Last week, President Obama laid out, according to his own fact sheet, "a comprehensive, balanced deficit reduction framework to cut spending, bring down our debt and increase confidence in our nation’s fiscal strength...". Instead of talking about how best to improve the lives of everyone, we're talking about how to balance the budget and reduce the deficit. The fact that the goal is to reduce our deficit means that even if we win this battle, we will lose the war: The war of ideas.
Ladies and Gentleman, we're fighting a war and most of us don't even know who the enemy is. We meander from one battlefield to another almost always losing ground. How do we balance the budget? How much should we deregulate utilities? OMG, inflation? All of these battles are fought on the terms of our opposition. The result? Social Security cuts, tax cuts that favor the wealthiest people, deregulating and privatizing areas of the economy that have no right being privately owned, and "free" trade that leaves our labor force unemployed are just a few of the many loses. Sure, we occasional win a battle with a tax cut that targets the working or a stimulus bill that invests in the public good, but these victories keep getting fewer and shallower.
When President Obama referred to the "failed policies of the past", he never named what those policies were. It's just as well because he's shown that he follows the same ideas. As good a man as he is, President Obama is trapped within an economic ideology that will always make instituting progressive policies an uphill battle. This ideology is so dominant in our institutes that most don't even recognize it as an ideology - it's just mainstream economics to them.
Once we name and recognize the ideology, we can start calling it out. Instead of fighting progressive battles within the framework of the ideology, we can fight the ideology itself and advocate for progressive policies on our own terms. As you may have figured out by now, the ideology I speak of is called, Neoliberalism.
Like the devil, Neoliberalism, goes by many names. Neoliberalism is mostly what academics call it. In the United States it's also known as Supply-Side Economics, Reaganomics, or Trickle-down economics. In the U.K. it was sometimes called Thatcherism. Any third-world countries dealing with the IMF or World Bank might call it the Washington Consensus.
The most general and neutral definition of neoliberalism that I could find is "a movement that modifies classical liberalism in light of 20th-century conditions." By classical liberalism it means pre-keynesian macroeconomic thinking. Neoliberalism is an economic theory that emphasizes the open market above all else. Adherents to this ideology that "market solutions" are the best, most efficient way to achieve human prosperity. Sometimes, neoliberals will begrudgingly admit that government has a role in some cases like environmental regulation, and providing some social investment, but these concerns are always secondary and are usually the first thing to fall the wayside if their effect on "the market" is too onerous. Despite having the word liberal in it, make no mistake, this IS the conservative agenda and the result of the economic and political definition of "liberal" meaning two different things.
With their fealty to "the market", John Williamson wrote the 10 policy recommendations derived from neoliberal thinking. I guarantee that if you have been paying attention to politics for any amount of time you will recognize these things as not only Republican policy goals, but quite often recent Democratic goals.
1. Fiscal policy discipline; i.e. balanced budgets
2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
3. Tax reform – broadening the tax base and adopting moderate marginal tax rates; i.e. shift the tax burden away from the wealthy
4. Interest rates that are market determined and positive (but moderate) in real terms;
5. Competitive exchange rates; i.e. A strong currency
6. Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; i.e. Free Trade
7. Liberalization of inward foreign direct investment; i.e. Unhinged Financial Markets
8. Privatization of state enterprises;
9. Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
10. Legal security for property rights.
Now tell me how we are to achieve anything progressive when most people in Washington believe that these 10 items are the key to increased prosperity? Only policy goals 2 and 9 acknowledge any role of government and even they have very strict limitations. It's why implementing progressive policies always feels like we're swimming against a current.
Democrats often fight many of these policies, but we fight each battle on it's own. We never tie them altogether and attack the intellectual underpinning of each of these. Democrats say that we need healthcare for everyone. Conservatives quote neoliberalism by stating that "if we let the market work, everyone will be able to afford it". Most democrats don't even attack this idea because they're beholden to the same ideology.
Neoliberal ideology lead us to the 2008 crises. Despite this fact, neoliberalism is still the dominant economic ideology in Washington as demonstrated by even Obama and other Democrats still advocating free trade and balanced budgets. I think the reason is that there wasn't a strong enough movement to overthrow it. You didn't have politicians naming the ideology. You didn't have a movement of people that were consciously or unconsciously advocating an alternative. Which brings me to the point of alternatives.
There are several economic viewpoints that are vastly superior to neoliberalism. Even classic Keynesian demand economics has proven superior. Paul Krugman's view, described as "new Keynesian" is based on the original work of Keynes with recent additions is just as good too. Better yet is the "post Keynesian" view that I believe is best. There are still others. While I often write to convince of my "post Keynesian" point of view, that's not what this diary is about. One day we'll have a more cohesive, generally agreed upon "progressive" view of the economy and how best to manage it. Until that time though, I believe we can all unite against neoliberalism and the suffering that this idea has caused.
I am asking you, your friends, and politicians on the left to add this word to your vocabulary when discussing politics in person, on blogs & forums, facebook, and email. You don't have to use the word neoliberal since it may not be recognized, but surely you should do pretty well with one of its aliases. Attack Neoliberalism, attack one of the 10 policy goals/assumptions that make up neoliberalism, and you will find that you'll start winning more arguments.
To get you started, I've listed below a brief refutation of each of the 10 general policy goals and how it might fit with a theoretical "debate" when talking to that one right wing nut at the office or family reunion.
1. Fiscal policy discipline
The first goal, as repeated by President Obama, is that budgets must be balanced. If this goal is followed it means during recessions there will be drastic cuts to social services at the exact time people NEED those social services. The "we can't afford it" defense becomes an excuse to axe social programs. That is why we'll constantly lose ground as long as we accept the neoliberal precept that budget deficits matter. Instead, the anti-neoliberal agenda needs to fight back by arguing why deficits don't matter - especially during recessions and low-inflation.
Myself and my fellow members of the group blog, Money and Public Purpose, have written about this so much, that I won't repeat myself on this diary. This is by far the most important idea to counteract, and the most difficult because the neoliberals have a 30 year head start on us with their whole "need to get our fiscal house in order" campaign. I find I get the best reaction by repeating "Budget Deficits don't matter - only inflation. Inflation is low or even negative during recessions."
2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
Number 2 isn't necessarily a bad goal. The problem is that neoliberals will attempt to cut subsidies when not everyone can benefit from the other "pro-growth" spending. When the right-wing says we need to stop subsidizing heat oil, we need to ask about those who can't afford heating oil now? A job, and education in 4 years won't keep him or her warm THIS winter.
3. Tax reform – broadening the tax base and adopting moderate marginal tax rates; i.e. shift the tax burden away from the wealthy
The third goal has often been a fight to cut taxes for the rich. This is an example where Democrats fight the policy, but don't attack the ideological underpinnings of the philosophy. They talk about "sharing" the burden. In reality they should be attacking neoliberalism by pointing out that tax cuts for the wealthy do not create jobs - only economic bubbles created by the rich trying to find new places to invest their latest government windfall. More money for the working poor and middle class creates increased spending i.e. demand. Once demand is established, the wealthy know where to invest properly and the economy is driven forward and EVERYONE(rich & poor) benefits.
4. Interest rates that are market determined and positive (but moderate) in real terms;
This isn't so much a goal as just plain wrong. Central Banks are the ones that set the general interest rate, not "markets". This usually only comes up when you tell someone that budget deficits don't matter. The other person will make this ridiculous claim that the bond markets will "punish" us by raising our interest rates.
5. Competitive exchange rates; i.e. A strong currency
6. Trade liberalization
Policy goals 5 and 6 should sound familiar. They're talking about maintaining the value of the dollar AND promote free trade. This is absurd. If you have free trade, the government won't be able to control import/export balances and the value of the dollar will go up and down no matter the government fiscal policy. At least, in a world where the government cares about it's people it would. Unfortunately, the neoliberals have found a destructive way to achieve both of these things: high unemployment.
Briefly, here's how this works and why it's killing us. If we have a valuable, strong currency, in a "free trade" system, jobs(and money) are shipped overseas to countries with a weaker currency. This results in unemployment at home. We have two options, the government spends more money to fill the employment gap which does lead to a weaker dollar, or we let those people remain unemployed.
When talking to neoliberal accolytes, This usually comes about in one of two ways. They say that we're "deficit spending" too much and it's going to devalue the dollar. The best response is that the biggest risk to devaluation is free trade. Another way this issue comes up is when advocating Free Trade. The best response is that it's going to lead to either higher unemployment or bigger budget deficits. It's their choice.
7. Liberalization of inward foreign direct investment
This goal comes about when talking about deregulating financial markets. The best way to counter this argument is to just point out the repeated financial bubbles that have been created like The dot-com bust or the subprime market. Don't forget that whole S&L crises. How many recessions must financial markets create before we start regulating it?
8. Privatization
9. Deregulation
Policy goals 8 and 9 should be recognizable as right out of the Reagan playbook: Deregulation and privatizing utilities. The "anti-neoliberalism" mantra is that "the market" is an inappropriate tool for some public good. When conservatives make absurd claims about "the market" we fight just the policy being advocated, we need to attack neoliberalism itself. We need to point out that there are some things the government should do. In some cases. the benefits of some things spills over far beyond those directly buying it. Like education, for instance. Making a good, quality education benefits us not just those receiving it, but the entire country. If we limit it to only those who can afford it, the country must import talent. Another case is that market mechanisms don't work for all things. Look at healthcare. There is no "healthcare market". In a functioning market you have "substitute products" like sandals instead of boots, or car instead of mass transit. In a functioning market you also have the ability not to buy anything like walking instead of driving, or going barefoot or using your old shoes instead of buying a new pair. This is not the case when it comes to healthcare. There's no alternative to organ transplant. Furthermore, you can't choose to not purchase a cancer treatment unless you consider death a "market solution".
10. Legal security for property rights.
Legal security for property rights is one thing I happen to agree with. I will say this, however, it's a moral argument for progressive taxation. Those with more wealth have more private property for the government to protect.
One diary cannot knockdown all the myths of neoliberalism fully and accurately. I just wanted to get an overview of them all so that we can see why it's so wrong and so harmful. I hope some of the ideas I've presented will help you win some arguments. If we all do it, we may start seeing a turning of the tide. Perhaps we'll even get a Democratic party that doesn't talk austerity when total Unemployment(U6) is over 15%.