LECTURE NOTES: 5.2. Neoliberalism & After

Part of Econ 135: The History of Economic Growth course unit 5. After Neoliberalism Comes "Polycrisis": What the Neoliberal Order was, & what pressures are making whatever is going to come after...

Rough but edited lecture transcript. Part of Econ 135: The History of Economic Growth course unit 5. After Neoliberalism Comes "Polycrisis": What the Neoliberal Order was, & what pressures are making whatever is going to come after...

The Neoliberal Order’s story is one of freed-up globalized markets & gestures at expanding individual autonomy. But what happens when the market fail to deliver, and the iron bureaucratic cages remain as strong as ever? Now is a world after the Neoliberal Order: it is marked by fear, fragmentation, & inequality with a new landscape of industrial and place-based priorities, and strongman politics, and fear…

---

5. After Neoliberalism Comes “Polycrisis”:

1. Global Warming

2. Neoliberalism & After

3. Post-2010 “Polycrisis”: Economics

4. Post-2010 “Polycrisis”: Culture, Politics, & War

5. The Renewed Fight Over Systems & Orders

---

5.2. Neoliberalism & After

Neoliberalism was the dominant economic ideology from the 1980s to the 2000s. Take American economist Milton Friedman of the University of Chicago (and later the Hoover Institution at Stanford) as its principal champion, pushing it forward as a movement for Capitalism and Freedom—free-market capitalism and individual freedom. CapitaF was what Milton Friedman and his wife Rose Director Friedman named their summer home in Vermont.

And here I should speak a little about the Friedmans as a team. Milton Friedman (b. 1912 Brooklyn, d. 2006 San Francisco) and Rose Director (b. 1910 Staryi Chortoryisk, Imperial Russia, now Ukraine, d. 2009 Davis, CA) married in 1938 in New York City. They had met in the early 1930s when they were both graduate students in economics at the University of Chicago, introduced by her ten year-older brother, law-and-economics scholar Aaron Director. She started graduate school in 1932. She left the program in 1934, worked for a year for the National Resources Committee and the Bureau of Home Economics on a nationwide study on consumer purchases, moved to a job as a Research Assistant at the Federal Deposit Insurance Corporation (FDIC) in Washington DC in 1935, got married in 1938, and then vanishes from the outside-the-household economy until, in 1962, she shows up as a coauthor with Milton Friedman on the book Free to Choose.

Rose Director Friedman was smart as a whip. Oral histories tell us that she was a major voice in evening meetings, discussions, and parties of the “Chicago School” of economists from the get-go; but her socio-economic role from their marriage until she began to openly spread her wings as a public intellectual in 1962 was as a housewife and child-raiser. How much different would her life have been had she been born ninety years later and been attending graduate school now, after four waves of American feminism? In 1997, Milton Friedman did write: “My vocation has been professional economics. Except for… The Theory of the Consumption Function… Rose played a secondary role… reading and critiquing everything that I wrote but not being a major participant. My avocation has been public policy, and in that area Rose has been an equal partner, even with those publications, such as my Newsweek columns, that have been published under my name.”

But The Theory of the Consumption Function and its permanent income hypothesis were what Milton Friedman was best known for until he and Anna Schwartz published their Monetary History of the United States in 1963.

The Friedmans argued, and by the end of the 1970s the prevailing view was, that the social-democratic New Deal Order had been tapped out. What the world needed, instead of more Big Government and more regulation, was free (or at least freer) markets and more globalization to create a world “without borders” where everything could move freely and governments would have to compete and become more pro-market in order to attract talented people and investment capital. In that Neoliberal Order world, the primary (but not the exclusive) role of the government and the state was to ensure the widest possible access to these markets. And if the government tried to do more? There was a barely rebuttable presumption that attempting to do anything else would ultimately cause more harm than good.

If you are here having a sense of déjà vu, you are not wrong. The Friedmans’ ideas were indeed based on the pre-1950 perspective we earlier had seen set out by Friedrich von Hayek. Von Hayek believed that the market is an excellent mechanism for crowdsourcing solutions to human problems, but the market was not, could not be in any sense “just”. The market will reward those who happen to be in the right place at the right time with control over the right resources, rather than those who deserve it. But we have to swallow that pill: accept that “the market giveth; the market taketh away: blessed be the name of the market”. We need to prioritize prosperity and so prioritize the market, as hobbling the market will make us poor without bringing us justice or freedom.

Milton and Rose Director Friedman went further. They did not say that we should simply ignore “social justice”. Indeed, they cared about it deeply. But they believed that what any culture calls “social justice” is simply what that culture’s powerful and their tame ideologists think is just, which is probably what is in their current interest, and in all likelihood has very little to do with what true social justice might be. Milton Friedman was fired from his dearly-won position, which it had taken him six years after finishing his graduate coursework to get, as an assistant professor at the University of Wisconsin at the start of World War II. The Wisconsin State Legislature requested his firing because it thought Wisconsin-Madison had too many Jewish faculty members. The Wisconsin legislator’s conception of social justice was that Jews should have fewer and white Protestants more good jobs. And mid-1900s American culture put enormous pressure on Rose Director Friedman to be a Hyde Park, Chicago housewife: social norms of the time made it difficult for her to fully contribute her intellectual capabilities, except indirectly through the men she talked to.

Yes, the market as a system is one in which the only rights in vindicates are property rights. Yes, the market system’s version of social justice is one in which your societal power is proportional to your wealth: justice is what is in the interest of the rich and prosperous. But a good many of the rich and prosperous in a market economy are people who have gone out into the world and found something useful to do, and their being of utility to society has then made them rich and prosperous. Yes, a good many of the rich are simply the lucky in life or those who chose the right parents. But that, the Friedmans said, is true of all societies. A Neoliberal Order society is the only one in which societal power is held by and social justice defined by a group that has included many people who have gained place and position by focusing on being useful.

Milton Friedman was a formidable debater. As Harvard economist John Kenneth Galbraith observed, the only way to survive an argument with Friedman was to stop him as soon as he said, “Let us suppose…” Once you had let Friedman suppose, you would immediately be faced with a compelling hypothetical scenario that would leave you completely intellectually disarmed. Start a lunch with Friedman convinced that you were right, and still an hour later you would be wondering whether you were wrong and knowing that you had failed to dent his confidence at all.

That is what Neoliberalism was, in a tiny nutshell.

So what is coming after neoliberalism?

First, one thing that is coming, at least here in America, is renewed or perhaps novel attention to places. Places have never been important in American identity. American identity has, instead, long been defined by a focus on mobility and opportunity. Americans are people who have moved to new places—undertaken errands unto the Wilderness—precisely because of the mistakes being made in and the limitations circumscribing their choices where they were. Americans are people who have abandoned some Old World because of its mistakes, and have moved to a New World to remake themselves and make a new society that will at least make different mistakes. The promise of more abundant resources and the chance to build a better life has driven this pattern of migration and reinvention. Thus the advice given to those who find their birth-region constraining or insufficiently prosperous has always been “go west!”: move to opportunity.

My Richardson ancestors were farmers in the hilly, rocky terrain of New England in the 1840s. Farming the land was difficult. To say that New England soil is “stony” is to greatly understate the case, as you can see even today from the ubiquitous stone walls found throughout New England all built from rocks that had to be removed from the fields before farming could even begin.

The Richardson family decided to leave New Hampshire and traveled down the Ohio River to St. Louis, where they established a pharmaceutical company: the Richardson Drug Company. The family story is that they specialized in cocaine—legal at the time, and their cocaine products were very low concentration, nothing like lines or crack. But, still, my ancestors became the very first cocaine pushers west of the Mississippi in St. Louis. The company was quite successful for two generations. Then, one New Year’s Day, a catastrophic fire destroyed their chemical plant. The fire department was, the story goes, slow to respond, as they were recovering from New Year’s Eve. And how does a catastrophic fire start when the plant is entirely shut down for the holiday. I am suspicious of my ancestors.

Rather than rebuild the plant, the Richardsons opted to take the large insurance settlement and shift their focus to banking. The course of the Richardsons is thus a very American story: change who you are and what you are doing and where you are doing several times over the course of even a few generations.

The Neoliberal Order was about capitalism but it was also about freedom. And one aspect of this freedom was freedom to successfully organize to resist being dominated by the behemoths of the New Deal Order: Big Government, Big Business, Big Labor, and also Big Cultural Expectations. The assumption that your husband should get a job with a large corporation and commute by car as you moved to suburbia and that you alone should raise the children was an essential part of the New Deal Order. And it called forth a middle-class feminist rebellion. The assumption that Blacks should largely stay in their place and be happy with slow advances toward equal rights and a small share of the benefits from social-insurance programs was an essential part of the bargains in the 1930s that formed the New Deal Order. The Black Civil Rights movement was not in itself neoliberal, but was an expression of the underlying anti-system anti-bureaucracy current. And with respect to land-use planning—Big Government bureaucrats should not be able to assist Big Finance money and Big Business bulldozers to order you around and bulldoze and “renew” your community. It was individual unbureaucratic enterpreneurship that was supposed to be beautiful. Hence NIMBYism (Not In My Backyard-ism) as we know it today is an important piece of the Neoliberal Order, as it actually was on the ground.

Consider San Francisco’s Embarcadero Freeway, an 8-story, 90-foot high structure that blocked views of the ocean and bay. Residents preferred to maintain the open views rather than prioritize faster commutes for drivers from Marin County. This was seen as a victory for rational, people-centered development at the time. And the post-1989 earthquake removal of the initial parts of the Embarcadero Freeway was a huge win—it resulted in a much more pleasant and open waterfront area for residents and visitors to enjoy.

But in the long run NIMBYism has been a disaster. Berkeley houses no more people now than it did fifty years ago. So housing prices have skyrocketed, and the guy who runs the Little Farm Children’s Center in Tilden Park has to commute from beyond the Altamont Pass.

NIMBYism killed America’s tradition of moving to opportunity stone dead. This has been a very powerful if indirect cause of rage against The Neoliberal Order Machine. Thus the growing call for place-based policies to make opportunity move to where people are, instead of assuming people will move to opportunity. The Polanyian right to the land—to keep Schumpeterian creative-destruction from destroying your community as a side-effect of its pursuit of profit—is and will take a more prominent role in whatever comes after the Neoliberal Order.

Second, the “after” will include explicit industrial policies. The Neoliberal Order was about hyperglobalization. Under the Neoliberal Order it was assumed that free trade and laissez-faire policies were beneficial for all. They were beneficial for the Global North as they heightened the concentration of high-value and high-externality activities like science, engineering, and worthwhile manufacturing within itself. And they were beneficial for the Global South because only the threat that economic activity and talented people would leave could curb the predatory instincts of Global South governments. The concerns of economists like W. Arthur Lewis that trade in a globalized market on terms increasingly tilted against primary products actually developed the fact of underdevelopment were pushed to one side.

But now the assumption that free trade works to concentrate high-value and high-externality activities like science, engineering, and worthwhile manufacturing in the United States is very much in doubt. The CHIPS Act of the Biden administration signals the end of the belief that the global market was working in America's favor. The CHIPS Act represents a shift away from the implicit acceptance of the global market's inequities now that they no longer seem to be working so strongly in America’s favor. Instead, there is now a demand for more explicit industrial policies as an alternative..

Third, the “after” will include a strong demand for champions of the people. There is growing recognition that neoliberalism has led to an unfair domestic plutocracy. The 2008 Republican presidential and vice-presidential ticket was almost composed of individuals who collectively owned 20 houses—John McCain owned 12 houses, and Mitt Romney owned 8. Political advisors felt that that foreclosed choosing Romney as likely to make the ticket look ridiculous, and so they prevailed on McCain to choose the very odd Alaska Governor Sarah Palin insted.

What to do about plutocracy, where there is a growing belief that the system is working not for the people but for the super-rich and for their rootless cosmopolite allies and clients? Power requires countervailing power. Hence what is needed is someone powerful to vindicate the interests of the common people, rather than of some privileged élite: a strongman to disrupt the status quo and the inertia of “business as usual”.

It has never been the case that the “strongman” has to come from the people. Indeed, often in history a plutocrat, oligarch, or aristocrat has been preferred—a “class traitor” as other members of Harvard’s Porcellian Society whispered about their fellow member, New Deal President Franklin Delano Roosevelt. The idea is that only someone who has thoroughly benefitted from being in the system and knows it inside and out will know enough about its vulnerability to be able to disrupt it.

Analogously, consider Andrew Jackson. He positioned himself as a defender of the common people against the system—land speculators, Philadelphia financiers, and corrupt politicians who together made sure that the people could not prosper as America grew.vJackson presented himself as an outsider who would protect the interests of the “Kentucky frontiersmen” against the domestic élite, even though he himself was no true frontiersman.

Indeed, the earliest examples of strongman politicians overthrowing existing oligarchic systems to vindicate at least the short-run interests of a broader “people” come from the early days of Classical Hellenic civilization. Peisistratos, Tyrant of Athens in the -500s, is the prime historical example. The Tyrants abolished debt slavery, canceled the debts of the overindebted, and redistributed land more equitably—paving the way for the establishment of Hellenic democracy, which was a very attractive civilization as far as the societies of domination of those days went.

Unfortunately for us, the champions of the people being chosen today appear more fascist than populist—more interested in telling people what to do to make them followers to burnish the glory of the leader than in lifting the burdens from the people by cancelling the debts and redistributing the land—and more kleptocrat than plutocrat, with the leader’s skills more in running a con game than in understanding the workings of the system.

Fourth, what is coming after the Neoliberal Order appears to be a politics of fear: fear of the diverse, fear of the woke, fear of the other—whatever the other is, people who seem strange and weird—and fear of the rootless cosmopolite.

In the last analysis, the Neoliberal Order fell because it did not deliver the goods. Free markets and largely ineffectual gestures at freeing-up individual autonomy from bureaucracy were not enough to create a society where people felt at home, even if there was a great expansion of individual freedom to choose elsewise than commanded by formerly-dominant social norms. But the failure of the past Order did not in itself bring a new one into existence. In this sense we are in a similar period of uncertainty to that of the late 1920s and early 1930s. Back then, before he died in Mussolini’s jail, the Marxist thinker Antonio Gramsci observed: “The Old Order is dying, and the New Order appears perhaps to be stillborn: now is a time of monsters”.

---

References:

• Friedman, Milton, & Rose Director Friedman. 1998. Two Lucky People: Memoirs. Chicago: University of Chicago Press. <https://archive.org/details/twoluckypeopleme00frie>.

• Gramsci, Antonio. 1992 [1947]. Prison Notebooks. Ed. & transl. Joseph A. Buttigieg & Antonio Callari. New York: Columbia University Press. <https://www.marxists.org/archive/gramsci/prison_notebooks/>.

If reading this gets you Value Above Replacement, then become a free subscriber to this newsletter. And forward it! And if your VAR from this newsletter is in the three digits or more each year, please become a paid subscriber! I am trying to make you readers—and myself—smarter. Please tell me if I succeed, or how I fail…

---