The Root of All Our Problems?

A friend pointed me toward an op-ed in The Guardian by George Monbiot titled “Neoliberalism — The Ideology at the Root of All Our Problems.” The basic argument is that there is an ideology that has had a pervasive influence on the shaping of the contemporary world. Its policy program includes “massive tax cuts for the rich, the crushing of trade unions, deregulation, privatisation, outsourcing and competition in public services.” Monbiot calls this cocktail “neoliberalism” (more on the name later).

There’s a lot in the article that I agree with. The political and economic takeover of the Western world by the super-wealthy was not accomplished by force, nor by rich people simply demanding a larger slice of the proverbial pie. Instead, it happened because many people — particularly in the media, the think tank intelligentsia, and the political community — internalized the idea that competitive markets provided the solution to all problems. (The idea that unfettered capital markets and financial innovation would be good for everyone, which helped produce the financial crisis, is only a special case of this larger phenomenon.)

I like Monbiot’s framing of how this works:

So pervasive has neoliberalism become that we seldom even recognise it as an ideology. We appear to accept the proposition that this utopian, millenarian faith describes a neutral force; a kind of biological law, like Darwin’s theory of evolution.

Sometimes it does seem like evolutionary biology and the simply model of supply and demand are the two most common models that people turn to when trying to explain things they don’t really understand.

The effect is to naturalize and even celebrate the inequality that results from a blind reliance on supposedly competitive markets: “Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone.”

Monbiot also points out that “neoliberals” have the field largely to themselves, since the “left” has not come up with an alternative since Keynesianism. I think this is one reason why the policy center of gravity has shifted steadily rightward since the 1970s, even though public opinion on basic questions such as the role of government has scarcely budgeted. Conservatives have an economic program; liberals (what we now call “progressives” in the United States) have a bunch of complaints about that economic program.

One thing I’m not entirely on board with is the particular bundle of policies that Monbiot ties together, or the label “neoliberalism” that he applies. This is a complicated conceptual space that, portions of which have been labeled liberalism (that’s the word Hayek used in The Road to Serfdom, neoliberalism, libertarianism, Randianism (used by Hacker and Pierson in American Amnesia), or simply conservatism. After all, there isn’t much in the ideology that Monbiot identifies that every Republican presidential nominee since Reagan wouldn’t agree with. “Neoliberalism” also suffers from the problem that it means very different things to Anglo-Americans and to Latin Americans, many of whom see it through the lens of the Pinochet regime and the U.S./IMF’s imposition of the Washington Consensus. Various people, particularly Frank Pasquale, have pointed out to me that there are thoughtful, coherent conceptions of neoliberalism — see Grewal, Purdy and others here, or Mirowski here. But I worry that popular usage of the term has run away from any clean definition. This is particularly so because no one actually claims to be a neoliberal anymore, so the term is mainly used by its purported opponents.

There is a central strain in Monbiot’s conceptual cocktail that I think is coherent, and that is overreliance on the competitive market model taught in Economics 101. Although this isn’t the same as Economics 101, as various people have pointed out, it tends to be the single most important lesson of introductory economics. As Paul Samuelson wrote in the first edition of his 1948 textbook, this model — and the result that competitive markets maximize social welfare — is “all that some of our leading citizens remember, 30 years later, of their college course in economics.” The assumption that the competitive market model accurately describes the real world is, I think, one of the major reasons why conservative economic policies have been so persuasive — and why, for example, our pre-Bernie Sanders health care debate was divided between leaving markets alone and fixing markets to make them more competitive (Obamacare). The belief that public policy could be based directly on theoretical principles is also a reasons for the turn away from practical economic management discussed by Cohen and DeLong in Concrete Economics.

This pervasive assumption also does not have an accepted name, but I call it “economism,” since it constitutes a worldview (not quite an ideology) based on economic theory.* (Noah Smith calls it, or something similar, “101ism.”) I don’t claim that economism is a better category than neoliberalism, or historically more important, but I do think that it is more easily isolated in both history and public policy. And it certainly has done its share of damage in justifying deregulatory policies and rationalizing the rise in inequality that followed.

* To be precise, this is one meaning of economism, which already has several — none of which is particularly well known except in certain obscure academic circles.

James Kwak is an associate professor at the University of Connecticut School of Law, a co-author of 13 Bankers and White House Burning, and a co-founder of Guidewire Software. Find more at Twitter, Facebook, Medium, The Baseline Scenario, The Atlantic, or jameskwak.net.

Originally published at baselinescenario.com on April 18, 2016.