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.