Neoliberalism

= "The core neoliberal idea is that the market economy – when it functions unhindered – does not need any social correction". [1]

Description

1. Tobias Kroll:

"The core neoliberal idea is that the market economy – when it functions unhindered – does not need any social correction. “The market economy is social policy in itself,” Hans Tietmeyer explained (cf. Der Spiegel 26/1985). Today’s neoliberals in Germany see themselves in the “true” tradition of the social market economy that in their view passed through many malformations and must be brought on course. Ultimately they orient themselves in the basic idea of the invisible hand of Adam Smith… Competition is the core idea of German neoliberals. Originally intended to prevent monopolies and market power, competition has become an end-in-itself and is often presented as a normative claim to persons on the operational or company plane.

Functioning liberal markets are seen by neoliberals as a quasi-natural system and structure that can be compared with the system of planets and “the course of the stars,” not as a creation of human culture (“culture” in the sense of antithesis to nature) critically, Kroell 2010). Like planets, people rotate around market competition. The system is disturbed by state economic activity and publically administered social security that treats individuals as children… The state merely has an oversight function in this perspective, monitoring the undisturbed, trouble-free running of the perfect free enterprise system." (http://freembtranslations.net/2011/worker-solidarity-in-neoliberal-structural-change-by-tobias-kroll/)

Characteristics

Neoliberal “free market” canon vs the Classical liberal canon

• Source: Why the “Miracle of Compound Interest” leads to Financial Crises By Michael Hudson (retrieved on 04/04/2011)

Neoliberal "free market" canon	Classical liberal canon
If left alone, markets settle at a fair equilibrium in which all parties have equal opportunity.	Economies tend to polarize unless governments act to prevent free lunches by vested interests.
The MV=PT formula views money as being spent on goods and services, and hence sees more money as inflating consumer prices.	Most credit is created for spending on real estate, stocks and bonds. Hence, what is inflated are primarily asset prices.
Analyzes the "real" economy as if it operates on the basis of barter without the buildup of interest-bearing and property-rent claims.	Emphasizes the distinction between the "real" economy�s S-curve expansion path and the exponential growth of debt.
Credit is invested productively, enabling borrowers to repay loans and interest.	Most bank credit is unproductive, imposing a debt burden that diverts income away from buying goods and services.
Borrowers use the loan proceeds to make enough money to pay off their loans and keep a profit for themselves.	Under a regime of asset-price inflation, loans are paid off increasingly out of new borrowing against collateral that is rising in price.
Bank lending increases investment to hire labor to produce more goods and services, supplying more output and keeping commodity prices down while raising living standards.	Mortgage credit which is used to bid up real estate prices, or financial credit to bid up prices for bonds and stocks. In the ends, loans are paid off mainly out of capital gains (asset-price inflation).
High debt leverage increases the return on equity, spurring more wealth creation.	High debt leverage increases the debt overhead, and inflates asset prices, obliging property buyers to go deeper into debt.
"Supply-side" economists claim that loans spur more investment, and hence more profits to tax.	Loans reduce tax revenues, because interest is a tax-deductible expense. This shifts the fiscal burden onto labor.
Cutting taxes on property income and capital gains lowers the cost of doing business and hence frees more income for investment.	Tax cuts free income to be pledged to creditors for higher loans to buy real estate, financial securities and entire companies. This raises asset prices.
Low wages make economies more competitive, assuming that there is no feedback between wages and productivity.	High productivity requires high wages and living standards.

Discussion

Pierre Bourdieu

What is neoliberalism? A programme for destroying collective structures which may impede the pure market logic.

by Pierre Bourdieu

"And yet the world is there, with the immediately visible effects of the implementation of the great neoliberal utopia: not only the poverty of an increasingly large segment of the most economically advanced societies, the extraordinary growth in income differences, the progressive disappearance of autonomous universes of cultural production, such as film, publishing, etc. through the intrusive imposition of commercial values, but also and above all two major trends. First is the destruction of all the collective institutions capable of counteracting the effects of the infernal machine, primarily those of the state, repository of all of the universal values associated with the idea of the public realm. Second is the imposition everywhere, in the upper spheres of the economy and the state as at the heart of corporations, of that sort of moral Darwinism that, with the cult of the winner, schooled in higher mathematics and bungee jumping, institutes the struggle of all against all and cynicism as the norm of all action and behaviour." (cited on IDC mailing list, June 2010)

Michael Hudson

Michael Hudson:

"The term “neoliberalism” misrepresents and even inverts the classical liberal idea of free markets. It is a weaponization of economic theory, kidnapping the original liberal ethic that sought to defend against special privilege and unearned income. To classical economists, a free market meant one free of unearned income, defined as land rent, natural resource rent, monopoly rent and rent-extracting privilege. But to neoliberals a free market is one free from taxes or regulation of such rentier income, and indeed gives it tax favoritism over wages and profits.

Neoliberalism and neo-conservatism are complementary doctrines of power and autocracy combined with deregulation and dismantling of democratic law. The aim is to replace government power as used to protect the people with an oligarchic power to oppress the people.

Today, the neoliberal aim is to cripple government power, enabling a free-for-all for the financial sector. Protecting civil freedoms are also heavily signposted, but the high price of legal representation is a barrier for most. A doctrine primarily of the financial sector, the aim is to un-tax banks and financial institutions and their major customers: real estate and monopolies.

Neoliberalism is a doctrine of central planning, which is to be shifted from governments to the more highly centralized financial centers. This requires disabling public power to regulate and tax banking and finance. As a transition, ideological deregulators such as Alan Greenspan and Tim Geithner have been appointed to the key regulatory positions in the United States.

The result is a doctrine of financial war not only against labor but also against industry and government. Gaining the financial power to indebt economies at increasing speed, the banking and financial sector is siphoning resources away from the real economy. Its business plan is not based on employing labor to expand output, but simply to transfer as much of the existing flow of revenue as possible into its own hands, by capitalizing all such revenue into interest payments, on loans collateralized and pledged to creditors.

The effect is no more democratic than the Roman democracy, which arranged voting by “centuries” headed by the largest landowners – essentially an acre-per-vote, to make an analogy. In the U.S. case, votes are bought not by land as such, but by dollars – mainly from the financial sector. In the end, to be sure, most dollars come from rent extraction.

The result must be economic polarization, above all between creditors and debtors as in Rome. So the end stage of neoliberalism threatens a Dark Age of poverty/immiseration – most characteristically, one of debt peonage. And just as Rome’s creditor class and its predatory imperial expansion brought down the Roman Empire and reduced it to mere subsistence, so the combination of neoliberalism and neo-conservatism today seeks to globalize itself, spreading austerity even as it brings technological progress to sovereign debtors." (http://michael-hudson.com/2012/07/the-weaponization-of-economic-theory/)

David Graeber

"In most of the world, the last thirty years has come to be known as the age of neoliberalism—one dominated by a revival of the long-since-abandoned nineteenth-century creed that held that free markets and human freedom in general were ultimately the same thing. Neoliberalism has always been wracked by a central paradox. It declares that economic imperatives are to take priority over all others. Politics itself is just a matter of creating the conditions for growing the economy by allowing the magic of the marketplace to do its work. All other hopes and dreams—of equality, of security—are to be sacrificed for the primary goal of economic productivity. But global economic performance over the last thirty years has been decidedly mediocre. With one or two spectacular exceptions (notably China, which significantly ignored most neoliberal prescriptions), growth rates have been far below what they were in the days of the old-fashioned, state-directed, welfare-state-oriented capitalism of the fifties, sixties, and even seventies. By its own standards, then, the project was already a colossal failure even before the 2008 collapse.

If, on the other hand, we stop taking world leaders at their word and instead think of neoliberalism as a political project, it suddenly looks spectacularly effective. The politicians, CEOs, trade bureaucrats, and so forth who regularly meet at summits like Davos or the G20 may have done a miserable job in creating a world capitalist economy that meets the needs of a majority of the world’s inhabitants (let alone produces hope, happiness, security, or meaning), but they have succeeded magnificently in convincing the world that capitalism—and not just capitalism, but exactly the financialized, semifeudal capitalism we happen to have right now—is the only viable economic system. If you think about it, this is a remarkable accomplishment.

Debt cancellation would make the perfect revolutionary demand. How did they pull it off? The preemptive attitude toward social movements is clearly a part of it; under no conditions can alternatives, or anyone proposing alternatives, be seen to experience success. This helps explain the almost unimaginable investment in “security systems” of one sort or another: the fact that the United States, which lacks any major rival, spends more on its military and intelligence than it did during the Cold War, along with the almost dazzling accumulation of private security agencies, intelligence agencies, militarized police, guards, and mercenaries. Then there are the propaganda organs, including a massive media industry that did not even exist before the sixties, celebrating police. Mostly these systems do not so much attack dissidents directly as contribute to a pervasive climate of fear, jingoistic conformity, life insecurity, and simple despair that makes any thought of changing the world seem an idle fantasy. Yet these security systems are also extremely expensive. Some economists estimate that a quarter of the American population is now engaged in “guard labor” of one sort or another—defending property, supervising work, or otherwise keeping their fellow Americans in line. Economically, most of this disciplinary apparatus is pure deadweight.

In fact, most of the economic innovations of the last thirty years make more sense politically than economically. Eliminating guaranteed life employment for precarious contracts doesn’t really create a more effective workforce, but it is extraordinarily effective in destroying unions and otherwise depoliticizing labor. The same can be said of endlessly increasing working hours. No one has much time for political activity if they’re working sixty-hour weeks.

It does often seem that, whenever there is a choice between one option that makes capitalism seem the only possible economic system, and another that would actually make capitalism a more viable economic system, neoliberalism means always choosing the former. The combined result is a relentless campaign against the human imagination. Or, to be more precise: imagination, desire, individual creativity, all those things that were to be liberated in the last great world revolution, were to be contained strictly in the domain of consumerism, or perhaps in the virtual realities of the Internet. In all other realms they were to be strictly banished. We are talking about the murdering of dreams, the imposition of an apparatus of hopelessness, designed to squelch any sense of an alternative future. Yet as a result of putting virtually all their efforts in one political basket, we are left in the bizarre situation of watching the capitalist system crumbling before our very eyes, at just the moment everyone had finally concluded no other system would be possible." (http://www.thebaffler.com/past/practical_utopians_guide)