Neoliberal Jargon

Dmitcha's excellent DailyKos diary on race and the racial anxieties of some Obama critics sparked a number of responses that were aimed at the supposed "neoliberal" policies of the Obama administration. Some of these were illuminating and thought provoking, and some were, um, less impressive. But they were all wrong. Part of the problem is that "neoliberalism" is not a useful or even well defined term. It was originally coined by Latin American economists trying to describe the (terrible) effects of IMF and World Bank policies on their countries, then the same term was adopted by people like Gary Hart as a response to "neoconservatism" without any reference to the previous usage, and there is a European version as well - and in Europe "liberal" means something like what "libertarian" means in the US. If you are curious, there is an endless discussion on line. I think "neoliberal" is too often used to mean "conservative". And, sadly, "neoliberal" is often used as a kind of credentials jargon: in an effort to claim that the person employing it is an expert who has intellectual authority due to his or her use of obscure specialist vocabulary. Nonetheless, it's worth it to look at some definitions and see whether the Obama administration fits them or not.

In the DailyKos discussion, commentator Nbbooks tells us that "neoliberalism" is the " economic thinking of a Reagan or Thatcher political conservative" and then cites the Wikipedia definition:
Neoliberalism is a label for the market-driven[1] approach to economic and social policy based on neoclassical theories of economics that stresses the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the political and economic priorities of the state. The term is almost always used by opponents of the policy
The first part of that definition means nothing at all. Nearly every US mainstream economist is "neoclassical" (Krugman too) and every major political party in the United States "stresses the efficiency of private enterprise, liberalized trade, and relatively open markets". Even people who are at the far left of the "respectable" spectrum, like Naomi Klein, support "mixed economies" which involve significant amount of private enterprise, trade, and open markets. Currently, there is no significant US public or organized support for a purely socialist economy. If you want to criticize the Obama administration for being pro-market then you are on solid ground and you can go stand with Angela Davis and a small group of anti-capitalists on the left. The Democratic party, however, is pro-market as is the vast majority of the public. Since few of the critics seem to be openly advocating socialism, I'll take them at their word [1], and suppose that they are using "neoliberal" to mean a particular type of market economics that "seeks to maximize the role of the private sector in determining the political and economic priorities of the state."

As an aside: the Republican economic point of view ""seeks to maximize the role of the private sector in determining the political and economic priorities of the state" by helping the "incumbents" in the private sector use the government to suppress competition and accountability: In fact, the only mainstream
enemies of open markets in US politics are the Republicans, the party of entrenched monopolies that rely on the government to intervene in the economy to protect them from competition and to provide them with public funds. The battle over oil company subsidies is exactly on this topic: the Administration wants open markets and competition with Wind and Solar, while the Republicans want the taxpayers to directly subsidize the oil business with tax breaks and indirectly subsidize the oil business by allowing them to evade the environmental costs that their operations impose on other participants in the market.

Robert Kuttner provided a good definition of the US use of the "neoliberalism" in 1990.

Neoliberals often profess allegiance to core liberal principles. But in the course of separating themselves from the now familiar set of alleged liberal excesses, they often seem to endorse the conservative reaction. At the core of neoliberalism is a paradox. Like liberals, neos are for better public education, day care, a more robust civic culture, political reform, and limitations on corporate excess. But, oddly, many self-identified neoliberals seem to think this enterprise requires dismantling much of the liberal legacy rather than building on it, as if liberalism could recover simply by becoming more like conservatism—more reverential towards the market, more generically critical of government, more hostile towards liberal inventions such as social insurance. Neoliberal writers and such political groups as the DLC seek to define a kind of liberalism that is ideologically elusive and presumably a little less offensive. But in the process of distinguishing themselves from “traditional” liberalism, they misrepresent recent history and create an unconvincing contrast between their own and other liberal views.

According to the now familiar neoliberal litany of what wrecked the New Deal coalition (which much of the press has accepted as gospel), liberals of the Great Society era overreached, became captive of special interests, and strove too hard for a more equal America. The policy initiatives were too bureaucratic, expensive, and ineffective. Social conflict developed as the middle class was alienated by both the higher tax burden and the growth of a new dependent underclass spawned by the welfare state.
That solves the mystery. Neoliberalism in the USA is simply the point of view adopted by the Democratic Leadership Council - the organization created by conservative Democrats to oppose the "economic populism" of the Mondale and McGovern campaigns. And they had a point: McGovern and Mondale lost the elections while the DLC candidate, Bill Clinton won the election. The Clinton economics team then tried to accommodate "liberal" policies with the more market-oriented politics of the post-Reagan era and the idiotic prescriptions of neoclassical economics. What they claimed to be able to provide was well managed Reaganism with some humanity. "The era of big government is over" said Bill. Cooperating with the Republican House majority at times and caving into them at other times the Clintonistas saw through: less regulation (end of Glass-Steagall and much financial regulation as well as less enforcement of anti-trust laws, wimping out on environmental rules etc.), "free-trade" (NAFTA) and the "service economy", "end of welfare as we know it", the brutal privatization of the Russian economy, balancing the budget with a mix of cuts and increased taxation. These were the neo-liberal economics of the Clinton team - which included Robert Rubin, Larry Summers, Robert Reich, Laura Tyson and others. And to be fair, they did fund some social programs too: such as the start of SCHIP and the Earned Income Tax Credit, and um, yes SCHIP. One of the big cheerleaders for this approach was Paul Krugman - a neoclassical economist and, to my mind, archetype neoliberal. And it kind of worked, to a point, for a while.

The first action of the Obama team on taking office was to sign a $33billion expansion of SCHIP, then push through congress the largest infrastructure investment in 50 years, followed by the $60billion rescue of the auto companies. They then activated a previously dead letter Department of Energy program to directly invest in and provide loans and loan guarantees to clean energy companies. They redirected billions of dollars of Bush's Wall Street TARP bailout to community banks and community lenders. They tried to push the value of the dollar down to encourage exports. And their NLRB appointees have been out promoting unions. They invested a great deal of time and effort trying to restart manufacturing. Their much criticized financial regulation law, the Dodd-Frank Act is actually a far reaching re-regulation of finance that goes well beyond New Deal Era regulation in some respects. And then they went all out on a health care reform, the significance of which has been noticed by only a few observers:
For all the political and economic uncertainties about health reform, at least one thing seems clear: The bill that President Obama signed on Tuesday is the federal government’s biggest attack on economic inequality since inequality began rising more than three decades ago.
This is not DLC economics and it's not "neoliberalism" either in the US version or in any other version. And the policy is driven by a critique of neoliberalism that has been articulated by top economic advisers and the President himself but has been studiously ignored by some critics.
Here' one example.
Consider these facts that illustrate how the
prosperity of recent years has not been shared widely:
  • The rich have gotten richer and most of U.S. society has gotten poorer. Shifts in U.S. income distribution since 1979 reflect a wealthier top 1% (which has gained about $600 billion per year in annual income, equal to about $500,000 per person in the top 1%) and a less prosperous bottom 80% (which has lost about $600 billion in income per year). The income of those in the 80th to 99th percentiles is unchanged. If incomes in the bottom 80% had kept pace, they would have been twice what they wereover those years.
  • The gap in health status between the fortunate andless fortunate has widened. Twenty-five years ago, the gap in life expectancy between the well-off and the less fortunate was close to two years. It has expanded to four years, which is hardly a mark of social and economic success. (While two years of life expectancy may not sound like a lot, it is equal to the gain in life expectancy that would be realized if cancer were completely eliminated.)
  • Children of privilege and children of poverty are more likely to remain in those socioeconomic situations as adults. For most of American history, the tendency for prosperity to pass from father to son was diminishing. But for the last quarter-century, that trend has stopped and, some say, reversed. Prioritizing education must be part of the solution, along with creative approaches to assisting adults who are no longer in the educational system. The failure to ensure that prosperity is broadly distributed represents a problem of legitimacy for society.
These statements are from Larry Summers, before he was nominated to serve in the incoming Obama administration. Even before the inglorious end of the Clinton administration, the obvious failures of neo-liberalism had become apparent to some of its biggest supporters - although as far as I know neither Paul Krugman nor Robert Reich have learned a single thing from the experience. In particular, Summers discovered that neoclassical economics was not always right. (BTW there is an excellent book that explains the stupidity of neoclassical economics that is available online. ) Here is Summers uttering words that are still considered heretical in most US Economics departments.
When I studied economics in graduate school a generation ago we were taught that it was a “stylised fact” that the US income distribution was very stable. We were shown that the fraction of the population in poverty tracked almost perfectly the performance of median family income over time and that productivity growth and average real wage growth moved together, with both declining sharply after the oil shocks of the 1970s. These observations led naturally to the conclusion that the main way of reducing poverty or increasing the incomes of middle income families was raising the rate of economic growth. [... however ...]
It can no longer plausibly be asserted that the income distribution is relatively static or that average wage growth tracks productivity growth.
And "raising the rate of economic growth" was exactly the prescription of the US neoliberals who insisted that the result would increase the incomes of the middle class and reduce poverty. But that turned out to be false.

If the US left wants to be a participant in politics, it needs to stop using ideological buzz-words as replacements for critical thinking and try to get a more up-to-date and more realistic model of US politics. In an era where the CEO of General Electric decries the old truisms of free-trade and the service economy and even Robert Rubin is now saying that weak labor unions are a fundamental problem for the US economy, it's time to wake up to the changed environment and stop yelling that nobody appreciates your out-of-date jargon.

[1] An expression used in American English to denote a certain polite skepticism.

Like what you read? Chip in, keep us going.