Class Warfare Blog

July 5, 2020

Neoliberalism is a Sham, Always Has Been

I start with a quote from an article in the NY Times by Mehrsa Baradaran.

“One reason is that an ideological coup quietly transformed our society over the last 50 years, raising the fortunes of the financial economy — and its agents like private equity firms — at the expense of the real economy experienced by most Americans.

“The roots of this intellectual takeover can be traced to a backlash against socialism in Cold War Europe. Austrian School economist Friedrich A. Hayek was perhaps the most influential leader of that movement, decrying governments who chased “the mirage of social justice.” Only free markets can allocate resources fairly and reward individuals based on what they deserve, reasoned Hayek. The ideology — known as neoliberalism — was especially potent because it disguised itself as a neutral statement of economics rather than just another theory. Only unfettered markets, the theory argued, could ensure justice and freedom because only the profit motive could dispassionately pick winners and losers based on their contribution to the economy.”

Hayek was an important economist, but like most he was also wrong.

Question What evidence is there for “Only unfettered markets could ensure justice and freedom because only the profit motive could dispassionately pick winners and losers based on their contribution to the economy.”

Answer None.

“Unfettered markets fail miserably for two fundamental reasons.
For one, there is no limitation placed upon greed.”

Unfettered markets fail miserably for two fundamental reasons. For one, there is no limitation placed upon greed. There isn’t even a definition of “enough profit.” Shouldn’t there be such a concept? If for no other reason but to establish a benchmark for new business to aim at. I recall that Amazon.com was a net loser, aka made negative profits, for the first five plus years of their existence. How are they doing now?

I suggest that economists have been dissuaded from introducing such a term because ordinary people would equate “more than enough profit” with “excess profits.” The powers than be have a history of such language manipulations: when was the last time you heard the term “unearned income?”

So, greed is not limited and then, in our culture “money is power.” The wealthy have learned how to effectively turn their wealth into political power. Somebody actually measured the return on investment, ROI, for corporate lobbying in Washington, D.C. It was approximately somewhere just south of 200:1, This means that for every $1 spent on lobbying in Washington, the corporations harvested near $200. Can you name any other endeavor that produces such an ROI? I cannot. You would have to be a fool, or not wealthy, to not to participate in this massive wealth generating machine.

The consequences of this is that ordinary people have zero standing in Congress when it comes to getting legislation passed, while the wealthy is quite well served. (I’m shocked, shocked I tell you!)

The politicians ask for very little in the way of bribes, er, campaign donations. For continuing to have the taste of power in their mouths our legislators sell out us ordinary citizens for paltry sums.

So, the wealthy are using their wealth to change the rules of the games, something Hayek didn’t foresee. (I’m shocked, shocked I tell you!)

There is an aphorism which says that every child grows up in a state of rebellion against his parents. Since the parents grew up in a state of rebellion against their parents, that makes grandparents and grandchildren natural allies. This makes sense in that if we don’t push our parents away, we will never become independent.

In Hayek’s case he was in a state of rebellion against socialist forms of government he lived under and, like every youngster, he carried it too far and idealized the opposite of what he disliked, making free-market capitalism the end all and be all politically.

It is clear to everyone that capitalism is vastly self-destructive if left to its own devices. Shackled with strong government controls it can be a very good political and economic system. The idea of free markets as an “ideal good thing” all by themselves should have died with Plato.

As Mehrsa Baradaran states later in this piece, “An examination of the recent history of private equity disproves the neoliberal myth that profit incentives produce the best outcomes for society. The passage of time has debunked another such myth: that deregulating industries would generate more vibrant competition and benefit consumers. Unregulated market competition actually led to market consolidation instead. Would-be monopolies squeezed competitors, accrued political power, lobbied for even more deregulation and ultimately drove out any rivals, leading inexorably to entrenched political power. Instead of a thriving market of small-firm competition, free market ideology led to a few big winners dominating the rest.”

But then evidence such as this impacts economists about as much as facts affect the Trump administration.

It is difficult to get a man to understand something when his salary depends upon his not understanding it. (Upton Sinclair)

3 Comments »

  1. The problem with unfettered markets and unrestrained capitalism is that we *know* it doesn’t work from history. To see how badly deregulation works, just look back to the 1980s when the savings and loans were deregulated. Almost immediately it turned into a free for all, with widespread unethical behavior, literally criminal activities, and such chaos that it ended with the destruction of that entire branch of the banking business, and just about bankrupted the FDIC trying to cover the losses with the taxpayers on the hook for billions. Those regulations didn’t develop in a vacuum. They were put in place for a reason, because businesses will engage in fraud, deception, unethical behaviors, even criminal acts, to improve their profits.

    Liked by 1 person

    Comment by grouchyfarmer — July 5, 2020 @ 10:24 pm | Reply

    • There are facts and then there are alternative facts. These are the same people who still believe in “trickle down economics,” for Pete’s sake.

      Liked by 1 person

      Comment by Steve Ruis — July 6, 2020 @ 10:31 am | Reply


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