Most critics of neoliberalism aren't comparing it to the pre-1974 or pre-Reagan era. They are comparing it against their utopian ideal.
For critics on the right, this ideal is a directed social and economic life with decisions made by like-minded white Catholics. For critics on the left, this ideal is a directed social and economic life with decisions made by like-minded diverse socialists. Each wants to impose their own view of what everyone else should be doing.
now to take that and pick a fight with the Lefties: what if Markets ARE Freedom?
Sure you can pick some weird edge cases - the last bottle of water in the desert or something - but most transactions are VOLUNTARY and both sides benefit from the transaction (or they just wouldn't do the deal!)
You don’t need weird edge cases to show that markets are not exactly freedom, all you need is economic history. The average American had far more control over his time and material circumstances in 1955 than 1925, even though the government was vastly bigger, taxes were far higher, and the regulatory state had expanded several fold. If the only option the market gives you is working 60-70 hours a week for subsistence, you have less freedom than a hunter gatherer. Markets create freedom to the extent they let one earn quickly enough to do fun or worthwhile things. There’s a serious argument that Norway is freer than the US, and I’m pretty convinced that the Netherlands (legal pot, euthanasia and prostitution, most mothers work part time) is ALOT freer than the US.
>> "The average American had far more control over his time and material circumstances in 1955 than 1925, even though the government was vastly bigger, taxes were far higher, and the regulatory state had expanded several fold."
I don't really disagree with your overall point, but your example seems like a case of correlation does not imply causation. Real GDP per capita was three or four times higher in 1955 than it was in 1925, so of course the average person was better off because they were three times richer thanks to massive economic growth.
Were they better off because of the size of the regulatory state, or despite it?
It is not a given that the economy would have grown by four times higher in that period. The problem for the hard-core right wing market ideologues is that the fastest growth rates in the US in the last hundred years occurred during a period of high tax rates and substantial government regulation and investment in the economy.
And the problem for the rest of us is that European countries -- places with "higher taxes and more government regulation and investment in the economy" have had lower growth rates than the US for the past 30 years.
Today's world economy isn't the same as the 1950s.
Well, I would say Neoliberalism was NOT Libertarianism, and a key difference was that Neoliberals did not count on markets to maintain themselves organically the way the Libertarians did. Neoliberals could still be anti-monopoly, and the "consumer welfare" argument was very neoliberal.
Government is a tool to protect freedom, and markets are a freedom the government protects.
Is anyone actually talking about a non-market economy seriously though? The USSR was a very weird and wacky place that did lots of bizarre and very interesting things, but it's gone. The Chinese have markets. The question is not 'should people be able to choose for themselves how and when to engage in productive activity', but rather, 'what should the relationship of the state be to the market'.
I am actually a deregulatory kind of guy, personally. But I don't think it's true that 'freedom' is a particularly meaningful lens through which to view regulation, or at least not in this libertarian way being presented here. Take airwave regulations. I can't just start broadcasting fat signals on whatever frequency I want. If everyone could do that, we couldn't have radio (or lots of other things). I wouldn't describe a world where I have the 'freedom' to broadcast on every frequency as actually freer in practice. Liberalism only makes sense as an augmentation to a pre-existing orderly society with a strong state that has lots of capacity. That's why every liberal society that has ever existed has been such.
On a philosophical level, it would be great if society could do a better job of leveraging non-market signals. Things that can be monetized get supplied much more effectively in a capitalist society, and sometimes they crowd out valuable things that aren't monetized, in my opinion.
Unfortunately, no one has really come up with an alternative, and the people who spend the most time critiquing capitalism seem to have the least interest in designing or testing a different or supplemental approach. They just end up appealing to "there ought to be a way."
Well, international markets are definitely under attack, with rising protectionism and reduced appreciation of the benefits from free trade. Apparently it is important that Americans are able to make their own washing machines?
"Healthcare is a human right" people seem to be attacking market mechanisms for healthcare. And while I understand some of that motivation, they seem to ignore how doctors and nurses are providing their labor for a fee.
We see a resurgence of national industrial policy - and while there might be solid national security reasons for this, it's an anti-market endeavor.
Parts of the Left seem exceedingly riled up about how Amazon enables us to get so much stuff so cheaply. Somehow this is bad?
I thought there was an offensively mainstream discussion of price controls during the highest recent inflation years. Such an ignorant policy suggestion that I cannot pretend to take it seriously.
Broadly, the lack of "supply side progressivism" shows a disregard for markets. Why so hard to pass an abundance agenda that would obviously reduce inflation? Baffling.
"Apparently it is important that Americans are able to make their own washing machines?"
I think it's helpful to anchor that currently Americans already make the majority of their own washing machines. Whirlpool and GE have ~ 70% share of the US appliance market and both fully assembly between 60-80% of their products in the USA and the remainder mostly in Mexico. Samsung imports most of their products but Bosch assembles nearly all of their US sales in their NC and TN factories. At the higher end all the Sub-Zero brands are made in the USA.
EDIT: Not saying you're saying the US doesn't currently. Just clarifying that we do have a massive manufacturing sector that I think a lot people don't realize is still here.
SECOND EDIT: I completely update my priors. LG and Samsung are now largely producing everything in the US just like Bosch. That's awesome.
But I do not give a fig about whether the washing machine is made in America. I could have a less expensive machine were it not for Trump tariffs. Things would be better for me.
“"Healthcare is a human right" people seem to be attacking market mechanisms for healthcare. And while I understand some of that motivation, they seem to ignore how doctors and nurses are providing their labor for a fee.”
I have heard this line of argument before and I admit it seems like a non-sequitur to me. Lots of things people consider rights in modern society—education, abundant food, public safety, government itself—are provided by people who are paid for their trouble.
This is true. But it's also true that all that nice convenient stuff means nothing if the technology and manufacturing base necessary to support military might ends up being concentrated in hostile foreign countries.
Sure. I think Noah Smith (Noahpinion) has done good writing on this, framing it as "this is important for national security, and it is effectively a COST we are paying for security reasons"
You are arguing with people who ultimately don't believe in the concept of individual agency. People belong to amorphous groups (or classes) and pushed by deterministic forces. Most of this pops out of Marxist theology.
Oddly, neoliberalism has even come under attack from the center, which argues “everyone knows neoliberalism is bad, obviously we should do industrial policy.”
What’s industrial policy? An excuse to do whatever you want, as long as it’s not neoliberalism!
The Roosevelt institute calls subsidizing the care economy “industrial policy.” Think tanks definitely love to define these things to provide clear narratives to justify the policies they push, when in actuality the truth is just a whole lot messier
There is something to this. I am struck by your comment about Catholics though. There are no Protestant critics of neoliberalism? Also, some have argued that Catholic intellectuals basically control the life of the mind of the right. The Supreme Court is an interesting example. Do you agree?
The Commanding Heights of paleocon, America first conservatism do seem to be rather dominated by non-Protestants (I use that term because a fair number of neoliberalism's critics on the right are Jewish). But yes, the Supreme Court, Steve Bannon, Pat Buchanan before them...
Protestants seem much more likely than Roman Catholics to be business owners or go into highly renumerative finance/technical fields. Probably has something to do with fighting for freedom (from Catholics) and not being part of a hierarchy.
I had no idea whether this was true, so started Googling around. I still don't know, but found this interesting page from Pew. I would never have guessed that Orthodox Christians were so high up the income ladder, and they definitely have a hierarchy. The Catholic number is hard to parse because a high percentage are immigrants from Latin America. https://www.pewresearch.org/short-reads/2016/10/11/how-income-varies-among-u-s-religious-groups/
Orthodox Christians are immigrants or descendants of immigrants from Russia, Ukraine, and Greece. There aren't many Greek-American intellectuals. There are a ton of Greek-American business owners.
I realize I probably wasn't clear. Protecting social security is a socialist position. Keeping out immigrants is a socially conservative, anti-libertarian position. To the extent that there is a socially conservative, economically more socialist position on offer, I think this is a potential vote-getter in the US, and other countries. Think the CDU in Germany.
I don't think I agree with you. If you plot the four quadrants (and I know people disagree with the axes and names, but bear with me), see https://en.wikipedia.org/wiki/Nolan_Chart, the US public is not actually very libertarian. There is a significant group of voters who are socially conservative and economically socialist. The number of liberatarians is relatively small who are socially liberal and free market adherents.
You're right about the right, but the left mainly wants to impose on the economy. The exceptions are fairly specific (e.g. they don't want schools to tell parents about kids' trans stuff) and much smaller in scope than the sweeping social and personal impositions (banning abortion and gay marriage) coming from the right.
My view of neoliberals is that they rely more on markets than government edicts. Now, one can argue about how much "the market" tells other people what to do, but it seems to me to be a less directive ideology. Your view?
I think a parsimonious definition is that neoliberalism aims to do redistribution through taxes and transfers as opposed to doing it through regulation.
Thatcher was responsible for one major welfare state expansion in the UK - she brought in the first means-tested benefits for parents in low-paid work. (Roughly equivalent to the US EITC, which Reagan expanded). Council house sales and the Thatcher-era privatisations were explicitly structured to reduce wealth inequality by promoting working class asset ownership, which is still a common goal among centre-left winks who self identify as anti-Neoliberal.
Neither Reagan nor Thatcher attempted or dared to attempt a frontal assault on the welfare state (they trimmed, not bludgeoned). So, the governments headed by those two political leaders in fact were engaged in plenty of redistribution.
Reagan certainly wanted to cut more than he did, he had a nominally Democratic house throughout his two terms, and the "starve the beast" was strategy designed to explicitly create a budget crisis to enable larger cuts.
My sense is that rhetorically yes, he wanted to cut more than he did. But I think he also knew that if he actually went as far as he planned on welfare reform there would've been some serious political repurcussions.
You're describing the mechanism by which Bruce Bartlett went from being a staunch free-market Reaganite conservative to a raging liberal today. He came to realize "starve the beast" was never really going to happen as the cuts necessary would be political suicide. So he started advocating against massive tax cuts and when other Republicans didn't agree with him I think it led him on a path re-evaluate what Reaganite economics was really about.
Right, I think the Hewlitt definition and vulgar internet definition of Neoliberalism is laughably bad. But. It feels like Matt is steering towards a "stuff Obama administration people like" definition, which is only part of the story.
Actually, I don't think so. I think conservatives professed this as a *belief*, or a signifier if you will, but never really believed in making the dream the reality. It's just to show what your values are, not what actually guides your behavior. I suspect not totally unlike the way the vast majority of Catholics really aren't bothered with the Catholic doctrinal signifier condemning birth control and divorce while being quite happy that these doctrines will never be enforced.
But never implementing something truly neoliberal like a negative income tax, mostly because it was more politically and electorally effective to ridicule poor non-whites…
"...neoliberalism aims to do redistribution through taxes and transfers...."
This was my thought on reading Matt's piece as well.
Though I'd put it in slightly more tendentious terms:
neoliberalism was the view that the winners should focus on growth, and the losers would be placated by redistribution, someday.
E.g.: sure, NAFTA was going to send a lot of low-wage jobs out of the country. But there will be so many gains to our economy that we can redistribute the gains in order to help out the people that were hurt. Someday.
That promise of using redistribution to help the people hurt by growth then is never kept.
1. No one actually likes redistribution when it looks like welfare is winners paying losers..Soc Sec and Medicare by contrast have the appearance of something workers "paid into." Because almost no one likes welfare we don't do that much of it
2. Being involved in world of production conveys psychic satisfaction that receiving a UBI check doesn't. But this also relates to jobs people do.. especially for men. Being a greeter at Walmart or a cashier at Dollar General will never be as satisfying as having a job that involves making a tangible product. But the economy creates a lot more of Walmart jobs than ones involved in production
I'm not sure rote assembly line jobs that were literally putting knobs on widgets is actually more tangible than being a greeter at Walmart. But then again, everyone but me is nostalgic for those jobs.
"Being a greeter at Walmart or a cashier at Dollar General will never be as satisfying as having a job that involves making a tangible product."
I disagree. What was mostly automated and somewhat outsourced during this 80s-2000s wave was "light manufacturing". That's unskilled, highly routinized work with much higher health and safety risks than a cashier. No one is missing that work. Definitely agree about "heavy manufacturing" tho, thankfully that's growing in the US.
#2 seems genuinely batshit to me. I mean maybe that's just I'm the kind of male weirdo who loves teaching 3rd grade but doing hard physical labor building something seems so much worse than just talking to people all day and helping them solve what they came in for.
Like if I could make a living doing whatever something social and low stress doesn't seem so bad at all. The frustrating part here is WM and almost all of retail and except for a few exceptions like Costco simply don't want to pay for excellent attentive people to do service work.
I think that the idea here isn't that "social and low stress" jobs are necessarily unrewarding. It's closer to a criticism of what David Graeber called "bullshit jobs" or what Weber might have called jobs "unworthy of man as man": roughly, jobs in which you can't feel that you are building anything or contributing to a project that feels meaningful.
One quibble, “what the economy creates” depends on how we are regulating the economy. There would be a lot more jobs in construction, and construction material manufacturing, if we got rid of NIMBY zoning, NEPA, historic preservation, etc.
We’ve got millions of Americans working in insurance, compliance, HR; that could plausibly be a lot less with zero real cost with more sensible regulatory structures.
I think this is closer to the practice. Similar on the China shock. Perhaps a better model is that there was a cross party elite consensus on the efficiency aspect but at least half consistently balked any compensation.
Is it true that a huge amount of GDP gains haven't been redistributed? The US has a very progressive tax code - which Neoliberal Dems have mostly supported - and US tax receipts have gone up massively, in line with economic growth. These taxes have been used to massively expand healthcare spending for the poor (young via medicaid and old via medicare.) The government has also hugely increased spending on education (at the local and federal level), and in welfare programs like SNAP. You could also make the argument that poorer people get the benefits of massive defense spending (safety from terrorism, lower consumer prices, etc.) for free on the backs of neoliberal economic spoils.
For all of these, I think there's good questions around the effectiveness of this spend to help poorer people, and whether it was worth the downsides for them, but it's hard to argue that GDP growth hasn't led to much larger expenditure on the "losers" from that growth.
The biggest problem with the US Federal tax code is not how progressive it is, but rather how narrow it is. We need to broaden the tax base. Of course we live in a society where 60% of the population in NORC surveys say they pay too much in federal 'income' taxes while like only ~50% of adults pay ANY federal income tax.
This is largely right. US taxes in total (including social security taxes, state and local taxes, fees, etc) is slightly progressive, but total 'welfare' spending (including EITC, medicaid, SNAP, etc) has actually gone up a lot, even after adjusting for inflation.
>But there will be so many gains to our economy that we can redistribute the gains in order to help out the people that were hurt. Someday.<
People often say this. And it's true in theory we could plow a lot of the trade-generated gains from efficiency into more redistribution. But at the time of NAFTA, there wasn't really any serious discussion of mechanisms or specifics that I recall (probably some pap about retraining, sure). Like, I don't remember Bill Clinton announcing "If we pass NAFTA we should have enough extra growth to fund on demand national daycare, which is why I'm introducing legislation to do just that yada yada."
Relatedly, one issue for the "compensate the losers" strategy is that these deals seldom generate more than a rounding error of increased growth for an economy as big as America's. I personally advocate letting people and firms in a free society do as much business with foreigners as they like. I also favor a robust safety net paid for by a reasonably progressive tax code. But *connecting* these two strands has always been a bit handwaivey in the American context.
>We don’t have the ability to pay for transfer programs set up a century ago<
Yes we do.
>We need growth just to avoid bankrupting those.<
We have growth. I'd like more of it, mind you, which is why we should do smart things like improve our tax code, greenlight more immigration (especially skilled immigration), build a lot more housing, and continue to trade with foreigners.
Excuse me, but then why do we have the deficit and debt we do?
It’s nice to know you’ve already solved the financial problems faced by Social Security and Medicare. How though?
Yes, we have growth. I agree with your ideas there. But as a Right Neoliberal, I’d also like to get Left Neoliberals to admit we are in a mess because of too much spending and redistribution, and that we should fix what we have before trying to do more of it.
The administrative state and welfare state are still broadly seen by Left Neoliberals as “ok” when I think the reality is that “reality has a libertarian bias.”
This is especially important since the GOP is now explicitly run by big government MAGAs and NatCons.
We have always had debt, even during the classical liberal era. The only times we did not have deficits is during the early 19th century when the government was selling off the Lousianna purchase and at the very end of the Clinton administration. There were huge deficits during WWII, but the debt to GDP ratio shrank thereafter until Reagan blew up the deficit with his tax cuts. There was also an innitial increase in the deficit due to the great recession, but they fell afterwards throughout Obama's tenure. Our problem with deficits comes primarily from irresponsible tax cuts passed by Reagan, W Bush and Trump.
> But at the time of NAFTA, there wasn't really any serious discussion of mechanisms or specifics that I recall (probably some pap about retraining, sure). Like, I don't remember Bill Clinton announcing "If we pass NAFTA we should have enough extra growth to fund on demand national daycare, which is why I'm introducing legislation to do just that yada yada."
Maybe. But NAFTA passed in the same year that Bill Clinton and congressional Democrats raised the top tax rate from 31% to 39%, making it a lot more progressive. So there was an emphasis on progressive redistribution at the time, even if the discussion of it wasn't explicitly tied to NAFTA.
That's a fair point. But voters who are told "globalization will make things better" probably need to be given concrete deliverables. Someone else's taxes going up isn't what that looks like. Too late now, mind you, but I think it would have made sense to put some meat on the bone: actually propose a program or two—ostensibly paid for out of all these wonderful gains we're realizing from trade—so folks actually receive a concrete deliverable "courtesy of trade." We've never really done much of that in the US. And I think our failure to do so has had negative consequences for globalization. Both parties are now tripping all over themselves to demonstrate support for trade barriers, which is obviously reflective of where much of public opinion is on this.
I'm a committed cosmopolitan neoliberal globalizer who fears we're abandoning openness to our economic detriment. But I'm well aware most voters don't see things like I do. You gotta actually show the people what trade does for them!
I share your outlook. In Clinton's defense, he did propose a huge concrete deliverable: universal health care. Perhaps the failure of that effort made him more reluctant to propose other ambitious social-welfare plans.
The US redistributes a fairly high percentage of GDP, and as GDP grows the redistribution number grows as well. I think it could be higher, and we could definitely use that money more effectively. But it's inaccurate to say that we never redistribute.
Well the losers are also placated by growth, no? Poor Americans still derive a lot of benefits from growth over time. Not in relative(inequality) terms but in absolute terms
I don't know how relevant this model is to the real world, but in principle you don't need to do the redistribution if there are enough losers spread throughout the economy.
For example, consider an economy of 3 people: A, B, and C. First, A & B screw over C for economic growth, promising to redistribute and failing to do so. Then B & C screw over A for the same reason and with the same perfidy. Then C & A do the same to B. Each person gets to "win" twice and "lose" once. Even though there's no redistribution in this hypothetical, A, B, and C are all equally better off than if none of the deals went through.
You only start needing redistribution if there are too few instances of growth-promotion to spread the losses around, or if the same group of people starts repeatedly getting the short end of the stick.
The problem with neoliberalism is that there isn't much of a constituency for it. Those who win in free market environments often don't want to raise taxes on themselves to redistribute to others, and those at the bottom of the income ladder generally don't oppose regulations ostensibly aimed to help them directly.
Us neolibs are right on the merits, but we're the weirdos.
If we make the pie bigger, there can be bigger pieces for most people. Better to be in the 25th percentile of income in Singapore than the 75th percentile in Thailand.
I just don’t know how much this is true in a society like the United States.
I don’t mean that in the rhetorical way to say it’s not true I genuinely have no idea how many people would prefer greater purchasing power over greater status. I tend to think most people would choose to be higher up and poorer.
It's hard to tell how true this is, because journalism and media select for people that prioritize status over wealth, and those groups dominate our national self-image.
Also politics. These guys who edited the law review at Harvard could have made a huge amount of money doing something else - only really successful politicians would catch up to what they could have done by selling influence or investing shrewdly later in life. For every Obama there must be huge numbers of smart grads who don’t make it to the big time as a politician.
I think this is directly contradicted by immigration. Typically immigrants are people of means from their home country, coming to another country at a lower social position but a higher position of economic freedom. There are more immigrants from India to the UK than from the UK to India.
Right now the median American, especially if they could modify their working arrangement, could live like a king in a different country. The overwhelming majority do not. This implies that there is not just a straightforward spectrum of low status - material comfort and that there is a secret third thing influencing these decisions.
I mean it's really hard to be an immigrant and without a chance for a payday at the end even as someone who wishes I could live somewhere else it's a lot to ask.
Also one of David’s favorite bugbears is the availability of quality mating opportunities, and that’s going to be one where mate selection gets a heck of a lot easier higher up the status latter — essentially the Secretary Problem.
Neoliberalism has plenty of constituents! There are tons of center-right parties around the rich world (and one in the US) who combine middle class and mid-sized business interests to basically keep taxes from growing post-WW2. From that position, a lot of regulatory and deregulatory fights over the private sector take place without a larger state to crowd it out. The US welfare and tax state has arguably grown more progressive in its transfers over the last 40 years as a result of the standstill.
But they're not socially progressive parties, which I think is a big deal for left of center people. Yet it's not clear how a popularly elected neoliberal party would take more socially progressive stances except over the long term. Left-libertarian mass politics basically doesn't exist; the biggest groups of middle class voters don't think that way.
Half right. The other half is that growth-producing change (Kaldor Hicks efficiency) should be accompanied by such redistribution as is necessary to make everyone better off.
I don't think it's "we should do redistribution through regulation" so much as "we should be deeply suspicious of new economic activity." Good distributive effects are one of the ways new business activity might redeem itself and gain community consent.
I find Julius Krein the most interesting writer on this topic. He argues neoliberalism was most significantly the shift from a Fordist manufacturing economy to an economy dominated by finance and intellectual property rents. A company such as Apple, which owns its IP, design and marketing but subcontracts out the manufacturing, is a new development, specifically incentivized by the stock market. We can argue if this is good or if it's worth trying to alter (I'm a lefty and I'd argue yes to both but ymmv). But I find this the most accurate description of how the economy changed.
The mention of intellectual property rents is intriguing, because that's very much a heavy handed government policy that imposes a monopoly on certain goods and services in favor of one entity.
This article (and his personal focus) is on drug patents, but he's written extensively on the "economic rent" extraction that is patent and copyright law generally. https://cepr.net/images/stories/reports/ip-2018-10.pdf
I think the title of that last paper is a good place to look as to why his research is maybe not as influential as it should be. He's such a zealot on this stuff that I he becomes off putting to a lot of people. I'm pretty sure Matt would agree with a lot of his arguments and yet on Twitter I remember Matt admonishing him for trying to tie every single policy issue to this topic and really told me how much Dean's zealotry on this really harmed his own cause.
In Dean's defense, he's right -- and hobby-horsing is a known weakness among many pundits, including occasionally our gracious host vis-a-vis housing and YIMBYism (and he's right, too!).
Of course, the entire point of patent law is that is to bypass the free market temporarily to encourage R&D. It seems obviously true that we get more R&D thanks to patent law. Does he propose an alternative?
I don't disagree. Same with the ever extending TM for Disney. But I wouldn't want to throw the baby out with the bathwater. If all of a sudden everyone switched to a fast second mover strategy to "outsource" R&D to the market everything grinds to a halt.
Because it turns out there was no American worker special sauce. Ford and GM, that were not initially outsourcing out the US for decades, got their lunch handed to them repeatedly .
I like don't know enough about what exactly happened with the car industry but it seems to me that it wasn't really manufacturing that made sure that Detroit has had mediocre products for the last 50 years outside of the space of trucks and SUVs. Like where you put the factory wasn't what made all their sedans and compacts get poor reviews and word of mouth.
It was 100% a failure of design, technological innovation and management by the Big Three’s leadership. Nothing to do with “workers” except attachment to labor standards and wages that allowed for middle class life prospects.
In the 90s - my understand is - pension liabilities for the Big 3 had grown to >20% of the MSRP. I think that absolutely pushed their product line to focus on higher price point trucks and SUVs because that was the only cost structure that worked.
EDIT: Implied here but just not stated is Toyota and Honda were unburdened by these pension liabilities and that's partial why their low-end product was so successful. Both have still successfully fought UAW.
Bingo. I think the shift Krein talks about would have been far less politically fraught if say Apple had continued to make i-phones in the US. Then there would be a much greater coupling between the welfare mega corporations that own the intangibles like IP and the trademarks and the welfare of the average US worker.
I agree that neoliberalism operates as a kind of empty signifier covering over a multitude of sloppy thinking sins.( It drove me nuts in grad school.) My take is that, to the extent that this term has any analytical rigor based in history, it describes the parcel of broadly interlocking ideologies around the financialization of the economy that began circa 1973.
Quibble of substance: deregulation of the banking & pharmaceutical industries did and does characterize some tectonic shifts of this era. BayhDole institutionally coupled US Universities (publicly funded research) with private markets. Reversing Glass-Steagall, coupled with a dramatic rise in computation power, gave rise to speculative capital financialization of many sectors of our economy. These are but two instances of deep deregulation yielding massive, era-defining shifts.
To me, the big deal on the financialization of the economy was that we tried to be a lot more sophisticated in how we manage and assign risk. Sometimes the added sophistication was a net positive because risk could be efficiently moved onto the parties best able to handle it and off of parties that don't want the risk. OTOH, it was often a net negative because the complexity of the instruments/arrangements made it harder to figure out who's really holding which risks and also the tools we used to assess risk were imperfect.
Do you see this change as overall net good or net bad? What do you see as the biggest unresolved issues today around financialization of the economy?
I wanted to stick my head in on this thread because this is a question I have been thinking about for a long time, too, owing to my prior engagement on the academic side with health policy, where financialization is a pretty big and interesting question.
One thing I think is that one of the unresolved and paradoxical issues of financialization is how wasteful it ends up being. That plays out in lots of ways, but the bottom line is that it turns out you really can hit a point where efficiency gains become tradeoffs, rather than gains, which is kind of interesting.
Another thing I have come to suspect is that profit is always two things in tension: an end in itself ("I want to make money") AND a way to keep score ("I know that my toy company is successful because it made lots of money"). I think financialization is that it often puts people in decision-making roles who favor the former more than the latter. That can lead to some really pernicious effects, in part because it turns out that lots of people make decisions that are suboptimal in financial terms but nice for the community.
At any rate, those are two ideas about this question that I would love to hear H's or your thoughts on.
It's true that risk arbitrage through financial instruments like CDOs is a (perhaps the most) significant aspect of this round of financialization. To my mind it has been a net negative because in practice these tools actually introduce more systemic risk & tend to exacerbate wealth inequality.
But financialization itself is distinct in my mind as a process or extended historical moment in which economic value generation/productivity is abstracted from the material economy & transacted instead in financial markets of one form or another. (I take this definition from Giovanni Arrighi's _Long 20thC_.)
It's worth noting that there have been many moments of financialization (turn of the 20th C being the most recent before now), each effecting a kind of system reconfig.
Anyway, thanks for your thoughtful question. Not sure I answered it exactly.
Your answer was great, but your comment about financialization abstracting value generation from the material economy was as thought provoking as your previous comment. My knee-jerk intuition is that in addition to creating useful instruments that can legitimately help with risk management, financialization also creates new avenues for speculation. I suppose the big question is whether the existence of all the new instruments induces more speculation than we'd otherwise have, but I'm not read up on this enough to have anything actually intelligent to say about that.
On the risk management side, I'm much more familiar with some of the practical applications of financialization than I am with systemic studies of their overall impact.
For example, financialization has been a huge boon to renewable energy development. To get financed, renewables projects in the western world generally use newfangled financial instruments like contracts for differences or power purchase agreements to pre-sell much of their expected electricity production years ahead of time. These instruments, coupled with various insurance products allow them to basically de-risk most of their future cash flows and get very attractive financing terms. The folks on the other side of the power purchase instruments, like Google, Microsoft or some distribution utility, get the benefit of a years long supply of clean energy at a fixed price. So on net, at least in this case, the instruments actually reduce risk and provide benefits to both sides of the transaction.
Yes, financial instruments are double-edged swords. Abstraction works by achieving degrees of freedom from constraints of materiality, specificity, etc.
Computational power is an important piece of the puzzle specific to late 20thC financialization, of course. No algos packaging risk in increasingly sophisticated ways without this historical development. But I think that's less of a driver than a second-order amplifying co-factor.
One thing that might be worth flagging here is that quantifiable "risk" is itself a relatively recent conceptual construct. Late 19thC or thereabouts, concurrent with the rise of "probability" as an idea (see _Empire of Chance_ & other history of science/STS literature on this topic. It's well studied.)
Anyway, my short answer is that degrees of freedom always cut both ways. At a system-level though, financialization is a destabilizing force. That can be good or bad, depending on your particular point of view.
For me the bigger issue is with the various ideologies that grow up around re-ifying financial markets and "the market" as such (i.e. what some people label neoliberalism). Markets are wildly historically contingent, human-made institutions. They are sociologically fascinating. We make them and make choices about how they are structured, we tweak their efficiencies and effects in a power contest that people pretend isn't happening. Chicago School bros just started a little religion around it, and then that got elaborated, put into policy practices and rhetorical operation, etc. That's the kernel of neoliberalism ideology critiques and while underspecified, sloppy, etc. ....it's not wrong.
How much of that is just due to better and faster technology? I saw a interesting chart the other day that showed, after the invention of computerized spreadsheets, the number of financial bookkeeping jobs collapsed and the number of analyst/researcher jobs massively rose. New technology allowed the financial industry to become more productive, like happened in every other industry.
To point at the roughly Carter through 9/11 era and think broadly, "This was the problem" demonstrates staggering levels of derangement. These people talk like they've sincerely deluded themselves into believing Milton Friedman personally threw their favorite uncle out of Augusto Pinochet's helicopter.
During that time the middle class shrank by 20%, with 2+ financial crises brought on at least partially by deregulation, manufacturing decline (which I'm guessing MY will touch on in trade piece).
Just because the leftists aren't right doesn't mean that there are plenty of problems with the 'free markets solve everything' approach
The conceit that the "middle class" is a concept capable of being a coherently quantified such that it can meaningfully be said to have grown or shrank is pernicious nonsense. We're talking about the greatest period of growth in global productivity per capita since the industrial revolution.
There are multiple definitions you can apply to a "middle class" and doing so is not a "conceit", though OP should have said what definition they were using (because of course, we can mechanically definite it as the middle 3 quintiles e.g. and that can neither grow nor shrink).
But also you get slippery by switching between referring to a (presumably American) middle class and *global* productivity growth; these are different things.
Almost all that growth was in China and secondarily in countries that sell raw materials to China. It's therefore debatable whether this counts as a neoliberal success when China pointedly refused to do what NL economist suggested--focus on raising its own domestic consumption.
So is the China story a neolib success story or neolib blindspot?
To the extent the story of China is a failure of neoliberalism it's been the underestimation of the CCP's willingness to siphon off economic productivity into totalitarian state capacity, but even that is only possible given the premise that China is a neoliberal success capable of production worth stealing in the first place. The vast majority of China's growth has in fact been in the name of sending Americans cheap goods.
My hot take has always been China's biggest policy misstep will be not letting the Yuan truly float in like 2005. Just think about the consumer purchasing power of their market today if that had happened.
My understanding is that most of the shrinking of the middle class in that period was because of growth in the upper class, not people falling out of the bottom of the middle class. https://www.aei.org/wp-content/uploads/2015/02/income.jpg?x85095. So that would be an argument in favor of the neoliberal era, not against it
This is true in part but this itself has big time downstream consequences.
More and more income piling up in top 5-10% implies much more production geared to this particular segment..
You see how this works with real estate..we don't build that many homes and the ones we do build are often north of $500K in price.
For losers that can't afford the mortgage on a $500-$1M home, the neolib answer is increasingly
1. There's plenty of SFHs you could afford in Youngstown, OH
2. We're working on a technocratic uploading plan to get you a nice 2 BR apartment a little nearer to where you'd actually like to live. Sure you won't own and won't be able to change the place you live much and have no control over other renters and will have no idea how fast rents will increase but be sure the private equity firm that owns the building will raise them aggressively every year but hey...our own analysis suggests you're better off renting and saving anyway...
The whole economy is much more stratified.this way. And I feel like neolibs have no good answers for it.
No, you also need good monetary policy and uh ... to actually have progressive taxes with deficits that do not exceed public expenditures with NPV > 0.
NPV>0 is a good exception but not the only one. The economy grows continuously and we have continuous inflation. So the actual NPV limit should be somewhat less than 0 and you can actually run small expenditures with no return at all (as a percentage of GDP), in perpetuity without growing the overall debt.
I think people tend to start at the conclusion that a certain system is bad and then can endlessly point to plenty of bad things to backfill as examples to the given conclusion
I feel like you missed the biggest thing, which was that "neoliberalism" started under Carter when he deregulated trucking, airlines, and the price of domestic oil. The awesome thing is, all those deregulation were good in lowering prices for consumers. Air flight was basically unattainable for the middle class until he did that.
Much of the Reagan revolution was taking credit for the work Carter did.
Looking forward to this series. I think that many (most?) people run on vibes that dictate how they think the world should be. Price controls (especially rent control) is a great example: "This costs too much, so let's limit how much they can charge and we can have more money!". NIMBYism is another: "there's too many people here, we don't need more of them to keep having nice things.". And they get really annoyed when economist brained people tell them it's not that simple. Indeed, I'm guessing the usual suspects will yell at Matt while this series is ongoing.
The hard thing, which is what is needed, is for policymakers to be capable and creative enough to address the vibes and intuitions of the public -- after all, what other point is there of democratic governance -- but to find ways of doing so that also pass economic review, rather than adopting the first superficially simple "solution" that's put forward.
They need to concern themselves as much with the distributional impacts of their policies as with the efficiency, especially in the short-term. People want to see real results. Now-ish rather than in some far-off abstract economic nirvana. And a solid safety net to catch those who suffer any collateral damage. Part of the challenge, of course, is the influence of money on politics, a constant hindrance against fairer distribution and safety nets.
What really pisses me off about the whole neo-liberalism rhetoric is that it tends to use instances of government capture by corporations or their lobbyists as reasons why we should abandon market mechanisms -- and not just unrestrained contract anything markets but all markets.
Creating good incentives is hard and recognizing the ways regulators and legislators can be captured by buisnesses interests is important -- but that is just as much a danger when the government decides to regulate more as less. It's ultimately a problem of regulating well and this kind of simplified ideological rhetoric doesn't help.
Depends how you mean it. In economic jargon that usually just means a situation like an unregulated commons where the unregulated market equilibrium isn't socially efficient.
What bugs me is the demonization of markets as a tool. Yes, if anyone can fish wherever they want as much as they want the equilibrium outcome is going to result in overfishing. Ok, but often the best solution is to actually have the government establish different market mechanisms, e.g., auction off the rights to certain catch quotas or create long term property interests that incentivize maximizing the long term value of that kind of fishing.
TBF it's equally misguided to presume that the ideal markets are somehow given to us by some pure Lockean conception of property. We contravene that conception whenever we establish intellectual property (the government prevents people from duplicating the IP of another and selling it contra Lockean principles about owning anything you make by manipulating natural resources with your labor).
Ultimately markets are a very efficient tool for incentivizing behavior and it's crazy to spurn using it or to spurn shaping the market to avoid failure.
I just replied to another comment in this discussion by noting that regulating the commons is a legitimate use of government authority. And in many cases it is an indispensable one. Using quasi-market mechanisms has proven effective when done carefully. (I say quasi-market to differentiate from a free market.) If not done carefully, the result can be quite inefficient and/or unjust.
What exactly is the difference? For instance are patents a free market or merely a quasi-market mechanism?
At least for the purposes of describing what constitutes a market it seems like property rights are created by government regulation and there is nothing in principle different about a property right in a house, or patent or quota of fish. Maybe you think some of those kinds of property are somehow morally preferred but surely that's not relevant to whether it counts as a market.
Or do you merely mean to distinguish mechanisms which don't allow resale?
I was just pointing out there are important differences between a free market and a government-controlled market. If I own, I dunno, a piece of wood, I can do whatever I want to with it, including doing nothing at all for my entire natural life and then leave it to my heirs if that’s my preference. That’s not true if I hold a patent or a license for radio spectrum or a fishing quota.
"From skyrocketing wealth inequality to the climate crisis to systemic racism, neoliberalism offers no credible solutions for society’s biggest challenges."
I disagree with this kind of framing (from the Hewlett Foundation, not MY). Leave aside skyrocketing wealth inequality (which has been called into question). Attempts to avoid tragedies of the commons (e.g. climate change) are not turning our backs on neoliberalism (or classical liberalism): no non-fool believes there should be unfettered cost-free exploitation of our natural resources. This is just a straw man.
And I don't know where the argument about systemic racism comes from. The idea that the ability to discriminate is a neoliberal ideal? Seems again like another straw man.
Global inequality has been decreasing (Degrowthers redefine what constitutes poverty to deny this truth.) Inequality in the U.S. has been dropping for years, though from a local peak.
Climate Change is not a crisis. A crisis is something acute that requires immediate action. Climate Change is a slow drag on economic growth and environmental quality that requires a sustained and coordinated action over decades. Technological advances are addressing adaptation and mitigation (Again, Degrowthers lie and say technology cannot address climate change.)
Systemic racism? It was under neoliberalism that we have seen the largest gains in income of people of color and neoliberalism supports the free movement of people for economic opportunity. Alternative systems restrict migration like the Hukou system as it extracts rents from workers.
Also it's offensively lazy for the Hewlett Foundation to make absolutist statements like "neoliberalism offers no solutions" that can be easily refuted. Sigh.
It's a cynical take, perhaps, but I suspect the degrowthers and leftists don't like that global inequality has dropped so much. The alternate situation, where manufacturing and upward mobility ladders are limited to those lucky to be born in rich countries, allows these groups to monopolize gains, keep competing workers poor and away, and then donate a small amount to 3rd world country causes and feel good about themselves. All the while having a nice pint of beer after stopping work at 4 PM.
You are off your rocker about climate change. There are areas of the world where 100’s of people live (Bangladesh) whose long term prospects look very grim.
More importantly, the fact that we’re undertaking a massive and miraculous decarbonization of the economy was far from inevitable. What’s happening with solar panels in particular is one of the greatest miracles in human history which could soon deliver complete energy abundance.
Just because Apollo 11 gor back to earth does not mean there wasn’t a crisis.
People use the term “climate crisis” for two reasons. 1) Alliteration. 2) Catastrophizing is popular
Climate Change is a long term slow moving structural challenge, and its path takes a lot time to materially alter. Treating it like an earthquake or hurricane is silly. It is a much more complicated problem.
Again, this is just me repeating myself because you declared that I was “off my rocker” before actually engaging with what was said.
I've said this a lot here, but if by 'complete energy abundance' you mean '0 actual carbon emissions', that won't happen until there is a replacement for diesel engines.
ETA I misread 'abundance' for independence, but the point generally stands.
And neoliberalism does offer credible solutions for these listed challenges: tax & transfer (social security, et al), tax carbon externalities, ban racial discrimination
Nice piece! But misses part of the point: importantly, an important goal of "neoliberalism" was to increase global growth, & thereby improve living standards in low-income economies (then "3rd World"), in order to undercut the appeal of communism. That totally worked: according to World Bank, something like 2 billion people emerged from "absolute poverty" during the 80s & 90s, & the 2 largest communist economies, Russia & China, adopted capitalist market strategy.
In the US & other rich Western economies, the objective was to curb domestic inflation by increasing domestic price-driven competition. But, while domestic price competition had some effect, the major driver of disinflation turned out to be low-priced imports, primarily from China & other East Asian countries. With inflation tamed, interest rates declined & domestic demand increased, boosting growth. So neoliberalism DID work, generating growth in both rich & poor economies.
But growth creates winners & losers, primarily by changing the structure of domestic demand. So, in the so-called US "Rust Best", competition w/ lower-cost foriegn producer DID cost manufactoring jobs--but FAR fewer than were created economy-wide in other sectors. More significantly, consumers broadly benefited from lower-cost imports--there would have been no "tech boom", far fewer PCs & probably no smart-phones without relatively inexpensive devises, & nothing like the internet as it exists today. So, on net, it's not implausible to claim "neoliberalism" work domestically, too.
Nonetheless, it remains the case that equitable policy requires some compensation to losers--in particular, access to reskilling via education & targeted retraining to allow transition from declining sectors to growing ones, & perhaps income-supplements to cushion this transition.. This, of course, has proven difficult to implement succesfully, at least in the US.
So "neoliberalism" had some significant successes, tho there clearly remain difficult tradeoffs to assess.
At least two additional aspects of neoliberal vibes that seem under threat:
- internationalism: with low expectations for the state and an eye on the benefits of free trade, neoliberalism had very global thinking
- individualism: by mostly functioning through markets and thinking in economic goals, neoliberalism inherently promoted the individual over the collective. Lately there has been a resurgence in collectivist thinking on both the right & the left (nationalism and socialism, respectively).
"price regulation, which used to exist across many sectors of the economy ... largely went away and is now common basically only in the electric utility sector."
One factual correction: this ignores healthcare, which is a fifth of our economy and is full of price controls. As just one example (there are many), CMS every year puts out a "Physician Fee Schedule", which is literally a list of government-set prices, at very granular level. It is, of course, not literally binding on those who don't participate in government healthcare programs, but they are the 800 lb gorilla in the sector which makes that distinction technical rather than practical and meaningful.
Yes, many -- but by no means all -- government healthcare price-setting is done in the form of rate-setting by a market participant, rather than as purely regulatory interventions. But when a market participant is that large, the distinction in practice is a lot less than might appear.
If any other market participant was that large and exerted that much pricing power, it would have the FTC and DOJ on its heels for anticompetitive, market-distorting monopolistic practices. Now, maybe, there's something so different about healthcare - which again is a fifth of the economy and includes a vast range of low-tech commodity products and services as well as the highest of high-end cutting edge technology - that normal theories of market functioning and efficiently should not be applied to healthcare, but that's a different discussion.
This is true but in practice both private insurers and Medicaid seem to use Medicare rates as a standard, basing their payments as a percentage (higher for private, lower for Medicaid) of the Medicare rate.
I have come to the conclusion that there is no best way to structure fees for healthcare. Speaking of tradeoffs!
The anti-neoliberalism crowd wants to use the term as a cudgel to gather state economic power so they can show all of us how to badly mismanage worse than a grafty municipality. The California high speed rail boondoggle and 2nd Avenue Subway will be small potatoes.
When the Democratic party can’t even put up a presidential candidate with a functioning brain, I start to question how much the the economy I want these craven bastards running. Taxing and transferring seems like the way to go— it’s simple enough that it’s hard to screw up.
- “the democrats” aren’t a singular entity, as MY has had to stress several times to those who would oversimplify factional disputes
- Biden’s handling of the economy post-Covid has led to the fastest recovery among rich nations
- if you prefer to withhold control over the economy from the “craven bastards” on the basis that they “can’t even put up a candidate with a functioning brain”, to whom do you suggest granting that control?
What available option is there to hand over control of the economy to “markets”? You’re making a (weak) negative case against Democrats. What’s the alternative affirmative case?
I disapprove of this anti-graft rhetoric. Boss Tweed of Tammany Hall infamy actually built the Brooklyn Bridge, and it was only slightly over budget. Albert Fall got the taxpayer 50% of what he should have for the oil under Teapot Dome. We would kill to get outcomes that good with modern projects like CA high speed rail and NYC subway construction.
Modern anti-corruption, triple-check every box, consult every stakeholder government procurement practices are in effect much worse than old-school graft ever was.
Put another way, we've sacrificed inefficiency through graft for inefficiency through process and rules.
The problem with going back is that the unfairness in the graft system is so clear to anyone with a moral bone in their body, while the self-defeating nature of process-based systems is much harder to convey.
I think the reason people act like neoliberalism is this pervasive thing, even though it wasn't, is because when you are used to getting your way, even a tiny amount of push back feels like intolerable oppression. Politically-minded people were for years able to engage in anti-free-market demagoguery as much as they want. It was a shock when people started fighting back. It reminds me about how in the early 2000s, religious fundamentalists acted like atheism was a rampant and all-powerful force just because a few articulate atheists were speaking out.
The comparison to religion brings up what I think is another reason people think neoliberalism dominates everything: it lets them dismiss economists who say they are wrong the same way that creationist dismiss evolutionary biologists who say they are wrong. Creationists don't like that science says they are wrong, so they dismiss scientists as being in thrall to "materialism," which is "just another religion." Similarly, anti-market activists hate that economics says they are wrong, so they dismiss the whole field by saying that it is in thrall to "neoliberalism. "
For what it's worth I think there's a few clear tenants of neoliberalism:
- Regulations are not intrinsically good or bad, they need to be assessed specifically to understand if they create good or bad market outcomes and/or successfully reduce an externality
- Ambivalent on the size of the safety net, but it can be best paid for by taxing a well functioning private market
- Against market interventions like price controls
- Against populist labor, immigration, and trade restrictions
Basically it's a market-first approach true to its name in the classical liberal sense, but not a libertarian approach with respect to hostility to all regulation and government. This is why normie Democrats are usually roughly neoliberals.
This is it, exactly. Neoliberalism says if there is a problem, "start with the market" as the solution. If the market creates failures, or the problem is too complex for the market to address, consider government action. Next, consider if the government action can credibly address the problem without creating too many bad unintended consequences. Finally, consider if there is value for money, or at least addresses a high priority, such that addressing it is worth taking away funds from other priorities. If yes, then pursue the solution.
Most critics of neoliberalism aren't comparing it to the pre-1974 or pre-Reagan era. They are comparing it against their utopian ideal.
For critics on the right, this ideal is a directed social and economic life with decisions made by like-minded white Catholics. For critics on the left, this ideal is a directed social and economic life with decisions made by like-minded diverse socialists. Each wants to impose their own view of what everyone else should be doing.
The older I get, the more I understand the timeless appeal of freedom.
now to take that and pick a fight with the Lefties: what if Markets ARE Freedom?
Sure you can pick some weird edge cases - the last bottle of water in the desert or something - but most transactions are VOLUNTARY and both sides benefit from the transaction (or they just wouldn't do the deal!)
You don’t need weird edge cases to show that markets are not exactly freedom, all you need is economic history. The average American had far more control over his time and material circumstances in 1955 than 1925, even though the government was vastly bigger, taxes were far higher, and the regulatory state had expanded several fold. If the only option the market gives you is working 60-70 hours a week for subsistence, you have less freedom than a hunter gatherer. Markets create freedom to the extent they let one earn quickly enough to do fun or worthwhile things. There’s a serious argument that Norway is freer than the US, and I’m pretty convinced that the Netherlands (legal pot, euthanasia and prostitution, most mothers work part time) is ALOT freer than the US.
>> "The average American had far more control over his time and material circumstances in 1955 than 1925, even though the government was vastly bigger, taxes were far higher, and the regulatory state had expanded several fold."
I don't really disagree with your overall point, but your example seems like a case of correlation does not imply causation. Real GDP per capita was three or four times higher in 1955 than it was in 1925, so of course the average person was better off because they were three times richer thanks to massive economic growth.
Were they better off because of the size of the regulatory state, or despite it?
Real gdp per capita is closely correlated with freedom
It is not a given that the economy would have grown by four times higher in that period. The problem for the hard-core right wing market ideologues is that the fastest growth rates in the US in the last hundred years occurred during a period of high tax rates and substantial government regulation and investment in the economy.
And the problem for the rest of us is that European countries -- places with "higher taxes and more government regulation and investment in the economy" have had lower growth rates than the US for the past 30 years.
Today's world economy isn't the same as the 1950s.
Well, I would say Neoliberalism was NOT Libertarianism, and a key difference was that Neoliberals did not count on markets to maintain themselves organically the way the Libertarians did. Neoliberals could still be anti-monopoly, and the "consumer welfare" argument was very neoliberal.
Government is a tool to protect freedom, and markets are a freedom the government protects.
Is anyone actually talking about a non-market economy seriously though? The USSR was a very weird and wacky place that did lots of bizarre and very interesting things, but it's gone. The Chinese have markets. The question is not 'should people be able to choose for themselves how and when to engage in productive activity', but rather, 'what should the relationship of the state be to the market'.
I am actually a deregulatory kind of guy, personally. But I don't think it's true that 'freedom' is a particularly meaningful lens through which to view regulation, or at least not in this libertarian way being presented here. Take airwave regulations. I can't just start broadcasting fat signals on whatever frequency I want. If everyone could do that, we couldn't have radio (or lots of other things). I wouldn't describe a world where I have the 'freedom' to broadcast on every frequency as actually freer in practice. Liberalism only makes sense as an augmentation to a pre-existing orderly society with a strong state that has lots of capacity. That's why every liberal society that has ever existed has been such.
“Is anyone actually talking about a non-market economy seriously though?”
The question is, are any serious people talking about a non-market economy? And the answer is no.
On a philosophical level, it would be great if society could do a better job of leveraging non-market signals. Things that can be monetized get supplied much more effectively in a capitalist society, and sometimes they crowd out valuable things that aren't monetized, in my opinion.
Unfortunately, no one has really come up with an alternative, and the people who spend the most time critiquing capitalism seem to have the least interest in designing or testing a different or supplemental approach. They just end up appealing to "there ought to be a way."
“…crowd out valuable things that aren't monetized…”
Like what?
Thank you for clarifying that Freddie is indeed not a serious person.
Well, international markets are definitely under attack, with rising protectionism and reduced appreciation of the benefits from free trade. Apparently it is important that Americans are able to make their own washing machines?
"Healthcare is a human right" people seem to be attacking market mechanisms for healthcare. And while I understand some of that motivation, they seem to ignore how doctors and nurses are providing their labor for a fee.
We see a resurgence of national industrial policy - and while there might be solid national security reasons for this, it's an anti-market endeavor.
Parts of the Left seem exceedingly riled up about how Amazon enables us to get so much stuff so cheaply. Somehow this is bad?
I thought there was an offensively mainstream discussion of price controls during the highest recent inflation years. Such an ignorant policy suggestion that I cannot pretend to take it seriously.
Broadly, the lack of "supply side progressivism" shows a disregard for markets. Why so hard to pass an abundance agenda that would obviously reduce inflation? Baffling.
etc.
"Apparently it is important that Americans are able to make their own washing machines?"
I think it's helpful to anchor that currently Americans already make the majority of their own washing machines. Whirlpool and GE have ~ 70% share of the US appliance market and both fully assembly between 60-80% of their products in the USA and the remainder mostly in Mexico. Samsung imports most of their products but Bosch assembles nearly all of their US sales in their NC and TN factories. At the higher end all the Sub-Zero brands are made in the USA.
EDIT: Not saying you're saying the US doesn't currently. Just clarifying that we do have a massive manufacturing sector that I think a lot people don't realize is still here.
SECOND EDIT: I completely update my priors. LG and Samsung are now largely producing everything in the US just like Bosch. That's awesome.
https://www.lg.com/us/press-release/lg-expands-tennessee-laundry-factory-operations-to-support-unprecedented-us-demand
But I do not give a fig about whether the washing machine is made in America. I could have a less expensive machine were it not for Trump tariffs. Things would be better for me.
https://www.aei.org/carpe-diem/trumps-washing-machine-tariffs-created-1800-us-jobs-but-at-a-yuge-cost-to-consumers-of-820000-job/
“"Healthcare is a human right" people seem to be attacking market mechanisms for healthcare. And while I understand some of that motivation, they seem to ignore how doctors and nurses are providing their labor for a fee.”
I have heard this line of argument before and I admit it seems like a non-sequitur to me. Lots of things people consider rights in modern society—education, abundant food, public safety, government itself—are provided by people who are paid for their trouble.
Public safety is not a right, actually. Self defense is.
Lots of things people consider to be a right are not actually a right.
You can’t have a right based on coercing someone else to provide you a service.
This is true. But it's also true that all that nice convenient stuff means nothing if the technology and manufacturing base necessary to support military might ends up being concentrated in hostile foreign countries.
Sure. I think Noah Smith (Noahpinion) has done good writing on this, framing it as "this is important for national security, and it is effectively a COST we are paying for security reasons"
But it is a trade-off, not some kind of win-win.
Ok, but how should the airwaves be distributed for use?
Don’t conflate “setting rules to avoid chaos and protecting property rights” with “the state controls property and assigns ownership.”
Market mechanism remain incredibly undervalued.
You are arguing with people who ultimately don't believe in the concept of individual agency. People belong to amorphous groups (or classes) and pushed by deterministic forces. Most of this pops out of Marxist theology.
“…what if Markets ARE Freedom?”
Markets are property rights. Property rights (along with personal autonomy or self-ownership or whatever you wish to call it) are freedom.
Oddly, neoliberalism has even come under attack from the center, which argues “everyone knows neoliberalism is bad, obviously we should do industrial policy.”
What’s industrial policy? An excuse to do whatever you want, as long as it’s not neoliberalism!
The Roosevelt institute calls subsidizing the care economy “industrial policy.” Think tanks definitely love to define these things to provide clear narratives to justify the policies they push, when in actuality the truth is just a whole lot messier
Expanding K-12 to have public preschools seems less neoliberal than giving people a tax credit....
There is something to this. I am struck by your comment about Catholics though. There are no Protestant critics of neoliberalism? Also, some have argued that Catholic intellectuals basically control the life of the mind of the right. The Supreme Court is an interesting example. Do you agree?
The Commanding Heights of paleocon, America first conservatism do seem to be rather dominated by non-Protestants (I use that term because a fair number of neoliberalism's critics on the right are Jewish). But yes, the Supreme Court, Steve Bannon, Pat Buchanan before them...
Protestants seem much more likely than Roman Catholics to be business owners or go into highly renumerative finance/technical fields. Probably has something to do with fighting for freedom (from Catholics) and not being part of a hierarchy.
I had no idea whether this was true, so started Googling around. I still don't know, but found this interesting page from Pew. I would never have guessed that Orthodox Christians were so high up the income ladder, and they definitely have a hierarchy. The Catholic number is hard to parse because a high percentage are immigrants from Latin America. https://www.pewresearch.org/short-reads/2016/10/11/how-income-varies-among-u-s-religious-groups/
Orthodox Christians are immigrants or descendants of immigrants from Russia, Ukraine, and Greece. There aren't many Greek-American intellectuals. There are a ton of Greek-American business owners.
I realize I probably wasn't clear. Protecting social security is a socialist position. Keeping out immigrants is a socially conservative, anti-libertarian position. To the extent that there is a socially conservative, economically more socialist position on offer, I think this is a potential vote-getter in the US, and other countries. Think the CDU in Germany.
I don't think I agree with you. If you plot the four quadrants (and I know people disagree with the axes and names, but bear with me), see https://en.wikipedia.org/wiki/Nolan_Chart, the US public is not actually very libertarian. There is a significant group of voters who are socially conservative and economically socialist. The number of liberatarians is relatively small who are socially liberal and free market adherents.
You're right about the right, but the left mainly wants to impose on the economy. The exceptions are fairly specific (e.g. they don't want schools to tell parents about kids' trans stuff) and much smaller in scope than the sweeping social and personal impositions (banning abortion and gay marriage) coming from the right.
Ah yes, the neoliberals never tried to impose their own view of what everyone else should be doing. What on earth are you talking about?
My view of neoliberals is that they rely more on markets than government edicts. Now, one can argue about how much "the market" tells other people what to do, but it seems to me to be a less directive ideology. Your view?
What is the white Catholic position on antitrust enforcement?
I think a parsimonious definition is that neoliberalism aims to do redistribution through taxes and transfers as opposed to doing it through regulation.
Yes I think that’s a more reasonable distinction than the one that’s been used in the official movement documents.
Is that what Reagan or Thatcher wanted to do? I don't remember it that way.
Thatcher was responsible for one major welfare state expansion in the UK - she brought in the first means-tested benefits for parents in low-paid work. (Roughly equivalent to the US EITC, which Reagan expanded). Council house sales and the Thatcher-era privatisations were explicitly structured to reduce wealth inequality by promoting working class asset ownership, which is still a common goal among centre-left winks who self identify as anti-Neoliberal.
George W. Bush promoted the "Ownership Society."
Neither Reagan nor Thatcher attempted or dared to attempt a frontal assault on the welfare state (they trimmed, not bludgeoned). So, the governments headed by those two political leaders in fact were engaged in plenty of redistribution.
Reagan certainly wanted to cut more than he did, he had a nominally Democratic house throughout his two terms, and the "starve the beast" was strategy designed to explicitly create a budget crisis to enable larger cuts.
My sense is that rhetorically yes, he wanted to cut more than he did. But I think he also knew that if he actually went as far as he planned on welfare reform there would've been some serious political repurcussions.
You're describing the mechanism by which Bruce Bartlett went from being a staunch free-market Reaganite conservative to a raging liberal today. He came to realize "starve the beast" was never really going to happen as the cuts necessary would be political suicide. So he started advocating against massive tax cuts and when other Republicans didn't agree with him I think it led him on a path re-evaluate what Reaganite economics was really about.
Sure. The Reagan administration no doubt would like to have repealed the New Deal.
Right, I think the Hewlitt definition and vulgar internet definition of Neoliberalism is laughably bad. But. It feels like Matt is steering towards a "stuff Obama administration people like" definition, which is only part of the story.
Actually, I don't think so. I think conservatives professed this as a *belief*, or a signifier if you will, but never really believed in making the dream the reality. It's just to show what your values are, not what actually guides your behavior. I suspect not totally unlike the way the vast majority of Catholics really aren't bothered with the Catholic doctrinal signifier condemning birth control and divorce while being quite happy that these doctrines will never be enforced.
But never implementing something truly neoliberal like a negative income tax, mostly because it was more politically and electorally effective to ridicule poor non-whites…
Part of the point is that Reagan and Thatcher weren't actually as neolib as the anti-neolibs make them out to be.
"...neoliberalism aims to do redistribution through taxes and transfers...."
This was my thought on reading Matt's piece as well.
Though I'd put it in slightly more tendentious terms:
neoliberalism was the view that the winners should focus on growth, and the losers would be placated by redistribution, someday.
E.g.: sure, NAFTA was going to send a lot of low-wage jobs out of the country. But there will be so many gains to our economy that we can redistribute the gains in order to help out the people that were hurt. Someday.
That promise of using redistribution to help the people hurt by growth then is never kept.
Yes. And the critique of that is twofold.
1. No one actually likes redistribution when it looks like welfare is winners paying losers..Soc Sec and Medicare by contrast have the appearance of something workers "paid into." Because almost no one likes welfare we don't do that much of it
2. Being involved in world of production conveys psychic satisfaction that receiving a UBI check doesn't. But this also relates to jobs people do.. especially for men. Being a greeter at Walmart or a cashier at Dollar General will never be as satisfying as having a job that involves making a tangible product. But the economy creates a lot more of Walmart jobs than ones involved in production
I'm not sure rote assembly line jobs that were literally putting knobs on widgets is actually more tangible than being a greeter at Walmart. But then again, everyone but me is nostalgic for those jobs.
"Being a greeter at Walmart or a cashier at Dollar General will never be as satisfying as having a job that involves making a tangible product."
I disagree. What was mostly automated and somewhat outsourced during this 80s-2000s wave was "light manufacturing". That's unskilled, highly routinized work with much higher health and safety risks than a cashier. No one is missing that work. Definitely agree about "heavy manufacturing" tho, thankfully that's growing in the US.
#2 seems genuinely batshit to me. I mean maybe that's just I'm the kind of male weirdo who loves teaching 3rd grade but doing hard physical labor building something seems so much worse than just talking to people all day and helping them solve what they came in for.
Like if I could make a living doing whatever something social and low stress doesn't seem so bad at all. The frustrating part here is WM and almost all of retail and except for a few exceptions like Costco simply don't want to pay for excellent attentive people to do service work.
I think that the idea here isn't that "social and low stress" jobs are necessarily unrewarding. It's closer to a criticism of what David Graeber called "bullshit jobs" or what Weber might have called jobs "unworthy of man as man": roughly, jobs in which you can't feel that you are building anything or contributing to a project that feels meaningful.
One quibble, “what the economy creates” depends on how we are regulating the economy. There would be a lot more jobs in construction, and construction material manufacturing, if we got rid of NIMBY zoning, NEPA, historic preservation, etc.
We’ve got millions of Americans working in insurance, compliance, HR; that could plausibly be a lot less with zero real cost with more sensible regulatory structures.
I think this is closer to the practice. Similar on the China shock. Perhaps a better model is that there was a cross party elite consensus on the efficiency aspect but at least half consistently balked any compensation.
Is it true that a huge amount of GDP gains haven't been redistributed? The US has a very progressive tax code - which Neoliberal Dems have mostly supported - and US tax receipts have gone up massively, in line with economic growth. These taxes have been used to massively expand healthcare spending for the poor (young via medicaid and old via medicare.) The government has also hugely increased spending on education (at the local and federal level), and in welfare programs like SNAP. You could also make the argument that poorer people get the benefits of massive defense spending (safety from terrorism, lower consumer prices, etc.) for free on the backs of neoliberal economic spoils.
For all of these, I think there's good questions around the effectiveness of this spend to help poorer people, and whether it was worth the downsides for them, but it's hard to argue that GDP growth hasn't led to much larger expenditure on the "losers" from that growth.
The biggest problem with the US Federal tax code is not how progressive it is, but rather how narrow it is. We need to broaden the tax base. Of course we live in a society where 60% of the population in NORC surveys say they pay too much in federal 'income' taxes while like only ~50% of adults pay ANY federal income tax.
This is largely right. US taxes in total (including social security taxes, state and local taxes, fees, etc) is slightly progressive, but total 'welfare' spending (including EITC, medicaid, SNAP, etc) has actually gone up a lot, even after adjusting for inflation.
>But there will be so many gains to our economy that we can redistribute the gains in order to help out the people that were hurt. Someday.<
People often say this. And it's true in theory we could plow a lot of the trade-generated gains from efficiency into more redistribution. But at the time of NAFTA, there wasn't really any serious discussion of mechanisms or specifics that I recall (probably some pap about retraining, sure). Like, I don't remember Bill Clinton announcing "If we pass NAFTA we should have enough extra growth to fund on demand national daycare, which is why I'm introducing legislation to do just that yada yada."
Relatedly, one issue for the "compensate the losers" strategy is that these deals seldom generate more than a rounding error of increased growth for an economy as big as America's. I personally advocate letting people and firms in a free society do as much business with foreigners as they like. I also favor a robust safety net paid for by a reasonably progressive tax code. But *connecting* these two strands has always been a bit handwaivey in the American context.
We don’t have the ability to pay for transfer programs set up a century ago.
We need growth just to avoid bankrupting those.
It’s insane to be worried about MORE redistribution over growth until we can pay for what we already do.
>We don’t have the ability to pay for transfer programs set up a century ago<
Yes we do.
>We need growth just to avoid bankrupting those.<
We have growth. I'd like more of it, mind you, which is why we should do smart things like improve our tax code, greenlight more immigration (especially skilled immigration), build a lot more housing, and continue to trade with foreigners.
Excuse me, but then why do we have the deficit and debt we do?
It’s nice to know you’ve already solved the financial problems faced by Social Security and Medicare. How though?
Yes, we have growth. I agree with your ideas there. But as a Right Neoliberal, I’d also like to get Left Neoliberals to admit we are in a mess because of too much spending and redistribution, and that we should fix what we have before trying to do more of it.
The administrative state and welfare state are still broadly seen by Left Neoliberals as “ok” when I think the reality is that “reality has a libertarian bias.”
This is especially important since the GOP is now explicitly run by big government MAGAs and NatCons.
We have always had debt, even during the classical liberal era. The only times we did not have deficits is during the early 19th century when the government was selling off the Lousianna purchase and at the very end of the Clinton administration. There were huge deficits during WWII, but the debt to GDP ratio shrank thereafter until Reagan blew up the deficit with his tax cuts. There was also an innitial increase in the deficit due to the great recession, but they fell afterwards throughout Obama's tenure. Our problem with deficits comes primarily from irresponsible tax cuts passed by Reagan, W Bush and Trump.
> But at the time of NAFTA, there wasn't really any serious discussion of mechanisms or specifics that I recall (probably some pap about retraining, sure). Like, I don't remember Bill Clinton announcing "If we pass NAFTA we should have enough extra growth to fund on demand national daycare, which is why I'm introducing legislation to do just that yada yada."
Maybe. But NAFTA passed in the same year that Bill Clinton and congressional Democrats raised the top tax rate from 31% to 39%, making it a lot more progressive. So there was an emphasis on progressive redistribution at the time, even if the discussion of it wasn't explicitly tied to NAFTA.
That's a fair point. But voters who are told "globalization will make things better" probably need to be given concrete deliverables. Someone else's taxes going up isn't what that looks like. Too late now, mind you, but I think it would have made sense to put some meat on the bone: actually propose a program or two—ostensibly paid for out of all these wonderful gains we're realizing from trade—so folks actually receive a concrete deliverable "courtesy of trade." We've never really done much of that in the US. And I think our failure to do so has had negative consequences for globalization. Both parties are now tripping all over themselves to demonstrate support for trade barriers, which is obviously reflective of where much of public opinion is on this.
I'm a committed cosmopolitan neoliberal globalizer who fears we're abandoning openness to our economic detriment. But I'm well aware most voters don't see things like I do. You gotta actually show the people what trade does for them!
I share your outlook. In Clinton's defense, he did propose a huge concrete deliverable: universal health care. Perhaps the failure of that effort made him more reluctant to propose other ambitious social-welfare plans.
The US redistributes a fairly high percentage of GDP, and as GDP grows the redistribution number grows as well. I think it could be higher, and we could definitely use that money more effectively. But it's inaccurate to say that we never redistribute.
Well the losers are also placated by growth, no? Poor Americans still derive a lot of benefits from growth over time. Not in relative(inequality) terms but in absolute terms
The best account of this is in Alex Raskolnikov, Distributional Arguments, 105 Minn. L. Rev. 1583 (2021).
I don't know how relevant this model is to the real world, but in principle you don't need to do the redistribution if there are enough losers spread throughout the economy.
For example, consider an economy of 3 people: A, B, and C. First, A & B screw over C for economic growth, promising to redistribute and failing to do so. Then B & C screw over A for the same reason and with the same perfidy. Then C & A do the same to B. Each person gets to "win" twice and "lose" once. Even though there's no redistribution in this hypothetical, A, B, and C are all equally better off than if none of the deals went through.
You only start needing redistribution if there are too few instances of growth-promotion to spread the losses around, or if the same group of people starts repeatedly getting the short end of the stick.
And yet there was still plenty of taxes and transfers going on in the alleged pre-neoliberal days.
Then sign me up.
The problem with neoliberalism is that there isn't much of a constituency for it. Those who win in free market environments often don't want to raise taxes on themselves to redistribute to others, and those at the bottom of the income ladder generally don't oppose regulations ostensibly aimed to help them directly.
Us neolibs are right on the merits, but we're the weirdos.
If we make the pie bigger, there can be bigger pieces for most people. Better to be in the 25th percentile of income in Singapore than the 75th percentile in Thailand.
Right you're absolutely correct but thinking in those terms makes you a weirdo.
I just don’t know how much this is true in a society like the United States.
I don’t mean that in the rhetorical way to say it’s not true I genuinely have no idea how many people would prefer greater purchasing power over greater status. I tend to think most people would choose to be higher up and poorer.
It's hard to tell how true this is, because journalism and media select for people that prioritize status over wealth, and those groups dominate our national self-image.
Also politics. These guys who edited the law review at Harvard could have made a huge amount of money doing something else - only really successful politicians would catch up to what they could have done by selling influence or investing shrewdly later in life. For every Obama there must be huge numbers of smart grads who don’t make it to the big time as a politician.
Have no air conditioning but be higher status? No one is taking that deal.
I mean even section 8 housing has ac units. The material conditions of the working poor in the US just aren’t Dickensian poor houses.
Not being exposed to sneering judgement all the time and having somewhat less luxuries doesn’t seem like the worst trade.
I have no air conditioning. It is brutal at the moment. My status is high in global terms. I'll take the AC, at least for the summer.
But if the society is poorer so you can afford to employ three full-time servants, then that is something many people are interested in.
I think this is directly contradicted by immigration. Typically immigrants are people of means from their home country, coming to another country at a lower social position but a higher position of economic freedom. There are more immigrants from India to the UK than from the UK to India.
Right now the median American, especially if they could modify their working arrangement, could live like a king in a different country. The overwhelming majority do not. This implies that there is not just a straightforward spectrum of low status - material comfort and that there is a secret third thing influencing these decisions.
I mean it's really hard to be an immigrant and without a chance for a payday at the end even as someone who wishes I could live somewhere else it's a lot to ask.
Also one of David’s favorite bugbears is the availability of quality mating opportunities, and that’s going to be one where mate selection gets a heck of a lot easier higher up the status latter — essentially the Secretary Problem.
Seeing as how much people hate inflation, I definitely say people prefer higher purchasing power.
it depends on how much purchasing power and how much status. i think my example is probably true, but it might be close
Neoliberalism has plenty of constituents! There are tons of center-right parties around the rich world (and one in the US) who combine middle class and mid-sized business interests to basically keep taxes from growing post-WW2. From that position, a lot of regulatory and deregulatory fights over the private sector take place without a larger state to crowd it out. The US welfare and tax state has arguably grown more progressive in its transfers over the last 40 years as a result of the standstill.
But they're not socially progressive parties, which I think is a big deal for left of center people. Yet it's not clear how a popularly elected neoliberal party would take more socially progressive stances except over the long term. Left-libertarian mass politics basically doesn't exist; the biggest groups of middle class voters don't think that way.
Half right. The other half is that growth-producing change (Kaldor Hicks efficiency) should be accompanied by such redistribution as is necessary to make everyone better off.
And less of it?
I don't think it's "we should do redistribution through regulation" so much as "we should be deeply suspicious of new economic activity." Good distributive effects are one of the ways new business activity might redeem itself and gain community consent.
I find Julius Krein the most interesting writer on this topic. He argues neoliberalism was most significantly the shift from a Fordist manufacturing economy to an economy dominated by finance and intellectual property rents. A company such as Apple, which owns its IP, design and marketing but subcontracts out the manufacturing, is a new development, specifically incentivized by the stock market. We can argue if this is good or if it's worth trying to alter (I'm a lefty and I'd argue yes to both but ymmv). But I find this the most accurate description of how the economy changed.
The mention of intellectual property rents is intriguing, because that's very much a heavy handed government policy that imposes a monopoly on certain goods and services in favor of one entity.
Calling Dean Baker!
This is his hobbyhorse. https://www.dcreport.org/2024/01/02/patent-monopolies-are-not-the-free-market/
This article (and his personal focus) is on drug patents, but he's written extensively on the "economic rent" extraction that is patent and copyright law generally. https://cepr.net/images/stories/reports/ip-2018-10.pdf
I think the title of that last paper is a good place to look as to why his research is maybe not as influential as it should be. He's such a zealot on this stuff that I he becomes off putting to a lot of people. I'm pretty sure Matt would agree with a lot of his arguments and yet on Twitter I remember Matt admonishing him for trying to tie every single policy issue to this topic and really told me how much Dean's zealotry on this really harmed his own cause.
In Dean's defense, he's right -- and hobby-horsing is a known weakness among many pundits, including occasionally our gracious host vis-a-vis housing and YIMBYism (and he's right, too!).
Of course, the entire point of patent law is that is to bypass the free market temporarily to encourage R&D. It seems obviously true that we get more R&D thanks to patent law. Does he propose an alternative?
From someone we know.
https://slate.com/business/2012/07/we-have-too-many-patents-not-too-few.html
Also, citing someone we know. https://www.forbes.com/sites/timothylee/2011/07/28/the-supreme-court-should-invalidate-software-patents/
I can't believe people are actually unironically questioning the relationship between IP protection and R&D investment. Wow.
Evergreening medical patents is a problem
I don't disagree. Same with the ever extending TM for Disney. But I wouldn't want to throw the baby out with the bathwater. If all of a sudden everyone switched to a fast second mover strategy to "outsource" R&D to the market everything grinds to a halt.
Because it turns out there was no American worker special sauce. Ford and GM, that were not initially outsourcing out the US for decades, got their lunch handed to them repeatedly .
I like don't know enough about what exactly happened with the car industry but it seems to me that it wasn't really manufacturing that made sure that Detroit has had mediocre products for the last 50 years outside of the space of trucks and SUVs. Like where you put the factory wasn't what made all their sedans and compacts get poor reviews and word of mouth.
It was 100% a failure of design, technological innovation and management by the Big Three’s leadership. Nothing to do with “workers” except attachment to labor standards and wages that allowed for middle class life prospects.
In the 90s - my understand is - pension liabilities for the Big 3 had grown to >20% of the MSRP. I think that absolutely pushed their product line to focus on higher price point trucks and SUVs because that was the only cost structure that worked.
EDIT: Implied here but just not stated is Toyota and Honda were unburdened by these pension liabilities and that's partial why their low-end product was so successful. Both have still successfully fought UAW.
It was all incredibly mediocre. The UAW workers didn’t cover themselves in glory during the malaise era.
Bingo. I think the shift Krein talks about would have been far less politically fraught if say Apple had continued to make i-phones in the US. Then there would be a much greater coupling between the welfare mega corporations that own the intangibles like IP and the trademarks and the welfare of the average US worker.
I agree that neoliberalism operates as a kind of empty signifier covering over a multitude of sloppy thinking sins.( It drove me nuts in grad school.) My take is that, to the extent that this term has any analytical rigor based in history, it describes the parcel of broadly interlocking ideologies around the financialization of the economy that began circa 1973.
Quibble of substance: deregulation of the banking & pharmaceutical industries did and does characterize some tectonic shifts of this era. BayhDole institutionally coupled US Universities (publicly funded research) with private markets. Reversing Glass-Steagall, coupled with a dramatic rise in computation power, gave rise to speculative capital financialization of many sectors of our economy. These are but two instances of deep deregulation yielding massive, era-defining shifts.
This is an interesting framing.
To me, the big deal on the financialization of the economy was that we tried to be a lot more sophisticated in how we manage and assign risk. Sometimes the added sophistication was a net positive because risk could be efficiently moved onto the parties best able to handle it and off of parties that don't want the risk. OTOH, it was often a net negative because the complexity of the instruments/arrangements made it harder to figure out who's really holding which risks and also the tools we used to assess risk were imperfect.
Do you see this change as overall net good or net bad? What do you see as the biggest unresolved issues today around financialization of the economy?
I wanted to stick my head in on this thread because this is a question I have been thinking about for a long time, too, owing to my prior engagement on the academic side with health policy, where financialization is a pretty big and interesting question.
One thing I think is that one of the unresolved and paradoxical issues of financialization is how wasteful it ends up being. That plays out in lots of ways, but the bottom line is that it turns out you really can hit a point where efficiency gains become tradeoffs, rather than gains, which is kind of interesting.
Another thing I have come to suspect is that profit is always two things in tension: an end in itself ("I want to make money") AND a way to keep score ("I know that my toy company is successful because it made lots of money"). I think financialization is that it often puts people in decision-making roles who favor the former more than the latter. That can lead to some really pernicious effects, in part because it turns out that lots of people make decisions that are suboptimal in financial terms but nice for the community.
At any rate, those are two ideas about this question that I would love to hear H's or your thoughts on.
It's true that risk arbitrage through financial instruments like CDOs is a (perhaps the most) significant aspect of this round of financialization. To my mind it has been a net negative because in practice these tools actually introduce more systemic risk & tend to exacerbate wealth inequality.
But financialization itself is distinct in my mind as a process or extended historical moment in which economic value generation/productivity is abstracted from the material economy & transacted instead in financial markets of one form or another. (I take this definition from Giovanni Arrighi's _Long 20thC_.)
It's worth noting that there have been many moments of financialization (turn of the 20th C being the most recent before now), each effecting a kind of system reconfig.
Anyway, thanks for your thoughtful question. Not sure I answered it exactly.
Your answer was great, but your comment about financialization abstracting value generation from the material economy was as thought provoking as your previous comment. My knee-jerk intuition is that in addition to creating useful instruments that can legitimately help with risk management, financialization also creates new avenues for speculation. I suppose the big question is whether the existence of all the new instruments induces more speculation than we'd otherwise have, but I'm not read up on this enough to have anything actually intelligent to say about that.
On the risk management side, I'm much more familiar with some of the practical applications of financialization than I am with systemic studies of their overall impact.
For example, financialization has been a huge boon to renewable energy development. To get financed, renewables projects in the western world generally use newfangled financial instruments like contracts for differences or power purchase agreements to pre-sell much of their expected electricity production years ahead of time. These instruments, coupled with various insurance products allow them to basically de-risk most of their future cash flows and get very attractive financing terms. The folks on the other side of the power purchase instruments, like Google, Microsoft or some distribution utility, get the benefit of a years long supply of clean energy at a fixed price. So on net, at least in this case, the instruments actually reduce risk and provide benefits to both sides of the transaction.
Yes, financial instruments are double-edged swords. Abstraction works by achieving degrees of freedom from constraints of materiality, specificity, etc.
Computational power is an important piece of the puzzle specific to late 20thC financialization, of course. No algos packaging risk in increasingly sophisticated ways without this historical development. But I think that's less of a driver than a second-order amplifying co-factor.
One thing that might be worth flagging here is that quantifiable "risk" is itself a relatively recent conceptual construct. Late 19thC or thereabouts, concurrent with the rise of "probability" as an idea (see _Empire of Chance_ & other history of science/STS literature on this topic. It's well studied.)
Anyway, my short answer is that degrees of freedom always cut both ways. At a system-level though, financialization is a destabilizing force. That can be good or bad, depending on your particular point of view.
For me the bigger issue is with the various ideologies that grow up around re-ifying financial markets and "the market" as such (i.e. what some people label neoliberalism). Markets are wildly historically contingent, human-made institutions. They are sociologically fascinating. We make them and make choices about how they are structured, we tweak their efficiencies and effects in a power contest that people pretend isn't happening. Chicago School bros just started a little religion around it, and then that got elaborated, put into policy practices and rhetorical operation, etc. That's the kernel of neoliberalism ideology critiques and while underspecified, sloppy, etc. ....it's not wrong.
How much of that is just due to better and faster technology? I saw a interesting chart the other day that showed, after the invention of computerized spreadsheets, the number of financial bookkeeping jobs collapsed and the number of analyst/researcher jobs massively rose. New technology allowed the financial industry to become more productive, like happened in every other industry.
To point at the roughly Carter through 9/11 era and think broadly, "This was the problem" demonstrates staggering levels of derangement. These people talk like they've sincerely deluded themselves into believing Milton Friedman personally threw their favorite uncle out of Augusto Pinochet's helicopter.
There are many in academia who think all economists are Chicago Boys who personally throw innocent people out of helicopters for CaPiTaLism.
I have been called a "Priest of Capitalism," which is a strawman that wasn't even true in the 80s.
May I ask. Is this all academia or just professors who work in non-econ humanities?
I've heard it mostly from those in the humanities, but I have also heard it from other social sciences and a few in the hard sciences.
Why?
During that time the middle class shrank by 20%, with 2+ financial crises brought on at least partially by deregulation, manufacturing decline (which I'm guessing MY will touch on in trade piece).
Just because the leftists aren't right doesn't mean that there are plenty of problems with the 'free markets solve everything' approach
The conceit that the "middle class" is a concept capable of being a coherently quantified such that it can meaningfully be said to have grown or shrank is pernicious nonsense. We're talking about the greatest period of growth in global productivity per capita since the industrial revolution.
*shrunk.
There are multiple definitions you can apply to a "middle class" and doing so is not a "conceit", though OP should have said what definition they were using (because of course, we can mechanically definite it as the middle 3 quintiles e.g. and that can neither grow nor shrink).
But also you get slippery by switching between referring to a (presumably American) middle class and *global* productivity growth; these are different things.
Almost all that growth was in China and secondarily in countries that sell raw materials to China. It's therefore debatable whether this counts as a neoliberal success when China pointedly refused to do what NL economist suggested--focus on raising its own domestic consumption.
So is the China story a neolib success story or neolib blindspot?
To the extent the story of China is a failure of neoliberalism it's been the underestimation of the CCP's willingness to siphon off economic productivity into totalitarian state capacity, but even that is only possible given the premise that China is a neoliberal success capable of production worth stealing in the first place. The vast majority of China's growth has in fact been in the name of sending Americans cheap goods.
Well China should be paying its own workers more who could in turn buy more stuff including stuff made in US..
Maybe your post amounts to saying the same thing from different vantage point
My hot take has always been China's biggest policy misstep will be not letting the Yuan truly float in like 2005. Just think about the consumer purchasing power of their market today if that had happened.
My understanding is that most of the shrinking of the middle class in that period was because of growth in the upper class, not people falling out of the bottom of the middle class. https://www.aei.org/wp-content/uploads/2015/02/income.jpg?x85095. So that would be an argument in favor of the neoliberal era, not against it
This is true in part but this itself has big time downstream consequences.
More and more income piling up in top 5-10% implies much more production geared to this particular segment..
You see how this works with real estate..we don't build that many homes and the ones we do build are often north of $500K in price.
For losers that can't afford the mortgage on a $500-$1M home, the neolib answer is increasingly
1. There's plenty of SFHs you could afford in Youngstown, OH
2. We're working on a technocratic uploading plan to get you a nice 2 BR apartment a little nearer to where you'd actually like to live. Sure you won't own and won't be able to change the place you live much and have no control over other renters and will have no idea how fast rents will increase but be sure the private equity firm that owns the building will raise them aggressively every year but hey...our own analysis suggests you're better off renting and saving anyway...
The whole economy is much more stratified.this way. And I feel like neolibs have no good answers for it.
matt has written one hundred thousand articles on the neolib answer to housing, which is freedom. this is also a good and the best answer
No, you also need good monetary policy and uh ... to actually have progressive taxes with deficits that do not exceed public expenditures with NPV > 0.
NPV>0 is a good exception but not the only one. The economy grows continuously and we have continuous inflation. So the actual NPV limit should be somewhat less than 0 and you can actually run small expenditures with no return at all (as a percentage of GDP), in perpetuity without growing the overall debt.
Real NPV. Even if we "can" is it optimal? [My instinct is to say, "no," but let's see the model.]
I think people tend to start at the conclusion that a certain system is bad and then can endlessly point to plenty of bad things to backfill as examples to the given conclusion
Friedman would have done that if he’d had the upper body strength…
I feel like you missed the biggest thing, which was that "neoliberalism" started under Carter when he deregulated trucking, airlines, and the price of domestic oil. The awesome thing is, all those deregulation were good in lowering prices for consumers. Air flight was basically unattainable for the middle class until he did that.
Much of the Reagan revolution was taking credit for the work Carter did.
https://www.theregreview.org/2023/03/06/dudley-jimmy-carter-the-great-deregulator/
Also: Legal home brewed beer happened during the Carter Administration.
Looking forward to this series. I think that many (most?) people run on vibes that dictate how they think the world should be. Price controls (especially rent control) is a great example: "This costs too much, so let's limit how much they can charge and we can have more money!". NIMBYism is another: "there's too many people here, we don't need more of them to keep having nice things.". And they get really annoyed when economist brained people tell them it's not that simple. Indeed, I'm guessing the usual suspects will yell at Matt while this series is ongoing.
The hard thing, which is what is needed, is for policymakers to be capable and creative enough to address the vibes and intuitions of the public -- after all, what other point is there of democratic governance -- but to find ways of doing so that also pass economic review, rather than adopting the first superficially simple "solution" that's put forward.
They need to concern themselves as much with the distributional impacts of their policies as with the efficiency, especially in the short-term. People want to see real results. Now-ish rather than in some far-off abstract economic nirvana. And a solid safety net to catch those who suffer any collateral damage. Part of the challenge, of course, is the influence of money on politics, a constant hindrance against fairer distribution and safety nets.
What really pisses me off about the whole neo-liberalism rhetoric is that it tends to use instances of government capture by corporations or their lobbyists as reasons why we should abandon market mechanisms -- and not just unrestrained contract anything markets but all markets.
Creating good incentives is hard and recognizing the ways regulators and legislators can be captured by buisnesses interests is important -- but that is just as much a danger when the government decides to regulate more as less. It's ultimately a problem of regulating well and this kind of simplified ideological rhetoric doesn't help.
It seems to me that most of what people call market failures are actually government failures.
Depends how you mean it. In economic jargon that usually just means a situation like an unregulated commons where the unregulated market equilibrium isn't socially efficient.
What bugs me is the demonization of markets as a tool. Yes, if anyone can fish wherever they want as much as they want the equilibrium outcome is going to result in overfishing. Ok, but often the best solution is to actually have the government establish different market mechanisms, e.g., auction off the rights to certain catch quotas or create long term property interests that incentivize maximizing the long term value of that kind of fishing.
TBF it's equally misguided to presume that the ideal markets are somehow given to us by some pure Lockean conception of property. We contravene that conception whenever we establish intellectual property (the government prevents people from duplicating the IP of another and selling it contra Lockean principles about owning anything you make by manipulating natural resources with your labor).
Ultimately markets are a very efficient tool for incentivizing behavior and it's crazy to spurn using it or to spurn shaping the market to avoid failure.
I just replied to another comment in this discussion by noting that regulating the commons is a legitimate use of government authority. And in many cases it is an indispensable one. Using quasi-market mechanisms has proven effective when done carefully. (I say quasi-market to differentiate from a free market.) If not done carefully, the result can be quite inefficient and/or unjust.
What exactly is the difference? For instance are patents a free market or merely a quasi-market mechanism?
At least for the purposes of describing what constitutes a market it seems like property rights are created by government regulation and there is nothing in principle different about a property right in a house, or patent or quota of fish. Maybe you think some of those kinds of property are somehow morally preferred but surely that's not relevant to whether it counts as a market.
Or do you merely mean to distinguish mechanisms which don't allow resale?
I was just pointing out there are important differences between a free market and a government-controlled market. If I own, I dunno, a piece of wood, I can do whatever I want to with it, including doing nothing at all for my entire natural life and then leave it to my heirs if that’s my preference. That’s not true if I hold a patent or a license for radio spectrum or a fishing quota.
"From skyrocketing wealth inequality to the climate crisis to systemic racism, neoliberalism offers no credible solutions for society’s biggest challenges."
I disagree with this kind of framing (from the Hewlett Foundation, not MY). Leave aside skyrocketing wealth inequality (which has been called into question). Attempts to avoid tragedies of the commons (e.g. climate change) are not turning our backs on neoliberalism (or classical liberalism): no non-fool believes there should be unfettered cost-free exploitation of our natural resources. This is just a straw man.
And I don't know where the argument about systemic racism comes from. The idea that the ability to discriminate is a neoliberal ideal? Seems again like another straw man.
Global inequality has been decreasing (Degrowthers redefine what constitutes poverty to deny this truth.) Inequality in the U.S. has been dropping for years, though from a local peak.
Climate Change is not a crisis. A crisis is something acute that requires immediate action. Climate Change is a slow drag on economic growth and environmental quality that requires a sustained and coordinated action over decades. Technological advances are addressing adaptation and mitigation (Again, Degrowthers lie and say technology cannot address climate change.)
Systemic racism? It was under neoliberalism that we have seen the largest gains in income of people of color and neoliberalism supports the free movement of people for economic opportunity. Alternative systems restrict migration like the Hukou system as it extracts rents from workers.
Also it's offensively lazy for the Hewlett Foundation to make absolutist statements like "neoliberalism offers no solutions" that can be easily refuted. Sigh.
It's a cynical take, perhaps, but I suspect the degrowthers and leftists don't like that global inequality has dropped so much. The alternate situation, where manufacturing and upward mobility ladders are limited to those lucky to be born in rich countries, allows these groups to monopolize gains, keep competing workers poor and away, and then donate a small amount to 3rd world country causes and feel good about themselves. All the while having a nice pint of beer after stopping work at 4 PM.
You are off your rocker about climate change. There are areas of the world where 100’s of people live (Bangladesh) whose long term prospects look very grim.
More importantly, the fact that we’re undertaking a massive and miraculous decarbonization of the economy was far from inevitable. What’s happening with solar panels in particular is one of the greatest miracles in human history which could soon deliver complete energy abundance.
Just because Apollo 11 gor back to earth does not mean there wasn’t a crisis.
People use the term “climate crisis” for two reasons. 1) Alliteration. 2) Catastrophizing is popular
Climate Change is a long term slow moving structural challenge, and its path takes a lot time to materially alter. Treating it like an earthquake or hurricane is silly. It is a much more complicated problem.
Again, this is just me repeating myself because you declared that I was “off my rocker” before actually engaging with what was said.
I've said this a lot here, but if by 'complete energy abundance' you mean '0 actual carbon emissions', that won't happen until there is a replacement for diesel engines.
ETA I misread 'abundance' for independence, but the point generally stands.
And neoliberalism does offer credible solutions for these listed challenges: tax & transfer (social security, et al), tax carbon externalities, ban racial discrimination
None of those things are economic problems.
Nice piece! But misses part of the point: importantly, an important goal of "neoliberalism" was to increase global growth, & thereby improve living standards in low-income economies (then "3rd World"), in order to undercut the appeal of communism. That totally worked: according to World Bank, something like 2 billion people emerged from "absolute poverty" during the 80s & 90s, & the 2 largest communist economies, Russia & China, adopted capitalist market strategy.
In the US & other rich Western economies, the objective was to curb domestic inflation by increasing domestic price-driven competition. But, while domestic price competition had some effect, the major driver of disinflation turned out to be low-priced imports, primarily from China & other East Asian countries. With inflation tamed, interest rates declined & domestic demand increased, boosting growth. So neoliberalism DID work, generating growth in both rich & poor economies.
But growth creates winners & losers, primarily by changing the structure of domestic demand. So, in the so-called US "Rust Best", competition w/ lower-cost foriegn producer DID cost manufactoring jobs--but FAR fewer than were created economy-wide in other sectors. More significantly, consumers broadly benefited from lower-cost imports--there would have been no "tech boom", far fewer PCs & probably no smart-phones without relatively inexpensive devises, & nothing like the internet as it exists today. So, on net, it's not implausible to claim "neoliberalism" work domestically, too.
Nonetheless, it remains the case that equitable policy requires some compensation to losers--in particular, access to reskilling via education & targeted retraining to allow transition from declining sectors to growing ones, & perhaps income-supplements to cushion this transition.. This, of course, has proven difficult to implement succesfully, at least in the US.
So "neoliberalism" had some significant successes, tho there clearly remain difficult tradeoffs to assess.
At least two additional aspects of neoliberal vibes that seem under threat:
- internationalism: with low expectations for the state and an eye on the benefits of free trade, neoliberalism had very global thinking
- individualism: by mostly functioning through markets and thinking in economic goals, neoliberalism inherently promoted the individual over the collective. Lately there has been a resurgence in collectivist thinking on both the right & the left (nationalism and socialism, respectively).
Globalism and individualism are both basically anti-nationalism, but from opposite sides.
"price regulation, which used to exist across many sectors of the economy ... largely went away and is now common basically only in the electric utility sector."
One factual correction: this ignores healthcare, which is a fifth of our economy and is full of price controls. As just one example (there are many), CMS every year puts out a "Physician Fee Schedule", which is literally a list of government-set prices, at very granular level. It is, of course, not literally binding on those who don't participate in government healthcare programs, but they are the 800 lb gorilla in the sector which makes that distinction technical rather than practical and meaningful.
The CMS price-setting is definitely influential but this is still pretty different, other payors routinely pay non-CMS rates
Yes, many -- but by no means all -- government healthcare price-setting is done in the form of rate-setting by a market participant, rather than as purely regulatory interventions. But when a market participant is that large, the distinction in practice is a lot less than might appear.
If any other market participant was that large and exerted that much pricing power, it would have the FTC and DOJ on its heels for anticompetitive, market-distorting monopolistic practices. Now, maybe, there's something so different about healthcare - which again is a fifth of the economy and includes a vast range of low-tech commodity products and services as well as the highest of high-end cutting edge technology - that normal theories of market functioning and efficiently should not be applied to healthcare, but that's a different discussion.
This is true but in practice both private insurers and Medicaid seem to use Medicare rates as a standard, basing their payments as a percentage (higher for private, lower for Medicaid) of the Medicare rate.
I have come to the conclusion that there is no best way to structure fees for healthcare. Speaking of tradeoffs!
And insurance (not just health insurance), right? Don't property and auto insurance providers need permission from state regulators to set rates?
Yes, insurance features lots of price regulation, and the accompanying shortages that economists would predict.
The anti-neoliberalism crowd wants to use the term as a cudgel to gather state economic power so they can show all of us how to badly mismanage worse than a grafty municipality. The California high speed rail boondoggle and 2nd Avenue Subway will be small potatoes.
When the Democratic party can’t even put up a presidential candidate with a functioning brain, I start to question how much the the economy I want these craven bastards running. Taxing and transferring seems like the way to go— it’s simple enough that it’s hard to screw up.
Pretty uninsightful comment imo
Wow me with you nuance and wisdom.
Ok:
- “the democrats” aren’t a singular entity, as MY has had to stress several times to those who would oversimplify factional disputes
- Biden’s handling of the economy post-Covid has led to the fastest recovery among rich nations
- if you prefer to withhold control over the economy from the “craven bastards” on the basis that they “can’t even put up a candidate with a functioning brain”, to whom do you suggest granting that control?
1). The Democrats absolutely do nominate a president. They’ve done this every four years since roughly 1800.
2) That the US economy has done better than peers isn’t necessary due to Biden or even to our political institutions.
3) markets are pretty good and flexible tools for aggregating preferences
What available option is there to hand over control of the economy to “markets”? You’re making a (weak) negative case against Democrats. What’s the alternative affirmative case?
I disapprove of this anti-graft rhetoric. Boss Tweed of Tammany Hall infamy actually built the Brooklyn Bridge, and it was only slightly over budget. Albert Fall got the taxpayer 50% of what he should have for the oil under Teapot Dome. We would kill to get outcomes that good with modern projects like CA high speed rail and NYC subway construction.
Modern anti-corruption, triple-check every box, consult every stakeholder government procurement practices are in effect much worse than old-school graft ever was.
Put another way, we've sacrificed inefficiency through graft for inefficiency through process and rules.
The problem with going back is that the unfairness in the graft system is so clear to anyone with a moral bone in their body, while the self-defeating nature of process-based systems is much harder to convey.
Listen Matt, without poorly defined and sloppily applied accusations of neoliberalism Chapo Traphouse wouldn’t have half of its comedic material.
I think the reason people act like neoliberalism is this pervasive thing, even though it wasn't, is because when you are used to getting your way, even a tiny amount of push back feels like intolerable oppression. Politically-minded people were for years able to engage in anti-free-market demagoguery as much as they want. It was a shock when people started fighting back. It reminds me about how in the early 2000s, religious fundamentalists acted like atheism was a rampant and all-powerful force just because a few articulate atheists were speaking out.
The comparison to religion brings up what I think is another reason people think neoliberalism dominates everything: it lets them dismiss economists who say they are wrong the same way that creationist dismiss evolutionary biologists who say they are wrong. Creationists don't like that science says they are wrong, so they dismiss scientists as being in thrall to "materialism," which is "just another religion." Similarly, anti-market activists hate that economics says they are wrong, so they dismiss the whole field by saying that it is in thrall to "neoliberalism. "
For what it's worth I think there's a few clear tenants of neoliberalism:
- Regulations are not intrinsically good or bad, they need to be assessed specifically to understand if they create good or bad market outcomes and/or successfully reduce an externality
- Ambivalent on the size of the safety net, but it can be best paid for by taxing a well functioning private market
- Against market interventions like price controls
- Against populist labor, immigration, and trade restrictions
Basically it's a market-first approach true to its name in the classical liberal sense, but not a libertarian approach with respect to hostility to all regulation and government. This is why normie Democrats are usually roughly neoliberals.
This is it, exactly. Neoliberalism says if there is a problem, "start with the market" as the solution. If the market creates failures, or the problem is too complex for the market to address, consider government action. Next, consider if the government action can credibly address the problem without creating too many bad unintended consequences. Finally, consider if there is value for money, or at least addresses a high priority, such that addressing it is worth taking away funds from other priorities. If yes, then pursue the solution.