Saturday, March 12, 2016

Varieties Of Neoliberalism

Brad DeLong has triggered some loud huffing and puffing with a new post in which he argues with Paul Krugman about the benefits of free trade (he thinks the gains from trade are greater than PK does), and labels what he is doing "flying my neoliberal freak flag high!"

I have linked to Mark Thoma's link to  Brad's initial post so that people can go into the comments where Mark's most faithful commentator, anne, links to the Wikipedia definition of "neoliberalism," from which she finds Brad to be in cahoots with Margaret Thatcher and Ronald Reagan, not to mention General Pinochet, Friedrich Hayek, and Milton Friedman.  Lots of other commentators have piled on to  denounce Brad for his "return to his elitist roots" and so on, which may be true, but I think also involves some misunderstanding stemming from outright ignorance of how and why Brad identifies himself with this term.  After all, he has never been a fan of Ronald Reagan, and I am quite certain that Reagan himself never used the term to describe himself.  What is up here?

The main reason anne is misguided is that the Wikipedia entry simply ignores a particular strand of use of the term that began in Washington in1983 and that viewed itself as a movement for at least two decades, even as this use of the term and this movement has faded substantially, even if arguably it is still kicking around, arguably in the current US presidential race, even as those most associated with it (see Hillary Clinton) seem now to be running from some of its most famous tenets, such as support for free trade (or at least of bills claiming to be such, notably the troubled TPPP, which has been noted by many as mostly involving strengthening monopoly rights of Big Pharma and such than expanding trade opportunities for such places as Vietnam). 

This Washington use of the term was coined in a May, 1983 article in the Washington Monthly by Charles Peters called "A Neoliberal's Manifesto."  Reading this one finds him clearly unaware that the term had an earlier existence as he describes himself as the "sole culprit at the christening," and his immediate followers, most of  them coming out of the Democratic Party, seem to have been equally ignorant.  Among those he identified as fellow travelers were journalists Nicholas Lemann, Joseph Nocera, Jonathan Alter, political economists Robert Reich and Lester  Thurow, and eventual presidential candidates Bill Bradley, Paul Tsongas, and Gary Hart.   It was a reaction to the fairly recently formed neoconservative movement of that day (which supported Reagan), and he said, "If  neoconservagtives were liberals who took a critical look at liberalism and decided to become conservatives, we are liberals who took the same look and decided to retain our goals but to abandon some of our prejudices."  They would be noted for being unsympathetic with unions and pro-hi tech, with their supporting free trade against the increasing protectionism of the unions a flashpoint and relevant to the current flap involving Brad DeLong.

A group associated with this brand of neoliberals would be the "radically centrist" DLC, which Bill Clinton would become associated strongly with and many of these neoliberals would support him, with Brad himself serving in Clinton's administration in the Treasury Department.  These people did not support Reagan, and Reagan did not support them (nor did most neoconservatives).  Nevertheless, because the term would also become associated with the "Washington Consensus" at the IMF, this provided a link between the two strands of the use of the term out there, with the other one that which is recognized and explained in the Wikipedia entry about the term.

So, what about the older history of the term that Peters was so unaware of?  It turns out that there was a conflict earlier on between two  branches of the neoliberal movement,  and that Peters's view may well be seen as in synch with one of  those.

So the term was initially coined in the 1930s by Walter Lippman, who saw it as a "Third Way" between classical  liberalism and socialist central economic planning, arguably not too far from Peters's view.  This sort of burbled underground during WW II, only to reemerge most forcefully in Germany after the war with the Ordo-Liberals based in such places as Freiburg and Cologne, most importantly with such figures as Walter Eucken, Wilhelm Roepke, and Alfred Muller-Armack.  In 1946, Muller-Armack coined the term "sozialmarktwirtschaft," or "social market economy," which would be picked up by Ludwig Erhard and would be adopted as the defining ideology of West Germany, a mostly free market economy without state ownership or planning, but a strong social safety net, arguably a milder version of the social democracy of the Nordic economies.  Eucken and Roepke both took up this idea, with Eucken linking it with his Ordo-Liberalism.

The link with the Anglo-American classical  liberals came with the founding of the Mont Pelerin Society in 1947, where the A-A view was led by Hayek and Friedman.  At the time they adopted and accepted the descriptor, "neoliberal," and many have since commented on the role of the MPS in the history of neoliberlism.  During the 1950s, these two branches would diverge (perhaps triggered by a 1953 speech to it by Erhard), with the classical liberal branch gaining control.  So it was that the dominant branch of neoliberalism essentially became an updated classical liberalism without all that social safety net baggage.  And, in fact, in most of the English speaking world, the term "neoliberal" basically disappeared from usage during the 1960s and 1970s, preparing the ground for Peters to revive it in 1983 without realizing that it had already been around for some time, with his version probably not too far from the social market economy version of Muller-Armack and Eucken.

The term survived in the Spanish language literature, especially that dealing with Latin America, and it was associated with Hayek and Friedman and their views of the world.  That both of them gave some support to the economic policies of the Pinochet regime cemented this link in this Spanish language literature.  The Wikipedia entry notes that it was from this literature that the more modern use of it migrated back into the English language academic literature especially from the 1990s on.  This literature generally either ignored or was unaware of this Washington-based Peters version of it, even as he was unaware of this other history of the term's usage.

What is curious is indeed the partial convergence of uses of the term with respect to the Washington Consensus, which indeed has mostly focused on increasing marketization and privatization, in short, fully in synch with the classical liberal version of it associated with Hayek and Friedman.  The WC mostly ignored the issue of social  safety nets, and indeed often supported cutting them back in such places as Latin America and then later in the transition economies of Eastern Europe in the 1990s, although the backlash against such cutbacks in some of the more  successful such nations such as Poland eventually led to some rethinking about that aspect of it at the IMF and other such places.

So we have these two strands of what the term means.  Wiki says that Thatcher and Reagan were neoliberals, although neither ever associated themselves with the term.  Those following the Peters line such as Brad DeLong would say they were not neoliberals, at least of their type.  The problem or issue for Brad is whether or not his current freak flag flying is really a continuation of this Lippman-Eucken-Peters version of the idea, or whether in the current situation such flying is not just pushing himself into the Hayek-Friedman-Pinochet version of it.  I do not have the answer to that.

Barkley Rosser

24 comments:

Sandwichman said...

There are two types of neoliberalism. One claims Say's Law is true in theory. The other says it's false in theory but can be made true in practice.

Antoni Jaume said...

"The term survived in the Spanish language literature, especially that dealing with Latin America, and it was associated with Hayek and Friedman and their views of the world. "

That may be because in Spanish liberal in economy refers to free market, "Laissez-faire". And is perceived as a right wing political position.

Bruce Wilder said...

Using the term, neoliberal, for both the conservative libertarians like Hayek and Friedman and for those, like Peters, who abandoned the New Deal liberalism of oppositional representation of the general public, the working class and the poor against business and financial interests, is confusing. But not simply because these are two distinct and differing philosophies. It has become confusing because of the intellectual symbiosis that associated these two groups, as opposite poles of a single dialectical axis.

As Sandwichman wryly remarks, neoliberals like Brad DeLong have self-consciously defined their neoliberalism in contrapuntal harmony with conservative libertarians. It has become part of what defines neoliberalism as a consensus.

Bob Roddis said...

Associating Hayek with the present day quasi-fascist regimes which run on fiat money is preposterous and intellectually dishonest.

https://mises.org/library/hayek-meet-press

jonny bakho said...

As you point out, the term "neoliberal" has so many different meanings within different groups that it cannot be used to clearly communicate to people outside of a group.
A new term with specific meaning would be in order.

DrDick said...

Speaking as the person who said he was "returning to his elitist roots," this is exactly what I was referring to. The DLC was exactly what I had in mind. These were/are corporatist Democrats, who tend to be mildly liberal on social issues and mildly conservative on economic issues.

DrDick said...

Bod Raddis -

Pretending that Hayek is not associated with the present day quasi-fascist regimes, such as Pinochet (whom he directly praised) is disingenuous at beat and outright false.

Thornton Hall said...

The most interesting thing about this debate is that it contains absolutely nothing that could be described as either science or social science.

Unknown said...

I view "neoliberal" to mean support for a markets economy plus taxation and expenditures to transfer income to those who are relatively unsuccessful in participation in a market economy. They are suspicious of intervention in markets whose main purpose is to redistribute income downward (though may be persuaded in specific cases) but quite ready to intervene to correct market failures such as taxation of externalities.

KISSWeb said...

By all means, it's critical that we get our labels right. Actually examining what candidates say they want to do and thinking about it is just too damned hard. Candidate C says she wants to do X,Y,Z, A and B to regulate Wall Street. Candidate S wants to do X, Y, Z, A, B and C. Each one of these things involves either a tighter regulation or higher taxes for very wealthy people or corporations that manage to escape taxes. Not one of them is something Wall Street big shots will like. But because Candidate C does not include C in her proposals and only X,Y, Z, A and B, she can be dismissed as a "neo-liberal" or a "corporatist Democrat," while Candidate S is a radical thinker.

Labels help us avoid doing nuance.

Sandwichman said...

"it contains absolutely nothing that could be described as either science or social science..."

True, but what is interesting about it?

reason said...

Where the hell did Bob Roddis come from (he really is kidding himself posting here) and why does he think Hayek (unlike say von Mises) was fundamentally opposed to Fiat money?

rosserjb@jmu.edu said...

The real question I have for Roddis is "Do you think the worst thing about the Pinochet regime is that it used fiat money?"

Bob Roddis said...

To Reason and Rosser:

While Hayek often went soft “fundamentally”, by 1975 he was calling for a restoration of a “gold standard” to preclude and impair the artificial creation of money and credit:

Hayek 1975: “I do not know whether we shall be able, in the foreseeable future, to restore a system, such as the gold standard, which, although not foolproof, is at least in some respect protected against the pressure of fools. But it certainly is necessary to make people understand that the now fashionable method of securing employment by monetary and credit management is fundamentally false, and that so long as we attempt to do so, we just repeat, on a greatly enlarged scale, the kind of fluctuations we used to call business cycles. These fluctuations were unpleasant enough when we allow the misdirection of resources by excessive credit expansion to go on for two or three years. I am afraid they will prove to be even more unpleasant after we have allowed this misdirection of resources to go on for twenty-five years.”

http://tinyurl.com/gr63e38

Further, Hayek certainly understood the difference between laissez faire (where business and the wealthy get NO handouts or subsidies. Never ever) and a “progressive” state where the government is completely engaged in subsidizing the .1% via regulation, war and fiat money creation.

The creation of fiat money ALWAYS results in a loss of purchasing power to those receiving the new money last and a gain to those getting it first. It allows the state to pay for endless wars without actually having the revenue available that it otherwise would have had to extract from the victim populace in real time.

The excuse given by the statists for the creation of new fiat money and government spending is that it is allegedly necessary to provide “momentum” for a private property economy. Hayek won the Nobel Prize for showing that those policies are the cause of the problem, not the solution.

Thus, it is preposterous and fraudulent to attribute the present “inflate, bomb, regulate and spend” regime to Hayek, even (and especially) taking into account Hayek’s writings on and activities relating to Pinochet. It is nothing but a fraudulent trick to apply the same term to describe an out-of-control outlaw regime of “inflate, bomb, regulate and spend” with one where all of those policies are strictly forbidden and effectively proscribed.

And, since I do not believe in the initiation of violence, the worst thing the Pinochet regime did was murder innocent people. I wasn’t there, but from I read, Pinochet murdered far fewer people than Castro, Clinton or Obama.

rosserjb@jmu.edu said...

Well, Bob, I hope you realize that every governmnent in the world since the final end of the last gasp of the gold standard in the early 1970s has been a fiat money regime, every single one. We had high inflation in the 1970s, with this persisting and flaring up here and there in some later. But, with the exception of a handful of a nations, right now inflation rates in most major economies are in the low single digit rates, with those declining in many places.

The Pinochet regime murdered its own citizens. The Castro regime also did so when it first took power. The US government is killing many people abroad with drone strikes and in several wars, most of them inherited from the previous administration, with the Clinton presidency having few active foreign wars. I am unaware of either the Clinton or Obama presidencies involving the government rounding up its own citizens and having them killed at all.

Bob Roddis said...

Well, Bob, I hope you realize that every government in the world since the final end of the last gasp of the gold standard in the early 1970s has been a fiat money regime, every single one.

I completely understand that. Which is EXACTLY why the status quo has NOTHING to do with Hayek which was my original point.

We had high inflation in the 1970s, with this persisting and flaring up here and there in some later. But, with the exception of a handful of a nations, right now inflation rates in most major economies are in the low single digit rates, with those declining in many places.

Since there is no intelligent purpose in intentionally creating inflation, a little bit of it is just less bad than a lot of it. But the primary problem with the artificial creation of money and credit is not slow, gradual (and unnecessary) increases in the general price level due to the general (and unnecessary) dilution of the currency, but the distortion of the price, investment and capital structure in an unsustainable configuration as prices are artificially bid up with the new money. Artificial and unsustainable bubbles in stock, asset and housing prices caused by the artificial creation of money are credit are eventually going to collapse as they did in 2008 as explained by the Austrian Business Cycle Theory. Hayek won the Nobel Prize for his work on that theory. His ideas have nothing to do with and are not the basis of the the horrible Military-Keynesian fiat money status quo.

The Pinochet regime murdered its own citizens. The Castro regime also did so when it first took power. The US government is killing many people abroad with drone strikes and in several wars, most of them inherited from the previous administration, with the Clinton presidency having few active foreign wars.

Madeleine Albright says that 500,000 Iraqi children died as the result of Clinton’s sanctions, and that it was "worth it". I’m sure that’s a lot more than were killed by Pinochet (not to defend Pinochet).

https://www.youtube.com/watch?v=omnskeu-puE

Then we have to totally unnecessary flattening of Libya by Obama and Hillary followed by the shipment of Gadaffi’s weapons to Jihadists in Syria.

http://levantreport.com/2016/01/04/new-hillary-emails-reveal-propaganda-executions-coveting-libyan-oil-and-gold/

These types of warmongering activities are completely coextensive with the Keynesian “stimulus” and fiat money policies of the current U.S. regime. I stand by my original statement:

Associating Hayek with the present day quasi-fascist regimes which run on fiat money is preposterous and intellectually dishonest.

rosserjb@jmu.edu said...

Uh, Bob. First of all, why did you leave George W. Bush off your list? He was clearly responsible for a lot more dead people than either Clinton or Obama, with the latter mostly having to deal with the mess he created.

Secondly, and my last reply to you if you wish to continue making a fool of yourself here, is that this post and thread has never said anything about Hayek and current regimes, whether "quasi-fascist" or not. It has been about competing definitions of "neoliberalism," a term that Hayek at a certain point in time accepted as applying to himself. Pinochet got brought in because both he and fellow neoliberal Milton Friedman visited and spoke in Chile while Pinochet ruled there, a man who did round up thousands of his own citizens to kill them. I recognize that it is an ongoing matter of intense controversy, which I am not going to discuss here at all, regarding the degree to which either of them "supported" that regime. If you wish to claim that Hayek did not do so, I am not going to argue about it (the literature on both sides is large), although others here might disagree with you.

Have a nice day.

rosserjb@jmu.edu said...

I need to add that much of the Latin American academic literature of recent decades using the term "neoliberal" has pointed to the Pinochet regime as supposedly representing that concept or movement or whatever, usually basing this on the fact that in its early period his economic policy was heavily formulated by "the Chicago Boys," a group who mostly had studied at one point or another at the University of Chicago, and at least taking a course or two from Milton Friedman, who had the label of "neoliberal" put on him back in the early 50s when it was put on Hayek as well. As noted, Hayek accepted the term then, although I do not know what Friedman thought of it then, but he did not use it to apply to himself later. Hayek did not have the same degree of connection to economic policymaking as Friedman had through individuals, although the usual argument has been that he largely approved of the economic policies of Pinochet, if not of his killing his own citizens.

Curiously enough, contrary to the usual blather, those policies did not work out all that well, and Pinochet made substantial adjustments to them some years later, with the good economic performance of his regime happening after he moved away somewhat from the "neoliberal" policies recommended by the "Chicago Boys." This really is pretty complicated.

Bob Roddis said...

1. Since even Donald Trump seems to know that Dubya is a liar and a warmonger, I thought mentioning him was trite.

2. Your conflating of Hayek and Friedman is the same mistake as calling both Hayek and Friedman by the same term.

Hayek explains his MONUMENTAL differences with Friedman on youtube:

https://www.youtube.com/watch?v=fXqc-yyoVKg

At 00:13, Hayek calls Friedman a Keynesian:

http://tinyurl.com/zqtqy45

At 4:40, Hayek says he wants to abolish the government monopoly of the issue of money SO AS TO DEPRIVE GOVERNMENT OF THE POSSIBILITY OF PURSUING MONETARY POLICY. Friedman clearly believed in monetary policy.

http://tinyurl.com/hodf87p

Hayek won the Nobel Prize for his work on the theory that MONETARY POLICY ITSELF was the cause of the problems that monetary policy was supposed to cure. Since there is no place on earth practicing Hayek’s policy regarding money, it is dishonest and lazy to attribute to Hayek those non-Hayekian regimes which employ monopoly fiat money.

I’ve been an Austrian School advocate since 1973. In that time, I’ve never met a non-Austrian who had the slightest familiarity with even basic Austrian analysis. I can add you to my long and every-expanding list.

rosserjb@jmu.edu said...

Bob,

Your final remark is silly. I have read much of Hayek and have written about his work. I am fully aware of his differences with Friedman about monetary policy and certain other matters. But that they disagreed on many things does not affect the fact that on some they agreed, which are matters that this post and thread have been about. They both participated in the first Mon Saint Pelerin meetings where the term "neoliberal" was used and generally accepted by all present to apply to them. They also both spoke in Chile after Pinochet came to power.

The bottom line is that you have simply confused things and muddied the waters by bringing up stuff that is completely irrelevant to this discussion, and this discussion was never about monetary policy, so you have just been completely out of it. So, enjoy your lonely fantasy ramblings.

Bob Roddis said...

this discussion was never about monetary policy

That’s my point. The purpose of your “analysis” is to obfuscate the cause and source of economic problems:

http://karendecoster.com/wp-content/uploads/2016/03/crayons2.jpg

[S]o you have just been completely out of it. So, enjoy your lonely fantasy ramblings.

I too was going to blame it all on peer pressure, just like you. Some succumb to peer pressure. I do not.

AltWorlder said...

So, can old-school pre-triangulation leftists be considered "paleoliberals"?

rosserjb@jmu.edu said...

Yeah, maybe, AltWorlder. Good one.

Jack said...

"The Castro regime also did so when it first took power."
Isn't that the nature of a revolution, given that a peaceful electoral process was not an alternative in regimes like that of Batista's? Political and economic violence a characteristic of Cuba's history in the fifties, and the advantage was all on the side of the entrenched oligarchy. Note that you point out that Castro resorted to such violence "when he first took power."