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Posts Tagged ‘neoliberalism

“The only corporate social responsibility a company has is to maximize its profits”*…

Congressman Fred Hartley and Senator Robert Taft, namesake co-sponsors of the 1947 Taft-Hartley Act (which figures in the tale referenced below)

… Happily that wasn’t always the accepted belief, and may some day recede. The redoubtable Bill Janeway explains– and laments– the passing of corporations that felt a duty to constituents other than their shareholders…

In his new book Slouching towards Utopia, the economist J. Bradford DeLong points out, correctly, that the “industrial research laboratory and the modern corporation” were the keys to unleashing a radical increase in the rate of scientific and technological innovation, and thus economic growth, from 1870 onward. DeLong also identifies the Treaty of Detroit, a landmark 1950 settlement between General Motors and the United Auto Workers, as a linchpin of American-style post-World War II social democracy. But what ever happened to the behemoth corporations that unlocked decades of growth while sponsoring health insurance and pensions for their employees?…

The rise of the neoliberal order in the 1970s and 1980s coincided with the demise of companies that served their societies and employees as well as their shareholders. Since then, the US federal government and other institutions have managed to offset the loss of only part of the broader contributions that big business once made. The fascinating, sad story at “The Rise and Fall of the Socially Beneficial Corporation,” from @billjaneway in @ProSyn.

* Milton Friedman, intellectual leader– and avatar– of the neoliberal order

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As we learn from the past, we might send inclusively-calculated birthday greetings to a Cambridge University faculty colleague of Bill’s, Sir Partha Sarathi Dasgupta; he was born on this date in 1946. An Anglo-Indian economist, Dasgupta’s contributions have been broad, covering welfare and development economics; the economics of technological change; population, environmental, and resource economics; social capital; the theory of games; ecological economics; and the economics of malnutrition. His deepest interest has been in ecological economics, more particularly in the nexus of population, consumption, and the natural environment and in the economics of biodiversity. With the late Karl-Goran Maler, he developed the concept of “inclusive wealth” as a measure of human well-being.

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“The function of small corner shops in maintaining cities as viable social institutions does not appear in the Washington consensus. The possibility that corner shops may do better at safeguarding social cohesion than mass imprisonment is considered outlandish – if it is considered at all.”*…

For decades, globalist neoliberalism (and here) has driven the policies and practices and political, commercial, and financial leaders and institutions across the developed– and given development policy, the developing– world. Rana Foroohar argues that its time may be up; geography is retaking the upper hand…

For most of the last 40 years, U.S. policymakers acted as if the world were flat. Steeped in the dominant strain of neoliberal economic thinking, they assumed that capital, goods, and people would go wherever they would be the most productive for everyone. If companies created jobs overseas, where it was cheapest to do so, domestic employment losses would be outweighed by consumer benefits. And if governments lowered trade barriers and deregulated capital markets, money would flow where it was needed most. Policymakers didn’t have to take geography into account, since the invisible hand was at work everywhere. Place, in other words, didn’t matter.

U.S. administrations from both parties have until quite recently pursued policies based on these broad assumptions—deregulating global finance, striking trade deals such as the North American Free Trade Agreement, welcoming China into the World Trade Organization (WTO), and not only allowing but encouraging American manufacturers to move much of their production overseas. Free-market globalism was of course pushed in large part by the powerful multinational companies best positioned to exploit it (companies that, of course, donated equally to politicians from both major U.S. parties to ensure that they would see the virtues of neoliberalism). It became a kind of crusade to spread this new American creed around the globe, delivering the thrill of fast fashion and ever-cheaper electronic gadgets to consumers everywhere. American goods, in effect, would represent American goodness. They would advertise American philosophical values, the liberalism tucked inside neoliberalism. The idea was that other countries, delighted by the fruits of American-style capitalism, would be moved to become “free” like the United States.

By some measures, the results of these policies were tremendously beneficial: American consumers in particular enjoyed the fruits of cheap foreign manufacturing while billions of people were lifted out of poverty, especially in developing countries. As emerging markets joined the free-market system, global inequality declined, and a new global middle class was born. How free it was politically, of course, depended on the country.

But neoliberal policies also created immense inequalities within countries and led to sometimes destabilizing capital flows between them. Money can move much faster than goods or people, which invites risky financial speculation. (The number of financial crises has grown substantially since the 1980s.) What is more, neoliberal policies caused the global economy to become dangerously untethered from national politics. Through much of the 1990s, these tectonic shifts were partly obscured in the United States by falling prices, increased consumer debt, and low interest rates. By the year 2000, however, the regional inequalities wrought by neoliberalism had become impossible to ignore. While coastal U.S. cities prospered, many parts of the Midwest, the Northeast, and the South were experiencing catastrophic job losses. Average incomes among U.S. states began to diverge, having converged throughout the 1990s…

Since the beginning of the neoliberal era, a handful of economists had pushed back against the received wisdom of the field. Karl Polanyi, an Austro-Hungarian economic historian, critiqued classical economic views as early as 1944, arguing that totally free markets were a utopian myth. Scholars of the postwar period, including Joseph Stiglitz, Dani Rodrik, Raghuram Rajan, Simon Johnson, and Daron Acemoglu, also understood that place mattered. As Stiglitz, who grew up in the Rust Belt, once told me, “It was obvious if you were raised in a place like Gary, Indiana, that markets aren’t always efficient.” 

This view, that location plays a role in determining economic outcomes, is only just beginning to land in policy circles, but a growing body of research supports it. From the work of Thomas Piketty, Emmanuel Saez, and Gabriel Zucman to that of Raj Chetty and Thomas Philippon, there is now a consensus among scholars that geographically specific factors such as the quality of public health, education, and drinking water have important economic implications. That might seem intuitive or even obvious to most people, but it has only recently gained broad acceptance among mainstream economists. As Peter Orszag, who served as President Barack Obama’s budget director, told me, “If you ask a normal human being, ‘Does it matter where you are?’ they would start from the presumption that ‘Yes, where you live and where you work and who you’re surrounded by matters a ton.’ It’s like Econ 101 has just gone off the path for the last 40 to 50 years, and we’re all little islands atomized into perfectly rational calculating machines. And policy has just drifted along with this thinking.” He added, “The Economics 101 approach, which is place-agnostic, has clearly failed.”

The importance of place has become even more evident since the start of the COVID-19 pandemic, the economic decoupling of the United States and China, and Russia’s war in Ukraine. Globalization has crested and begun to recede. In its place, a more regionalized and even localized world is taking shape. Faced with rising political discontent at home and geopolitical tensions abroad, governments and businesses alike are increasingly focused on resilience in addition to efficiency. In the coming post-neoliberal world, production and consumption will be more closely connected within countries and regions, labor will gain power relative to capital, and politics will have a greater impact on economic outcomes than it has for half a century. If all politics is local, the same could soon be true for economics…

All economics is local: “After Neoliberalism,” from @RanaForoohar in @ForeignAffairs. Eminently worth reading in full (and contemplating the consequences of this all-too-plausible shift for addressing global issues like change change and the migration it is sure to drive).

John Gray

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As we re-scope, we might recall that it was on this date in 1975 that prescient objectors, the Sex Pistols, made their live debut at St Martin’s School Of Art in central London, supporting a band called Bazooka Joe, which included Stuart Goddard (the future Adam Ant).  The Pistols’ performance lasted 10 minutes.

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Written by (Roughly) Daily

November 6, 2022 at 1:00 am

“Wouldn’t economics make a lot more sense if it were based on how people actually behave, instead of how they should behave?”*…

Behavioral economics aims to accomplish exactly that. Its approach has been to catalogue the dozens of cognitive biases that stop us from acting “rationally.” Jason Collins argues that instead of building up a messier and messier picture of human behavior, we need a new model…

From the time of Aristotle through to the 1500s, the dominant model of the universe had the sun, planets, and stars orbiting around the Earth.

This simple model, however, did not match what could be seen in the skies. Venus appears in the evening or morning. It never crosses the night sky as we would expect if it were orbiting the Earth. Jupiter moves across the night sky but will abruptly turn around and go back the other way.

To deal with these ‘anomalies’, Greek astronomers developed a model with planets orbiting around two spheres. A large sphere called the deferent is centered on the Earth, providing the classic geocentric orbit. The smaller spheres, called epicycles, are centered on the rim of the larger sphere. The planets orbit those epicycles on the rim. This combination of two orbits allowed planets to shift back and forth across the sky.

But epicycles were still not enough to describe what could be observed. Earth needed to be offset from the center of the deferent to generate the uneven length of seasons. The deferent had to rotate at varying speeds to capture the observed planetary orbits. And so on. The result was a complicated pattern of deviations and fixes to this model of the sun, planets, and stars orbiting around the Earth.

Instead of this model of deviations and epicycles, what about an alternative model? What about a model where the Earth and the planets travel in elliptical orbits around the sun?

By adopting this new model of the solar system, a large collection of deviations was shaped into a coherent model. The retrograde movements of the planets were given a simple explanation. The act of prediction became easier as a model that otherwise allowed astronomers to muddle through became more closely linked to the reality it was trying to describe.

Behavioral economics today is famous for its increasingly large collection of deviations from rationality, or, as they are often called, “biases.” While useful in applied work, it is time to shift our focus from collecting deviations from a model of rationality that we know is not true. Rather, we need to develop new theories of human decision to progress behavioral economics as a science. We need heliocentrism… 

For a thoughtful critique of current thinking and a set of four “features” that might inform a new approach: “We don’t have a hundred biases, we have the wrong model,” from @jasonacollins.

* Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions

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As we dwell on decisions, we might spare a thought for someone who would probably have had little patience for ideas like these, Rose Friedman; she died on this date in 2009. A free-market economist, she was the wife and intellectual partner of Milton Friedman– a father of the “Chicago School” of neoclassical economic thought that underlies the neoliberlism so dominant of late [see here], of which behavioral economics is a corrective/critique– with whom she co-wrote papers and books (e.g., Free to Choose and Capitalism and Freedom) and co-founded EdChoice (formerly the Milton and Rose D. Friedman Foundation), with the aim of promoting the use of school vouchers and “freedom of choice” in education.

When her husband received his Medal of Freedom in 1988, President Ronald Reagan joked that Rose was known for being the only person to ever have won an argument against Milton.

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“‘I wish it need not have happened in my time,’ said Frodo. ‘So do I,’ said Gandalf, ‘and so do all who live to see such times. But that is not for them to decide. All we have to decide is what to do with the time that is given us.'”*…

A couple of weeks ago, (Roughly) Daily took a look at the fall of neoliberalism. What’s to come? The estimable Noah Smith has a suggestion…

For years now, I’ve been thinking about what the next big organizing principle of U.S. political economy will be. By “political economy” here I mean the type of economic policies we carry out, and the ways that we expect those policies to reshape our economy. This will be the first in a series of posts laying out my predictions for what the new paradigm will look like.

From the late 1970s through the middle of the 2000s, our organizing principle was what some people call “neoliberalism” — deregulation, tax cuts, free trade, and the shift of the welfare state towards in-kind benefits and work requirements. The reasons we went down this road were complex, and the results were mixed. This replaced an earlier paradigm that people called “the New Deal”, which started to emerge during the Great Depression but really solidified during and just after WW2. That paradigm involved large-scale government investment, heavy regulation, high taxes, social insurance, and the encouragement of a corporate welfare state.

Ever since the financial crisis and the Great Recession of 2008-12, we’ve been looking for a new organizing principle. Obama didn’t really try to give us one; with the exception of Obamacare, he was mostly focused on crisis recovery and damage control (stimulus, financial regulation, boosting the welfare state incrementally along largely neoliberal lines).

But everyone knew a new paradigm was needed. The question was what it would be…

[After carefully considering, then sadly rejecting climate change as a candidate…]

So if it’s not climate change, what will be the thing that forces us to come up with a new policy paradigm? If it’s not the moral equivalent of war, perhaps it’ll be the threat of actual war…

The War Economy,” Part 1

In a second post, he elaborates on how the U.S. and its allies might stack up against a “New Axis.” He dives into relative demographicc, economic, and social strengths, concluding…

I can’t say whether or not the New Axis is the most formidable military competitor that the U.S. and its allies have ever faced. The original Axis was certainly fearsome, and the USSR had tens of thousands of nuclear weapons ready to roast the world at the touch of a button. But I think that the comparisons above show that the New Axis certainly represents an economic competitor like none the U.S. and its allies have ever faced. And the reason is simply China. Russia is mainly a gas station with nukes. But China has three things going for it:

  • China has far, far more workers than the original Axis or the Soviet bloc.
  • China has advanced manufacturing technology that probably rivals the original Axis in relative terms, and far exceeds the Soviet bloc.
  • China has the world’s largest manufacturing cluster, making it the “make everything country”, which neither the Axis nor the USSR managed to be.

He continues…

This is simply a unique situation in modern history. The Industrial Revolution began in Europe and spread to the U.S. and the East Asian rim. The aftermath of WW2 saw central Europe and the East Asian rim incorporated into a U.S.-led alliance that dominated global manufacturing in a way that the communist powers could never threaten. Now, with the rise of China, world manufacturing is divided roughly in two.

Much of the War Economy in the U.S. (and its allies) will therefore be about rediscovering the manufacturing capabilities they neglected during China’s meteoric rise…

The War Economy, Part 2: Sizing up the New Axis

The Brookings Institute recently published its own (and very resonant) assessment of U.S. readiness, “The Sources of Societal Competitiveness.” And Nathan Gardels followed with a trenchant reminder that consensus on national security is a double-edged sword…

In the end, the enduring vitality of any country must be built primarily on the wherewithal within, not on the shaky foundation of menacing adversaries without. George Kennan, architect of the containment strategy against the Soviet Union, understood that lasting vigor comes from the inner confidence of a nation that thrives on its own terms and doesn’t rely on enemies to hold it together. External threats may spur a welcome renewal, but it will remain fragile if that becomes its purpose.

Kennan believed correctly that the West would ultimately be victorious in the Cold War not on some battlefield but through the organic strength of a robust society that no adversary could match.

The same perspective applies today with respect to the challenge of assertive autocracies, especially China. The most important contribution democracies can make to fostering more freedom in the world is to demonstrate through their own institutional integrity and innovations how a governing consensus can be reached by non-authoritarian means.

When Domestic Unity Is Built On Foreign Enemies

We live in interesting times. Eminently worth reading all of the links in full.

* J.R.R. Tolkien, The Fellowship of The Ring

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As we return to first principles, we might recall that it was on this date in 1945 that the Japanese Foreign Ministry sent telegrams to the Allies (by way of Max Grässli at the Swiss Department of Foreign Affairs ) announcing that Japan would accept the Potsdam Declaration. The surrender of the Empire of Japan was announced by Japanese Emperor Hirohito on 15 August and formally signed on 2 September 1945, bringing the hostilities of World War II to a close.

Japanese Foreign Minister Mamoru Shigemitsu signs the Instrument of Surrender on behalf of the Japanese Government, on board USS Missouri (BB-63), 2 September 1945. Lieutentant General Richard K. Sutherland, U.S. Army, watches from the opposite side of the table. Foreign Ministry representative Toshikazu Kase is assisting Mr. Shigemitsu. Photograph from the Army Signal Corps Collection in the U.S. National Archives.

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Written by (Roughly) Daily

August 10, 2022 at 1:00 am

“The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear”*…

Three considerations of Gary Gerstle‘s important new book, The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era: First Robert Kuttner ponders why Democratic presidents embraced an economic credo that annihilated their own public philosophy and its appeal to the electorate…

Beginning with the presidency of Jimmy Carter, a succession of Democratic presidents joined Republicans in turning away from the New Deal model of regulated capitalism toward what has come to be known as neoliberalism. The neoliberal credo claims that markets work efficiently and that government attempts to constrain them via regulation and public spending invariably fail, backfire, or are corrupted by politics. As public policy, neoliberalism has relied on deregulation, privatization, weakened trade unions, less progressive taxation, and new trade rules to reduce the capacity of national governments to manage capitalism. These shifts have resulted in widening inequality, diminished economic security, and reduced confidence in the ability of government to aid its citizens.

The Republican embrace of this doctrine is hardly surprising. Given the lessons learned about the necessity of government interventions following the 1929 stock market collapse and the success of the Roosevelt administration as a model for the Democratic Party, the allure of neoliberalism to many Democrats is a puzzle worth exploring.

The term “neoliberalism” itself is confusing, because for at least a century “liberalism” in the United States has meant moderate left, not free-market right. Neoliberalism in its current economic sense draws on the older meaning of liberalism, which is still common in Europe and which holds that free markets are the counterpart of a free and democratic society. That was the claim of classical liberals like Adam Smith and Thomas Jefferson.

Only in the twentieth century, after the excesses of robber-baron capitalism, did modern liberals begin supporting extensive government intervention—the use of “Hamiltonian means” to carry out “Jeffersonian ends,” in the 1909 formulation of Herbert Croly, one of the founders of The New Republic. This view defined the ideology of both presidents Roosevelt and was reinforced by the economics of John Maynard Keynes. In Britain, the counterpart in the same era was the “radical liberalism” of social reform put forth by the Liberal prime minister David Lloyd George.

The term neoliberalism also gets muddled because some on the left use it as an all-purpose put-down of conservatism—to the point where one might wonder whether it is just an annoying buzzword. But neoliberalism does have a precise and useful meaning, as a reversion to the verities of classical economics, with government as guardian of unregulated markets…

Free Markets, Besieged Citizens

Brian Kettenring worries (with Gramsci, as quoted in this post’s title above) that the transition to what’s next could be treacherous…

In a contest among global models, one option is the state-authoritarian capitalist model represented by China. A second one would be a neoliberalism retooled for the 21st century. But because neoliberalism has failed on its most central promise (growth) and other important tests (climate, inequality, and race), it is increasingly marginalized, if still persistent in the public imagination and the structures of important national and international institutions. A third option—which seems ascendant—is the ethno-nationalism of Trump, Viktor Orbán, Jair Bolsonaro, and company. The economic track record of ethno-nationalism in power has often proved anti-neo-liberal—especially on trade, but often on public investment, the social safety net, and even industrial policy—but that hasn’t foreclosed tax cutting or deregulation. And while the racialist and exclusionary politics of ethno-nationalism are disqualifying, its record of governance is, with some exceptions, poor.

None of these geopolitical arrangements will serve America or the world well in the third decade of the 21st century. For those who share Gerstle’s critique of neoliberalism, the task is to chart a fourth way that is inclusive, sustainable, and consonant with strong democratic governance and pluralistic societies. At present, this fourth way appears to be the harder road. That said, Rise and Fall offers guidance for how it might still win the day. 

Gerstle reminds us that geopolitics can have unpredictable economic side effects. The war in Ukraine has accelerated inflationary dynamics in the global economy, increasing the price of everything from energy to wheat. It’s too soon to assess the long-term consequences of the Russian invasion. Still, one optimistic reading of the potential by-products of the war might be accelerated investments—at least in Europe—in the green energy sector…

Neoliberalism Is Dying. What Comes Next?

And L. Benjamin Rolsky considers the moral– and spiritual– baggage that it carries…

… A moral code accompanied the neoliberal order to protect itself against its worst excesses and moral failures. Many Americans were perfect matches for neoliberalism’s entrepreneurial politics, its promises of unbridled freedom once remade in the image of homo economicus; many were not. For Gerstle, the neoliberal order produced two interrelated modes of citizenship within the body politic: conservative neo-Victorianism and liberal cosmopolitanism. The former encouraged self-discipline in the name of market austerity and the proverbial Christian family. The latter privileged diversity, self-expression, and socioeconomic mobility. As Gerstle describes, “It celebrated the cultural exchanges and dynamism that increasingly characterized the global cities — London, Paris, New York, Hong Kong, San Francisco, Toronto, and Miami among them — developing under the aegis of the neoliberal order.” This much is most certainly true circa 1975: the beginnings of neoliberalism’s deregulatory ascent.

Within the same moment, however, neoliberalism would also help give birth to additional forms of religiosity including the “Prosperity Gospel,” replete with global communication networks, acts of spiritual exuberance, and larger-than-life television personalities. While this tradition of health and wealth dates back to the late 19th century, it found its domestic stride in the United States within the postindustrial conditions of the neoliberal order in the 1980s and 1990s. The fact that prosperity gospel healer Paula White-Cain has rekindled her relationship with former president Donald Trump’s communications team speaks to the intimate relationship between neoliberal success, political freedom, and spiritual prosperity in American political life — especially in 2022.

The rise and fall of the neoliberal order has curtailed some religious ideals and formulations in the name of neo-Victorian morality, but it also cultivated equally powerful forces that promised to liberate true believers from their respective experiences of spiritual captivity. Until such forces of neoliberal freedom are understood and diagnosed as complex forms of economic captivity themselves, there is no telling how much longer the neoliberal order can remain fractured yet deeply informative of our collective political imaginations…

Religion of the Market: On Gary Gerstle’s “The Rise and Fall of the Neoliberal Order

How neoliberalism rose, fell, and what might replace it: @rkuttnerwrites, @bkettenring, and @LBRolsky on a powerful new book by @glgerstle.

* Antonio Gramsci, Prison Notebooks

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As we compose our selves for change, we might recall that it was on this date in 1965 that Bob Dylan was booed off stage at the Newport Folk Festival during his first public performance with electric instruments (and a band that included Michael Bloomfield and Al Kooper)… The cat-calling began with his opening number, “Maggie’s Farm,” and continued through three more songs, after which Dylan left the stage. As a peace offering to Pete Seeger and other aggrieved organizers, Dylan returned later to do two acoustic numbers… but the die was cast; thereafter, his career was electrically-powered… and both folk and rock music were forever changed.

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