The (Not-so-Secret) History of Neoliberalism

Since we’ve been on the subject this past week about why a “market society” divorced from any political or governmental concerns is a harmful utopian fantasy, I thought now would be a good time to share these articles which describe how and why these ideas came about and the effect they’ve had. The first is called “Neoliberalism: The Revolution in Reverse”:

Neoliberalism began as a counter-reaction against the revolutionary “sweeping away of all that has come before” of radical Communism and their  attempts to rewrite human nature and social relations:

Like many European intellectuals of the time, Hayek was also haunted by the recent terrors of totalitarianism; both he and his harder-line Austrian colleague, Ludwig von Mises, were exiles from the Nazi regime, and the group of like-minded intellectuals they recruited to form the Mont Pelerin Society shared their sense that market-based liberalism remained the only sure refuge from communism and fascism. It was an obvious corollary of this faith that the philosophic values associated with such liberalism—skepticism, open inquiry, and historical contingency—were the most reliable antidotes to totalitarianism. Hayek, for example, argued that the halting and contingent nature of all human knowledge laid bare the conceits of state economic planning and demand management as so much bitter and destructive farce. In a 1936 lecture called “Economics and Knowledge,” he sounded an early note of epistemological skepticism in public affairs that was virtually postmodern: “How,” he demanded to know, “can the combination of fragments of knowledge existing in different minds bring about results which, if they were to be brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?” Clearly, nothing about such radical skepticism entailed an ironclad commitment to free-market fundamentalism.

But to inspire this vision, they needed to create an all-encompassing vision of society  as compelling as those of the communists:

The challenge, as Hayek saw it, was not merely to mobilize the resources of the economic policy elite and its intellectual fellow travelers to ratify a complacent, status quo vision of business civilization, but to collaborate on a far more ambitious project. In a 1949 paper called “The Intellectuals and Socialism,” Hayek sketched out a visionary, classically liberal mandate that became the animating mission of the Mont Pelerin Society:

“We must be able to offer a new liberal program which appeals to the imagination. We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is a liberal Utopia, a program which seems neither a mere defense of things as they are nor a diluted kind of socialism, but a truly liberal radicalism which does not spare the susceptibilities of the mighty (including the trade unions), which is not too severely practical, and which does not confine itself to what appears today as politically possible. We need intellectual leaders who are willing to work for an ideal, however small may be the prospects of its early realisation. They must be men who are willing to stick to principles and to fight for their realisation, however remote. The practical compromises they must leave to the politicians.”

There is, of course, a contradiction at the heart of Hayek’s vision: How is a utopian free society supposed to pursue its own ambitious battery of universalized mandates while remaining ostensibly founded on the radically unknowable nature of all human experience? But the real irony of Hayek’s utopian longings is that they were fully realized—albeit, of course, in nothing like the form he envisioned. As Daniel Stedman Jones argues in his incisive study of the neoliberal rise to power, Masters of the Universe, “it is hard to think of another ‘utopia’ to have been as fully realized” as Hayek’s came to be in the powerful neoliberal regimes taking shape in Reagan’s America and Thatcher’s Britain: “The free market became the organizing principle for microeconomic reform, especially through the privatization of state assets, nationalized industries, and public services. Trade unions were vanquished and the power of labor was diluted. Exchange controls were abolished. The financial markets were progressively deregulated. Market mechanisms became the models for the operation of health care.”

That vision lay mostly theoretical until the 1970’s. Then came economic crises and dislocations. Enter Milton Friedman:

When Paul Volcker—Jimmy Carter’s appointee to chair the Federal Reserve—adopted a modified version of Friedman’s theology of the money supply to tame the two-digit inflation of the late 1970s, Friedman was suddenly the policy visionary who could do no wrong. He soon served as an informal adviser to both the Reagan and Thatcher governments (and, less prestigiously, to the dictatorship of Chilean general Augusto Pinochet). He reached a popular audience via a column in Newsweek, a hit series on PBS, and several bestselling tracts of unalloyed free-market sloganeering. While demure Europeans such as Hayek distrusted the allure of popular renown as a temptation to oversimplify their ideas and pander to the public, the robustly entrepreneurial Friedman embraced a masscult platform.

Along with the apotheosis of the Market under Neoliberalism came a wholesale demonization of collective governance that led to the dismantling of the managed capitalism that prevailed after the War/Depression (which created the ephemeral and now erstwhile American middle class). This provided an intellectual justification for the dismantling of good/competent government as well as the welfare state around the world:

Friedman converted Adam Smith’s classical doctrine of the invisible hand—whereby all self-interested actions mystically possess a benign or munificent social payoff—into an inverted demonology of the public sphere. There is, he said in an address honoring the two-hundredth anniversary of The Wealth of Nations, “an invisible hand in politics that is the precise reverse of the invisible hand in the market”:

"In politics, men who intend only to promote the public interest, as they conceive it, are ‘led by an invisible hand to promote an end which was no part of their intention.’ They become the front-men for special interests they would never knowingly serve. They end up sacrificing the public interest to the special interest, the interest of the consumers to that of producers, of the masses who never go to college to that of those who attend college, of the poor working-class saddled with employment taxes to the middle class who get disproportionate benefits from social security, and so down the line."

It’s hard to imagine a purer statement of the founding principles of neoliberalism as we have come wearily to know it in this advanced stage of market collapse. It is pitched, first of all, in a counterintuitive rhetoric of worldly cleverness, a spirit of seminar-room one-upmanship. Not only is Adam Smith right about the hidden virtues of business interests, but the same paradox operates, by a virtually metaphysical law, to transform every action of every individual putatively serving the public interest into a parody of his or her stated intent.

Neoliberalism won the war of ideas and became the unchallenged philosophical basis of all human behavior in the wake of Communism’s collapse. The article concludes by examining the reaction to the Rana Plaza disaster in Bangledesh , which should have been a clear indictment of the benevolence of an unregulated free market. Instead, even so-called “liberal” pundits unabashedly rushed to defend the Neoliberal status quo:

...In other words: Bangladeshi workers can either be more safe or starve more rapidly. But according to Epstein, they assuredly aren’t entitled to earn a living wage without the threat of being crushed or burned to death at any given moment. The pertinent market trade-offs simply won’t permit it…[T]he neoliberal consensus has long since transcended conventional divisions of party and ideology; the axiomatic assertion of market dominance is a conditioned reflex among nearly all established pundits.

In a now-infamous April 24 write-up of the Bangladeshi catastrophe, Slate’s Moneybox columnist Matt Yglesias—an eager Democratic partisan brandishing pious Washington credentials from The American Prospect and the Center for American Progress—tried his own hand at an Epstein-style vindication of the market’s undeviating wisdom. In a post bearing the reassuring free-to-be-you-and-me headline “Different Places Have Different Safety Rules and That’s OK,” Yglesias framed his defense of the status quo regime of erratic standards for worker safety in the hoary rhetoric of the public choice “trade-off.” “While having a safe job is good,” Yglesias chirped, “money is also good.”

OK, then! But note again the pinched moral universe in which employees are permitted only to have a safe job or a (barely) sustenance income, and never both at the same time. It seems a modest social goal to demand that the exchange of labor value for a paycheck in non-mortal conditions be accepted as an incontrovertible human right. If a rapidly globalizing market order is unable to secure that baseline personal and financial security, its support for wildly varying models of job safety should be regarded precisely as the problem—and not as the taken-for-granted standard for phony assertions about what individual workers (let alone “the Bangladeshis,” tout court) are purported to be choosing.

Now, no matter how madly the market fails – there is no alternative, even as we slide into a neofeudal dystopia:

Neoliberal orthodoxy has leached so deeply into the intellectual groundwater of the nation’s political class that it’s no longer a meaningful descriptor of ideological difference. That’s why Yglesias’s erstwhile American Prospect colleague Ezra Klein, over at his prestigious post atop the Washington Post’s economic blog shop, can marvel at the tough-minded budget “seriousness” of serial Randian liar Paul Ryan—or why the Obama White House can confidently slot offshore billionaire Penny Pritzker as its second-term commerce secretary while it continues to mouth empty platitudes about saving the nation’s middle class…. Even putative liberals who pay lip service to the efficacy of government intervention dig in behind their own pet postulates about the market’s transcendent wisdom and beneficence—about the need to temper the alleged excesses of the social-democratic usages of social wealth with sterner, more austere pieties about the real-world trade-offs mandated by the lords of neoliberal market liberation.

Neoliberalism, the revolution in Reverse (The Baffler)

This article entitled After Neoliberalism gives a more concise history:

In order to understand the significance of these seemingly low-level changes, we need to think back to the 1940s, when the economic power of central governments was growing at unprecedented speed. Centralised economic planning was at its height thanks to a combination of world war, statist ideologies and the new macroeconomic techniques invented by John Maynard Keynes. It was against this backdrop that a marginalised group of economists and philosophers began the neoliberal fightback. They were inspired and organised by the émigré Austrian intellectual, Friedrich Von Hayek.

Hayek argued, most notably in his 1944 classic The Road to Serfdom, that economic planning always led to tyranny — that was the inevitable result of allowing centralised experts to take unilateral decisions on behalf of the population. By contrast, the free market that had operated during the heyday of Victorian liberalism served as a mechanism for coordinating millions of decisions, with no single individual or institution dictating the ultimate outcome. By trusting individuals to pursue their own goals without consensus or debate, markets had an innately liberal quality, quite aside from whatever efficiency claims might also be made for them.

Markets, from this perspective, are information-processing machines. They are like vast computers, channelling decisions, desires and preferences. They have no ideas of their own about what is worth producing and having: they just process the choices that individuals happen to make. And their capacity to do this is all thanks to the price mechanism. Increased desire for some good or service will cause the price to rise, resulting in more of that good or service being offered. Hayek, supported by Milton Friedman and the Chicago School of economics, urged policymakers to abandon any concern with desirable economic outcomes or values. Instead, they should focus only on building the structures within which the price mechanism could operate freely. This is why, for example, neoliberals have long viewed cartel-busting as one of the state’s foremost responsibilities.

The prolonged economic slowdown of the 1970s created a thirst for new policy ideas, which the neoliberals cleverly satisfied. Although the purity of Hayek’s vision was inevitably polluted by the messy reality of politics, the new era that Margaret Thatcher and Ronald Reagan ushered in treated free markets, governed by the magic of price, as the basis for the moral and economic logic of state and society. At the heart of the neoliberal era were two fundamental assumptions. Firstly, individuals, not experts, were the best judges of their own tastes and welfare. Secondly, the price mechanism of the market could be trusted to adjudicate between the various competing ideas, values and preferences that exist in modern societies. The state, by contrast, could not.

After Neoliberalism (Aeon)

Finally, I thought this was interesting:

Neoliberals neutralize their opponents by mounting a full spectrum response to crises: a short-term easily mobilized response to stymie their opponents; a subsequent medium-term response which involves a strong state in instituting more new-fangled markets; and a long-term science fiction response (also involving the state) to present an upbeat optimistic version of neoliberal doctrine. The shorter-term responses buy time for the thought collective to mobilize their longer-term panaceas. The book describes the dynamic in greater detail, but here, let me just indicate that, in the case of the climate crisis, the short term response is global warming denialism; the medium-term response is to institute trading schemes for carbon emission permits and offsets; and the long term science fiction response is geoengineering, such as schemes to pump particulates into the stratosphere to supposedly block out the sun and mitigate the warming process—but not, significantly, to actually cut back on carbon emissions. What Klein and others get wrong is that neoliberals are not really ‘anti-science’ as such; rather, ploys such as denialism simply postpone political attempts by opponents to cut emissions until they can recruit and train a cadre of entrepreneurial neoliberal scientists, whereas meanwhile the situation gets so dire that their preferred ‘market’ solutions come to seem the last refuge for a desperate populace. It is significant that each of these ‘ideas’ were innovated in neoliberal think tanks.

(from the comments section: In regards to this the other technology not mentioned is nuclear – which while it isn’t economic, is trying again to get momentum via the academy to train up a new generation of scientists and engineers without whom it will remain fiction – and this is thanks in part to many soft neoliberals who believe in climate change but who don’t want to lose the option for infinite economic growth which they see renewable energy sources as inhibiting.)

The striking aspect of the history of the economic crisis is that the thought collective has resorted to the very same pattern of full-spectrum response to demands to restructure the financial sector after the crisis. The initial short-term response was crisis denialism, as documented in the book: banks did nothing wrong, it was all the fault of Fannie Mae and Freddie Mac, the economics profession was not blind-sided, and so forth. The medium-term response comprised the market-based rescue of the banks. People attribute far too much agency to central banks as saviors, when the details of the rescue reveal that the privatization of balance sheet restructuring and outsourcing of asset management was the clear alternative to nationalization and breaking up the banks. The long term science-fiction solution is financial engineering: the doctrine that the only way The Market can transcend its problems is by entrepreneurial souls whipping up even more complex financial instruments to ameliorate the burden of the previously hobbled balance sheets.

Fixing Old Markets With New Markets: the Origins and Practice of Neoliberalism (Naked Capitalism)

Of course, all this gave rise to the playbook we’ve been living in since the 1980’s – a.) get elected by demonizing government as dysfunctional and claiming it doesn’t work, b.) Once getting into office, make sure government is ineffective and corrupt by starving it of funds and packing it with cronies, c.) repeat step 1, but ratchet everything up a notch. Funnel public money to private corporations to take care of everything. Wash, rinse, repeat, and you have today's political climate: senators that work for corporations, huge budget deficits and national debt (the U.S. was a creditor country until Reagan), cronyism, millions without access to health care or decent jobs, and the transportation infrastructure of a third-world banana republic. Yet, despite all this, there is no resistance!  In fact, thanks to the Tea Party, we are stepping on the accelerator pedal of all the above!

This is also the strategy behind "voucherism" - the latest idea that you just get some lump of money and then you go shopping in the "free" Market for whatever you need, rather than collectively providing excellent public services available to all, regardless of income. So you replace public school and Medicare with "vouchers" and then "consumers" spend every minute of their free time shopping for deals. Then, voila!, through the magic of the market, all problems are solved. This is also why Republicans want to eliminate Social Security by engineering a “crisis” (through tax cuts) and then getting you to invest “your money” in the stock market. It's also why you have a 401K and student loans instead of a pension and publicly funded higher education (the fees for the California State University system prior to Reagan were zero). Instead of the government collecting and managing a collective pool of money on behalf of ordinary people, you get tax credits and then must choose how to spend "you money" in a harsh and unforgiving market that, like all markets, is rigged for the benefit of elite insiders and free from any sort of democratic control or oversight. The fact that this funnels money to market profiteers who can charge whatever they wish is something we’re not supposed to think about. This is, of course, why America spends more than enough public money to give every citizen free higher education and health care, yet millions are bankrupted by both every year.

Is it any coincidence that these ideas make the rich richer and turn the rest of us into marginally-employed debt serfs. I think it's long past time Neoliberalism joins Fascism and Soviet-style communism in the ash heap of history, before it becomes even more despotic and oppressive than either of those thanks to digital technology.