Our Sunday Book Salon gives us a chance to discuss neoliberalism with Philip Mirowski, author of Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown. Most people have a general idea of some of the theories of neoliberalism, especially the general idea that markets should be the dominant force in society. Mirowski traces the roots of this idea to Frederich Hayek and his Mont Pelerin Society. This group expanded and morphed into what Mirowski calls a Russian Doll approach to formulating and implementing a strange notion of humans as consumers and workers and nothing more worth mentioning. It serves the interest of right-wing billionaires, who are glad to fund it.
We can see the influence of those ideas in the Chicago School of Economics, and in economics generally, as the perhaps more humanistic approach of the worldly speculator, John Maynard Keynes, has disappeared. Here’s a sample of one current argument in economics from Simon Wren-Lewis. He says that New Keynesian models describe consumers as perfectly rational actors who have the ability to borrow money as they need it.* If they get a tax cut, they assume it will be followed by a tax hike, so they save the money to pay their taxes later. The minor change in their lifetime income resulting from a tax cut doesn’t affect their spending. They use borrowing to smooth out fluctuations in their incomes. Does that describe anyone you know or have ever known? Why would you make policies out of that trash?
These and many other ideas are at one level just theoretical constructs needed to make it possible to crank out mathematical formulas to describe the economy and guess at the impact of changes in government policy and changes in private sector behavior. Of course, that kind of modeling has been a massive failure.
But, for neoliberals, it’s more than just theory. Their goal is to manipulate human beings into becoming creatures just like these constructs. And they are achieving their goals. We saw it in Jennifer Silva’s book, Coming Up Short, as the young working class people she interviewed see themselves as entrepreneurs of the self, making investments of their time and borrowed money in themselves, hoping to make themselves marketable. If they succeed, as a few have, they think it is because of their efforts alone. If they fail, they think that too is their fault, and that it is fair that they alone should suffer the consequences. In either case, they don’t think it’s fair that some people get help from the government. If the government doesn’t help them, why should it help anyone else?
The fundamental evil of this approach is that it hides a crucial reality of life from the victims. The people who nurture and organize the manipulation and those all-powerful and all-knowing Markets are exempt from the strictures of those markets. They are the elect, the authorities, the Priestly Keepers of Secret Knowledge. They are not like you and me. And neither are their creatures, Corporations. These new Corporate Persons are not to be subjected to laws created through some semi-democratic process, and neither are their human operators, at least at the highest, Jamie Dimon/Lloyd Blankfein level, any more than the people who lie for the National Security Branch of government are subject to the law. These exalted Heroes are beyond the understanding of mere humans, they are God-like Creatures, whose gift it is to comprehend the Oracles of the Market and translate them into punishment and rewards for us little elements of social groupings. And if you don’t believe me, just check out the CEO-worshippers on CNBC and in the business magazines.
Here are some posts taking up Mirowski’s ideas; I hope they will help encourage discussion on Sunday. See you there!
Homo Economicus Replaces the Middle Class
How We Govern Our Selves and Ourselves
Konczal, Douthat and Neoliberalism
The Neoliberal Quantum State Theory of Markets
The Blighted Future of the Middle Class (more by Silva on neoliberalism among working class young people.)
*Here is Wren-Lewis in his own words:
Basic NK models employ the construct of the (possibly infinitely lived) intertemporal consumer. To explain, these consumers look at the present value of their expected lifetime income, and the income of their descendents if they care about them (hence infinitely lived). This has two implications. First, temporary shocks to current income will have very little impact on NK consumption (it is a drop in the ocean of lifetime income). The marginal propensity to consume out of that temporary income (mpc) is near zero, so no multiplier on that account. Second, a tax cut today means tax increases tomorrow, leaving the present value of lifetime post-tax income unchanged, so NK consumers just save a tax cut (Ricardian Equivalence), whereas OK consumers spend most of it. However NK consumers are sensitive to the real interest rate, so if higher output today leads to higher inflation but the nominal interest rate remains unchanged, then you get a multiplier of sorts because NK consumers react to lower real interest rates by spending more.
So far, so different. But the NK consumption model assumes that agents can borrow whatever they need to borrow. There are good theoretical reasons why that is unlikely to be true (e.g. asymmetric information), and even better empirical evidence that it is not. Empirical studies that look for ‘natural experiments’, where agents obtain an unexpected increase in post-tax income which is likely to be temporary, typically find a mpc of around a third (even for non-durables), rather than almost zero as the basic intertemporal model would predict.