Towards a Liberal Critique of Left Neo-Liberalism Policy

Have you ever played that game where everyone tries to keep a balloon in the air as long as possible?

Lots of people are discussing the lack of a political agenda in neoliberalism’s policies based on this post by Doug Henwood: Crooked Timber (III), Will WilkinsonKevin DrumMatt YglesiasThe American Scene, Jacobin (III), Arin DubeBrad Delong, JW Mason/Pitkin with good comments (III), Corey RobinElias IsQuith at LoEG, and I’m sure a ton more.

Most of the posts examine the lack of a unified theory of politics in neoliberalism’s current policy focus. I want to focus on a critique of neoliberalism’s higher-level policy agenda from a liberal point of view. I’m not much of a politics thinker, so I’ll leave it to others to tease out the political implication, though some will be obvious.

Before that, we should provide a reference to define neoliberalism. For academic purposes, I like Foucault’s definition, taken from the 1978-1979 “The Birth of Biopolitics” lectures given at the Collège de France. Here neoliberalism “does not ask the state what freedom it will leave to the economy, but asks the economy how its freedom can have a state-creating function and role, in the sense that it will really make possible the foundation of the state’s legitimacy.” When the state intervenes in the functioning of markets, it isn’t to rectify injustices but instead to further create and maintain the rigor of the economy itself. A more concise statement of those lectures transplanted to our time can be found in Wendy Brown’s excellent, highly recommended paper “Neoliberalism and the End of Liberal Democracy” (pdf). I think once we start to outline this debate, what people mean when they talk about it will become clearer as we draw contrasts with liberalism.

The term “policy” is also getting thrown around, but I’m not always sure what it means. Policy, as far as I read it, falls out of values and end goals as guided by research and evidence. So I’ll be talking a few levels up from any specific proposal, more along what motivates how policy should be constructed.  But I’ll draw attention to how specific policies are impacted by these goals.

With that as background, there are four immediate areas that I want to examine.  All of them won’t be specific to any one agent, thinker or group of neoliberal thinkers, but I think there’s a broad outline here of how policy has changed.

Public versus Private Allocation

Given that the state is going to provide some sort of primary good to citizens, should it provide it directly or subsidize purchases in the marketplace? How important is public allocation as an ends in and of itself, how much do we trust markets in practice, who are the various winners and losers of each, and when should one instinct prevail over the other?

I think it is safe to say that insisting that the government subsidize the marketplace while privatizing what remains of government production has become a major hallmark of the neoliberal era. It’s very difficult to imagine Social Security or the FDIC being proposed in their current forms today, and very easy to imagine private investment accounts or subsidies for private backstops of the financial markets being proposed instead. Talk about making the government more “innovative” and whatnot usually implies the market taking a greater role.

This matters for politics. The Ryan plan is at the forefront of this kind of thinking, as it replaces Medicare with a coupon for buying insurance in the market. But Medicare creates its own constituency that is ultimately fighting to protect this service. One of the conscious moves in mass privatization and the shift toward markets has been, as Stuart Butler put it, to create “private sector spending coalitions.” Instead of the public aligning with government services as a political bloc, privatization and subsidies form a coordination device for private firms. This creates a countervailing force against the government provided welfare state, and services in the quasi-private-public space divorce people from government.

And as Josh Mason argued, this private/public distinction has significant policy implications. If markets aren’t perfect, and they never are, there are many situations in which the subsidies will be captured by the private firms in question. From funding college education to the distributional impacts of work subsidies, direct allocation by the public can boost access by taking advantage of price effects, while private allocation will provide less of a good while generating inequality.

Who Does the Welfare State Work For and Why?

Do we provide goods for everyone as a baseline, or do we provide them primarily for the weakest among us? The intense debate over means-testing benefits obscures this important point about what the welfare state is supposed to do.  And there’s more of an emphasis on helping out the weakest as the primary goal.

I tend to think that there’s been too much focus on what I like to call a pity-charity liberalism, where the conceptual project of the welfare state is to compensate the losers of society rather than broadly empower citizens. There’s an argument, deriving from Jonathan Wolff, that creating these kinds of pity-charity states forces those worse off to engage in the additional acts of “shameful revelations,” making the liberal state something that doesn’t create the conditions for your freedom but instead shames and embarrasses you.

Policy implications jump out of this, but it also has political consequences. There’s the saying “programs for the poor make poor programs,” and I have to imagine that they make for poor politics too. Programs that empower a broad base of people also bring people together across a wider variety of backgrounds, thus making it easier to engage in politics.  Poor people and middle-class people and even upper-middle class people want their Social Security check and will defend it.

When the State Intervene in Markets and to What Ends

I’ve recently become fascinated with the 1998 book by Bob Litan and Jonathan Rauch, American Finance for the 21st Century. Originally prepared as a report to Congress by the Treasury Department, it provides the arguments that were used as the justification for the repeal of Glass-Steagall. What principals of financial reform did they articulate that would then form the basis for policy? They were remarkably clear:

The authors…identify three core principles that lie at the heart of that framework: an enhanced role for competition; a shift in emphasis from preventing failures of financial institutions at all cost toward containing the damage of any failures that inevitably occur in a competitive market; and a greater reliance on more targeted interventions to achieve policy goals rather than broad measures, such as flat prohibitions on certain activities.

This is a pretty clear neoliberal vision: set up the marketplace for maximum competition while reducing strict and broad rules (like Glass-Steagall) that hurt efficiency. Rely on calling out individual bad outcomes when they occur instead of providing railings on the system. And then if it fails, focus on cleaning up the mess afterward.

This new vision of the financial markets went down in flames in 2008 as each piece turned out to be wrong. The financial markets became more concentrated and more profitable instead of more competitive after deregulation was complete. Bad actors, from subprime lending to those who gamed mortgage-backed securities, weren’t investigated at the time and aren’t really even being investigated in the aftermath of the financial implosion. And, in the middle of a crisis, regulators blinked and the costs were contained in a way that backstopped trillions of bad debts and a solution of solvency through earnings that has left us with a slow recovery.

Dodd-Frank and other assorted reforms are interesting because they involve many improved tools for cleaning up, but they also push back against this neoliberal logic in some ways. There’s emphasis on standardization rather than innovation at all costs, regulations are supposed to hold larger firms to higher standards, and the Volcker Rule is meant to put some hard lines in the system by blocking some activities regardless of efficiency. But these are coming without a conceptual change in how we think about large, dangerous markets like this one.

Why does this matter? The same meta-debate takes place in many other markets: do we more aggressively set up the rules to favor some outcomes over others, or do we emphasize making markets “free” — a constructed and contested term, but accept it for a second — and then deal with bad outcomes after the fact? Do we want unions and regulations to create workplaces designed for human dignity, or do we let the dice roll as they may and compensate people after the fact through transfers? And what kind of politics does each bring into existence?

Managing the Economy Through Demand versus Supply

It’s important to point out Eric Cantor’s insanity in dismissing Keynesianism out of hand without understanding it, but right now I’m watching President Obama explain how the supply constraints in our economy are the most important problem. The move to emphasizing that the government doesn’t provide the demand necessary to keep the economy at full employment, but instead provides a more egalitarian way of increasing supply – education, training, relocation, etc. – is another hallmark of neoliberal thought.

We have a genuine, full-blown demand crisis on our hands. But our neoliberal policy advisors are looking to provide confidence to the bond market and are telling the unemployed to start taking night classes to get us out of this mess. Economic policy has conceptually been surrendered to the right, and now the Democratic administration is just arguing over how generous to be when it comes to supply-side interventions.

On the other hand, liberals know that demand needs to get moving in order to get our economy working again, and it needs to fire on all cylinders: stimulus in the form of public works and job programs, monetary policy in the form of QE3, and the writing down of bad debt. And it matters for politics – as Doug Henwood writes, recessions are better for the right than for the left.

Oh hey look, a comment on the desirability of monetary policy and also Doug Henwood. We have come full circle.

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41 Responses to Towards a Liberal Critique of Left Neo-Liberalism Policy

  1. Petey says:

    “The intense debate over means-testing benefits obscures this important point about what the welfare state is supposed to do.”

    Well, isn’t that debate so intense precisely because it has that important point at its heart?

  2. matthewcw says:

    Two other works / books worth considering in light of this conversation: David Harvey (cliche? sure, but his _Brief History of Liberalism_ is a pretty quick and compelling read for the uninitiated) and the sadly underrated / oft ignored 1935 book _Liberalism and Social Action_ by John Dewey.

  3. Peter says:

    This is very astute as usual. I think, though, that the “public versus private” distinction should be disaggregated a bit. There are really three distinct possibilities here:

    1. The state directly provides a good or service–e.g., the National Health Service in the UK, or public housing projects. Medicare is a hybrid because the doctors are private, but it’s close to this model.

    2. The state provides no-strings attached cash. This is really what Social Security is–after all, if we take “a decent standard of living in retirement” to be the primary good the state is providing here, then we could directly provide old people with housing, food, transportation, etc. But instead we just send out checks.

    3. The state provides subsidies that are to be spent in the private market, but restricts what you can spend it on or how you can use it. Ryancare health vouchers, Health Savings Accounts, private retirement accounts, etc. all have this form.

    There’s a sense in which program type (2) is more “neoliberal” than (1) by your definition–it’s a subsidy to the private market, after all, since people mostly spend SS checks in the private sector. But (2) is also less susceptible to the libertarian/foucauldian critique of the welfare state as a form of bureaucratic domination, because it requires less micromanaging of people’s lives. (3), meanwhile is where I think your arguments against private provision really apply most forcefully.

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  5. I think you’re getting at something key here, and let me try and flesh out the politics of it.

    Neoliberalism is about capturing and using the state for the benefit of a small group of large businesses, and orienting public policy toward the preservation of those businesses – who are typically rentiers.

    Neoliberalism’s politics, then, are straightforward – instead of mobilizing a coalition of voters, you mobilize a coalition of wealthy actors who can provide the necessary political support to sustain neoliberal politicians. Once the system is opened up to their influence, and thing like Buckley v. Valeo made that possible, it becomes a self-sustaining force as the influence of money overwhelms those who wish to organize a resistance to neoliberal policies.

    In the US and the UK, neoliberalism’s true triumph came when center-left parties adopted neoliberal policies as part of a conscious political strategy – in order to defeat the right, it was said, the right’s ideas AND its donors had to be coopted. Voters in the Democratic and Labour base were told this was necessary to prevent the right from winning and doing greater damage. Real but short-lived and unsustainable economic gains in the 1990s and mid-2000s were used to buy off just enough votes, while more money was used to discredit alternatives.

    So I’m surprised people say there’s no politics of neoliberalism, when there quite clearly is, and it is tied to the policy goals. Together those politics and policies are about the creation and maintenance of oligarchy.

  6. Drizzle says:

    I don’t really get why you put #4 in there. I feel the individuals being used as the examples of neoliberalism in the ongoing debate (Matt Yglesias, Brad Delong) are explicit Keynesians. If Obama is wrong on on the economics or if he is pretending to be wrong of the economics of why we remain in slump then that is separate but certainly the accused neolibs have been pretty clearly calling the President out on this one.

    As far as #2, I think your “pity charity” fit precisely into an interesting critique of the contention that with say, gains from trade, you can compensate losers with what you get from removing a deadweight loss and make everyone equally or better off. But how do you fit EITC in there? I feel that is an example of a program that does not force nearly the same levels of “shameful revelation” as more traditional programs such as food stamps or Medicaid. Yet I’d call EITC a neoliberal approach. On a side note, i have no idea whether the EITC beneficiary community is as strong an advocate as say Medicaid or food stamp recipients.

    Anyhow, thanks for sharing this analysis. This debate is made much harder by trying to figure out what any given actor means by neoliberal or a neoliberal approach v. progressive or a progressive approach.

  7. The allegations about macroeconomic stabilization here seem to me to be simply false. Brad DeLong is for aggressive macro stabilization policies. So am I, so is Larry Summers. And so is (of course) Paul Krugman who’s also a neoliberal.

    What I think this debate needs in order to clarify the terms is some example of a bullet that leftwing critics of neoliberalism are willing to fight. For example, on the question of programs that target the poor vs broad-based programs are you prepared to say “if forced to choose between two options, one of which is broad-based but delivers fewer resources to the neediest and one that is more narrowly targeted but delivers more resources to the neediest”? If so, then we have a meaty issue to debate. Is it more important for social welfare programs to deliver resources to the neediest, or is it more important for them to express aspirations of solidarity. But if not then, again, it’s hard to say where exactly the disagreement lies.

    • Petey says:

      “But if not then, again, it’s hard to say where exactly the disagreement lies.”

      Well, folks like you, Matt, have long been willing to means-test universal programs. Which would make them no longer universal programs. Which would convert them to “poor programs for poor people” without the ability to maintain long-term political support.

      It’s pretty easy to say where exactly the disagreement lies.

  8. Shane says:

    There’s no such thing as an apolitical technocrat. We are having a debate about a fictional entity–how many pure neoliberal technocrats can dance on the head of a pin? There’s no such thing as someone who just “gets the job done” without at least some inkling of the political import of their work. The problem with Obama is not that he and his crew are technocrats; it’s that they aren’t very good technocrats. If they could simply get monetary policy right, this debate would not even be happening. Instead, we’d be talking political strategies for climate change, immigration reform, tax reform, education, and infrastructure improvement.

    Whenever we are debating about whether we are too technocratic, chances are we are actually not technocratic enough–we need to get the policy right and then push the politics forward. The illusion of a “pure” technocracy is an epiphenomenon of the failure of the technocrats.

    This video makes this point much better than I can:

  9. Drizzle says:

    Hey Mike,

    It seems we can come up with a number of definitions of what we mean by neoliberal and certainly can find examples of participants in this debate that use each of these definitions.
    1) A technocrat who puts policy first and trusts that the rest will work itself out or at least doesn’t feel that one should sacrifice policy for any strategic political reasons (as opposed to tactical reasons.
    2) A technocrat who puts policy first because he or she does not feel anyone has crafted a liberal theory of action that promises to be effective or sustainable.
    3) A technocrat who puts policy first and has certain policy preferences shaped by a trust of market based solutions (that may be an overly large amount of trust for market based solutions)
    4) Someone who honestly thinks he or she is favoring non-elite interests but as an elite is incapable of getting past elitist prejudices.
    5) Someone captured by elite interests and with a political theory of action based on and in support of elite interest.
    6) A liberal with a mistrust of the people and populist action that leads to favoring elite policies.
    7) Something else I haven’t thought of.

    I feel Matt would self-describe as 1 or 2 and a plausible critique (though not one that I would agree with) is he is number 3. He has been described in comments at Crooked Timber as 4,5 and 6 (dude, they really don’t like you there. Its kinda nuts). Mike, do any of the above definitions match what you are calling neoliberalism? Also Mike, going back to Glass-Steagall, did neoliberals support it because they were 1 or 2 but made an honest policy mistake, because they were 3 and made a mistake because they had unexamined prejudices in favor of markets or because they were 4 or 5 and naturally support elites?

  10. In reply to MY:

    The dilemma you pose (universalism that delivers less to the poor vs. means-testing that delivers more to the poor) might be an interesting debate in the abstract, but in practice that’s almost never the choice. The actual dilemma that’s most often faced is between (a) a universal program that delivers the same or more to the poor, but for which the politics of passage are more difficult because of the greater fiscal commitment, versus (b) a means-tested program that delivers the same or less to the poor but is easier to pass because of the smaller fiscal commitment. And then, once a program *is* passed, the universal program is usually much easier to defend than the means-tested program. So again it’s a question of politics – it can’t be evaded.

  11. mike shupp says:

    “I think it is safe to say that insisting that the government subsidize the marketplace while privatizing what remains of government production has become a major hallmark of the neoliberal era,”

    That’s a nice summary of Obama-era space policy, now that the last space shuttle has flown. Congratulations.

  12. This is a great antidote to the bland meliorism of market-oriented law & policy types. A few thoughts:

    1) On public and private: These categories seem both fundamental and essentially contested. There are so many examples of privatization, “contracting out,” and the revolving door. Chris Sagers’ article “The Myth of Privatization” (59 Admin. L. Rev. 37) suggests that there is very little difference between “public” and “private:”

    “the basic choice in the organization of society is not between organization by government bureaucracy on one hand, and markets on the other–a choice that is assumed in the privatization literature. Rather, the basic choice is between two kinds of bureaucracy, which really do not differ much at all. Indeed, the chief difference seems to be that one of them lacks even a nominal obligation toward the public interest.”

    Of course, the one which “lacks even a nominal obligation toward the public interest” is also paid far better, in most cases.

    2) Sagers’ bleak assessment rings true in 2011. But was it always thus? Perhaps a few decades earlier, when the shareholder-value revolution was still in its infancy, we could imagine corporations with real (rather than PR campaign-driven) “social responsibility” (ala Rakesh Khuranna’s vision in “From Higher Aims to Hired Hands”). And decades before that, Ford could assert that he could only sell cars if he paid a decent wage to his workers. Neoliberalism helped liquidate that ethic of responsibility toward a community, promising that we could just redistribute after the fact if the chips fell in an unfair way. (Sanchirico’s work has helped show how incoherent that idea is:

    3) Today’s conservatives and centrist Dems believe that a business is legitimate to the extent it is distant from the state. But I find it very difficult to understand how any large business in the following fields can stand on its own two feet, free of state intervention:

    –Finance/Insurance/Real Estate (esp. if we want 30 year mortgages to continue)
    –Health Care (especially insurance and patented pharma and licensed doctors)
    –Telecomm/Internet (at the physical layer, and arguably at other layers)
    –Water, Electricity, Energy
    –Defense/Security/Surveillance/Law Enforcement (or what Bowles and Arjadev call “guard labor”

    That’s a pretty big chunk of the economy, isn’t it?

    4) Inequality changes everything. The “markets first, redistribute later” school made a lot of sense when income disparities were manageable and stable. They are now alarming (77% of national income gains between 2001 and 2007 going to top 1%!) and self-reinforcing. Extreme inequality also vitiates the neoliberal’s plan to redistribute later. Whatever you pay the poor for, say, dental vouchers, they’re not going to mean much if most dentists get paid ten times as much for cosmetic work that’s in demand among those making over $1 million per year, and many other dentists choose to work part time because their partners are very wealthy (I have some more concrete figures in this paper:

    5) International inequality also has to be a key part of “post-neoliberal” liberalism. Tough-minded neoliberals tend to think of the developed world’s middle class as coddled. What Chrystia Freedland christened a “new global elite” casts itself in the Promethean role of bringing justice and fair returns to all:

    “The U.S.-based CEO of one of the world’s largest hedge funds told me that . . . one of his senior colleagues [thinks] the hollowing-out of the American middle class didn’t really matter. . . .I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he’s nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheck than the rest of the world,” he told me. “So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.””

    Note that “we demand” language. He didn’t bother to mention that many Chinese bank CEOs do their job at about one-tenth to one-fiftieth of what our finance titans make. But he certainly was eager to tell the rank and file to work a heckuva lot harder (as I discuss here: To the extent our carbon footprint is embarrassingly large, that makes a little sense. But it doesn’t if you think that most of that “ten times more pay” is going to various overpriced services in the finance/telecom/insurance/health/etc. sectors.

    So the key is for post-neoliberal liberals (neo-neoliberals?) to devise their own narrative about how their policies will ease the plight of the world’s poorest. Massive investment in green energy would be a first step toward redeeming that commitment. We can’t continue, as Lester Brown puts it, to “starve people to fuel our cars.” Less militarism might be another. But until plain old liberals have some kind of narrative of world-progress to match the neoliberals’ illusory one, they can’t cast themselves as part of a larger trend toward global justice.

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  14. it’s disarmingly ironic that not one entry i’ve read across this debate has mentioned either van jones or even in passing.

  15. Matt, here’s a question about macro stabilization which might help crystallize things, though it’s not about current US affairs.

    In a recent post, you followed D. Leonhardt of the NYT in praising Gerhard Schroeder, for basically sacrificing the SPD governing coalition to push through supply-side reforms in the 2000s [1]. Now, this particular example seems to me to raise two important questions for neo-liberals, and I am curious to see what you have to say.

    First, it seems indisputable that labor market rigidities (strict rules about firing, work-share programs, high unemployment benefits, etc.) tend to push the NAIRU higher, and lower growth, even averaged over the business cycle. In fact, neo-liberals have been using this very argument since the ’80s against all of these things.

    But notice that these things are examples of what people these days call automatic stabilizers, and claim we need more of in order to smooth out the business cycle. You make this argument in other posts too. And I agree! But is this a change of mind on the part of neo-liberals? After all, smoothing out the business cycle might mean a loss in efficiency, and lower trend growth.

    Second, this seems to me to link up to Farrell’s question too. It was totally predictable that Schroeder’s coalition would shatter if he tried to push his reforms through (in fact it was widely predicted). But was it worth it? I think most lefties would say not (in fact, my German friends abandoned the SPD for Linke at just that time). But getting rid of labor-marker rigidities was a favorite theme of neo-liberals since the ’80s, and up until now. So is your considered position really that this was the right call?

    [1] Schroeder did this in response to a recession, of course. So it was an example of contracting (or, actually, not expanding very much) in the face of a drop in demand — something which, as you point out, even most neo-liberals would not recommend today. And in fact the evidence that this made a big difference in Germany’s recovery seems quite weak, as German labor costs did not go down almost at all. It is much more likely, I think, that the recovery of the German export sector was due to the credit booms of its trading partners.

  16. Magpie says:

    This is not one of your best posts (and you had some excellent ones).

    Some other posters have already made the connection neoliberal-technocrat; I fully agree with them and, as a matter of fact, believe they have nailed it: the term technocrat is much more useful than the ill defined neoliberal.

    Apart from the fact, already mentioned, that there is no politically neutral technocrat, there is the fact that policies affect interests differently: progressive taxes, for example, imply income re-distribution in one direction; regressive taxes also imply income re-distribution, but in the opposite direction.

    Affected groups would try to intervene in the policy-making process. And they do: you have mentioned this topic repeatedly in these pages.

    If all groups had equal access to power, they could counterbalance each other.

    But not all groups were created equal and not all groups have equal access to power and/or opinion makers. Let me make up a name… what about News International? Or another fantasy name… Fox News?

    That’s where a political theory comes in. And that’s what you left out.

    Think about it: technocrats usually work for the government as career public servants, they are not the ones holding the title of President or Secretary; they don’t make the laws.

  17. Drizzle says:

    In reply to Frank Pasquale

    1) I think you misrepresent things when saying privatized programs duplicate the structures of the original. I feel that the examples of private provision of public services demonstrate an attempt to jettison parts of the old structure and certainly don’t look the same. Look at Section 8 housing vouchers v. public housing projects–I don’t think you’d agree that they have the same bureaucratic profile. An while I agree that some landlords don’t have “even a nominal obligation toward the public interest”, the argument is that the beneficiary now is better empowered to look to his or her own benefits and can add more accountability through that. Now, providing housing for the poor through dispersed private sector means may have the effect of preventing “the public aligning with government services as a political bloc” and instead having “privatization and subsidies form a coordination device for private firms.” So the liberal perspective might say that the neoliberals have erred in supporting Section 8 because it hurts the organizing necessary for future liberal victories.

    2) Just to nitpick, all those industries exist in some form in places with much more limited states. But you are correct that none would exist in anything close to the form they have in the US without the substantial government intervention that occurs. That being said, I don’t think neoliberals would disagree–at least the sample individuals, Matt Yglesias and Brad Delong, agree with your point and while you may differ on how much intervention is needed or what kind would work best, would agree that government has a role in shaping those markets and those industries.

    3) What is the progressive plan for extreme inequality? Why would a hypothetical neoliberal plan to have a very progressive tax system with a substantial EITC component be unworkable? Going to the dental voucher example, the neoliberal (or at least Matt Yglesias) approach would argue that part of the problem is supply side cartelization and we need more dental hygienists and more freedom to use dental hygienists to ensure adequate supply.

    • 1) Sure–I should not have tried to paint with too broad a brush. Housing is a great example where a decentralized voucher program could work much better than, say, Le Corbusier-designed, state-owned banlieues.

      2) As for these state-intensive industries: I think where I part ways with the neoliberals is that I am much more interested in pervasively reforming these industries to reflect public values and the public’s contribution to their overall well-being. Delong is willing to “go there” in the defense sector (if I am reading The End of Influence’s praise of industrial policy-via-defense spending right), and so are some strategic thinkers at the Pentagon ( All of the authors you cite “get it” when it comes to health care, too. But consider this post from Yglesias:

      He is essentially arguing that MS just shut down “loser” divisions and raise its dividends. But he ought to complete some sort of “Inequality Impact statement” before proposing that.. Stocks shares in general are concentrated among the wealthy: the top 1% own about 40% of shares, and the top 20% control 90% of shares. Is a tripled dividend enriching this crowd really going to lead to investment that moves the laid off MS people to higher and better uses of their skills? Or will it get redeployed toward buying more shares of other companies, or gold, or real estate?

      If Yglesias does not have an estimate of where these flows of dividends ultimately go, he can’t justify sanguine advice to big firms to “cut fat” and focus on profit centers. I have a sense that the dividends increasingly go into a “closed circuit” of spending among the wealthy: (Moreover, how does Yglesias value Bing? Some estimate that MS loses about $2 billion trying to build a viable competitor to Google’s general purpose search engine. That competition at least keeps Google on its toes, even if it ultimately fails to win any market share. Does a neoliberal have a way of valuing that?

      I don’t think more trade will improve things much in health care, contra Dean Baker, though that’s another post.

      3) As for a “hypothetical neoliberal plan to have a very progressive tax system with a substantial EITC component.” I’d be for this. But I also think that progressives need to take on the big picture questions of ecological change and zero-sum consumption of resources. If beneficiaries of the hypothetical “very progressive tax system” are focusing spending on SUVs, we’ve still got the “starving the LDCs to feed the developed world’s cars” problem.

      Government support for the “value cycles” that Umair Haque describes (which try to recycle and reuse as much raw material as possible) is also important. The EU has mandatory takeback of many electronics, which leads their manufacturers to think more carefully about how they are constructed, and how components can be reused. I think the canonical neoliberal statement on e-waste comes from our most august neoliberal Democrat: dump the toxins where the poorest people live ( Though of course I’ve also heard he’s said that was all a joke.

      • Drizzle says:

        And of course I picked housing because I think that’s an example where the neoliberal market model really improved things. I think maybe it would be helpful for people to think about market based solutions in terms of accountability.The public housing provider was not accountable to the people who needed housing, private sector housing providers are accountable (to some degree) because those people have other options. Charter schools are similarly hoped to bring accountability. This raises two points.

        1) Broad based programs may serve people with enough political clout that there is more accountability for publicly-provided benefits. U.S. schools may not be the be all and end all of a well-run system but they are miles better than our venture into public housing. That is because there are strong constituencies in parents that are able to organize and demand reforms. Think about the uproar if people had to take a drug test to access Social Security and compare that to the lack of uproar with mandating drug tests for food stamps.

        2) I’d argue that competition only improves outcomes when there is accountability. The competitive bidding process, such as for private prisons, does not seem to include accountability and I think that helps explain why those efforts don’t seem to have the improving effects that people hope for (not that the publicly-run corrections facilities have a ton of accountability either so maybe its a wash).

  18. The dilemma you pose (universalism that delivers less to the poor vs. means-testing that delivers more to the poor) might be an interesting debate in the abstract, but in practice that’s almost never the choice.

    Sure, but hypothetical scenarios and thought experiments help us to understand what the real source of the disagreement is. Mike has posited the existence of an important disagreement of principle regarding universal vs means-tested programs so I think it’s important to draw out what the real nature of the disagreement is.

    Imagine John Boehner is willing to make some important concession on income taxes or environmental regulation or immigration policy, but in exchange is demanding a one percent cut in Social Security benefits. To make the dialogue productive, you just have to imagine that the concession is something very important to you — something good enough that you’re willing to trade it for a 1% cut. My view is that *if* we decide the deal is worth taking, then the best thing to do is to try to make sure that the one percent cut takes the form of means-testing in order to safeguard the interests of the neediest. A hypothetical alternative view is that the best thing to do is to try to make sure that the one percent cut is implemented in an across-the-board way in order to safeguard the principle of universality. If it’s true that left-wing critics of neoliberalism would prefer the second option here then it seems to me that we have a clear point of disagreement that we can debate. But thus far, the entire controversy strikes me as marred by a lack of precision.

    • Matt, thanks, I think your example moves in a helpful direction. However, it is still underspecified, and I would say that the answer has to be “it depends”. If you judge that the forces lined up against Social Security would be strengthened by making Social Security less relevant to upper-middle class people, then perhaps you’d have to go for the universal cut rather than means-testing.

      But I think that you are somewhat missing the point. People are not complaining about some platonic ideal of neo-liberalism. Neo-liberalism has been a dominant force in let politics, and we have concrete examples of controversies on the left that pitted neo-liberals against others. This is the history that is motivating this debate. Some examples:

      * Labor-market reforms to increase flexibility (getting rid of rules for firing people, slashing minimum wages, slashing unemployment benefits).

      * Welfare reform

      *Free trade

      All of these were controversial issues on which neo-liberals argued that short-term pain for the working-class would be compensated by higher growth for everyone, and higher tax revenues would make possible better public services, as well as allow for some redistribution. Neo-liberals largely won, in the US and in Europe alike. Critics of neo-liberalism say that one side-effect of the process was to weaken the coalition on the left, leading many people to the arms of right-wing populism, xenophobia etc, while in the meantime the winners of the process used their gains to increase their political influence and tilt the equilibrium further to the right. In the end, this political reallignment meant that the benefits of growth were not redistributed.

      This is the telling of recent history (I suppose from 1980 to today?) that critics of neo-liberalism want to discuss.

    • Petey says:

      “My view is that *if* we decide the deal is worth taking, then the best thing to do is to try to make sure that the one percent cut takes the form of means-testing in order to safeguard the interests of the neediest.”

      Indeed, this is your view, Matt. You are willing to trade the political sustainability of social safety net programs by picking a 1% cut over the universality of the programs.

      This seems to fit in quite well with the rest of your entire political agenda.

      “But thus far, the entire controversy strikes me as marred by a lack of precision.”

      I think there is plenty of precision here, which is precisely what bothers you. You prefer “poor programs for the poor” over universal programs, and you (correctly) understand the unpalatability of your position to the side of the political spectrum in which you currently make your camp.

      Precision is your enemy here, and you seem quite well aware of that.

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  20. I think this really mischaracterizes Mike’s argument. He said: “I tend to think that there’s been too much focus on what I like to call a pity-charity liberalism, where the conceptual project of the welfare state is to compensate the losers of society rather than broadly empower citizens.” He was criticizing a certain “conceptual project of the welfare state” — not making an argument about how many units of means-testing to sacrifice for an additional unit of universalism. I suspect it would be easy to document his claim with plentiful quotes from neoliberals – politicians, journalists, advocates, etc. You might object that “conceptual projects” are irrelevant verbiage, that in the real world what we face are hard policy trade-offs between so many units of this so many units of that. But then I’d ask you to consider what forces determine the particular trade-offs that we end up being faced with at a particular historical moment – and why the trade-offs currently on offer are so appalling. And then we come back to politics, and the unappealing conceptual project of pity-charity liberalism.

  21. Drizzle says:

    How much of the argument against pity charity is on process and not on substance? So making people go through miles of paperwork, affirm X, Y and Z, take drug tests, etc. seems to me to be the essence of the issue of “shameful revelations”. Would a larger tax on high-earners and a larger EITC and/or straight cash subsidies for low-earners with no more strings attached than a typical tax return be a problematic type of pity charity? Thus we can empower people in low-skill low-pay jobs to have access to a higher standard of living with arguably fewer disruptive consequences than say creating salary caps or raising the minimum wage.

  22. Shane says:

    Even with the rather sound definition of neoliberalism offered by Mike, I still think that in practice there are many neoliberal policies that are arguably muc more progressive than their standard liberal alternatives

    1. Monetary policy. It’s not that there’s anything wrong with fiscal policy, but it can’t produce the increase in AD by itself to return an economy to full employment. But the left largely rejects it because it is neoliberal and goes through the hated banking sector.

    2. Public housing. The disastrous failure of public housing developments is a clear instance of a case in which it is much better to provide subsidies to pay market rents than for the government to run things themselves. Direct ownership creates a highly pernicious ghettoizing effect.

    3. Health care. Most would agree that the French system of private providers and public payers is better than the British system of full government ownership.

    4. Education? Can we really say that single payer secondary education–private ownership of schools, with the government paying a standard per pupil fee that parents cannot add on to, a system common in Scandinavia–is any less progressive than American system of full government ownership?

  23. Shane says:

    Those are all examples of using neoliberal technique 1–privatization–to achieve liberal goal 2–a broad-based coalition in support of public supply of goods that the market naturally under supplies. In all these instances, direct public ownership/management backfires, because it degenerates into a narrow pity-charity liberalism as the middle class flees to private schools, private hospitals, and neighborhoods far away from public housing.

    What about achieving liberal goal 2 through techniques 3 and 4 (free markets and supply-side policies)? The perfect example would be drug legalization.

    From the neoliberal point of view, the problem with current policy is that it causes a supply-shortage in order to head off undesirable outcomes. The solution is both supply-side and more free market than current policy: we eliminate the blanket prohibition while pricing drugs through taxes at a level consistent with the social harms they create (taking into account that an overly inflated price creates social harms in the form of smuggling and/or addiction-driven property crimes). We are no longer directing the market toward certain outcomes (artificial under supply) but rather using tax revenues generated to clean up some of the negative effects of drug use after the fact.

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  27. Misaki says:

    In response to this article:

    Given that the state is going to provide some sort of primary good to citizens, should it provide it directly or subsidize purchases in the marketplace?

    Some goods are better provided by government, for the simple reason that people responsible for the provision of those goods will perform better when there is a direct link to elements of authority in society with high public exposure. In a democracy this translates to changes in voting in response to perceived quality of the public good, while in other forms of government it translates to other forms of feedback by enlisting the support of other people who have a certain expectation for what the government will provide, even if such goals must be accomplished by threats of violence or revolution. When provided by markets, there is less certainty that a given level of quality for the good will be maintained due to the perception of alternate suppliers of that good, which can decrease the care of the actual individuals supplying that good toward maintaining sufficient real and perceived quality.

    Thus, for example, it was private security contractors that shot and killed 17 Iraqi civilians in broad daylight, not the US military, because the lower public exposure of the mercenary group led some members to assume that they were afforded a degree of freedom of action not available to people in official military service.

    However, while governments in previous years had a clear idea of what the government could efficiently provide, the market failures leading up to the first great depression and the desire to avoid communist revolution led to a change in perceived role of government in redistributing wealth and level of direct involvement in the economy. An economy that could efficiently distribute both resources and costs would, consequently, allow a reduction in government size. Might as well link it at this point as well… how to do this, in one step:

    Who Does the Welfare State Work For and Why?

    That depends on the goals of people in the economy.

    If people want to feel good because they have a high income while supporting the unemployed and poor with taxes (either on workers or on the corporations and wealthy who receive much of the profits from work), then the welfare state is for the poor. If people do not want a “welfare state” and prefer that everyone who is able to work has a job instead of living off of welfare, then welfare is for everyone. In other words, if people prefer to work at current levels and pay high prices for iPods, and by doing so prevent part of the population from finding employment, instead of working lesser amounts and either forgoing a marginal iPod or buying one at a lower price due to the changed demand curve, then maintaining the welfare state for the poor will allow them to keep buying iPods at high prices as they desire.

    As for intervening in markets and financial instability, this is mostly just a problem because of jobs. Again, corporate profits are doing just fine, see iPods again or the report mentioned on the NYT Economix blog (88% of growth going to corporate profits, 1% to wages and salaries). So the most obvious way to fix employment without government spending would not only decrease the importance of the failure of any large financial institutions which took on too much risk, but would also decrease the amount of money for them to play with in the first place and consequently the amount of chaos that uninformed people can cause by inadvertently giving smarter people all their money.

    Creating more regulations and laws is another option, but as pointed out elsewhere (can’t remember where) there were plenty of regulations on various stuff before the financial crash, and an entire company of 200 people dedicated solely to looking at Fannie Mae or whatever, and the bubble still happened (as a way of getting out of the previous recession? whatever) so this might not accomplish what people might hope it would.

    While a large part of modern governments might be ensuring that standards of living, economic opportunity, and basic necessities are provided to the point that people don’t feel the need for revolution and destroying or taking over existing capital and wealth ownership, this is mostly only necessary because of oversupply of labour; and to link it once again, this does not need to be a problem if people don’t want it to be.

    We have a genuine, full-blown demand crisis on our hands. But our neoliberal policy advisors are looking to provide confidence to the bond market and are telling the unemployed to start taking night classes to get us out of this mess.

    If it’s a crisis, people don’t seem to be treating it like one… or else they would take seriously ways to fix the source of that crisis. And many of the job prospects for people with education are only signalling with people with education in direct competition for those without, meaning that taking night classes will only change who is employed and not the total number of jobs:

    Currently, even after a slight boost in jobs growth, unemployment for 18-24 year olds stands at 24.7%. For 20-24 year olds, it hovers at 15.2%. These conservative estimates, using the Bureau of Labor Statistics U3 measure, do not reflect the number of marginally attached or discouraged young workers feeling the lag from a nearly moribund job market.

    The U3 measure also does not count underemployment, yet with only 50% of B.A. holders able to find jobs requiring such a degree, underemployment rates are a telling index of the squeezing of the 18-30 year old Millennial generation.
    (Nov 2010, linked from econfuture)

    On the other hand, liberals know that demand needs to get moving in order to get our economy working again, and it needs to fire on all cylinders: stimulus in the form of public works and job programs, monetary policy in the form of QE3, and the writing down of bad debt.

    I suppose the fact that the majority of the general population is opposed to more spending to create jobs is irrelevant. But the economy is doing fine anyway, at least in the sale of iPods! Maybe with more fiscal stimulus Apple Inc. can exceed their record profits from the last quarter!

    This has been longer than I expected. The main reason I intended to comment was to question how to make economists understand the importance of the composition of consumer spending between products of lower or higher quality, and not just its total dollar value, since it seems that roughly 0% of economists have an intuitive understanding of this distinction or its implications for the available options to decrease unemployment without government spending.

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  34. ed says:

    One of the most dispiriting aspects of the public debate over social programs has been the tendency you identified of describing Social Safety net programs as meant for the less fortunate. Republicans and New Democrats can slyly get their empathy cred by reaffirming their commitment to helping the losers, while more traditional liberals perhaps don’t even notice the slight yet profound shift in the rhetorical frame. In practical terms, the second we start means-testing programs like Medicare and Social Security, they are done for.

    The same principle ensured strong worker protections and greater cohesion between labor and management in the heyday of unionized manufacturing. My grandfather was a middle-manager at Firestone, but because the compensation and benefits of both management and assembly-line worker were negotiated together, he had a practical and cultural affinity for those under him. It really was a case of rising tide lifting all boats.

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