Neoliberalism
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/)