Everybody seems to be worked up about “neoliberalism” these days. A review of Quinn Slobodian’s new book on the Austrian (or perhaps the Austro-Hungarian) roots of neoliberalism in the New Republic by Patrick Iber reminded me that the term “neoliberalism” which, in my own faulty recollection, came into somewhat popular usage only in the early 1980s, had actually been coined in the early the late 1930s at the now almost legendary Colloque Walter Lippmann and had actually been used by Hayek in at least one of his political essays in the 1940s. In that usage the point of neoliberalism was to revise and update the classical nineteenth-century liberalism that seemed to have run aground in the Great Depression, when the attempt to resurrect and restore what had been widely – and in my view mistakenly – regarded as an essential pillar of the nineteenth-century liberal order – the international gold standard – collapsed in an epic international catastrophe. The new liberalism was supposed to be a kinder and gentler — less relentlessly laissez-faire – version of the old liberalism, more amenable to interventions to aid the less well-off and to social-insurance programs providing a safety net to cushion individuals against the economic risks of modern capitalism, while preserving the social benefits and efficiencies of a market economy based on private property and voluntary exchange.
Any memory of Hayek’s use of “neo-liberalism” was blotted out by the subsequent use of the term to describe the unorthodox efforts of two young ambitious Democratic politicians, Bill Bradley and Dick Gephardt to promote tax reform. Bradley, who was then a first-term Senator from New Jersey, having graduated directly from NBA stardom to the US Senate in 1978, and Gephardt, then an obscure young Congressman from Missouri, made a splash in the first term of the Reagan administration by proposing to cut income tax rates well below the rates to which Reagan had proposed when running for President, in 1980, subsequently enacted early in his first term. Bradley and Gephardt proposed cutting the top federal income tax bracket from the new 50% rate to the then almost unfathomable 30%. What made the Bradley-Gephardt proposal liberal was the idea that special-interest tax exemptions would be eliminated, so that the reduced rates would not mean a loss of tax revenue, while making the tax system less intrusive on private decision-making, improving economic efficiency. Despite cutting the top rate, Bradley and Gephardt retained the principle of progressivity by reducing the entire rate structure from top to bottom while eliminating tax deductions and tax shelters.
Here is how David Ignatius described Bradley’s role in achieving the 1986 tax reform in the Washington Post (May 18, 1986)
Bradley’s intellectual breakthrough on tax reform was to combine the traditional liberal approach — closing loopholes that benefit mainly the rich — with the supply-side conservatives’ demand for lower marginal tax rates. The result was Bradley’s 1982 “Fair Tax” plan, which proposed removing many tax preferences and simplifying the tax code with just three rates: 14 percent, 26 percent and 30 percent. Most subsequent reform plans, including the measure that passed the Senate Finance Committee this month, were modelled on Bradley’s.
The Fair Tax was an example of what Democrats have been looking for — mostly without success — for much of the last decade. It synthesized liberal and conservative ideas in a new package that could appeal to middle-class Americans. As Bradley noted in an interview this week, the proposal offered “lower rates for the middle-income people who are the backbone of America, who are paying most of the freight.” And who, it might be added, increasingly have been voting Republican in recent presidential elections.
The Bradley proposal also offered Democrats a way to shed their anti-growth, tax-and-spend image by allowing them, as Bradley says, “to advocate economic growth and fairness simultaneously.” The only problem with the idea was that it challenged the party’s penchant for soak-the-rich rhetoric and interest-group politics.
So the new liberalism of Bradley and Gephardt was an ideological movement in the opposite direction from that of the earlier version of neoliberalism; the point of neoliberalism 1.0 was to moderate classical laissez-faire liberal orthodoxy; neoliberalism 2.0 aimed to counter the knee-jerk interventionism of New Deal liberalism that favored highly progressive income taxation to redistribute income from rich to poor and price ceilings and controls to protect the poor from exploitation by ruthless capitalists and greedy landlords and as an anti-inflation policy. The impetus for reassessing mid-twentieth-century American liberalism was the evident failure in the 1970s of wage and price controls, which had been supported with little evidence of embarrassment by most Democratic economists (with the notable exception of James Tobin) when imposed by Nixon in 1971, and by the decade-long rotting residue of Nixon’s controls — controls on crude oil and gasoline prices — finally scrapped by Reagan in 1981.
Although the neoliberalism 2.0 enjoyed considerable short-term success, eventually providing the template for the 1986 Reagan tax reform, and establishing Bradley and Gephardt as major figures in the Democratic Party, neoliberalism 2.0 was never embraced by the Democratic grassroots. Gephardt himself abandoned the neo-liberal banner in 1988 when he ran for President as a protectionist, pro-Labor Democrat, providing the eventual nominee, the mildly neoliberalish Michael Dukakis, with plenty of material with which to portray Gephardt as a flip-flopper. But Dukasis’s own failure in the general election did little to enhance the prospects of neoliberalism as a winning electoral strategy. The Democratic acceptance of low marginal tax rates in exchange for eliminating tax breaks, exemptions and shelters was short-lived, and Bradley himself abandoned the approach in 2000 when he ran for the Democratic Presidential nomination from the left against Al Gore.
So the notion that “neoliberalism” has any definite meaning is as misguided as the notion that “liberalism” has any definite meaning. “Neoliberalism” now serves primarily as a term of abuse for leftists to impugn the motives of their ideological and political opponents in exactly the same way that right-wingers use “liberal” as a term of abuse — there are so many of course — with which to dismiss and denigrate their ideological and political opponents. That archetypical classical liberal Ludwig von Mises was openly contemptuous of the neoliberalism that emerged from the Colloque Walter Lipmann and of its later offspring Ordoliberalism (frequently described as the Germanic version of neoliberalism) referring to it as “neo-interventionism.” Similarly, modern liberals who view themselves as upholders of New Deal liberalism deploy “neoliberalism” as a useful pejorative epithet with which to cast a rhetorical cloud over those sharing a not so dissimilar political background or outlook but who are more willing to tolerate the outcomes of market forces than they are.
There are many liberalisms and perhaps almost as many neoliberalisms, so it’s pointless and futile to argue about which is the true or legitimate meaning of “liberalism.” However, one can at least say about the two versions of neoliberalism that I’ve mentioned that they were attempts to moderate more extreme versions of liberalism and to move toward the ideological middle of the road: from the extreme laissez-faire of classical liberalism on the one right and from the dirigisme of the New Deal on the left toward – pardon the cliché – a third way in the center.
But despite my disclaimer that there is no fixed, essential, meaning of “liberalism,” I want to suggest that it is possible to find some common thread that unites many, if not all, of the disparate strands of liberalism. I think it’s important to do so, because it wasn’t so long ago that even conservatives were able to speak approvingly about the “liberal democratic” international order that was created, largely thanks to American leadership, in the post-World War II era. That time is now unfortunately past, but it’s still worth remembering that it once was possible to agree that “liberal” did correspond to an admirable political ideal.
The deep underlying principle that I think reconciles the different strands of the best versions of liberalism is a version of Kant’s categorical imperative: treat every individual as an end not a means. Individuals must not be used merely as tools or instruments with which other individuals or groups satisfy their own purposes. If you want someone else to serve you in accomplishing your ends, that other person must provide that assistance to you voluntarily not because you require him to do so. If you want that assistance you must secure it not by command but by persuasion. Persuasion can be secured in two ways, either by argument — persuading the other person to share your objective — or if you can’t, or won’t, persuade the person to share your objective, you can still secure his or her agreement to help you by offering some form of compensation to induce the person to provide you the services you desire.
The principle has an obvious libertarian interpretation: all cooperation is secured through voluntary agreements between autonomous agents. Force and fraud are impermissible. But the Kantian ideal doesn’t necessarily imply a strictly libertarian political system. The choices of autonomous agents can — actually must — be restricted by a set of legal rules governing the conduct of those agents. And the content of those legal rules must be worked out either by legislation or by an evolutionary process of common law adjudication or some combination of the two. The content of those rules needn’t satisfy a libertarian laissez-faire standard. Rather the liberal standard that legal rules must satisfy is that they don’t prescribe or impose ends, goals, or purposes that must be pursued by autonomous agents, but simply govern the means agents can employ in pursuing their objectives.
Legal rules of conduct are like semantic rules of grammar. Like rules of grammar that don’t dictate the ideas or thoughts expressed in speech or writing, only the manner of their expression, rules of conduct don’t specify the objectives that agents seek to achieve, only the acceptable means of accomplishing those objectives. The rules of conduct need not be libertarian; some choices may be ruled out for reasons of ethics or morality or expediency or the common good. What makes the rules liberal is that they apply equally to all citizens, and that the rules allow sufficient space to agents to conduct their own lives according to their own purposes, goals, preferences, and values.
In other words, the rule of law — not the rule of particular groups, classes, occupations — prevails. Agents are subject to an impartial legal standard, not to the will or command of another agent, or of the ruler. And for this to be the case, the ruler himself must be subject to the law. But within this framework of law that imposes no common goals and purposes on agents, a good deal of collective action to provide for common purposes — far beyond the narrow boundaries of laissez-faire doctrine — is possible. Citizens can be taxed to pay for a wide range of public services that the public, through its elected representatives, decides to provide. Those elected representatives can enact legislation that governs the conduct of individuals as long as the legislation does not treat individuals differently based on irrelevant distinctions or based on criteria that disadvantage certain people unfairly.
My view that the rule of law, not laissez-faire, not income redistribution, is the fundamental value and foundation of liberalism is a view that I learned from Hayek, who, in his later life was as much a legal philosopher as an economist, but it is a view that John Rawls, Ronald Dworkin on the left, and Michael Oakeshott on the right, also shared. Hayek, indeed, went so far as to say that he was fundamentally in accord with Rawls’s magnum opus A Theory of Justice, which was supposed to have provided a philosophical justification for modern welfare-state liberalism. Liberalism is a big tent, and it can accommodate a wide range of conflicting views on economic and even social policy. What sets liberalism apart is a respect for and commitment to the rule of law and due process, a commitment that ought to take precedence over any specific policy goal or preference.
But here’s the problem. If the ruler can also make or change the laws, the ruler is not really bound by the laws, because the ruler can change the law to permit any action that the ruler wants to take. How then is the rule of law consistent with a ruler that is empowered to make the law to which he is supposedly subject. That is the dilemma that every liberal state must cope with. And for Hayek, at least, the issue was especially problematic in connection with taxation.
With the possible exception of inflation, what concerned Hayek most about modern welfare-state policies was the highly progressive income-tax regimes that western countries had adopted in the mid-twentieth century. By almost any reasonable standard, top marginal income-tax rates were way too high in the mid-twentieth century, and the economic case for reducing the top rates was compelling when reducing the top rates would likely entail little, if any, net revenue loss. As a matter of optics, reductions in the top marginal rates had to be coupled with reductions of lower tax brackets which did entail revenue losses, but reforming an overly progressive tax system without a substantial revenue loss was not that hard to do.
But Hayek’s argument against highly progressive income tax rates was based more on principle than on expediency. Hayek regarded steeply progressive income tax rates as inherently discriminatory by imposing a disproportionate burden on a minority — the wealthy — of the population. Hayek did not oppose modest progressivity to ease the tax burden on the least well-off, viewing such progressivity treating as a legitimate concession that a well-off majority could allow to a less-well-off minority. But he greatly feared attempts by the majority to shift the burden of taxation onto a well-off minority, viewing that kind of progressivity as a kind of legalized hold-up, whereby the majority uses its control of the legislature to write the rules to their own advantage at the expense of the minority.
While Hayek’s concern that a wealthy minority could be plundered by a greedy majority seems plausible, a concern bolstered by the unreasonably high top marginal rates that were in place when he wrote, he overstated his case in arguing that high marginal rates were, in and of themselves, unequal treatment. Certainly it would be discriminatory if different tax rates applied to people because of their religion or national origin or for reasons unrelated to income, but even a highly progressive income tax can’t be discriminatory on its face, as Hayek alleged, when the progressivity is embedded in a schedule of rates applicable to everyone that reaches specified income thresholds.
There are other reasons to think that Hayek went too far in his opposition to progressive tax rates. First, he assumed that earned income accurately measures the value of the incremental contribution to social output. But Hayek overlooked that much of earned income reflects either rents that are unnecessary to call forth the efforts required to earn that income, in which case increasing the marginal tax rate on such earnings does not diminish effort and output. We also know as a result of a classic 1971 paper by Jack Hirshleifer that earned incomes often do not correspond to net social output. For example, incomes earned by stock and commodity traders reflect only in part incremental contributions to social output; they also reflect losses incurred by other traders. So resources devoted to acquiring information with which to make better predictions of future prices add less to output than those resources are worth, implying a net reduction in total output. Insofar as earned incomes reflect not incremental contributions to social output but income transfers from other individuals, raising taxes on those incomes can actually increase aggregate output.
So the economic case for reducing marginal tax rates is not necessarily more compelling than the philosophical case, and the economic arguments certainly seem less compelling than they did some three decades ago when Bill Bradley, in his youthful neoliberal enthusiasm, argued eloquently for drastically reducing marginal rates while broadening the tax base. Supporters of reducing marginal tax rates still like to point to the dynamic benefits of increasing incentives to work and invest, but they don’t acknowledge that earned income does not necessarily correspond closely to net contributions to aggregate output.
Drastically reducing the top marginal rate from 70% to 28% within five years, greatly increased the incentive to earn high incomes. The taxation of high incomes having been reducing so drastically, the number of people earning very high incomes since 1986 has grown very rapidly. Does that increase in the number of people earning very high incomes reflect an improvement in the overall economy, or does it reflect a shift in the occupational choices of talented people? Since the increase in very high incomes has not been associated with an increase in the overall rate of economic growth, it hardly seems obvious that the increase in the number of people earning very high incomes is closely correlated with the overall performance of the economy. I suspect rather that the opportunity to earn and retain very high incomes has attracted a many very talented people into occupations, like financial management, venture capital, investment banking, and real-estate brokerage, in which high incomes are being earned, with correspondingly fewer people choosing to enter less lucrative occupations. And if, as I suggested above, these occupations in which high incomes are being earned often contribute less to total output than lower-paying occupations, the increased opportunity to earn high incomes has actually reduced overall economic productivity.
Perhaps the greatest effect of reducing marginal income tax rates has been sociological. I conjecture that, as a consequence of reduced marginal income tax rates, the social status and prestige of people earning high incomes has risen, as has the social acceptability of conspicuous — even brazen — public displays of wealth. The presumption that those who have earned high incomes and amassed great fortunes are morally deserving of those fortunes, and therefore entitled to deference and respect on account of their wealth alone, a presumption that Hayek himself warned against, seems to be much more widely held now than it was forty or fifty years ago. Others may take a different view, but I find this shift towards increased respect and admiration for the wealthy, curiously combined with a supposedly populist political environment, to be decidedly unedifying.
Uneasy Money 
You do not have to be an economist to look around the world and see that unregulated, free-market capitalism is not the sine qua non of economic prosperity and social wellbeing. All of the most prosperous countries of the world, especially in North America and Western Europe, contain significant and essential elements of what right-wing ideologues call socialism with a major portion of their economies dominated by government. Not only do they all have government provided public infrastructure (things like roads and highways, ports and airports, public health and sanitation, legal and criminal justice systems, and public education), they all have government provided social-insurance programs such as Social Security, government provided healthcare, unemployment compensation, and welfare assistance for the less fortunate. At the same time, the vast majority of people who live in non-‘socialist’ countries live in abject poverty. The fundamental difference between the prosperous and free, and the impoverished and enslaved throughout the world is the quality of their governments.
The fact that all of the economic powerhouses have a substantial portion of the economies dominated by government is no accident. A capitalist system cannot prosper without government provided public infrastructure and social insurance…. http://www.rweconomics.com/IVR.htm
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I find this shift towards increased respect and admiration for the wealthy, curiously combined with a supposedly populist political environment, to be decidedly unedifying.–David G
I have been wondering about this too.
Maybe athletes, celebrities, the Steve Jobs and Elon Musks are perceived to have earned their money…but a globalist establishment that wants to offshore jobs and import cheap labor is bad.
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David,
You might find of interest a recent piece of mine on, “Neo-Liberalism: From Laissez-faire to the Interventionist State,” which focuses on the discussions during the Walter Lippmann Colloquium in 1938.
https://www.fff.org/explore-freedom/article/neo-liberalism-laissez-faire-interventionist-state/
And this other piece on, “The Political and Economic Mystiques of the Interventionist State,” which discusses some of the writings in the 1930s of Louis Rougier, who coordinated the Lippmann Colloquium in Paris.
https://www.fff.org/explore-freedom/article/political-economic-mystiques-state-power/
By the way, I always find your blog posts informative and thought-provoking. Thank you for taking so much time and care with them. One of my favorite works by Hawtrey is his 1927, “The Economic Problem.”
Best,
Richard Ebeling
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It was interesting to read here about the political economy roots of neo-liberalism. I think in political science courses it became something very closely associated with globalisation, and in first and second year undergraduate political science and international relations textbooks Francis Fukuyama is mentioned as the most representative neo-liberal. On the economic front there seemed to be a consensus that the market mechanism was the most efficient means of allocating resources, but there needed to be a minimum welfare safety net. Important was link he made between capitalism and democracy. Soft-power, and the spread of international capitalism would result in democratisation. A capitalist market economy and democratic system was the evolutionary endpoint – Fukuyama’s ” end of history”. A key assumption was universal (as opposed to relative) values. Neo-liberals were often socially liberal (eg minority and women’s rights, and pro-diversity) and also pro-globalisation (they opposed trade, capital and immigration controls) because they believed that they infringed on individual freedoms and distorted the market mechanism. Like neo-classical economists they did not like any type of price controls, but evoked when necessary the Second Welfare Theorem.
Foreign Policy was paramount. Trade agreements, were really ultimately about national security goals. I would argue that neo-classical economic theory and econometric models were used to make the case for further trade or other such deregulation – in fact I saw this with my own eyes. Foreign policy was generally close to the heads of state and run from Prime Minister’s offices. Even after the Asian Financial Crisis, Neo-liberalism was still strong, with Stanley Fischer arguing that further deregulation and privatisation policies were necessary (even if loose capital controls were part of the original problem). But I think this reflected, not only the zeitgeist of the time, but strong US foreign policy imperatives.
Neo-liberalism has suffered a number of blows since its heyday at the time of the fall of the Berlin Wall. The Financial Crisis which hit rich and powerful countries was one. But another was the fact that in China, market liberalisation has not been followed by democratisation. Privatisation and other such policies in Russia ultimately failed and played to the nationalists. The Arab Spring was a further blow to Fukuyama’s thesis.
We we see some softening of neo-liberalism. First capital controls have been accepted, even now by the IMF, as not always bad. Now there is even talk about the adverse effects of free trade and Chinese exports. Next might be questions about the freedom of labour flows – we have seen a little bit of this in Britain after the Brexit result. There is also evidence of a growing realisation among the establishment (but something long well-known to historians) that even price controls are not always bad. Collective bargaining works in many of the most successful countries, and Alice Amsden was merely reflecting the knowledge of many country specialists when she said the key to the success of the Asian Tigers was that they, through price controls and stabilisation policies, “got prices wrong”. In emerging markets in particular, there is a case for keeping certain key commodities, such as water, fuels or rice, at below market prices and banning their export. Some of the arguments for the reasons of the failure of democratisation efforts in the Middle East have not been ideological or to do with religion, but the result of the lack of ability of leaders to control price rises for bread.
NK.
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Yet another interesting post sir. Thank you.
Regarding definitions, I recently came across this passage, from political scientist E. N. Megay back in 1970:
“[L]iberalism is best defined, not in terms of any one given ratio of public to private power, but rather as the constant search for the ever-changing location of the balancing point which will maximize individual opportunities.”
I think it captures neatly the essence (and perhaps the differences?) of the various liberal perceptions/ traditions.
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The lack of correlation between the growth of very high incomes and increasing economic growth is that much of that income increase is due to rents collected on other peoples wealth. Nothing is being produced with this form of wealth transfer. The last 35 years has produced a dramatic income transfer at the expense of workers whose household income has barely improved. This is largely responsible for the the growing inequality rampant in the U.S. I believe this came about because of the doctrine of “shareholder primacy”, much championed by Milton Friedman. It not only affected incomes, but most other employee benefits, like fully paid health insurance, pension plans, paid sick time and separate paid vacations. This produced a significant transfer of financial risk to workers whose income was insufficient to cover all those lost benefits.The savings were returned in various ways to shareholders, who in turn gave much of that windfall back to the rentier class. I repeat,the financialization of the economy has not produced sustainable growth. If not for the dramatic growth of household debt, most workers would not get by. Whatever economic growth that has been achieved in this new century, has been due to the enormous increase of government, corporate, and household debt. I’ll let you guess as to how close we are to the next “Minsky Moment”.
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It was the German sociologist Alexander Ruestow who introduced this term. I myself wrote a contribution to this last year: Le néolibéralisme est mort, vive le néolibéralisme. If you like to read it, use DeepL for translation.
A good English paper on Ruestow and Neoliberalism was written in 2009: Neoliberalism: The Genesis of a Political Swearword
Greetings from Dresden, Germany
Michael
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George, Very few serious people favor pure laissez faire capitalism or even think such a system is conceivable. It’s a matter of degree and there can be reasonable arguments about how far one should go in one direction or the other, and often some people will want to go in different directions on different issues. In other words, it’s complicated.
Benjamin, In other words, you think some wealthy people are worthy of respect and some aren’t. That’s more or less where I would come down, though we might differ on which are the ones worthy of respect.
Richard, Thanks for your kind words and the interesting links you provided. I have a copy of The Economic Problem, but have not yet read it. First, I need to read Currency and Credit which will be 100 years old next year.
Nanikore, You are correct to stress the connections between neoliberalism and globalization. Slobodian’s book emphasizes the huge role of the Austrian/German liberals in the creation of the post-World War II international trade institutions beginning with the GATT that eventually grew into the WTO. Earl Thompson wrote many papers which provided the foundation for his book with Charles Hickson on the importance of national defense in economic development and he decried its neglect in most economic models of trade and development.
Michael T., Thanks for your kind words and the reference to Megay, of whom I’m afraid I don’t think I’ve heard before. The quote is interesting, but I’m not sure I fully agree with (understand) it.
Erwin, I agree that rent-seeking and wealth-transfers are a serious problem and that they account for much of the increasing inequality in wealth and income over the past 30-40 years, and that it’s at least partly due to over-expansion of the financial sector. But economic growth continues because of the ongoing growth of knowledge and technological advancement.
Michael S., Many thanks for the links.
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Re: “It’s a matter of degree and there can be reasonable arguments about how far one should go in one direction or the other, and often some people will want to go in different directions on different issues. In other words, it’s complicated.”
According to the OECD Comparative Tables, the only OECD countries that ranked below the United States (26.0) in terms of collecting taxes relative to their GDP in 2016 were Turkey (25.5), Ireland (23.0), Chili (20.4), and Mexico (17.2). In addition, the OECD tables show that all of the OECD countries that have higher life expectancies, healthier populations, lower crime and incarceration rates, better educated populations, higher standards of living, lower poverty rates, better public infrastructure, and, hence, actually promote the general Welfare better than the United States devote a larger portion of their economic resources to providing government services and pay higher taxes than we do.
According to the CIA World Factbook, those countries that devote a smaller portion of tax and other revenues relative GDP to their central governments than the United States (17.2) consist of Guinea (17.0), Cameroon (16.8), Papua New Guinea (16.7), Curacao (16.6), Malaysia (16.5), Taiwan (16.3), Bahrain (16.1), Tanzania (15.3), Ethiopia (15.2), Uganda (15.2), Sri Lanka (15.1), South Sudan (15.0), Suriname (14.9), Pakistan (14.9), Liechtenstein (14.9), Egypt (14.7), Monaco (14.6), Benin (14.6), Isle of Man (14.6), Costa Rica (14.0), Philippines (13.9), Burma (13.8), Yemen (13.5), West Bank (13.4), Indonesia (12.9), Madagascar (12.2), Chad (12.1), Brunei (12.0), Guatemala (11.8), North Korea (11.4), Timor-Leste (11.0), Bangladesh (10.8), Turkmenistan (10.6), India (10.2), Afghanistan (9.5), Puerto Rico (9.0), Sudan (6.9), Syria (4.2), Nigeria (3.5).
Who would rank the economic wellbeing and quality of life of any of these countries even close to that of the OECD countries that exercise a greater centralized control of their economic resources than we do?
The economic wellbeing and quality of life within and between countries is not a trivial matter of degree with reasonable arguments on either side as to how far they should go in one direction or the other when it comes to understanding the importance of the role government in establishing their relative positions. It is obvious to anyone who looks at the numbers and thinks about it that the fundamental difference between the prosperous and free, and the impoverished and enslaved throughout the world is the quality of their governments and that those governments that govern least are not the governments that govern best.
The politics may be complicated, but it seems to me that the reality and economics of the situation is obvious and little more than just plain common sense. The only thing that makes it seem complicated and simply a matter of degree is the sophistry of static economic models and arguments that assume away the actual economic problems countries face in the real world with regard to the way in which greed and corruption limit the distribution of mass-production technology in the face of blatantly unaddressed externalities, deficiencies of public goods, and the creation of economic rents that lead to unwarranted concentrations of income, excessive trade imbalances, and unsustainable accumulations of debt:
http://www.rweconomics.com/htm/Pro.htm and http://www.rweconomics.com/htm/0P.htm
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George, I have no problem in principle with a large public sector and a generous welfare state, but the methods by which assistance is provided can have a serious ramifications. Externalities are widespread, and often extremely dangerous, but they are often promoted by, not redressed by government actions, e.g., the interstate highway system. The simplistic notion that markets are bad and government intervention is the solution is just as misguided as the opposite. I don’t take people seriously when they use Venezuela as a poster-child for socialism, and I don’t take people seriously when the blame all social ills on private greed.
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David,
I submitted my comment on your Neo- and Other Liberalisms post because I thought you and your followers might find the essay it came from ( http://www.rweconomics.com/IVR.htm ) interesting. I was quite surprised when you responded to my comment with:
“Very few serious people favor pure laissez faire capitalism or even think such a system is conceivable. It’s a matter of degree and there can be reasonable arguments about how far one should go in one direction or the other, and often some people will want to go in different directions on different issues. In other words, it’s complicated.”
I was surprised, first, because the arguments in that essay support many of the points you made in your post, and, second, because the essay is not about “serious people [who] favor pure laissez faire capitalism.” It is about antigovernment ideology and ideologues.
It seems fairly obvious to me that antigovernment ideology and ideologues have dominated the American political debate for well over forty years now, and whether the people who spout this ideology are serious or not, they are definitely not in short supply. This is particularly obvious in view of the fact that virtually all of the candidates put forth by one of our major political parties over the past thirty years have signed on to Grover Norquist’s goal “to shrink government to the size where we can drown it in a bathtub” by signing the ATR pledge to “oppose and vote against any and all efforts to increase taxes.”
Specifically, my essay is about the huge gap in the economic contribution of government that separates the wealthiest and poorest countries of the world and the vital role played by government in generating economic prosperity, political stability, and social responsibility in the wealthiest countries and the debilitating role played by the lack government in perpetuating poverty, political instability, and civil unrest and suppression in the poorest countries. Thus, my essay is definitely not about “a matter of degree” or “reasonable arguments about how far one should go in one direction or the other” or about people who “want to go in different directions on different issues.” That kind of discussion is relevant to the differences within the wealthiest countries, but not in examining the differences between the wealthiest and the poorest countries.
My essay, by implication, is also about the fact that as the contribution of government to GDP in United States has fallen to near the bottom of the wealthiest countries of the world over the past forty years a) the concentration of income at the top has soared while the incomes at the bottom have stagnated, b) our economic, political, and social systems have become plagued by speculative bubbles, fraud, and corruption, c) debt has increased to unsustainable levels, and d) our ability to educate our population has deteriorated relative to that of other wealthy countries along with life expectancy and many other measures of human wellbeing. (Cf., http://www.rweconomics.com/htm/0P.htm and http://www.rweconomics.com/htm/Pro.htm )
In other words, it’s about the kinds of things Douglas Amy explains so well on his website at:
http://www.GovernmentIsGood.com.
When I presented numbers that highlight the differences in the contribution of government between the wealthiest and poorest countries in response to your reply, you responded with:
“George, I have no problem in principle with a large public sector and a generous welfare state, but the methods by which assistance is provided can have serious ramifications. Externalities are widespread, and often extremely dangerous, but they are often promoted by, not redressed by government actions, e.g., the interstate highway system. The simplistic notion that markets are bad and government intervention is the solution is just as misguided as the opposite. I don’t take people seriously when they use Venezuela as a poster-child for socialism, and I don’t take people seriously when the blame all social ills on private greed.”
I have no idea where this is coming from. I have never argued “that markets are bad and government intervention is the solution” or anything like that. In fact, I clearly state in the essay I linked to in my comment on your post ( http://www.rweconomics.com/IVR.htm ) that:
“there are certain things that are essential for economic prosperity, some of which (market regulation, public infrastructure, and social insurance) only government can provide and others (the profit motive and markets) only private enterprise can provide. It takes both government and private enterprise to make the economic system prosper, and for the economic system to prosper there must be a balance between the two.”
Nor have I ever used “Venezuela as a poster-child for socialism.” In fact, I can’t even imagine anyone who would do this other than, perhaps, Fidel Castro.
As for: “Externalities are widespread, and often extremely dangerous, but they are often promoted by, not redressed by government actions, e.g., the interstate highway system,” it is, of course, obvious that there are positive and negative externalities associated with any transportation system, but it is just as obvious that only the government can create a transportation system and that the problems of externalities associated with a transportation system can only be dealt with by government. This is not the kind of problem private enterprise, in the absence of government intervention, can come to grips with. That externalities “are often promoted by, not redressed by government actions” does not change this fact, and I must admit that I am at a loss as to why you believe the creation of the interstate highway system is the poster child for extremely dangerous externalities that are promoted by government.
When it comes to your not taking “people seriously when they blame all social ills on private greed,” I would note that I did not, and never have blamed “all social ills on private greed.” That is a bit too simplistic for me, and I deliberately coupled “greed” with “corruption” when I mentioned greed in my essay, but I must admit that I do take greed seriously since greed often leads to corruption.
Greed is defined at http://www.merriam-webster.com as “a selfish and excessive desire for more of something (such as money) than is needed,” and all of the definitions of this term obtained from a Google search emphasize selfishness and generally include a reference to a lack of morality or social responsibility. Greed is not the same thing as pursuing one’s own self interest, and I would also note that the evils of greed have been taken seriously by very serious people for at least 2,000 years as is indicated by the declaration in Timothy 6:10 that: “Love of money is the root of all evil.”
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