Of course, the classic rabid libertarian answer -- any time any economic failure happens, blame regulations. When we free the markets, and the markets fail to provide anything we want (income equality, fairness, a middle class, a healthy society) -- the obvious conclusion? The markets aren't free enough. Deregulate, so the wealthy can make a killing abusing the poor more than they already do.
What’s called the capitalist system is very far from any model of capitalism or market. Take the fossil fuels industries: there was a recent study by the IMF which tried to estimate the subsidy that energy corporations get from governments. The total was colossal. I think it was around $5 trillion annually. That’s got nothing to do with markets and capitalism.
https://www.jacobinmag.com/2015/09/noam-chomsky-bernie-sande...
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The problem is that capitalists use the language of free markets, but are not actually proponents of its wide application, just where it benefits them. Or to put it more pithily: capitalists don't like capitalism. So you get localized deregulations and strong regulations (example [1]) where it benefits them. But we should distinguish the cases.
[1] http://www.wsj.com/articles/trade-groups-for-chemical-firms-...
So yes, it's not capitalism, but idealized capitalism is a ridiculous impossible goal that doesn't really exist because the market incentivizes people with power to subvert and destroy functioning markets.
The question is... has he been a strong proponent of extra licensing requirements for government contractors. Licensing requirements that his family is able to easily handle, but will push out smaller competitors. That would be hypocrisy.
Has he supported legislation against subcontracting or legislation that artificially limits who the government (or private industry) can hire?
It's not hypocritical to offer services to the government. You're confusing neoliberals with anarchists.
Free markets tend to produce the most wealth. Some regulations are necessary to prevent market failures like monopolies, information asymmetry, etc. But otherwise they are just getting in the way and causing more damage than good.
Regulations are not going to create a middle class or create economic equality. They can only prevent certain abuses from happening, but you can't regulate "equality".
The reality is some portion of the population doesn't have very much economic value. It's crazy and inefficient to try to artificially increase their value by protecting their jobs from competition. Instead we should tax the wealth that capitalism creates, and redistribute it more fairly.
Didn't expect to see that come up on a thread about neoliberalism...
If the wealthy make a figurative "killing" abusing the poor, the poor turn around and make a literal killing. An unethical executive would have to hole up in a fortified compound and surround it with hired guns, just like a Mexican drug lord. That places limits on how much money you can make from antisocial behavior, simply because people stop voluntarily doing business with you.
All big business ends up being a variant of the Mafia, but there has to be some honor among thieves, otherwise gang wars break out and ruin the regular revenue streams for everyone.
Few people would actually be comfortable with a completely free market.
Although some free marketers (and many others) argue that things like prostitution should be "liberated" from prohibition, that's generally tangential to the arguments.
Usually, legal arguments about what can be bought or sold are settled in social/political terms, economics isn't really all that relevant.
> Usually, legal arguments about what can be bought or sold are settled in social/political terms, economics isn't really all that relevant.
The difference between "social/political" and "economic" is superficial.
If you're including all issues that have economic effects, perhaps I'd agree with you. But I'm talking about the decision-making process.
We don't decide whether global warming needs to be addressed using a profit-maximization algorithm. It's a moral question.
The same is true of slavery from the North's perspective in the US civil war. (You can make an economic argument for the south, but it's still a stretch) Fundamentally it's a moral/social/political question, that has tremendous economic effects.
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I'd actually argue the contrary. There are almost no "economic" arguments when it comes to regulation. Any argument worth having is fundamentally moral or social.
* How much taxation is "fair"
* What level of economic inequality violates "justice"
So am I. The decision making process that goes into "social/political" things is pretty much economic.
> We don't decide whether global warming needs to be addressed using a profit-maximization algorithm.
Social/political decision making is aggregating individual efforts to maximize the world's alignment with each individual's own preferences.
There's no difference between this and economic decision making.
> It's a moral question.
"Morality" is just one subset of personal preferences against which people act to optimize. The distinction between it and other subsets of preferences (like "aesthetics", etc.) is arbitrary.
If you hire the Morag Tong to murder your business rival--who has no friends or partners ready to avenge his untimely death--who will be the one to hire Sam and Max to play freelance police long enough to bring you to justice?
Your comment might actually be a good representation of how Neoliberal ideas of deregulation will continue to flourish despite them hampering to middle and lower classes. People will just say it's different sorts of regulations causing the problem, going even further down that path...
EDIT:
What's scary to consider is the era of strong wage increases and financial regulation from the 50's to 80's only started by a cataclysmic event, the Great Depression. Given how many large corporations and well off people benefit from the current system it's hard to imagine how we will see real increase in financial regulation similar to the Glass–Steagall Legislation until something of similar magnitude happens.
Given climate change is only going to get worse, I guess a pretty big catastrophe coming our way and causing similar change soon-ish isn't that far fetched.
1) That's not actually what he said. He said that the regulatory apparatus is currently working to assist rent-seeking and pushing wealth to the "1%". Regulation has been used to protect the wealth of the wealthy from the consequences of a free market, at everyone else's expense.
2) Argument from consensus isn't actually a valid argument. Most of the people in your consensus have been journalists, not economists. (economists are mostly trying to get people to understand that the causes are way more complex than the journalists want to believe)
2) Many notable economists actually blame deregulation, such as Alan Greenspan & the SEC [0]. I think the man who oversaw much of the deregulation while it was happening calling it a problem in hindsight is a pretty darn good indication.
Of course your right though in the sense it's many things happening together, and the finger can never be pointed at one person let alone one group of policies. Still many people see the increased volatility caused by that regulation as a pretty big part of the cause.
Stop perpetuating false dichotomies that preclude valid criticism of current policies.
Thanks for the reply!
Similarly, the SEC isn't a super credible economic source for several reasons. One being if you are smart enough to work at Goldmans you don't work at the SEC. It's pretty self-serving for the agency in charge of regulation to argue that de-regulation was harmful. Do you know the specific economists making this argument? I'm very skeptical until I see names, and then my skepticism decreases while reading the actual paper.
I would argue that deregulation was not the central issue - which was a rise in activities which circumvented regulation, like off-balance bank trading. Greenspan shielded these new fields from regulation, and the resulting over-leverage killed banks. In addition, overly cheap credit made these activities and mortgage in general overly attractive.
There is a lot of evidence for this view, mostly in the multitude of institutions and industries which all had problems simultaneously. You can view this as a coincidence or you can view it as industries responding to incentives set by Greenspan.
TLDR Greenspan caused the housing bubble.
No, you're discussing your narrative... which doesn't have much to do with the post you replied to.
Greenspan is rather heavily implicated as one cause of the problems. But he's attempting to shift the blame to the political side, rather than the economic side he was responsible for. He may actually be right, but I wouldn't take his word for it just because he was there. He's joined by political hacks pretending to be economists (like Krugman), and a few genuine economists. But it's far from agreed-upon.
The wealth of that period had a lot to do with the British mortgaging their global empire to the US in order to pay off their war debt from WWI and for the US bailing them out again in WWII. In exchange, the US received approximate hegemony over "the free world" and the disguised blessing of a scary enemy to unite their side.
Given climate change is only going to get worse, I guess a pretty big catastrophe coming our way and causing similar change soon-ish isn't that far fetched.
Most human conflict is based on resource scarcity, fear of future resource scarcity, and/or fear of what others will do when faced with resource scarcity. This certainly applied to WWII. Even ideological/sectarian conflicts have fear of resource scarcity underpinning them.
Banks responded to this pressure in the only way they could by giving out loans to minorities who then defaulted. Banks couldn't change the government initiatives, so they bundled bad loans with good to try to control the damage and save the economy, but too many minorities were irresponsible. The government then made the problem worse by adding even more regulation on banks, slowing the economic recovery and extending the recession.
I don't personally subscribe to this, but it does seem to have a lot of weight with a certain crowd. It's also used as an example of how minorities and government are the source of other problems in the country, so the only way we can solve the problem is through deregulation, giving more freedom to the financial industry, and ending any sort of affirmative action.
The public at large doesn't understand the banking system and how it is funded. Banks fund loans by creating deposits out of thin air. They don't loan money from their depositors. Because of this, they must be and are carefully regulated.
The banks further profited by investing their own money - something we then prohibited them from doing, as it made them far too risky. Essentially the banks had abnormally high returns, which is almost always a sign of high risk. The entire purpose of regulation is to force the banks to be boring, low-risk low-return options so they have a very low chance of failing. People seeking high-returns can then go to the stock market or hedge funds, which are much less likely to be 'too big to fail'.
The public is also unaware that nearly every substantial banking regulation was created as the result of a bubble, recession, or depression. We need strong bank regulations in order to prevent financial crises which can cause global depressions.
Throwing away regulations when everything is going well is much like throwing out all that error-handling code your application has built up over a decade. Sure, you get better performance initially...
Not to mention when will the change stop? There isn't any indication it will stabilize in the near future meaning semi-unpredictable changes will continue to occur.
Also, living through the snowball earth era would have probably been awful for the human species. Sure life survived many apocalyptic events, no reason to think our species would survive when 99% of others couldn't.
One fundamental attribute is the protection of property rights - otherwise that market would be chaos and whoever could muster the most force could automatically take everyone else's property and destroy the 'free market.'
But the very act of 'protecting property rights' isn't as simple as just the enforcement of who owns what physical thing. There are fuzzy lines all over the place e.g. if I buy a beautiful plot of land to live on, and a neighbour sells their land for use as a garbage dump - how is that resolved?
So when someone criticizes that its not the 'free market' that failing, I think that's partially right and partially wrong. What often fails is our many rules (i.e. regulation) to try and build this abstraction of a 'free market', but when someone says the free market isn't failing because it can't because of gov't regulation - well .. this is wrong too, because without some form of framework of regulation (formal or informal) I don't believe you'd find any stable large scale free markets.
The other issue here is when people say 'free markets', I think they unconsciously mean efficient free markets. And then there are a number of other attributes that really need to be there in the abstraction for it to work (e.g. reasonable information equity between sellers/buyers).
Then why do IMF economists refer to it as a real thing that the IMF actually practiced?
>The IMF itself is not a proponent of the free market. It exists precisely to support excess government spending and to bail rich bondholders who make donations to politicians. Nothing lassiez faire about that.
Then why is the IMF's usual advice to almost all countries to cut "excess" government spending on social programs while privatizing the kinds of revenue-making national resources/firms that keep the government from having to tax too much?
What do you do when vocal critics of your policies seem to be gaining steam? Agree with them! Use their ill defined terminology to label the failures not intrinsic to your plans as the "bad" things, say you won't do them anymore, and double down on your true ideology.
The real tell here is there is no mention of the economic colonialism of Africa and Asia. No mention of Iraq, Libya, Yemen, ISIS, etc. etc.
As an aside, I think a lot of commenters on this thread don't seem to realize you can be a proponent of government regulation and still criticize the crappy (some would say purposefully crappy) job that's being done in their name.
I highly recommend the book Debt: The First 5000 Years. It's pretty life changing.
Do you not believe that markets existed 1000, 2000, 5000 years ago, in areas that were tribal or feudal or in anarchy?
Do you not believe that markets exist in Somalia and other conflict zones today, where there is no functioning government?
Markets exist any time there are two or more people with goods that they could and would trade.
2) You'll find that in an anarchy situation, mysteriously there is some market governing force...like a tribe, or guilds, or even just a shared understanding of how the market/society is to function. Even mob justice is a sort of governance, and the definition of what the mob will allow before uprising is the law of the land...
3) While there are markets in conflict zones, they aren't free markets. Free markets by definition require things like homogeneous products and perfect information. Perfect information has never existed in a conflict zone, and it never will.
4) In order for a market which approaches "free" to exist, there must be some governing entity to setup and enforce rules of trade, fund basic infrastructure which the market relies upon, provide peace which minimizes volatility for the market, etc. Even the staunchest of free market economists have made this point for centuries. Adam Smith and Friedman both are very much in favor of governments in some fashion or another.
I guess you could say that markets exist without governments, but they certainly aren't efficient ones.
This is so absolutely wrong that I'm curious from which reference you got it from.
The very reason free markets work is because of heterogeneous products, allowing for competition, and for the fact that perfect information does not exist.
In a free market each actor only needs the information necessary to run his enterprise, contrary to a centrally planned economy such as a totalitarian state or today's central banks, which require (and think they have) perfect information, leading to bubbles, poverty, chaos.
In my head this makes intuitive sense as clearly oligopolies and monopolies aren't free markets. If free market refers exclusively to non-centrally planned market then my understanding is very flawed.
I thought the entire point was that with heterogeneous products, there is less competition, as the goods are subtly different - enough so that sometimes they are actually in separate markets. Companies who are seeking to minimize competition typically do all they can to differentiate their product - that's marketing 101. In a monopolistic competition, there is heterogeneity, but it's curtailed by a homogeneous demand between these options - e.g. restaurants.
As for perfect information, I should clarify I'm talking only about price information on the part of the consumer. Without listed prices, its hard to make rational decisions. A combat zone doesn't have good information available on prices, which could vary greatly between locales.
If you look at markets with low profit margins, they tend to have homogeneous products with perfect information on prices - for instance, commodity markets. As the best possible outcome for consumers is for a market to have zero profits but competition to drive costs down. And I know that perfectly competitive markets are only theoretical, but I'd argue that the concept of a free market is only theoretical as well.
Having unfavorable terms, as you've described, makes the bitter pill of devaluation look a little sweeter.
But in response to your question, I'm not sure how it's not free market. Can you describe specifically what doesn't get covered from the "it's not forced lending" argument?
Plenty of neoliberals, aka folks who think competition is the best and that competition brings out the best in everything, still believe that you still have to first organize markets and make sure they are competitive, i.e. It is not the natural state of things in each and every realm of life.
https://www.theguardian.com/business/2015/apr/26/recession-r...
Hand-wavy editorials about economic busts always come across half-baked and incoherent when they blame the "free market."
Inequality remains a massive red herring. Instead we should be concerned about the absolute standard of living and the level of corporate-government corruption.
Also, large and growing inequality is usually a symptom of a more deeper issue in an economy. Pushing to "fix inequality" is just patching a symptom, and proposed solutions usually involve giving more power to the state (which is probably the root of the inequality problem).
And modern "inequality" in Western economies is nothing compared to what it was in the past, hence my comment about absolute standard of living. Historically, inequality meant that the aristocracy rode around in carriages while the peasants walked barefoot. Now, the rich have fancy cars / jets, and the "poor" have cheap cars. But everyone has cars! (or access to mass transit for most Europeans -- I'm coming from a US-centric view).
Absolute standard of living has increased to an unbelievable level: 200 years ago, we worked outside on farms doing back-breaking labor from sunup to sundown. Now, a vanishingly small proportion works the farms, and even the tractors are air-conditioned. And absolute standard of living continues to rise for much of the world.
So what if there's inequality? We are so much better off than we have ever been, in absolute terms.
As you point out, current increases in inequality are symptoms of a bigger problem. The bigger problem (Govt debt, Fed money printing, and bank bailouts) needs to be addressed.
Trying to address inequality without tackling the root cause will do little - in most cases, since the "solutions" are more harmful govt/fed interventions, it will just make inequality worse.
The free market is not failing. Current markets that are failing are hardly "free." What is failing is a system of government regulation and control that supports wall street and the rich at the expense of the middle class.
The governments and their federal banks created every single problem called out in the article. To turn around, blame free-markets, and propose more government as the solution is disgustingly disingenuous.
The IMF itself is not a proponent of the free market. It exists precisely to support excess government spending and to bail rich bondholders who make donations to politicians. Nothing lassiez faire about that.
The laissez faire solution to an overspending government would be bondholders losing money, currency depreciating, and poor leaders being held accountable - to which the IMF is diametrically opposed.