality and the right to health argues that corporate concentration and profit driven health care models exacerbate disparities and undermine universal access, pressing for stronger regulatory oversight and public provisioning. Hall similarly connects corporate driven inequality to social violence and instability. Research on stakeholder capitalism and ESG practices suggests that firms that prioritize worker pay, safety, environmental standards, and community relationships often perform as well as or better than purely shareholder-oriented firms, especially in innovation driven sectors. In engineering economics, adopting stakeholder purpose would mean evaluating projects using multi criteria frameworks that weight worker safety, community resilience, and environmental integrity alongside financial returns. 17 3.5. Rule 4: Cooperation Beats Sociopathic Self-interest The fourth rule emphasizes that economies thrive on cooperation, reciprocity, and trust, not on sociopathic self-interest. Hanauer criticizes neoliberal culture for glorifying ruthless competition and greed, which undermines the institutions such as unions, professional bodies, public education, and welfare systems that enable people to collaborate productively and manage shared risks. Behavioral economics shows that individuals routinely sacrifice short term material gain to reward fair behavior and punish cheating, and that societies with higher generalized trust exhibit better governance and economic performance. Ferreira et al find that neoliberal beliefs correlate with reduced empathy for the poor and greater indifference to inequality, indicating how a competitive individualist mindset can erode solidaristic norms. Card et al show that neoliberal beliefs are associated with worse social well-being, underscoring how hyper individualism and hostility to government action can damage social capital. Pandemic era analyses in The Lancet argue that neoliberalism has turned global health into a crisis of power, where elites protect their interests while collective needs are subordinated, thereby compromising cooperation at both domestic and international levels. For engineering practice, Rule 4 suggests designing organizational structures, contracts, and standards that foster trust and shared responsibility, for example collaborative procurement models, transparent data sharing, and joint risk management, rather than purely adversarial, winner take all arrangements. 18 3.6. Rule 5: Economic Laws are Human Choices The fifth rule states that economic laws are not immutable facts, but human made rules, norms, and narratives that can be rewritten. Hanauer argues that tax regimes, minimum wages, competition rules, intellectual property frameworks, and social protections are moral and political choices; if they produce unacceptable inequality, insecurity, or ecological harm, societies are free to change them. Laruffa’s work on post neoliberalism reinforces this point by portraying neoliberalism as an intentional project that restructures social relations through law and policy, not as an inevitable outcome of modernization. The Economics for Inclusive Prosperity initiative explicitly calls for using economic analysis to design new institutions that address market power, externalities, and inequality, rather than to defend existing arrangements. Crises like COVID 19 demonstrate how quickly rules can change when political will emerges. Saad Filho notes that governments suddenly embraced expansive fiscal and industrial policies once markets proved unable to handle the emergency, undermining the idea that there is no alternative to small states and deregulation. Commentary in The Lancet similarly describes the pandemic as a buffer moment in which neoliberal certainties were suspended, revealing that earlier policy constraints were political rather than natural. For engineering economics, this rule implies that discount rates, cost benefit criteria, and regulatory standards are contestable; revising them can better align project evaluation with intergenerational equity, climate stability, and social justice. 19 Table 2 summarizes how Hanauer’s five rules of thumb correspond to major empirical themes identified in recent research on neoliberalism and its consequences. It does not introduce new data; rather, it organizes findings from multiple studies into a concise mapping between each rule and the evidence that motivates it, including work on inequality and growth, health impacts of neoliberal beliefs, the role of corporate governance, and the design of post neoliberal institutions. This structure helps show that the rules are not merely normative slogans but are grounded in a broad interdisciplinary literature on economic performance, social outcomes, and institutional reform. Table 2. Empirical themes under each rule Rule Main empirical theme Example sources Rule 1 Gardens not jungles Deregulation and austerity increase fragility and inequality; active states are crucial in crises and development. Rutar 2023, Saad Filho 2020, Lancet 2020 Rule 2 Inclusion causes growth Higher inequality is associated with weaker and less stable growth and worse health and well-being. Roosevelt Institute, Rutar, Card et al, Giorgio, Horton and Lo Rule 3 Stakeholder purpose of corporations Shareholder primacy fuels inequality and underinvestment; stakeholder and ESG practices Roosevelt Institute, health rights literature 20 can coexist with strong performance. Rule 4 Cooperation over sociopathic self interest Neoliberal beliefs reduce empathy and social capital, harming collective outcomes. Ferreira et al, Card et al, Lancet editorials Rule 5 Economic laws as choices Neoliberalism is a political project; institutions can be redesigned for inclusive prosperity. Laruffa, EfIP, Saad Filho 4. Implications for Engineering Economic Decision Making Engineering economic analysis typically assumes market prices, discount factors, and private profitability as central benchmarks, mirroring neoliberal assumptions about efficiency and value. The research discussed here and Hanauer’s new economics suggest moving toward frameworks that explicitly incorporate distributional effects, externalities, and institutional design choices. Applying Rule 2 might lead engineers to prioritize projects that expand access to essential services such as clean water, energy, transport, and digital connectivity for disadvantaged communities, recognizing such investments as inclusive growth engines. Rule 3 supports 21 stakeholder-based evaluation criteria that weigh worker safety, community resilience, and environmental integrity alongside financial metrics. Rules 1, 4, and 5 encourage designing institutions including codes, contracts, and standards that promote cooperation, long term planning, and transparent rule making, acknowledging that technical decisions are embedded in broader moral and political choices. 5. Conclusion Neoliberal economics has profoundly shaped policy and engineering decision making by elevating market liberalization, privatization, and shareholder primacy as guiding principles. Recent research shows that neoliberal reforms often increase inequality, undermine health and social cohesion, and strain democratic institutions, while their growth benefits are ambiguous and unevenly distributed. Hanauer’s new economics and five rules of thumb, treating economies as gardens, recognizing inclusion as a driver of growth, redefining corporate purpose, prioritizing cooperation, and viewing economic laws as choices, offer a coherent, empirically supported alternative vision. For engineering economics, adopting this framework means broadening evaluation criteria beyond narrow efficiency toward inclusive, cooperative, and democratically chosen outcomes that better serve both present and future generations. 22 References 1. Card, K. G., Hepburn, K. 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