Ted Kennedy, Godfather of American Neoliberalism

Ed Lopez recently reminded us of the pivotal role that Ted Kennedy played in the US neoliberal revolution.  (I define neoliberalism as deregulation of market access and pricing, privatization, freer trade, and lower MTRs.)

By the mid-1970s, criticism of airline regulation had moved from academics to economists in think tanks (Brookings, AEI) and in government. At an economic conference on inflation convened by the Ford Administration, the delegates focused unexpectedly on a different idea: existing regulations were producing high prices. Yet as every economist in Washington knows, many reform ideas never become policy. Then came the political entrepreneurs.

First, Senator Ted Kennedy. An ambitious member of the Senate Judiciary Committee and chairman of the subcommittee on administrative procedure, Kennedy saw an opportunity to attack the over-regulated and under-competitive airline industry by critically examining the rules it played by.

Most judiciary subcommittee hearings were mind-numbingly boring, but airlines were sexy, and Kennedy turned the CAB hearings into high theatre, trotting out real but outrageous examples. A flight from Los Angeles to San Francisco (intrastate and thus not CAB-regulated) cost half as much as a flight from Washington to Boston (interstate and CAB-regulated). Even the dimmest reporter could connect the dots. The CAB looked bad. Kennedy looked good, as did the odds for reform.

Then the Carter Administration tapped Kahn to run the CAB.  . . .

Kahn built on Kennedy, who built on the work of intellectuals in Washington’s think tanks and policy circles, who in turn built on good academic research. Importantly, he found allies across the political spectrum, from the American Conservative Union to Common Cause, from business interests to consumer groups. This odd mix prevented easy dis­missal of reform as the pet project of the left, the right, or any special interest.

With passage of the Airline Deregulation Act of 1978, Congress closed the CAB and left behind an unprecedented example of radical reform.

This success was followed by the deregulation of many other industries, including banking and trucking, all with bipartisan support.

Then in 1986 there was a push for tax reform.  The Packwood plan would slash top income tax rates down to 28% (from 70% when Reagan first took office.)  A significant number of GOP senators were opposed, but fortunately the highly influential Ted Kennedy stepped up to the plate, and top income rates were slashed.

In the early 1990s both Bush and Clinton fought for NAFTA.  But the very popular Ross Perot was opposed, and it was a difficult battle in Congress.  Al Gore debated Perot, and swung American public opinion behind the plan.

[Which, BTW, shows the utter meaningless of so-called "public opinion" on issues where the public hasn't actually studied the issue.  It's not just the framing problem with polls, when the public actually focuses on an important issue, they give very different answers.  Were the public to actually study the budget situation, you can be sure that they'd understand the need for something more than taxes on the rich and cuts in foreign aid.]

In the Senate vote Ted Kennedy stood with Clinton, and NAFTA became law.

So next time you progressives bemoan the loss of the glorious 1950s and 60s, with our unionized factory workers protected from foreign competition, and our highly regulated industries, and our 70% to 90% top MTRs, remember the man without who’s support the neoliberal revolution in America might not have been possible.


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56 Responses to “Ted Kennedy, Godfather of American Neoliberalism”

  1. Gravatar of Ram Ram
    30. December 2012 at 08:53

    Different views of competition underlie many policy differences between left-of-center and right-of-center analysts. Lefties tend to think that competition fails to discipline the capitalists, but succeeds in disciplining the laborers. The result is that we need not worry about government being non-competitive, since capital isn’t really either, and since a rational discourse together with democracy is our only defense against abuse of concentrated economic and political power, whether in government or in industry.

    Righties tend to think that competition succeeds in disciplining everyone besides the government. The result is that even where markets may fall short of social optimality, government is only going to make things worse.

    When you think about the history of the 20th century as a series of shifts in the median analysts beliefs about the potency of competition, the policy changes that took place become more easily explicable. A small change in one’s view of competition can set one down a path of wholly different policy prescriptions.

  2. Gravatar of michael webster michael webster
    30. December 2012 at 09:30

    Thanks for this review, Scott. Appreciate the overview.

  3. Gravatar of Steve Steve
    30. December 2012 at 09:49

    Ram wrote: “A small change in one’s view of competition can set one down a path of wholly different policy prescriptions.”

    This is why Krugman is pushing the idea that we are being taken over by monopolist robots. It leads to, ahem, a “different” policy prescription.

  4. Gravatar of Bill Ellis Bill Ellis
    30. December 2012 at 10:16

    Gee Porfessor Sumner…It is nice to see you back me up.
    I have been making the argument that for 30 years we have become ever more libertarian. Now you point out that even the DEMS had a hand in it. Thank you.

    Too bad it all blew up in our faces in 2007. ( I know you think it had little to do with anything but a bad FED. ) Too bad it resulted in 30 years of stagnation for all but the top earners. The experiment failed. (of course true believers will always claim it failed because it did not go far enough… but they always do, don’t they ? )

    Why stop at Ted ? No doubt that Dems had a lot to do with deregulating the economy. Bill Clinton had a lot to do with it. Why stop at him ? 30 years ago the bulk of the establishment wanted the economy deregulated to SOME degree. It WAS over/badly regulated and many Liberal policies had become the victims of their own unintended consequences. The elite were unbound… and so now we have our Libertarian Utopia!… No.
    So now we are in the era of Suffering the Unintended consequences of Libertarian policies.

    I will keep in mind that in the past the dems played a big roll in transforming our economy into a more Libertarian economy, if you will keep in mind that no matter who made it possible… Libertarian polices have failed for all but the elite. Now, In 2013 the dems see it. Conservatives don’t.

    Deal ?

  5. Gravatar of Major_Freedom Major_Freedom
    30. December 2012 at 10:53

    While MTRs in the 1950s and 1960s were higher than they are today, what many people don’t consider are the effective taxes people paid after deductions and loopholes are taken into account.

    Piketty and Saez (2007) note:

    The average individual income tax rate in 1960 reached an average rate of 31 percent at the very top, only slightly above the 25 percent average rate at the very top in 2004. Within the 1960 version of the individual income tax, lower rates on realized capital gains, as well as deductions for interest payments and charitable contributions, reduced dramatically what otherwise looked like an extremely progressive tax schedule, with a top marginal tax rate on individual income of 91 percent.”

    What of the Reagan/Bush tax cuts? Piketty and Saez continue:

    “The reduction in top marginal individual income tax rates has contributed only marginally to the decline of progressivity of the federal tax system, because with various deductions and exemptions, along with favored treatment for capital gains, the average tax rate paid by those with very high income levels has changed much less over time than the top marginal rates.”

    http://elsa.berkeley.edu/~saez/piketty-saezJEP07taxprog.pdf

    Progressives who claim that life for the average worker was better in the 1950s and 1960s as compared to today (not in the sense of real standard of living of course, but in the sense of fairness, relative position, etc), on the basis that the high MTRs are allegedly responsible for it, are actually just propagating an agenda of “soak the rich” for non-economic reasons. The actual tax rates paid by the super rich back in the 50s and 60s were not that much higher than they are today.

    Other factors dominate, for example:

    1. The US was not bombed during WW2, which allowed for the existing capital base to continue to grow the productivity of US labor, while other economies were rebuilding what was destroyed;

    2. Government spending and effective taxation fell quite substantially after the war was over, price controls and rationing ended, which allowed for increased rational private investment relative to government/consumer spending;

    3. Half the world was under communism, while the US had a relatively more liberalized economy;

    4. Many new technological revolutions occurred during the post-war period; and

    5. The US dollar became the world’s de facto reserve currency (Bretton Woods), which allowed Americans to live a higher standard of living at the expense of those in foreign economies, through the process of exporting printed money and importing real goods (at a lower real cost).

  6. Gravatar of Major_Freedom Major_Freedom
    30. December 2012 at 11:08

    Bill Ellis:

    Too bad it all blew up in our faces in 2007. ( I know you think it had little to do with anything but a bad FED. ) Too bad it resulted in 30 years of stagnation for all but the top earners. The experiment failed. (of course true believers will always claim it failed because it did not go far enough… but they always do, don’t they ?)

    You’re a true believer. You believe that even though the monetary system de-linked to gold, that putting all power of money production at the hands of the state, allowing credit to grow ad infinitum, that somehow the fault is “libertarian” policies, and that state influence did not go far enough. That’s what you progressives always claim. If there is more state intervention, and things get worse, then it’s because there wasn’t enough state intervention.

    What blew up in 2007 was not lower MTRs, or deregulation of mining, it was the centralized, socialist, non-market fiat monetary system.

    Socialism makes people’s lives worse off, not better off. It is incredible how you progressives can have decades of empirical evidence, and 200 years of economic theory, that fly in the face of your worldviews, and yet you remain true believers in socialism, because every wrong thing is due to the portion of the economy where individuals can choose more of what they want for themselves. Apparently to you, individuals choosing more for themselves makes them worse off, because only the overlords in the state know what’s best for everyone.

  7. Gravatar of jknarr jknarr
    30. December 2012 at 11:22

    Bill -

    Amazing what Libertarians will do in power: Indefinite detention, FAA 30,000 drones in the US, extrajudicial assassination of US citizens, TSA crotch grabbing checkpoints, TARP for banks, guns for drug gangs, “war on drugs” wristslap for HSBC — prison for you or me, Patriot Act, extraordinary rendition torture, drone strikes killing 474 – 881 civilians including 176 children, Utah Data Center yottabytes of surveillance storage, warrantless searches and wiretapping…

    What’s happening sounds more like your guys, Bill.

    We are seeing the formation of a (UK) Baldwin-like Post-bubble depression-era establishment coalition government between dems and reps. Call it the new Tories. The new left/right libertarian independents barely know what they are: the new opposition party. Exhibit A is the failed vote on “Plan B” – one half of the house republicans are now in an opposition party.

  8. Gravatar of jknarr jknarr
    30. December 2012 at 11:25

    Scott, may have missed it from the earlier thread: what led to the currency production explosion of 1939-1941? Do you feel that it was a symptom or a generator of NGDP recovery?

    http://research.stlouisfed.org/fred2/graph/?g=e7H

    I ask because the Fed tried the same reserve-based approach in 1932-1938 and failed, similar to now. A currency expansion appears to have been more successful.

    http://research.stlouisfed.org/fredgraph.png?g=e7I

  9. Gravatar of Jon Jon
    30. December 2012 at 11:55

    Bill,

    I don’t accept that deal. It is predicated on bad data. Take for instance, the claim that the distribution of income has changed dramatically. Seems like an easy question, no? It would be if data sets had been maintained with consistent definitions over the decades, but they haven’t. Critically, the numbers you see cited commonly are based on AGI as reported on household 1040s.

    In the 80s we saw a dramatic redefinition of AGI as part of the tax reforms which eliminated deductions above the line and lowered rates. This is left uncorrected when people claim inequity has risen and it dramatically gooses the claim.

    Second, C-corps used have significant tax benefits. Again neoliberal reforms eliminated these so that now c-corps are tax disadvantaged and are only used when you need to raise large amounts of capital in public markets. However, other limited liability structures are pass thru entities. So that shifted income away from corporate income and on to household AGI. This has been more gradual as people slowly unwound c-corp structures in favor of pass thru structures.

    Third, income limited tax shelters such as pension plans, 401k, IRAs have hidden income of the lower brackets but have little impact on the higher earners. Though, high earners have always had access to other shelters, IRAs and 401k plans were introduced only recently.

    https://www.jct.gov/publications.html?func=download&id=4408&chk=4408&no_html=1
    http://www.cato.org/sites/cato.org/files/pubs/pdf/pa586.pdf
    http://www.brookings.edu/research/papers/2007/01/11useconomics-burtless

    Reynolds calculations using alternative data show little trend but have also been criticized. Importantly though, all the rebuttals to Reynolds have left his claims about the AGI data untouched. The AGI measure is wrong. That makes Saez’s work here wrong, and it makes the continued slight of hand by commenters who cite AGI statistics wrong.

    The census survey is treated as an independent data source but people respond to the census using their awareness of their tax returns and the current social definition of income. The census survey is also very sparse on upper income households because there are so few to begin with.

    My personal view here is that inequality has increased a bit. This is due in part to the big depression in equity values during the 1970s owing to a deep malaise about the future. The neoliberal reforms helped unlock value here and existing owners of capital benefited. This did goose the income of the top 10%, but by no means was this taken from the low earners…. everyone benefited from avoiding a collapse in income growth that nearly crushed everyone after the statist model crashed in the 70s.

    Meanwhile, what became clear was that capital allocation is a hard problem. So hard it brought down the Soviets and stagnated incomes all over the world before 80s. So yes, the very very top–comprised of the best capital allocators–has seen stronger income growth due to this effect, probably about half as much as Saez claims though.

    Plus, it isn’t clear reducing this growth would help anyone. Certainly going back to where we were in the 70s would not help. So, I deny that neoliberal reforms failed.

  10. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    30. December 2012 at 12:03

    Speaking of Krugman, he’s finally got someone to contend with at Princeton (a freshman);

    http://esoltas.blogspot.com/2012/12/follow-up-deficit-cyclicality.html

    ‘As income inequality has increased, and a larger share of income goes to the top, the share of income tax revenues which come from the “volatile top” has also increased. The graph of the share of income taxes borne by the highest incomes has increased just in the same way that their share of income has increased.’

    But, does Krugman realize the implications here? That raising tax rates on the ‘rich’ ain’t gonna solve anything.

  11. Gravatar of Jon Jon
    30. December 2012 at 12:17

    “The reduction in top marginal individual income tax rates has contributed only marginally to the decline of progressivity of the federal tax system, because with various deductions and exemptions, along with favored treatment for capital gains, the average tax rate paid by those with very high income levels has changed much less over time than the top marginal rates.”

    This is a very important paragraph to unpack. The bush tax cuts made the income tax system more progressive than it was before. I’ve computed this myself by looking at the cumulative taxes share vs the cummulative income share using CBO data. Indeed, all the tax cuts from 81 forward have this property–whether rates were going up or down, the income tax burden has been shifting toward the higher earners faster than their share of income has been going up.

    This of course makes a lot of sense politically. We have on the one hand a coalition trying to rationalize the tax system with the best economics research by lowering marginal and average rates. Then we have a coalition trying to increase transfers from high earners to low earners. The two groups have had control back and forth over the years, but generally the latter has been stronger at its strongest. There is also a small contingent commited to a balanced budget. So we’ve seen two kinds of tax changes in this country:

    - rates go down for everyone, but more for lower earners–compromised that gives both sides a win (Reagan and Bush II tax cuts)
    - rates go up but on higher earners only–progressive collation either strong enough on its own or allied with budget balance hawks (Bush I, Clinton, Obama)

    So progressively has been on a one way rachet up and up.

  12. Gravatar of Becky Hargrove Becky Hargrove
    30. December 2012 at 12:45

    Patrick,
    Re: tax rates on the rich. I wish there were an apt way to illustrate how small that pile of money actually is – or would be – compared to the “wonders” people imagine could be done with it.

  13. Gravatar of marcus nunes marcus nunes
    30. December 2012 at 13:46

    That sort of irony is very common. Just like liberal Ted Kennedy was instrumental in the deregulation mouvement, Conservative Nixon was the man who made the approach with communist China!

  14. Gravatar of Major_Freedom Major_Freedom
    30. December 2012 at 14:04

    That sort of irony is very common.

    Wouldn’t “common” occurrences no longer make it “irony”?

    Oh my God, you just learned that there is no essential difference between “the two parties.”

  15. Gravatar of Morgan Morgan
    30. December 2012 at 14:36

    Scott, I have a question.

    Assume you are master of universe, you have 1K newspapers and TV station, that will push your agenda. You can basically pass any kind of law you want passed.

    Now, your goal is more inflation, BUT you can’t print money AND you cannot deficit spend.

    Without those at you disposal, what is your way of creating inflation?

  16. Gravatar of Bill Ellis Bill Ellis
    30. December 2012 at 15:47

    jknarr says…

    “What’s happening sounds more like your guys, Bill.”

    No, “what is happening” is not more like liberalism than libertarianism. “What is happening” is against shared fundamental principals of Both.

    “What is happening” is for the benefit of the elite. It is a result of the fact that the elite control both parties. The elite have more relative power now than at any time since 70′s.

    The abhorrent “what is happing” is because libertarian attitudes manifest in policies that allow the elite to control/buy the State. It is an unintended consequence of course.

    In fact… The vast bulk of the money we spend on “defence” is a subsidy to elite interests.
    It is a subsidy directly in the form of feeding the MIC. But more than that ,the way we deploy and use our forces is NOT to defend the common man in America but in response to the perceived needs of powerful elite interests.

    I think most libertarians generally agree with my assessment of our defence budget. And no doubt they make some noise about. (Almost as much as liberals do.) But their efforts seem out of proportion.

    I mean … With most of the defence budget going to benefit the elite and much of the rest of budget going to the elite… Why does it seem like Libertarians are more concerned that unemployment benefits might be extended by a few weeks ?

    You know I honestly like libertarian Ideas. I think erring on the side of free markets is always a good bet. But I do not think they are “THE” answer. There is no one answer.

    I know I am a broken record on this… But if libertarians want to be successful… if they want to get the rest of us to give them a shot… then prove you can keep the elite from turning the state into their instrument.

    Liberals would help you.

    I don’t think there is a rational philosophical reason why the Libertarians are so allied with conservatives. You really don’t agree with them anymore than you agree with us.
    The reason Libertarians are allied with the cons is tribalism. Even if they don’t share anymore intellectually with the right than the left… They Share a gut reaction to things.

    Gut reaction is trump.

  17. Gravatar of Bill Ellis Bill Ellis
    30. December 2012 at 15:51

    What does libertarian election reform look like ?

  18. Gravatar of Bill Ellis Bill Ellis
    30. December 2012 at 16:33

    MF says….
    “Oh my God, you just learned that there is no essential difference between “the two parties.”

    Disagree… It is just that from your extreme persecutive above us common folk… the difference does not seem to matter.

    But to us little people it matters a lot.

    Both parties are committed to perpetuating the establishment. An establishment controlled by the elite. Both parties believe the establishment is the best way to go… But they have different philosophies on how to do it.

    The repubs think the best way to do it is by following certain libertarian principles. (while ignoring others)
    They believe that the elite are the elite because of merit. They believe that the elite have earned everything they got and to take anything away is theft. They believe that for the elite to continue to be successful they must be rewarded… and any diminishment of the reward diminishes the level of success.
    On the other hand…Repubs believe that for the common man to be successful he must be protected from being too comfortable. That State help makes them weak.

    Dems on the other hand believe that the elite got to be elite by merit, but also by corruption and luck…. and always with the help of the rest of society.
    So the dems have a Belief in a kinda American version of Noblesse Oblige.

    That one difference in if the elite have responsibility toward the rest of the population or not… makes for policies that are radically life altering for the rest of us.

    Too bad we don’t have your vantage point. Then we would see that silly things like being able to take your kid to a doctor or not are really insignificant when it comes to the big picture.

    You know MF… our system is not much different than a constitutional monarchy. It is just that our elite are not titled, and we have expanded the vote past the merchant class.
    We live in a Constitutional Plutocracy. Libertarians have no remedy for it.

    So until you do… the rest of us will work the system the best we can within the narrow confines of the establishment…making REAL differences in the lives of the masses.

  19. Gravatar of D.O. D.O.
    30. December 2012 at 19:08

    @Morgan. Seems like you need to cut real GDP, no? But why would you like to do it?

  20. Gravatar of Major_Freedom Major_Freedom
    30. December 2012 at 19:14

    Bill Ellis:

    You know, every time you progressives say that you’re “just working with the system the best you can”, for some super duper oh wow what a surprise reason, you are unhappy with the lack of state intervention in whatever aspect of people’s lives you’re complaining about at the moment, and so you conveniently clamor to increase, never decrease, the size of the state, particularly in economic affairs.

    You refuse to ascribe any economic problems to positive state intervention. The problems are always due to a lack of state intervention.

    So while you’re “working within the system”, you are in fact asking to change it in the direction of a different, more statist system. You want more violence in social life because you don’t like the outcomes of peace, and you hide this thirst for violence behind “democratic processes” and other such rhetoric.

    When you insinuate that I am not “working within the system”, what you are actually saying is that you just don’t like my change requests, as they don’t match your change in the direction of more statism requests.

    I am also fascinated how you can characterize me as being in a self-imagined “higher” vantage point than you, when you yourself are doing just that by wanting the state to take an even higher vantage point over my and everyone else’s economic lives. You believe you are so high up that you believe you actually know how to run other people’s lives, through the state’s power, better than people know themselves.

    Finally, libertarians do indeed have a remedy. You just can’t even see it when it is presented to you because you don’t speak the language of non-state activity. If a solution does not involve the state, you believe it’s not even a solution. To you, it is almost as if citizens don’t even act, that only people who are given the most guns and the most votes somehow acquire the ability to act. Then, if there is to be action, it can only be statesmen who act. If there is a problem, and the solution is for statesmen to not act, then you claim it isn’t even a solution.

    This is the problem with you totalitarian minded people. While you communicate to others that you’re just a meek little citizen who is trying to make things better, all you’re really doing is abandoning self-responsibility because you don’t accept individual responsibility enough to even see how individuals can solve their own economic problems without the state breathing down their necks.

    You obviously desire power. It bleeds through your veneer of “helpless me”. You want more social control by the use of violence.

    I will tell you that violence does not solve complex social problems. Statists like you only have a hammer (violence, intimidation) to solve all problems. So every problem looks like a nail that needs more state whacking.

    From my vantage point, I put myself as lower than you are putting yourself relative to everyone else. I want everyone to make their own decisions, to solve their own problems in peace, and not have mommy and daddy government telling them what to do. I am far more humble than you. You are in the very vantage point that you accuse me of being in.

  21. Gravatar of Major_Freedom Major_Freedom
    30. December 2012 at 19:15

    Bill Ellis:

    No, “what is happening” is not more like liberalism than libertarianism. “What is happening” is against shared fundamental principals of Both.

    “What is happening” is for the benefit of the elite.

    That isn’t libertarianism, Bill. That’s liberalism. Liberalism = state power.

  22. Gravatar of Major_Freedom Major_Freedom
    30. December 2012 at 19:16

    Morgan:

    Without those at you disposal, what is your way of creating inflation?

    He’ll first need a gun and unscrupulous morals.

  23. Gravatar of ssumner ssumner
    30. December 2012 at 19:42

    Jknarr, The Fed was not very stimulative in 1932-38. Whatever stimulus took place came right out of the White House, and was an end run around the Fed. The increase in the base in 1934-40 related to gold inflows, mostly from Europe.

    The price of gold was pegged back in those days (except 1933-34) so the comparisons with recent Fed policy are misleading.

    Morgan, If my goal was more inflation (it’s not) and I couldn’t increase the supply of money, I’d reduce the demand for money–perhaps with a lower IOR.

    Everyone, If I am personally to blame for all the problems in America, because we have done neoliberal policy reforms, I presume that progressives are to blame for all the problems in the developed country that did the fewest neoliberal reforms in the past 30 years.

    That would be Greece.

  24. Gravatar of Bonnie Bonnie
    30. December 2012 at 20:15

    Bill:

    I think if not for big government, elites would have a lot of trouble getting to be elite. The entire regulatory structure isn’t, as many have claimed, to make and enforce rules of the road, but to squash competition from the people who don’t have the resources to meet regulatory burdens – the little guys, mom and pop, you and me. One good example is the Motor Carrier Branch in the Transportation Safety Administration, established in the late 1990′s. Independent tour operators are now practically extinct. Just try buying a tour bus that meets state safety regulations and book passengers – and you will find out what I’m talking about. Sadly, this is only one example. It’s everywhere; there is almost nothing left untouched by the Feds and all of the corruption behind it.

    It’s this sort of thing out of the centralized administrative state planning apparatus that collapsed in 2007 in conjunction with the other arm of the state – the Fed with bad monetary policy. The only real way out of this mess is to minimize interventions and the tendency of the state to nudge people and markets to get what it wants out of them with a sort of near-sighted greed in one form or another. The basic point is that politicians and bureaucrats do not care about you and me. They care about themselves and campaign funding, and it shows in nearly everything they do.

  25. Gravatar of Yellow Dog Yellow Dog
    30. December 2012 at 20:41

    Neo-liberalism has failed and people know this instinctively.

    When they get together at the holiday season and they talk to Grandpa who is comfortably retired on this thing called a PENSION, they know that neo-liberalism has failed.

  26. Gravatar of Yellow Dog Yellow Dog
    30. December 2012 at 20:43

    When all the talk is about raising the SS retirement age to 70!?!…they know neo-liberalism has failed.

  27. Gravatar of Bill Ellis Bill Ellis
    30. December 2012 at 20:44

    Professor Sumner, says…

    “Everyone, If I am personally to blame for all the problems in America, because we have done neoliberal policy reforms, I presume that progressives are to blame for all the problems in the developed country that did the fewest neoliberal reforms in the past 30 years.

    That would be Greece.”

    Really… The Greece card ?
    Like Greece would have been much better off with a lot of Neo liberal reforms… Just like Ireland ?
    The problems with Greece and Ireland have much more to do with the euro and not being able to devalue their currencies than any internal reforms.

  28. Gravatar of Yellow Dog Yellow Dog
    30. December 2012 at 20:45

    When all the talk is about raising the Medicare eligibility age…they know neo-liberalism has failed.

  29. Gravatar of Yellow Dog Yellow Dog
    30. December 2012 at 20:48

    Luckily, socialism works and capitalism doesn’t so the future is inevitably progressive.

    You think Ecuadorans, Venezuelans, Argentinians, etc. will ever go back to the neo-liberals who impoverished them?

  30. Gravatar of Bill Ellis Bill Ellis
    30. December 2012 at 20:55

    Bonnie says…”I think if not for big government, elites would have a lot of trouble getting to be elite”

    I got to disagree. No matter how “hands off” the system we have always had an elite.
    But I think we may agree, that when it comes to Statist it is the elites who matter… far more than the masses who just want the State to ensure a minimum degree of welfare for the old, sick and unlucky.

  31. Gravatar of Bill Ellis Bill Ellis
    30. December 2012 at 21:19

    MF says… “Liberalism = state power ”

    No, This is a grotesque warping of our language. Orwellian.
    State power is not tied to any single philosophy. By your definition Kings, Theocrats, Dictators, Democrats, Republicans, Fascists and some Communists are all the same… all liberal.

    I suppose you think Anarcho communists are conservatives then ?

  32. Gravatar of Benjamin Cole Benjamin Cole
    30. December 2012 at 21:24

    Excellent post.

    Funny how history works.

    It was Carter who first appointed Volcker, and Reagan who plotted to get him out.

    Volcker got inflation down to 4-5 percent, called it a day. A towering figure of inflation-fighting.

    Greenspan got it down to 2 percent, and they call him a money printer.

    The top tax rate was 90 percent in the 1960s. Regulation Q controlled returns on bank savings deposits. Stock brokers charged fixed a very high commissions. Trucks, trains, airplanes, agriculture heavily regulated.

    Still, living standards soared in the 1960s, and per capita real incomes rose by 37 percent.

    Hard to explain some things.

  33. Gravatar of Bill Ellis Bill Ellis
    30. December 2012 at 21:31

    MF says… “Finally, libertarians do indeed have a remedy. You just can’t even see it when it is presented to you because you don’t speak the language of non-state activity.”

    Now I get it. Libertarians DO have the answers to keeping the elite from making the government their instrument, It is just that Libertarians don’t have the ability to explain them to someone as dull minded as me.

    Well that makes sense… ‘cuz I have never yet met a libertarian that could explain to me.

    I wonder… is the common person more like me… or you ?

  34. Gravatar of Bill Ellis Bill Ellis
    30. December 2012 at 21:36

    Jon,

    Inequity is better measured by wealth than income.

  35. Gravatar of TravisV TravisV
    30. December 2012 at 21:52

    Prof. Sumner,

    Could you at least explain why emerging markets such as China tend to have much higher rates of inflation than relatively wealthy countries?

  36. Gravatar of Lorenzo from Oz Lorenzo from Oz
    30. December 2012 at 22:10

    TravisV: inflation is a cheap tax which is easier for the administratively challenged.

  37. Gravatar of Major_Freedom Major_Freedom
    30. December 2012 at 23:20

    Bill Ellis:

    You aren’t fooling me with your insincere “folksy” aw shucks routine. It’s transparent.

  38. Gravatar of Benny Lava Benny Lava
    31. December 2012 at 06:04

    I get the point of Scott’s post, which is that typical American left/right talking points are trivial. As others pointed out it was Carter that relaxed a lot of price controls and appointed Volker. And Nixon who introduced a lot of price controls and regulations. But which one is the big terrible liberal and which the strong conservative? It all comes down to cultural biases, really. Conservatives loved Nixon because he called Democrats communists and he hated hippies. And they hated Carter because he advised people to conserve money on the energy bills by turning the heat down (oh the malaise!).

  39. Gravatar of Becky Hargrove Becky Hargrove
    31. December 2012 at 06:35

    Lorenzo,
    I like your definition of inflation…need to remember that!

    Bill,
    I like to think that you are here with an open mind but as MF just said, sometimes I wonder. There’s not much I can add but this: we create elites every time we harden the rules for one another to play the game of life, into a form that can’t be altered. The people who are all too willing to harden those rules for us are the ones who benefit powerwise from the process, be they financiers, politicians, Democrats, Republicans or whatever. This damage is especially apparent in the structures we expect one another to all live and work in, because of the effort it takes just to stay in the game. No, we don’t have clear ways to make those rules more flexible yet. But there is a new year tomorrow and we can hope it will be a better one.

  40. Gravatar of Negation of Ideology Negation of Ideology
    31. December 2012 at 07:13

    Bill Ellis – I agree with some of what you say, but isn’t this a little over the top:

    “On the other hand…Repubs believe that for the common man to be successful he must be protected from being too comfortable. That State help makes them weak. ”

    I think we have two parties that believe in market based economies with some regulation and some redistribution. Ok, Repubs believe in less regulation and redistribution than Dems, but it’s not because they want to keep the poor weak and uncomfortable.

    In any case, I believe regulations that prevent people from ripping off their fellow citizens are good, while regulations that attempt to control prices are bad. (That obviously includes gold – the “Austrian” desire to have the government control gold prices is truly bizarre.) So the ending of wage and price controls, and moving to a free market in gold was good. Banks, to the extent they are backed by the government need to be regulated. Also credit markets need to have protections against fraud.

    What constitutes ripping someone off can be very tricky to define though. Were those house-flippers who put no money down to buy a house ripped off? I don’t think so. How about the elderly who got talked into buying an overpriced annuity or reverse mortgage? In many cases, yes.

  41. Gravatar of Jon Jon
    31. December 2012 at 08:17

    Bill writes: Inequity is better measured by wealth than income.

    Actually, consumption is a better metric of inequity than both of those, and we can have a progressive consumption tax in this country by using the IRA concept generalized to savings generally and without contribution limits, or withdraw penalties. Everything you add to the account you deduct from above the line, everything you take out adds to your income.

    The income on the backside of this calculation is your consumption for year + hoarding of cash outside the banking system. Now this can be fed into a progressive rate structure and you can do away with sales taxes–using this instead–and getting the benefit of a national sales tax without the issues.

  42. Gravatar of Saturos Saturos
    31. December 2012 at 08:18

    Happy New Year (from Australia) to the readers of TheMoneyIllusion (and everyone here in the comments section)! Let’s hope for more Market Monetarist success (and global welfare improvement more generally) in 2013!!!

  43. Gravatar of Bill Ellis Bill Ellis
    31. December 2012 at 09:11

    MF,
    Apparently I am not transparent enough.
    So if I am not fooling you, and I am not as I appear to be… what am I ?

    LOL. Happy holidays MF.

  44. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    31. December 2012 at 10:45

    ‘The elite have more relative power now than at any time since 70′s.

    ‘….In fact… The vast bulk of the money we spend on “defence” is a subsidy to elite interests.’

    Funny that they allowed that spending to be cut in half since the Eisenhower years. That they allowed the riff raff to be free from military conscription since the 70s.

  45. Gravatar of Becky Hargrove Becky Hargrove
    31. December 2012 at 11:50

    Bill Ellis,
    The path you are taking today is not doing your brethren the favors you imagine. Now, I want to explain to you the primary reason why there is not the tribal link between all libertarians and conservatives that you imagine…in fact there is a very real link between libertarians and liberals that you don’t understand, or you wouldn’t be trying so hard to get lots of folks off to a bad start for the new year.

    My parents are libertarian in ways they don’t even quite understand, which also means that once I became an adult I was basically expected to tend to my own affairs and take care of myself. Guess what? That is true for lots of liberal parents, who also expect their kids to go out into the world and make the best of what the world offers. How are conservative parents different? They have more incentives to provide for their families whether the rest of the world helps those children, or not. Nothing wrong with this, just a different incentive base. They want less in part from government for their children because they expect to provide it themselves.

    Think about it, Bill. This means libertarians and liberals both need supportive, flexible and workable community roles outside their own familial base in order to both survive, and thrive. You know that where flexibilities are lost, jobs are also lost. If you have never been unemployed, then I get why you haven’t thought how flexibilities play a major role in our mutual economic realities. But when you don’t have a job, you lose your flexibility, you lose everything. Your economic and social freedoms go right out the window. I dream of greater economic freedoms for all of us, and need those freedoms so that I still have the chance at getting work again before I’m too old. When I imagine reforms, it is also so that people such as myself can take a chance on moving out from under the roof of family to once again take care of myself. What liberal would not want the same? I was as liberal as they come, until the day came that there were no guarantees in the workplace and I had to make my own way with self employment. Only then did I have to question a government that I once took for granted, when my own personal government grants ran out in the nineties. To put it simply, government is not something separate from us, it IS us and it falters only when we mindlessly expect it to keep giving till it finally runs dry.

  46. Gravatar of Doug M Doug M
    31. December 2012 at 11:54

    “Libertarians DO have the answers to keeping the elite from making the government their instrument, It is just that Libertarians don’t have the ability to explain them to someone as dull minded as me.”

    Get rid of the government. Then the “elite” can’t manipulate it.

  47. Gravatar of Bill Ellis Bill Ellis
    31. December 2012 at 12:20

    “Get rid of government.”

    Yes… and how do you do that ? And having done it… Then what stops the powerful from using their power to dictate terms to others ?

    Perfect competition between unequal players will result in all of the marbles ending up with the strong.

  48. Gravatar of Bill Ellis Bill Ellis
    31. December 2012 at 13:01

    Becky syas…

    ” My parents are libertarian in ways they don’t even quite understand, which also means that once I became an adult I was basically expected to tend to my own affairs and take care of myself. Guess what? That is true for lots of liberal parents, who also expect their kids to go out into the world and make the best of what the world offers. How are conservative parents different? They have more incentives to provide for their families whether the rest of the world helps those children, or not. ”

    Respectfully, I must disagree. Conservative parents have no more incentive to provide for their children than liberal parents do.

    Good parents of any stripe have their incentive to provide for their kids turned up to 100%. Their incentive is not made greater by making their goals more difficult and uncertain.

    Good Parents of means and good parents of no means give all they can of what they have to get their kids ready to handle life on their own. That includes giving them limits and challenges.
    But what a difference Means makes…

    What’s more, implying that, over all, libertarians are better parents than Liberals because they have more incentive to be… ignores that liberals in advanced nations have proved that government systems can provide universal essential services for all children… When liberal parents band together and make sure all the nation’s kids are getting the education and healthcare they need… That is good parenting.

    Conversely, when conservative parents band together to prevent universal care for children on the grounds that it will teach parents to be irresponsible … Well, I think that is an example of misplaced priorities.

  49. Gravatar of Becky Hargrove Becky Hargrove
    31. December 2012 at 13:44

    Bill,
    I was not trying to imply any set of parents having a “better” approach: my intent was twofold. 1) To explain (possible)different lifestyle approaches that account for differences in governmental expectations and 2) To show a common ground between libertarian and liberal that may not have been considered.

  50. Gravatar of Doug M Doug M
    31. December 2012 at 16:03

    Bill Elis,

    Snark aside, on getting rid of government…

    Even the most radical libertarians see some need for government. We can’t have bands of warlords running across the country sides pillaging what they need. Property rights protected, contracts must be enforced, and there must be some impartial system to resolve disputes.

    So, with the existing Systems in place in the United States, what do the libertarians want? A strict interpretation of the constitution. Congress does not have powers that they have not been explicitly granted. And, regulation interstate commerce, should be limited exclusively to interstate commerce.

    “Then what stops the powerful from using their power to dictate terms to others?”

    Nothing, so long as the powerful are not attempting to deprive a person of life or freedom, applying or threatening to apply physical force, or seizing property.

    “Perfect competition between unequal players will result in all of the marbles ending up with the strong.”

    Not quite, as no one trades unless they get something out of the bargain. If all parties have the power to accept or reject a trade, it is impossible for the rich to exploit the poor. This is central to the libertarian philosophy. The rich and powerful may attempt to drive a hard bargain, and that would be perfectly acceptable. I may be a monopolist who pays his workers as low of a wage as I can and charge as high of a price as I can. No one is obligated to accept my terms of employment, and no one is obligated to buy my goods at my price. No one has been exploited.
    Inequality is not a problem in the libertarian system. Not, to say that there will not be an unequal distribution of resources, but rather there should be an unequal distribution of resources. An un-equal distribution is not something that people should be concerned with. If everyone spent more time thinking about how to make their own lives better, and less time thinking about how good other people have it, we would be better off.
    Communists said that inequality was the biggest problem with the capitalist system, and then built a system with as equally ingrained inequality. At least Libertinism is honest.
    How does the libertarian deal with National Defense?
    National Defense exists to protect my property from seizure from foreign agents. Property owners (i.e. “the rich”) should expect to pay for this protection. However, we should not be engaging in foreign wars. We should have only a sufficient army to serve a purely defensive purpose.
    Police and Public Safety – similar issues as national defense, but much of this could be covered by private security companies.
    Education, healthcare, welfare – these are not concerns of the libertarian state.
    Regulatory issues, pollution, product safety, etc. – this one is trickier… a person has to be able to argue that a polluter has infringed on his private property rights. That is, everyone has some right to clean air and water, and if you want to dirty my air, you should pay me, and I will let you. If your product makes me sick, I am going to sue you for damages. There is going to be a lot of litigation in the libertarian utopia.

    So, with the existing Systems in place in the United States, what do the libertarians want? A strict interpretion of the constitution. Congress does not have powers that they have not been explicitly granted. And, regulation interstate commerce, should be limited exclusively to interstate commerce.

    What keeps the wealthy from exploiting the poor? Nothing, so long as the powerful are not attempting to deprive a person of life or freedom, aplying or threatening to apply physical force, or seizing property. If all parties have the power to freely trade, it is impossible for the rich to exploit the poof. This is central to the libertarian philosophy.

    I may be a monopolist who pays his workers as low of a wage as I can and charge as high of a price as I can. Noone has been exploited. Noone is obligated to accept my terms of employment, and noone is obligated to buy my goods.

  51. Gravatar of Major_Freedom Major_Freedom
    31. December 2012 at 16:39

    Doug M:

    Even the most radical libertarians see some need for government.

    False. The most radical libertarians (Rothbard, David Friedman, etc) want see no need for initiating violence. They want to integrate protection and security into the market process as well.

  52. Gravatar of Major_Freedom Major_Freedom
    31. December 2012 at 16:47

    Bill Ellis:

    Then what stops the powerful from using their power to dictate terms to others?

    The same thing that stops the US, the most powerful state, from taking over the world and creating a world US state: Other powerful players in a state of anarchy.

    You do realize that the world is in a state of pseudo-anarchy, don’t you? Anarcho-capitalism is pretty much the same thing, only there would probably be tens of thousands of small city state-like protection and security agencies around the world. Imagine the world was full of Hong Kongs, Singapores, Monacos, Leichtensteins, and Bruneis, only with more competition and higher incentives to provide the best protection from protection agencies for the world market. Imagine if one city state-like protector started to initiate violence which leads to the customers moving but a few miles away to a neighboring territory with a different city state-like protection agency.

    It would be virtually impossible for the “strongest” among these to take over the whole world. The costs would be too great.

    Perfect competition between unequal players will result in all of the marbles ending up with the strong.

    Perfect competition leads to a multi-faceted “equilibrium”. You’re talking about a world of massively imperfect competition.

  53. Gravatar of Bill Ellis Bill Ellis
    31. December 2012 at 18:04

    Interesting read …

    Let’s Give Up on the Constitution
    By LOUIS MICHAEL SEIDMAN
    Published: December 30, 2012

    AS the nation teeters at the edge of fiscal chaos, observers are reaching the conclusion that the American system of government is broken. But almost no one blames the culprit: our insistence on obedience to the Constitution, with all its archaic, idiosyncratic and downright evil provisions.

    http://www.nytimes.com/2012/12/31/opinion/lets-give-up-on-the-constitution.html

  54. Gravatar of Bill Ellis Bill Ellis
    31. December 2012 at 18:11

    Q. What is Libertarian gun control ?
    A. Shootouts.

  55. Gravatar of gofx gofx
    31. December 2012 at 19:30

    Bill Ellis, here are some answers to some of your questions on this thread:

    “Now I get it. Libertarians DO have the answers to keeping the elite from making the government their instrument, It is just that Libertarians don’t have the ability to explain them to someone as dull minded as me.” Yes, well the basic answer is that libertarians believe in a very minimal government. That way, the “elites” (whoever they are) have little government to appropriate and must compete with a whole bunch of free people. Example: prior to the income tax in the U.S. there was probably not a lot of lobbying regarding the level of the income tax.
    “Q. What is libertarian gun control? A. Shootout.” No, it’s pretty much the same as it has always been….a firm two-handed grip on the gun. Sorry, but that one was just TOO EASY!
    By the way, I read the “interesting” NYT opinion by the law professor. I find it sad, not interesting. Anyway, if we “give up on the constitution”, from “dead white men”, who says we need a President, Congress, and Supreme Court? Those institutions are created in the Constitution! You know, the Constitution was created by imperfect human beings that realized their weaknesses. Precisely because they, realized that all men (including themselves) can be tempted with power over others, they tried to put a little “rule of law” rather than “rule of men” into the mix. And they even put in an amendment process for people, such as the professor who don’t like that constitution.

    Happy New Year!

  56. Gravatar of ssumner ssumner
    1. January 2013 at 10:32

    Bill Ellis, Thanks for proving my point, Ireland is far weathier than Greece (due to neoliberal reforms), and it’s GDP is heading up, whereas Greece’s is very low and falling. Great comparison!

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