Neoliberalism has done the most good for the most people of any economic system in human history
Neoliberalism is a term you’ve likley heard, but probably don’t know the meaning of. I don’t blame you. The opponents of neoliberalism can’t seem to agree what it is either, besides something bad. Socialists use it to plaster “new democrats” like Sen. Hillary Clinton. Alt-Righters use it to attack reaganite conservatives like Gov. John Kasich. Libertarians use it to slap moderates like Gov. William Weld.
Despite the confusion, neoliberalism is a defined term, with a long history. It is, in short, the combination of free markets and free trade with sensible regulations and a reasonable safety net.
Noble Prize winning economist Milton Friedman was one of the early adopters and definers of the term. In a 1951 essay, he laid out the basics of neoliberalism, as an alternative to both 19th century laissez-faire economics and 20th century collectivism, combining elements of both: “Neo-liberalism would accept the nineteenth century liberal emphasis on the fundamental importance of the individual, but it would substitute for the nineteenth century goal of laissez-faire as a means to this end, the goal of the competitive order. It would seek to use competition among producers to protect consumers from exploitation, competition among employers to protect workers and owners of property, and competition among consumers to protect the enterprises themselves. The state would police the system, establish conditions favorable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress. The citizens would be protected against the state by the existence of a free private market; and against one another by the preservation of competition.”
From it’s founding in the early post war years neoliberalism slowly matured as a political and economic ideology. Neoliberalism erupted onto the forefront of policy and politics during the 1980s as a response to the collapse of the post war economic consensus. The high inflation and economic turmoil of the 1970s were replaced by two and a half decades of consistent growth. Despite the dominance of the ideology, few major politicians identified with the term. Reagan and Bush Sr. called themselves conservatives, Bill Clinton called himself a “new democrat.” This allowed neoliberalism to be defined by its opponents, rather than supporters (much like the big bang theory and capitalism), creating the above mentioned confusion.
The 2008 crisis shook confidence in the neoliberal order. In response to the slow recovery, many began to turn to more hetrodox schools of thought, socialism, the Alt-right, libertarianism and so forth. Political parties and candidates have increasingly stepped out of the mainstream, challenging core tenets of neoliberalism: free enterprise, free trade, immigration, tolerance, international cooperation, sensible regulation and so forth.
So what good has neoliberalism done for us? There must be something wrong with it if so many ideologies and political groups assault it daily? In fact the opposite is true. Simply put, we are living in the freest, richest, most equal and safest time in human history, largely due to neoliberal capitalism.
Wealth of Nations
International cooperation and economic relations, cores tenants of neoliberalism, are some of the keys to world peace. Trade between nations reduces the incentives to fight. There has never been a war between two capitalist democracies. International institutions such as the United Nations, World Bank and World Trade Organization provide a medium for disputes to be settled with words, not arms. There are fewer deaths from conflict today then there has been in any other point in human history.
Free trade has one of the most assaulted neoliberal principles in recent years. Bernie Sanders asserts that trade allows American corporations to exploit poor foreigners. Donald Trump declares that it costs Americans their jobs. In fact, free trade enriches both the American poor and the global poor. A factory job in China pays 5–10 times higher wages than subsistence farming. When factories are forced to close due to new trade barriers, foreign workers end up in worse jobs “or on the streets — and…a significant number [are] forced into prostitution.” “Because the countries are poor, even what look to us like bad jobs at bad wages are almost always much better than the alternatives.” Free trade has smashed global poverty, which is at it’s lowest level in human history.
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Poor people in the United States benefit from trade and globalization too. Lower income people spend more of their income meeting the basic needs of life. A drop in food prices means little to rich people but a significant improvement in livelihood for poor people. Ending free trade would disproportionately hurt poorer Americans, and “would cause the poorest 10% of consumers across 40 countries to lose 63% of their purchasing power.” The average American household is effectively 18,000 dollars richer than it would be without trade.
Nations with freer economies and more open trade are wealthier than their closed counterparts. This is evident in broad statistical examinations of the world economy. There is a strong correlation between a nation’s combined index of economic freedom (including trade, regulatory and labor freedom) and overall prosperity.
http://www.econlib.org/library/Columns/y2010/Sumnerneoliberalism.html
Economic liberalism can mean a lot on the smaller scale too. Take housing for example. Cities such as Dallas and Atlanta, with freer housing markets, are far more affordable than restricted markets like New York and San Francisco. Despite spending billions on “affordable housing” only 1 in 4 housing units are affordable to the middle class in NYC. The City Government of Dallas spends almost nothing on affordable housing yet 4/5 homes in Dallas are affordable (despite the fact that Dallas is growing far faster than New York is). No expensive US housing market allows their supply to grow at a rate in concert with demand. No expensive city builds enough housing. Policies such as rent control, height restrictions, land use control and mandatory inclusionary housing are intended to help people (and do aid a few), but end up hurting far more, poor people in particular, by reducing housing supply and pushing up prices.
Finally, in unconstrained housing markets poor people are unlikely to be displaced because of gentrification.
The Equalizer
Contrary to claims by populist political candidates, economic liberalism has the potential to reduce inequality too. On the subject of housing, most of the growth of wealth inequality in the United States over the past few decades has been driven by higher housing costs. Land and property owners in New York and San Francisco have become hugely wealthy because prices have risen so rapidly.
Additionally high housing costs amount to “opportunity hoarding” by the upper middle and upper class. Working class people, instead of moving to highly productive and rich cities like New York instead move to poorer and less productive cities with worse jobs, education and infrastructure, trapping them at lower income and productivity levels.
Liberalizing the housing market, thereby lowering housing costs, would reduce inequality and boost growth. “Enrico Moretti and Chang-Tai Hsieh estimate that the U.S. economy would be 10 percent bigger if three cities (San Francisco, San Jose, and New York) had the zoning regulations of the median American city.” By using “data from 220 metropolitan areas [they found] that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.”
Globally inequality is down due to neoliberalism as well. Free trade and comparative advantage have massively enriched the once impoverished nations of the world. The gap between poor and rich countries (exasperated by communism and colonialism) has closed in the past few decades.
Other neoliberal policies have the potential to lower inequality. The American federal tax code is over 11,000 pages long (and jumps to 70,000 if you include supplementary material). Our regulatory code is orders of magnitude larger. The complexity of these systems inherently benefit the wealthy. Large corporations and rich people can afford expensive lawyers to find every exemption and tax break. This gives large incumbent companies and advantage over their smaller rivals, decreasing economic dynamism, pushing up prices and down wages. Another tax neoliberals wish to get rid of, corporate income taxation, is primarily a tax on the wages of workers and the pockets of consumers, not the wallets of the CEO or shareholders.
By radically simplifying our tax and regulatory system we can re-level the playing field.
The Safety Net
However capitalism is not a perfect system. What separates neoliberals from libertarians is that neoliberals recognize that markets sometimes fail when left completely unsupervised. Anti-trust regulations are needed to maintain competition and protect consumers. Externalities such as pollution and CO2 should be taxed, to return their costs to the people who created them.
A good education system is essential to promoting opportunity and growth. Government intervention in the market is also needed when there is limited or no consumer choice (such as infrastructure and emergency care [people usually don’t take the time to shop hospitals if they are having a heart attack]). The rights of minorities (sexual, religious, racial, ethnic) also need to be protected.
Capitalism creates unparalleled prosperity, but sometimes doesn’t distribute income and opportunity fairly (though I maintain that it provides the most fair baseline). Neoliberals support progressive taxation (preferably progressive consumption taxation), land value and inheritance taxes to improve equality. Neoliberalism also supports the idea that a minimum standard of living should be provided, preferably through cash grants to the poor (slowly trailing off as income rises), instead of our current tangled web of 126 welfare programs, which don’t cooperate, allow people to fall through the cracks and disincentivize increasing one’s own income.
Unlike what some people (on both the left and the right) attest lower income folks are not the victims of some mental impairment and are perfectly capable of spending money wisely. Cash is the superior form of welfare because people known their own circumstances better than a central government.
The Neoliberal Manifesto
In short neoliberalism wants to harness the power of the free market to create wealth, prosperity and peace. At the same time neoliberalism recognizes when it fails and when government should step in and make a correction. Though neoliberals would prefer those corrections take some market based form (Negative Income Tax, Carbon Taxes, School Vouchers etc.).
Despite all the good it’s done there is an increasing hostility to the ideas of neoliberalism. The Alt-Right hates free people. The Populist Left hates free markets. Libertarians reject the idea that government intervention is sometimes required. It’s time for neoliberals to push back, to remind America and the World how much it has improved the lives and livelihood of everyone around the globe and what yet there is to be done.
