Neoliberalism’s Quiet Failures

This was an interesting lecture.

I’ve been watching a bunch of videos and reading up on the history of neoliberalism in order to better understand the dominant social and economic paradigm of our world.

The postwar era can be divided into two periods: reform liberalism or embedded liberalism, which was when the ideas of John Maynard Keynes and social democracy was ascendant in the West, which lasted from around 1945 until 1980. The Thirty Glorious Years ended in the Crisis of the 1970s which were the oil shocks and stagflation of that decade. In response to that crisis, neoliberalism triumphed and became the dominant liberal paradigm in the West in the late 1970s and early 1980s under Reagan and Thatcher and other European leaders.

This lecture by Professor Jacqueline Best zeroes in on that turning point in history. She digs into the details of how three neoliberal theories – monetarism, supply side economics and rational expectations theory – were put into practice in the 1980s and how the model quickly and quietly failed. In the long run though, it didn’t matter because the policies associated with neoliberalism endured and became an elite consensus. She goes on to argue that we have been trying to create a Homo economicus since the 1980s which conforms to the assumptions of the neoliberal model. In other words, the model failed but maybe we can reprogram people to conform to it.

What do you think? Are we trying to create a new Neoliberal Man? The West’s equivalent of the new Soviet Man of communism?

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  1. The most recent FTN has a great segment on the demise of ‘fake’ journalism. It’s astounding to behold.
    You should do a ‘deep dive’ on THIS, HW.

  2. Asexual, beige-colored consumers of soy burgers and bug protein bars….all speech, thought and spending patterns monitored 24/7 by the Trust and Safety Council…….committed to fostering a diverse and inclusive environment….failure to comply may result in termination……

  3. As I see it, there are two related, but still somewhat separate issues here, the one economic and the other ideological, and neoliberalism should be rejected on both counts.

    The first is that the real world doesn’t behave the way the neoliberal economic models theorize. In other words, neoliberal theory is faulty, and being faulty, it’s of limited value.

    The second is that even if the theory wasn’t faulty – that neoliberal economic models accurately predict economic behavior and outcomes – noeoliberal ideology certainly doesn’t benefit anybody of a nationalist bent.

    In my mind, that neoliberal economic theory is faulty has been demonstrated beyond reasonable doubt. The fault goes all the way back to 19th century founding figures of modern economics like William Jevons and Leon Walras, who cribbed one of their central ideas – general equilibrium – from the ideas circulating among physicists at that time. Unfortunately, the concept of general equilibrium, while perfectly apt for describing the physical world, it seems to be a poor fit for describing economic activity.

    Economist Eric Beinhocker described it this way in his book “The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics”:

    When Walras imported the concept of equilibrium from physics into economics, he gained mathematical precision and scientific predictability. But he paid a high price for that gain—realism. The mathematics of equilibrium required Walras and later economists to make a set of highly restrictive assumptions that have increasingly detached theoretical economics from the real world. Traditional Economics has what computer programmers call a “garbage in, garbage out” problem. If you feed a computer bad inputs, it will with absolute precision and flawless logic grind out bad outputs. Likewise, most Traditional Economic models begin with unrealistic assumptions and then, with mathematical inevitability, work their way to equally unrealistic conclusions. As we will see, this is why there is little empirical support for many core ideas of Traditional Economics, and in some cases empirical evidence directly contradicts the theory’s predictions.

    Walras sent a copy of his recently completed book on economics to renowned French mathematician Henri Poincaré for feedback.

    Poincaré replied, “A priori, I am not hostile to the application of mathematics to the economic sciences, as long as one does not go beyond certain limits.” In a follow-up letter, the mathematician made clear what those limits were by noting that Walras’s theory contained a number of “arbitrary functions” (referring to Walras’s use of assumptions). Poincaré commented that the conclusions drawn from Walras’s equations were mathematically correct, but “if the arbitrary functions reappear in these consequences,” the conclusions of the theory will be “devoid of all interest.”

    The gist of neoliberal economic propaganda is that all forms of government intervention in the economy are invariably economically damaging and that, when the topic is economics, neoliberals as the only adults in the room. The response should be to relentlessly hammer home the copious evidence that not only isn’t government intervention as harmful as neoliberals claim, but can actually be beneficial; and secondly that neoliberal economic is thought is based on fatally erroneous assumptions.

    Still, “neoliberalism” stands for much more than one specific portion of economic theory, and there is indeed much that neoliberals get right about economic behavior, and certain policies based on their insights have indeed been beneficial. But so what? If we insist on being much more than merely consumers and producers, if we want societies that reflect our racial and cultural identities, there is no choice but to reject neoliberalism at the level of ideology, regardless of what it gets right about economics.

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