The Failures of Neoliberalism
When confronted with failure, there’s a familiar retort that emanates from both extremes of the political spectrum: their prescriptions simply “haven’t been tried.” There were some complicating factors which scuttled the whole thing, or the prescribed measures weren’t enacted in full, or they weren’t given enough time to work. Therefore, it would be unfair to appraise the political project in question.
One iteration of this defense was the attempt to absolve actually-existing Communism of its sins; apprised of the litany of neoliberal failures, the right’s remonstrations are taking on a similar form. Just as the objective preconditions weren’t satisfied in the case of Soviet Communism, government retrenchment hasn’t been severe enough for neoliberal purists. If we just cut more and imposed more austerity, growth would take off, and all would prosper.
The argument of inchoateness could be true, of course. It’s possible that the regulations and social programs and institutions we’ve established merely distort the market and prevent us from living in a better world: Unions don’t really enhance the pay, dignity, autonomy, and bargaining power of workers. In actuality, they help union members and hurt everyone everyone else. They put the breaks on that ineffable vehicle of prosperity, the free market. Once these impediments are swept away and untrammeled neoliberalism is triumphant, all will be right with the world. This is all very possible, if highly implausible.
You see, partisans of any dominant ideology must marshal facts and figures in order to be taken seriously; they must defend their track record. For supporters of the reigning economic regime, neoliberalism has bequeathed cheaper consumer goods and low inflation, enhancing the lives of millions of Americans. In their telling, areas characterized by “government monopolies” and stifling regulation suffer from inefficiency and poor quality. The public education system, for instance, needs to be injected with competition; charter schools and vouchers are the preferred agents. Then things would be dandy.
Given the neoliberal project’s record of success, it’s stunning that millions of people still believe this drivel. If we were headed toward neoliberal utopia when the crisis struck, you’d think the last 30 years wouldn’t have sucked for most American workers, that, at the very least, their wages would have seen a healthy jump. Put another way: Neoliberals could justifiably say we should “stay the course” if, pre-recession, their policies were (arguably) improving the lot of the 99 percent. But they weren’t. Not even close.
The numbers, from the latest installment of The State of Working America: “Had there been no growth in income disparities since 1979, annual income for a middle-income household would have been $88,875 in 2007, $18,897 higher than the $69,978 it actually was. The median household lost wealth between 1983 and 2010 and had just $57,000 in net worth in 2010, rather than the $119,000 it would have had if wealth had grown equally across all households over this period.” Consumer debt proliferated in its stead, and inequality hypertrophied. After considerable progress toward eradicating poverty, rates plateaued. Unionization became scarce.
These are the conditions neoliberals have to explain, or explain away. For all its deficiencies, the postwar economic regime which neoliberalism replaced could at least boast about increased job and consumer protections, declining poverty, and rising median wages.
Yet the postwar paradigm faced its own crisis of sorts in the 1970s. Stagflation raged and labor unrest pervaded and profit margins dropped—solutions needed to be offered, choices made. Essentially, there were three options: tinker around the edges and hope the system would stabilize; move in an anti-capitalist direction, beyond welfare-state capitalism and Keynesianism; or unshackle the restraints placed on capital.
For those partial to the first choice, a drastic shift wasn’t justified by the crisis’s degree of severity. Paul Krugman, the most prominent contemporary Keynesian, has written, “the troubles of the 70s were real, but they are an awfully thin basis for an ideological revolution. For one thing, external factors — two big oil shocks — played a major role. (That’s a contrast with our current crisis, which was entirely self-inflicted.) For another, a lot of the problem was monetary policy: if the Fed had acted more responsibly, there would have been a lot less inflation.”
Krugman is right, to an extent. As measured against the current recession, which has self-evidently necessitated a full-scale economic re-examination, stagflation was, in retrospect, a moderate hurdle. Profits were dropping, however, signaling the capitalist economy was fundamentally imperiled. Leftists recognized this and accepted that the postwar consensus faced an existential crisis. To them, the contradictions of the system itself had finally been exposed. The supposed transcendence of labor-capital conflict was revealed for what it was: a farce. Bell’s The End of Ideology had been debunked, and the smartest minds inhabiting the left produced compelling alternatives to fill the void.
The most powerful economic actors also saw the issue as systemic in nature. Their solution? Neoliberalism. As David Harvey documents in his masterful A Brief History of Neoliberalism, the New York City fiscal crisis of the mid-70s presaged a larger shift in the nation’s political economy. Shortly thereafter, Federal Reserve President Paul Volcker unscrupulously stanched the flow of inflation, Ronald Reagan broke the PATCO strike, and policymakers abandoned full employment as a central policy objective. Wages stagnated, fringe benefits eroded, and, with the looming threat of outsourcing or unemployment, workers were dragooned into submission.
This is what neoliberalism has wrought: insecurity, precarity, powerlessness. It must be judged based on what it has produced, however piecemeal its implementation. Only in authoritarian and totalitarian countries can a cadre of committed ideologues establish and enact an ideological program in its totality. In liberal democracies, you have to work through the political process in order to alter socioeconomic arrangements on a large scale. Neoliberals haven’t gotten their way on everything—the social welfare state has only been partially dismantled—but they’ve had an immeasurable impact on public discourse and public policy. Market ideology is pervasive, and neoliberals control both political parties. The ideology’s earnest purveyors, self-assured and armed with glossy platitudes, will continue to abound inside and outside academia.
It’s only fair that the citizenry examine the real-world outcomes of neoliberal policies, lofty promises be damned.
Note: This was originally posted at The Safe Depository, where I publish stuff much more regularly.
This gets the history of economics wrong: Krugman is New Keynesian and very much part of the post-Friedman revolution; the world of acceptable economic policies was very different in the 1970s. Once upon a time conservatives blamed unions for inflation and asked for wage freezes.
Unfortunately you can’t dispense with that element of Krugman, though, without also dispensing with the reasons for his glossy reassurance that the only problems were temporary and minor.Report
I’m intrigued by this comment but would like it to be less cryptic.Report
I’m awake at 4am but would like to wake up tomorrow at a reasonable time, regrettably…
Might elaborate tomorrow if I remember.Report
There are three different schools of economic thought with Keynes name in them:
Keynesianism is simply what Keynes prescribed. Keynes was notably imprecise, grandiose and vague. His only really clear, non-conventional idea was that government spending can increase economic growth, even when the spending is paid for through taxation. Keynesianism as such really only lasted as long as the great depression then vanished.
Neo-keynesiansim was an attempt to put Keynesianism on some kind of mathematical footing, and to make it consisent with the prior marginalist consenses after WWII. It produced a lot of what is now taught as macro-economics – the ISLM models, AS/AD curves, the Phillips curve and so on. This was a wildly productive research program for 20 years, and fell apart only when stagflation showed than inflation and and recession can coincide. Shaun underestimates the impact of this on the theory, as if it were completely irrelevant when faced with his political preferences, but it remains a big deal for most economists.
Monetarism re-introduced elements of classical economics abandoned by neo-keynesians, in particular the idea that government intervention has to produce real growth to have a long term impact. It produced a new understanding of what happened in the great depression that has proved to be more authoritatative that the neo-keynesian one.
New Keynesianism is really monetarism with a changed emphasis. Monetarists, including Friedman, understand that prices do not adjust instantly to the available amount of money, and wages especially do not. New Keynesians built this into a theory of how this asymmetry can produce the observed asymmetry of the business cycle.
Krugman has a tendency to talk as if New Keynesianism were identical with Keynesianism where in fact it is not. Keynesianism no longer exists an any kind of research program any more than Austrian Economics or the Scholastics. Simplification for a popular audience is fine, but in doing this he’s eliding important academic disagreements. By and large new keynesians acknowledge only a small role for government spending a prefer the central bank to take on economic stabilisation. The real disagreements within modern macro are actual about rather arcane technical details of central bank policy and Krugman does a diservice to everyone encouraging people like Shaun to believe there’s actually some major class war going on within econ itself where in fact there is nothing of the kind.Report
While your whole comment is gold Simon, I though this paragraph deserved particular emphasis. While the idea that inflation cannot coexist with unemployment might not sound like a big deal, it was a corollary of Keynes’s whole notion that stimulus creates growth. When the Phillips Curve fell, Old Keynesianism fell with it.
Now there was a fix developed (by Milton Friedman no less) called the Expectations-Augmented Phillips Curve, but it severely weakened the power of stimulus, it no longer creates growth it merely borrows it from the future.Report
Unless I’m missing something, it strikes me that the criticism of Shawn/Krugman on this is a little… pedantic? Quibbling? I mean, within the academy or among well-read amateurs (like Yglesias, say) or professional economists, there’s an appreciation for the differences between Neo-Keynesianism and Keynesianism; but outside of these small little realms, in the general American political discourse, people mean Neo-Kism when they say Kism, even if it’s not technically true. And by and large we all know what they mean when they use these phrases.
Where I think you guys are right is that Shawn (and many others) focus on economic neoliberalism as opposed to Keynesianism when it’s really political neoliberalism they oppose — and in most of the latter’s manifestations, Keynes is somewhat immaterial. Friedman was very active as a political neoliberal, of course, so it makes sense that people make the association, but from what I’ve read and what I’m gathering from this thread, there’s nothing about Friedman’s views vis-a-vis stimulus that preclude support for unions, workplace regulation, high marginal taxes, etc. And that’s the heart of where the left/neoliberal divide is.
(I’m probably wrong in at least one way, here… This is not my field.)Report
A slightly different view from Simon K: the difference that really matters is that the (neo-) Keynesians felt that money was endogenous and that central banks would, as an assumption, never risk substantial unemployment to defy a demand for money by private actors. When this turned out to be false, the key assumption of endogenous money collapsed.
It is a canard that “the Phillips curve” was what killed old Keynesianism at the academic level; in fact the old Keynesians, including right-wing American Keynesians, had plenty of explanations for stagflation. Understand that they did not view, as we do today, inflation and unemployment to be controlled by the same policy lever of short-term interest rates. So they felt free to blame everything from oil shocks to fish shortages to recalcitrant unions to greedy monopolies for the inflation, and civil rights movements to Japan for the stagnation. These were major academic and establishment viewpoints! Remember that the Republican pro-business establishment forced Nixon freeze wages and prices in order to fight inflation! The past is a different world.
What killed old Keynesianism in academe was a now-obscure econometric fight over whether changes in the quantity of money lead changes in the quantity of output, or vice versa; monetarism triumphed so well that it promptly overreached as well, hence the 1980s abandonment of hard monetarism (monetarism a la Friedman has three postulates; the third is that the relationship from money base to money supply is stable. Dropping this postulate but keeping the other two gives you New Keynesianism).
This has relatively little to do with neoliberalism per se. What shot and killed the old Galbraithian triumvirate was not policy change but the end of Bretton Woods, Japan and Western Germany, and the corresponding rise of financialization of risks by capital instead of state-enforced bargaining of risks. But this was always inevitable. The collapse of Bretton Woods through obligatory US deficits was foreseen even by the Keynesians – even by Keynes himself, in 1945 – but the US went ahead with it anyway because it gave thirty years of influence. It was always obvious that there would have to be an increasing dollar outflow and everything that entailed. And without Bretton Woods exchange rates float, and if exchange rates float there is no easy way to mitigate free trade between US-aligned nations during the Cold War, and then suddenly we enter the modern world of just accepting that Toyota competes with Ford and Detroit unions can’t do much about it.Report
Side note on the academic trivia: what the instability of the Phillips curve did kill was old rigid expectations models; it brought in rational expectations. Lucas, not Friedman.
But you can construct the old (neo-) Keynesians and all their policy conclusions with rational expectations just fine. There’s no uncertainty in the Hicksian neo-Keynesian math, so why not? Just substitute “so nominal wages are fixed due to Money Illusion” with “so nominal wages are fixed to Nominal Rigidity” and then work out the rest of the endogenous money stuff.
A lot of articles for the layman confuse the two (related) academic paradigm shifts, however.Report
The failure of neoliberalism started with branding. No advertiser ever names a product “neoTide” or “neoSnickers.” Following the branding debacle came the marketing problem of constantly redefining the word to mean almost its exact opposite, and then redefining it so it meant something completely different in Germany, America, Latin countries, and elsewhere, and then continuing to redefine it over time so it included everyone from Margaret Thatcher to Tony Blair, and meant everything from asserting centralized control to eliminating centralized control, and lumped Ronald Reagan and Chinese Communists under the same label.
For clarity, it’s much easier to use the shorter, more familiar, and equally specific words, “them” and “they.” 🙂Report
Neo-liberalism is a label used by the far left to refer to liberals. North is the only person I know of who self-identifies that way.Report
Yah, my understanding was that Blair and Bush and Reagan and Thatcher and Bill Clinton were all neo-liberals. And even the ChiComs, in their way.Report
Yes, the Chinese are “communist neoliberals”, an actual term. Neoliberals advocate the use of, or the lack of, government control of the economy, unless they’re not focusing on the economy and are advocating the use or lack of use of something else. Sometimes the term means “good people” and sometimes it means “bad people”, depending on inflection, and maybe which syllable carries the stress, and the lighting level in the restaurant where it is spoken.
At least with an “inflammable” material you can guess that it either burns wildly or doesn’t burn at all, but with neoliberal you don’t know if it means wildly, normally, or not at all, and can’t even guess at which basic property they’re talking about.
I would suggest replacing the term with the word “interesting”, but that word itself would convey some level of meaning that term “neoliberalism” lacks. Perhaps “boring” would be a good catch-all substitute because it probably encompasses almost everything ever written about neoliberalism.Report
Mr. Turner, you are both interesting and boring, then. And funny as hell.Report
Yeah I think “third way” and “neo-liberalism” may be synonymous. However, neo-liberalism in this piece seems to be a pejorative associated with austerity. Most third way types endorse Keynsianism to some extent. The laissez faire non-Keynsians endorse austerity. But third way is NOT laissez faire. Unions, safety nets, etc. these are all part of Clinton-Blair’s third way and in principle compatible with what Republicans have made their peace with. Third way is not compatible with Noam Chomsky’s democratic socialism, which, the experts in economics believe is not workable. Chomsky might be a smart guy; but so are some young earth creationists. On international economics, Chomsky is a young earth creationist.Report
Not quite.
I consider myself to be a liberal but not on the far-left. However, I do not under any circumstances consider myself to be a neo-liberal.
Neo-Liberals are people on the left who are more or less closet libertarians or moderate conservatives on economic issues. Some of them might say that they believe in the welfare state but they often sell the welfare state down the river in order to please their Gods at the Hedge Fund set.
Neo-liberals have adopted some very right-wing attitudes like a severe disregard and contempt for unions and a bizarre love for deregulation as the basic solution to all problems.
Matt Y of Think Progress and Slate.com is a super neo-liberal. His solutions always seem to be towards deregulation. There is a housing shortage? Deregulate and allow people to build below code or end the height restrictions. He does not seem to care about the character of a community or such questions as would San Francisco be San Francisco if all the Edwardians were replaced by concrete high rises. Hotel rooms are expensive? Deregulate and support Airbnb. Matt Y does not ask whether this would mean landlords would turn their apartments into mini-hotels and further increase the housing shortage.
Matt Y sees deregulation as a natural good without examining the consequences. He is more concerned about his future place as a TED Talk guy than about people. Though he does seem to have swallowed his own kool-aid.
Likewise on Education issues, neo-liberals are prone to see solutions in a school system that is all about charter schools and standardized test after standardized test. They were against the teachers in the strike and get suckered into right-wing docs and movies like Waiting for Superman and Won’t Back Down because hedge-fund billionaires must know more about education than someone who studied it and spent years in the classroom. And hey, unions are just for stupid people anyway.Report
I think to a significant degree this comment is going in the right direction.
What I think of when I think of neoliberalism — especially on the Dem side — isn’t questions of stimulus but rather comfortability (or lack thereof) with the Welfare state. I can only speak for myself, but I spend a goodly chunk of my time reading lefties & talking to lefties online, and what I think they mean by-and-large when they complain about neoliberalism is “Democrats who are only Democrats because of social issues.”Report
In which case, who does this describe? I mean, Matt Yglesias, everyone’s neoliberal bete noire, is pretty forthright in his defense of the welfare state. He’d change a lot of it, sure, but he also thought one of the best aspects of PPACA was the increase in Medicaid funding. He comments pretty regularly on the spectacular success of Medicare as well.Report
Yep. The backlash on Yglesias is always overwrought and very much wrapped-up in people’s perceptions of his background (i.e., his being born into relative wealth and privilege). The big, big sticking point, though, is his ambivalence over unions and workplace regulations, and his general inclination that full employment rather than unionization is the best way to empower labor.
I should’ve added labor in my comment above. I tend to conflate labor with welfare programs when I refer to the Welfare state.Report
Here’s the pithiest way I can explain the dynamic:
Neoliberal is to Democrats as RINO is to Republicans.Report
You realize this comparison casts Democrats/liberals in an absolutely terrible light yes?Report
Yep. I try not to use the term unless it’s actually appropriate, and not a stand-in for [pejorative goes here]. I probably used to use it that way more… when I knew less.
(None of this, by the way, is meant to be seen as an indirect criticism of Shawn’s post.)Report
To be fair, Yglesias and I are roughly the same age (he is probably a year or two my junior) and we come from very similar backgrounds in terms of almost everything.
I grew up in a very upper-middle class to wealthy suburb of New York. He attended one of the tonier private schools in NYC (Dalton) but my suburban public high school was just as good at sending her students to elite universities. At least a quarter of my class (probably more) went on to an Ivy League or equally elite university including myself.
My problem with Yglesias is that he really represents my problem’s with punditry at large and as I said previously on the League, he is to economics as David Brooks is to sociology. He doesn’t really write in any depth, most of his pieces on Think Progress or Slate seem to be about two or three paragraphs long and basically regurgitate an academic paper or are super-anecdotal. He does not respond to criticism or recognize that there are other concerns beyond economics and the mantra of “growth, growth, growth”
Krugman at least has a real background in economics and while I might not agree with him all the time, I can recognize his expertise (though I think Krugman is more liberal than Yglesias and realizes that ne0-liberalism compromised too much of the welfare state).
I am a liberal who is not so-enamoured with the wonks are cute nerds aspect of current policy. We need experts and to come up with good policy but policy should not be completely technocratic. People are not just points of data, we have emotional and social needs that are not always rational but are absolutely necessary for us to lead complete and happy lives. Many wonks choose to ignore these needs because they are impossible to quantify or talk about in a white paper.Report
Maniac for President!
[bobo’s debate partner, if you can believe it…]Report
I also think that Yglesias is too enamoured with the idea of a service-sector economy and does not spend enough time thinking about whether a service sector economy is a viable way of providing for everyone.
During his ThinkProgress days, one got the impression that Matt Y thinks that the ideal America would be filled with walkable urban neighborhoods. Everyone would either be some kind of upper-middle class office worker or have a job in the service economy as a Yoga Instructor, cool Barrista, etc.
Not everyone is cut out to be a Yoga Instructor and Matt Y ignores the fact that Yoga Instructors do not make that much money and often need to have contracts with three or four studios.Yesterday on slate, he published a piece on how we are approaching peak leisure hours while ignoring that part of the cause might be that there are just a lot of people who are un or underemployed thanks to the Great Recession and technology rendering positions useless and redundant. Matt Y like many tech-utopians does not realize that the right-wing Captains of Industry still prefer to moralize against the welfare state with Calvinist pomposity even as jobs are rendered unnecessary because of technological advance. He would rather just starburst on “gee gosh, isn’t technology great and efficient. Look at all the stupid things we use to need to pay people real wages for!”
He is just as bad as Richard Florida with his stupid creative class meme. There are not enough creative class types to pull all these industrial cities out of their funk and why would a young college grad choose to go to Elmira or Buffalo instead of New York, Chicago, Portland, Seattle, San Francisco, etc?Report
What if we let some of the older cities just die out and recycled the buildings for material to build stuff in newer cities? Newer, cheaper and more efficient ways of mechanising (a la 3D printers) will ultimately make the means of manufacturing more widely available. This is going to ultimately worsen the current trends on decreasing marginal returns in the manufacturing sector. (Profits arise from scarcity power. The ubiquity of the means of manufacturing will drive down the marginal profit from manufacturing. But no one has the incentive to limit their own ownership of productive assets. No matter what the US decides to do, other countries are going to be able to manufacture stuff more easily and cheaply. The US has to adapt to such situations, it cannot change whether other countries have adapted well or not.Report
I generally agree that the solution is not going to be easy and we need to adapt.
I am not sure that Ygelias is on the right-track for his adaptations and ideas. So far, the service economy has generally meant a lot of low wage jobs that allow someone to look like they are treading water but not really.
There was another article on Slate last week about whether the sort of small-batch manufacturing that you see in Brooklyn and San Francisco among hipsters can revitalize old Industrial cities. My general thought is not. Hipster-DIY manufacturing is built on the romance of quality over quantity and low quantity is part of the selling point. Plus as tasty as they are, not everyone can afford to buy 8 dollar chocolate bars and an artisan economy might work well in small and select neighborhoods but not in a country of over 300 million peopleReport
Great comment, which gets to my biggest point of disagreement with him. He wrote a column earlier in the year at Slate about the Obama Administration being wrong to hype manufacturing. When I first read it I did not know enough about economics and trade to understand what he actually was arguing; but a few months later I returned to it, with more awareness, and was flabbergasted by how utopian and detached was his vision of the future. The piece reminds me very much of the kind of stuff you see from the immediate post-war era, about how flying cars and robots and DDT and microwaves were going to usher in a post-political era of endless abundance and rapid, unstoppable progress.
Here it is.Report
You mean the kind of piece you would read that was written in the era that DID precede the actual era of rapid progress and seemingly endless gains in abundance?
Labor intensive manufacturing is following the same trend as labor intensive agriculture. They are being replaced by inexpensive, high quality, high productivity technology. As consumers we will all benefit. As workers, we will need to find other ways to add value to each other, and / or find ways to enjoy our liesure more.
History can be divided up into the all-to-common times and places where we convinced ourselves to resist change, and did so; and the rare times and places where we embraced the potential for progress and did so.Report
Concrete. Specifics.
That second paragraph makes me wanna call bullshit.
Ain’t gonna, cause It ain’t right.
We are not in a dust bowl right now, because of our corporatized agriculture.
Roger, now that we’ve gotten rid of small farms, can we start talking about adjusting the amount of money we pay for infrastructure people aren’t using???Report
I have no problem with a post-scarcity, high-leisure time society.
The 35-hour work week in France is highly attractive to me. I don’t think working 80-100 hours a week is healthy or productive.
My problem is that technological advancement/displacement is occurring faster than change in how we view work ethically and morally. Large segments of the U.S. including tech innovators and labor displacers still have a very Calvinist view of work. They see the jobless as being jobless through their own failings and not any random occurrence or technological change. This allows them to moralize against a welfare state because welfare just makes people lazy and disinclined to find work.Report
ND, I agree with you completely here. This is a definite problem that we have not made the necessary progress on as a society.Report
I hate to have to say this, but nearly all of the progressive/left criticism of Matt seems to stem almost entirely from a problem with discerning the difference between description and prescription or just general reading comprehension problems.
This comment is an excellent example of that – if this is your takeaway from Matt’s writing, I’m not sure what you’re reading into it, but those viewpoints simply are not in there.Report
Was this to me or ND?Report
It was to ND, I started writing before yours posted. But your subsequent comment would elicit a similar reply from me.
I think I understand MY’s post you linked to quite well, and I happen to think he’s exactly right – a successful national industrial employment policy is necessarily one in which America is a poorer nation.
American ‘manufacturing’ is quite a healthy industry, but it is no longer is a reliable source of massive employment of less-skilled workers.
For it to become, again, a reliable source of mass employment of those workers – US wages will need to fall significantly or we would require trade barriers that would eat up the wages with a huge spike in the prices of goods (and the side effect of re-impoverishing a few million folks in the rest of the world).
Why on earth would we advocate making that the cornerstone of our national economic policy?
I’m curious about what sort of economic understanding you’ve developed to infer some kind of utopianism from the piece.Report
I don’t buy that the price of goods would “skyrocket” if our trade policy was rebalanced in ways more beneficial to workers and less to large corporations. I know this is a point of faith for free trade status quo types, but I’m unconvinced.
Moreover, I don’t think most Americans would cry bitter tears if they lived in a world where they had more money in their pockets and less ability to take on debt to buy things at Apple or Wal-Mart. I might be wrong but I don’t think this particular iteration of consumerism is woven deeply into the American soul (nor, frankly, do I think it should be). Just to be clear, I am not an anti-consumerist. I find that kind of latent puritanism counterproductive and distasteful. But if the price of consumer goods were to increase while the cost for Americans of health care and housing — where most people lose most of their money-that-isn’t-really-money-but-rather-debt — were to decrease, that’s a good trade, in my opinion.
But here’s where the utopianism lies: Matt’s idea that we can become a nation of Apple store clerks, masseuses, athletic trainers, and Facebook employees. In the article he cites Facebook as an example of the Wondrous American Economy of the Future that Obama is neglecting. Do you know how many people are employed by Facebook? By its own measure, less than 4,000. Even if we grant that there are ancillary firms that hire workers due to Facebook (and I think this is a pretty big if, considering what Facebook actually does) the number remains paltry when compared to, say, the number employed by a manufacturing firm.
I don’t want to go on and on; but hopefully this gives you a sense of why I think he’s utopian and detached. The entire country cannot be refashioned into Silicon Valley and Brooklyn, and I find the idea that it can to be, well, risible.Report
One follow-up point, and I risk getting snippy on this, so forgive me, but I find it really, really annoying:
Yglesias is fond of citing the great human benefit that the trade status quo has provided for people in the developing world, especially China. I don’t think it’s quite as rosy as he does — I think there’s a lot of $ going to a small clique of capitalists in many of these countries — but I will grant that on net there is no question that life is better for the average Chinese citizen now than it was, say, 40 years ago. But here’s the thing: We live in a democracy (or a republic; or the vestiges of one, if you prefer) and just because Matt Yglesias thinks it’s worthwhile to sacrifice the middle class standard of living in America in order to raise it in China doesn’t mean it should be done. If American workers want to make that trade-off, more power to them. But I’d say it’s quite obvious that they do not want to make that trade; and claims that opposition to the trade status quo is xenophobic or racist (coming, as they usually do, from folks who don’t care much about racism in the domestic political scene — Yglesias excluded) strike me as deeply disingenuous and in some ways contemptible.Report
But the data shows standards of living are going up in the US and in China.
The decision of course isn’t being made by Elias or Matt (thank god), it is being made by 7 billion consumers when they choose which products they buy. The only way American workers can exploit the Chinese worker is by forcing them out of the market. I understand people are selfish and tribalistic and do tend to band together to exploit foreigners. Can’t we agree this is wrong?Report
Roger,
yes, the data show that China with a minimum wage has increased chinese standard of living.
Can you please admit you were wrong about the “minimum wage is something only supervillains come up with”?
Machine guns on mansions
And newspaper villages…Report
You may not buy it, but I challenge you to articulate a mechanism by which the prices of tradeable goods (ie food, energy and day-to-day necessities) would not skyrocket should low-cost imports be restricted.
Just saying it would be so is a fairy-tale assumption.
The stuff that Americans have indebted themselves over are non-tradeable sector stuff – homes and healthcare. I think there’s an interesting and valid challenge to the ‘neoliberal free-trade consensus’ in that all the savings enjoyed by American consumers on food, clothing, transportation, energy and electronics has just gone into spiking the prices of education, heathcare and housing without a commensurate increase in the quality or quantity of those goods, but it looks very clearly to me like you’re not making that critique.
Matt’s writing on that subject has pretty much been that technological innovation necessarily means doing the same with fewer workers, which means we need to find other things for people to do. Roger goes over that below quite thoroughly, though without as much regard or concern for what they ought to be doing as Matt or I might envince.
When Matt talks about the service sector as the future, it’s because he’s being descriptive about what technological progress is – not because he dreams up a fairy tale about a few hundred million baristas making up the US workforce.
The challenge for those of us that care about the poor and unemployed in America is to maximize their ability to earn a decent living in that world so the surplus accrues as broadly as possible and doesn’t just return to the 1%.
In Matt’s view (and mine) a lot of regulatory schemes have the unintended side-effect of limiting or even eliminating the opportunities for people to make a living and that these limits are especially hard on the poor and on the low-skilled.
On China – I’ve been to China (and a few other third-world Asian nations), I’ve known people that grew up in Mao’s China and I do find this kind of ambivalence from the ‘Left’ about the real gains for the lives of people there to be severely distressing.
We’re talking about hundreds of millions of human beings making significant gains in their health and lives. To say you think we should take it back because we’ve managed to squander our share of the gains on bigger houses, ipods and collateralized debt obligations instead of better education and a stronger social safety net is, in my mind, just as callous and immoral as the capitalist robber-barons we’re supposed to despise. I wish we had invested our gains better, it makes me angry every time I think about it, but I’m not wishing anyone back to the way things were.Report
Roger, in the comment right above here you wrote something to the effect that on your view consumerism drives not only the economy but normativity of the economy. If consumerism requires firms to relocate to China, they’re not only pragmtically justified in doing so, but normatively as well. They’re doing the morally right thing. Is that right?
If so, then I think it’s open to lots of criticisms in it own right, but it most importantly it doesn’t answer Elias’ argument above. His argument is that workers have lost income and had their standard of living lowered as a result of neoliberal policies. The response is that … the Chinese standard of living has increased, so everything’s OK!! But how does that make it OK? The US laborer is acting according to the exact same prescriptions you want him to: self-interest. Why should he give a rats ass about how well of people in China are if it only comes at his expense? Ceteris paribus, of course, he’ll want the best for the Chinese. But the fact that his wages are lowered in order for CHinese wages to increase means that it isn’t a positive sum exchange, right?
The only way it comes out positive sum is if the US laborer is given the choice between choosing to have part of his wage or his entire job outsourced to Chinese workers and paying less for goods and services he purchases, or keeping his job at the same rate and paying more for goods and services. But he was never presented with that choice. SO how can it be positive sum?
That, I take it, is Elias’ complaint.Report
I just wanted to chime in and say that Plinko’s 3:23 comment is fantastic. He touches on what I would have, had I decided to chime in above and beyond chiming in to co-sign his comment.Report
Stillwater,
For the record, the per capita data actually reveals significant gains for the median person in both nations. But I will completely agree that short term, some American workers will be indirectly harmed in terms of demand for their services. In other words, at least short term they could either make less or work less than in a non global market. This means that some of us will be at least short term losers in the zero sum dimension of who gets the job… One of us, or the Chinese worker.
But the point of economics isn’t jobs. It is serving consumer needs. Capital and wages are not benefits, they are costs. The value of our goods and services are the utility gains which we get as consumers. Any time we can produce more consumer utility for less, then total utility has increased. The pie has grown. We have become more productive and more prosperous.
Whenever we have multiple alternatives for a product or service, we have a choice. Who can serve our consumption need for the lowest cost? We give our money to one production team often representing a collaborative effort between investors, managers, supplier networks and employees. Every other real or potential production team loses out on the sale. This creates the incentive for them to further reduce their own costs, improve their own quality or otherwise become more productive. This process self amplifies and the human race becomes not just more productive, but also more prosperous.
Adam Smith came across this surprising and counterintuitive concept about 250 years ago. Free markets are a positive sum process. I am unaware of any credible arguments to the contrary.
Of course every American laborer is selfishly right to hope that we select their services over someone else’s. This applies of course both within and across international borders. They want us to hire them as individuals. I’m fine with this as long as they do not use force or the threat of force to make us use their services. Doing so requires coercion, is totally unfair to the ultimate consumer and the excluded worker and it lowers total human prosperity.
Coercively interfering with free markets is selfish and harmful to total prosperity. It is morally reprehensible to me. It also creates a prisoners dilemma where everyone wants everyone else play fair, but hope they can carve out a privileged and protected, unfair position for themselves. Prisoners dilemmas lead to a suboptimal outcome for everyone. Markets are the moral alternative. Americans must not be given privileged positions. Report
Kimmi,
It was an evil Chinese villain. More of a General Chang than a Blofield or Dr No.Report
This-
“Free markets are a positive sum process. I am unaware of any credible arguments to the contrary. ”
and this-
“Coercively interfering with free markets is selfish and harmful to total prosperity. ”
Are articles of faith, based on postulates, not beliefs supported by demonstrable evidence.
Always? Everywhere? Without exception? To the exclusion of all else?Report
Besides, I thought we already established that there is not one thing that is coercive about your engagement with government.
You are always free to disengage and find opportunity elsewhere. 😉Report
Liberty,
Thanks for the probes. I know I am not persuading you, but I still appreciate the questions as it forces me to work through the issues.
Stating that a voluntary exchange is mutually beneficial is pretty much the core of economics. I guess we should add that it is “expected” to be beneficial, as it is possible rational adults will make mistakes that they regret. Omniscience is not required though to postulate that neither party would agree to a voluntary exchange unless it was expected to benefit them. If the seller and buyer both expect to benefit it is an expected win win or positive sum process.
The reason I stated that interfering with markets is harmful to total prosperity is because it distorts the supply and demand curves. The point where supply meets demand is the point where no further positive sum, or mutually beneficial, interactions are possible. If you artificially lower the price you will get less supply, thus fewer win win interactions. If you raise the price you will get less demand and thus fewer win wins. If you force supply beyond what is desired by suppliers you are inflicting a negative on the party that does not want to supply it, creating a win/lose. Thus interferences in the market will lower the only type of interaction that we can be sure are positive sum.
But yes, I am sure there are exceptions or caveats. One exception is with mistakes or regrets, as above. Another is with externalities (those affected by the interaction but not privy to the decision). Another is with actions that are so distasteful to the rest of us that they are considered repulsive (such as allowing people to sell themselves to slavery, or allowing people to require you to have sex with dead animals on video to keep your job). Free markets need rules and courts to handle these cases.Report
Roger, I might as well say this here, but I appreciate you beating the drum here the way you have and trying hard to bridge the gaps between those of us that are genuine believers and the genuine skeptics.
I suspect that neither of us have figured out how to really bring the skeptical part of the Left around, but keep working, dude.Report
Yes, I get- we all get- Econ 101 about supply and demand.
What is going on here is that this simple yardstick becomes the metric for the world, where all transactions, all systems are viewed as markets.
Toasters? Governed by supply and demand.
Health care? A consumer good, governed by supply and demand.
Roads, water, sewer? Market rules and metrics, solvable by competition, freedom of choice, supply and demand.
It doesn’t vary over time, or geography or culture-
England, in 1950? The free market is the best approach.
Moscow, 1990? Free market would be best!
America, 2012? Competition, free choice!
And the answer is always the same, no matter the question:
Should taxes go up or down? Down!
How far down? Doesn’t matter! Lower!
This isn’t a science, that changes with new evidence- this isn’t management, where the answers vary depending on the context and situation.
This is a religious doctrine, a form of fundamentalism where the answers are revealed truth, verities that could be needlepointed and hung on a wall.Report
Liberty,
Economics is a counterintuitive way of looking at how people can coordinate their actions. There are realms where it doesn’t work, such as with public goods, caring for the destitute, or in advancing scientific knowledge. There are also places where we should not allow it to dominate decisions, because we do have other values and needs.
The truth of economics as Hayek clarified is that it is a problem solving system that becomes smarter than the individuals collectively involved. Thus there is a cost of messing with the system. You make it a less effective problem solving system and the result is less long term productivity and prosperity.
Economics is not a mystical religion. If I was to say that productivity was the only thing that ever matters, that would be religiously dogmatic. I will say that productivity matters a lot, and matters more and more over time because the growth compounds.
There are all types of empirical reviews of places and markets which are more or less free. The results tend to match the theory.
I do agree with you that the free market decision is not the only thing that matters. There are reasons to interfere with the free exchange of goods and services. We just need to recognize the doing do will have ramifications, and these tend to be very negative. Sometimes we should still override the system though. Our eyes should just be wide open. Report
Thanks Plinko,
My guess is that the majority of economists lean left and agree with many of Liberty and Ethan’s values and visions, though with awareness of the ramifications of interfering with markets. Perhaps they are neoliberals.Report
Oops. I meant Elias, not Ethan.Report
So what am I missing?Report
It’s not what you’re missing so much as what it is you’re inventing.Report
Plinko:
First the smaller point on China — you elided the real argument I was making, which was about democracy, and focused instead on an ambivalence on my part that, in my opinion, could only be called such in the face of complete, 100%, see-no-evil boosterism. I grant that life is unquestionably better now for the average Chinese citizen than it was then; what more do you want?
Consequently, by ignoring the whole idea of democracy, of the American people having the right to decide what happens to their standard of living, you’re talking past me; or rather we’re talking past each other. If you subscribe to Roger’s dogmatism — that every time someone buys a pair of $4 socks at Wal-Mart, they’re saying, THANK YOU, WTO! I CHOOSE YOU, ARTIFICIALLY HIGH DOLLAR — you should say so and save us both the effort of seeking a common ground where there isn’t one.
I will absolutely cop to not being as well versed on the economics of trade as Yglesias is or you appear to be. Probably because of this, I’m not as familiar with your argument against some kind of (to use the opposition’s chosen phrase) “protectionism.” Usually I hear that protectionism is bad because it leads to war… or makes Milton Friedman’s ghost very, very sad. What I don’t understand is why investing in green manufacturing in the US, alongside a devaluation of the dollar and a greater emphasis on labor standards in our trade agreements, will inevitably lead to a rise in the cost of consumer goods that isn’t worth the positive effects of a more equitable distribution of wealth and, by extension, political power.
I’m not arguing against the truism that technology inevitably shrinks the demand for labor. It’s true; and, in my opinion, it’s a lot less revelatory an insight than some appear to believe. What I am questioning is the idea that people are likely to be happy, economically healthy, and democratically empowered under an economic status quo wherein the vast majority depend on servicing the post-material needs of the hyper-wealthy — as their iTunes Music Library Experts, or their LinkedIn consultants, or their babysitters and lawn-mowers.Report
Elias, you are right, I owe you a more thorough response than I can give for a bit on some of those things.
Reading Patrick’s post reminded me that I have a real job I am supposed to be doing right now, but I’ll write something tonight.Report
I appreciate it. Do me a favor and e-mail me when you post it, so I don’t miss it? Or post it on your blog; whatever you’d like. My email address is my first and last name at gmail.Report
On Chinese trade: Well, the short and snide argument is that you’re too young to remember that Ross Perot did not win the presidential election in 1992. Americans had a golden opportunity to vote in the voice against reducing trade barriers and about 80% of voters said ‘No, thanks.’
The longer arguments are twofold.
First, on the positivist side: trade liberalization occurred directly through necessary democratic processes. Treaties were negotiated, signed and ratified – largely by an executive branch sharing our ideological leanings, I might add. I don’t recall any large swath of legislators being turned out of office because their constituents preferred high import duties on goods from developing nations or outright quotas in any significant way. Opposing them as ‘undemocratic’ is a nonstarter – when conservatives rail about the New Deal or Great Society as undemocratic I’m pretty sure you correctly roll your eyes, what’s different here?
The regime of trade barriers that cropped up as a result of the World Wars followed by the Cold War was legal, but morally dubious (I appreciate, certainly, that realpolitik means it was inevitable). But, once the Cold War was over, any rational basis for those trade restrictions was moot.
On the more negativist side of the argument (echoing Roger, who, as far as I can tell, holds exactly the same positions I do, but discusses them from a rather different perspective), what right do people have to say “you can’t buy those socks because they were made in China”? Because that’s what you’re demanding – that somebody gets to sit over there and decide who can sell what to whom. You must will that entire apparatus into place to get your wish of $8 socks made in Tennessee instead of $4 ones from China. I don’t will that apparatus.
I don’t subscribe to the caricature that economic freedoms are primary, but I find a case for controlling them heavily to rest entirely on extremely dubious propositions.
This is where I think you’re veering off track – where does it say you get to structure the world economy to your personal preference? I’m constantly upset that the world economy isn’t governed the way I prefer, but I am not advocating that we institute a governing body to make it run the way I wish it would.
From there, ‘protectionism’. I am far from an economic expert, anything I say will likely get JamesK to roll his eyes at me for certain. What I can do is some basic math.
Take my industry, apparel.
I’m roughing out an estimate that exports of apparel to the US employs something on the order of 13 million people, almost entirely in either the BRICs or developing nations. Officially, there are about 8 million persons unemployed in the US.
Now, American workers are certainly more efficient for a host of reasons, but there’s a reason apparel moves to developing nations before other industries, and it’s because a textile worker in Bangladesh is not all that much less productive than one in the US. There isn’t the technology in existence to make clothes much better than we already do.
So, we’ve just re-patriated 13 million jobs (OK, let’s call it 10 million after accounting for productivity gains) with more jobs than we have people to fill them. Where are all those workers going to come from? I know why you like this idea, because we just created labor scarcity. I like this part of it, too, but it’s fake.
You didn’t grow the economy one whit in this process, there are not any more items to sell, nor is anyone spending any more money than they were before.For apparel prices to remain stable, then are all those workers going to make a $100 a month like the lady in Bangladesh? No, we’d probably expect they can make at least $2000 a month (living wages and all) so clothing prices must approximately double to support those wages (I can do the math for you, if you like, but this is already way too long for a blog comment). Now, we can either have half as many clothes at double the price (great,we spend the same for half as much! Remind me why the US health care system is awesome compared to France or the UK again?), or we can buy the same clothes at double the cost. Where’s that money coming from?
It must necessarily come out of other expenditures because we don’t suddenly have 102% of our previous income. Everyone must either consume half the apparel they used to or shift a few percent of their income away from food, shelter, transportation, leisure, health care, etc. to afford the newly doubled costs. That is a direct loss in quality of life for everyone in the US when they cut back on food or eduction or PS2 games.
But we’re not done yet! Whatever industry we cut back from, they just loss a massive part of their market share, they’ll be laying off a few million folks because their productivity isn’t needed – I guess I know where they can work, hope they weren’t making better than just over the poverty-line because that’s what we just traded their previous jobs for.
Now, all that, for the low price of re-patriating a whopping 2% of US imports. You’re suggesting we do it with 10-20 times that? Ten of millions of jobs would be shifted from whatever they do now, to lower productivity jobs making stuff, which must reduce overall prosperity. You may deride some crappy job running a lawn service or being a yoga instructor, but I’ve been in my share of manufactuing facilities where low-skill work is being done, I know which one I would choose. I haven’t even gotten into discussing that other nations brought down their barriers to our exports as well, allowing people more people here to have jobs where they’re more productive than the old protected industries in other places.
As I alluded to earlier, there’s a real cultural/institutional problem here – that we haven’t figured out how to allow the gains from trade to accrue fairly to the small minority of folks who are objectively worse off – the ones who are not able to transition well. Keeping them in what MattY correctly refers to as the “ultra-low productivity unemployment sector’ is about as dumb a plan as I can imagine. But repatriating industry won’t do it without severely reducing overall prosperity for the 85-92% of folks who are already employed, because you are demanding they spend more to get less. I’m not even touching frictions or second order effects on markets or, gasp, the tremendously negative effects on the livelihoods of several million people.
I’ve long mulled trying to develop a parable around this. Being such a long an unwieldy post to make a small part of the point seems like a silly waste of the time I could be doing something more productive.Report
Plinko,
I agree with what you’ve written and that free trade creates problems with the low skilled and those misplaced by competition. I agree with the left that we need well designec social safety nets to protect these folks.Report
ND, there’s some fair criticisms in here but some stuff I don’t think works. Sure neoliberals (or centrist liberals I guess since that’s essentially what the term neoliberal means to the left) have in the past probably overemphasized cutting social welfare programs. That’s entirely possible, there’re a lot of neoliberals out there. Perhaps they do overemphasize deregulation but it bears noting that part of the reason they lean that way is their liberal brothers don’t countenance cutting any welfare programs (even when specific programs are demonstrated to be harmful, wasteful or ineffective) and don’t countenance cutting any regulation (even when specific regulations are demonstrated to be creating cartels, blocking opportunities for the poor and hurting people).
Your criticisms of ol’ Matt Y seem to be perfect examples.
Issue: There is a housing shortage?
Proposed solution: remove or loosen zoning regulations, then more housing will be built.
Liberal hissy fit: Oh my god! You want to take away the architectural heritage of the community!!
Irritated Rejoinder: First, I thought we were trying to fix housing shortages? Second, is we loosen zoning rules but still uphold historic preservation regulations then maybe the buildings that’ll be replaced will be less picturesque buildings? Why also are we suddenly willing to preserve historic buildings if the cost is pricing the poor out of the market?
I’ve certainly never seen Matt embrace deregulation as a good in of itself. His arguments have always been about what goods deregulating will achieve, not some moral argument about the evil of zoning.
For the rest of this I’m puzzled as to why neoliberals must be lumped in as anti union? The neoliberal party (Democrats) aren’t anti union. Maybe it’s because Shawn slapped the Gipper and Thatcher up on his post as neoliberals (which strikes me as unfair).Report
I agree with most of this, although I think calling the Dems not anti-union, while technically true, might (unintentionally) paper-over the real ambivalence and divergences within the party over unions.Report
Oh well yeah but when we’re talking about the Dems it’s impossible not to overgeneralize. They’re a fractous bunch and if you add in historic Dems then you can find a sub group of them to match any cause in history good or bad.Report
Yes, absolutely.
One of the more unhelpful but inevitable facts of US politics, in my opinion, is that we refer to Dems and Reps as if they were equivalent groups on different sides. In reality, there’s a Republican Party and then there’s a We’re Not Republicans Party, and the latter is held together by very little more than, well, not being Republicans.Report
I am not American, so I could very easily be wrong, but it has always struck me that the Republican coalition can be just as well described as being held together by not being Democrats.
It is not as though neocons, libertarians and social conservatives have a wholly natural alliance.Report
It’s far more coherent than what you see on the D side; but I was actually referring to demographics more than ideology. Demographically there’s no comparison.Report
This may be true, but I feel that demographics may not be the most helpful lens for analyzing political coalitions.Report
Ultimately two-party systems are going to produce a lot of strange bedfellows. We might be at odds but Matt Y and I are both going to remain Democratic Party supporters probably.Report
The reason I have become more stubborn and hard-line on regulation and welfare issues is that I don’t think the American right-wing is willing to compromise in anyway. They are hard-line and to a certain extent the left needs to be hardline in return.
Sweden does is much less regulated than the United States, this is true. However, I don’t see the American right-wing as willing to make a Sweden style compromise of a very strong Welfare State combined with fewer regulations.
Rather, the American right-wing is not going to be happy unless they have it both ways, zero to little regulation combined with no welfare state. Too often, neoliebrals have been wet and willing to vote for deregulation and not standing firm on social justice and welfare issues. This is often because they come from the upper-middle classes or above and never really relied on unions or welfare benefits.
So I think now is the time to be a bit hard and fight back.Report
I actually agree with you that it’s time to bloody the GOP’s nose a bit as punishment for their insane intransigence. But the area that they need their nose bloodied on is taxes and defense spending; not general regulation and unionism (particularily since notable in its absence in these discussions has been any proposal for boosting unions ~especially private sector unions~).Report
[[ No advertiser ever names a product “neoTide” or “neoSnickers.]]
See also: “New Coke”!Report
Yes, but not NeoCoke!
The Matrix had a character called Neo and look how that franchise died a thrashing death. The prefix is just toxic, NeoNazi being but one example.
Perhaps the only popular product I can think of that still uses it is Neosporin. Even neon is being abandoned in favor of colored fluorescents and LED’s, and that was a noble element whose utility was doomed just prefixing “neo” to a single letter!Report
We’ll be back to using Paleon gas any time now.Report
If we were headed toward neoliberal utopia when the crisis struck, you’d think the last 30 years wouldn’t have sucked for most American workers
Things haven’t sucked for American workers, they just haven’t gotten better as quickly as they did for the brief period of time during which they were able to extract rents on their geographical proximity to the world’s largest supply of unexploded physical capital. Real wage growth has slown down for American workers, and for first-world workers more generally, for the same reason that it’s finally started to pick up in the third world: The geographical segregation of the global labor market has begun to break down.
But by all means, let’s keep Africa and Asia in deep poverty to protect the privilege of American workers, the global 1%.Report
The expansion of jobs globally and people above the dollar-a-day poverty mark was my first thought as well. If things are evening out, that can’t be all that bad a thing. I would also note that a main source in the OP, the vanilla-sounding “Economic Policy Institute,” has 10 labor leaders on its board, as well as neo-liberals like Julienne Malveaux, Robert Reich, Rep Keith Ellison and a few other well-known centrist agitators*.
The decline of unionization in the First World is unsurprisingly viewed as self-evidently bad.
*http://www.epi.org/about/board/Report
Right.
The true enemy of the American middle class is the guy in China working for a dollar a day.
Not the lords of finance in their Manhattan towers, nope. They are benevolent and wise Job Creators who gift us with our daily bread. The fact that their wealth has soard astronomically while ours has stagnated? Irrelevant! Pay no attention, peasant!
No, we should be carrying out a pogram against the Chinese, or better yet, work for 99 cents a day, to really bring back prosperity.Report
Lib, are you even responding to BB’s comment? He’s not saying the Chinese worker is the enemy (quite the opposite, actually). He’s saying wage growth (or not) is largely what it is due to, you know, the world mostly not blowing each other up recently, and trading, and bringing the 3rd world up.
He’s saying, largely, there *is* no enemy.
Must there always be?
Who are you arguing with?Report
And when we bailed out the financial types to the tune of a trillion dollars, it was in gratitude for what they’ve done to level the global playing field for the rest of us.Report
Er, pretty sure neither BB nor I were in favor of the bailouts, which were in any case a response to the crisis resulting from the crash of the MBS bubble, which bubble was not posited as causative for wage stagnation in any analysis I have seen (it was a separate issue).
I guess I am just not smart enough to understand what Lib is actually arguing, and who against.Report
Its not about who is whose enemy. This isn’t a zero sum game. The question is supposedly about what neoliberalism may or may not have done. Whether you think its good or not, one of the things it undeniably has done is globalize the market for labor and capital vastly to the benefit of labor that finds itself in less wealthy countries.Report
It’s probably more accurate to say “vastly to the benefit of capital” as there is a tendency for capital to continually move around in search of cheaper labor. Its mobility is certainly substantially higher than labor.Report
Nob,
You and Liberty seem to be assuming there is a fundamental zero sum relationship between capital and labor. This is total bunk. The relationship between labor and capital is a cooperative one where they work together to serve the needs of consumers. When capital moves to Vietnam or shifts from wages to technology there is a point to this. It is to solve consumer problems more efficiently. Sure the first mover makes higher profits, but the act of making profits attracts competitors and the net result is not exploitation, but prosperity for the human race — or at least the portion of it open to liberalism.
Labor competes with labor, and in global markets, labor competes globally. Thus Brandon is completely correct. The trend we have seen over the last 30 years is the greatest movement toward equality in history. Labor in third world countries is now on a more equal footing with those privileged ones born in developed nations.Report
We keep hearing this- that outsourcing and the global flight of capital will result in wonderous benefits to the middle class…someday soon, just you wait and see.
It reminds me of how prosperity in the Soviet Union was always around the corner, if it weren’t for this freakish crop failure that happened for the 33rd year in a row.
For 30 years we have been pursuing these market-friendly poicies, and the middle class is worse now than when we started.Report
Liberty,
My comment at the bottom of the page reveals how misguided your narrative is. Global free markets have done more for humanity over the past few decades than ever before. Yes, the privileged workers of America now have to compete with the truly underprivileged of the world, just as capital competes globally, and this has eliminated the unfair advantages we previously enjoyed. That is called fairness, as per the discussion we had over the weekend. Fairness is good right? Workers in China should be allowed to cooperate with employers to solve consumer needs…. Right?
Finally, the median person in America, despite the headwinds of global competition and increasing transfer payments (two good things on a broader scale, right?) has done splendidly. Per capita incomes and consumption have soared over the past 30 years, especially for minorities and those starting in the lowest quintiles.
I have posted these numbers and links a dozen times on this site and it is pretty clear that facts mean nothing to some progressives. You guys just continue to lie to each other and nod at how good your self delusions make you feel.Report
And more accurate still to say to great mutual benefit. In utility terms, I’d think the poor workers would benefit quite a bit more than the capital owners.
I’ll admit that I don’t have a model worked out, but it’s not really clear to me that capital mobility and labor mobility aren’t more or less equivalent in distributional terms.
In terms of total efficiency, I’d think that labor mobility alone would be superior to capital mobility alone, beacause capital tends to be concentrated in countries with good institutions. With only capital mobility, capital has to move from countries with good institutions to countries with bad institutions to access cheap labor, whereas labor mobility would allow workers to move to countries with good institutions. But this is a productivity issue, not a distributional issue. And since labor mobility seems to be politically infeasible, capital mobility would appear to be the second-best solution.Report
Its obviously to the benefit of capital – I don’t think anyone is arguing about that. The less recognized point is that if capital were unable to move around to seek out underutilized labor it would be to the disadvantage of those workers too. If labor were also more mobile, that would be much better, but there is obviously a lot of opposition ot labor mobility. Capital mobility is second best.Report
Its not a zero sum game?
The way it is put to us by the Job Creators is, “if you won’t work for a dollar a day, we will find someone who will.”
I was responding to Bradon who assured us that the rising tide of inequality in America was not the result of policies that transferred wealth from the middle class to the 1%; it was the rise of the 3rd world that caused the middle class to stagnate.
But of course, somehow the 1% miraculously escaped this phenomenon.
That’s the oldest lie in the book- where the lord in the castle assures the peasants that their poverty is the result of witches, Jews, illegal immigrants, anything but his own thievery.
Why must there be a villain? Because what has happened to the middle class over the past 30 years was not the random mysterious workings of the global economy; it was the result of deliberate policy choices that favored the privileged few who were able to write laws for themselves while ignoring the rest of us.Report
Liberty,
Nope, it is a positive sum game. That is why global output is several hundred times higher now than it was a few hundred years ago. Ten times as many people, making on average ten to twenty times as much. We grew the pie. It is a massive, complex adaptive, positive sum game. Admittedly there are zero sum dimensions within the game, just as there are in most games.
You assume many fallacies. First, that the one percent is a monolithic group. They aren’t. They are a point in time position that indicates how high the most poductive among us can rise. Second you assume that if some gained more than others that they must have done so at the others expense. This is the zero sum fallacy as mentioned above. Expanding markets will increase the demand for some skills and lead to superstar rewards for the best in their fields. Jobs didn’t get rich by taking more of the fixed pie from the rest of us, he became rich by making others rich by creating products which enriched the lives of consumers*. We would be even better off if there were more billionaires.
* Microsoft investors and employees were the zero sum “losers” in the larger positive sum game.Report
Because what has happened to the middle class over the past 30 years was not the random mysterious workings of the global economy
First, nothing happened to the middle class. Middle-class incomes simply haven’t sustained the level of growth they saw in the ’50s and ’60s.
Second, there’s nothing mysterious about it to anyone with a basic understanding of economics. When a small class of workers (the American middle class in the ’50s and ’60s) has a lock on access to capital, they will tend to have high productivity and high wages, because capital increases labor productivity, and vice-versa. However, this has diminishing returns. Consequently, when you free up capital, the holders of capital will seek to invest their capital in areas with lower capital-to-labor ratios, as this tends to produce better returns per unit of capital.
The ultimate result is higher returns to the holders of capital, and a tendency towards convergence in wages. You don’t pay Americans $30/hour when someone will do the exact same thing, just as well, for $3/hour in China. But the supply of workers in China, while large, is limited. Demand for Chinese labor pushes up wages there.
Higher returns to capital, slow wage growth in the first world, and high wage growth in the third world are all predictable results of globalization.Report
The global marketplace has always existed- the wild swings of inequality of wealth within America during the First Gilded Age then the Great Compression in the postwar era were also the result of governmental regulation and taxation.
Assigning everything the the global economy implies that governmental policy is irrelevant.
This New Gilded Age was not inevitable.Report
Yes, this.Report
So you would be in favor of an International Workers’ Bill of Rights, then?
If your goal is truly to lift Africa and Asia out of poverty, you really can’t object to there being an minimum wage or right to organize or other workers’ rights.
On the other hand, you could be concern trolling for the very forces that ensure the poverty you bemoan.Report
Only a bald headed evil genius with a cat would be in favor of minimum wages and first world workers rights inflicted on third world workers. The evil genius of it is that it would ensure their continued poverty (bru ha ha ha) yet appear like we were actually helping them.Report
Cite your evidence. You can start with China, as it makes a good testcase, don’t you think?
I don’t think the Chinese are as dumb as a standard supervillain (some rich sobs around here, on the other hand… Stealing A Dog! And then Boasting About It!)Report
My first slide is on how to sell the need for an ADA (or “CDA”) that will require changes in 90% of the buildings in China…Report
From there perhaps we could introduce slides showing how supply and demand works. Could someone remind me…. When we increase the cost of something, do we tend to increase or lower demand for it?Report
Technically, changes in price don’t effect demand at all. Demand is a function describing the relationship between price and quantity demanded. What decreases when you raise the price is quantity demanded.Report
BB,
Thanks, good clarification. I need to revise my narrative on this. I’ve probably made this same mistake repeatedly.Report
My interest is in promoting global prosperity, not in checking off points on the political agenda of the pre-economic left. Competition will push third-world wages as high as conditions in those countries will support. A global minimum wage, aside from setting a really awful precedent, runs a real risk of pricing certain regions out of the market altogether.Report
To elaborate on this a bit, poor countries are poor for a reason. For whatever reason—bad government, bad infrastructure, bad location, cultural differences, whatever—they have historically not been seen as good places to invest. Many still aren’t. Cheap labor is their comparative advantage—what they need to sweeten the deal enough to cause investors to overlook their other problems. If they can’t offer cheap wages, then they have nothing to offer, and they can’t attract foreign investment.Report
The failures…
Could we point to the successes that we’re saying that we’re failures next to?
Because this strikes me very much as the guy who is complaining that he’s not driving a Lexus when he’s looking at his Subaru and staring at the big houses on Wood Avenue… and not really taking into account the Datsuns on Knob Hill.
If you know what I mean.Report
Or who drives a Lexus but complains because it doesn’t fly.Report
If you want a flying car, either get a Delorian with a hover conversion (which should be available in 3 years time) or a Ford AngliaReport
A Delorian is nothing but a poor man’s TARDIS.Report
A TARDIS is not a flying car.Report
Why would you need a car (flying or otherwise) if you had a TARDIS? Think man!Report
Because having a flying car satisfies a very different kind of itch than having a clunky policebox which can take you anywhere in the space-time continuum. And besides, in the DeLorean, the doors open up like WOOSH and that’s cool in and of itself.
Are you telling me that this:
is cooler than this?:
Yeah, but the Tardis comes with Billy Piper!Report
Or who has been the beneficiary of an unprecedented transfer of wealth and historically low tax rates, but still threatens to Go Galt?Report
Yes, that is also quite silly.Report
The problem with the analysis is that it fils to account for stagflation. Why did stagflation occur? If the post war system was essentially the right way to go about doing things, why was it so seemingly successful in the 50s and 60s but much less so in the 70s?
During the post war era, the US was pretty much the only game in town (and by far the largest). All other countries had their infrastructure bombed to smithereens. The US did as well as it did in the post war years because actual means of production was already there and did not have to be rebuilt from scratch.
Unions worked then because there was nowhere else for jobs or capital to go. Once other countries (Germany and Japan) caught up, this ceased to be the case. The US could have closed its doors, but then people in the US (even the worst off) would have had a lot fewer nice things today. If it had remained the same, well, there would have continued to be stagflation. The worth of money would have continued to fall and unemplyment would have been high. 1983, the unemplyment was at 10%., but it had already suddenly shot up to 8% in the mid 70s. In such a situation, the worst off would have continued to get even worse off in absolute terms and not just relative to the absurdly fantastic gains made by the rich. This paper gives a cross country survey relating various measures of economic freedom to poverty.Report
I think the main reason unions worked so well in the 1970s is that U firms had less competition, so they were making supernormal profits. That gave unions a surplus to bargain over. But globalisation and a more forgiving regulatory environment has led to more competition, and therefore less of a surplus for unions to capture.Report
Unions are able to extract the surplus when companies are unable to hire non-unionised workers. Scarcity power is after all, one of if not the biggest determinant of the profit margin. I don’t know that the profit margin of the company is relevant. Of course, in conditions where there is no competition, there is both less surplus to capture as well as more reasonable alternatives to hiring unionised workers.Report
I’m puzzled by a lot of this. I wasn’t aware the neoliberals have any kind of ideological fixation with removing government involvement from education. Tinkering round with it, sure, but privatizing it? Isn’t that libertarians?
Similarly I don’t think that there’s anything in neoliberalism that is necessarily hostile to unions. If anything most of what I’ve read suggests that it is the current government regulations imposed on unionization that go a long way towards harming union formation.
My own (admittedly inexpert) understanding of neoliberalism is that it’s distinctly non-utopian in manner focused instead on technocratic optimization of the balance between government and markets. If we can figure out which force (or combination of forces) can perform the needed role optimally then that is the one that should be employed. Neoliberal nations like the Scandinavian countries (and increasingly Canada), for instance, seem to have determined that healthcare is best done with significant or even direct government intervention and so far they’ve done pretty well doing so. As far as I’m aware no neoliberal approves of the utter fiasco that was the 2008 banking crisis and if that means that more regulation is required so be it.
I’m also confused by Shawn’s odd America-centrism when it comes to enumerating neoliberalisms’ successes and failures. Utterly absent from his analysis are the hundreds of millions of people in South Korea, Taiwan and Singapore (to name a few) who have been lifted up to nascent first world standards of living by trade liberalization and neoliberal policies or the billions in developing states who’ve moved from starvation levels of economic activity to improved (though admittedly not improved enough) standards of living. This strikes me as a damning exclusion especially contrasted to the blood and starvation soaked record of traditional liberal interventions in places like Africa.
Also absent, I notice with puzzlement, is any suggestions of alternatives. Neoliberalism replaced the old liberal failures in this country and made the electorate comfortable again with turning the government over to Democrats after a decade of Republican rule. It’s under neoliberalism that social attitudes have evolved in a liberal direction with racism and conservative social engineering by and large beaten back or at least held at bay. If we’re to trade in the performances of Obama and Clinton for the promises of Dukakis, well, that doesn’t strike me as a good deal.Report
While I would never use a word like “neoliberal” to describe myself (because even I am not that gauche), my own brand of left-libertarian-hoo-ha aligns pretty well with North’s politics, and I’ll just associate myself with this comment. Any critique of neoliberalism that fails to account for the massive improvement in global standards of living over the last several decades is missing some of the most important data.Report
I think I’m with you (and North), for the most part. My left/liberalism has in the last four years or so had to take on many libertarian ideas.Report
I want to sign off on this as well. I always think of “neoliberal” as the slur tossed for those of us that embrace some aspects of the Liberarian critique of the late-20th Century Left/Democratic view. It’s interesting that we’re having this discussion at the same time as Ethan’s excellent ‘Sit Down and Shut Up!’ post.Report
“Neo-liberal” is what the pre-economic left calls apostates.Report
You know, I’ve no idea what Dukakis’ platform actually was….
This rightwing piece — http://www.forerunner.com/forerunner/X0160_Dukakis_Platform_198.html — doesn’t give me much sense of where Duk was on macroeconomics. It’s mostly devoted to assailing him for culture war heresies.
This piece — http://www.kennesaw.edu/pols/3380/pres/1988.html — also argues the election was all about culture war. All this is in concert with my vague understandings of how that election went and what it was about.
But I was not yet conceived when all of this happened, and I admit am feeling a little too lazy to dive headlong into teh google to research it right now… Can anyone enlighten me here?
In case my point isn’t clear: Is it actually true that Dukakis represented something palpably different from Clinton on economic policy? Or is it that Clinton made a lot of noise & superficial gestures toward social moderate/conservatism & being pro-business?Report
Wait, you weren’t even conceived yet in 1988? Jesus.Report
Actually this isn’t true. I was born in August ’89, so I was conceived at the tail-end of ’88.
I have misled you all, and for this I’m deeply sorry.Report
Damn you are young.Report
For a long while, I thought that I was the youngest FPer then Elias tells us that he hasn’t even hit his mid twenties yet. I remember that your oldest gravatar was a picture of a guy who looked like he was in his mid 30s.Report
For the record, I turned 32 a few weeks ago. I think there are a lot of Ordinary Gentlemen around my age.
Completely unrelated to the topic, there is a roughly equal amount of distance older brother (born in 1972), me (born in 1980), and Elias born in 1988. However, I feel like I have much more in common with people born in 1972 (or as I call them prime Gen Xers) than people born in 88-89. I seem to have many more cultural references in common plus the ability to remember life before the internet.
1980 is technically the tale end of Gen X but I feel more like it is the purgatory between Gen X and Gen Y. This purgatory group is largely people who were born between 1978-1980 or 81.Report
I was born in 1982 and I feel much as you do.Report
Get off my lawn!Report
And turn down that blasted music!Report
Yes Elias is depressingly young and accomplished God(ess?) damn him.Report
He is the Mozart to my SaleriReport
Figaro, Figaro, Figaro!
😉Report
“Figaro, Figaro, Figaro” comes from Rossini’s The Barber of Seville, not Mozart’s The Marriage of Figaro.Report
okay. I suck. 😉Report
Being born in ’83, I can also act like a bitter old man in response to the skill of Elias. 😛Report
Dukakis was probably less of an old-line New Dealer than Mondale but he was certainly not a full DNC centrist either.
That being said, IIRC the 1998 election was mainly about foreign policy/cold war stuff and culture war issues and not so much about economics.Report
As I said above, the problem with American neo-liberals is that they were willing to sell away all the welfare state stuff to make sure that the hedge funders gave to the Democratic Party instead of the Republicans.
See above for my thoughts on neo-liberals and education. Many of them seem to be just as enamoured with charter schools and constant standardized testing as Republicans and likely to ask questions like “Who needs a music program?”Report
ND, that assertion strikes me as massively unfair. It’d be like a neoliberal saying the problem with American Liberals is that they spent the 70’s and 80’s feeling instead of thinking and felt that whether their ideas and policies worked or not was irrelevant so long as their hearts were in the right place.Report
I am not a neoliberal, and am in fact vaguely confused as to what that is, but I have to agree with ‘ If anything most of what I’ve read suggests that it is the current government regulations imposed on unionization that go a long way towards harming union formation.’
I think labor be much better off if we removed all regulation vaguely connected with unions, and start over.
Why? Because that regulation was in pre-internet, pre-cell phone camera days. It was in the days when the local police could, and would beat strikers. And it was the days without safety regulations, so unions had to give concessions just to get those. And it was in the days where someone couldn’t set up a nice website and get the workers behind them on _that_ without the management knowing about it.
Reboot the entire thing, but in _this_ universe? Holy crap. You’d have sympathy strikes, you’d have strikes of ‘management’, you’d have partial strikes and slowdowns of skilled workers, you’d have unions forcing union shops everywhere. You’d have unions that barred anyone who scabbed from ever working in the field again. You’d have picketers deliberately blocking entrances and getting arrested. (That last would still be illegal, but we’ve gotten much most sympathetic to that since the turn of the last century.)
I.e., back then, companies did a lot of _illegal_ things to cripple the movement, so that labor laws were accepted as some sort of compromise. Not only can they no longer do that, but _unions_ can do a lot more completely legal stuff…and ‘protesting’ has become a lot more accepted, especially for stuff that is easy to explain.Report
I agree, let’s reboot. All we need are the basic laws against fraud, violence and threats of violence.
The entire paradigm is based upon some strange belief that management and labor are fundamentally at odds with each other. In reality of course, labor competes with labor while employers compete with other employers. Any point other than that where supply meets demand is a point of economic inefficiency. It is a point representing a less prosperous world.
I would even support government employee freedom to unionize in non essential fields. Let them unionize and strike as long as management is equally free to fire and replace.Report
Shawn,
This entire article is based on the assumption that the prosperity of humanity has stagnated over the past 3o years, thus proving the failure of the liberal market philosophy.
In reality, the last 30 years have seen unprecedented gains for humanity. As the liberal market order has extended out to more people, billions have moved out of poverty, and often gained freedom, opportunity, literacy and democratic voice along the way. Let me repeat. This was the best time ever for us. The track record of the liberal solution is an “A” when compared to any other 30 year period since the advent of man.
If you look at prosperity gains by nation, the more liberal the nation is, the better it’s people have fared. And the reverses holds as well. If you look at it by industry, the more liberal the market order has been, again the more we have benefitted from it. The less liberal orders of finance, education, energy and health care are notable not for their successes but their relative or absolute lack of progress.
Even within the US, despite starting at the leading edge of prosperity and facing the growing headwinds of competition with global markets and increasing transfer payments, the median person has done splendidly. Income and consumption have gone up for all. They have gone up the most for those starting the lowest. And we did well while also managing to transfer almost a trillion dollars per year to the leat advantaged in needs-based programs. I have linked all these facts before, especially during the inequality forum.
Please do us a favor, Shawn, As Jaybird wrote, if this is a failure, could you please point out what you envision success looking like?Report
The main problem I have this piece Shaun is that “Neoliberal” is a very vague term. It’s often used to describe Reagan and Thatcher, and yet my understanding of the term makes Sweeden the Neoliberal poster child.
I think this is a situation where labels get in the way. Which policies do you describe as “neoliberal” that are a problem for you? Because as a professional I can tell you it’s flat out impossible to attribute gross social or economic performance to specific policies without doing some very careful research. Simply looking at the real world like it was a controlled experiment is not a reasonable way to evaluate policy.Report