In the Washington Monthly, Paul Glastris writes about regulation and monopolies:
Federal regulation is not a hindrance to freedom or prosperity but bulwarks of both. Unfortunately, [in the early '80s], leaders of both parties adopted a contrary set of ideas, dubbed “neoliberalism”: that deregulating markets was the key to economic growth.
Wait. The Monthly is opposed to neoliberalism? They practically invented neoliberalism—though perhaps of a different variety than the one Paul is criticizing. Neoliberalism has so many definitions these days that it's all but impossible to know what people mean when they use the word.
That said, I've never been quite able to join in the progressive revulsion toward neoliberalism. Sure, it went overboard in some places, especially banking, but then there's this:
During the period from 1950-1985 world GDP increased $4,000 on a per capita basis adjusted for inflation. In the following 35 years world GDP increased nearly $8,000.
That's about the same on a percentage basis. But it's twice as much on a dollar basis and it shows more signs of exponential growth than the earlier period—even though the immediate postwar era was famously one of high growth. But starting from a much higher base and without a lot of catchup growth built in, world GDP still grew more strongly under a neoliberal regime. I wonder if it could have done that otherwise.
There are nuances to consider. A big part of recent economic growth has been due to just China and India, which are hardly neoliberal poster children. And the housing bubble and subsequent banking crash of 2008 can plausibly be laid at the feet of deregulation.
For these reasons I'm not an unrestrained booster of neoliberalism. But I still suspect it did more good than harm.
Also, while I'm not a big fan of monopolies, I don't think they have anything to do with our current bout of inflation, which is both temporary and caused by unique factors. For example, an unprecedented global pandemic. But who knows? I'll read Phil Longman's cover story and maybe he'll convince me. He's done it before.
Also, while I'm not a big fan of monopolies, I don't think they have anything to do with our current bout of inflation...
They've been banging the drum on monopolies for a while now. While I agree with most liberals that there's a lot not to like about the trend toward excessive market concentration, you can't really blame monopolies for all our ills (To cite one example, WaMo blames monopolies for regional stagnation, which seems unsupported by the evidence).
Neoliberalism has so many definitions these days that it's all but impossible to know what people mean when they use the word
It's a highly charged term that can mean lots of things depending on how it's used, and who's using it. Similar to "socialism" or "open borders" or "free trade" or even "centrist" (indeed, plain old "liberal" doesn't mean what it used to mean, either, to a lot of people).
Many use "neoliberalism" to mean "market-driven system" but the Nordic states are probably the most market-friendly places on earth, and not many of the folks who use "neoliberal" as an insult believe it would be a bad thing to be more like Denmark.
People on both sides tend to be absolutist. Under-regulation and over-regulation both happen; some regulations are wise and some are foolish. The aim should be to regulate wisely and adequately, and that can't be done if all regulations are regarded as evil, or if all regulations are regarded as wise and necessary measures to rein in the excesses of the free market.
Once again there is asymmetry between the two major parties. Since Reagan and his mantra "the nine most terrifying words in the English language are ‘I’m from the government and I’m here to help" the GOP has been rhetorically consistent in their denigration of all regulation, indeed of almost all government action except defense. Even the most vociferous progressives in the Democratic Party only argue for specific areas of government regulation.
Bizarre evidence presented for the success of neoliberalism:
1) world economic growth rates pre and post 1985 were roughly the same, perhaps slower post 1985.
- slower growth is really odd evidence of success considering we also recognize that non-neoliberal countries accounted for much faster growth post 1985.
Certainly looks like we are putting our thumb on the scale here....
Plus, is GDP the best measure of the effects of neoliberalism?
When is Kevin Drum going to be expelled from left-liberalism? It's not just abstract takes like this one but comments like about the trans person who complained about her cancer treatment. It's revealing of a fundamentally old school, dare I say traditional conservative, character, the sort that goes on about "too much butter on the bread."
I, of course, think it's great just like I think Liz Cheney is a hero. But Jacobinism and Trumpism are where the market is these days.
Kevin Drum is basically Liz Warren -- incidentally, his pick for the Democrat nomination -- had she stayed in academia & not gone into politics & had to play to the Guillotiner Left to peel votes off Bernie (that were never going to happen).
Kev & La Cacique are mainline, rockribbed types, who liked both Johns -- Connally & Lindsey -- & just don't see why everyone is so extreme. All your Goldwaters, your Mc Governs... just so much bombast leading to nothing.
They want solutions. They have plans. Big plans.
In fact, after Hibbert n' Hopper, Kev's next two cats will be Structural n' Change.
I still support a part of Bork's antitrust thesis (that consumer harm is the critical function of antitrust, not the mere presence of a monopoly), but I would augment it by pointing out that (a) monopsonies are not significantly different from monopolies in that they also harm consumers, and (b) that the real problem is the absence of clear, enumerated rules for specific categories of competition.
Breaks down when you extend the timeframes Bork used. Short-term avoidance of consumer harm allows for market consolidation and the antitrust potential becomes "mere speculation", preventing regulatory action for years and then requiring the government prove the case of consumer harm rather than the monopoly to prove lack of consumer harm.
Bork's thesis also dismissed Coase Theorem, basically that the initial allocation of rights is determinative for reaching equilibriums in the marketplace. Similar analysis as above but with regards to barriers to entry (Intellectual Property rights).
You can break down a few extra problems, including internal and external economies of scale (a monopoly might achieve cost-savings by sheer size, ala Wal-mart), Bork's denial of networking, long-term contracting (I must sell 100% to Amazon for next 10 years or face massive lawsuits), and a thousand similar issues that allow for effective market consolidation.
Current monopolistic powers that grew up under this regime were either cash-happy consolidators like Disney-ABC-ESPN-Marvel or were entrants into new markets (Amazon as online seller, Microsoft and Apple into home computational machinery, etc.) and either reaped the benefits of Bork's framework (allow consolidation now under ambiguous claims of 'consumer benefit', then make the government prove consumer harm after the fact) or dodged entrenched players.
Sorry, did my law school thesis on antitrust law as applied under Bork or under a behavioral economics framework (experts can't figure out vague and speculative concepts like 'consumer benefit,' so ordinary people won't be able to adjust consumer spending habits based on hedge fund politics and change preferences on a dime, etc.). Conclusion was that economics is too hard, nebulous and complicated for judges to use Bork's (neo?) classical economic framework in antitrust law.
Are you kidding me, I love this! Your response raises the level of discourse. But I have one quibble with your response:
That's not my understanding of Coase. Rather than a marketplace equilibrium, he was describing an uninhibited market that derived an efficient cost outcome. Having said that, how would you ascribe Coase to Google v Oracle and to patent holding groups/companies?
Kevin,
Per capita GDP in a growing economy tells us, "Jeff Bezos walks into a bar. The average person in the bar is now a billionaire." Median is the way to measure whether the rich beggar the poor or whether everyone has a boat to be lifted by a rising tide.
Exactly! I was going to write a long winded reply that this expresses better.
Got to say this: 1942 to 1975 the bottom 90% of households have about 64% of personal income. Now it's less than 50%. Almost all the difference went to the top .1%. GDP growth is meaningless if the bottom 98% don't see any of it.
I don't understand where "liberalism" comes in with "neo-liberalism." It seems to be a high brow variation on simple rightwing nuttery, not "liberal" in any sense.
Similarly, I'm unable to parse "postmodern." Is this some time in the future? Isn't "modern" a sliding window?
There are more than "nuances" involved in attributing global GDP growth to neo-liberalism. There's the fact that most of the global economy never embraced it.
Real per capita GDP in the US has increased in a straight trend line from 1960 to the present day. There's no evidence of any effect at all from neo-liberalism. The latter's evils were perpetrated at the microeconomic level.
Did the world suddenly switch to neoliberalism in 1985? A lot of things went on, for example globalization of trade, the end of Maoism and partial adoption of capitalism in China, the collapse of the Soviet Union, etc., but not all those things are a matter of a switch to neoliberalism. There is no doubt that globalization, for one thing, greatly improved GDP in formerly third-world countries.
But in the US there was certainly a major shift away from New Deal economics to more conservative economic policy - especially lower taxes on the rich and corporations and financial deregulation. These things are obviously what the Republican party is still aiming at, but Democrats have been assisting since the 60's. That's when the first big tax cut was made, under Democratic administrations. And Democrats went along with the two big Reagan tax cuts - they held the House and could have blocked them. And deregulation was going on from the 60's as well, but deliberately adopted in the Clinton administration.
This has not improved GDP growth. Taking real GDP/capita:
https://fred.stlouisfed.org/graph/?g=QOqJ
the average growth rate from 1948 through 1984 is 2.31% and after that it is 1.64%. The promises of supply-side voodoo economics as to improving the whole economy have just not been fulfilled although of course the rich have gotten richer, corporations and big banks have become more powerful and inequality has increased.
Kevin has a view of economics which might be called neoliberal (depending on how that is defined). He certainly goes to great pains to ignore some of the things which have been going on, for example the increase in inequality.
If deregulation is neoliberalism then the world-wide credit crisis and recession of 2007-9 was a result of neoliberalism. Banks around the world were allowed to go wild and create a bubble. Was that good? There is no reason to think that that was the last crash because of lack of regulation that will happen. Banks were mostly bailed out rather than re-regulated.
Probably most readers of this blog are aware that the US did not shift to more conservative economics because white people in the South and elsewhere suddenly began reading Ludwig von Mises, Bill Buckley or Reagan's best-seller Capitalism for Dummies. The people in question shifted their votes because Republicans tacitly promised to support white supremacy. And continued support for Republicans' deregulation and tax cuts is not because these things have improved the lives of the majority or the economic growth of the country as a whole. Republicans make perfunctory economic promises such as how tax cuts will increase jobs and raise wages, but don't really expect people to believe them. Their main appeal is on culture-war issues.
1 million Americans escaping poverty is greater than 300 million Chinese doing so because wait for it, America should be concerned with the prosperity of it's peoole.
And frankly economic growth isn't the be all and end all of life. Especially since all this growth came at the expense of the planet's future. Aside from health a safety improvements none of the stuff we got as a result of the growth is that important: people lead more stressful less healthy lives.
And frankly economic growth isn't the be all and end all of life
That's true. Your wording also seems to imply there are significant tradeoffs between A) maximizing prosperity, and B) ensuring said prosperity is widely shared.
I'm not aware of any evidence suggesting there are any tradeoffs at all, much less significant ones. Broadly speaking, per capita GDP in the US grew faster in 1945-1973 (a period of modest and/or declining inequality) than it has done in the period since (when inequality has increased). And the redistribution-focused, high income social democracies have long grown their economies about as fast as America has, adjusted for population growth.
In short, we absolutely should prioritize growing the economy as fast as possible*. We also should absolutely prioritize sharing the gains. Not only is there no conflict between these two, doing the first thing makes doing the second thing a lot easier.
*Consistent with prudent stewardship of the planet, of course.
Having worked on productivity-improvement projects throughout my career, I have come to think that there are mechanisms through which increasing equality actually increases productivity. Someday I will get around to putting my thoughts on paper/pixels.
Well, certainly we'd expect greater inequality to translate into less spending power among households in the aggregate (the rich can only consume so much), which would reduce the incentive to make capital investments.
Here's how I remember it:
Washington Monthly Neoliberalism: liberals who don't like unions
Bernie Bro (idea of) Neoliberalism: that's the Clinton guys who said "let Wall Street decide", then made millions consulting for Wall Street.
Pretty sure the unionists left the Democrat Party & New Deal era before the grandees from the Mc Govern campaign who started the Washington Monthly did.
Neoliberal antipathy to organized labor was a response to the union guys who split from the Democrat Party after putting segregated workshops over fair compensation for those working in the workshops.
I think it's curious that a guy who lives in Orange County forgot about one of the most notorious examples of deregulation in his own back yard, when the electric companies were deregulated and players like Enron swooped in to jack up electric prices to obscene levels. Which proves that things like public utilities that are vital for society to function need to be strictly regulated, but things that are not so central to a functioning society can fend for themselves.
The high rate of growth in these countries was possible because they started from such a low base. If your production systems are using 19th-century technology, you can acquire mid-20th-century technology on the cheap and see dramatic gains in productivity and output. Both countries were held back by colonialism, and China also by Maoism. They can ride this strategy further - I Googled some production and employment figures a few years ago and calculated that American coal miners were about fifty times more productive than Chinese miners. (If you think this can’t be true, search for videos of “longwall mining”)
How was China held back by Maoism???? Which was more about tribalism than bogus numbers like gdp.
Wikipedia has some very informative articles on the programs of the Great Leap Forward, including the ‘backyard furnace’ initiative, which was supposed to double production of steel. The whole thing was a dismal failure.
The big areas of growth in the world have been in nations that have not adopted neoliberal policies. Meanwhile, those nations that did adopt neoliberalism have experienced slower growth than before. So, I have to ask, could China, India and the rest of the non neoliberal world have grown as they have without the developed world having to endure decades of slow growth? Personally, I think they would have done just fine. Maybe you'll write a column explaining the actual tradeoff if there was one.
Output per capita over all but short terms is dominated by production technology. As I note above, Asian countries in general were able to grow very rapidly by adopting technology developed elsewhere; they benefited from past R&D expenditures by others, and replaced technology that was outdated a generation or several. Western countries saw slower development because firms were at or near the leading edge of production technology; the opportunity to leapfrog wasn’t there. I suspect that the demise of some of the US’s premier research institutions - Bell Labs, Xerox PARC - was a drag on growth as well. So no, rapid development of Asia didn’t necessitate slower development in the West.
Capitalism died in 2000. Now with the Chindia boom is over, GDP will decline. The industrial revolution created the illusion capitalism worked. Let it liquidate and die.
But that upward trend line doesn't actually start until 1990, which is the end of the Cold War and the computer and internet revolution, plus the rise of China.
I don't see where neoliberalism has anything to do with it.
Democratic liberal supports political economy ending median wage earners participation of economic growth. All surpluses must accrue to the strong, clever, and numerate.
“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”
I don’t think Democrats have overtly embraced economic inequality, they just listened to economists who, despite all evidence to the contrary, were convinced that Mr. Market would distribute gains fairly, because their theories said so.
I didn’t know until recently that in the early decades of the Industrial Revolution, workers’ pay didn’t rise significantly - owners and investors pocketed the gains. Really, the period in which some of the gains of increased productivity were apportioned to workers as higher wages, corresponds to the rise of Socialism and trade unionism. Funny that.
Sorry, forgot to credit J.M. Keynes for the quote.