Joseph Stiglitz and Paul Krugman are my two favorite economists–probably because, despite both being Nobel Prize winners– both of them are able to explain their conclusions in language I can (mostly) understand, and because those conclusions usually strike me as eminently reasonable.
Stiglitz recently took on the neoliberalism that has characterized American governance since Reagan. Neoliberalism has been described as an economic system generally opposed to the provision or expansion of government safety nets, and highly skeptical of regulation, extensive government spending, and government-led countercyclical policy.
As Stiglitz notes,
On one side of the economic debate are those who believe in largely unfettered markets, in which companies are allowed to agglomerate market power or pollute or exploit. They believe firms should maximize shareholder value, doing whatever they can get away with, because bigger profits serve the common good.
The most famous 20th-century proponents of this low-tax/low-regulation shareholder-centric economy, often referred to as neoliberalism, are Milton Friedman and Friedrich Hayek. These Nobel Prize-winning economists took the idea beyond the economy, claiming this kind of economic system was necessary to achieve political freedom.
The strongest argument advanced by neoliberals is that economic freedom translates into political freedom. As Stiglitz points out, however, “not quite.”
We’ve now had four decades of the neoliberal “experiment,” beginning with Ronald Reagan and Margaret Thatcher. The results are clear. Neoliberalism expanded the freedom of corporations and billionaires to do as they will and amass huge fortunes, but it also exacted a steep price: the well-being and freedom of the rest of society…
Friedman and his acolytes failed to understand an essential feature of freedom: that there are two kinds, positive and negative; freedom to do and freedom from harm. “Free markets” alone fail to provide economic stability or security against the economic vagaries they create, let alone allow large fractions of the population to live up to their potential. Government is needed to deliver both. In doing so, government expands freedom in multiple ways.
Stiglitz’ basic argument is that the “Road to Serfdom” isn’t paved by governments that do too much; loss of freedom–serfdom– is a consequence of governing that does too little. He points out that populist nationalism poses a greater threat in countries like Israel, the Philippines and the United States than it does in in Sweden, Norway and Denmark. In those Scandinavian countries, high-quality public education, strong unemployment benefits and robust public health provide an economic floor that shields citizens from what he calls the “common American anxieties over how to pay for their children’s education or their medical bills.”
Discontent festers in places facing unaddressed economic stresses, where people feel a loss of control over their destinies; where too little is done to address unemployment, economic insecurity and inequality. This provides a fertile field for populist demagogues — who are in ample supply everywhere. In the United States, this has given us Donald Trump.
We care about freedom from hunger, unemployment and poverty — and, as FDR emphasized, freedom from fear. People with just enough to get by don’t have freedom — they do what they must to survive. And we need to focus on giving more people the freedom to live up to their potential, to flourish and to be creative. An agenda that would increase the number of children growing up in poverty or parents worrying about how they are going to pay for health care — necessary for the most basic freedom, the freedom to live — is not a freedom agenda.
Champions of the neoliberal order, moreover, too often fail to recognize that one person’s freedom is another’s unfreedom — or, as Isaiah Berlin put it, freedom for the wolves has often meant death to the sheep. Freedom to carry a gun might mean death to those who are gunned down in the mass killings that have become an almost daily occurrence in the United States. Freedom not to be vaccinated or wear masks might mean others lose the freedom to live.
Stiglitz provides examples of the various ways government regulation can enhance, rather than impede, individual freedom, and he ends by defining what he calls “progressive capitalism” (what I would call the “mixed economy.”) The goal of any economic system ought to be the creation of a broadly shared prosperity. The Isaiah Berlin quote captures the essential problem we face in today’s crony capitalist economy: we have a government that has been solicitous of the freedom and well-being of the wolves, and we’ve ignored the negative effects on the sheep.
Only government can (1) provide a social and political infrastructure accessible to all, and (2) prevent the wealthy and powerful from dominating and harming others. Neoliberalism fails on both counts.
I appreciate the essential meaning in the essay, and agree with the premise, but I take issue with the language of “wolves” v “sheep” comparison, if we want to share this message with a larger audience. No one want to be categorized as a “sheep”. When I was a police officer, we used the same analogy but referred to ourselves as the “watchdogs”, protecting the sheep from the wolves. That leads to a sense of entitlement and a mentality of condescension towards the “sheep” and a warrior mindset against the “wolves”, and that has not served our present day very well.
What other metaphor could be used to express that same message? Words matter.
The goals that you set out are great, but they aren’t the goals of the Neoliberals. The only thing that is a goal (the business of business) is to make money. It was the first lesson in the first class of my MBA program.
The problem I found with this approach was that it is shortsighted, but that didn’t matter to people who were raking in money by the barrel full. After all we all know that the more you have, the more you get right?
Objectively, if you’re selling widgets, the more people who have the money to buy widgets, the more widgets you’ll sell. But that means you have to work for the money. It’s so much easier to do a stock buy back with the proceeds from your big new tax cut!
My concern is with the poor and how big government and its extraction of trillions has effected them. Yes we need steady and approved regulations that effect safety, the environment, health industries, etc.
Prices have risen due to the unmoderated influence of so called quantitative easing.
$10 trillion from Obama, $trillion but due to Covid with Trump and even the same from Biden.
Prices are skyrocketing because of such money printing. Ground beef, a staple of everyone is not owned by a large company or monopoly so price gouging by corporations are not the problem. Before Obama that price due to inflation was up 50% over thirty years. No big deal. Under Obama up 90%, Trump 10%, and Biden up from $4.05 to 5.80 some 45%.
Regulation needs to be on big government. Reagan and Clinton had differing opinions but the Congress also aided in their decisions. Both were sensible in relation to the markets.
The destruction of free market is at hand.
I grew up in Connecticut and Pennsylvania, fortunate enough to have a very nice middle class upbringing. My parents were Republicans, children of the Depression, who saved and lived conservatively, and I who think felt that private efforts – i.e., the church and other charities – would do their best to tend to any poverty and its effects in the country, along with the “rugged individualism” that gave us “pulling themselves up by their own bootstraps.” I am in my 80s now so those were the 40s & 50s, before the great influences of Kennedy & LBJ, Reagan, Clinton. Obama and Biden. I list them like that because of how much – in my opinion, they changed the American landscape. (Nixon holds a special place for his criminal activity, right behind that of trump). Reagan was an actor and smooth communicator, and his economic conservatism did more harm to the progressive ideals of our country than we can imagine. Clinton leaned toward the center but left an overflowing treasury, while Obama and Biden got us back on track, attending to the needs of the middle class while aiming to protect those below the poverty line.
The information is sobering at the very least:
The top 1% = 13.6% of total US household wealth.
The top 10% of households by wealth had $6.9 million on average. As a group, they held 67% of total household wealth.
The bottom 50% of households by wealth had $51,000 on average. As a group, they held only 2.5% of total household wealth.
I have a hopeful observation about the aftermath of the Democratic Convention.
It may be the beginning of a shift in the Overton Window to the left. For 40 years, it has been drifting right with Reagan going from conservative icon of small government and “trickle down” economics being pushed to represent center or even left of center. The country, we were told is center right. (incorrect for policy – “Keep your government hands off of my Medicare.”)
Now I am seeing conservative commentators congratulating Harris for moving to the “center”. Her proposed policies are pure FDR Democratic – what we used to call center-left.
Today, Heather Cox Richardson wrote in praise of FDR and his Labor Secretary, Francis Perkins. Sheila is praising Stiglitz and Krugman. This all sounds like a return to the New Deal liberalism that I was raised on.
Maybe the transition from Trump to Biden to Harris might finally allow us to refocus on the real purpose of government, at least what we have been saying it ought to be.
James Todd. Any such shorthand labels are going to be imperfect but maybe producers and parasites would be preferable to sheep and wolves. Both rich and poor people may be producers but those who take far more from society than they contribute could fairly be seen as parasitic.
Perhaps a more effective (and less problematic) way of evaluating the basic situation is looking “inward or outward” or “selfishness vs. sharing.” It’s always bothered me that we currently have a “selfie” culture, indicating a focus on self rather than the larger whole.
As long as we have a government that promises they will help the “middle class” by not raising taxes on families making “less than $400,000” when the median family income is less than $80,000…..
Milton Friedman was the absolute antithesis of Karl Marx. Marx warned the world that unfettered, unregulated capitalism would destroy itself from within. Friedman’s wet dream about “trickle down” was just that, a dream, but after nearly 40 years of un-regulating our economy, the distribution of wealth to everyone was clearly a lie. It never had a chance for the very reasons Marx predicted: GREED. Pure Capitalism simply can’t help itself from placing profits over people. It is what it is.
Required reading should include Naomi Klein’s “Shock Doctrine”. It explains the stupidity of “Supply-side Economics” and the horror show around the world that it and our CIA perpetrated in mostly South American countries. Follow up with Jane Mayer’s “Dark Money”. These two books will give you all the information you need to understand what the star chambers of capitalism are all about. Stiglitz is once again pointing out this failure of neoliberalism.
Solution? Vote out as many Republicans as possible.
I’m going to watch football today.
For a longer read, Joe Stiglitz new book “The Road to Freedom” is wonderful. It is an extended arguement for the neccessity of an active government in our interdependent society.
I’m reminded of an experience I had as a banker nearly 40 years ago. A larger, more profitable bank was acquiring us. At the time, the acquiring bank had a senior executive whose sole purpose was to make sure that their core values survived. He spoke to a group of us about the equal importance of customers, employees and shareholders. Think of each as one leg of a three legged stool, one no more or less important than the other.
Unfortunately, that kind of thinking has vanished.
I think it’s pertinent to point out the economist Thomas Piketty for his masterful work on income and wealth inequality, which manifested during the forty years of Neoliberalism. He is French who taught and researched in US universities, but when he saw the direction of his research findings, he went back to France to finish his book, “Capital in the 21st Century” because he knew the book and research would be sabotaged by the “watchdogs” inside of universities.
When Koch and ALEC got state and federal governments to cut back on university funding, guess who picked up the slack? They did the same thing to public broadcasting and radio. Over the same forty years, Koch and ALEC basically controls 24 states in the union, including Indiana. They also control the State Policy Network in all fifty states, including Indiana Policy Review.
If anybody thinks Harris/Walz will shift the needle to the Left side of the Middle, they will set their expectations too high. It will take a few decades to rid ourselves of the economic wolves in our marketplace.
I keep pointing out that currently active billionaires like Bezos, Musk, and Thiel rely heavily on federal and state government contracts. There are journalists who specialize in Silicon Valley, and nearly ALL the start-ups were funded by the CIA Joint Venture Fund, yet they claim to be Technocratic Libertarians. How does that compute? LOL
Lastly, John S. mentioned QE (a tool used by the FED) as the culprit for inflation and gave ground beef as an example. The prices have escalated dramatically in twenty years. He said it can’t be the result of “corporate monopolies.” However, only four (4) conglomerates now own 85% of the beef market, so higher prices are due to Neoliberalism and unregulated mergers and acquisitions. The White House has finally taken notice:
https://www.whitehouse.gov/briefing-room/blog/2021/12/10/recent-data-show-dominant-meat-processing-companies-are-taking-advantage-of-market-power-to-raise-prices-and-grow-profit-margins/
P.S. I was blocked by Indiana Policy Review years ago on Twitter. I wrote extensively about how they operate and for whom they are owned. Apparently, censorship goes with their Liberal ideals. 😉
If we did not have government at all, would we be free?
The only freedom would probably be for those most ruthless, best-armed, and least inhibited, and the rest of us would either be dead or working only for the king of the moment. Her moment would last until some competition arrived.
Everything we have been able to do with the life we were given in the US came from our freedom, both positive and negative: freedom to do and freedom from harm.
Neoliberalists are attacking our greatest gift.
John S. Ground beef is indeed subject to price gouging. The meat industry is now controlled by just four corporations, and the result is the same as for the rest of our food supply.
Reagan, Thatcher, neoliberalism, all stink, for obvious reasons, like those specified above.
“Only government can (1) provide a social and political infrastructure accessible to all, and (2) prevent the wealthy and powerful from dominating and harming others.” AMEN!!
Diminishing returns on individual effort/labor has happened due to greed factors by organized neoliberal business practices. Union busting, reduced wages, more hours worked and reduced benefits have affected most American workers. Also, the average Americans together has been carrying the majority of the weight of taxes. Putting burdens on others that they themselves won’t carry has been seen as unjust forever, but with modern day Babel talk and pulling the wool over eyes has worked for some while causing distress and duress for most.
A positive sign is the strength that unions are gaining, Democratic politics calling out the oppressive nature of gerrymandering and voter suppression, women not accepting their personal lives being infringed on. If organized all together these factors are pushing at the seams at the restrictions on our freedoms, progress and economic health.
Project 2025
“Congress should provide flexibility to employers and employees
to calculate the overtime period over a longer number of weeks. Specifically, employers and employees should be able to set a two- or four- week period over which to calculate overtime. This would give workers greater flexibility to work more hours in one week and fewer hours in the next and would not require the employer to pay them more for that same total number of hours of work during the entire period.” Page 592
If you think employers won’t exploit this policy, you have not worked in retail. If this becomes law or edict, the true benefit will not be employee flexibility, but greater profit for employers. It is yet another way to redirect wealth.
Mitch D, I had basically the same reaction. In other words, “well, duh.” 🙂 The result–the evidence!–is overwhelming. My curiosity now centres around how naive/delusional were Friedman, et al? Were they true believers? The same question can’t be asked of the proponents of neoliberalism today. The evidence is undeniable, yet they still cling to their talking points. It’s clear they are simply in thrall to the rich and powerful. It’s how you get Clarence Thomas, as just one example.
A few people have mentioned a potential leftward shift in the Overton window. I hope so. But the thing this most makes me think the people who dislike a particular policy, and decide they will “punish” their own party by voting for the opposition. This will teach them! they think. The problem is that the opposite normally happens; for example, when Reagan won, the democrats moved right, not left, and you got Clinton.
Now, though, things are so polarised that all bets are off. The MAGA folks aren’t going anywhere, and they are absolutely going to continue to move right no matter what happens. They can’t be allowed to win because that will just convince the Clintons (and numerous other conservative Democrats) that they need to move right again. And you can’t go back like that.
theres $50 trillion dollars locked out of the economy,ours. its landed into hedge funds and the billionaires pockets,unspent on main street,and gathers few if any taxes to fund any needs outside of the billionaires own. theres X amount of currency and theres Y amount in the general population, Z is the amount locked away from our middle class economy,and main street. . MBAs etc dont calculate the inequality,only that it exists.if it does,its designed to further inequality at the cost of those who do the work.reagans neo anything with the milton etc,titled economists theory,never made it past 1962. when the rich actully started to use the courts and politicians for their doings. it took 50 years,but its worked for them..if the wages in Amerca only gained 17% between 1978 to 2018 and wall street gained 350% in that same time period. (EPI.Org)wheres the rest of the money.. in the 1% pockets,rotting our economy.
John S
Who raised the prices to consumers and why?
My answer is that is corporations raised their prices to speed up their correction to the sales lost during the economic shutdown caused by doing the right thing during the pandemic.
Once corporations “get away” with the higher prices, they never, ever lower them.
Now, unions must force wage increases to compensate and make workers whole again.
“Parasites” is in no way an accurate description of the bottom 50%+ of the community. Quite the contrary. Those are the people who are working their assessment off for inadequate wages, few or no benefits, little or no health care, and often in 2 or more jobs in the gig economy. I call “foul” on characterizing low income people in that way. In fact, many of the so-called “producers” exert themselves far less.
Thank you Al for your comment. I grew up in one of the many families in the bottom 50%. Calling the lower % parasites is so unkind because we never got a break like richer families did.m
Neoliberals don’t really have a “small government, hands-off” approach. They have actually used the power of government to enact laws that have accelerated the push to monopoly. They see government’s sole purpose as one that serves big corporations at the expense of the average citizen. Or, as Donald Trump eerily remarked a few weeks ago, he predicted that his administration would make “government and business allied in ‘one unified Reich.'” Yep, that’s the plan.