The slow demise of neoliberalism

That’s the headline for my latest piece in Inside Story, a review of Brad DeLong’s Slouching Towards Utopia and Sebastian Edwards The Chile Project . Some extracts

The Chile Project, of which Edwards was a generally sympathetic observer, ranks with Thatcher’s Britain as the paradigmatic case of what I’ve called “hard neoliberalism,” which combines authoritarianism and radical free-market policies …Outside the United States, soft neoliberalism was often described as the Third Way. Its central theme was the idea that the goals of social democracy (or liberalism in the US sense) could best be achieved by embracing market-oriented reforms, and particularly financial deregulation, while maintaining a generally redistributive welfare state.

Edwards sees the protest movement that launched in 2019 as the beginning of the end for Chilean neoliberalism. Taking account of global trends, DeLong marks 2010 as the year when the “slouch towards utopia” slowed to a crawl or stopped altogether. Either way, neoliberalism had gone from unchallenged hegemony at the turn of the twenty-first century to full retreat twenty years later.

DeLong argues, correctly I think, that social democracy was a victim of its own success. Everyone expected accelerating growth in their incomes combined with a continuation of full employment and low inflation. When the system failed to deliver at quite the expected level, neoliberalism promised a return to prosperity. By the time it became clear that this promise would not be realised, expectations had been lowered so much that (for example) a 5 per cent rate of unemployment was seen as a success rather than the disaster it would have been perceived as in the 1970s.

Again taking the optimistic view, we are seeing a gradual rehabilitation of the institutions of the mixed economy, including activist governments, public enterprise and trade unions. At least for the moment, we don’t have to worry that our limited successes will recreate the hubris of the 1960s. Perhaps we can finally put the era of neoliberalism behind us. •

Read the whole thing at Inside Story, then come back here to comment if you would like.

11 thoughts on “The slow demise of neoliberalism

  1. The failures you mention are failures of free market fundamentalism not of the mixed economy. Generations of economists – think of Samuelson’s introductory text – have proposed and supported the mixed economy model not free markets everywhere. Economist supporters of unrestrained free markets (close to the empty set) ignore the facts of public goods, externalities and natural monopolies. The argument that we don’t want an active public sector is theology not economics. So too are irrational attacks on so-called “neoliberalism” that are often just tunnel vision driven, anti-business rants that fail to see the obvious virtues of allowing where possible people to make voluntary trades without political or bureaucratic controls and to pursue wealth for themselves and their families.

    The difficult issue avoids siding with the free market fundamentalists who ignore market failures and the anti-business theologians who ignore economics and the political virtues of liberalism. That difficult issue is deciding where the boundaries of state intervention lie and where imperfectly efficient businesses outperform inefficient bureaucrats and politicians.

    It’s also a difficult issue because planning and controls to get things “right” on the basis of self-claimed moral superiorities often seem to outperform the untidiness of market outcomes. Tunnel vision has been a long-standing enemy of rational economics and of the free society. A plan isn’t always better than a messy market.

    Distribution is something that should be addressed with care. Gross inequalities in spending power should be addressed where they can be without destroying the incentives that promote prosperity. Again one needs to be aware of demagogues who promote myopic community envy to advance their own political careers and to gain applause from the mob. This is as great a concern as free market fundamentalism and so-called “neoliberalism”.

    Among economists there is also a need to avoid hubris in relation to their simple theories. Often economists just don’t know. That would be my take on what happened in Chile and in the coid-shower liberalizations of the former Soviet Union. Economists just didn’t think through what might happen if their simple theories were wrong. And sometimes they applied correct theory wrongly as in the privatisation of public firms that were natural monopolies.

  2. “DeLong marks 2010 as the year when the “long twentieth century” of technologically driven growth came to an end. ” I’ve nothing to add to JQ’s response on the information economy. Email is an enormous benefit in welfare terms, but nobody is making real money out of it. The Web has allowed massive growth in what used to be called mail-order shopping – but that has largely been redistribution away from neighbourhoood stores to Amazon.

    A footnote on energy technology. There have been tremendous improvements in green technology, before and after 2010. But the new technology has simply replaced the old as supply plumbing. People use roughly the same amount of electricity as before, produced differently, and get around in cars, just with battery powertrains. The energy transition barely affects living standards at all. Except for possibly staving off climate catastrophe, which is not insignificant.

  3. Again one needs to be aware of demagogues who promote myopic community envy to advance their own political careers and to gain applause from the mob.

    It might be important to be aware of them if they exist. If they don’t exist, then ‘awareness’ of them is not in fact awareness but rather misapprehension.

  4. This from JCER estimates the impact on China’s GDP from COVID, tariffs and restrictions on innovation, particularly IT.

    https://asia.nikkei.com/Economy/China-s-GDP-unlikely-to-surpass-U.S.-in-next-few-decades-JCER

    Brad Delong puts 1870 as the time when innovation took off, allowing for an increased life span and raising the quality of life.

    It was around 1870 that the unregulated East India Company finally folded, after having gouged and plundered much of India for decades, without any thought of reinvestment, they were broke and busted.

    It would seem that both innovation and a freely functioning democracy are more critical to GDP.

  5. The Jacibin article below hits all points and more of DeLong & JQ’s articles.

    JQ: “Perhaps we can finally put the era of neoliberalism behind us. •

    Neoliberalism maybe, but not capital.

    Brad DeLong said in “FIRST: John Quiggin on the End of Neoliberalism” (thanks rog) says: …”Thus social democracy’s benefits are too dearly bought, at a price that society is unwilling to pay.

    “Yes, this is a strange pattern of thought. But it is out there…

    “I find myself thinking that what I really need to do is go back and reread my Friedrich Engels.”
    *

    And here is Anton Jäger in Jacobin channeling of DeLong re:
    …”As “Friedrich Engels pointed out in a report to British trade unionists in 1881:
           “Capitalists are always organized. They need in most cases no formal union, no rules, officers, etc. Their small number, as compared with that of the workman, the fact of their forming a separate class, their constant social and commercial intercourse stand them in lieu of that.”…
    *

    “From Bowling Alone to Posting Alone

    BY Anton JÄGER

    “Perfecting Oligarchy
    “Why, then, has the Right nonetheless done better than the Left in the age of Putnam? The reasons are unsurprising: the Right has always grown organically out of capitalist society and relies on the default forms of association that capital generates. As Friedrich Engels pointed out in a report to British trade unionists in 1881:
           “Capitalists are always organized. They need in most cases no formal union, no rules, officers, etc. Their small number, as compared with that of the workman, the fact of their forming a separate class, their constant social and commercial intercourse stand them in lieu of that. . . . On the other hand, the workpeople from the very beginning cannot do without a strong organization, well-defined by rules and delegating its authority to officers and committees.”

    “The crisis of civil society, in the latter sense, poses more of a problem on the Left than on the Right because the benchmarks of any successful socialist politics are always higher. To the Right, the stabilization or preservation of property relations is mostly enough. Inertia and resignation, more than militancy, remain its great assets.

    “Putnam was right, but for the wrong reasons: associationalism matters for democracy, but it hardly matters to capital — and might even threaten it. For those contemplating a 2024 Bernie Sanders run, the question of the legacy the campaign leaves behind seems of even greater importance than what it accomplishes, let alone whether it will allow Bernie to ascend to the presidency. Only in that case will we see a true test of constitutional loyalty for capital, and only then can we gauge money’s alignment with liberal democracy. In the absence of this threat, both on left and right, we will keep on bowling alone.”
    https://jacobin.com/2022/12/from-bowling-alone-to-posting-alone
    *

    Anton Jäger
    “I’m a historian of political thought, interested in the interrelation between capitalism and democracy. More specifically, my work focuses on the question of how capitalism  — here understood as a system of generalised market dependence — both enables and constrains political thinking and acting, generating specific visions of democracy, distribution and representation.”
    https://hiw.kuleuven.be/ripple/people/00146127

  6. Ross Gittins;

    “ Comparing countries, economists have found strong links between more social trust and higher levels of income. Trust is one of the top determinants of long-term economic growth.

    And high-trust societies, with less distrust of science, had better outcomes in tackling COVID. That’s one respect in which we didn’t do too badly this year.”

    https://www.smh.com.au/business/the-economy/2022-the-year-our-trust-was-abused-to-breaking-point-20221213-p5c5tv.html

  7. «social democracy was a victim of its own success. […] neoliberalism promised a return to prosperity. By the time it became clear that this promise would not be realised, expectations had been lowered»

    This to me seems the classic prevarication of “left neoliberals” (as BDL used to style himself) that seems to means to mislead about how “social democracy was a victim of its own success“:

    * The promise of neoliberalism has been delivered, in huge amounts, to 20%-40% of the electorate, whose prosperity has been booming for 40 years thanks to rapidly rising real estate and stock share prices, entirely redistributed from the lower classes. Social-democracy allowed them to become real estate and stock share speculators, and they really loved it. So assets switched for them from being a cost to being a revenue stream, and have been voting for higher asset valuations ever since.

    * Thanks to social-democracy many people who traditionally relied on the wages of their children for security in retirement, now rely only on fixed-income payments from final salary pensions. So wages switched from them from being a revenue stream in retirement to being a cost, and have been voting for lower wages ever since.

    That social-democracy switched many voters from wanting higher wage incomes and lower housing cost to lower wage costs and higher housing incomes could have been avoided, with somewhat different policies, but that’s what happened. The past 40 years have been the era of mass rentierism.

  8. «The past 40 years have been the era of mass rentierism.»

    Some relevant quotes:

    A commenter on “The Guardian”: «I will put it bluntly I don’t want to see my home lose £100 000 in value just so someone else can afford to have a home and neither will most other people if they are honest with themselves»

    A 79-year-old retired carpenter in Cornwall: «who bought his council house in Devon in the early 80s for £17,000. When it was valued at £80,000 in 1989, he sold up and used the equity to put towards a £135,000 fisherman’s cottage in St Mawes. Now it’s valued at £1.1m. “I was very grateful to Margaret Thatcher,” he said.»

    Bloomberg: «From the minute the average couple buys a home they’re constantly calculating how much they’ll make when they sell it»

    «The growth of the investor class — those 70 per cent of voters who own stock and are more opposed to taxes and regulations on business as a result — is strengthening the conservative movement. More gun owners, fewer labor union members, more homeschoolers, more property owners and a dwindling number of FDR-era Democrats all strengthen the conservative movement versus the Democrats. […] Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”. And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.»

    What astonishes me is that people like BDL etc. seem to have been unable to notice this huge political and economic development that has also made them personally much wealthier, like most of the upper-middle class.

  9. From the “Inside Story” article:

    «First, did technological progress really cease to work after 2010 and, if so, why?»

    It ceased several decades before, unfortunately: since the 19th century “technological progress” has meant cheaper and better fuels, first coal and then oil, creating two productivity miracles as their use became both more widespread and more efficient. Put another slightly more technical way, coal and oil resulted in an enormous windfall of “consumer surplus”. Unfortunately oil-based machinery became already quite common and quite efficient decades before 2010, probably in the “advanced economies” around 1970-1980. No cheaper and better fuel than oil has been discovered, and therefore productivity growth has stagnated.

    «Second, why was a relatively short burst of high inflation enough to overthrow social democracy yet decades of poor economic performance insufficient to generate an alternative to neoliberalism?»

    As argued before, from the point of view of a large number of middle class asset owners (in particular but not only retirees) the past 40 years have been of very good economic performance, with asset prices and profits booming, and labour costs shrinking, resulting in constantly rising living standards (entirely paid for by the lower classes) for them.

  10. «and therefore productivity growth has stagnated»

    Ahhh to be sure: by this I mean physical productivity, that it physical output per hour of work, which is what matters in the aggregate.

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