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 (I, II), Will Wilkinson, Kevin Drum, Matt Yglesias, The American Scene, Jacobin (I, II), Arin Dube, Brad Delong, JW Mason/Pitkin with good comments (I, II), Corey Robin, Elias 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.