Loading presentation…
Opening in Keynote for Mac...
Your browser isn’t fully supported.
For the best Keynote for iCloud experience, use a supported browser.
Learn More
Cancel
Continue
12.2.0. Intro Video: Neoliberalism’s Bankruptcy
During the (from our perspective relatively minor) turmoil of the late 1970s, the global north took the neoliberal turn.
It became the rough consensus that social democracy had over
r
eached, that there needed to be a cleaning of regulatory and redistributional barnacles from the good
ship "mixed economy”. Why? So that entrepreneurial energy could be unleashed and rapid growth reobtained, even at the cost of a somewhat more unequal
distribution of income. Moreover, there was a defi nite need for somewhat less of government’s ham-handedly trying to force people into Procrustean beds of semi-
socialist righteousness, with respect to the environment, racial equity, and so forth.
But the neoliberal era did not “deliver” anything but higher inequality in income and wealth. And where rapid growth was reattained, it was only on the flood
provided by the massive public subsidies of and guidance to the key technologies of the information-technology revolution. Yet neoliberalism's failure to deliver on its
promises did not provoke a backlash. Electorates voted against any thoughts that Bill Clinton or Tony Blair might have had of moving further left, of a social-
democratic restoration. And so it was Bill Clinton who said: “the era of Big Government is over…”
But neoliberalism was not just unprofi table. It was bankrupt. Its bankruptcy showed itself most strongly in two areas:
The fi rst area of neoliberal bankruptcy was in its failure to even understand the rapidly growing developmental-state economies of East Asia. They were defi nitely not
“neoliberal”. Yet they succeeded. Over and over again, we heard from neoliberals that governments could not “pick winners”, as far as companies pursuing purposeful
industrial development were concerned—that any such plans would fall victim to corruption and rent-seeking, and create not highly productive industries but rather
industries good at extracting government subsidies.
What that meant in practice for the neoliberal economies of the United States and Britain was that the various forms of cross-cutting government subsidies flowed
everywhere except to fi rms and industries that could promise to produce large externalities—in terms of doings that could then be learned, and of nurtured
communities of engineering practice.
But, especially if you were a follower country, it was very very clear what industries needed to grow. And developmental states that focused their subsidies on
successful exporters ran no risk of subsidizing ineffi cient rent-seekers, and grew rapidly.
Yet running a successful developmental state was not easy. It was more or less limited to the pre-1970 United States, to imperial Germany, to the countries of southern
Europe in the post World War II period, and—most spectacularly—to the economies of east Asia. We will look at and try to understand why they were so successful,
and why they were the only countries that were so successful, at accomplishing tasks that do seem straightforward and, if one takes off neoliberal blinders, obvious.
The second failure was in neoliberalism’s failure to maintain the guardrails against depression. For some reason—I still have no idea how or why—economists and
economic policy makers by 1980 had convinced themselves that you could trust the market to rapidly return and economy to full employment.
In part, I think, this was the result of an intellectual confi dence game run by Milton Friedman. Friedman argued strongly and vehemently that all a government had to
do was run a “neutral” monetary policy, and maximum feasible employment would be maintained, or rapidly retained. But what was maximum feasible employment?
It was what a neutral monetary policy produced—any residual unemployment was then “structural“ and not the central banks’ or fi scal policymakers’ business. And
what was a neutral monetary policy? It was whatever produced maximum feasible employment.
All this meant that when the world economy did collapse in 2008, what would have been the obvious policy was off the table: Governments did not print money and
buy stuff, and so force economies rapidly back to the full employment situation.
Instead, governments were satisfi ed with a mere recovery of asset prices that made the rich whole from the Great Recession downturn of 2007 to 2009. Thus the
market could not calculate what are the productivity increasing industries into which labor and investment should be directed. The neoliberals thus allowed high
unemployment, slow productivity growth, and companies wary of investment—out of a fear that a demand to buy what they might produce would not be there—to
drag on and on and on. And on. Why? Because they were still worried that it might be the 1970s, as far as the economy’s vulnerability to rising inflation might be
concerned. And so no risk that inflation might rise above 2
%
was worth running.
Moreover, confi dence that a mere “neutral” monetary policy would maintain full employment had led earlier to absolutely no concern for whether large systemically-
important fi nancial institutions were properly regulated to guard against bank runs and fi nancial crises. Those in the hot seats when the crisis came–Bernanke,
Paulson, and Geithner–had absolutely no idea what risks they were running when they, say, did things like simply stand by watching curiously as the banking fi rm of
Lehman Brothers collapsed into the uncontrolled bankruptcy in the fall of 2008.
There was no sound reason to take down the guardrails of fi nancial regulation. There was no reason to presume that a neutral monetary policy would be suffi cient.
There was every reason to tightly bind the riskbearing of highly leveraged systemically-important fi nancial institutions. There was every reason to purchase
macroeconomic insurance—other forms of economic stimulus that could be dialed down if not needed.
But neoliberalism said: “no”.
In the end, the macroeconomic bankruptcy of neoliberalism was profoundly ideological. It was important for the neoliberals to argue others into believing that the
market was always and everywhere to be trusted more than the government. But what if you admitted that you did not trust the market to maintain full employment?
Or that you did not trust high fi nance to self-regulate itself? Then that raised the questions: Say what? What about that presumption that the market is to be trusted ? If
you don’t trust the market there, why should you trust the market to to do everything else? Why shouldn’t you then examine issues on a case-by-case basis?
Establishing the blanket position the market was trustworthy and government not required that one extend that position to and aggressively maintain confi dence that it
was true in sectors and for questions where it was not true.
And that led to disaster.
1003 words
<
https://share.mmhmm.app/e38d4f2886064bd089de73ba73d450e7
> 8:00 minutes
2020-10-30
<
https://share.mmhmm.app/e38d4f2886064bd089de73ba73d450e7
> <
https://www.icloud.com/keynote/0cSW4RyldJX6TkrqjBSNs2y3g
> <
https://github.com/braddelong/public-fi les/blob/master/econ-115-module-12.2.0-neoliiberalism's-bankruptcy-8.00.pptx
>
<https://www.bradford-delong.com/2020/11/1220-intro-video-neoliberalisms-bankruptcy-econ-115-f-2020.html>
<https://www.typepad.com/site/blogs/6a00e551f08003883400e551f080068834/post/6a00e551f080038834026bdea966df200c/edit>
