the “if only” theory of neoliberalism

I was recently catching up on articles and read this David Laibman article from 2010. The point he makes is something I’ve thought about quite a bit in the last 10 years. It is something anyone reading this has likely thought about as well. How do we think about macroeconomic performance and crisis in the so-called Golden (post-WWII) and Neoliberal Ages?

He criticizes two recent articles on neoliberalism – Palley’s “America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession” and Kotz’s “The Financial and Economic Crisis of 2008: A Systematic Crisis of Neoliberalism Capitalism.” While each of these papers makes a unique contribution, he uses them to represent a familiar position on neoliberalism and the golden age. To put it simply, the policy shifts from a golden age (unionized, financial regulations, etc.) to a neoliberal model depressed growth over that period and/or ultimately created a series of crises. As Laibman describes it:

…if only the neoliberal turn had not occurred…the crisis could have been avoided.

In fairness, I think Laibman is stretching a bit with the Kotz article. As he puts it: “The key thing to note in the Kotz’ title is the adjective ‘neoliberal’ preceding ‘capitalism.'” The implication is that Kotz is diagnosing a crisis of neoliberalism, as opposed to capitalism. I think that is a misreading. This is from another recent article by Kotz[1], that better describes the significance of the neoliberal qualifier:

It is common in the traditional Marxist crisis theory literature to supplement an analysis of a particular crisis tendency located in capitalism-in-general by taking account of a specific historical event or state policy, as a means to explain the emergence of a crisis that is severe and long-lasting. However, such an ad-hoc approach veers uncomfortably close to the “external factor” theory of crisis found in mainstream economics. There is an alternative approach, which takes account of the fact that capitalism never exists solely “in general” but always takes a specific institutional form.

Ok, so Kotz might not be the best representative, but the position Laibman critiques does in fact exist, if sometimes only in a “sentimental” form. This sentiment was certainly in the air throughout my time at UMass. I wish I could remember all the details but I vividly remember being less than convinced with decade versus decade comparisons of growth. Less vividly do I remember who made this argument (apologies), but it seemed clear to me then that the question is not whether growth rates under historical neoliberalism were lower than under the golden age period (here I’m bracketing the problem of focusing on GDP growth rates), but what they would have been if some (modified) golden age regime were maintained.

Not surprisingly, the counterfactual is a tough one to approach. Laibman has a simple exercise suggesting that not adopting neoliberal reforms may have squeezed profit rates, but as he himself admits, the going is a bit sketchy. It is hard to put much stock in the specific results.

This “if only…” question breaks down into a couple of different debates. Was the policy shift contingent? Was it a policy choice, or an inevitable evolution of capitalism? Or maybe it was just really really likely? If it was not inevitable, what could have happened if the neoliberal path wasn’t chosen?

For my own purposes a list of the various positions a heterodox macro or political economy person might take is interesting. Some of the following are arguments I’ve heard made. Others are ones I’ve encountered only implicitly. Others are just possibilities. In part because I want to do this in a crude and sketchy fashion, I’m not going to give examples. If I’m going to attach a name to an idea I want to give them justice, and I’m not interested in giving justice right now. I just want to get a very broad picture of the spectrum of possible thought on this topic.

The pure “if only…” position: Neoliberalism was a bad choice that left us with weak growth and financial crisis.

Base-Superstructure Orthodoxy: The policy “choice” (superstructure) of neoliberalism during the 70s/80s was the inevitable historical result of capitalism (the economic base).

Value-Theoretic Orthodoxy: Crises are the inevitable result of capitalist class relations that can not be ameliorated by institutional reforms. Institutions can basically be ignored.

Institutionalist Orthodoxy: Crises are the inevitable result of capitalist class relations that can not be ameliorated by institutional reforms. Nonetheless, the analysis of concrete institutions should not be ignored.

The Pendulum: Statist types of capitalism run into problem that lead to the adoption of “liberalized” forms which run into problems that lead to the adoption of Statist types…and so on and so on. (I hate attaching names here because I’m not doing anyone justice but I first heard the gist of this idea advanced by Rick Wolff).

Political Instability of Golden Age Capitalism: Golden Age institutions and regulations are economically sustainable, but not politically sustainable. Capitalists (or the “bad” rentier or financial classes) can be reined in, but they will eventually work to undermine and eliminate the regulations they dislike.

To be blunt, I’m quite unsure where I stand on this. I get the feeling everyone else is convinced about their position, although I suspect some of this certainty is premised on shaky grounds. I’m far from proud of my indecision. As I mentioned above, this is something I’ve thought about for almost a decade. And for a decade, it always felt like a debate one should have a position on. At best, I think there are arguments I’m less unconvinced by…

Feel free to school me on how I’m ignorant and this debate was “clearly resolved,” or suggest alternatives to the orientations I’ve listed. Remember, the descriptions are meant to be simple sketches so if you recognize yourself in one of them and feel caricatured and dismissed, please do not take offense.

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[1] It is an odd coincidence that I have now linked to three David Kotz papers in less than a month. This is no offense to David, but I don’t link to articles often so three links is quite a bit. Undoubtedly, with his sense of humor, he would recognize this as some attempt to gain favor prior to asking something of him in his role as my graduate program director.

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