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Neoliberalism is not a school of economic thought. It's not an actual ideology that anyone associates themselves with. It's a word without any concrete meaning thrown around in order to avoid real discussion.
The free market is not failing. Current markets that are failing are hardly "free." What is failing is a system of government regulation and control that supports wall street and the rich at the expense of the middle class.
The governments and their federal banks created every single problem called out in the article. To turn around, blame free-markets, and propose more government as the solution is disgustingly disingenuous.
The IMF itself is not a proponent of the free market. It exists precisely to support excess government spending and to bail rich bondholders who make donations to politicians. Nothing lassiez faire about that.
The laissez faire solution to an overspending government would be bondholders losing money, currency depreciating, and poor leaders being held accountable - to which the IMF is diametrically opposed.
Of course it is an explicit ideology that many associate themselves with (though not by name, since it's become something of a slur because it's so obviously religious about the "free market" and hated because of this). It's explained clearly in TFA.
Of course, the classic rabid libertarian answer -- any time any economic failure happens, blame regulations. When we free the markets, and the markets fail to provide anything we want (income equality, fairness, a middle class, a healthy society) -- the obvious conclusion? The markets aren't free enough. Deregulate, so the wealthy can make a killing abusing the poor more than they already do.
Noam Chomsky, that rabid right-wing libertarian:
What’s called the capitalist system is very far from any model of capitalism or market. Take the fossil fuels industries: there was a recent study by the IMF which tried to estimate the subsidy that energy corporations get from governments. The total was colossal. I think it was around $5 trillion annually. That’s got nothing to do with markets and capitalism.
https://www.jacobinmag.com/2015/09/noam-chomsky-bernie-sande...
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The problem is that capitalists use the language of free markets, but are not actually proponents of its wide application, just where it benefits them. Or to put it more pithily: capitalists don't like capitalism. So you get localized deregulations and strong regulations (example [1]) where it benefits them. But we should distinguish the cases.
[1] http://www.wsj.com/articles/trade-groups-for-chemical-firms-...
I hate how "regulations" and "deregulation" has been reduced to a word that you are either "for" or "against" based on your political affiliation. As if regulations are all either entirely good, or entirely bad. I mean c'mon, do you really believe there has never been a bad regulation?
Free markets tend to produce the most wealth. Some regulations are necessary to prevent market failures like monopolies, information asymmetry, etc. But otherwise they are just getting in the way and causing more damage than good.
Regulations are not going to create a middle class or create economic equality. They can only prevent certain abuses from happening, but you can't regulate "equality".
The reality is some portion of the population doesn't have very much economic value. It's crazy and inefficient to try to artificially increase their value by protecting their jobs from competition. Instead we should tax the wealth that capitalism creates, and redistribute it more fairly.
Ahhhh yes, the wonderful false dichotomy of "accept the ruling class' protectionist regulations" or "no regulations whatsoever"
Didn't expect to see that come up on a thread about neoliberalism...
A truly free market has a price for contract killings--including, for instance, the current CEO of Bank of America, or the current chairman of the Fed, or someone like Bernie Madoff.
If the wealthy make a figurative "killing" abusing the poor, the poor turn around and make a literal killing. An unethical executive would have to hole up in a fortified compound and surround it with hired guns, just like a Mexican drug lord. That places limits on how much money you can make from antisocial behavior, simply because people stop voluntarily doing business with you.
All big business ends up being a variant of the Mafia, but there has to be some honor among thieves, otherwise gang wars break out and ruin the regular revenue streams for everyone.
Few people would actually be comfortable with a completely free market.
You're blaming government regulations! That's absurd given many people at this point have said that the deregulation of the 90's on the financial sector is what lead to much of our housing financial crisis, not to mention the widening pay gap.
Your comment might actually be a good representation of how Neoliberal ideas of deregulation will continue to flourish despite them hampering to middle and lower classes. People will just say it's different sorts of regulations causing the problem, going even further down that path...
EDIT:
What's scary to consider is the era of strong wage increases and financial regulation from the 50's to 80's only started by a cataclysmic event, the Great Depression. Given how many large corporations and well off people benefit from the current system it's hard to imagine how we will see real increase in financial regulation similar to the Glass–Steagall Legislation until something of similar magnitude happens.
Given climate change is only going to get worse, I guess a pretty big catastrophe coming our way and causing similar change soon-ish isn't that far fetched.
> You're blaming government regulations! That's absurd given many people at this point have said that
1) That's not actually what he said. He said that the regulatory apparatus is currently working to assist rent-seeking and pushing wealth to the "1%". Regulation has been used to protect the wealth of the wealthy from the consequences of a free market, at everyone else's expense.
2) Argument from consensus isn't actually a valid argument. Most of the people in your consensus have been journalists, not economists. (economists are mostly trying to get people to understand that the causes are way more complex than the journalists want to believe)
What's scary to consider is the era of strong wage increases and financial regulation from the 50's to 80's only started by a cataclysmic event, the Great Depression
The wealth of that period had a lot to do with the British mortgaging their global empire to the US in order to pay off their war debt from WWI and for the US bailing them out again in WWII. In exchange, the US received approximate hegemony over "the free world" and the disguised blessing of a scary enemy to unite their side.
Given climate change is only going to get worse, I guess a pretty big catastrophe coming our way and causing similar change soon-ish isn't that far fetched.
Most human conflict is based on resource scarcity, fear of future resource scarcity, and/or fear of what others will do when faced with resource scarcity. This certainly applied to WWII. Even ideological/sectarian conflicts have fear of resource scarcity underpinning them.
I have encountered a few people who do argue that government regulation caused the economic crisis. It seems to be the dominant understanding in the conservative media in the United States, possibly elsewhere. The reasoning goes something like this: people in government wanted to redistribute wealth by building up impoverished minority communities, so they incentivized otherwise responsible banks to lend money to people who would not have qualified for loans and punished banks that did not meet certain minority quotas.
Banks responded to this pressure in the only way they could by giving out loans to minorities who then defaulted. Banks couldn't change the government initiatives, so they bundled bad loans with good to try to control the damage and save the economy, but too many minorities were irresponsible. The government then made the problem worse by adding even more regulation on banks, slowing the economic recovery and extending the recession.
I don't personally subscribe to this, but it does seem to have a lot of weight with a certain crowd. It's also used as an example of how minorities and government are the source of other problems in the country, so the only way we can solve the problem is through deregulation, giving more freedom to the financial industry, and ending any sort of affirmative action.
What is bad about climate change? There might be more land with warm and mild climates. What is inherently bad about this? There were much bigger climate changes in the past, such as snowball earth era, when the entire earth was covered with ice and snow.
To me there is an inherent contradiction in the concept of a 'free market'. They work very poorly unless there is protection of a number of market attributes.
One fundamental attribute is the protection of property rights - otherwise that market would be chaos and whoever could muster the most force could automatically take everyone else's property and destroy the 'free market.'
But the very act of 'protecting property rights' isn't as simple as just the enforcement of who owns what physical thing. There are fuzzy lines all over the place e.g. if I buy a beautiful plot of land to live on, and a neighbour sells their land for use as a garbage dump - how is that resolved?
So when someone criticizes that its not the 'free market' that failing, I think that's partially right and partially wrong. What often fails is our many rules (i.e. regulation) to try and build this abstraction of a 'free market', but when someone says the free market isn't failing because it can't because of gov't regulation - well .. this is wrong too, because without some form of framework of regulation (formal or informal) I don't believe you'd find any stable large scale free markets.
The other issue here is when people say 'free markets', I think they unconsciously mean efficient free markets. And then there are a number of other attributes that really need to be there in the abstraction for it to work (e.g. reasonable information equity between sellers/buyers).
> Neoliberalism is not a school of economic thought. It's not an actual ideology that anyone associates themselves with. It's a word without any concrete meaning thrown around in order to avoid real discussion.
Then why do IMF economists refer to it as a real thing that the IMF actually practiced?
>The IMF itself is not a proponent of the free market. It exists precisely to support excess government spending and to bail rich bondholders who make donations to politicians. Nothing lassiez faire about that.
Then why is the IMF's usual advice to almost all countries to cut "excess" government spending on social programs while privatizing the kinds of revenue-making national resources/firms that keep the government from having to tax too much?
Exactly. This is merely more gamesmanship for the long con.
What do you do when vocal critics of your policies seem to be gaining steam? Agree with them! Use their ill defined terminology to label the failures not intrinsic to your plans as the "bad" things, say you won't do them anymore, and double down on your true ideology.
The real tell here is there is no mention of the economic colonialism of Africa and Asia. No mention of Iraq, Libya, Yemen, ISIS, etc. etc.
As an aside, I think a lot of commenters on this thread don't seem to realize you can be a proponent of government regulation and still criticize the crappy (some would say purposefully crappy) job that's being done in their name.
Markets don't exist without States. You cannot have a market without a State, and therefore you cannot have a "free market". They don't exists. The idea that there is or can be a free market is one of the great myths of our civilization (along with the idea that humans started out with barter based economies. We didn't. The earliest economies in human history were based around credit).
I highly recommend the book Debt: The First 5000 Years. It's pretty life changing.
Markets don't exist without states?
Do you not believe that markets existed 1000, 2000, 5000 years ago, in areas that were tribal or feudal or in anarchy?
Do you not believe that markets exist in Somalia and other conflict zones today, where there is no functioning government?
Markets exist any time there are two or more people with goods that they could and would trade.
To be fair, it is the IMF - their inherent mission is to lend, it's even in their name.
You seem confused. neoliberalism is a term used to critique what certain people told us they were doing. The term is Very Necessary to understand the United States right now. But don't take my word for it!
Ah! You see, you have entered into a disagreement amongst them!
Plenty of neoliberals, aka folks who think competition is the best and that competition brings out the best in everything, still believe that you still have to first organize markets and make sure they are competitive, i.e. It is not the natural state of things in each and every realm of life.
And removing the government would give the rich 100% control. So what would be a solution?
Thank you for this clarification.
Hand-wavy editorials about economic busts always come across half-baked and incoherent when they blame the "free market."
Inequality remains a massive red herring. Instead we should be concerned about the absolute standard of living and the level of corporate-government corruption.
We're seeing more and more of these types of articles coming up, but they're all talking about different aspects of the same issue: inability to share growth with wide swaths of the population. In the west, our quality of life has never been higher and products/services have never been cheaper. This has been caused in large part by automation, lean manufacturing, globalization, etc. and each one of these is net positive for society. The problem seems to be that it's become difficult to share these gains with labour in the classical sense; and our society, taxation system, social contract are all based around this meaning of labour.
When I see articles about: - Austerity, - Wage growth, - Universal basic income, - Death of middle class, - Rise of right-wing parties, - Anti-free trade lobbying, - Donald Trump and Bernie Sanders; I read all of them with same lens. I know my knowledge of economics is medium at best, but I'm starting to look twice at ideas such as UBI. Maybe there needs to be a rethink of the Western social contract around labour.
The biggest problem, when I look at the American labor market, is that it seems physically unjust.
The sweat of a person's brow and the wear and tear on their body should have some intrinsic value above and beyond what the market will bear.
That someone working as a farm hand, mover, framer, or roofer gets paid a pittance compared to what I earn for sitting in a climate controlled office, moving my fingers, and thinking? I can't reconcile that with any definition of "fair."
UBI is perhaps one way to address this. Wealth transfer to increase robotics usage and physical mechanization / automation application is perhaps another.
But no one should end up with a broken body at 65 just because we stopped aspiring to do better by each other.
Economies are based around scarcity. In the fictional economies of Sci-Fi like Star Trek, there is no scarcity. If you can replicate a Rembrandt, atom by atom, it essentially loses its value.
Today is all about me creating something, convincing you that you need it, and getting enough "yous" to contribute that I make enough to produce said thing. When you really start to break it down, money is like the Ghz speed of a processor or the Calorie measure used to measure energy in food. It's a poor measure of worth. We see people with millions of money, just because they convinced some poor smoo their life wouldn't be complete without this shitty knife.
If you believe in Glenn Renolds version of reality (Army of Davids), technology is what will level the scale. But he wrote that a decade ago and it hasn't really held true. There are Kickstarters and crowd-funding, but it's all still based around the same failing model.
We need some pretty big technological breakthroughs: truly mastering the atom. Right now we can only blow shit up (and by we I mean the ones with the money, resources and power to build atomic bombs) or generate power by breaking apart that atom to boil and pressurize water.
Humanity needs to solve the energy problem: both producing large amounts of power in non-polluting ways and storing power more efficiently.
Humanity needs to truly master the atom: to be able to manipulate atoms with a reasonable amount of energy to easily synthesize things (3D and chemical printers on steroids)
Humanity needs to move beyond money. Once you eliminate scarcity, money will essentially become worthless; an archaic idea.
This might all seem crazy and well beyond even the realm of what's possible. But I really feel like if it's not, humanity may only have another 3,000 ~ 5,000 years left. It's pretty much the simulation theory argument: we either continue to evolve and develop to the point where we could partially simulate enough of our world that the simulations would be self away (feel real) ... or we go extinct... Even if we go back and fourth between the stone age due to war/conflict ... eventually one of those two outcomes is inevitable.
I really feel if humanity is here 5,000 from now, money will be an ancient concept that people will have difficult comprehending.
Forget about the content of the articles and instead look at the themes.
The current system is fundamentally broken and levers that governments have to "fix" things aren't working as they (claim to) want.
Everyone is looking for someone to blame instead of debugging what's there and seeing if there is a way to change things before they go (more) catastrophic.
The article seems a bit vague as to what it means by neoliberalism. It seems to mean the belief that unregulated free markets won't go wrong which I'm not sure anyone really had. Some bits seem to work OK like letting people trade goods and services and some lead to problems like German banks lending to property speculators in Greece and then wanting to be bailed out when the whole thing tanks. The latter was more straight dumb than anything else, at least with hindsight. I'm not sure there's anyone saying I'm a neoliberal and funding the Greek bubble was a good idea. It's a bit of a strawman.
Related to this, I've separately submitted the actual IMF paper [0] referenced (but not linked, the link goes to a Financial Times story about the report) in the article, which has more depth than the somewhat broader-but-fuzzier Guardian article.
http://stumblingandmumbling.typepad.com/stumbling_and_mumbli... points out that "neoliberalism" isn't a thing, ie. not a coherent philosophy. It's just a name for ad hoc greed by many diverse individuals.
well argued opposing view: http://www.perc.org.uk/project_posts/the-difficulty-of-neoli...
"The reason ‘neoliberalism’ appears to defy easy definition (especially to those with an orthodox training in economics or policy science) is that it refers to a necessarily interdisciplinary, colonising process. It is not about the use of markets or competition to solve narrowly economic problems, but about extending them to address fundamental problems of modernity – a sociological concept if ever there was one. For the same reasons, it remains endlessly incomplete, pushing the boundaries of economic rationality into more and more new territories."
Somewhat tangentially, I wonder if the kind of misrepresentation* present in this article is going to get better or worse in the future.
The fact that, in a lot of cases, it's trivial to go read the source [0] makes me feel that it should dwindle. However, it seems that, with the substantial increase in content available, having more strident views is required to be heard.
* by misrepresentation I mean that the article was by no means a denial of "neo-liberalism". It was generally very positive about free market economics but looked at 2 niche areas and concluded that 1) short term capital controls may sometimes be worth doing and 2) deficit reduction isn't that valuable in very prosperous countries but is in weaker economies. Not quite what Mr Chakrabortty said it said.
[0] http://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm
I am glad the author cites Red Plenty. That is a really excellent book that I think a lot of HN readers would like. It really takes you into frame of mind since lost, with poignance and good characters.
It is important to note we live in an age of diminished expectations not just for what capitalism can do but for what government can do, too. Thus, I'm not sure if the fact neoliberalism is disappointing actually means we need a new system.
Do we need bigger government, than the current trend, in the US? The government is projected to grow quite a lot as is. We spend more and more money on education and health care every year, with disappointing results. Look at the Medicaid experiment in Oregon: Finkelstein et al (2015) find very little positive health impacts. Obamacare has cut the number of uninsured, but I would guess its impact on actual health will turn out to be very mild. Access to health care and spending on health care are not very much correlated with health outcomes, as the more costly health care is based on deliberate obfuscation or sloppy statistics or promises meager gains (e.g., slightly shrinking a tumor) in the first place. Neither charter schools, on average, nor public school reforms seem to have helped close the opportunity gap much. The Iraq/Afghanistan wars cost like $2 trillion. Many of the largest public pension plans around the US do not have enough assets to make ends meet, even counting on delusional 7 percent returns! Prisons exploded, and nobody seems happy with that. That land-use regulation has become baroque and suffocating shakedown is something I don't think I need to convince anyone in the Bay of. The best cars are made in non-union shops (e.g., tesla and all the new southern factories).
It is interesting that things generally are moving slowly on all fronts, but I don't think that's necessarily a reason to change course. If you are stuck in a slow left lane of traffic, it doesn't necessarily mean you should get in the right lane.
The big question then is what replaces laissez faire economics and how? How do we take the best of the free market while ensuring that governments and public sectors are also robust? I feel like software and technology must have a huge role here, but don't know enough to be able to point out specific solutions.
I think free markets are fine.
We just need a huge revaluation of capital. Downwards.
It's important to remember that "free market" does NOT mean "no regulation". A market inherently requires regulations (i.e. contracts, trademarks, currency policy, etc). Even Adam Smith knew this. [0]http://economistsview.typepad.com/economistsview/2010/03/ada...
I think the argument is that what we had before this wave if Neoliberalism, pre 1908s with Keynesian economics is part of the answer.
More regulations on the financial sector, stronger unions, etc. Maybe even a bit more protectionism.
We have to actually have laissez faire economics before we can replace it with something.
Reminds me of this: http://m.youtube.com/watch?v=qOP2V_np2c0
I personally believe it is all the automation and outsourcing that is changing the fundamentals and causing a drop in the demand for human labor - thus undermining our trusty wage-based mechanisms to get money to the masses, who then spend it back on necessities. The drop in demand means less investment and lending. So the money supply shrinks.
The "Great Depression" was coined as a term by Hoover because it sounded calmer than the term commonly used at the time: FINANCIAL PANIC.
A lot of it was caused by automation leading to overproduction by farmers while simultaneously laying off their workers. It took years to build up a manufacturing economy, and it helped that after WW2 the USA had no competitors. So we became #1.
The author correlates low growth with high inequality, that is, the money is being held at the top and if only it were redistributed to the middle, the growth floodgates would open.
But look where else the growth is: emerging markets in the developing countries. So, the rich are not taking from the middle class, the middle class is losing its value to the developing countries. As low-friction information gets to developing countries, they are able to supplant the western middle class in the manufacturing and service sectors. This problem will be exacerbated as western businesses continue to automate.
The solution here is not protectionism or the stricter regulation of markets, but is for the western middle class to adapt to the changing paradigm. How to do that is the essential policy question.
> Two British examples [of neoliberalism], suggests Will Davies – author of the Limits of Neoliberalism – would be the NHS and universities “where classrooms are being transformed into supermarkets”.
Without taking a bit of Davies' argument into the article, that seems to badly undercut the argument. I'm not sure I can imagine a segment of society less neoliberal than either of them. (particularly by comparison to other western democracies)
I think the reference to neoliberalism is in the motivation and direction for policy changes in those institutions in recent years, rather than the institutions themselves being neoliberal.
Well that's the point: neoliberalism is when you start trying to push market-capitalist dynamics into domains people view, both traditionally and normatively, as not appropriate for those dynamics.
For instance, if you agree with the statement, "Students are not customers and should not be able to dictate to professors", you are saying something that is actually directly opposed to neoliberalism. You are saying that society needs to use material resources to create a space of non-market relations, and needs to withdraw resources from existing efforts to transform that space in the image of consumer markets.
Exactly, there's nothing free-market about government run Health Care or Schools.
This is another case of people using words they don't understand.
the thing about capitalism is that capitalism has no ideology, only the profit motive (nothing wrong with that)
if tomorrow the capitalists of the world were to figure out that communism is more profitable and efficient for conducting business, they would change their ideology accordingly.
capitalism can't die because capitalism is innate to human beings; it is infinitely adaptable and flexible
> the thing about capitalism is that capitalism has no ideology
I beg to differ.
What is capitalism? http://www.amazon.com/Capitalism-Ideal-Ayn-Rand/dp/045114795...
What is its ethical base? http://www.amazon.com/Virtue-Selfishness-Centennial-Ayn-Rand...
You may disagree but no one can say it has not been said.
Profit motive above all else is literally the prototypical example of an ideology, just not one that most people would publicly espouse.
We are witnessing the death of the hypervisor (global banking), not the virtual machine (nation-state agreements) or the underlying operating system (cultural norms) or the underlying hardware. (nature)
Communists have been saying neoliberalism(nonsense term, which serves as an insult)/capitalism is going to fall, but it ain't happening. It's stronger than ever. They're like Christians expecting rapture.
Are you serious? Capitalism has been failing most of this planet! You just don't think it's failing because you live in a mid-to-high income nation. One day those nations will run out of others to have war with and steal from. The earth has a lot of resources, but it's finite. This will all end one day.