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Neoliberalism defined

September 27th, 2008

I’ve been arguing since the dotcom boom and bust that the poor performance of (particularly US) financial markets provides strong evidence against the claim that neoliberalism provides a coherent and effective alternative to social democracy. One objection that’s been made to this argument is that “neoliberalism” is a poorly-defined pejorative. It’s true all political terms are elastic and it’s hard to find any that are used, with more or less the same meaning, by both friends and foes. The only one I can think of is “social-democratic”, though you could perhaps make a case for “liberal” in the US sense. Words like “conservative”, “democratic” and “socialist” have become just about meaningless.

By contrast, I think “neoliberalism” is a comparatively well-defined term. It’s mostly, though not exclusively used in a pejorative sense, so perhaps something like “free-market liberalism” would be better. This post from 2002 gives my definition and some reasons why I thought then that neoliberalism was a failure. I don’t see much reason to revise my assessment in the light of events between now and then.

One obvious problem with my claim that neoliberalism has failed is that I haven’t provided a definition of either ‘neoliberalism’ or ‘failure’. Taking the second point first, there are several ways in which a political ideology may be a failure.

First, it may never attract sufficient support to have a serious influence on political outcomes. In this sense, ideologies like libertarianism and guild socialism may be regarded as failures.

Second, an ideology may be adopted and implemented, then discredited and discarded, or superseded by some new idea. This is the eventual fate of most political ideologies. Communism is the most recent example of a failure of this kind.

Third, an ideology may fail to deliver the promised outcomes. This is much more a matter of judgement, since promises are never delivered in full and failures are rarely complete.

It is important to remember that failure is never final. Democracy, for example, seemed like a failure until at least 1800. Although many democratic governments arose before that time, all had either collapsed in anarchy, given rise to demagogues who made themselves tyrants or decayed into oligarchy. The United States was the first country to establish a sustainable democracy, and there were plenty who opposed it there. Abraham Lincoln was not engaging in hyperbole when he said at Gettysburg that the outcome of the Civil War would determine whether government ‘of the people, by the people for the people’ could be sustained.

Now for a definition of neoliberalism. As the name implies, neoliberalism is a descendant of classical liberalism, defined by the fact that it is a reaction against social democracy, which also draws heavily on the liberal tradition. The US use of ‘liberal’ to mean ‘social democrat’ reflects the latter point.
Because it is primarily based on a critique of social democracy, neoliberalism places much more weight on economic freedom than on personal freedom or civil liberties, reversing the emphasis of classical liberalism. Indeed, it is fair to say that on matters of personal freedom, neoliberalism is basically agnostic, encompassing a range of views from repressive traditionalism to libertarianism.

In terms of economic policy, neoliberalism is constrained by the need to compete with the achievements of social democracy. Hence, it is inconsistent with the kind of dogmatic libertarianism that would leave the poor to starvation or private charity, and would leave education to parents. Neoliberalism seeks to cut back the role of the state as much as possible while maintaining public guarantees of access to basic health, education and income security.

The core of the neoliberal program is
(i) to remove the state altogether from ‘non-core’ functions such as the provision of infrastructure services
(ii) to minimise the state role in core functions (health, education, income security) through contracting out, voucher schemes and so on
(iii) to reject redistribution of income except insofar as it is implied by the provision of a basic ‘safety net’.
With this definition, a reasonably pure form of neoliberalism (except for some subsidies to favored businesses) is embodied in the program of the US Republican Party, and particularly the Contract with America proposed by Gingrich in 1994. The ACT Party in New Zealand also takes a fairly clear neoliberal stance, as do the more ideologically consistent elements of the British Conservative Party and the Australian Liberal Party.

My claim that neoliberalism has failed therefore uses several different meanings of the term ‘failure’. In Europe, apart from Britain, neoliberalism has mostly failed in sense (i). The EU is inherently social democratic in its structure and attempts by poltical groups in some Eastern European countries (notably the Czech Republic and Estonia) to pursue a free market line have failed in the light of the superior attractions of the EU. It is true that the European social democracies have given some ground, notably with respect to privatisation, but no genuinely neoliberal party has arisen or seems likely to. The political right has moved back to the older and more fertile ground of law and order and xenophobia.
In Britain, neoliberalism has failed in sense (ii). The Conservative party is hovering on the edge of extinction and, as I have arged previously, the ‘New Labour’ government has shifted steadily away from neoliberalism and towards a mildly modernised form of social democracy. The same is true in New Zealand, where the advocates of neoliberalism, once dominant, are now completely marginalised.

Although the Australian government started out with a clearly neoliberal framework it has gradually dropped it in favor of the kind of law and order/xenophobia/militarist position that characterises the traditional right. The repeated resort to ad hoc levies as fixes for industry-specific problems is indicative of a government that has lost its economic bearings. Moreover, the Liberals look like being in semi-permanent opposition in most of the states and the Howard government is unlikely to survive the end of the housing bubble (although given the quality of Federal Labor, anything could happen).

Finally, in the US, neoliberalism remains the dominant ideology but is increasingly failing in sense (iii). Three years ago, American pundits could seriously predict a never-ending economic boom. The combination of continued prosperity and ‘the end of welfare as we know it’ seemed to be on the verge of eliminating crime and unemployment. Now the most charitable assessment of US economic performance is ‘better than average’ and even this cannot be sustained of the current recession/stagnation drags on much longer. The basic problem is that, given high levels of inequality, very strong economic performance is required to match the levels of economic security and social services delivered under social democracy even with mediocre growth outcomes.

  1. gerard
    September 27th, 2008 at 17:46 | #1

    Neoliberalism is ‘Neo’ because it arose as a reaction to the social democratic reforms of the post-war period – a period when rates of economic growth and improvements in living standards for every social class have been better than any other period of history before or since.

    Neoliberalism seeks to cut back the role of the state as much as possible while maintaining public guarantees of access to basic health, education and income security.

    I would say that such public guarantees do not exist in the USA, which is the most ‘Neoliberal’ of the developed countries wrt social policy.

    It is true that Neoliberalism hasn’t been able to destroy these guarentees in other developed countries where the Left has had more influence (US is the only developed country without a major labour-based political party).

    but in the second and third world, where public policy during the 80s and 90s was largely drawn up by IMF and World Bank technocrats, Neoliberals of deep ideological commitment, it has consistently pushed for ‘fiscal discipline’, tax breaks and privatization at the expense of all social programs – health, education and income security – without seeing the need to maintain any guarantees whatsoever. Which is why such austerity programs have always been accompanied by social unrest.

    Neoliberalism does not just mean the moderate Neoliberalism that was practiced in the developed world but also the extreme form of this program which less fortunate parts of the world have had to experience.

  2. Interdicted
    September 27th, 2008 at 17:59 | #2

    “Words like “conservativeâ€?, “democraticâ€? and “socialistâ€? have become just about meaningless.”

    “social-democraticâ€? = ‘Commo’. Communism is irrelevant due to its spectacular ‘total’ failure, something that can not compared to a few companies going bell up in a free market.

  3. gerard
    September 27th, 2008 at 18:15 | #3
  4. September 27th, 2008 at 18:35 | #4

    I think “neoliberal” effectively means “economic liberal”. I would define it as a belief that markets are better than government at coordinating most economic activity, and therefore the government should play a relatively small role in the economy.

    I don’t think it helps to say that neo-liberals don’t support government infrastructure services but do support government education programs. That’s probably reversed for many. Like there are many different social-democrats, there are also many sorts of “economic liberals”, so it probably doesn’t help to specify exactly what a typical neo-liberal wants to privatise or deregulate. The important point is that they generally want to privatise and deregulate something. :)

    It is absurd to use the words “neo-liberal” and “US Republican party” in the same sentence. I think the NZ ACT party is the best representation of a party promoting economic liberalism. If there is an economic liberal in the Liberals I would like to know who they are. The only economic liberal I’m aware of in parliament is Craig Emerson, from the ALP.

  5. conrad
    September 27th, 2008 at 19:13 | #5

    Last time I checked, France was failing as badly as any other state in Europe, but I doubt they qualify as neoliberal. Given this, perhaps the lesson is that no political system will stop your country from failing, and that we falsely put too much emphasis on the government of the time for what goes on and what successes and failure there are. The obvious example of this is China. The fact they have got somewhere in the last decade is mainly due to the people, and only in small part due to the government. Edmund Ho (Governer of Macao) realized this. When asked if he was responsible for the recent rise of Macao he said “no” and that he could only be responsible for Macao failing.

  6. Ian Gould
    September 27th, 2008 at 19:23 | #6

    “I think “neoliberalâ€? effectively means “economic liberalâ€?. I would define it as a belief that markets are better than government at coordinating most economic activity, and therefore the government should play a relatively small role in the economy.”

    Since social democrats say exactly the same thing, this definition isn,t particularly useful in distinguishing between the two.

  7. Ikonoclast
    September 27th, 2008 at 19:46 | #7

    Temujin, you are saying that one quarter of the lemon is the lemon. The other three-quarters you have deftly hidden under your handkerchief with the phrase “the government should play a relatively small role in the economy”.

    This phrase unpacks into the “core of the neoliberal program” as defined by JQ in his three summary points which constitute the other 3/4 of the orange.

    Lurking behind the phrase “the government should play a relatively small role in the economy” is the real phrase “the government should play a relatively small role in society… other than guaranteeing the rights and power of the rich.”

    In society, politics and economy are always entwined. In politics, as in life generally, acts of omission are as significant as acts of commission. A government which stands back and does little in a social sense and also makes and takes relatively few acts and actions to regulate markets is still picking directions and outcomes by default.

    Make no mistake, neoliberalism is a lemon. This is not the same as saying properly regulated arkets in a healthy social-democratic system constitute a lemon.

  8. September 27th, 2008 at 19:59 | #8

    I like this definition.

    Because of the diminishing marginal utility of income, part (iii) of the neoliberal program implies that neoliberalism will fail to maximise utility unless it can be demonstrated that the neoliberal program will lead to much higher levels of growth than other models. The recent financial crisis has provided further proof that this is not the case.

    P.S. the link to “post from 2002″ does not seem to work.

  9. September 27th, 2008 at 20:03 | #9

    The link to “neoliberalism has failed” also does not work, it tries to take you to a wordpress edit page.

  10. September 27th, 2008 at 23:31 | #10

    Ian — I don’t think you could say that social democrats want most activity to be coordinated by the market.

    In the western world, the government controls between 30-60% of GDP through taxing and spending. And nearly every area of economic activity is regulated, so the government control of the economy is somewhere higher than the 30-60% number. I think it would be fair to say that social democrats believe that about half of the economy should be controlled by the government.

    Ikon — my point wasn’t that JQ’s summary points were wrong, but that different neo-liberals would agree and disagree with various of those points. For example, some economic liberals would object to any government intervention in education, health or welfare. And some would accept government infrastructure spending.

    As a very simple short-hand, I think an “economic liberal” would want government controlling less than 1/3 of the economy, social democrats want between 1/3 and 2/3rds and socialists want more than 2/3rds.

    Of course, economic liberals can then be split into “moderates” and “radicals”. Radical economic liberals would often be libertarians.

  11. Joseph Clark
    September 28th, 2008 at 00:42 | #11

    You’re forgetting about the vast capitalist conspiracy where our objective is to cause inequality so we can oppress poor people by making them consume needless items. Just saying…

  12. sean
    September 28th, 2008 at 00:53 | #12

    Well lets put it to the test, get a 1000 folk from all backgrounds, ask them to define neoliberalism, and social justice. have a look at the answers and if 75% are all in the same ball park, you will have a definition.

    My guess is both of them will be all over the place, because at heart neoliberalism is the left playing with the, them and us syndrome, if its not off the left then we must be against it, a pure post-modernist fantasy, Wittgenstein would be proud of you.

    And you will be shocked that the public would not be able to put a definition on “social justice” as well.

    Logic trumps words everything. But then again the left dont understand Kants famous phrase “structures of the mind bring forth the worlds (reality)”

  13. ehj2
    September 28th, 2008 at 00:58 | #13

    “Three years ago, American pundits could seriously predict a never-ending economic boom.”

    America lives like an island, importing most of its food, most of its manufactured goods, and most of its energy; it imports (borrows) over $2 billion a day to pay for this “lifestyle” and in eight years has run up its National Debt from $5.8 trillion to $11.3 trillion (after the proposed bailout). This suggests to me mindboggling denial and a structural problem in an unsustainable way of life that demands salient correction.

    I don’t believe we (America) can “borrowâ€? our way out of this, that we are clueless fools if we don’t address a National Debt that would take six decades of $200B/yr surpluses to pay off (the best we’ve achieved during a time of peace and cheap oil), and that the world cannot be amused.

    I’ve been hoping for a glimpse of an IMF opinion on our gonzo economic practices.


  14. sean
    September 28th, 2008 at 01:31 | #14

    “Now the most charitable assessment of US economic performance is ‘better than average’ ”

    No you dont sunbeam, lets say this political correctness inspired mess is 10% of the USA GDP (5% bailout 5% recession, with a 50/50 chance of of it knocking a blowout of 15% out of US gdp.

    So the sub prime mess started to grow in the 1996 after the Dems uprated this.


    and home prices became disjointed from general inflation.(a thumps up for social justice hey?)

    so take USA gdp from 1997. 8.25 trillion, and today is 13.5 trillion, and lets take a 10% hit as most recessions tend to do, that would be 13.2 trillion? so even with the sub prime crisis thats quite some growth. About a third in 10 years.

    And that well beats the EU which is a comparable economy? and even with the bailout of stupid politicians in Washington, they are still well below their (EU) national debts, and unlike lazy social democratic nations, the USA is much more productive, so the EU can probably see a worse recession that the US. The UKs will be extra bad as we are now glued to the states nipples too, thanks to “social justice”

    And another thing the US are still procreating. So the debts pensions ect have a good chance of being financed.

  15. sean
    September 28th, 2008 at 01:33 | #15

    sorry 12.2 trillion?

  16. ehj2
    September 28th, 2008 at 03:23 | #16

    GDP sucks as a measure of anything but frenzy.

    The Cost of cleaning up after 9/11 is measured by GDP as “Growth.” This is why wars look good.

    If this measure meant what you think it means, we should just blow up our own cities and rebuild them and marvel at our productivity, and the faster we did it the richer we’d appear.

    I’ll ignore the nonsense about the CRA and invite you to read here about Greenspan’s failure to write any rules for the Home Ownership and Equity Protection Act enacted by Congress in 1994 …


    and here, where the SEC acknowledges massive failure of oversight …


  17. sean
    September 28th, 2008 at 04:45 | #17

    *GDP is the intentional recognised measure.

    *But wars dont look good on the debt side of the accounts do they? Anyways thatch value judgment, WW2 in today prices would be mega.

    *think about it! you buy a TV, you use it, it gets old you throw it out, you get another, GDP growth is necessary to replace past wealth, otherwise you home will never be paid for, try a few years without it, I am sure you will change your tune.

    *CRA is at the heart of the political correctness that brought sub prime about, it gave the signal to the banks to sell loans to poor people, the dems loved it. Its gives the legal framework for sub prime.

    *have you ever heard of this thing called unforeseen consequences? or black swans? its this blink belief that you can go back into the past and change things around and today would be better, this strange logic is at the heart of the financial models that said it was safe to bundle up loans and sell them on reducing risk.

    Without CRA, or even sub prime, we would have still had problems and probably a bubble, but not one that would threaten the worlds financial system, which as a non American I have a interest in.

    “Without changes in legislation, Fannie and Freddie will, at some point, again feel free to multiply profitability through the issuance of subsidized debt,” Greenspan said. “The strong belief of investors in the implicit government backing of the GSEs does not by itself create safety and soundness problems for the GSEs, but it does create systemic risks for the U.S. financial system as the GSEs become very large.”
    Greenspan at the Senate may 2005


  18. sean
    September 28th, 2008 at 04:56 | #18

    Interesting cspan montage of 04/05 senate hearings on Mea and Mac.

  19. ehj2
    September 28th, 2008 at 05:03 | #19

    Bush pushed for zero-down mortgages, in part because growth in construction and home ownership would obscure the failures in the rest of the economy.


    yes, i’m familiar with black swans; a somewhat more complete description is here:


    I agree with you that there’s no such thing as “your side of the boat is leaking.”

  20. September 28th, 2008 at 06:56 | #20

    is everyone happy with the way the world is being managed? are you all satisfied with recurrent financial disturbances/calamities? does the prospect of resource exhaustion not cause a little worry? is the possibility of total environmental collapse not on your radar?

    lift your eyes up from the money-management equations for a moment, stop admiring the braid on the emperor’s new suit, and notice, if you can, that several hundred years of capitalism and oligarchy have brought us to the brink of extinction. and you’re concerned about the trivial distinction between ‘social democrat’ and ‘neoliberal’?

  21. fatfingers
    September 28th, 2008 at 08:16 | #21

    “brought us to the brink of extinction”

    Do you really believe that?

  22. Ian Gould
    September 28th, 2008 at 08:36 | #22

    “In the western world, the government controls between 30-60% of GDP through taxing and spending. And nearly every area of economic activity is regulated, so the government control of the economy is somewhere higher than the 30-60% number. I think it would be fair to say that social democrats believe that about half of the economy should be controlled by the government.”

    Funny. neo-liberals keep insisting they aren’t anarchists or libertarians and recognize the need for economic regulation, they just want it done more efficiently and less obtrusively.

    But since you seem to think tax as a percentage of GDP is a key measure of whether an economy is predominantly neo-liberal rather than social democratic, would you like to nominate a threhsold figure.

    Also, would you say that policies can be classified as neo-liberal or social democratic depending on whether they increase or decrease government revenue as a percentage of GDP?

  23. ehj2
    September 28th, 2008 at 08:40 | #23

    Fatfingers, @21,

    Sir Fred Hoyle in 1964 put the issue before us bluntly.

    “It has often been said that, if the human species fails to make a go of it here on the Earth, some other species will take over the running. In the sense of developing intelligence this is not correct. We have, or soon will have, exhausted the necessary physical prerequisites so far as this planet is concerned. With coal gone, oil gone, high-grade metallic ores gone, no species however competent can make the long climb from primitive conditions to high-level technology. This is a one-shot affair.”

    And more recently, Rudi Bogni, a working economist wrote “The Thin Space of Financial Activity” …

    “Those of you who may have read Bill Bryson’s A Short History of NearlyEverything will certainly recall his thesis that life on earth as we know it is an exceptional event and a possibility that materialized only within very small boundaries.”

    “I wish you to consider how much smaller those boundaries are for the existence of financial activity.First of all, you need a thinking species that lives and prospers in a cooperative environment.  Second, you need a reasonably developed economy. Third, you need the ability to save and do more than survive only hand-to-mouth on a daily basis. Finally, you need reciprocal trust and a framework of law, as well as accepted customs and rules.”

    “An excess of CO2 may be a major threat to civilized life as we know it, but the malfunctioning or freezing of the financial system could happen much faster, and we would have no control over it, as it depends on the psychology of literally billions of individuals.”


  24. September 28th, 2008 at 11:02 | #24

    Re #10:

    In the western world, the government controls between 30-60% of GDP through taxing and spending.

    I just checked the budget aggregates for Australia and revenue estimates for 2008-2009 are 25.9% of GDP and expense estimates are 23.8% of GDP.

  25. Bingo Bango Boingo
    September 28th, 2008 at 11:37 | #25

    Trying to come up with a tax/GDP figure which circumscribes neoliberalism is completely stupid. As jquiggin and others know very well, there is neoliberal thinking about what is best, there is social democratic thinking about what is best, and then there is the real world of policy. Neoliberalism exists as a concept, but there is no country that is run strictly in accordance with neoliberal thinking (equally there is no such thing as a pure social democracy, which jquiggin perhaps inadvertently concedes when he alludes to the wave of privatisations in Western Europe). Now that doesn’t mean neoliberal thinking can’t be judged. It just means the judgment ought to be limited to the proper context. It doesn’t, for example, make sense to apportion all blame to neoliberalism for failures within a market characterised by a high degree of government intervention (no, I am not just talking about the damn CRA, IG). Jquiggin necessarily rejects this balanced perspective, because to accept it would demolish his ‘The current crisis happened in the US, the US is neoliberal, therefore neoliberalism has failed’ thesis. Similarly, the monolithic characterisation of Europe as social democratic is necessary to build the false dichotomy which feeds his triumphalism.

    But there is a bright side: jquiggin’s refusal to revise his 2002 post so that neoliberalism is subject to ‘failure’ in the ‘implemented but discredited’ sense he mentions in the opening paragraphs is a welcome change from recent posts. That sense might appear to be applicable to the apparent long-term and gradual decline of the societies and economies of Western and Northern Europe. But that sort of judgment is far too broad and insensitive to the real policy mix there, and so it is well beneath me.


  26. Bingo Bango Boingo
    September 28th, 2008 at 11:59 | #26

    Peter, is there a good reason for excluding state governments from the tax/GDP measure, generally useless though it is for this discussion?


  27. September 28th, 2008 at 12:27 | #27

    BBB, the is no good reason for excluding state governments. I had a quick look at the NSW budget papers, and they raised $47.8 billion, including $20.2 billion in grants from the commonwealth. NSW has a third of Australia’s population, so extrapolating these figures to the other states (I’m too lazy to look them all up) gives a bit under $90 billion in extra revenue, 8-9% of GDP. So governments in Australia raise roughly 34-35% of GDP in tax, which is near the lower end of the 30-60% of GDP range. I have no idea about the rest of the OECD.

  28. Ian Gould
    September 28th, 2008 at 14:05 | #28

    I think the main argument for excluding state and local government from the comparison is that it frequently becomes unclear what’s a tax and what isn’t.

    Was a gas bill in Brisbane a tax when Energex was owned by the state?

    Are water rates, a tax?

    How do you compare taxes between states when, for example, some services such as, again, water supply are charged separately in some countries and included in general rates elsewhere?

  29. Ian Gould
    September 28th, 2008 at 14:07 | #29

    “My guess is both of them will be all over the place, because at heart neoliberalism is the left playing with the, them and us syndrome, if its not off the left then we must be against it, a pure post-modernist fantasy, Wittgenstein would be proud of you.”

    The man who wants to send economists to labor camps accuses others of being afflicted with a “them and us syndrome”.

  30. Ian Gould
    September 28th, 2008 at 14:15 | #30

    “so take USA gdp from 1997. 8.25 trillion, and today is 13.5 trillion, and lets take a 10% hit as most recessions tend to do, that would be 13.2 trillion? so even with the sub prime crisis thats quite some growth. About a third in 10 years.

    And that well beats the EU which is a comparable economy?”

    Virtually the entire difference in head-line growth figures for the US and EU is attributable to higher population growth in the US.

    Long-term growth in per capita GDP in the US is behind that of several EU countries.

    Oh and let’s not forget that by this measure, the Chinese and Indian economic models mist be roaring successes.

  31. Ikonoclast
    September 28th, 2008 at 14:27 | #31

    Fat fingers laughed at al loomis for saying “We are on the brink of extinction.” Actually we are. Al is right. That’s not to say we will go exctinct but there is a very real danger of it.

    In his book “Our Final Century” Sir Martin Rees look at the threats which face humankind during the 21st Century. “I think the odds are no better than 50/50 that our present civilisation will survive to the end of the present century.”

    I would add to that if humans survive this century (I won’t as I will be dead by 2038 approximately)then it will be with as few as 1 billion people world wide.

  32. Bingo Bango Boingo
    September 28th, 2008 at 14:28 | #32

    Which EU countries, Ian?

    As for China, it’s a terrible overall model. Comparing developing countries with developed countries isn’t very smart, although you do highlight one massive economy that has benefitted greatly from a little (neo)liberal thinking here and there. It’s a work in progress, obviously.


  33. Ian Gould
    September 28th, 2008 at 14:31 | #33

    “sorry 12.2 trillion?’

    Hey, it’s only math which, as you’ve so generously pointed out, is just another scientific fraud like economics.

  34. September 28th, 2008 at 15:11 | #34

    I should mention that the ballpark figure of 34-35% of GDP is government revenue, rather than tax.

    What does the failure of neoliberalism mean for policy? Consider the declining marginal utility of income. Consider also the “long tail” in income and consumption distributions, where the highest decile and highest percentile of households in terms of income have disproportionately more income and engage in disproportionately more consumption. We could produce a very large increase in utility by having a fairer tax and transfer system.

    This increase in utility would be equivalent to a large increase in GDP, but without the associated capacity constraints. How large? I don’t know because I do not yet have the data — it will of course depend on your choice for the value of the elasticity of marginal utility.

  35. Ian Gould
    September 28th, 2008 at 16:44 | #35

    Another problem with using tax as a percentage of GDP (or government spending as a percentage of GDP) as a measure of government involvement in the economy is that it’s prone to manipulation of what’s defined as a tax.

    Payments to social security and unemployment insurance in the US aren’t counted as a tax (IIRC).

    In an even more extreme example Singapore is held us as an example of a “low tax” economy – which it is only if you ignore the 25% of salaries mandatorily paid into the National Provident Fund.

  36. Ian Gould
    September 28th, 2008 at 16:46 | #36

    BBB, I’m a little short of time at the moment but I think you can find a time series table of per capita productivity growth somewhere on this site:


  37. fatfingers
    September 28th, 2008 at 17:01 | #37

    ehj2, your first quote says nothing about our likelihood of imminent extinction. Neither does your second, though it does say our civilisation may be under threat. Just say that we accept these quotes as accurate, it still provides no support for al loomis’ hyperbole.

    Ikonoclast, I wasn’t laughing. I was worried that al loomis was delusional enough to think humans were “on the brink of extinction”. OK, not really, obviously he was saying it for effect, but it’s still ridiculous. You also quote a learned fellow, like ehj2, and again the quote does not apply to the question.

    Besides, for every doomsayer you come up with, I could cite an optimist. It doesn’t get us anywhere.

  38. Bingo Bango Boingo
    September 28th, 2008 at 17:03 | #38

    No problem Ian, thanks for the link.


  39. Ian Gould
    September 28th, 2008 at 19:02 | #39


    I extracted the data for the 10 years to 2006 and calculated a simple average of annual growth rates in labour productivity. These figures may be slightly inaccurate due to compounding effects.

    The following countries had higher labour productivity growth than the US:

    United Kingdom

    I’ve omitted several Eastern European countries which also had higher productivity growth but which only started keeping laour statistics on the same basis as the rest of the OECD within the decade.

    Switzerland, another darling of the neolliberals had amongst the lowest productivity growth of any OECD member over that period.

    Repeating the same exercise over twenty years (and again excluding some of the Eastern European ex-communist states), the following countries had higher growth in labour productivity than the US:

    United Kingdom

    Over this period Switzerland was second last – ahead of Spain, marginally behind Canada.

    The major contributor to the higher growth in the US labor force is of course, not the US birth rate but the high level of illegal immigration into the US.

  40. Ian Gould
    September 28th, 2008 at 19:32 | #40

    Of course, if I’d looked further at the options on that page I would have known to select average annual rate of increase in GDP per hour worked and tell the program to rank the countries listed.

    For the period 1970-2006, this is the list in DESCENDING order:

    G7 countries
    United Kingdom
    United States
    New Zealand

  41. Jill Rush
    September 28th, 2008 at 23:57 | #41

    I prefer the term Neo-con or new confidence tricksters.

    As Prof Q has said however there is no one system that is all right or all wrong.

    The worry with the neo-liberals however is their narrow definition of success. Long term or unintended consequences are narrowly established. Risks are managed and it is rare that a risk is recognised as too great. Risks such as we have noticed in the US financial system. Risk: Company is overleveraged. Impact: extreme. Treatment: Maintain low interest funds, stay sweet with China.

    I love the irony of the capitalist system being bailed out by a Communist power.

    However Neo-Liberal views can attain a life of their own through over exposure. Thus the Deputy PM seeing NY schools thinks that a system that closes down low performing schools is worth adopting. Workchoices lite is being pursued.

    Just because a belief system is a failure doesn’t mean that those in charge recognise it especially when it is personally rewarding. The head honchos at Halliburton who have had such a lot of influence in the war in Iraq have had little reason to work for peace. If the desired outcome is to make lots of money the war in Iraq must be judged a success for many of the perpetrators.

    Neo-liberals are out of step with the mainstream because of their lack of consideration for the broader humanity and for the environmental and social damage they do in their pursuit of wealth. The confluence of Neo -Liberals with Air heads is more than coincidental.

  42. September 29th, 2008 at 00:57 | #42

    Peter — you should include state & local involvement in the economy.

    Iam — tax & spending stats are imperfect measures of government intervention, but they certainly do not over-estimate government involvement in the economy. My point was that the government currently controls about 1/2 of the economy… which is inconsistent with your suggestion that social democrats prefer the market to government.

    I doubt you could have a fixed definition of exactly what an economic liberal would want tax rates to be. Some neo-liberals would deny being an anarchist because they probably aren’t anarchists. Perfectly normal thing to do. I’m sympathetic to anarchy… but that’s not relevant to the definition of neo-liberalism.

    Jill — it makes absolutely no sense to confuse neo-conservatives with neo-liberals unless you’re intentionally trying to hide the truth. If you actually don’t know the difference between the two, then perhaps you should be a bit slower at calling other people air-heads.

  43. Labor Outsider
    September 29th, 2008 at 04:50 | #43


    You might want to familiarise yourself with the concept of convergence before solely using differences in labour productivity growth rates as a justification for whether or not a particular economic model is appropriate or not. In addition, comparisons based on output per hour worked are distorted by wide variation in labour utilisation rates across OECD countries. France is a very good example of a country with high measured labour productivity but low labour utilisation rates – in simple terms, France’s regulatory system does a good job of making it harder for low productivity workers to find employment.

    More broadly, John’s post is odd in a number of respects.

    First, let’s go over some basic inaccuracies. In what way are the conservatives on the edge of extinction in Britain? Labor will most likely be thumped at the next general election. The post shows the dangers of over extrapolating from recent history.

    Second, while the Liberal Party in Australia’s recent electoral record has not been good, it would be dangerous for any left of centre person to fool themselves into thinking that is permanent. The ALP recently lost the WA election and would lose in NSW if it were to be held tomorrow. The governments in SA and QLD are also less popular than they were. Psephologists need to separate the cycle from the trend.

    Third, very few economic liberals that I know thought that either the dot-com bubble, or the house price bubble in the US were sustainable. Equating those beliefs with economic liberalism is downright dishonest. Moreover, a few more facts. The Eurozone contracted in the second quarter of this year and almost certainly will in the third quarter as well. Many forecasters would argue that the Eurozone’s medium term prospects are worse than the US – not only are many of its banks more poorly capitalised than their US counterparts, but any policy response to the coming recssion is likely to be either delayed or confused. John, have you seen what a mess financial regulation in Europe is?

    Fourth, this whole argument about neo-liberlism is a waste of time and a silly obsession of the political left. There is no simple dichotomy that says regulation = good, deregulation = bad or vice versa. In some markets good regulation is vital for overcoming market failure. I would argue that banking, health care and environmental policy fall into this category (there are others). In many other markets, consumers are best served by little more than anti-trust regulation. Moreover, those on the left never discuss regulatory failure. This is extremely frustrating because regulators are sometimes captured by the industries they regulate and often have insufficient information about the industries they are trying to regulate. In addition, sometimes regulations are just poorly designed!!

    In my view, each regulatory case should be evaluated on its merits, and a view formed about whether a specific market failure can be overcome, or is likely to be overcome by government oversight. Economic liberals tend to be optimistic about the ability of markets to deliver welfare gains over time (distribution is another question). Social democrats tend to be less trusting of markets. However, it is a danger to evaluate economic liberalism on the basis of this financial crisis, in the same way as it is dangerous to evaluate social democracy soley on the basis of the horrendous unemployment rates that arose (and were maintained for a long time) in some European countries. Do you know how long it takes to start up a business in Italy and France John? Do you know how many agencies a business needs approval from? Do you seriously believe that Australia would be in a better position today had regulation in the financial sector, telecommunications sector, airline sector, and utlities sector been unchanged from the early 80s? Lets debate which aspects of deregulation were beneficial, and which were not. Lets discuss what you might have done differently. But lets not fall into the trap that in of itself deregulation is a bad thing.

    Finally, we should get our facts straight about Democrats, Republicans, economists and financial regulation in the US. First, Fannie was privatised by LBJ – a Democrat. Second, the Clinton administration was responsible for pushing US mortgage lenders to relax lending conditions for poorer households. Third, the dot-com bubble built up under the Clinton administration. Fourth, house democrats rejected Bush administration plans to constrain the activities of Fannie and Freddie. Indeed Fannie and Freddie donated huges sums of money to Democrats as well as Republicans. Yes, the Republicans failed to regulate the shadow-banking sector – but they weren’t begged to do so by the Democrats!!!

    I don’t say this because I support the Bush administration’s overall economic policy. I say it just to illustrate how the Democrat good, Republican bad dichotomy is unhelpful in some circumstances.

    Also, I just want to say that if someone wrote a post about the evils of social democracy, and used similarly flimsy arguments, I would write about that too!

  44. jquiggin
    September 29th, 2008 at 05:52 | #44

    Labor outsider, you might want to check the original date on the post (2002). Given that it took six years for the state Libs to manage a narrow win after that, I don’t think “semi-permanent opposition” was a bad description of their position at the time. Similarly the Conservatives had to dump their Thatcherite leaders and policies before they became electable.

    It is certainly true that the Clinton Administration bears a fair bit of responsbility for the crisis, but your recycling of bogus Republican talking points about the Community Reinvestment Act leads me to place little weight on your final sentence.

  45. sean
    September 29th, 2008 at 06:01 | #45

    top post outsider, you said a lot of stuff I would have said if I did not like red wine as much.

    “Fourth, this whole argument about neo-liberlism is a waste of time and a silly obsession of the political left” this is what I said
    “because at heart neoliberalism is the left playing with the, them and us syndrome”

    This is how Marx captured the left, Before Marx the left was what could be described loosely as classical liberalism, empowering the masses with property rights and limiting government.

    Lets deal with what “capitalism” is, its is the belief that human beings have “property rights” and part of those rights is that the owners can exercise those rights with little interference from the state.

    Now it seems to me if you are against “capitalism” you are against a basic human right? that is not to say their not are unforeseen or understood conditions that exclude or limit you from exercising those rights, but the assumption is that you can exercise those rights.

    So called Neoliberalism is not saying anything that contradicts the above,it is a psychological impules of the new “left” or post Marx left.

    In fact I would go further since the end of the cold war and the total failure of socialism, the “left” have decided that if “dialectic materialism” is not the truth than nothing is the truth, only “positions” are real, which is the central plank of “post modernism”

    I have never come across anyone in life who describes themselves as “neoliberal” have you?


  46. September 29th, 2008 at 06:05 | #46

    JQ — is it possible for you to edit your own comments for snark. :)

  47. sean
    September 29th, 2008 at 06:07 | #47

    Sorry JQ, the Community Reinvestment Act is the legal basis for supplying poor people with credit. you can argue with the overall effect but not with the actual fact that it signaled to the wider community business as well, that loan to poor people where a social and political good.

    Sub prime is what turned a bubble into an explosion. cumulative effect.

  48. sean
    September 29th, 2008 at 06:26 | #48

    in Fact I can remember back in around the 98/99 period I was in the US and seeing adverts on TV saying to the effect “we are now giving loans to lower income people, we are here to help, all circumstances considered don’t be afraid to call” and thinking to myself, that seems to be an advancement, it never occurred to me the policy and results behind it.

  49. jquiggin
    September 29th, 2008 at 06:28 | #49

    Sean, you need to learn about the concept of a non-binding constraint. The CRA required some banks to meet a minimum level of provision of loans in low-income areas. That minimum was greatly exceeded in the subprime bubble, meaning that the CRA was effectively irrelevant in this period.

    JH, mea culpa, sometimes I can’t resist :-) .

  50. Ian Gould
    September 29th, 2008 at 08:10 | #50

    “You might want to familiarise yourself with the concept of convergence before solely using differences in labour productivity growth rates as a justification for whether or not a particular economic model is appropriate or not.”

    I didn’t use it for any such purpose, I used it to refute the claim that US productivity growth was higher than in the EU.

    For that purpose it’s perfectly adequate.

    Sean was the first person to cite productivity growth as a measure of economic success so I’d suggest your comments are better directed to him.

  51. Ian Gould
    September 29th, 2008 at 08:15 | #51

    “This is how Marx captured the left, Before Marx the left was what could be described loosely as classical liberalism, empowering the masses with property rights and limiting government.”

    Yes, Robespierre and Napoleon were all about limiting government.

  52. Ian Gould
    September 29th, 2008 at 08:23 | #52

    The CRA’s impact on subprime lending was minimal – and as I pointed out earlier Bush succeeded in significantly weakening the CRA back in 2004.

    The main driver of subprime lending was Republican relaxation of the regulations on the amount of risk monoline mortgage originators could take on.

    The CRA applied only to Federally-insured savings banks, the monolines were always exempt from it.

    Generally speaking, I’m in favor of minimal regulation and Labor Outsider identified some of the many areas where reductions in regulation have had major economic benefits.

    However, in this specific case, it’s pretty clear that the specific “deregulation” of the US finance sector undertaken by the Republicans was a major cause of the financial crisis.

    I don’t think that this tells us much if anything about deregulation in general. It does however tell us that letting banks effectively design their own prudential standards is a bad idea.

  53. Michael of Summer Hill
    September 29th, 2008 at 18:53 | #53

    John, with respect to the financial crisis facing the Bush administration, State intervention was necessitated as liquidity dries up and the free market fails to self correct. Bush had no alternative but to forego the neoliberal dogma in favour of old Keynsian economic school of thought.

  54. Labor Outsider
    September 29th, 2008 at 19:10 | #54

    John – you missed the point of my comment.

    1 – I did not say that the Democrats bear responsibility for the financial crisis. Both sides of politics do. I was merely pointing out that both sides of politics had an incentive to keep the music playing while the party was going. Nobody comes out of this thing looking good.

    2 – Your call in 2002 about the state of the liberals in Australia was a bad one, because you took too short-term a view of state politics. State electoral cycles are often long. There have been many periods where the Liberals were in power across the country. Do you remember the commentary after the early 1990s recession swept a number of Labor governments out of power? It is more than likely that within 3 or 4 years there will be more conservative governments in power across the country than Labour governments – does that mean the Labor will be in semi-permanent opposition? No.

    3 The current policy positions of the Tories in the UK do not fit neatly into the neoliberal/non neoliberal dichotomy you are fond of. Cameron has just announced a program to build a large number of new private schools. He has also pledged to extend the reform of the public services begun under Blair, including making it easier for NHS patients to top their care up from private sources. He also argued for the reduction in inheritance tax. Yes, they have shifted away from some of the Thatcherite positions, but many of their policy positions still fall within the definition of neoliberalism that you offered in your post.

    4. What is your view of Sweden’s education voucher program? Is that neoliberal too?

    5. I’m a member of the Labor party and have been for over a decade. I’m also an economist. I think the government is too heavily involved in some economic spheres, and not enough in others. In many where the government is and should be involved, I think the nature of that involvement is sub-optimal. The essence of economic policy debate here and in other countries is over what the right level of government involvement should be. There are very few “neoliberal” parties in the world because what you wrote out was an ideology that very few poeple in the world identify with.

    Lets argue over the real issues, and not use terms that obfuscate rather than enlighten the debate. The political point-scoring is demeaning. You hate the republicans, we get it. Lets move on.

  55. sean
    September 29th, 2008 at 20:44 | #55

    51, Gould

    Nope classical liberalism is not the french model but based on the Adam smith, David Hume British model, in fact Hume played a big role in guiding the writing in the American Constitution, which is very much a classical liberal document

  56. sean
    September 29th, 2008 at 20:49 | #56

    52, Gould

    the bubble was already in play in 2004, it was well too late, even the proposed changes to the GSE (mae and mac) by the Republicans would not have stopped the bubble (see Clinton’s remarks last week acknowledging this fact)

    And just for the record I am just opposed the Bush administrations Big Government Conservativism and I am to Big Government Leftism.

    And lets get it right, governance and regulation are different issues.

    See my question on Mon post.

  57. Ian Gould
    September 29th, 2008 at 21:07 | #57

    “Nope classical liberalism is not the french model but based on the Adam smith, David Hume British model, in fact Hume played a big role in guiding the writing in the American Constitution, which is very much a classical liberal document”

    Your initial statement that Marx created the left in the modern sesne by “capturing” liberalism was simply nonsense.

    There was pre-existing left which had little ot nothing to do with classic liberalism.

  58. Joseph Clark
    September 29th, 2008 at 21:23 | #58

    People like you encourage me to vote labor. Good stuff.

  59. September 29th, 2008 at 21:59 | #59

    “This is how Marx captured the left, Before Marx the left was what could be described loosely as classical liberalism, empowering the masses with property rights and limiting government.�

    What an ignorant and stupid comment. You won’t find a single reputable historian who’d agree with rubbish like that.

  60. Joseph Clark
    September 29th, 2008 at 22:56 | #60

    Haven’t you ever wondered why the US left call themselves “liberals”?

  61. Jill Rush
    September 29th, 2008 at 23:27 | #61

    Termujin (John Humphreys) it takes a certain kind of dissembly to accuse Prof Q of snarking whilst engaging in exactly that habit yourself.

    Whilst, to you, the difference between neo cons and neo liberals is quite clear they are very often the same people in different circumstances. It can be compared to one person having two different names for different purposes.

    #4 made the point that there are differences in opinion on what constitues an economic liberal, which is your definition of a neo-liberal.

    However the neo cons who were keen on war in Iraq were operating on the basis that private firms should take over govt business as well as getting oil sales back into US $$$ plus a number of other economic imperatives. Perhaps you can explain why this doesn’t fit the neo-liberal framework.

  62. September 30th, 2008 at 15:28 | #62

    Jill — you were calling other people air-heads while clearly distorting their philosophy. Not very friendly. I suggest you either (1) play nice; or (2) get your facts right. Preferably both.

    Neo-cons are often internventionist on economic issues. The opposite of neo-liberals. And neo-liberals have a variety of opinions regarding foreign policy.

    Many economic liberals are classical liberals (ie also believe in social liberalism), which is pretty much the exact opposite of the neo-cons. I think you’ll find that you agree with more neo-con economics than I do.

  63. TerjeP (say tay-a)
    October 2nd, 2008 at 07:21 | #63

    The only things that the dot com bubble and the current US financial crisis seem to demonstrate is that having a big government authority that regulates interest rates and prints money is entirely consistent with booms and busts. The precise problem that central banks were created to avoid and which they have failed to avoid and arguably helped to create more of.

    In comment #1 Gerard said:-

    Neoliberalism is ‘Neo’ because it arose as a reaction to the social democratic reforms of the post-war period – a period when rates of economic growth and improvements in living standards for every social class have been better than any other period of history before or since.

    I’d be quite happy to work with Gerard to return Australia to the tax, welfare and regulatory levels that we had between 1945 and 1970 and to see a return to the gold standard. Perhaps he calls that social democracy but I’d work for those specific ideals even if you called them Communism. We could also bring back firecrackers, liberalise gun laws and put heroin back on the pharmacy shelf.

    Social democracy seems to advocate a mixture of regulation and markets in the context of democracy. However the specifics are so ill defined that almost anybody can call themselves a social democrat if their looking for a unity ticket. It’s a really huge tent. For instance what is to stop me saying that I’m a libertarian social democrat?

  64. wizofaus
    October 2nd, 2008 at 10:07 | #64

    I’d suggest to claim you’re a “social democrat” implies you believe that markets don’t always produce the best social outcomes, and that governments have a responsibility to correct for possible failures. I don’t think Friedman, for instance, who largely seemed to accept that whatever the sum total of free individual choices was, it was almost by definition the “optimal” outcome, would meaningfully quality as a “libertarian social democrat”.

    However, I will say that if you accept democracy is a good thing, then you surely accept that the role of governments will necessarily change to reflect the collective wishes of the majority, and if you acknowledge that the majority are overwhelmingly likely to vote for social democratic parties, then you implicitly accept that social democracy is better than any other currently realistic alternative.

  65. TerjeP
    October 2nd, 2008 at 13:58 | #65

    I think governments should correct for market failures when they can successfully do so without incurring costs that are worse than the cure. I tend to think that such occasions are quite rare. Is that sufficient to make me a libertarian social democrat?

    On the issue of democracy I frequently see those that refer to themselves as social democrats seemingly upset with the outcomes of democracy. Few politicians today campaign on a platform of raising taxes or nationalising industries. The ALP was unelectable at the federal level until they dumped their rhetoric opposing tax cuts. The only area where politicians regularily find popular support in synch with self described social democrats is when it comes to defending existing areas of government control or in increasing government spending. When did a politician last get elected on a platform of higher tax rates?

  66. wizofaus
    October 2nd, 2008 at 14:07 | #66

    Then sure Terje, anyone who’s prepared to say “governments should correct for market failures” (and, in my experience, mighty few libertarians are) deserves to qualify as a “social democrat”.

    Being a social democrat certainly does not require “wanting higher taxes”. But it does require accepting that there are times when higher taxing and higher government spending is likely to lead to better outcomes. I don’t see a lot of evidence that Australia would presently benefit from higher taxes, and given the current economic uncertainty, in hindsight the tax cuts promised at the last election were probably a good a thing. What’s surely most important is making sure that taxes are collected and spent as efficiently as possible. There’s significant room for improvement there before much need to look at actually raising the tax take.

  67. TerjeP
    October 3rd, 2008 at 04:52 | #67

    Being a social democrat certainly does not require “wanting higher taxes�.

    Yet in practice desperately few people that call themselves “social democrats” will ever advocate tax cuts. As such us libertarian social democrats have abandoned the “social democrat” label because we wish to differentiate ourselves from this mindset.

    What’s surely most important is making sure that taxes are collected and spent as efficiently as possible.

    The dead weight costs of taxation mean that the most efficient imanginable tax office, coupled with the most careful of government spending will still cause significant inefficiency and economic loss if the tax take is high. In short high taxes can not be efficient.

    Under John Howard the price we pay for federal government in real per capita terms rose 34% (not even counting GST). Nearly all this time the self described social democrats from the ALP and the Greens were chanting “no tax cuts”.

    In Australia we have had income tax rate reductions over several budgets. They have done nothing to dent federal revenue (the cost of government). They could cut a lot more without any impact on the spending capacity of the public sector and with significant benefit to the private sector.

  68. wizofaus
    October 3rd, 2008 at 08:23 | #68

    Terje, there’s no shortage of people advocating tax cuts, so it hardly surprises me that social democrats don’t see any create need to join in the chorus there.

    FWIW, I absolutely agree that the raise in the tax rate during the Howard year was indefensible – not because I don’t believe there was any case for raising taxes, but because it didn’t appear to result in any tangible improvement in the provision of government services.

    And yes, there are unavoidable dead weight costs of taxation, but I’m not sure they need be much higher than the dead weight costs of private money collection. And further, the alternative to taxation is leaving the private sector to provide all the services that taxes now pay for, which can easily generate all sorts of other long term social and/or environmental costs that never show up on anyone’s balance sheet.

  69. wizofaus
    October 3rd, 2008 at 08:24 | #69

    Oops, read “great” for “create”.
    I also meant “raise in the tax take” not “tax rate”.
    Where’s that “edit post” button!

  70. Hal9000
    October 3rd, 2008 at 10:04 | #70

    As Oliver Wendell Holmes Jr (a giant compared to the pygmies currently occupying the US Supreme Court bench) wisely said, taxes are the price we pay for civilisation. I doubt that the neo-liberals would enjoy being recharacterised as neo-barbarians, but that nonetheless is their program.

  71. Bingo Bango Boingo
    October 3rd, 2008 at 14:33 | #71

    Huh? Taxation is as central to the neoliberal program as it is central to pretty much every socio-political philosophy that is not libertarianism or anarchism. What on earth are you talking about, Hal9000?


  72. Bingo Bango Boingo
    October 3rd, 2008 at 14:49 | #72

    The equally absurd and opposing view is fairly easy to construct: social democracy cedes control of human action to unelected bureaucracies whose decisions are largely informed by the politics of paid-for representatives in hopelessly corrupted parliaments and whose modern modus operandi is the mediation of opposing group interests through ‘stake-holder’ decision making. I doubt that the social democrats would enjoy being re-characterised as neo-fascists, but that nonetheless is their program.


  73. TerjeP
    October 9th, 2008 at 00:07 | #73


    Taxation is the price we pay for government. Government is not civilisation and is often not even civilised. To confuse government with civilisation or with society is the common thread of intellectual failure that characterises so much of what social democrats think. It is hard to have a meaningful discussion about society and it’s direction if you have already decided that society = government. Typically larger and / or more central government displaces civil society and erodes notions of community. However if you hold that society = government you are probably blind to the effect.

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