The Code of Capital

An interesting book came out earlier this year by law professor Katerina Pistor called The Code of Capital. The book explains in detail the qualities that an asset has to have in order to generate wealth over time, and how the law can bestow such properties on an ordinary asset to turn it into a capital asset.

In other words, capital is coded via law, and a set of private legal institutions have been set up and used for centuries in order to to code certain things into capital. The first asset coded this way was land, but the code has been extended to more and more things over time, and it continues to be expanded.

I think the book is important because the standard libertarian argument relies on a misunderstanding of things like private property, money and capital as being somehow “natural” and a priori to the state.

But in reality, all of these things are created by human institutions, most particularly the state with its monopoly on coercive power. They are than artificial creations designed to arbitrarily privilege some groups over others.

Pistor’s book focuses on capital, and her conclusion is that the institution which creates capital is the legal system. In the book, she attempts to document exactly how this is done. It also has some interesting historical insights into how capitalism emerged out of feudalism with much of the original power relations more-or-less intact.

Capital is an asset that has some potential to generate private wealth. In order to create a capital asset out of an ordinary asset, Pistor argues that you need to do some legal encoding of that asset. This encoding of an asset—grafting onto an asset a particular set of ideas enshrined in the law—is what she refers to as the “code” of capital. The “code of capital” is what flips a simple object, idea, or promise to pay into a wealth-generating capital asset.

Over time, the code of capital has transformed more and more things into income-generating assets. The code was originally developed with respect to land to preserve the wealth of landlords from challenges to their power. Over time, these legal codes have been used to make capital assets out of things like financial instruments, debt and intellectual property.

Pistor argues that you need to encode three out of four of these concepts to flip an ordinary asset into a capital asset. They are:

1. Priority – Having more senior rights to an asset than other people. This is the fundamental rule you need in order to create a capital asset, or even to have private property.

Legal institutions create ranks and prioritize some claims over others. This matters in insolvency, for example, where claims are ranked from strongest to weakest. The strongest claims feed at the trough first, while the weaker “runt” claims get the leftovers, if anything. How those claims are ranked is determined by the law.

Priority rights are the minimum requirement. But to create a capital generating asset, you need more.

2. Durability – If an asset can end up easily on the auction block, the ability to accumulate wealth over time is limited. Durability protects assets and asset pools from too many counterclaims. It extends priority rights in time.

Durability was fist established using the entail in English common law to protect assets from being seized by creditors. See Fee tail (Wikipedia)

3. Universality – Priority and Durability need to be enforced against everyone, not only against the parties with whom you have directly negotiated these interests—erga omnes in the legal terminology.

Universality gives lawyers the ability to create assets that have priority rights that will be universally enforced not just against the contracting parties, but against anybody, whether or not they knew about the arrangement or were parties to the deal. Universality extends priority rights in space.

4. Convertibility – This allows you to not just be able to transfer an asset, but also to flip the asset into another, safer asset if necessary.

This is most obviously comes into play by turning an object into cash. State-issued currency retains its nominal (though not its actual) value. The ability to do this is especially critical in giving financial assets durability. Without being able to “cash out” paper assets, they might lose much, or even all, of their value. As Pistor describes, convertibility was especially critical in turning things like CDOs and other debt-based securities into capital assets.

When these four legal ideas are grafted onto an asset–any asset–it becomes an income-generating asset, that is capital. Any object, promise of payment or idea can be flipped into a capital asset using these legal tools–this “code”

A lot of these were first developed with respect to land, and then were grafted onto other assets: land, farms, debt, firms, know-how, and even data, with data being the most recent and ongoing.

The legal modules to do this have remained fairly stable over time. She enumerates them as: Property law, Contract law, Corporate law, Collateral law, Trust law and sometimes Bankruptcy law, which can mimic features of all the others.

This is also provides a useful definition of what capital is. Obviously, capital is the beating heart of our economic system. Yet, remarkably, people still argue over what it even is!

Marx entitled his masterwork Captial, and placed it at the center of his analysis. Following him, the overall economic system has been termed “capitalism.” But a solid definition of what does and does not constitute capital has remained elusive. Using the above, we might define it as an asset—physical or otherwise—that possesses three out of four legal properties of priority, durability, universality, and convertibility.

Economists often claim that the central factors of production are land labor and capital. But land and labor can be capital. In fact, anything can be capital if it is coded as such. She points out that one’s own labor can be coded as capital by establishing a corporate entity and issuing dividends to yourself as a corporation shareholder in lieu of a salary.

What this demonstrates that the law is intimately involved in the creation of capital.

“What are the functions that law plays? What you need to convert an asset into a capital asset is a credible commitment of enforceability. You want to make sure that you can enforce your rights at some future date in some place, and maybe even in some place outside your own jurisdiction. You need to have the institutionalization of the centralized means of coercion that private parties can use to organize their private affairs so that they can bank on enforceability. At some level, at every stage in the creation of capital and the creation of financial markets, I would say in the creation of markets in general, the state is deeply involved.”

But what do we mean by law? Law is a particular institutionalization of the central state’s coercive powers. Pistor distinguishes three dimensions in which we have institutionalized law:

1. Top-down vertical ordering – the state enforces order among its citizens through a monopoly on coercive violence.

But the flip side of this vertical dimension is that, in rule-of-law based constitutional systems, citizens can also use the law to protect their interests against the state. This aspect is often ignored. Top-up vertical ordering allows private actors to supersede the state; to “tie its hands” as it were.

The centralization of the means of coercion on the one hand, and the allowing of individuals to avail themselves of the legal system to protect their private property rights against the state through civil and political rights, was an enormous institutional revolution.

2. Horizontal ordering – Private parties can employ the coercive properties of the state to organize their own private affairs. This means that private relations can be structured much more forcefully than they otherwise could be by private parties availing themselves of the state’s legal system.

Pistor traces this legal coding all the way back to the thirteenth and fourteenth centuries in England. For whatever reason, England developed a very powerful private legal profession very early on. Wealthy landowners commonly availed themselves of legal services provided by professional attorneys much more often then their continental counterparts. On the continent the legal profession was less empowered. France controlled them in a top-down fashion, and Prussia halved the private legal profession in the eighteenth century because they were seen, correctly, as a threat to state power.

As Pistor depicts it, many of these laws originated for the benefit of the large, aristocratic landlords to, in essence, to preserve the power relations under feudalism. They enshrined these pre-modern, pre-legal, pre-constitutional power relations into law. The lawyers who did this were often descendants of these very same aristocratic landowning families, so its obvious whose side they were really on.

This adds an interesting perspective on the libertarians’ “year zero” problem. They usually argue for a “night watchman” state that only protects private property rights and lets everything else just sort of work itself out. But where do these property rights come from in the first place? Why do some people have priority over others?

Matt Breunig makes this same point:

Perhaps the most interesting thing about libertarian thought is that it has no way of coherently justifying the initial acquisition of property. How does something that was once unowned become owned without nonconsensually destroying others’ liberty? It is impossible. This means that libertarian systems of thought literally cannot get off the ground. They are stuck at time zero of hypothetical history with no way forward.

How Did Private Property Start (Jacobin)

Pistor’s book fills in some of the gaps in that process. It was through law that such priority rights established, and legal decisions usually favored certain stakeholders over others. These decisions can in no way always be said to be “fair.” Rather, she argues that they come from whatever legal arguments happen to carry the day in court.

During the sixteenth-century in England there was a legal dispute over who had better property rights to the land—the landlords or the commoners. Who had priority rights over the commons, the peasants or the aristocracy?

The commons was an area where multiple, overlapping stakeholders had multiple, overlapping claims, and those claims were balanced against one another for centuries by traditional customs without written legal precedent determining ownership. So whose claims would take priority if one side defected, and whose claims would be downgraded, or even dismissed?

At first, this dispute was conducted in a decentralized fashion in hundreds of sporadic conflicts all up and down the British Isles. The landlords attempted to assert their rights over the commons. The commoners rebelled. There was violence, breaking fences, and digging hedges. The “Diggers” were so-named because they dug under the fences and hedgerows planted by landlords to mark their territory.

Eventually, these disputes wound up in the courts. The attorneys—by and large children of the nobility—argued on behalf of the landlords. The landlords won. The argument that carried the day in the court was seniority—the landlords had the stronger claims to the land because their rights took precedent. In essence, they were there first. Another strike against commoners is that they were not organized into a single, coherent corporate entity, so unlike the landowner, they could not assert collective rights. They were simply seen as numerous private individuals by the courts. More recent scholarship has shown that by the early seventeenth century, already two-thirds of arable land in England had been enclosed even before the major Enclosure Acts were passed.

These decisions gave the landlords priority rights. But you also needed to have shielding devices to create sustainable value.

To this end, the landed elite in England learned how to entail their land to preserve it down through time. Lawyers took a page from feudal law and argued that the contracts that potential creditors had entered into were with the “life tenant” rather than the person who gained the profit off the land. The life tenant, however, was not the real owner, they said—he only holds the asset for future generations. Under the feudal law, this meant that you could only seize 50 percent of the land, and never the family mansion.

Entailment gave English landlords durability. When the land was no longer able to generate sufficient revenue thanks to the repeal of the Corn Laws and the flooding of the market with cheap grain, the landlords could shield themselves from creditors and keep land in the family. This caused a debtor crisis by the mid-nineteenth century. In 1881 the English courts declared that the the life tenant was the true owner and therefore creditors could seize all of the land. After the Land Settlement Act and the Land Conveyance Act were passed, almost 20 percent of land changed hands. The repeal of durability greatly affected the value of land as a capital asset.

When England started seizing lands from aboriginal peoples all over the world, obviously the “they were here first” argument wouldn’t hold water. So the attorneys switched up their arguments to improvement and discovery. Improvement is the argument made by John Locke, i.e. you combine your labor with the land to make it productive, so that gives you ownership rights to the land. Discovery is a sovereign territorial claim. It boils down to, essentially, “finders keepers.”

Note that this is the inverse of the priority rights that were argued during the enclosure movement. Under the feudal system, it was by-and-large the labor of the commoners that brought forth the fruits of the land. Yet back then, this gave them no special claims to ownership! Landlords had some legal and administrative duties back during the feudal era, but the Crown (i.e. the state) had largely taken over those functions by the time these disputes showed up in the courts. Thus, landlords contributed very little labor to the land, and yet they claimed exclusive ownership rights over it, and won in court!

And, of course, how does the labor theory of property apply to a financial asset?

In other words, what justifies one’s claim to an asset appears to be whatever the apologists for those with power argue it should be. And that obviously favors those already with the power.

Pistor highlights the fight by the indigenous Maya to encode their collective use rights as property rights in the Supreme Court of Belize. The constitution of Belize—as most constitutions do—says that property rights will be protected. But it does not define what counts as property—it simply assumes it. The supreme court of Belize eventually recognized the priority claims to the ancestral lands by the indigenous Maya. But what they didn’t do was use the state’s coercive power to back up those claims. Instead, Mayan land continued to be bought and sold by outsiders.

In telling this story, Pistor’s core point is this: what we recognize and what we do not recognize as property is a political decision that we make. In making these decisions the state tends to favor the rights of those who will generate more wealth for the state.

Since the end of the nineteenth century in Britain, we’ve shifted from protecting the landowners and their capital to protecting the credit claimants. By elevating creditor claims above all other claims, we have allowed financialization to occur. This has subsequently engendered all the “exotic” financial instruments based on debt that we see circulating today.

Pistor goes into detail about how these legal coding techniques were used to turn exotic financial instruments into capital assets via law. In doing so, the features of durability, universality, and convertibility became paramount in turning paper claims into capital assets. In fact, it was in trying to understanding the exotic financial instruments underlying the global financial crisis that she discovered the code of capital. For example, the “code” allowed the mortgage debts of millions of ordinary homeowners were turned into capital assets that could be traded and used for wealth generation. Her arguments here are fairly complex, so if interested you should look further into the book.

An important point she makes is that land and other tangible, usable objects are still usable in a certain way even without any legal coding. You can grow crops on land. You can drive a tractor. You can milk a cow.

However, intellectual property rights and financial assets only exist in law. These are entirely creations of the law.

And so, she notes, we’ve created a legal system where we create brand new assets ex nihilo through the law, and then further enhance these assets with the additional attributes of priority, durability, universality, and convertibility to turn them into wealth-generating assets. Of course, this benefits certain people over others.

Finally, she addresses the issue of universality. Private law is domestic law, but we live in a global capitalist system. And so how can you have domestic law sustaining a system of global capitalism when we don’t have a global state?

Pistor argues that as long as all global states choose to recognize the features of a specific legal system, you can, in theory, have legal universality even without a single, global legal system. For financial capitalism, the legal systems that currently serve this purpose are the laws of England, the state of New York, and Delaware for corporate law. Thus globalization turns out to be a very parochial system of coding rooted in just two legal systems! This gives Anglo-Saxon firms a legal advantage in crafting these types of assets, including financial assets. The world’s largest and most powerful law firms are all headquartered in Anglo-Saxon countries, where most of the legal coding work is done.

“The globalization of legal practice which is the very foundation of our global capitalist system is ultimately a globalization of Anglo-Saxon, particularly American legal practices.”

What started centuries ago in land has been extended to corporations, to financial assets, to intellectual property rights, to data, and potentially to many more things. As she notes, even exotic things like DNA are being eyed as potential capital assets.

As a result, citizens of various states increasingly feel as if they’ve lost control of their own domestic destiny. With everything around them being rapidly turned into capital assets for international markets left and right, they feel helpless. They feel that collective self-governance has fallen by the wayside under this system. Pistor points out that Brexit was rooted in the idea that the people have lost their legal sovereignty. She argues that this perception was essentially correct, but it was not really a takeover by Brussels (the EU headquarters) but more accurately a takeover by London.

The Code of Capital illustrates that the neofeudal order that is coalescing today is not some inevitable force of nature, but an imposition of a specific legal code on all of us to turn the entire world into capital assets owned and traded by an international oligarchy of wealth, while local communities are steadily hollowed out. It is the endgame of global capitalism; the final gutting of civil society. Despite the assertion of neoliberals and libertarians, there is nothing “natural” about it. It is blatantly obvious for whom the state’s monopoly on coercive violence is now serving, and its not the citizens of the world’s various counties, but a transnational investor elite.

Ive taken the above information from YouTube talks and interviews given by professor Pistor.

Talk at the Watson Institute:

Talk in Brussels:

Majority Report interview:–ck

Book review from the London School of Economics

Christmas used to be just the way we lived every day

I’ve been studying a lot of history, and what I’ve read over the past few years has led me to the conclusion that the ideals we associate with the Holidays here in the Anglo-Saxon world—spending time with our loved ones, taking a break from our labors, feasting, singing, dancing, and reveling; helping the poor, lonely and downtrodden; charity, fellowship and brotherhood; putting aside conflict and working for peace; cooperation; open-handed generosity; and just basically celebrating human-centered values….

…These were one just the way we acted 365 days a year.

In other words, before Capitalism, Christmas was year round.

Once upon a time, we all lived in gift economies. This was what “economic” behavior consisted of, not buying and selling with gold coins in impersonal markets, and certainly not trying to “profit” from the people in your community whom lived and worked with every day. This fact has been conclusively demonstrated by anthropology.

At Christmas, we revert to this atavistic gift-giving economy, with only conscience and sentiment compelling our behavior rather than necessity or rationality. It is not our instinctive nature to “truck and barter” as Adam Smith had it; it is our nature to be reciprocal, as even lesser primates demonstrate. We do not like to be only receivers; we like to be givers as well. Of course, we so today in the context of a wider capitalist economy (we still buy our presents from corporations, by and large). But the fact that we mark out a special time to revert to gift-giving is fascinating, and tells us something, I think. If there is some “natural” economic behavior based in human nature, then I believe this must be it.

Before the advent of Capitalism, European society was organized around the values promoted by the Catholic church. Of course, these were often honored far more in the breach than in the observance. Men aren’t angels, after all. But this was seen as the ideal for human society and human behavior, even if it was practically unattainable due to our fallen nature. Our fellow Christians were our brothers, and even charging interest on loans was forbidden.

Now, the ideal for human society—its lodestar, if you will—is making money, consumerism, and maximizing stock valuations and the Gross Domestic Product.

This was the “disembedding” of the economy from human-centered social values that I’ve talked about so often based on the ideas of Karl Polanyi. What became recast as “economic” behavior became permanently divorced from the moral order or pro-social behavior. Activities that would have once been looked down as immoral and sociopathic upon became celebrated above all others (such as raising the price of essential medicine for sick people). There once was such a thing as a moral economy.

Now we were expected to behave according to the cold, hard calculus of market logic; that is, rationally, selfishly and hedonistically. What was good for me was paramount; what was good for thee—or for the society—was not, even if some pseudo-philosophers like Bernard de Mandeville insisted that they were actually one in the same.

This, then, became the ideal, not Christian charity or brotherhood. Even more extraordinarily, such behavior became recast as man’s “natural” state—just the way humans are. And this is continually emphasized even today by evolutionary biologists who claim indisputable recourse to timeless scientific truth. Hence, any behavior which deviated from  this norm—like charity, giving stuff away, renunciation, or working less—is, by definition, “unnatural”; aberrations  marring a nominally “rational” human species. The conception of man as a social being defined in relation to his fellow man—as well as to the broader society in which he was embedded—was abandoned as a quaint, old-fashioned relic of ignorance and superstition. We were now all self-sufficient Robinson Crusoes, each washed ashore on our own private island.

And that’s where we are today. I think we’ve forgotten that it ever used to be another way.

However, during Christmas, we are granted “permission” to deviate from this behavior just a little bit—and for a limited amount of time. A “pass” as it were, to abandon the cold, hard logic of the market ethos to give stuff away, to be freely generous, to not care so much about money, to spend time in “nonproductive activities” (like caroling and decorating), and to just basically have fun without an overseer constantly looking over our shoulder (let the brandy flow!) When your neighbor invites you over for Christmas dinner because you are all alone at Christmas, they do not present you with a bill afterwards (well, some hard-core Ayn Rand supporters might, LoL).

The Holiday season allows us just a brief period to act in the ways we used to do all the time.

It’s at Christmas when we take a short break from the capitalist ethos and turn back the clock to the values we used to have the whole year round. To what it meant to be a member of a society. back to the days when the prevailing ethos was inspired by the Church instead of the Market. In fact, during Christmas, these values are even celebrated— glorifying God, childlike innocence, caring for the lonely, sick, and less fortunate, merriment and good cheer, and just basically looking after one another. In other words, acting pro-socially.

When Market society came along, it stripped away all that. People were expected to behave “economically”, and that behavior became disembedded from society. In fact, we are compelled to act this way, regardless of our most deeply-held beliefs and sentiments.

And this “economic” behavior is quite different than what preceded it. The pursuit of individual gain became paramount. In turn, this required a whole new new set of values: hoarding, a certain callousness and indifference towards poverty, a nose-to-the-grindstone work ethic, a belief in “self-reliance” and looking down upon those with less as “lazy” and “charity cases.” Society became comprised of winners and losers—a zero-sum game played out in the competitive arena of the Market.

This was a profound shift that I don’t think we’ve really come to terms with deep down even today. Markets came along and colonized every aspect of human life, so it’s no wonder we need a break from itsometimes! And the Holidays have become that break for us in the capitalist world; that reversion to pre-capitalist values. A brief glimpse into what Charles Eisenstein once referred to as “the more beautiful world our hearts know is possible.”

But, the question is, do we truly act “unnaturally” during the Holiday season and “naturally” the rest of the year, as capitalist apologists wold have it? Or is, perhaps, it the other way around?

Sadly, it only lasts during the season. Then it’s back to “normal”. It’s back to the “every man for himself” ethos. Back to “basic human nature.”

I suspect this originated with Charles Dickens. It’s no secret that Dickens was a trenchant critic of the callous society that capitalism has engendered in the Anglo-Saxon world of his time. He used his writing to appeal to the human heart in a way that only a great writer can—to appeal to the values that had been overshadowed in place of those of greed and accumulation. He reminded us all of what it meant to be human. This is most apparent in A Christmas Carol, but these values permeate his writings. Dickens lived in a time when remnants of that older tradition still survived, albeit in isolated pockets. We probably have him to thank for giving us just a brief respite from the viper pit that is normal, everyday capitalist society.

It’s truly ironic that this exists alongside the orgy of crass consumerism and consumer fetishism that Christmas has become. But then, we are a bundle of contradictions, are we not?

I would suggest that if people enjoy the feelings of warmth produced by the Holidays, as so many do (suicide rates decline dramatically during the Holiday season rather than increase), then I advise people to remember that this used to be the way we lived all the time. And really, nothing is stopping use from living that way again, at least as individuals. To make a choice. To realize—if only at the personal level—the more beautiful world that our hearts know is possible.

And in that may lie the hope of a better world for all.

Merry Christmas, Happy Holidays and a Happy New year to all my readers!

Fun Facts, December Edition

The share of wealth held by the Forbes 400 more than doubled from $1.27 trillion in 2009 to nearly $3 trillion this year (2019).

The amount of taxable income for the wealthiest group of US citizens dropped from 27% in 2009 to around 23% this year, the first time they were effectively taxed lower than the nation’s working class.

Top 1%: Wages up 158% since 1979

Just 100 companies are responsible for 71% of global emissions.

Five Companies own 80% of all stock in S&P 500 listed companies

The Big Five tech firms have acquired more than 600 startups in the last two decades. Google alone has acquired one company per month, on average, for the past 17 years. This amounts to a disproportionate share of all startups acquisitions in the US.

The rate at which children are being admitted to U.S. emergency rooms for sexual abuse almost doubled between 2010 and 2016, new study finds. Researchers believe the rise could be related to increases in human trafficking.

There are now 2,101 billionaires globally – up almost 40% from five years ago

Dennis Ritchie; who invented the C programming language, co-created the Unix operating system, and is largely regarded as influencing a part of effectively every software system we use on a daily basis; died 1 week after Steve Jobs. Due to this, his death was largely overshadowed and ignored.

Ritchie and Kernighan (and the rest of the Bell Labs guys) are almost unknown to the public, despite creating the basis for modern programming and developing the foundations for all the software we use today.

Note that many of the people who *actually invented* the things that made the IT revolution possible are unknown to the general public. A lot of them worked in government labs, too. Instead, we’re treated to constant invocations of “Billgatestevejobs” (or, more recently, “Jeffbezoselonmusk”) by the media and politicians.

The guy who discovered insulin wanted it to be cheaply available to everyone, so he sold the patent to a university for only $1. They sold that patent to a pharmaceutical company that now manufactures it for $3 and sells it for $370 (A 12,000% markup). But only in America, where loopholes in patent law have allowed them to keep the patent alive long after it should have expired.
Too bad Americans only vote on guns and fetuses.

The wealth of the richest 1% of Americans is close to surpassing the wealth of middle class.

Technically, this means there is no middle class anymore. News flash.

A 2017 study by the Economic Policy Institute (EPI) found that in the ten most populous states, an estimated 2.4 million people lose a combined $8 billion in income every year to theft by their employers. That’s nearly half as much as all other property theft combined last year—$16.4 billion according to the FBI.

Over the course of the year, Americans collectively spent 70 billion hours behind the wheel—an eight percent increase since 2014.

In 1960, the median gross rent was $71, or $588 in today’s dollars. The current median US rent is $1,700.

Fake guns are banned in the downtown Las Vegas district, but real guns are OK.

With his Thanksgiving vacation, President Donald Trump’s golf hobby has now cost Americans an estimated $115 million in travel and security expenses ― the equivalent of 287 years of the presidential salary he frequently boasts about not taking.

The blood of poor Americans is now a leading export, bigger than corn or soy

Puerto Rico Has Lost 4% Of Its Population

Americans take fish antibiotics because it’s cheaper than a visit to the doctor.

One in every 200 people are homeless in England.

Nearly half of US residents to be ‘obese’ in 2030; 1 in 4 to have ‘severe obesity,’

Australia’s biggest forest fire has now destroyed an area seven times the size of Singapore.

Sigurd the Mighty, a ninth-century Norse earl of Orkney, has the dubious distinction of being the only person to have been killed by an enemy he had already decapitated several hours earlier.

Neoliberalism – Final Notes

The original Neoliberals worried that the hoi polloi would vote for policies which would benefit themselves, and by doing so, undermine the autonomous workings of the “free” market.

Today, we are in a place where the public goes out of their way to vote against politicians who promise them benefits like shorter working hours, protection from employer abuse, subsidized childcare and housing, and higher quality social services.

How did this happen? It’s an upside-down Bizarro world.

We saw this recently play out in the UK election this past Thursday. While on the surface, exiting a trade deal is not Neoliberal (we’ll talk about that in a minute), most of the rest of the Conservative platform is explicitly Neoliberal—i.e. built around austerity—and has been since Thatcher.

The Labour Party Manifesto, by contrast, was a full-on rejection of Neoliberalism. Just a few of their policy proposals:

  • Banning zero-hours contracts and introducing a minimum wage of £10. Workers whose shifts were cancelled at the last minute would be entitled to compensation.
  • Improving support for parents of children with disabilities.
  • Ensuring the right to join a union and and end to union-busting activities.
  • Building 100,000 new rental units available to all. Building 8,000 units specifically for those sleeping rough (i.e. the homeless)
  • Capping rent raises to the rate of inflation, and forbidding developers to sit on land that could be put to good use.
  • Free in-home care for those over 65.
  • Ending the creeping privatization of the National Health Service, and increasing NHS funding by 4.3% annually. Adding prescriptions and dental care to services covered. Hiring an additional 4,500 health care workers, and budgeting an extra £1.6b for mental health care.

Yet people overwhelmingly voted for Neoliberalism instead, handing Labour it’s biggest defeat since 1935.

I saw a video from The Guardian where Labour volunteers were out canvassing voters on the day of the election. The attitude of one formerly Labour voter summed up the problem. He was asked what he wanted to see in the Labour Manifesto that wasn’t in it. “Realism,” he answered. The next defecting Labour voter lamented, “It’s a fantastic manifesto in the sense that everything’s for free. I mean, it’s crazy!”

And that has been Neoliberalism’s greatest triumph. It’s simply become the way things are. There really is No Alternative (TINA), as Thatcher famously declared. It seems that, after such a long time, people have acquiesced to the logic of Neoliberal scarcity. A better world is *not* possible. It’s unrealistic. Don’t even contemplate it.

In other words, Neoliberalism has won the war against hope.

The rich will get richer forever, with declining living standards and immiseration for the vast majority of citizens. The most vulnerable and precarious will almost certainly not survive.

If you take a wild animal and cage it long enough, it will forget what it was like to be free. Even throwing open the cage doors and giving it an option to escape, it will choose to remain in captivity. We might express this as, forty-odd years of Neoliberalism have induced learned helplessness in the population of the industrialized world. They simply cannot accept or imagine anything else. As Mark Fisher wrote in Capitalist Realism: Is There No Alternative?:

Capitalist realism as I understand it cannot be confined to art or to the quasi-propagandistic way in which advertising functions. It is more like a pervasive atmosphere, conditioning not only the production of culture but also the regulation of work and education, and acting as a kind of invisible barrier constraining thought and action.

Capitalist Realism: Is There No Alternative? (Wikipedia)

One of Neoliberalism’s most remarkable triumphs is that it has conquered the thought patterns of the working population as we’ve seen, and yet almost nobody is consciously aware that it even exists!

Does Neoliberalism exist?

Believe it or not, one of the major debates is over whether Neoliberalism actually exists or not! There are a surprising number of people who insist that there is no such thing.

This comes from the fact that people who promote Neoliberal doctrines (which I’ve described at length) almost never refer to themselves as Neoliberal. Also, they argue that Neoliberalism doesn’t have a set series of doctrines, therefore it is not an intellectually coherent program and cannot be identified by any label. For example, see:

The Myth of Neoliberalism (Colin Talbot)

What is neoliberalism and why is it an insult? (Sky News)

Neoliberalism usually masquerades as “enlightened centrism,” and its economic ideas as “just common sense,” which stands apart from ideology. Neoliberals claim that only their opponents are ideologues.

It’s a non-ideological ideology.

Lately, some Neoliberals have taken to calling themselves “Classical English Liberals,” in response to the excesses of Neoliberalism, a term that has about as much meaning today as Mercantalist, Malthusian, or Physiocrat. This allows them to support Neoliberalism while at the same time washing their hands of its negative effects and excesses. News flash: it isn’t 1820 anymore, and we’re not debating the Corn Laws.

While there is some debate on what is or is not Neoliberal, the same can be said for literally any intellectual movement. The fact that I could write two posts about Neoliberalism, and the fact that its thought patterns can be explicitly defined and its intellectual history traced out, means that, yes, there is such a thing as Neoliberalism, whatever the people who subscribe to its doctrines and promote its ideals choose to call themselves. For more on this debate, see:

Yes, neoliberalism is a thing. Don’t let economists tell you otherwise (New Economics Foundation)

“Neoliberalism” isn’t an empty epithet. It’s a real, powerful set of ideas. (Vox)

As we’ll see below, we can very tell Neoliberals by the rhetoric they use, as well as the polices they propose.

Chris Dillow thinks that maybe calling Neoliberalism a coherent system is a bit too much, and perhaps Neoliberalism is just descriptive of what we’re living under, rather than a proscriptive set of policies. He also considers much of its “philosophy” as rationalizations for policies that make the rich richer—the actual goal of such policies:

I’m not sure about that word “system”. Maybe it attributes too much systematization to neoliberals: perhaps unplanned order would be a better phrase. But it’s better to think of neoliberalism as a bunch of arrangements (“system” if you remove connotations of design) rather than as an ideology. Ed has a point when he says that almost nobody fully subscribes to “neoliberal ideology”: free market supporters, for example, don’t defend crony capitalism.

And it’s useful to have words for economic systems. Just as we speak of “post-war Keynesianism” to mean a bundle of policies and institutions of which Keynesian fiscal policy was only a small part, so we can speak of “neoliberalism” to describe our current arrangement. It’s a better description than the horribly question-begging “late capitalism”.

This isn’t to say that “neoliberalism” has a precise meaning. There are varieties of it, just as there were of post-war Keynesianism. Think of the word as like “purple”. There are shades of purple, we’ll not agree when exactly purple turns into blue, and we’ll struggle to define the word (especially to someone who is colour-blind). But “purple” is nevertheless a useful word, and we know it when we see it.

If neoliberalism is a system rather than an ideology, what role does ideology play?

I suspect it’s that of post-fact justification…

On Neoliberalism (Stumbling and Mumbling)

The Shock Doctrine

Neoliberalism is typically implemented via shocks, either natural or artificial. I can discern three basic kinds of shocks: political, economic, or natural.

Political shocks are man-made, and include coups d’etat, military invasions, or legislative stalemates such as debt ceiling crises, for example. Economic shocks include things like sovereign debt crises, or an episode of inflation (or hyperinflation). Natural shocks include hurricanes, tsunamis, volcanic eruptions, and other natural disasters.

Initially, Neoliberalism was applied in the United States due to the debt default crisis in New York City in the 1970’s. Politicians refused to step in, and let the city die: “Ford to City: ‘Drop Dead'”, read the famous headline in the New York Daily News. The city’s debt restructuring was the rollout of Neoliberalism according to David Harvey’s book on the topic.

The next major rollout, and the one that people often use to define its start, was the military coup d’etat in Chile. Neoliberal economists from the University of Chicago—the so-called “Chicago Boys”—were tasked with restructuring Chile’s economy along Neoliberal “market-based” principles. Those opposed to this agenda found themselves persecuted and, of course, murdered.

This unleashed a familiar pattern of Neoliberalism the world over – faster economic growth combined with staggering inequality. Branko Milanovic recently wrote a good summary of this process:

Chile indeed had a remarkably good record of growth, and while in the 1960-70s it was in the middle of the Latin American league by GDP per capita, it is now the richest Latin American country…

While Chile leads Latin America in GDP per capita, it also leads it terms of inequality. In 2015, its level of income inequality was higher than in any other Latin American country except for Colombia and Honduras. It exceeded even Brazil’s proverbially high inequality. The bottom 5% of the Chilean population have an income level that is about the same as that of the bottom 5% in Mongolia. The top 2% enjoy the income level equivalent to that of the top 2% in Germany. Dortmund and poor suburbs of Ulan Bataar were thus brought together…

Such extraordinary inequality of wealth and income, combined with full marketization of many social services (water, electricity etc.), and pensions that depend on the vagaries of the stock market have long been “hidden” from foreign observers by Chile’s success in raising its GDP per capita.

Chile: The poster boy of neoliberalism who fell from grace (globalinequality)

As a result, Chile today is one of the many locations around the world where protestors are clashing with the state.

The shock which inaugurated Neoliberalism in the Anglo-Saxon world was the persistently high inflation of the 1970’s. This was brought down by the Federal Reserve raising interest rates (the cost of money) to staggeringly high rates in order to induce a recession and unemployment. It was thought that this was necessary to bring down inflation. The official who presided over this—Paul Volcker—died last week, causing many people to revisit this affair.

That ushered in monetarism, which we covered in the first part of this series. Neoliberal economists then introduced something called the “natural” rate of unemployment (NAIRU)—how many people had to be out of work for inflation to be low enough. Full employment was no longer a policy goal anymore—unemployment was, at least it’s “natural” rate.

In Iraq, the goal was to rebuild the country along Neoliberal lines after the unprovoked invasion by the United States. The thought was that Iraq could be rebuilt through privatization and the magic of the market (including selling off the oil reserves to private energy corporations). Years later, Iraq is a failed state and, like Chile, another location of major uprisings against the government.

The 2008 financial crisis caused “austerity” to be introduced in the Eurozone. Sovereign debt crisis such as Greece led to the wholesale destruction of the welfare state to pay off creditors. This has been discussed at length elsewhere. However, the removal of control over currency by any single nation-state appears to have explicitly designed to prevent Keynesian expansionary policies during a downturn, and to force a Neoliberal agenda on sovereign governments:

…[Robert] Mundell [came] up with a weapon that would blow away government rules and labor regulations…

“It’s very hard to fire workers in Europe,” he complained. His answer: the euro.

The euro would really do its work when crises hit, Mundell explained. Removing a government’s control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

“It puts monetary policy out of the reach of politicians,” he said. “[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.

He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace…

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics:

“Monetary discipline forces fiscal discipline on the politicians as well.”

And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

The Euro is a Big Success – No Kidding (Greg Palast)

Brexit is, of course, the ultimate in “manufactured crises.” While on the the surface, it may not seem Neoliberal, there has been good evidence that the crisis has been artificially designed in order to create a chaotic environment where the British welfare state, which was established after the Second World War, can be sold off to private corporations, especially American ones. This poster to Reddit sums up the Neoliberal game plan:

Here’s the playbook that’s being slowly unfurled:

Chaotic Brexit is by design. Orderly Brexit would be too legible, too accountable, and too democratic.

1. Chaotic Brexit is a gift to oligarchs: they learned how to profit from pillaging infrastructure in a chaotic transition from the fall of the Berlin Wall and they’re hungry for more.

2. Post-Brexit, UK is no longer covered by the various EU trade agreements, including those that provide critical supplies to the NHS. Due to Brexit, tax revenues fall and the UK government is left with large budget gaps in multiple areas. Don’t worry, private equity funds will happily lend them money.

3. Tories will wait 6-9 months to let pain begin hitting more and more people as shortages in supplies and personnel degrade NHS services. Let people get angry, let them suffer from disease and pain, and let them get desperate for a scapegoat.

4. Luckily, the Tories already have several scapegoats lined up: Corbyn, the EU, what’s left of unions (particularly among the NHS staff). These will be trotted out to focus outrage on other parties and the Tories will have a great solution: let the free market fix how broken the NHS has become.

5. Enter barely-regulated US pharma companies ready and happy to provide all the supplies the NHS is suffering from shortages of at massive price hikes. With the UK and NHS’ negotiating leverage severely degraded by Brexit, popular outrage, and general devaluation of the British pound, pharma companies can charge whatever they want.

Edit: Many of you have astutely pointed out that pharmaceutical companies are highly regulated. They are not wrong. The approval, production, and ongoing post-marketing safety reporting of drugs and medical devices is highly regulated (although 510k applications in medical devices do present a serious loophole) by the FDA. Compliance with these regulations is expensive and regulations have been modified over time to guard against new forms of health risks. However, drug pricing in the USA’s “free market” is poorly regulated and this has led to price increases substantially greater than the rate of inflation for many commonly-used and generically-produced drugs, such as insulin or epinephrine auto-injectors, which has placed considerable financial strain on healthcare providers and consumers. This is the basis of the above statement regarding “barely-regulated US pharma” companies, which are currently lobbying against Medicare-For-All and Congressional efforts to rein in runaway drug prices. Remember to vote.

G_o_o_d_n_a_s_t_y comments on Boris Johnson abruptly shuts down press conference after being asked if he had spoken to Donald Trump about ruling the NHS out of a future US/UK trade deal. (Reddit)

Another Redditor adds:

The term for this is called Managed Decline, and its been Conservative policy since the Thatcher era.

– The victims of managed decline include:
– British Rail
– British Telecom
– The Gas and Electric Boards/National Grid
– Parts of the NHS
– Entire cities like Glasgow or Liverpool
– Nationalised heavy industries including coal mining, ship building and steelworking.
– The probation service, and some prison services.

Please don’t let the NHS be another notch on it’s belt.

That plan was revealed by a series of leaked documents. The British upper class looked across the Atlantic and saw the obscene fortunes made by American oligarchs presiding over a precarious, demoralized and disempowered citizenry, and desired that system much more than the European continental system, with it’s high taxes and worker protections. The United States is the goal. By removing itself from the Eurozone, Conservatives believe, they can rebuild Britain more along the American model, and therefore the remove obstacles to hollowing out society to increase their riches:

That’s not an accident, says conference presenter Lucas Chancel of the World Inequality Lab. He notes that during this period, both the U.S. and Europe were exposed to globalization and changing technology. But the U.S. experienced a much sharper rise in inequality.

Rather than simply trying to make up for unequal pay through tax-code redistribution, Europe’s economy delivers more equitable paychecks from the outset. Economists call this strategy “pre-distribution.” Chancel suggests that the Europeans accomplish this through policies and institutions that improve workers’ bargaining power — such as strong labor unions and higher minimum wages. And they push to make workers more productive, for example through broad-based access to education and health care.

Whether U.S. voters will embrace such policies is an open question. But it’s clear that rising inequality has made America exceptional — and not in a good way.

Why America’s 1-Percenters Are Richer Than Europe’s (NPR)

The natural disasters that engender Neoliberalism include Hurricane Katrina, which hit New Orleans in 2005, and hurricane Maria, which hit Puerto Rico in 2017. Rather than rebuild what was there, the “wiping out” of existing infrastructure allows redevelopment to be structured along Neoliberal principles–privatization and selling of formerly public lands and assets to privateers and cronies. The costs of rebuilding causes budget shortfalls and debt crises that can be used to foist these “cost saving” measures on an unwilling public, especially since cities and provinces do not have control over the currency they use.

Hurricanes Irma and Maria left Puerto Rico in tatters, but it would be a mistake to blame the weather for Puerto Rico’s suffering; Puerto Rico was put in harm’s way by corrupt governments doing the work of a corrupt finance sector, then abandoned by FEMA, and is now being left to rot without any real effort to rebuild its public services so that they can be privatized and used to extract rent from the island’s residents.

Puerto Rico didn’t suffer a “natural disaster”: it was looted and starved long before the hurricanes (BoingBoing)

What Neoliberalism is not.

I originally meant to illustrate Neoliberalism by contrasting it with anti-neoliberal policy proposals. One comment about the Labour Manifesto, above, was, “a complete broadside against Neoliberalism.” Yet, as we saw, this broadside failed, and Neoliberalism will continue unabated, in fact even stronger than it was before.

In the United States, only the dissident wing of the Democratic party supports anti-neoliberal proposals, particularly Bernie Sanders. Most of the other candidates, to one degree or another, are Neoliberal.

Elizabeth Warren, for example, describes herself as “capitalist to her bones,” and simply wants a “fairer” form of capitalism. In her view, if we get closer to the perfect competition envisioned by economic textbooks, she believes, the magic of the market will sort things out. In other words, the problem isn’t capitalism per se, but rather it’s that we have “bad” capitalism (crony capitalism) instead of the “good” kind. She favors an activist government to correct “distortions” in markets, not to bypass them altogether.

Andrew Yang is campaigning on the idea of a Universal Basic Income. Whether or not that is Neoliberal is debatable. I would argue that it is, however. One of UBI’s proponents was one of the major architects of Neoliberalism—Milton Friedman (as Yang himself often points out). The reason Friedman favored a UBI scheme was because it would allow for the welfare state to be scaled back, because people could just take their checks and go out shopping in markets for everything that they needed. As we’ve seen, this is consistent with Neoliberal ideology. While Yang has stated he does not wish to eliminate targeted social programs altogether, he has been coy on this point.

In other words, UBI is the ultimate voucher system.

Perhaps this can be best illustrated by a field guide to tell whether politicians are Neoliberal. Here’s a useful guide to the words and phrases Neoliberals use:

  • If a politician uses the term “affordable” they are Neoliberal.
  • If a politician talks about “choice” they are Neoliberal.
  • If a politician talks about how the “private sector” can solve important problems rather than governments, they are Neoliberal.
  • If a politician calls for means testing, they are Neoliberal.
  • If a politician calls for vouchers, they are Neoliberal.
  • If a politician talks about “public/private partnerships,” they are Neoliberal.
  • If a politician touts “private charity” as the solution to social problems, then they are Neoliberal.
  • If a politician considers the budget deficit an existential crisis and harps about the debts we owe “to our grandchildren/China,” they are Neoliberal.
  • If a politician constantly talks about all the stuff “we can’t afford” then they are Neoliberal.
  • If balancing the budget is their highest (or only) priority, they are Neoliberal.
  • If a politician talks about lowering taxes or “tax credits” they are Neoliberal.
  • If a politician constantly bashes government—particularly without evidence backing the claims—then they are Neoliberal.
  • If a politician talks in terms of “win-win,” they are probably Neoliberal.
  • If they decry “interference” in the markets, they are Neoliberal.
  • If they want to channel the public’s money into the stock market, they are Neoliberal.

It’s clear from this list that the vast, vast majority of politicians in both parties in the United States at every level are Neoliberal to their core. Nor can the outdated “Left vs. Right” paradigm determine whether a politician is Neoliberal or not.

What do politicians opposed to Neoliberalism call for? Among other things:

  • They want the government to play a more active role in managing the economy and in solving problems.
  • They call for higher taxes on capital and wealth.
  • They call for prudent restrictions on the movement of capital.
  • They call for decreasing the power of financialization by enacting a financial transaction tax.
  • They call for cracking down on tax cheats and offshore tax havens.
  • They want universal programs available to all, rather than means-testing.
  • The want the government to provide services directly to the public at cost, rather than forcing people go out and shop.
  • They call for the decommodifcation of essential goods and services (e.g. health care and education), rather than trying to make them “affordable” and forcing you to go shopping for them.
  • They call for guaranteed jobs programs.
  • They see the country’s citizens as having certain inherent rights, unlike Neoliberalism where all you are entitled to is what you can claw forth from impersonal markets. For example, Franklin Roosevelt’s “four freedoms” is exactly the opposite of Neoliberalism.

Labor is protected by law. Abuse of labor is illegal. Health care, education and child care are decommodified. Banking is tightly regulated. The foxes do not guard the henhouse. No more socialization of profit and risk, and privatization of profits and publicly-funded innovation.

Government debt numbers are not a cause for alarm. States spend freely on their citizens. Inflation is a concern, but it is not all-encompassing. Labor is protected and is able to push for increased wages that come from productivity increases. Labor is also able to push for increased leisure time from productivity gains. Note that economists like Keynes assumed this would be the case.

In fact, Social democracy can be seen as an antidote to Neoliberalism.

Karl Polanyi, who was opposed to free-market fundamentalism, defined socialism simply as, “the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society.”

In other words, markets are an excellent servant, but a poor master. Note that this is not incompatible with private ownership, free enterprise, or even markets in general. He just believed that markets should be suborned to the common good.  What a concept!

Too bad it’s just “too radical” and “unrealistic”.

BONUS: This is a good comment from Jeff Martin that I saw on Ian Welsh’s post. It makes an important point: the institutions of Neoliberalism were explicitly design to foreclose any alternatives. I touched on that a bit above with the creation of the Euro, but this adds some important points (emphasis mine):

Every aspect of neoliberalism either was explicitly developed so as to foreclose alternatives, or functions that way, consistently, owing to the systemic logic of its structures. Whether the free movement of capital, deindustrialization, regulatory arbitrage (whether between nations or utilizing supranational tribunals) , or (yes), mass migration, neoliberalism operates by means of blocking avenues of redress and socio-economically atomizing the people who might potentially unify to effectuate any reform. When neoliberals bang on about there being No Alternative, the significance is not merely rhetorical, and not a simple reference to the established order resisting change in the name of its prerogatives. Rather, every single neoliberal deform is intended – objectively intended, as in: this is how neoliberal policy functions in the political economy, regardless of what any individual neoliberal thinks about it between his ears – to prevent the re-erection of previously-existing social democratic bulwarks, or the erection of new ones.

Free movement of capital represents the perpetual threat of the capital strike: raise taxes too high, implement monetary policy in the interests of the people, nationalize or even regulate an industry in the public interest – in sum, do any of the things that are necessary for broad prosperity and flourishing – and capital can “stay on the sidelines” or leave the country.

The related offshoring regime is an effective veto on real union power. It is to unions what capital mobility is to the nation writ large.

And so on and so forth.

And the important thing, from my perspective, is that neoliberalism is not a monolithic thing, though it often functions as though it were; there is no Neoliberal Central, rather, neoliberalism is a series of overlapping and intermingled networks of financial and political power. It is not an emergent phenomenon of these networks; it *is* these networks. It is a thing like a hydra. And that’s why, in my opinion, attempting to confront the thing all at once, as if on an open plain of battle, with massed armies, for the Final Battle, will prove so futile. Instead, it is necessary to isolate each of the networks, as if in a free-fire cauldron, and concentrate fire on them. Proposing maximal openness, but of a different, or slightly different type, as a means of fighting neoliberalism is proposing coordinated resistance everywhere, all at once – the mother of all collective action problems.

At a level fairly close to the surface, the ideology of neoliberal reformists is, “To him who already has everything, more will be given; and from him from whom everything has already been taken, more will be required – but if we keep doing this long enough, it will be awesome.” I’m not sure it’s realist so much as magical realist, and that’s the problem.

What’s Wrong with Neoliberalism?

Last time we talked about what Neoliberalism is, and the arguments that support it. These arguments were deployed—and continue to be deployed—whenever Neoliberalism is questioned.

One common definition of economics is, “the theory of the allocation of scarce resources among competing ends.” And further, that this always involves “trade-offs” and that “there is no such thing as a free lunch.” A similar definition by economist Thomas Sowell is, “The analysis of how finite resources are used to meet infinite wants.”

And so we saw that the basic, core idea animating Neoliberalism is this: that only markets can allocate those resources effectively.

And then we saw the political ideas of Neoliberalism all follow logically from these core assumptions.

Furthermore, the Neoliberal conception of markets also plays a critical role here. Markets are massive “information processors” that allow for “decentralized exchange.” All market actors are “rational” and have access to unlimited information which they use to “maximize utility.” Market exchanges are always “voluntary.” Markets are self-adjusting and naturally head towards “equilibrium” unless they are “interfered” with by governments. All market actors are peers, and interfering with their behavior is constraining “freedom.”

The core tenets of Neoliberalism are based on something called “welfare economics,” whose fundamental theorems are (per Wikipedia):

1. Complete markets with no transaction costs, and therefore each actor also having perfect information.

2. Price-taking behavior with no monopolists and easy entry and exit from a market.

Furthermore, the first theorem states that the equilibrium will be fully Pareto optimal with the additional condition of:

3. Local nonsatiation of preferences such that for any original bundle of goods, there is another bundle of goods arbitrarily close to the original bundle, but which is preferred.

The second theorem states that out of all possible Pareto optimal outcomes one can achieve any particular one by enacting a lump-sum wealth redistribution and then letting the market take over.

[Note: “Pareto optimality” was a core assumption of the “marginal revolution” in economics, which was created in response to socialist critiques. It is a state in which one actor in a system becomes relatively better off with no other actor becoming worse off; in other words, a “win-win.” This gave us mainstream economics as we know it today.]

Furthermore, as we saw, they depict governments as inherently “coercive.” Tax collection, for example is enforced by law, whereas no one makes you buy a latte from Starbucks.

Because governments are not under competitive pressure, and they are monopolies inside their own borders, governments are inherently inefficient and sclerotic, they argue, while markets are correspondingly dynamic and efficient. Because the information available to states is limited, any allocation via government action will be plagued by surfeits and shortages, they claim. Furthermore, they insist, all governments are inherently power-hungry, expansionist, greedy, corrupt, incompetent, lazy, oppressive and must be kept as small as weak as possible (except when it comes to making markets). A lot of this theory comes from “public choice economics” which has been instrumental in justifying constraining the state’s ability to take care of its citizens under market economies (we’ll talk about that, below).

Only private actors in markets can allocate resources efficiently, the thinking goes. This means that the huge ultra-wealthy class of financiers, traders, brokers, bankers, hedge fund managers, advisors, and so forth, are actually doing us all a favor by helping allocate money and resources to their “highest and best uses,” something governments cannot do by design.

The thing is, all of the arguments of Neoliberalism do follow logically from the core premises!

If you read Neoliberal literature, I guarantee you will find those assumptions everywhere, even when they are not stated explicitly. And, while I apologize about going a bit overboard with the quotation marks, they do illustrate the words and phrases you see and hear over and over again reading Neoliberal economic literature (which is kind of redundant, as most mainstream economics is fundamentally Neoliberal by this point).

The point I was trying to make was that Neoliberalism is a consistent ideology, and the political ideas which stem from it do make sense given that one accepts the basic core premises. It’s tempting to see Neoliberals as just making excuses for greed, and that is true for some of them, but not all. I believe it’s important to understand the thinking of people you oppose. Many Neoliberals and people advancing Neoliberalism don’t see themselves as evil. In fact, they see Neoliberalism as actually making the world a better place, despite all the evidence to the contrary! Just peruse Reddit’s r/neoliberal for example. And any rollback or mitigation of Neoliberalism will make the world far worse off, they claim, and typically cite places like the former Soviet Union, North Korea and Venezuela as examples.

I think I did a reasonably good job of explaining how Neoliberals think, and why they think it. Call it the “steelmanning” of Neoliberalism if you like.

So, I thought I should follow up with a post explaining just a few things that wrong with the theories, and hence with Neoliberal economics.

Of course, doing that would require something approaching book length. Not even my posts are that long. So this will necessarily be a just a primer.

Neoliberalism in practice

We’ve looked at Neoliberalism in theory. Now let’s look at the reality in practice.

In practice, Neoliberalism has channeled essential government functions through corporate tollbooths where value is extracted by privateers at multiple points along the system. Health care, higher education, social insurance, incarceration, defense—all now have all sorts of self-interested private actors along the way taking their cut. This has caused the costs paid by the public to grow, not shrink, along with far worse outcomes.

Neoliberalism has also led to a wholesale looting of the public sector. The patrimonies of various countries, built by generations of citizens, have been sold off to a small transnational investor class who then charge the public for what they used to receive for free from their governments.

Public/private partnerships have enabled crony capitalism on an unprecedented scale. When you combine the functions of big business and government, of course it’s going to open the door to all kinds of self-serving corruption. How could it be any other way? While Neoliberals decry “crony capitalism” at every opportunity, in practice channeling important government functions through the private sector makes it an inevitability.

Indeed, “Public/private partnership” has become a code word for corporate welfare. And corporate welfare has expanded, even as welfare for ordinary citizens has been rolled back in the name of “personal responsibility.”

Financialization, as we’ve seen, allows wealth to be extracted via paper instruments and debt leveraging, with no real, concrete benefits to the public at large. Debt and leverage, even where they seem to provide increases in business activity, really just result in bubbles. The entire system becomes more fragile. And financialization has been the primary driver of runaway inequality.

Workers have had to turn to the growing financial sector to maintain their increasingly precarious living standards. Since everything must be “paid for” by shopping in markets, what do you do when you not have enough money to pay for the things you need in such markets? Credit, of course!

Neoliberalism has meant that wages have stopped growing in all of the developed countries. Workers are no longer able to demand a larger share of the economy’s gains relative to the investor class. The addition of several billion workers to the global labor pool has caused wages in developed nations to stagnate, causing workers to lose whatever negotiating power they once possessed in the days of unionization and full employment. This is despite assurances from Neoliberals that economics is not “zero-sum.”

“Free trade” has really resulted in global wage arbitrage, leading to a race to the bottom in wages and working conditions. That’s why the countries already at the bottom have been the major beneficiaries of Neoliberalism (e.g. China, India, Pakistan, Bangladesh, Vietnam, Mexico, etc.). And, as we’ve said, the relative income increases in these developing economies has become the main (really the only) moral justification for continuing business as usual Neoliberalism.

Markets tend to displace the costs of transactions onto the wider society instead of internalizing them. Such “externalities,” while a part of economic theory, tend to be downplayed by Neoliberals.

Perhaps the biggest—and the most insidious—thing that Neoliberalism has done is to tie the hands of governments, making it impossible for them to deal with the most pressing problems of our age. How are politicians supposed to deal with issues—from unemployment via automation to “fake news” to climate change—if they can’t spend any money or regulate the market? The answer is, they can’t. Kurt Vonnegut once wrote that the charge of “throwing money at a problem” is silly, because, in his words, “that’s what money’s *for*.”

But not for Neoliberals.

Furthermore, mobile capital has tied the hands of politicians across the entire world! And, as we might expect, we’re seeing protests erupting across the entire planet against do-nothing politicians sitting on their hands as the world is melting down and living standards decline. This has also led to the rise of right-wing authoritarian parties, who then claim a mandate to do something (even if that’s scapegoating migrants and other vulnerable populations and building walls).

Very few voters go out and vote for politicians who explicitly claim they will do nothing about pressing social problems. Neoliberalism allows politicians to appear to be solving problems, while in reality doing nothing to solve the problems and continuing to redistribute income and wealth to the investor class. They classify this as a “win-win.” Yet the inherent limitations of Neoliberalism—letting the market sort it out—are becoming apparent, and are engendering protests and radical movements worldwide.

What’s wrong and what’s right

First of all, I think it’s important to acknowledge the grain of truth behind Neoliberalism. Private ownership of resources, and markets driven by supply-and-demand dynamics do seem to have certain advantages in many cases. For many things, they do provide a good way of allocating resources.

It’s also widely acknowledged that trying to centrally-plan an entire advanced technological economy is beyond the capabilities of any state. Centrally-planned economies do not get adequate feedback signals from the market, meaning that top-down allocation of resources by bureaucrats often times does result in the surfeits and shortages that market liberals feared. The bureaucrats suffer from perverse incentives that open markets not under the control of any one entity do not.

This was what the originators of Neoliberalism sought to prove, and the wrote exhaustively and ebulliently about the topic. Most people by now have acknowledged that markets have a role to play in any advanced economy, as well as the problems inherent in central planning.

In fact, markets and commerce have existed throughout all of history. Voluntary exchange has always been a part of human social behavior, although this has taken different forms through time.

And of course, the world has gotten richer overall, if you ignore the distributive effects and ecosystem destruction. But there is no way to simultaneously run a parallel world under a different economic regime to see if growth would have been just as good, and distributed more evenly (and with less environment devastation). This is an inherent problem with calling economics a “science”—its assertions are non-falsifiable. Thus, citing rosy statistics about economic growth or “lifting people out of poverty” is not a valid defense of Neoliberalism.

Extreme Poverty Cut in Half? Only in the Minds of the Capitalists (Naked Capitalism)

In fact, there is very good reason to believe that the world would indeed have been richer under the previous macroeconomic regime than under Neoliberalism, as economist Ha-Joon Chang points out:

[23:07] “We very often hear that thanks to globalization we are richer than ever. In itself it doesn’t mean anything, because we will be richer than ever as per our economy is growing faster than population.”

“So the relevant question is whether we are doing better than what we use to, and the evidence tells you that this isn’t the case. Roughly speaking, for a few decades after the Second World War, the world economy was growing very healthily, 2.6%. In the next 35 years, growth has markedly slowed down. Basically it has been halved down to 1.4%.”

“So we might be richer than ever, but these numbers tell you that we could have been even richer. If we had maintained the previous rate of growth, we would be even richer.”

“Most countries in this earlier period were actually using rather interventionist policies and they had a lot more restrictions on the internationalization of the economy. Globalization was a very controlled affair in those days…”

“So that makes you think, how come you had this period when most countries were using “bad policies,” and the world economy grew much faster than what they have been in the last three and a half decades when lots of things have been opened up and liberalized and so on?

What Is Wrong With Globalization? (YouTube)

Also, much of the growth over the past few decades has been zero-sum; the gains of the developing world have come at the expense of the developed world, because all of the capital has flowed away from the latter and toward the former. If the rosy statistics of the developing world weren’t combined with dire statistics about the developed world, it would be far easier to accept the Neoliberal argument. Also, much of the statistics come from China’s addition to the WTO, which would have had a similar effect under any macroeconomic regime.

Statistics without context mean nothing.

One error of Neoliberalism, in my view, is extrapolating idealized markets to the real world. The real world does not have the frictionless, idealized markets full of rational peers engaging in voluntary exchanges with unlimited information that one reads about in economic textbooks and sees on blackboards.

When pressed, economists usually admit this. Yet they persist in using such idealized markets as the starting point for their discipline, despite them not existing anywhere in the real world outside of perhaps, small local farmer’s markets. Whistling in the Wind has a good rundown (Neo-classicalism and Neoliberalism use the same core assumptions):

Neo-classicalists argue that the market will naturally come to an equilibrium known as perfect competition. In this ideal utopia everything will be perfect. Consumers get the lowest price, workers get a fair wage and businesses earn only ‘normal’ profits. No one is ripped off or exploited because no such nasty things occur. There is no poverty, unemployment, inflation or recessions. There is no need for government to intervene or even exist.

While it does describe agriculture, it is completely irrelevant to the rest of the economy. It is a conservative’s dream, more like Narnia than the real world. Despite being taught in all textbooks and described as the economy without government interference, it is instead a deeply flawed theory. It is based upon 5 unrealistic assumptions that do not reflect the actual economy.

The 5 assumptions of perfect competition (as stated in textbooks) are:

  • There are a large number of buyers and sellers in the industry and all have such a small market share that they cannot influence the market. This means every firm and consumer is a price taker.
  • All goods are identical (homogeneous)
  • There are no barriers to entrance or exit of the market.
  • Consumers have perfect information.
  • All firms have equal access to resources and technology and there is constant or decreasing returns to scale.

There Is (Almost) No Such Thing As Perfect Competition (Whistling in the Wind)

And, more to the point, we all know that markets are getting less, not more competitive. We all know that there are no real markets, for things like internet access. Where I live, there are a grand total of two (2) internet companies to choose from. They both charge the exact same price (after the introductory offer bait-and-switch), which is massively higher than most people pay in the rest of the world (I pay $70.00 a month; I’m told it’s more in the range of 15-25 Pounds/Euros in Europe). We also have some of the slowest speeds and intermittent performance. It’s not unusual for my internet to go down for days at a time, and throttle during weekends enough to be unusable.

As for equilibrium, it has been known for some time that this too has been a hoax. here’s Whistling in the Wind, again:

Even on its own grounds, the argument for equilibrium to naturally occur is flawed. The market forces that are supposed to push the price towards equilibrium and hold it there are either too weak or non-existent.

But won’t a business that charges too much have too few customers? Won’t a business that sells too cheaply not be able to pay its costs? True, but this does not mean it will reach equilibrium. You see, not all costs are equal, rather they all run on separate time frames. Repaying your mortgage on the building is a fixed cost not related to production. Not all employees are directly productive (managers and security guards provide benefit but are not directly related to the production of goods). Therefore it is not as easy as simply equating supply and demand when it is such a variable cost. It is quite possible for a business to run a loss for quite some time and still remain in business.

Do We Ever Reach Equilibrium? (Whistling in the Wind)

Even appealing to game theory doesn’t work, as this study shows:

…the intuition about tic-tac-toe vs. chess holds up in general, but with a new twist. When the game is simple enough, rationality is a good behavioral model: players easily find the equilibrium strategy and play it. When the game is more complicated, whether or not the strategies will converge to equilibrium depends on whether or not the game is competitive. If the incentives of the players are lined up they are likely to find the equilibrium strategy, even if the game is complicated. But when the incentives of the players are not lined up and the game gets complicated, they are unlikely to find the equilibrium. When this happens their strategies always keep changing in time, usually chaotically, and they never settle down to the equilibrium. In these cases equilibrium is a poor behavioral model.

Equilibrium: When does one of the central ideas in economics work? (Science Daily)

Plus, there’s something called the Lipsky-Lancaster Theorem, or the “Theory of the Second Best.” What this says, basically, is that markets cannot be in equilibrium unless all markets are in equilibrium—an unlikely proposition. While there are a million videos and Web sites talking about workings of the magical equilibrium fairy, finding information on the Theory of the Second Best is very difficult. This is one of the best summaries I could find from the OECD:

The theory of the second best suggests that when two or more markets are not perfectly competitive, then efforts to correct only one of the distortions may in fact drive the economy further away from Pareto efficiency.

Thus, for example, if there is one industry which can never satisfy all the conditions for perfect competition, it is no longer clear that the optimal policy is to move the remaining industries towards perfect competition. Moreover, the conditions under which Pareto efficiency can be achieved under these circumstances are complex and not likely to be implementable.

Thus, the defense of competition policy often requires giving weight to more than Pareto efficiency. For example, competition policy may be defended on the grounds of equity, democracy and incentives. However, achievement towards Pareto efficiency is generally given more weight in the application of competition policy.

Theory of Second Best (OECD Glossary of Statistical Terms)

So, in the real world, perfect competition, equilibrium, and idealized markets are all total bullshit. Not a promising start for Neoliberalism.

Most books about Neoliberalism are about “idealized” free trade, as studied in the lab. They use all sort of science and fancy mathematics to back it up. What they do not do, is look at actual economic history, which I do pretty regularly. Economic history has increasingly been scrubbed from economics curricula in favor of highly mathematized theory.

In the same way, the notion of rational consumers acting with perfect information has been derided nearly since its inception during the marginal revolution. It’s long been recognized that this is just a fiction designed to get highly mathematical blackboard models to work. Again, this is acknowledged by economists when pressed as an unfortunate—but necessary—”simplification.” Yet all their models of markets continue to flow from this assumption! Already back in the nineteenth century, the unconventional American economist Thorstein Veblen remarked,

“The hedonistic conception of man is that of a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area but leave him intact…

He is an isolated, definitive human datum, in stable equilibrium except for the buffets of the impinging forces that displace him in one direction or another. Self-poised in elemental space, he spins symmetrically about his own spiritual axis until the parallelogram of forces bears down on him, whereupon he follows he line of the resultant”

So, add rational choice theory to the growing discard pile of false assumptions. Most people want a modicum of stability, security and autonomy; the very things that the market does not provide.

Everyone is equal, but some are more equal than others

In order for the axioms of Neoliberalism to work, it must eliminate any asymmetries in power and information, which we all know exist in the real world. Neoliberalism assumes every action in the market place is a “mutually beneficial transaction” and that any transaction is “voluntary” Therefore ipso-facto, if it were not mutually beneficial, it would not take place! Therefore, there can be no oppression. No one can ever be “tricked” or “fooled,” for example.

Neoliberalism also rejects class analysis, and even the very existence of classes. Classes are, of course, where people stand in relationship to the means of production. This means that some classes will have power over others. Neoliberals eliminate any and all consideration of class, and anyone raising the issue of class or power differentials is derided as “Marxist” (the Neoliberals’ favorite snarl word). After all, there can be no class warfare if there are no classes! Rather, say Neoliberals, we are just all equals freely “trucking and bartering” in mutually beneficial exchanges in markets all over the world. For example, employees voluntarily choose to sell their time in exchange for money. Where is the oppression? say Neoliberals. It’s just all a freely chosen contract!

Freedom is just another word…

Critical to the Neoliberal conception of markets, as we’ve seen, is the idea that markets are inherently non-coercive. Everything is portrayed as just a freely-negotiated contract, including the employer/employee relationship, as we noted above.

Of course, this is totally at odds with what most of us actually experience in our day-to-day lives in the real world. Most of us have the “freedom” to work or starve, which is no kind of freedom at all. In reality, those of us without access to the power of capital ownership feel more like we are in an open-air prison, constantly having to hustle for enough money to survive another day, thanks to all-encompassing markets from which we cannot escape.

This is addressed very well in this post by Naked Capitalism:

One issue I’ve long been bothered by is the libertarian fixation on the state as the source of coercive power. The strong form version is that the state is the only party with coercive power. Libertarians widely, if not universally, depict markets and commerce as less or even non-coercive.

What is remarkable is how we’ve blinded ourselves to the coercive element of our own system. From Robert Heilbroner in Behind the Veil of Economics:

This negative form of power contrasts sharply with with that of the privileged elites in precapitalist social formations. In these imperial kingdoms or feudal holdings, disciplinary power is exercised by the direct use or display of coercive power. The social power of capital is of a different kind….The capitalist may deny others access to his resources, but he may not force them to work with him. Clearly, such power requires circumstances that make the withholding of access of critical consequence. These circumstances can only arise if the general populace is unable to secure a living unless it can gain access to privately owned resources or wealth…

The organization of production is generally regarded as a wholly “economic” activity, ignoring the political function served by the wage-labor relationships in lieu of baliffs and senechals. In a like fashion, the discharge of political authority is regarded as essentially separable from the operation of the economic realm, ignoring the provision of the legal, military, and material contributions without which the private sphere could not function properly or even exist. In this way, the presence of the two realms, each responsible for part of the activities necessary for the maintenance of the social formation, not only gives capitalism a structure entirely different from that of any precapitalist society, but also establishes the basis for a problem that uniquely preoccupies capitalism, namely, the appropriate role of the state vis-a-vis the sphere of production and distribution.

What struck me about Heilbroner’s discussion, as if he was tip-toeing around the issue, and it was not clear whether because he could not formulate a crisp description of the power relationships, or that it was clear to him but he really didn’t want to come out and say what he saw.

Ian Welsh ventures where Heilbroner hesitated to go:

The fundamental idea of our current regime is one that most people have forgotten, because it is associated with Marx, and one must not talk about even the things Marx got right, because the USSR went bad. It is that we are wage laborers. We work for other people, we don’t control the means of production. Absent a job, we live in poverty. Sure, there are some exceptions, but they are exceptions. We are impelled, as it were, by Marx’s whip of hunger. It took a lot of work to set up this system, as Polanyi notes in his book “the Great Transformation”, but now that it has happened, it is invisible to us.

The “Fixing Capitalism” Headfake (Naked Capitalism)

Are markets efficient?

To me, this argument has never made sense on it’s face. I’m sure “real” economists would call me clueless, but it seems like a bunch of entities all competing to sell the exact same product is far more wasteful that societies just producing it for themselves.

In nature, competition is inherently wasteful. That’s why we see so little of it. There’s competition in limited arenas, of course, such as for mates. That’s why you see rams butting heads, and birds lekking (engaging in competitive displays). And it’s known that these behaviors are wasteful by design—birds invest in all sort of extravagant behaviors like building bowers and collecting shiny objects, and deer grow horns so big they can’t evade predators. Game theorists refer to this behavior as honest signaling—sending signals that are hard to fake.

Presumably, in these cases, the benefits outweigh the costs. But most of the time species cooperate—you don’t see deer fighting over grazing grounds, for example, or trying to exclude other animals. When a wolf pack brings down a kill, they don’t immediately turn on each other and fight over who gets to eat. If they did that, wolves would have gone extinct a long time ago, replaced by more cooperative species.

Even in an ideal market where there are, say, twenty or thirty competitors to choose from (almost impossible to find in the real world), each is going to have to spend money and resources convincing consumers to buy from them, instead of the other nineteen or so other companies offering the exact same goods and services. This leads to all sorts of wasteful arms races.

This is “efficient?” Really???

The vast waste and bloat of the global advertising industry seems to me to be proof positive that markets are not efficient. Even in markets where there are few or no real competitors, billions are blown every year by companies on wasteful advertising and marketing. Are the millions of dollars paid to LeBron James or Aaron Rodgers to endorse a product really making anything more “efficient?” Are they appealing to “rationality,” or hero-worship? Add to that the fact that the best way to convince people that you have the better product is simply to lie to them. False claims permeate advertising, and always have. The only defense against this practice historically has been government regulations—the same thing that Neoliberals hate and want to strip away.

The last thing any industry wants is a “rational” consumer. The very existence of the entire advertising industry makes a mockery of the concept. As I’ve said before, the business and marketing schools are on the opposite side of campus from the economics department, and the two are totally different majors which barely interact with one another. What a joke!

And as for the lean, mean, and nimble private sector, just try calling customer support.

Also, government is under no obligation to make a profit. It can even produce goods at a loss, unlike private entities in the market. If we get everything solely through the market, and market crashes, then what are we to do? If we rely on government services instead, we do not have to worry about this problem.

Market always crash

And markets always crash. This is by design. Even rah-rah capitalists have to acknowledge this fact. In fact, they must crash: that’s just how markets work! This post, which is hardly from an anti-capitalist Web site, explains why:

Whether it’s stocks not crashing or the economy going a long time without a recessions, stability makes people feel safe. And when people feel safe, they take more risk, like going into debt or buying more stocks.

It pretty much has to be this way. If there was no volatility, and we knew stocks went up 8% every year, the only rational response would be to pay more for them, until they were expensive enough to return less than 8%. It would be crazy for this not to happen, because no rational person would hold cash in the bank if they were guaranteed a higher return in stocks. If we had a 100% guarantee that stocks would return 8% a year, people would bid prices up until they returned the same amount as FDIC-insured savings accounts, which is about 0%.

But there are no guarantees — only the perception of guarantees. Bad stuff happens, and when stocks are priced for perfection, a mere sniff of bad news will send them plunging. As Nassim Taleb wrote in his book Antifragile, there are 14 types of unfortunate events that are forever and always present:

• Uncertainty
• Variability
• Imperfect
• Incomplete knowledge
• Chance
• Chaos
• Volatility
• Disorder
• Unknown
• Randomness
• Turmoil
• Stressor
• Error
• Unknowledge

These 14 things will always occur, basically everywhere. When they occur, stocks that were erroneously priced for “guaranteed” returns quickly crash.

So, here’s the weird paradox: If stocks never crashed — or if they gain the perception that they don’t crash — prices would rise to the point where a new crash was guaranteed.

This sounds crazy, but it’s exactly what [Hyman] Minsky meant when he theorized that stability is destabilizing. Since a lack of crashes plants the seeds of a new crash, markets will always crash, without exception.

Why Markets Will Always Crash. Get used to it. (The Motley Fool)

Yet, when the housing bubble crashed, economists did not see it coming! They thought housing prices could go up forever.

So what do Neoliberals advocate when markets crash, as they invariably must? Not government intervention, certainly (although in practice, bankers and investors are bailed out). No, they advocate something called “expansionary austerity.”

Expansionary austerity

Since government debts are bad and “undermine confidence,” Neoliberals advocate for paying down government debts, i.e. “austerity,” even in a downturn. They claim this will actually benefit the economy by “restoring confidence” (of who?) Paul Krugman describes it as “the proposition that cuts in government spending would actually cause higher growth despite their direct negative impact on demand, thanks to the confidence fairy.”

There’s no evidence that it works, however. As Krugman stated in a column for The Guardian, “The austerian ideology that dominated elite discourse five years ago has collapsed, to the point where hardly anyone still believes it. Hardly anyone, that is, except the coalition that still rules Britain – and most of the British media.”

The problem, of course, is that one person’s spending is another’s income. When everyone is saving at the same time, the overall economy contracts. If the government is not taking up the slack, the deficit will get worse, not better, because there is less money to tax and deficits will be correspondingly higher, not lower. This really isn’t that hard to understand.

Add to that the fact that taxes do not fund government spending. Rather, the government must spend in order to tax. Otherwise, where will the additional tax revenue to pay down the deficit come from? Private corporations do not have money printing presses, after all. The money to buy their goods and services has to come from somewhere. The public sector’s debts are actually the private sector’s surpluses. By decreasing the government’s debt, you decrease the private sector’s surpluses.

This is, of course, nothing more than basic Keynesianism—the arguments made by economist John Maynard Keynes—which Neoliberalism opposes.

In fact, Neoliberalism came about specifically in opposition to Keynes, as David Graeber describes:

Keynes’s opponents…were determined to root their arguments in…universal principles.

It’s difficult for outsiders to see what was really at stake here, because the argument has come to be recounted as a technical dispute between the roles of micro- and macroeconomics. Keynesians insisted that the former is appropriate to studying the behavior of individual households or firms, trying to optimize their advantage in the marketplace, but that as soon as one begins to look at national economies, one is moving to an entirely different level of complexity, where different sorts of laws apply. Just as it is impossible to understand the mating habits of an aardvark by analyzing all the chemical reactions in their cells, so patterns of trade, investment, or the fluctuations of interest or employment rates were not simply the aggregate of all the microtransactions that seemed to make them up. The patterns had, as philosophers of science would put it, “emergent properties.” Obviously, it was necessary to understand the micro level (just as it was necessary to understand the chemicals that made up the aardvark) to have any chance of understand the macro, but that was not, in itself, enough.

The counterrevolutionaries, starting with Keynes’s old rival Friedrich Hayek at the LSE and the various luminaries who joined him in the Mont Pelerin Society, took aim directly at this notion that national economies are anything more than the sum of their parts. Politically, Skidelsky notes, this was due to a hostility to the very idea of statecraft (and, in a broader sense, of any collective good). National economies could indeed be reduced to the aggregate effect of millions of individual decisions, and, therefore, every element of macroeconomics had to be systematically “micro-founded.”
One reason this was such a radical position was that it was taken at exactly the same moment that microeconomics itself was completing a profound transformation—one that had begun with the marginal revolution of the late nineteenth century—from a technique for understanding how those operating on the market make decisions to a general philosophy of human life. It was able to do so, remarkably enough, by proposing a series of assumptions that even economists themselves were happy to admit were not really true: let us posit, they said, purely rational actors motivated exclusively by self-interest, who know exactly what they want and never change their minds, and have complete access to all relevant pricing information. This allowed them to make precise, predictive equations of exactly how individuals should be expected to act.

Surely there’s nothing wrong with creating simplified models. Arguably, this is how any science of human affairs has to proceed. But an empirical science then goes on to test those models against what people actually do, and adjust them accordingly. This is precisely what economists did *not* do. Instead, they discovered that, if one encased those models in mathematical formulae completely impenetrable to the noninitiate, it would be possible to create a universe in which those premises could never be refuted. (“All actors are engaged in the maximization of utility. What is utility? Whatever it is that an actor appears to be maximizing.”) The mathematical equations allowed economists to plausibly claim theirs was the only branch of social theory that had advanced to anything like a predictive science (even if most of their successful predictions were of the behavior of people who had themselves been trained in economic theory).

This allowed *Homo economicus* to invade the rest of the academy, so that by the 1950s and 1960s almost every scholarly discipline in the business of preparing young people for positions of power (political science, international relations, etc.) had adopted some variant of “rational choice theory” culled, ultimately, from microeconomics. By the 1980s and 1990s, it had reached a point where even the heads of art foundations or charitable organizations would not be considered fully qualified if they were not at least broadly familiar with a “science” of human affairs that started from the assumption that humans were fundamentally selfish and greedy.

These, then, were the “microfoundations” to which the neoclassical reformers demanded macroeconomics be returned…

Against Economics (LRB)

This totalitarian idea of economics as the foundation for all human behavior can be seen in von Mises’ supremely arrogant definition of economics: “The science of human action.”

Rational choice theory argues that individuals rationally seek to maximize “utility” (whatever than means). It argues, as this site puts it, that “human actions are calculated and individualistic.” Of course, when they’re not, Neoliberalism argues that they must be made to be so, as we saw with “nudge theory.” Rational choice argues that even when people seem to be acting in a non-self-interested or altruistic manner, this is merely a ruse. In reality, they are motivated by some sort of “hidden” self-interest that is not apparent to us.

Atomized individuals, of course, cannot unite and agitate for their collective benefit, which is by design:

Worship of markets has many effects. One we see in the origins of the reigning neoliberal faiths. Their origin is in post-World War I Vienna, after the collapse of the trading system within the Hapsburg empire. Ludwig von Mises and his associates fashioned the basic doctrines that were quickly labeled “neoliberalism,” based on the principle of “sound economics”: markets know best, no interference with them is tolerable.

There are immediate consequences. One is that labor unions, which interfere with flexibility of labor markets, must be destroyed, along with social democratic measures. Mises openly welcomed the crushing of the vibrant Austrian unions and social democracy by state violence in 1928, laying the groundwork for Austrian fascism. Which Mises welcomed as well. He became economic consultant to the proto-fascist Austrian Chancellor Engelbert Dollfuss, and in his major work Liberalism, explained that “It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.”

These themes resonate through the modern neoliberal era. The U.S. has an unusually violent labor history, but the attack on unions gained new force under Reagan with the onset of the neoliberal era. As the business press reported, employers were effectively informed that labor laws would not be enforced, and the U.S. became the only industrial society apart from Apartheid South Africa to tolerate not just scabs, but even “permanent replacement workers.” Neoliberal globalization, precarity of employment, and other devices carry the process of destroying organized labor further.

These developments form a core part of the efforts to realize the Thatcherite dictum that “there is no society,” only atomized individuals, who face the forces of “sound economics” alone — becoming what Marx called “a sack of potatoes” in his condemnation of the policies of the authoritarian rulers of mid-19th century Europe.

A sack of potatoes cannot react in any sensible way even to existential crises. Lacking the very bases of deliberative democracy, such as functioning labor unions and other organizations, people have little choice beyond “looking away.” What can they hope to do? As Mises memorably explained, echoed by Milton Friedman and others, political democracy is superfluous — indeed an impediment to sound economics: “free competition does all that is needed” in markets that function without interference.

Noam Chomsky: “Worship of Markets” Is Threatening Human Civilization (Truthout)

Public choice theory is the application of rational choice theory to political institutions. It argues that politicians do not care about the public good at all; rather, they are just in it for themselves (and thus can never be trusted). This has become a self-fulfilling prophecy. Rational choice theory was developed by a Neoliberal economist named James McGill Buchanan n the 1960’s.

Although most people base some of their actions on their concern for others, the dominant motive in people’s actions in the marketplace—whether they are employers, employees, or consumers—is a concern for themselves.

Public choice economists make the same assumption—that although people acting in the political marketplace have some concern for others, their main motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest. In Buchanan’s words the theory “replaces… romantic and illusory… notions about the workings of governments [with]… notions that embody more skepticism.”

Two insights follow immediately from economists’ study of collective choice processes. First, the individual becomes the fundamental unit of analysis. Public choice rejects the construction of organic decision-making units, such as “the people,” “the community,” or “society.” Groups do not make choices; only individuals do. The problem then becomes how to model the ways in which the diverse and often conflicting preferences of self-interested individuals get expressed and collated when decisions are made collectively.

Or, as Margaret Thatcher famously put, it, “There is no such thing as society; there are individuals, and there are families.” As Blair Fix writes, “The message of neoclassical economics is that we are all self-sufficient Robinson Crusoes –islands unto ourselves. Economists have built a towering theoretical edifice on the idea that there is no such thing as society.”

Democracy in chains

Buchanan’s ideas were instrumental in the hamstringing of democracy effected by the  oligarchy since the 1980’s. As mentioned above, Neoliberalism has removed any democratic control over globalized economic institutions by design. It has also transferred economic sovereignty to unelected, undemocratic institutions which trump (no pun intended) elected national governments. This is explored in a couple of books. I’ve already mentioned Wendy Brown’s Undoing the Demos: Neoliberalism’s Stealth Revolution:

Neoliberalism…is not simply about markets, money or social class; it is rather a condition under which a raw economic rationality is applied to all forms of human activity and becomes the basis of a certain style of political governance. For Brown, nothing is now sacred or exempt from this process. Using Obama as her primary example, she argues that democratic principles of equality or liberty are today being displaced by new concerns for ‘economic growth, competitive positioning, and capital enhancement’. The fabric of political life is thus said to be changing for the worse: we are losing our appetite for democratic values not least because liberty is being individualised and recast as a form of market conduct.

Another book which deal directly with this topic is Nancy MacLean’s Democracy in Chains:

Democracy in Chains first tells the story of the emergence of a branch of economics, or political economy, known as ‘public choice theory’ and most closely associated with the work of the economist and Nobel Prize winner James Buchanan…MacLean’s argument is that neoliberalism, at least in this variation, has sought not only to promote markets and market mechanisms, but also to shape the structure of politics…They make rules and construct barriers so that when voters democratically elect governments committed to raise taxes and increase spending and expand programmes, those governments are hamstrung – democracy, in such circumstances, finds itself ‘in chains’.

This is hardly a novel claim (just study the early neoliberals – Hayek, von Mises, Friedman and others – or Thatcher and Reagan). But what makes MacLean’s insight newly relevant is how well it describes key features of recent American politics…

MacLean …begins with a letter Buchanan wrote in 1956 to the president of the University of Virginia (former governor of the state), Colgate Whitehead Darden, Jr., promising that his new research centre would create a “line of new thinkers” who would fight against the “increasing role of government in economic and social life”.

The political implications are transparent. Positing government and bureaucracy as inherently self‐serving and parasitic clearly weakens support for all variety of public policies; and labelling well‐to‐do and often well‐connected businessmen or industries and trade unions alike as ‘special interests’ discredits unions. It is not hard to see how these ideas would gather support among the wealthy.

The thing is, the ideals of democracy and ideals of the market are inherently at odds. Democracy treats all people as equals. Markets sort people by cash income. In a democracy, everyone has “equal rights.” Under capitalism, you only get what you can pay for.

If you want to know the root cause of the political instability roiling the entire world right now, this is it. It’s also the root cause of our environmental destruction—the drive to endlessly increase GDP as the only measure of a political success, with no thought to distribution. This is what happens when markets are your only way of understanding the world, and growing them is your only option for ameliorating pressing social concerns.

We have a global system of capital movement and trade protections. But we don’t have a globalized system of politics or taxation; those remain strictly local to the nation-state.

Because politicians have essentially no control over domestic economic policies anymore, all they can do is play their citizens against one another to gain popularity in a divide-and-rule strategy. Right-wing populists stoke fear of immigration and minorities and preach a return to some ephemeral “past greatness.” Left-wing politicians talk a good game about inclusiveness, social justice and “wokeness,” while making sure that, as Joe Biden assured his wealthy supporters, “nothing will fundamentally change.” None of this rhetoric does f*%k all for solving actual problems, of course. The reason politicians campaign on these things is because they can’t campaign on anything else! Their hands are thoroughly tied under the rubric of Neoliberalism. As Wolfgang Schäuble told Yannis Varoufakis during the Greek crisis, “Elections cannot be allowed to change an economic programme of a member state!”

In the late 1930s a group of intellectuals, including Hayek, Ludwig von Mises, and others adopted the term “neoliberalism” to describe their agenda based on the conviction that laissez faire was not enough. The Great Depression paired with the rise of mass democracy meant that the market would not take care of itself. Wielding their ballots, electorates would always vote for more favors for themselves — and, thus, more state intervention into the economy — crippling the combination of market prices and private property upon which capitalism depended. From this time onward, as I describe in my recent book, one of the primary dreams of neoliberals was for institutions that would constrain democratic demands and protect the free movement of capital, goods, and (sometimes, but not always) people across borders.

Neoliberalism’s Populist Bastards (Public Seminar)

Rulers used to desire the unity of their people above all else. Now they want divisiveness. They need divisiveness. Thus you get solidarity among the minority ruling class, and “reverse solidarity” among the majority electorate. It’s the only way Neoliberalism can continue unabated, even if such divisiveness blasts society apart at the seams.

Of course, politicians who want to roll-back Neoliberalism have more lateral freedom to act. But such politicians find the entire mainstream political establishment and corporate media universally arrayed against them (e.g. Sanders, Corbyn, et. al.)

Markets (not) in everything

The problems with citizens consumers expressing “choice” by going out and shopping for healthcare in the one big market has some problems. As James Kwak points out in this important post, those problems are not with markets. Rather, “properly functioning” markets will inventively condemn some people to sickness and death by design! The only way we can have markets function for health care, he points out, is by making sure they don’t function like normal markets. In other words, the corporations offering the plans must be deliberately blinded to the risks they are taking on. Also, as we’ve seen, people must also be forced to buy the product, undermining the whole Neoliberal emphasis on “free choice.”

The CBO report specifically discusses the “stability of the health insurance market,” which they define in these terms: the market is unstable “if, for example, the people who wanted to buy coverage at any offered price would have average health care expenditures so high that offering the insurance would be unprofitable.” In their analysis, instability will result in some states that waive both the essential health benefits package and the prohibition on medical underwriting (charging premiums based on applicants’ health status).

In that case, healthy people will choose cheaper policies with less comprehensive benefits. Only sick people will buy more generous policies, which will soon become apparent to insurers, who will raise premiums (to account for sick people’s higher expected health care costs), which will make insurance unaffordable for the people who need it most.

This is all true. But that’s not a *dysfunctional* market. That’s just a market.

It’s a common characteristic of markets that suppliers offer different products, each designed to meet the needs of a different segment of buyers. In fact, this is generally considered a positive feature of markets. Market completeness—meaning, roughly speaking, that all possible goods and services can be traded—is an assumption of some of the most important theorems in economics.

In the example above, health insurers are offering one low-frills, low-priced product and another gold-plated, high-priced product. In most contexts, we would consider this a good thing. Can you imagine if everyone had to buy the same Toyota Camry? Isn’t it good that people with low incomes can buy a Honda Fit, while those with high incomes can buy a BMW M6? And we don’t worry about the fact that most people can’t afford an M6.

Say you have treatable cancer. Your expected medical costs are $50,000 for the next year. In a functioning market, your health insurance policy should cost about $60,000. (The extra $10,000 covers administrative costs and the cost of capital.) It’s still insurance, because you’re protected against the risk that your medical costs will unexpectedly be $100,000. That’s the right product for you: it’s the one you need, and it’s priced appropriately. That’s what markets are supposed to provide. The world where you can buy an individual policy for $3,000 because the insurer doesn’t know you have cancer, or because Obamacare prohibits the insurer from using that information—you may get treatment in that world, but only because we prevent the market from functioning the way it’s supposed to.

The core problem, of course, is that cancer treatment isn’t like a BMW that can go 150 miles per hour; we’re not willing to call it a luxury that most people can’t afford. Most people can’t afford to pay $60,000 for a health insurance policy. A world in which sick people are priced out of health care is not a world we want to live in. And that’s why markets are the wrong way to distribute essential health care…

How Markets Work (The Baseline Scenario)

One a more basic level, health care is a fictitious commodity: it is not a product which is expressly made to be sold. It only comes into existence in response to how well or sick your population is. And your need for it is in no way related to your ability to pay for it. As Polanyi pointed out with labor, this “commodity” cannot go unsold without inviting the death of its bearer (or recipient). For Neoliberals, by contrast, everything is a commodity, or a potential commodity, to be allocated by markets.

A similar problem exists with turning education into just another commodity distributed in “free and open” markets, as this post points out:

The failures of for-profit education reflect both the specific characteristics of education that make a market model inappropriate and more fundamental failings of market liberalism.

Students, by definition, don’t know enough to be informed consumers. Whether the course is good or bad, they are unlikely to be repeat customers. In these circumstances, relying on consumer choice and competition between providers is a recipe for superficial, low-quality courses and exploitation.

As centuries of experience has shown, only the dedication and professional ethos of teachers can ensure high-quality education. Reliance on incentives and markets is inconsistent with that ethos.

The broader problem with the reform agenda is that for-profit businesses paid to provide public services are more tempted to make profits by exploiting loopholes in the funding system than by innovating or providing better services.

Why the profit motive fails in education (The Conversation)

More to the point, is efficiency even desirable? Efficiency for it’s own sake is not the goal of education or health care, per se. An “efficient” health care market probably wouldn’t serve poor or sick people, because that’s not efficient. But efficiency isn’t the goal of health care—healing sick people is! Similarly, an “efficient” education market might exclude those who aren’t able to pay. It might put students into overcrowded classrooms by design. But efficiency isn’t the goal of education–educating people is! Sometimes efficiency is actually an impediment to the social goals we want to accomplish. An “inefficient” system might be far better at accomplishing various social goals than an “efficient” one.

But under Neoliberalism, all other values besides economic growth do not matter, and all other metrics besides GDP are irrelevant. Growth, it is claimed, will solve all problems, and therefore societies must orient themselves toward “efficiency” and “growth” at all costs under Neoliberalism. Making the numbers go up on the stock market becomes the driving goal of all humanity.

Protection from Instability

In order to have markets, you must have a functioning society underlying and backstopping such markets. They may seem obvious. But when the market is all-encompassing—when absolutely everything can be bought and sold—there is no longer any “ground” for the market to stand on. Even the laws which undergird markets become simply products to be bought and sold, and the politicians and regulators who are relied upon to keep markets fair and honest are purchased, sponsored and traded around by corporations like Major League sports stars.

The people living under such a system—tossed about to-and fro, with nowhere to turn in a storm—will demand protection from such unbearable chaos. Even businessmen cannot survive under a system where profits soar and sag from one quarter to the next with the vagaries of global supply and demand, and will clamor for some sort of protection form market anarchy.

This means that a “pure” market society as envisioned by Neoliberals is an “impossible utopia.” That was the conclusion of economic historian Karl Polanyi. He felt that the attempts to construct this utopia in the real world by liberals (“Classical Liberals” in his day) would lead to what he called the “demolition of society.” The more market logic engendered the sole governing principles of society, the more people would clamor for protection from such cold logic—what he called the “double movement.” This pushback played a critical role in the rise of European Fascism, he argued, which put restrains on unrestricted Gesellschaft, and grounded nations in a harsh sort of “blood-and-soil” Gemeinschaft.

Polanyi’s belief in the dominance of the social…led him to the conclusion that a society that elevated economic motivation to absolute priority could not survive. For this reason, he insists that the nineteenth-century self-regulating market was a utopian experiment that was destined to fail. This was one of Polanyi’s most important insights, and it provides the basis for his argument concerning the protectionist countermovment.

Pure human greed, left to its own devices, would place no limit on competition, Polanyi argues, and the result would be a destruction of both society and environment. Workers would be exploited beyond the point where they could even reproduce themselves, food would be systematically adulterated to expand profit margins, and the environment would be devastated by pollution and the unrestricted use of resources.

Moreover, even before these catastrophes, a society in which each individual pursued only his or her economic self-interest would be unable to maintain the shared meanings and understandings that are necessary for human group life. As with Durkheim’s emphasis on the noncontractual basis of contract, Polanyi saw that market transactions depended on collective goods such as trust and regulation that could not possibly be provided by market processes. For this reason, the protectionist countermovement was a necessary response to the threatened destruction of society caused by the unregulated market.

Polanyi…discovers that…market societies must construct elaborate rules and institutional structures to limit the individual pursuit of gain or risk degenerating into a Hobbesian war of all against all. In order to have the benefits of increased efficiency that are supposed to flow from market competition, these societies must first limit the pursuit of gain by assuring that not everything is for sale to the highest bidder. They must also act to channel the energies of those economic actors motivated largely by gain into a narrow range of legitimate activities. In sum, the economy has to be embedded in law, politics, and morality.

Fred Block and Margaret Somers, The Power of Market Fundamentalism: Karl Polanyi’s Critique

By applying cold, rational “market logic” to every factor of life, Neoliberalism is bound to destroy the social contract—the very basis of human society. And that’s not even accounting for the market’s destruction of the biosphere and the ecosystems upon which we all depend. In other words, the demolition of society. I think we’re seeing that right now all over the world.

Politics got weird because neoliberalism failed to deliver (BoingBoing)

I’ll conclude with some polemical thoughts from Umair Haique about what happens when politics is reduced to simply making us all into gladiatorial combatants for scarce resources in the market arena, and not citizens with a shared common destiny:

The neoliberal assumption is that no one deserves anything, and everyone should have to do mortal combat for everything. That is, no one deserves healthcare, an education, an income, retirement—these things only belong to the “winners” of a never-ending social contest, in which the stakes are life or death. So it’s not exactly a surprise that neoliberalism set fire to the world. That the Champs Elysees is in flames, that Britain melted down, that American life simply fell apart. The fundamental idea was always going to fail: to make everyone fight everyone else for everything all the time?

That sounds grim, dystopian, and horrific—because it is. The result has been things like armed teachers and medical bankruptcy and the wholesale corruption of democracy at the hands of greasy, shiny-suited oligarchs. Only the strong survive. Translation: nobody but the super rich gets the gains. The result has been a tsunami of social destabilization sweeping the globe, as people revolt against the failure of the neoliberal order—even as they turn backwards, atavistically, towards supremacies of darker times.

Because when a society is made to fight itself for the basics of life — when everyone must wake up, every day, and perform a kind of mortal combat, for things like healthcare, medicine, food, water — then of course people turn against each other, too. They see each other as adversaries and enemies and rivals for the basic resources needed to live. That is what capitalism has made them…

The moral of that story is very simple, and brutally clear. There are many things capitalism just can’t and won’t provide. Some of those things are healthcare, affordable education, functioning transportation systems, clean energy, and so on. When the system breaks down to the point that the people who create the basics of what a society needs — food, water, education, safety — can’t give them those things right back, then implosion is on the horizon. In a capitalist society, that implosion is fascist — because the hungry prole will blame his starving family on the migrant laborer, on the subhuman, whom he cannot exploit enough, as he is exploited in turn by those above him.

If you live in a society where decent food, medicine, and water have become luxuries — what kind of society are you really living in? A collapsed one

What a 21st Century Politics Looks Like (Medium)

What Is Neoliberalism?

I see a lot of discussions about Neoliberalism where it clear that the people using the term don’t really know what it means. As the historian of Neoliberalism, Philip Mirowski remarked, Neoliberalism has become, for many, “a blanket swear-word for everything they despise, or a brainless synonym for modern capitalism.” And the Guardian similarly notes, “the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right.” Many people also have trouble defining it. It’s a bit like the definition of porn: hard to define in precise terms, but you know it instinctively when you see examples of it in real life.

But there’s nothing complicated about Neoliberalism. It’s actually quite simple. From a few fundamental axioms, all the political ideas of Neoliberalism can be constructed.

Philosophical Justification

It all has to do with how resources are allocated.

A resource is anything society produces – guns, butter, energy, doctors, medicines, roads, automobiles, iPads, MRI machines, snowplows, BMW’s, eggs, you name it. These resources must be allocated somehow. You want resources to go where they are needed. You don’t want shortages, but you don’t want resources to lie idle either. How do you accomplish this on a societal scale?

Neoliberalism is based on the argument that only markets can allocate resources efficiently.

Everything in Neoliberalism proceeds from this assumption!

The inverse assumption is that alternative means of resource distribution—whether that be central planning, command and control, public provisioning of goods and services, gift economies, rationing, or what have you—are necessarily inefficient. In short:

• Markets = efficient; good allocation of resources (resources match wants and needs).

• Government allocation = inefficient; poor allocation of resources. Resources end up where they don’t belong, surfeits and (especially) shortages result.

Following from this is the idea that since markets are, by their very nature, efficient, they will produce the most goods at the best price, and hence that higher-quality goods will be more available to more people then if government provides them at cost.

Another premise that follows from that is this: a dollar spent in the market by an individual consumer is going to be far more effective (i.e. it will go further) than a dollar spent by the government.

Why? It all has to do with how Neoliberals perceive markets. In their view, markets are aggregates of millions of individual people making decisions. This leads to ideal outcomes that no central planner could comprehend. As Philip Mirowski puts it, Neoliberals see markets as “information processing devices” par excellance; more powerful than any single human brain, but still patterned on the human brain. Governments, by contrast, do not have enough information processing power to allocate resources properly. This is called the calculation problem.

Much of this comes from idea that markets are competitive, and that they naturally head towards equilibrium.

Competition is self-explanatory: many firms competing against one another to deliver the best goods at the best price, such that no one company can overcharge, or produce shoddy goods.

Equilibrium is often expressed in terms of graphs. The ideas is that there are a certain amount of people who want to sell their goods and services at a high price, and a number of buyers who want to pay for those goods and services at a low price. Through millions and millions of individual choices, the argument goes, a price will be arrived at over time through the workings of the “invisible hand,” where the amount of stuff to be sold will exactly match the desire to buy, such that no products will be left unsold, and no buyers will be left unsatisfied. The supply and demand graphs on the blackboard intersect. According to Investopedia, it’s “the state in which market supply and demand balance each other, and as a result, prices become stable.”

The drive to compete, Neoliberals argue, makes private firms “lean and mean,” unlike “wasteful” governments. Private firms cannot be inefficient, they say, because otherwise they would be outcompeted by their rivals. This relentless drive towards efficiency means that private firms can always deliver goods and services far more cheaply and effectively than any government can.

By contrast, since governments do not have to compete within their own borders, the argument goes, this makes governments inherently inefficient and sclerotic. Neoliberals  constantly deride “lazy, incompetent bureaucrats,” “useless pencil pushers,” and “wasteful government spending.” Conversely, they like to celebrate stories of “heroic” entrepreneurs sleeping only three hours a night, and “genius” inventors bringing new products to market. The garage-based startup is their latest totem, and the “shark-tank” is their idealized environment.

Since it follows that only markets can allocate resources efficiently, it makes sense for governments to utilize markets as well, by purchasing all sort of things from private contractors rather than producing them directly or owning companies outright. This, the thinking goes, will save taxpayers money. Often times, government getting into bed linking up with private contractors is expressed by the term, “public-private partnerships.

It also follows that anything not allocated by markets will be misallocated, and so things not currently allocated by markets must be transformed into things which can be. This process is called commodification—turning things into commodities to buy and sell, in order that markets can allocate them according to their dictates.

These are the core ideas animating Neoliberalism. That’s why it’s sometimes called “free market fundamentalism” by its critics, or somewhat less generously, “market fetishism.”

Neoliberalism is obsessed with markets. This is clearly true. That’s why one of the major Koch-funded Neoliberal/Libertarian thinktanks is called the Mercatus Center. Mercatus is the Latin word for “market” (it was originally called the Center for Market Processes).

Based on the core Neoliberal assumptions above, since markets are efficient and allocate resources well, while governments are inefficient and allocate resources poorly, it makes more sense for people to simply go out and shop for the things they need, rather than having governments provide them directly to the public.

This is the idea behind the mania for vouchers. The government simply hands you a check, and you go out and shop in the one big market for the things that government used to provide to you. “School choice” is the most obvious example—competition in markets is expected to raise the quality of schools, while the government strips back its commitment to funding free public education for all.

Funneling public (government) money to the private sector to deal with social problems is fundamentally Neoliberal.

This is also the theory underlying seemingly endless rounds of tax cuts. Rather than the government taking a dollar and doing something for you, the government could leave that dollar in your wallet and let you go out and shop for the things need. The rationale is, that since markets are so much better than governments at allocating resources, a dollar spent in the market is far more effective than a dollar taken as taxes and spent by the government.

The constant refrain is, “You know how to spend *your* money better than governments do.” It’s a great bumper-sticker slogan, and it’s never really questioned or examined.

The other aspect of this argument is a moral one. Neoliberals are not as extreme in their hatred of taxes and governments as libertarians are; they recognize that the state requires some revenue in order to function. They don’t consider the very idea of taxes as theft. They reluctantly recognize the need for some bare-bones public services, such as police and firefighters, as well as basic infrastructure. Nevertheless, they agree with Libertarians’ core framing that government revenues must be taken “at the point of a gun!”

Also, you don’t choose what the government spends your money on, they say. To some extent you do, of course, because you elect the representatives that decide on your behalf how the government spends its money and allocates its resources. But given the size and complexity of most modern governments—not to mention the unpopularity of today’s politicians—many people don’t really buy into that argument anymore.

But in markets, Neoliberals say, you are “free to choose.” Any economic transaction, they say, is a completely voluntary transaction that leaves both parties better off, and thus there can be no coercion in markets. Therefore, they say, it is more moral to let people keep more of “their own money,” and spend it ways that they choose, rather than the state taking it away via taxation and spending it in ways that some people might not like or approve of.

By “leaving more money in people’s wallets,” people can then go out and buy whatever they need from the markets through shopping, and not have to spend money on things they may not want or need. Governments force you to pay taxes, but no one forces you to shop at Amazon, they argue. Therefore, you can get everything through the market, with absolutely no coercion required!

That’s the crux of the morality argument: one alternative is spending freely “by choice,” while the other is necessarily coercive, that is, “at the “point of a gun!” In this conception, wealth is generated exclusively by the private sector, which “earns” all the money through business activities. The government, on the other hand, can only operate on what is “seizes” from the private sector “by force!” And, as we’ve said before, Neoliberals view governments everywhere as, almost by definition, lazy, feckless, inefficient, incompetent, corrupt and cruel, unlike the “benevolent” private sector, which creates all the jobs and wealth.

Neoliberalism places a great emphasis on “personal responsibility.” Rather than governments providing everything for you, they say, it’s your responsibility to be a smart shopper. You need to save adequate money out of your own paycheck for retirement— no more “dependency” on government pensions or “bankrupt” Social Security. You need to make sure you have adequate insurance for any contingency—don’t expect the government to come and bail you out! And you’d better make sure you have enough savings for any possible emergency—government is there to make markets, not to help “scroungers” who weren’t “responsible” enough!

Neoliberalism also believes that when markets appear to fail, it must always be due to some sort of unnecessary “interference” by the state. Interference is anything government does that “distorts” the market from achieving equilibrium—that is, anything that keeps self-adjusting markets from finding their “natural” price for goods and services where supply matches demand. If markets fail, the thinking goes, it must be the government’s fault in some way. The solution, then, is to strip away such government “interference” as much as possible, and let the markets do their thing. Often this is done in practice by limiting governments’ very power to intervene in markets via deregulation and legal restrictions, even in the public’s best interest. Regulations “distort” markets, they argue, and so Neoliberals always favor more deregulation.

So, things like unions, minimum wages, worker safety, environmental regulations, and rent controls, are seen as unnecessary “interference” in the natural workings of the free market; that is, they prevent the market from working the way that it should. Free markets cannot fail, they say, they can only be failed.

They also believe that actors in markets are always rational. When people do not act the way Neoliberals say that they should, they advocate something called “nudge theory.” Nudge theory is a kind of social engineering undertaken by governments designed to get people to behave like the idealized consumers that Neoliberalism insists that we all are. “By knowing how people think, we can make it easier for them to choose what is best for them, their families and society,” wrote Richard Thaler, the Nobel (Bank of Sweden) Prize-winning Neoliberal economist who developed the theory. Instead of governments shaping markets, people are shaped to markets.

Since markets theoretically provide everything we could possibly want or need, Neoliberals argue, the government should confine itself to creating and policing markets, and little else. Unlike Libertarians, they realize that markets do not magically spring from nothing, but are created and sustained by government action. Therefore, they do not necessarily favor “small government,” since that might impact markets. Instead, they argue for a superempowered government that can make markets work, but not “interfere” in their inscrutable workings. As noted above, these superempowered governments are also encouraged to engage in large-scale social engineering if it helps create better market outcomes, but no interfere in the markets themselves.

An example of the superempowered state is seen with intellectual property rights. To adequately enforce these, governments need extreme spying powers to make sure that no one anywhere in the world is violating the rights of copyright owners by, say, making copies of DVDs, or distributing digital music for free. Just try putting up copyrighted material on YouTube, for example. Or note the dire warnings from the FBI at the beginning of every DVD. Clearly “small government” cannot do these things. Because of this, Neoliberals support the coercive powers of the state insofar as they make markets—international courts for example—but not to do things like provide goods and services to the public, or redistribute wealth, which they views as “punishing success.”

As Mirowski notes, if a market ever seemingly fails, the Neoliberal solution is to create “new and stranger markets” to alleviate the failure, rather than to impose new regulations.

The classic example here is climate change. Many companies are profitable only because they can freely spew unlimited amounts of carbon into the atmosphere, altering the climate for everyone. The solution, Neoliberals argue, is not to restrict the amount of carbon, as might be expected. Instead, Neoliberals advocate “cap and trade” agreements, where “carbon credits” are traded across the world in strange, new “carbon markets” which are created and sustained by international governments. A new class of traders can then “wheel and deal” with such credits so that carbon spewing can be “priced correctly,” and “allocated efficiently” across the globe. This solution is considered to be simply “common sense” by most politicians and the entire mainstream economics profession, and no other solution is seriously considered.

This is also behind the drive to put a price tag on nature. Rather than restrict our impact on the natural world through rules, restrictions, and regulations, Neoliberals argue that we need to let the market sort it out. In order to accomplish this, they say, nature must be fully accounted for on the balance sheets of corporations. To that end, nature must be transformed into “ecosystem services” which can then be “priced adequately.” Then, the argument goes, markets will no longer see nature as a free service anymore, and everything will then be allocated correctly and efficiently by the “free” market! Again, government regulations are depicted as inherently coercive, with anarchic markets providing true “freedom.” Neoliberals also believe that individual consumer choices will solve serious structural problems like climate change without the need for new regulations (e.g. “eat less meat,” “take shorter showers,” etc.). A small number of Neoliberals deny man-made climate change altogether.

In addition to the moral justifications regarding coercion and freedom, another argument is that the market naturally solves problems through “private initiative” without the need for any sort of government intervention. In other words, regulations are actually counterproductive!

The classic story here is told by the wildly popular Neoliberal economics book, Freakonomics. In that story, manure from horses used for transportation threatens to drown entire cities in mountains of poo in the early twentieth century. Planners look ahead at urban growth during this time period and realize that there is just too much manure for them to possibly deal with. Government regulations are contemplated. Then, the private sector magically solves the problem through the invention of the automobile—no harmful or coercive restrictions required, just plucky “private initiative!” The fact that automobiles transform visible pollution—manure—into invisible pollution—air particles—is conveniently ignored in the story. So, too, are the massive amount of government regulations and infrastructure expenses that the automobile called forth.

The bigger and more all-encompassing markets are, the better off we will all be, claim Neoliberals. That’s why they favor unrestricted globalization and free-trade agreements that create transnational globalized markets, removing all restrictions on the movements of capital, labor, money, goods, people, and information. They see the whole world as one giant market.

The evangelism of Neoliberalism comes from the fact that Neoliberals sees markets as a kind of secular salvation. The “perfection” of markets will solve poverty, environmental crises, inequality, sickness, war, and so on. They believe that anything NOT solved by markets is fundamentally unsolvable and divinely ordained. Poverty can be cured if people only save enough money and invest properly. Any attempts by governments to intervene in markets or redistribute wealth (ideas they deride as “Marxism”) must be resisted, they say. This is why Neoliberals tout the rosy statistics that claim the world is getting better for the average global citizen (purposely ignoring increasing poverty and inequality within developed countries).

This provides a good short explanation:

The economic paradigm which promotes the small state and reliance on market forces is generally known as neo-liberalism, or the Washington Consensus. Under neo-liberalism, the state does little more than maintain the rights of ownership and internal and external security through criminal justice and armed services – notwithstanding, the state may bail out financial services if they require public aid.

In the UK and the USA politicians from both main parties adopted this point of view, often in sincere, if misguided, belief in its validity. Thus, neo-liberalism maintains the appearance of democracy, in that citizens may vote for political leaders, but limits the range of policies on offer to those which are acceptable to markets – or rather, those who command market forces.

Dude, Where’s My Democracy (Open Journal)

Wendy Brown, author of Undoing the Demos: Neoliberalism’s Stealth Revolution, defines Neoliberalism more succinctly as, “a peculiar form of reason that configures all aspects of existence in economic terms.” The Guardian argues that Neoliberalism,

…is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.

In a similar vein, in a widely read-column, Guardian columnist George Monbiot declares,

Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.

Nathan Robinson, while admitting that the word makes him “cringe,” nevertheless agrees with Brown that it is the framing of every aspect of life through an economic lens tied to GDP growth at all costs, to the exclusion of any other cultural values or social goals:

Neoliberalism, then, is the best existing term we have to capture the almost universal convergence around a particular set of values. We don’t have debates over whether the point of teaching is to enrich the student’s mind or prepare the student for employment, we have debates over how to prepare students for employment. Economic values become the water we swim in, and we don’t even notice them worming their way into our brains. The word is valuable insofar as it draws our attention to the ideological frameworks within which debates occur, and where the outer boundaries of those debates lie. The fact that everyone seems to agree that the purpose of education is “job skills,” rather than say, “the flourishing of the human mind,” shows the triumph of a certain new kind of liberalism, for which I can only think of one word.

How Neoliberalism Worms Its Way Into Your Brain (Current Affairs)

Paul Mason defines Neoliberalism as, “a time-limited global system sustained by coercive imposition of competitive behaviour, parasitic finance & privatisation.”

Here are some other definitions by a number of economic thinkers:

Examples of Neoliberalism in Action

It might help to illustrate this by examples of Neoliberal policies in action. These policies, it must be emphasized, are implemented at all levels of government: local, state, federal, and even internationally (the World Bank, the IMF, trade agreements, etc.).

Here’s a local example taken from real life. County M owns and operates its buses through a company owned directly by the county. Later, the county spins off that company into a private entity that runs its bus system. The company itself is technically private, but it has only one customer – the county. From the county’s standpoint, it no longer has to worry about running and managing a business; it only has to allocate a given sum for that company. The company runs and manages itself; the county has washed their hands of it.

But later on, the country decides that it will instead contract with a private “transportation company” operating out of another remote state. This privately-owned company also runs other transportation systems around the country (and perhaps even around the world). The local bus company is subsequently disbanded, throwing a large number of local people out of work. Some may be hired back as drivers, mechanics, etc., but most will not be; those incomes simply disappear. Taxpayer money for the bus company is now funneled to employees in another state across the country, instead of to local citizens. The argument is that this move this will save taxpayer money, despite throwing a lot of people out of work, since private firms operating in a “competitive” environment are always more efficient than government bureaucracies, say the Neoliberal politicians.

Another example is something as simple as, say, police uniforms. Police uniforms used to be made by the city which needed them. Or, they might be made by a local company. But under Neoliberalism, it is simply another purchase in the market from a private company, and that company can be anywhere in the world. So the city purchases police uniforms from China or Bangledesh, even while its own local factories shut down from lack of work.

Rohan Grey summarizes Neoliberal alternatives to publicly provisioned goods and services:

Generally, speaking, the Progressive position on most things has been, it is better to offer direct public services for free, than to presume that the way to give people access to their basic needs is to give people a check…The classic example here is school vouchers. School vouchers are typically seen—quite rightly I think—as a Neoliberal alternative to public schools. Don’t give people public schools, give them some cash and let the “market” provide their schooling needs for them. Healthcare–don’t give people Medicare for All, give them a health care rebate and let them go purchase health care on the market. Don’t give them public housing, give them a rental tax credit and let them go get housing from private landlords. These are the Neoliberal alternatives to public service provisioning.

This is why there is so much resistance to public health care systems among Neoliberals. To be fair, a few Neoliberals have given up arguing that private companies are more effective and efficient than governments because the evidence from the United States is just too overwhelming. But, even if they don’t admit it, the bias against anything associated with the government—and the attempts to preserve private power—continues to be deployed in political rhetoric and policy proposals.

That’s how you end up with something like the Affordable Care Act (Obamacare). Under the ACA, you have to go buy insurance on the market from private insurance companies rather than have it provided to you at cost by the state. You are also required by law to purchase this product (the same goes for auto insurance) or face penalties. A few regulations on company practices are also reluctantly adopted.

Even now, rather than promoting government-provided healthcare, Neoliberals simply argue for “honest pricing” by doctors and hospitals so that people can see prices upfront, and this will theoretically permit “comparison shopping” to bring prices down to affordable levels. Rather than “free” college or healthcare, they argue for such things to be “affordable,” which is Neoliberal code-speak (c.f. the “Affordable Care Act”). They also like to heavily promote “choice”, as if shopping around is somehow effective or desirable when one is sick or injured and in need of healthcare services.

You see a similar discussion surrounding higher education. Its not price-gouging that’s raising college costs, say Neoliberals, nor elite status competition, rather it’s the government “distorting” the market for education via student loans! Just make the government stop providing loans to low-income students, they say, and college prices will magically come down to more acceptable levels thanks to the magic of the market. If education is a publicly-provided good, they argue, it will not be priced correctly or allocated properly (as per the above concepts). In addition, Neoliberals argue, we do not adequately “appreciate” that which we do not pay for (an argument also made in the case of health care services, hence the existence of co-pays and deductibles).

The same goes for the housing crisis. Just remove all building regulations and restrictions, they say, and the market will automatically provide sufficient shelter for people. Just, whatever you do, do not “interfere” in the market with things like rent control, they say, because you will actually make everyone worse off! The idea that “impersonal market forces” will not solve the housing crisis—or that government has any important role to play besides simply “getting out of the way”—is unthinkable. So, too, is the notion of shelter as a basic human right. Neoliberalism does not believe in human rights, only in what the market provides. Naked Capitalism cheekily defined Neoliberalism by two simple rules: a.) Because markets, and b.) Go die!

Upon close examination, I see Neoliberalism as encompassing these core principles:

  • Monetarism
  • Austerity, “Paygo,” and Balanced Budgets
  • Privatization
  • Globalization
  • Flexible Labor
  • Low Taxes and Supply-Side Economics
  • Financialization
  • Deregulation
  • Vouchers
  • Private Charity

Let’s tackle them one at a time.

Monetarism: This is the idea that “inflation is always and everywhere a monetary phenomenon,” and that “tight money” must be strictly maintained to prevent inflation. That is, the government’s major role is to guarantee the “soundness” of money, rather than take care of people needs, and leave it to the market do the rest.

This policy was implemented as a response the high inflation of the 1970s. Yet over forty years later, with no sign of inflation in sight, it continues to be religiously maintained, regardless of the macroeconomic conditions, the low costs to borrow, or the amount of idle resources sitting around and failing to be utilized by the private sector:

Despite the prolonged existence of idle plant and heavy unemployment among a literate, trained labour force, the United States seems unable to mobilize these resources to rebuild our decaying cities, to revitalize mass transit, to regenerate clear air and waterways, and so on. Why are we so impotent?

Conventional wisdom suggests that any mobilization of idle resources for a war on such things as decay, pollution, poverty will require either additional government expenditures or private sector tax cuts. This means huge deficits financed by increasing the quantity of money which, monetarists claim, can only fuel the fires of inflation. Until we tame the dragon of inflation, we are told, these projects – no matter how desirable – must wait. Conventional wisdom says we must stoically accept tight money and stringent constraint on governmental spending for many years (the long run?) if inflation is to be stopped.

Monetarists continue to argue that government spending generates unacceptable inflation. But, increasingly, this is seen as out of date, as David Graeber describes:

Economists still teach their students that the primary economic role of government—many would insist, its only really proper economic role—is to guarantee price stability. We must be constantly vigilant over the dangers of inflation. For governments to simply print money is therefore inherently sinful.

If, however, inflation is kept at bay through the coordinated action of government and central bankers, the market should find its “natural rate of unemployment,” and investors, taking advantage of clear price signals, should be able to ensure healthy growth.

These assumptions came with the monetarism of the 1980s, the idea that government should restrict itself to managing the money supply, and by the 1990s had come to be accepted as such elementary common sense that pretty much all political debate had to set out from a ritual acknowledgment of the perils of government spending. This continues to be the case, despite the fact that, since the 2008 recession, central banks have been printing money frantically in an attempt to create inflation and compel the rich to do something useful with their money, and have been largely unsuccessful in both endeavors.

Against Economics (NY Review of Books)

Counter-monetarists argue that most money is created, in effect, by private sector bank lending, and thus restricting government spending has little effect on money creation in the overall economy (the idea that money creation by private entities effects the macroeconomy is called the endogenous money theory.).

Since modern money is simply credit, banks can and do create money literally out of nothing, simply by making loans. Almost all of the money circulating in Britain at the moment is bank-created in this way. Not only is the public largely unaware of this, but a recent survey by the British research group Positive Money discovered that an astounding 85 percent of members of Parliament had no idea where money really came from (most appeared to be under the impression that it was produced by the Royal Mint).

Against Economics (NY Review of Books)

Austerity, “Paygo”, and Balanced Budgets. These are all of a piece. Neoliberals argue that too much public debt is inherently a drag on the economy, and thus distorts markets. Therefore they argue, government must not spend more than it collects in tax revenues, even on the national level. In other words, governments at every level must balance their budgets, just like you and me! They even advocate for this principle to be enshrined into law. Of course, this puts severe restrictions on what governments can do for their citizens. These ideas are dropped like a bad habit, however, when it comes to funding wars and bailouts. Per Wikipedia:

Austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both…The measures are meant to reduce the budget deficit by bringing government revenues closer to expenditures, which is assumed to make the payment of debt easier. Austerity measures also demonstrate a government’s fiscal discipline to creditors and credit rating agencies.

“Paygo” means that any new spending proposals put forward by politicians must account for every single penny of new spending via new taxes. This essentially limits what governments can spend to how much they can tax. That is, they cannot spend without first taxing the equivalent amounts “away from” the private sector where Neoliberals argue that all wealth is generated. It also means that new government initiatives will always be inherently unpopular, since they will always necessitate raising someone’s taxes. Paygo is heavily supported by the so-called “Leftist/Liberal” Democratic party in the United States (or at least by the people running it).

Austerity in practice means that government programs which serve the public—especially low-income and vulnerable citizens—are pared back in an attempt to cut government budget deficits, even during a recession. It’s often couched in moral rhetoric; that is, “we spent like drunken sailors” during the “good times,” and now the time has come to “pay the piper.” Crucial to this argument, of course, is that government debt is intrinsically bad, and that governments are just like households. David Graeber describes how austerity unfolded in the United Kingdom following the banking crisis:

It was center-left New Labour that presided over the pre-crash bubble, and voters’ throw-the-bastards-out reaction brought a series of Conservative governments that soon discovered that a rhetoric of austerity—the Churchillian evocation of common sacrifice for the public good—played well with the British public, allowing them to win broad popular acceptance for policies designed to pare down what little remained of the British welfare state and redistribute resources upward, toward the rich.

“There is no magic money tree,” as Theresa May put it during the snap election of 2017—virtually the only memorable line from one of the most lackluster campaigns in British history. The phrase has been repeated endlessly in the media, whenever someone asks why the UK is the only country in Western Europe that charges university tuition, or whether it is really necessary to have quite so many people sleeping on the streets.

Against Economics (NY Review of Books)

The contrary belief is that the a sovereign government which controls the issuance of its own currency is not revenue constrained at the national level, and additional spending would create additional revenue; in other words, spending precedes taxation, and not vice-versa. Also, national debts are debts owed primarily to the nation’s own citizens, by and large. And a government is not like a household; one person’s spending is another person’s income.

In addition, much of the current public debt was incurred by putting the private sector’s debts—run up mainly by a small investor class–onto the public’s books. Thus, it is unfair to ask the public—especially the most vulnerable citizens—to pay for the excesses of the super-rich, argue critics. Such criticisms are dismissed by Neoliberals.

Privatization. The philosophical justification for this is provided above. The argument is that private firms competing in markets are inherently efficient, and that government is not, since governments are not subject to competitive market pressured and the need to maximize profit.

Thus, by selling off government assets to private firms in order to run them, Neoliberals argue, they will be run much more efficiently and effectively. This will save taxpayer money in the long run, they claim.

Although theoretically justified under idealized markets, empirical evidence of such extensive savings has never materialized. Yet privatization and the permanent selling off of the public’s assets in order to raise the money to cover short-term budget shortfalls (mainly due to tax cuts) continues unabated.

Ironically, this has also unfolded against an unprecedented monopolization of the private sector, often in business sectors that the public has little direct contact with such as wholesalers.

The inverse of privatization is nationalizing assets. The U.S. commonly nationalizes assets only when they are failing, bails them out with public money, and then turns them back over to the same people who caused the failure. Other nationalizations—particularity of successful or profitable businesses—have not been contemplated since the 1980’s.

In other sovereign countries where profitable resources or businesses have been nationalized during the Neoliberal era, it has often been followed by an invasion, economic sanctions, or a coup backed by Western governments (Iran, Chile, Venezuela, Bolivia, etc.).

Globalization. This is intrinsically wrapped up with “free trade” agreements. The idea is that global free trade makes everyone better off. It’s easy to see how the rhetoric of idealized markets leads to this conclusion.

In practice, globalism meant that manufacturing labor was allocated to where it was cheapest, i.e. the developing world—especially places like China and India—but also places like Southeast Asia and Latin America.

Of course this meant that the people in those developing countries saw their wages rise relative to where they were before. In addition, many people who had been subsistence farmers working for themselves now became manufacturing employees working for wages in overcrowded cities.

What this meant was that, on paper, incomes for much of the developing world rose relative to what they were before.

This has subsequently provided the major moral justification for Neoliberalism by its most prominent spokespeople: that it has “raised millions of people out of poverty,” by harnessing the remarkable power of “free markets.”

Meanwhile, The rampant poverty, economic devastation, despair, hopelessness, anger, and even shortened life expectancy in the developed world are waved away by Neoliberals, because numerically, when all the sums are all totaled up, on balance more people are relatively better off than worse off across the entire planet! This is documented by the so-called “elephant chart” developed by economist Branko Milanovic. This chart also demonstrates that the world’s richest people have profited more than anyone else in absolute and relative terms under Neoliberalism.

This reduction in global poverty is attributed to “freeing” markets from their shackles, claim Neoliberal apologists, and any rollback or restrictions would condemn millions to poverty, they say. As far as the “losers” of globalization go, well, that’s just too bad. Neoliberals typically advocate for “retraining” such people to compete in the new job markets, or for “more education,” or, barring that, to simply “move to where the jobs are.” If that doesn’t work, see rule b.), above. In the early days of globalization, Neoliberals argued that is was theoretically possible to “compensate the losers”, however, such compensation never came, especially in the Anglo-Saxon world.

Flexible Labor. By making it much easier to hire and fire people, the thinking goes, labor will be allocated more efficiently, which leads to economic expansion that makes more jobs available overall, and so is actually better for everyone, even if it seems like it’s not.

This also ties into ideas about immigration. Neoliberals tend to favor open borders, with the idea that people will flow around the world like capital to the places where they will be most needed. Thus, labor will find its “highest and best uses” the theory goes.

An ideal example of the deregulation of labor protections and the increase in “flexible” (i.e. precarious) labor are so-called zero-hours contracts. As the BBC describes them, “Zero-hours contracts, or casual contracts, allow employers to hire staff with no guarantee of work. They mean employees work only when they are needed by employers, often at short notice. Their pay depends on how many hours they work.”

Another example is the “gig economy,” which has created a whole new class of precarious workers. The “gig economy” is where workers are classified as “independent contractors,” and hence companies that utilize such labor are exempt from having to provide any benefits at all (such as Uber and Taskrabbit).

…the gig economy provides a new way of concealing employers’ authority. People who work for such online platforms as Uber, Lyft and Deliveroo are classed not as employees but as self-employed. They are supposedly flexible entrepreneurs, free to choose when they work, how they work and who they work for.

In practice, this isn’t the case. Unlike performers in the entertainment industry (which gives the ‘gig’ economy its name), most gig workers don’t work for an array of organisations but depend for their pay on just one or two huge companies. The gig worker doesn’t really have much in common with the ideal of the entrepreneur – there is little room in their jobs for creativity, change or innovation – except that gig workers also take a lot of risks: they have no benefits, holiday or sick pay, and they are vulnerable to the whims of their customers.

In many countries, gig workers (or ‘independent contractors’) have none of the rights that make the asymmetry of the employment contract bearable: no overtime, no breaks, no protection from sexual harassment or redundancy pay. They don’t have the right to belong to a union, or to organise one, and they aren’t entitled to the minimum wage. Most aren’t autonomous, independent free agents, or students, part-timers or retirees supplementing their income; rather, they are people who need to do gig work simply to get by.

What is new about the gig economy isn’t that it gives workers flexibility and independence, but that it gives employers something they have otherwise found difficult to attain: workers who are not, technically, their employees but who are nonetheless subject to their discipline and subordinate to their authority. The dystopian promise of the gig economy is that it will create an army of precarious workers for whose welfare employers take no responsibility. Its emergence has been welcomed by neoliberal thinkers, policymakers and firms who see it as progress in their efforts to transform the way work is organised.

What counts as work? (London Review of Books)

This concept of flexible labor also eschews what it describes as “distortion” of the labor market. It regards things like minimum wages, unions, and any restrictions on hiring/firing employees to be examples of such “distortions.”

A draft of the World Bank’s annual flagship World Development Report says that its creditor-states (the poorest countries in the world) should eliminate their minimum wage rules, allow employers to fire workers without cause, and repeal laws limiting abusive employment contract terms. The bank argues that this is necessary to stop employers from simply investing in automation and eliminating workers altogether.

Are there no workhouses? (BoingBoing)

Low Taxes and Supply-Side Economics. By leaving more money in the private economy, with less of it in the public purse, that money will be invested more wisely in markets by the investor class than anything the government does with it, claim Neoliberals. That because the investors are seeking profits, while the government is not. It’s “your money” they say.

According to Investopedia, Supply-side economics is, “the controversial idea that greater tax cuts for investors and entrepreneurs provide incentives to save and invest, and produce economic benefits that trickle down into the overall economy.” Essentially, since government is the problem, if less money winds up in the hands of government, and more in the hands of the private sector, investors, and entrepreneurs; then everyone will be better off. Recall that resource allocation argument, above.

In the past, this has been derided as “horse and sparrow” economics. The idea is that if you feed enough oats to the horse, some will eventually pass through to feed the sparrows. Yet it remains a core feature of Neoliberalism. In reality, the demise of progressive taxation has led to an unprecedented explosion of income and wealth inequality across the entire world:

The triumph of the rich…is generally described as largely the reflection of two factors. The first, of course, is the explosion of income among top earners, in which a tiny minority has vacuumed up a ballooning share of the gains from the past few decades of economic growth. The second factor…has been the hidden decline in the progressivity of the tax code at the top, in which the wealthiest earners have over those same decades seen their effective tax rates steadily fall.

Put those two factors together, and they tell a story about soaring U.S. inequality that is in some ways even more dramatic than each is on its own….Among the bottom 50 percent of earners, average real annual income even after taxes and transfers has edged up a meager $8,000 since 1970, rising from just over $19,000 to just over $27,000 in 2018.

By contrast, among the top 1 percent of earners, average income even after taxes and transfers has tripled since 1970, rising by more than $800,000, from just over $300,000 to over $1 million in 2018. Among the top 0.1 percent, average after-tax-and-transfer income has increased fivefold, from just over $1 million in 1970 to over $5 million in 2018. And among the top .01 percent, it has increased nearly sevenfold, from just over $3.5 million to over $24 million.

I’m emphasizing the phrase “after taxes and transfers” because this is at the core of Zucman’s new analysis. The idea is to show the combined impact of both the explosion of pretax income at the top and the decline in the effective tax rate paid by those same earners — in one result. As they demonstrate, the effective tax rate (federal, state, local and other taxes) paid by top earners has steadily declined since the 1950s and 1960s, when the tax code really was quite progressive, to a point where the highest income groups pay barely more, percentage wise, than the bottom.

The massive triumph of the rich, illustrated by stunning new data (Washington Post)

Financialization and financial engineering. Money is made through financial speculation rather than creating and selling useful goods and services. All sorts of new and exotic financial instruments are now created and traded in order to make money. The size of the financial sector (banks, trading houses, hedge funds, etc.) relative to the real productive economy has increased dramatically. Gambling has become by far the economy’s most profitable activity.

Many of the largest companies in the United States are highly financialized, distributing almost all, and often more, of their profits to shareholders in the form of stock buybacks and cash dividends…In their book, Predatory Value Extraction…William Lazonick and Jang-Sup Shin call the increase in stock buybacks since the early 1980s “the legalized looting of the U.S. business corporation,” while in a forthcoming paper, Lazonick and Ken Jacobson identify Securities and Exchange Commission Rule 10b-18, adopted by the regulatory agency in 1982 with little public scrutiny, as a “license to loot.” A growing body of research, much of it focusing on particular industries and companies, supports the argument that the financialization of the U.S. business corporation, reflected in massive distributions to shareholders, bears prime responsibility for extreme concentration of income among the richest U.S. households, the erosion of middle-class employment opportunities in the United States, and the loss of U.S. competitiveness in the global economy.

Financialization of the U.S. Pharmaceutical Industry (Naked Capitalism)

So, for example, automobile companies make more money by selling loans for cars than they do by making and selling the actual cars. This idea is subsequently expanded to all businesses in all sectors of the economy. The earnings of companies are increasingly plowed into investment vehicles rather than back into the business, or as wage increases. Companies inflate their stock price through stock buybacks. Mergers and acquisitions concentrate economic activity. Consumption is increasingly financed by borrowing from financial institutions. Everything is leveraged via debt. As the Roosevelt Institute notes:

…financialization has brought about a “portfolio society,” one in which “entire categories of social life have been securitized, turned into a kind of capital” or an investment to be managed. We now view our education and labor as “human capital,” and we imagine every person as a little corporation set to manage his or her own investments. In this view, public functions and responsibilities are mere services that should be run for profit or privatized, or both.

Some effects of financialization include: Hedge funds, asset-stripping, stock buybacks, leveraged buyouts, hostile takeovers, pump and dump, derivatives, private equity, junk bonds, shareholder primacy, corporate mega-mergers, and offshore tax havens.

Much of this has been enabled by financial deregulation. Many of the above things used to be illegal.

Deregulation. Deregulation is based the idea that people in markets are rational actors with perfect information, and that markets are self-adjusting in the long run. The reasoning is quite complex and involves a lot of math (the relationship between the math and the real world is rather questionable, however). But the core idea is that since no single person or entity controls the market, the market cannot remain wrong forever. In other words, the aggregate of millions of individual people making decisions means that the market is self-correcting; “irrational” behavior will always be weeded out in the end, and everything will end up at it’s “natural” price just as water runs downhill, including financial assets such as stocks and bonds.

Thus, regulations are not needed, and are, in fact, counterproductive. By giving actors in the market total “freedom,” we will all be made better off, argue Neoliberals. Also, since transactions in the market are all about “voluntary contracts” that are “freely negotiated,” the thinking goes, there is no need to step in and constrain people’s “freedom” to make whatever choices they wish, good or bad. Laws that attempt to protect the public are derided as the “nanny state.” Again, this is dressed up in the rhetoric of “freedom” versus “coercion”, which is why so many Neoliberal and Libertarian think-tanks have the words “freedom” and “liberty” in their names.

“Beginning in the latter half of the Obama administration, Federalist Society gatherings grew increasingly fixated on diminishing the power of federal agencies to regulate businesses and the public — an agenda that would severely weaken seminal laws such as the Clean Air Act and the Clean Water Act. On Monday, Justice Brett Kavanaugh signaled that he is on board with this agenda.”

Brett Kavanaugh’s latest opinion should terrify Democrats (Vox)

Furthermore, in addition to restricting “freedom,” it is argued that regulations “stifle economic growth.” Economic growth for its own sake is the lodestar of Neoliberalism, and anything that gets in the way of growth is bad according to them. For example, this is from the Web site of what’s been called the “libertarian internationale,” the Atlas Network (named for the Ayn Rand novel, Atlas Shrugged):

These massive regulatory codes have serious effects on taxpayers, namely that they restrict their freedoms and ability to do business, and, more broadly speaking, too much regulation stifles economic growth and jobs [sic] creation. To illustrate this point, recent research from Mercatus indicates that the accumulation of rules over the past several decades has slowed economic growth, amounting to an estimated $4 trillion loss in U.S. GDP in 2012.

Mercatus Center Case Study: Provide [sic] a Catalyst for Reining in Out-of-Control Government Regulations (The Atlas Network)

Vouchers. We covered this above. Since only markets can allocate resources effectively, Neoliberals argue, it makes more sense to give you vouchers so that you can go out and shop for all your needs, rather than letting governments provide them for you. This is also said to increase “self-reliance” and “personal responsibility.”

Their first preference is, as I said, to “leave more money in your pockets!” But for essential services that people might not have enough money to purchase on their own, rather than governments providing them, Neoliberals advocate for vouchers so that people can go out and wheel and deal in the market.

Of course, what happens if the vouchers don’t go quite far enough? Well, since the market cannot fail, and its prices are typically in “equilibrium”, then people simply have to go without.

Also because vouchers are only given to certain targeted groups by design, it becomes very easy to demonize the recipients of such vouchers as “lazy” or “moochers”, as opposed to benefits that are provided to everyone as a condition of citizenship. In practice, this  has led to vouchers being stripped back for political reasons, or even eliminated altogether over time by Neoliberal politicians, many of whom previously supported such voucher schemes.

Private Charity. Have you noticed that in nearly every store you go to today, you are asked by these these huge mega-corporations (either by a low-paid employee or the card reader) to make a donation to some sort of private charity? Even Amazon—owned by the wealthiest person to ever live—hits up everyone who comes to the site for donations to “private charity”.

Yep, that’s Neoliberalism in action, too.

After all, if you’re going to a store just to buy some goods, why should that store rattle a cup in your face and ask you to help feed hungry people, or help disabled veterans, or help fund cures for diseases, or whatever? The purpose of commerce is to exchange goods and services, not to raise money for important social needs. We all know that none of this used to happen before the advent of Neoliberlism.

Back in the day, the thought used to be, “shouldn’t the government be taking care of those things?” And that’s exactly the point! The point is to train people under Neoliberalism to accept the fact that no, the government shouldn’t be taking care of those things—whether it’s disabled veterans, hungry children, orphans, the homeless, cures for diseases, and so forth. Rather, we are being trained to see private companies and individual actors as the means to “change the world”, and not to depend on democratic governments, which Neoliberalism depicts as ineffective and coercive.

Because Neoliberalism favors minimalist government, it doesn’t like the idea of government providing a social safety net for “irresponsible” citizens, nor does it want governments to actively solve social problems. They believe that governments taxing people to do such things is inherently “coercive”. By contrast, charity donations are totally “voluntary” and thus, more moral. They believe that private charities and voluntary philanthropy are the best ways to meet the needs of the most vulnerable citizens, rather than the government taking responsibility for its own citizens.

Under Neoliberalism, the “winners” in the market economy make a big show of donating large parts of their incalculable fortunes to various “good causes”, and this is touted as proof positive that philanthropy is better at alleviating pressing social problems than any government. Of course, this is by design.

In other words, it follows from their glorification of “private initiative” and their lionization of individual wealth: the privatization of the social safety net via philanthropy. Doing well by doing good. Of course, the offloading of what used to be government’s responsibilities to its citizens to the whims of individuals and corporations could less charitably be seen as a return to a kind of feudalism.

If a single cultural idea has upheld the disproportionate power of this [the winners of our new Gilded Age], it has been the idea of the “win-win.” They could get rich and then “give back” to you: win-win. They could run a fund that made them sizable returns and offered you social returns too: win-win. They could sell sugary drinks to children in schools and work on public-private partnerships to improve children’s health: win-win. They could build cutthroat technology monopolies and get credit for serving to connect humanity and foster community: win-win.

How America’s Elites Lost Their Grip in 2019 (Time)


Hopefully, that clears things up a bit. I’ve tried more to explain the way Neoliberals think about the world rather than a detailed critique of the ideas. That’s material for another post. But I’m sure you’ve realized why Neoliberalism persists—and will persist—no matter how often it is invalidated by real life circumstances. What it has done very effectively is empower the richest people on the planet, and redistribute collective wealth upward like never before. That is why its theoretical justifications—which I hope I’ve adequately explained—continue to be propagated by politicians, economists, academics, and the mainstream corporate media, no matter how badly they’ve failed in the real world, or the sophistication of the arguments against them.

If you want to learn more, here are some of the best resources that I’ve found:

First, listen to this documentary: Is Neoliberalism Destroying the World? from the Canadian Broadcasting Corporation.

Neoliberalism: Political Success, Economic Failure (Naked Capitalism)

Neoliberalism: the idea that swallowed the world (Guardian Long Read)

Neoliberalism, the Revolution in Reverse (The Baffler)