How far we’ve come

When I read liberal pundits, I often get the impression that they have no idea how much the neoliberal revolution has affected their worldview.  As you know, Krugman often argues that it was a sort of right-wing plot adopted by a racist Republican Party.  Many younger and fairly rational progressives have the view that “of course sensible liberals have always favored a market economy, we just don’t support laissez-faire capitalism.”  In fact, in the 1970s sensible liberals did not support a market economy, nor did sensible conservatives, nor did right-wing conservatives.  Here is John Gray on the 1979 Thatcher election manifesto:

Thatcher did not begin with the full-blown neoliberal policy agenda with which she was later identified. There was no mention of privatisation in the 1979 election manifesto, which focused on reining in inflation and limiting the power of trade unions.

In 1979 the British government owned many of the large manufacturing firms in industries like autos and steel.  Even a candidate as conservative as Thatcher dared not suggest that perhaps the government had better things to be doing than manufacturing cars.  (BTW, in Britain the election manifestos are taken much more seriously than in America.)  In the 1950s, Eisenhower presided over 90% income tax rates.  Until the late 1970s the US government set prices in many industries.

So it is not true that liberals have always believed communism is a bad idea, if by communism you mean an economic system where the government owns the major industries, sets prices, and has confiscatory tax rates on wealth.  Of course they never bought into the (totalitarian) communist political system, but they most certainly did buy into its economic system.  Samuelson’s textbook once predicted the Soviet living standards would surpass the US by 1990.  If true, shouldn’t we adopt a democratic form of socialism in America?

We’ve come a long way.  Right-wingers should not get too discouraged about the regulatory “reforms” being considered.  Of course the crackdown on derivatives will probably do more harm than good, but the key point is that the harm it does will be trivial compared to the harm done by policies in the 1970s that even conservatives bought into.

The reason everything changed after the mid-1970s is that most economies hit a brick wall around 1974.  And it wasn’t just the oil shock; most economies downshifted permanently into a much lower real GDP growth rate.   Italy went from around 7-8% growth to around 2-3% growth.  The more statist economies were often the ones that suffered the most.  This is important keep in mind, as those who aren’t old enough to remember this period might draw misleading conclusions from time series data.  For instance, here’s something I found in Tyler Cowen’s blog:

Stan Tsirulnikov forwards to me this very interesting paper (JSTOR, gated for many of you).  Here is an excerpt from the summary:

“For twenty years up to 1974, Greece enjoyed rapid growth, high investment and low inflation; during the next twenty years, growth and investment collapsed and inflation became high and persistent.”

After 1974, debt and deficits rose sharply as well, and later EU transfers helped postpone the necessary fiscal adjustments.  At this same time Greece was becoming more democratic, in part because the previous autocratic arrangements were collapsing.  The figure on p.150, representing the difference between the two periods, is a knockout.  And after 1974, the average rate of gdp growth goes from 7.1 percent to 2.1 percent.

In other words, the Greek economy slowed after 1974 pretty much as lots of other middle-income, statist, corrupt economies slowed after 1974.  Democracy may have played a role, but how would we know that?  After all, countries as diverse as Italy, Brazil and Japan also slowed sharply after 1974, and without any change in political system.  And note that Italy and Greece are both relatively statist and corrupt economies in southern Europe.

Of course there are a few economies that did not slow sharply, such as Chile, Britain, and America.  Those few countries bucked the tide of history, and kept growing just about as fast.  And how do progressives interpret that fact?  Well obviously the neoliberal policies of Pinochet, Thatcher, and Reagan (and yes Carter and Clinton) were a complete failure, after all, growth did not speed up.

A few countries even grew faster after 1974.  I hope I don’t need to explain what happened in China.

Counteractuals are tricky.  Without a plausible alternative timeline, a before and after comparison is nearly meaningless.  Growth in the Soviet Union slowed sharply after the 1960s, and then again after the 1970s and 1980s.  By 1992, when free market economic reforms first began, Russia was already in a deep depression.  What caused the depression?  Obviously economic reforms!  It doesn’t matter that the more aggressive Soviet bloc reformers did better than Russia.  It doesn’t matter that those slowest to reform (the Ukraine) did even worse.  Or that those communist countries than never reformed (North Korea) did even worse than that.  It must have been the reforms.

The 1970s were the turning point in modern history.  Statism was exposed as a flawed economic system.  The more idealistic countries like Denmark and New Zealand reformed most rapidly when new information showed that markets worked better than government.  You’ve heard me talk ad nauseum about Denmark, which is number one in all sorts of rankings, from free markets to happiness to equality to civic virtue.  But I actually looked at all 32 economies with per capita income above $20,000/year (i.e. as rich as Portugal.)  Interestingly, just as Denmark was number one in both markets and civic virtue, the same country placed dead last in both the free markets and civic virtue rankings.  And what is the country with both the lowest level of civic virtue and the least reformed statist economic system among 32 developed countries on four different continents?

You’ve probably guessed it by now . . . Greece.

PS.  I recently visited Greece, and love the country.

PPS.  I used to hate older guys that told me I just didn’t understand how things were in the old days.  Now I’ve turned into that jerk.

Update 5/3/10:  I see that a Tyler Cowen link is bringing more people over.  This post on Denmark explains the methods I used in constructing free market and civic virtue indices.  In the post I call civic virtue “liberalism”, but I thought that my be too confusing here and didn’t want to spend a long time explaining why.


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56 Responses to “How far we’ve come”

  1. Gravatar of Chris Chris
    2. May 2010 at 11:24

    “In fact, in the 1970s sensible liberals did not support a market economy, nor did sensible conservatives, nor did right-wing conservatives.”

    *Really*?! You’ve never heard of Barry Goldwater or Ronald Reagan?!?! I’m pretty sure that was exactly what right-wing conservatives *did* support in the 1970s — and precisely why their endured such scorn.

  2. Gravatar of Daniel Kuehn Daniel Kuehn
    2. May 2010 at 12:30

    The point is very well taken, but let’s be careful not to anthropomorphize ideological movements. It’s quite likely that the “liberals” of 2010 might not have self-identified as “liberals” in 1960 or 1970.

  3. Gravatar of Indy Indy
    2. May 2010 at 13:15

    I think it has much to do with the set of ideas and historical observations that are required as an indispensable foundation in order to be taken seriously by the intelligentsia in one’s own generation.

    Before the fall of the Soviet Union, the “merits” of its system were openly debatable. Afterwards, its depravity and cruelty and total economic failure became practically undeniable (except by a few nutty denialists and Utopian bitter-enders).

    In order to be taken seriously and still claim to cling to leftist values, one had to adapt the worldview in a way that excluded this humanitarian disaster as an “unworkable extreme” or as a “failed or corrupted application of ‘true’ socialist ideals” or something of that sort.

    That period of adaptation, and perhaps a grudging acknowledgment of the success of free-market countries, was probably when the left was most vulnerable to passive incorporation of the various neo-liberal insights, to the point where the inheritors of the pattern of political thought don’t even realize the path of philosophical transformation.

    Still, I wonder how one really draws a real hard distinction between the motivations, urges, and principles of modern Progressivism with those of plain old Socialism. I think Hayek complained about the equivalent problem over 50 years ago in “The Constitution of Liberty”, when he explained how, because certain “reforms” were based on principles with no discernible real limits (progressive taxation, for example) that in short order they were taken to their foreseeable extremes despite assurances to the contrary.

    The modern ones go out of their way to claim they aren’t like those old crazy hippies and that they too support “the free market” but it seems a little “the lady doth protest too much”, since it’s always immediately followed by eager listing of all the exceptions to the rules – stipulations of the need to “channel” or regulate free market activities because of externalities, or cognitive biases, or social justice, or social mobility, or this or that or the other thing.

    In the end, it’s “I support the free market, so long as it always yields the exact results that I prefer, and if it doesn’t, then it shouldn’t be left free in that realm.” It’s only a matter of time before every realm reveals its own imperfections, once again, as they did to generations past.

  4. Gravatar of happyjuggler0 happyjuggler0
    2. May 2010 at 14:49

    Scott,

    I’m not too thrilled with the framing of the Greek economy slowed after 1974 pretty much as lots of other middle-income, statist, corrupt economies slowed after 1974. Slowed compared to what?

    The 50′s and 60′s were far from a normal time period. They were preceded by the massive destruction from WWII, and before that from the economic malfunction known as the Great Depression. In other words, I’m saying that a huge amount of the high growth rates preceding 1974 were a result of the principles of convergence theory.

    As you know, countries routinely have slowed down once the low hanging fruit of playing “copying existing recipes” (to borrow some wording from Paul Romer). Once that happens, the path to growth is creativity and innovation, something that a country’s institutions which are geared to copying existing benchmarks isn’t usually well suited to do.

    It occurs to me that the US and UK are two examples of countries where there exist a lot of people who march to the beat of their own respective drummer, and where that is accepted by society at large much more than other countries where respecting authority and fitting in is the norm. What did you say they had in common again…?

  5. Gravatar of ssumner ssumner
    2. May 2010 at 15:18

    Daniel, I think it is extremely likely that the people who are liberal today would also have been liberal in the 1960s. Indeed liberalism was a far more respectable philosophical position in the 1960s than today.

    If you are saying that modern liberals shouldn’t be blamed for the errors of their predecessors, then I agree. The same is true of conservatives, who held some pretty distasteful views on segregation during the 1950s.

    I suppose this post was partly in response to liberal posts written after health care reform was passed. There was this sense that the neoliberal revolution was an unfortunately detour, and we are back on track with the FDR liberal agenda. Modern liberals would be horrified to find out what FDR really believed.

    Indy, Those are good points, but you have to remember that the pessimistic right-wingers of the 1950s and 1960s were wrong. Liberals did realize the errors of their ways. The vast majority of neoliberal reforms had strong liberal support. Many were implemented by liberal governments. I do agree that liberals are too prone to see every problem as a market failure, and have argued that the common sense approach to economics leads to too much statism. But liberals are not masochists, they do pull back when it is clear things have gone too far. The bigger problem is corruption. Greece is not more statist than Denmark because it is more liberal–just the converse—it is more statist because it is more corrupt.

    Another way of making this point is that liberal politicians hold a few positions that are indefensible, because they need the votes. But liberal pundits like Yglesias and Krugman don’t hold any indefensible positions, just some positions I happen to disagree with.

    happyjuggler0, I’m not sure why you think we disagree. I was arguing that democracy did not cause the slowdown in Greece, and you seem to agree. I do accept the convergence theory, but recall that none of these countries had caught up with the US in living standards. They leveled off well below US levels, even in cases (such as Japan) where they were widely expected to overtake the US. Why didn’t they fully converge? I’d say too much statism. Many middle income countries (like Brazil) slowed sharply despite income levels far below the US.

    I’m not sure if I follow your comparison between the US and Britain. Britain has a much bigger government, and a much lower level of per capita GDP. I agree there are some cultural similarities, but the British government is nonetheless bigger than the German government as a share of GDP.

  6. Gravatar of happyjuggler0 happyjuggler0
    2. May 2010 at 15:59

    Scott,

    Ok, My problem was more about framing, not content. Saying that economies around the world slowed down after 1974 ignores the fact that the preceding period wasn’t natural or in any way normal, and at some point there simply had to be a slowdown. I’m not really arguing with pretty much anything else you posted.

    My mention of the US and the UK was in reference to this sentence of yours:
    Of course there are a few economies that did not slow sharply, such as Chile, Britain, and America.

    Now clearly Chile’s economy was operating from a much different baseline and much different circumstances than the US and UK, so I left them out. My question was why did the US and the UK “not slow sharply” as you pointed out, whilst others did. My notion is that it is perhaps due to greater cultural and institutional acceptance of ideas that are not part of the current norm, and that this greater willingness to embrace the new is what is needed once countries slow down after grabbing much of the low hanging fruit that comes from copying known processes and inventions. In other words, we are more dynamic in our thinking.

    As far as convergence basically stopping before parity, I’m not sure what is going on. I’m inclined to think that it may simply be that some “recipes” are easier to copy than others, and once you run out of easy recipes to copy, an economy that is geared to recipe replication simply hits a brick wall, until or unless it adopts, or morphs into, a system amenable to dispersed (as opposed to centrally planned) innovation.

  7. Gravatar of happyjuggler0 happyjuggler0
    2. May 2010 at 16:47

    I should mention that there is a third way to grow besides innovation and copying. You can be a leech, so to speak, like Ireland, Luxembourg, and Slovenia (three countries I admire by the way). You can be a small country (population-wise) located within the economic nexus of one or more *much* larger economies, have a corporate tax rate significantly below those economies, and perhaps some other advantages, and businesses in those other countries (or in the case of Ireland, US exporters to the EU) will open up shop there.

    Larger countries don’t have that option, although undoubtedly lower corporate tax rates (and other anti-growth impediments) will reduce deadweight loss, in addition to reducing offshoring to more amenable jurisdictions.

  8. Gravatar of StatsGuy StatsGuy
    2. May 2010 at 16:59

    “Of course the crackdown on derivatives will probably do more harm than good”

    LOL. “Of course”. That is the argument? As if this is so obvious it should be accepted as an article of faith, without requiring any empirical support?

    Where is the evidence that deregulation of OTC derivative instruments, and federal regulation to prevent states from applying their own regulation, has generated so many positive outcomes? Or that the existence of massive “insurance” contracts on SOMEONE ELSE’S property has helped the world economy work so much more efficiently?

    What troubles me most about this article – and most of the obstructionism against financial re-regulation (which is a pale shadow of what it was in the 50′s, as you note), is the presumption that “of course” it’s a mistake, so the obvious thing to do is to limit the damage as much as possible.

    “Of course” it’s wrong, and therefore it’s not even worth _considering_ the empirical case to support _some_ re-regulation, or trying to design the regulation in a manner that might actually be productive. Because regulation, _by definition_, can’t be productive. Therefore, it’s best just to scuttle as much as we can.

    It’s interesting that the one area you know better than any other – monetary policy – is the one area where you concede a stronger role for government.

  9. Gravatar of David Tomlin David Tomlin
    2. May 2010 at 18:16

    StatsGuy:

    Where is the evidence that . . . the existence of massive “insurance” contracts on SOMEONE ELSE’S property has helped the world economy work so much more efficiently?

    Such contracts enabled people who wanted to bet on crappy loans to do so without originating more such loans, to even less credit-worthy borrowers.

  10. Gravatar of 175genius 175genius
    2. May 2010 at 23:05

    Happyjuggler0,

    So your argument is that countries with lower GDP per capita stopped growing as fast as the countries with higher GDP per capita because of convergence theory? I think you have it backwards.

  11. Gravatar of Max Max
    3. May 2010 at 01:22

    @Statsguy:

    Well, I can’t speak for Sumner, but I think that financial regulation is tricky and the more complex it is (and tries to tackle NEW problems) the easier it will go down. We thought we had tackled all the problem since the dot-com bust, but it seems we were wrong. To apply another layer of regulation (albeit different) might prevent a housing crises as it came about this time, but there will be a new source for a crisis (solar energy/wind or whatever is at the moment ripening in the basements of the world economy). You just can’t have 100 % risk-free economys. Well, you can, but then it would be 100% gains-free…

  12. Gravatar of Mike Mike
    3. May 2010 at 02:30

    Sorry if this was mentioned in previous entries, but what scales/data sets do you use for markets and civic virtue?

  13. Gravatar of US US
    3. May 2010 at 03:49

    Just a quick note: Denmark was on the brink of total economic collapse well after 1974. Knud Heinesen, former Minister of Finance, is famously quoted for saying that we were moving “on the edge of the abyss” (‘på afgrundens rand’) in -79.

    In Denmark, if you’re very critical of the economic policies of the government, it’s common to compare them to the policies of Anker Jørgensen, former Danish PM in 72-73 and 75-82. When he left office in 82, he’d pretty much destroyed our economy with his irresponsible economic policies. Denmark was hit hard by the oil shocks, and the government’s way to deal with the problems was basically just to not deal with them, and instead prop up growth in the short term by using debt-financed expansive fiscal policy for years combined with several devaluations along the line that almost completely destroyed all credibility of the Krone for years afterwards.

    The current government’s policies are perhaps better than that of some even more irresponsible countries’, but they’re not good. Another important stat is the tax rate: Denmark has the highest tax rate in the world. The total Danish government debt will double from 2008 to 2010 and the current government, who’s been in power since 2001, has done everything it could to prevent and postpone necessary reforms of our labour market. Danish growth during the last decade has not been impressive, and we’re dropping further down the list every year.

  14. Gravatar of Bill Bill
    3. May 2010 at 04:10

    Please list the sources you used for civic virtue and free markets that support your claim.

    I have googled both and do not find such lists, and question whether Denmark ranks as high as you state in free markets.

    What I did find on Denmark on civic virtue was that they had easy and high unemployment benefits and that that program worked because of civic virture but would not work in Southern Europe.

  15. Gravatar of scott sumner scott sumner
    3. May 2010 at 05:16

    Chris, Obviously I was exaggerating slightly, but not as much as you might think. Goldwater was blown out in his election, which made people like Thatcher and Reagan much more cautious. I recall that Reagan opposed Carter’s attempt to deregulate trucking, and also was protectionist in some areas. The Reagan of the 1980s was more conservative than the Reagan who was governor of California in the 1960s.

    happyjuggler0, You said;

    “Saying that economies around the world slowed down after 1974 ignores the fact that the preceding period wasn’t natural or in any way normal, and at some point there simply had to be a slowdown.”

    Exactly the opposite–it implies the earlier period was abnormal. Why else would things have suddenly slowed so dramatically?

    I’m not sure how your cultural explanation of Britain’s success can explain why it did so poorly in the 1950s-70s.

    The recipe argument may be partly true, but I think there are still plenty of low-hanging fruit to be snapped up (with Singapore-style policies.)

    I don’t see Ireland as a leech. All countries should eliminate taxes on capital, which are economically inefficient and morally reprehensible. (BTW, Ireland still has taxes on capital, just a lower rate.

    Statsguy, You are right, I don’t know that for sure. I said “probably” as a sort of throwaway line, my main point was that derivatives regulation would do little harm. Why “probably?” It seems unlikey that a bunch of Congressman who have totally misdiagnosed the problems we face would somehow stumble on the correct policy response.

    BTW, as you know I am not opposed to regulatory changes. In order of preference:

    1. Eliminate FDIC, F&F, TBTF
    2. Turn regulation over to the Canadians
    3. Require 20% minimum down-payments on mortgages, higher capital requirements on banks.

    In my view derivatives were not the main problem.

    I do not favor a stronger role for the government in monetary policy, indeed I’d like to see them have fewer tools. Get rid of IOR, discount loans and reserve requirements. Stop buying non-Treasury assets. Let the market set the monetary base.

    Mike, I added an update to the post. Free markets were the Heritage ranking of economic freedom, minus the two size of government categories (taxes and spending). Civic virtue averaged an internal subjective ranking (Poll results on civic honesty) with an external ranking (Transparency International’s corruption index.)

    US, Everything is relative. Denmark has much freer labor markets than most other European countries. Check out the research by Algen and Cahuc.

    Denmark does have extremely high taxes, and the update I added to this post links to an article explaining why I didn’t include taxes or spending in my ranking. I much prefer Singapore’s economic system to Denmark’s for the reasons you mention.

    Bill, See my answer to Mike, and the post linked to in the uptdate at the end of the post.

  16. Gravatar of David R. Henderson David R. Henderson
    3. May 2010 at 05:19

    Scott, Excellent post. For the update, you mean 5/3, not 4/3. April went fast. :-)

  17. Gravatar of Charlie Charlie
    3. May 2010 at 05:23

    “Of course there are a few economies that did not slow sharply, such as Chile, Britain, and America. Those few countries bucked the tide of history, and kept growing just about as fast. And how do progressives interpret that fact? Well obviously the neoliberal policies of Pinochet, Thatcher, and Reagan (and yes Carter and Clinton) were a complete failure, after all, growth did not speed up.”

    I’m trying to figure out what you are saying here, and what is tongue and cheek. I present the data below in percent annual growth rates.

    Date Range Real GDP Real GDP Per Cap
    1950-1974 3.78 2.31
    1975-2008 3.09 2.02
    1980-1988 3.37 2.43
    1992-2000 3.87 2.65

    Maybe you meant “conservatives” and not progressives. If you take Krugman to be the spokesman for progressives, he’s always argued Reagan didn’t change long-term growth rates, as they are about the same as 1950-1974. The fed ruined Carter with tight money and Reagan reaped the benefits when inflation had been purged. And, of course, Clinton had the best results of all.

  18. Gravatar of ssumner ssumner
    3. May 2010 at 05:31

    Thanks David, I just changed it.

    Charlie, I think you misread my sarcasm. I agree that growth was about the same, and agree that Krugman has argued this shows Reaganomics didn’t work. And obviously I believe Reaganomics did work, as we kept growing at about the same rate.

    Off topic, but the Fed ruined Carter with easy money–inflation was running 10% in early 1981 when he left office. The tight money began in the second half of 1981. Don’t forget that high interest rates usually reflect high inflation expectations. During tight money rates will usually fall (1930, 1982, 2008, etc.)

  19. Gravatar of StatsGuy StatsGuy
    3. May 2010 at 08:58

    @Max

    “We thought we had tackled all the problem since the dot-com bust, but it seems we were wrong.”

    Fair comment, but in this scenario, who is “we”? The Clinton Crew – Larry Summers (the hedge fund consultant) and Don Rubin (soon to be CEO of Citibank)? Senators Dodd, Gramm, Leach, Bliley? All of whom served at the leisure of the banking industry? Greenspan? Seriously, who is “we”?

    There are two fundamental questions here – one is competence and the other is agency.

    The last 30 years have witnessed a massive increase in agency problems as finance has secured greater control over the tools of state. At the same time, these tools of state (and Larry Summers was the biggest tool of them all) have consistently stripped bare, crippled, and demoralized government agencies. (Read up on the SEC – it appears that when an agency is castrated but not killed, it also becomes addicted to prurient web media). All of this took place under an intellectual atmosphere in which a fully legitimate critique of excess regulation was transformed into a self-destructive attack on ALL regulation.

    Now the sources of the agency problems argue the problem is competence (after creating the incompetence they needed to obscure their culpability).

    So do I think our good Senators can create a massively complex regulatory infrastructure capable of addressing all configurations of OTC derivatives and financial innovations? No – which is precisely why I question the wisdom of removing the much simpler regulations which had served for 70 years.

    I would challenge anyone to present a case that financial innovations around structured credit and derivative instruments have significantly improved economic productivity.

    http://www.nakedcapitalism.com/2009/04/some-musings-on-financial-innovation.html

    (Volcker admits the ATM had value. I’ll go one further and say internet banking does too…)

    Meanwhile, we look aback at the last 6 years, and see not ONE point of failure, but MANY…

    Agency problems in credit raters
    Agency problems in investment banks
    Agency problems in regular banks
    Really, really dumb math that looked “elegant”
    Financial innovation to circumvent Basle Accords on Cap Ratios
    Freddie and Fannie
    Loan origination competition that resembles “Buyer’s Regret” problems in auction theory
    Liar loans, and loose lending standards
    SEC failures
    Too Big to Fail

    So yes, it’s massively complex – and prone to self-destruction even without regulation. There are really two stable choices – either do not regulate at all (and deal with those consequences), or simplify the financial options to permit meaningful regulation.

    In essence, Free Banking or Canada.

    I’m a very risk averse individual. I know what Canada looks like, but I don’t know what Free Banking on a global scale looks like (and neither does anyone else). Thus, Canada for me.

  20. Gravatar of StatsGuy StatsGuy
    3. May 2010 at 09:03

    Some more musings on Larry Summers:

    Those who lived in the People’s Republik of Cambridge at the time remember his famous comment about the mathematical skills of women…

    http://www.boston.com/news/local/articles/2005/01/17/summers_remarks_on_women_draw_fire/

    One wonders if perhaps Summers had a little bit more respect for the other gender (or, for anything other than the mirror) these events might have transpired a little differently:

    http://www.businessinsider.com/the-warning-brooksley-borns-battle-with-alan-greenspan-robert-rubin-and-larry-summers-2009-10

  21. Gravatar of StatsGuy StatsGuy
    3. May 2010 at 09:11

    @ssumner

    I vote #2: Turn regulation over to the Canadians. They seem to have a competitive advantage in good regulation.

    Also, it’s cheaper to pay Canadians than to pay the Vampire Squid.

    @David Tomlin

    “Such contracts enabled people who wanted to bet on crappy loans to do so without originating more such loans, to even less credit-worthy borrowers.”

    Yes, true. And I suppose if we can identify enough value in betting on crappy loans, then that presents a strong case for not regulating complex derivatives out of existence.

    Meanwhile, Goldman Sachs is now less investment banker and more bookie (if you look at sources of revenue now vs. 10 years ago).

  22. Gravatar of frankl frankl
    3. May 2010 at 09:26

    at the outset i think you are referring to the “inertia of ideas” or perhaps groupthink – another example is that the leadership of WWII was willing to do any number of things in 1944 or 1945 that would have been *unimaginable* and unsellable in 1939 or 1940, and this applies to any nation involved…our recent experiences influence us so much, but we have so little ability to correctly forecast what will happen, so ofcourse we have little ability to forecast our future mindset – and i think the corollary of this is the fact that we easily forget our previous states too

  23. Gravatar of Joe Calhoun Joe Calhoun
    3. May 2010 at 14:42

    Where the heck do you find these rational progressives you speak of?

  24. Gravatar of Bill Bill
    3. May 2010 at 16:37

    I admire your creativity in making the free market index and particularly like how you decided to modify the Heritage index to get there:

    Ima goona make me an index too.

    As you said in your other post describing your modified index:

    “Then I decided to measure neoliberalism by using the (2008) Heritage Institute’s Index of Economic Freedom minus the two “size of government” components (taxes and spending.)”

    See, taxes and spending don’t count.

    You just said so.

    I am gratified.

    Can I call it the Scott Sumner “Taxes and Spending Don’t Count Market Freedom Index”

  25. Gravatar of Matt Young Matt Young
    3. May 2010 at 17:54

    I have satellite TV broadcasting and world media as the turning point in the mid 70s. People around the world could comparison shop for better ideas.
    But I always look for the information technology change at every economic inflection.

  26. Gravatar of Doc Merlin Doc Merlin
    3. May 2010 at 18:59

    @Bill
    His measurement of neoliberalism is a fairly accurate account of how neoliberals try to position themselves. Heritage’s measurement by including taxing and spending becomes libertarian, not neoliberal.

  27. Gravatar of Lorenzo from Oz Lorenzo from Oz
    3. May 2010 at 19:59

    I really hate the term ‘neoliberal’ for reasons I explain here. It cuts events off from their history.

  28. Gravatar of vanya vanya
    3. May 2010 at 22:58

    Something is off with your argument. Italy and Japan were still much poorer than the US and Great Britain in 1974. By 1990 Japan was nominally almost at par with the US, and Italians certainly lived better than Brits for the most part (I spent significant time in all 4 countries in the late 80s-early 90s). How can you explain that if Japan’s growth was slower than the US during that period? Makes no sense. US growth didn’t slow as much simply because it wasn’t as fast as Italy’s or Japan’s to begin with. Your argument would be more convincing if you pointed to the 1990s as the period when Japan and Italy hit the wall, and also the period when Britain’s liberalizing reforms really began to take effect.

  29. Gravatar of How far we’ve come since the 1970s « Economics Info How far we’ve come since the 1970s « Economics Info
    4. May 2010 at 03:00

    [...] Source [...]

  30. Gravatar of scott sumner scott sumner
    4. May 2010 at 06:03

    statsguy, I just don’t have much faith in regulation. I recall all the people in 1990 saying “see, the free market doesn’t work in banking, we need more regulation.” And we got more regulation. And I told anyone who would listen that the regulation wouldn’t work because it didn’t solve the fundamental problem of FDIC and F&F. And it looks like I was right. Now the banks have again screwed up, and the pro-regulation people say the banks will not learn from their past mistakes, which have cost them billions,but the regulators will learn from their past mistakes. Maybe they will, but its hard to have much faith in regulation when Congress doesn’t realize that FDIC and F&F are the key problems, not “derivatives.” Lots of banks are failing every single month. How many are failing because of derivatives, and how many because of bad commercial and residential loans.

    Yes, there is also the recession, but that wasn’t caused by derivatives either, it was caused by tight money. So here’s how I see the damage:

    1. Huge taxpayer bailouts (mostly small banks and F&F)
    2. A severe recession.

    The first was caused by FDIC and F&F, and the second was caused by tight money. And so we go after derivatives?

    I’m not fan of Larry Summers (to say the least) but he never really said women aren’t as good at math as men are. Indeed he never even entertained the hypothesis. I do understand, however, that a president of Harvard must be very politically correct, and it’s his own fault that he didn’t realize that and avoid anything that was even slightly offensive.

    As far as the woman that worried about derivatives, I’d be more impressed if I thought derivatives were the key problem. The only area where it seems to me she has a strong argument is with AIG. I’m not an expert on insurance, but there was something very wrong with the way AIG was regulated.

    frankl, That’s a good point. Another example is Nixon’s price controls. Modern economists discuss it like it was a nutty idea. But at the time most economists supported price controls, especially liberal economists.

    Joe, Read Yglesias or Krugman. 60% of their posts are wrong (in my view) but their arguments are almost always rational.

    In general, I think people on both the left and right are much too prone to underestimate the intelligence and rationality of those they disagree with.

    Bill, Neoliberalism is basically a welfare state plus free markets. People might not like that definition, but the entire neoliberal revolution has been about privatization, deregulation and lowering MTRs. It has not shrunk the size of government. I wanted an index that measured that trend. There is a huge difference between a highly statist system with low government spending (as in many developing countries), and a free market economy with high government spending (like Denmark.) Denmark in number one in the world if one averages the eight categories of the Heritage index that I used. Given that the index only contains 10 categories, and given that they are equally weighted, I’d say that’s pretty significant.
    Even if you include all ten, Denmark still scores as an extremely free market economy.

    Matt Young, Maybe.

    Doc Merlin, Thanks.

    Lorenzo, OK, But since the 1970s there has been a huge revival of liberalism, so I don’t see any big problem with the prefix “neo”.

    Vanya, I didn’t say Japan grew slower than the US after 1974. I agree that it downshifted twice, from 10% to 5% growth after 1974, and then to 1% after 1991. So it was still catching up in the 1980s.

    I believe that Italy went from roughly 7-8% growth before 1974, to around 3-4% in the late 1970s and 1980s, to around 1% more recently. But I don’t have the numbers in front of me, so these are guesstimates. If someone can produce data showing that I am wrong, I will correct the post. Italy surpassed the UK a while back, when they added in the underground economy, then the UK again passed Italy as they started growing faster than Italy. (They have nearly the same population)

    I first visited Italy and Britain in the mid-1980s, and both seemed poorer than the US. On recent visits they still look poorer, although all three countries have seen living standards improve. My hunch is that you are right that Italy continued to gain somewhat on the US and UK for about a decade after 1974. But that was probably also true of Greece, which was my main point.

  31. Gravatar of Divorce Divorce
    4. May 2010 at 11:42

    [...] Sumner makes some interesting observations on how far we’ve come and the proposals  on the table today compared to 40 years ago. Along [...]

  32. Gravatar of Matthew Yglesias Matthew Yglesias
    4. May 2010 at 13:01

    Since 1970 the policy trend has been toward higher taxes and tighter environmental regulation, but less regulation of other sorts. This all seems to me to be change for the better.

    It’s worth pointing out that the deregulation trend in the US wasn’t particularly identified with Ronald Reagan or the Republican Party. Deregulation began during the Carter administration and the legislative campaign for trucking deregulation, for example, was led by Ted Kennedy. It was also the Carter administration that first proposed relaxing the regulation of banks. Stephen Breyer and Ralph Nader were also leading deregulators in the late seventies and of course it the Clinton administration presided over major telecommunications and financial regulation in the nineties.

  33. Gravatar of Alex Golubev Alex Golubev
    4. May 2010 at 14:54

    Scott, it’s been about a year and I’m back for more pain :)

    I won’t pretend to be an expert, but we can’t deny that there are a ton of other parameters you’re excluding from your analysis. Care to venture into the use of slaves by various countries and how they’ve chosen to deal with the ripples this century? In no way am i suggesting that handouts and safety hammocks are good for future growth or absolutely just. I just think it has a lot to do with what countries and politicians have to appeal to.

    Secondly, the fed 5% NGDP targeting is quite “statist” if you ask me.

    Thirdly, what do you think about McLuhan? I know you’re an economist, but I think you’re a smart guy first and so I’m willing to look past that. jk :) (i’m a dirty finance guy myself)

  34. Gravatar of StatsGuy StatsGuy
    4. May 2010 at 15:23

    @ssumner

    Why do you think derivatives are unrelated to bad loans?

    Have you read the ABACUS charges?

    Without securitization of loans (and insurance contracts thereon), do you think the secondary market would have approached the heights of stupidity it achieved?

    Does it matter that derivatives allowed banks & insurance companies (de facto) to load up on leverage while keeping that leverage off its official balance sheets?

    But the real question is, what good are these derivatives really doing? Even without derivatives, we might imagine that the existing security and bond markets should be able to meet the needs of investors and businesses. Derivatives supposedly allow separation of risk factors, with the presumptive benefit that systemic risk tolerance is increased by customizing risk profile to different individual risk buyers.

    Do we really think we did a good job of quanitfying risk? (uh, no) Do we think it’s even _possible_ to do a good job of quantifying risk? If not, then what value are derivatives really providing?

    Meanwhile, if we think of the world economy more as a massively non-linear organic entity (the way Schumpeter thought of it, or even Hayek) and less of an exercise in comparative statics (the way neoclassicists think of it), then we immediately should see that the existence of derivatives increases SYSTEMIC risk, even if it helps reduce individual risk. (And that’s a big IF.)

    By increasing systemic risk tolerance, the system operates closer to some pareto frontier. But I don’t _want_ to increase systemic risk tolerance, and I’m _willing_ to operate at a lower pareto frontier to avoid the risk of total systemic implosion.

  35. Gravatar of StatsGuy StatsGuy
    4. May 2010 at 15:41

    Re: Summers

    http://freakonomics.blogs.nytimes.com/2008/11/18/larry-summers-for-treasury-secretary/

    Here’s a pro-Summers source that you might trust, which basically agrees that Summers said/implied a higher proportion of men have more innate ability for math/science than women.

    For such a ‘smart’ guy, that was one dumb speech.

  36. Gravatar of Watcher of Weasels » Watcher’s Council Nominations May 5, 2010 Watcher of Weasels » Watcher’s Council Nominations May 5, 2010
    5. May 2010 at 04:55

    [...] Money Illusion - How far we’ve come Submitted by The Glittering [...]

  37. Gravatar of scott sumner scott sumner
    5. May 2010 at 05:04

    Matt, I agree, and would add that lots of liberal Democrats supported Reagan’s 1986 tax bill, which cut the top rate from 50% to 28%. They also supported NAFTA, welfare reform, indeed virtually every neoliberal reform. That’s why the term ‘neoliberalism’ is appropriate. These are liberal policies, it’s just that modern day liberals like Krugman have forgotten that fact.

    Alex, I’m not sure where the slavery issue fits in. Most countries have had slavery at one time or another. My sense is that countries that relied heavily on slavery in the 19th century have not done as well as countries that did not (with the US being an obvious exception.)

    I favor letting the market implement monetary policy, so I don’t see my NGDP target as being statist–indeed I think it is much more free market than current policy.

    I’ve never read McLuhan.

    Statsguy, On Abacus, I agree with Warren Buffett—GS did nothing wrong.

    Regarding derivatives, I favor abolishing Fannie and Freddie, which are the largest source of mortgage-backed bonds. But as far as I know the financial “reform” doesn’t even touch F&F. So it’s not that I don’t agree with you that there were problems in derivatives, I just don’t see them going after the key problems. I will try to do a post soon to better explain my views on this.

  38. Gravatar of scott sumner scott sumner
    5. May 2010 at 05:14

    statsguy#2, Here is a quotation from the article your provided:

    “Summers’s speech did in fact suggest that there might be innate differences in the intelligence of men and women. But he didn’t argue that the average intelligence of women was any less than that of men. He focused instead on the possibility that the intelligence of men is more variable than that of women.”

    I presume you agree that this shows I was correct in my assertion that Summers never claimed men are better at math than women. Indeed he never even claimed that the distribution of innate abilities for men was wider than for women. Rather he suggested that a wider distribution of intelligence was a possibility–one of many hypotheses he entertained.

    I’m not trying to defend Summers. He lacks the social skills required to be an effective university president. I have published two different papers criticizing his academic work. So I am not a fan. I just find it odd that people keep claiming he said something that he never actually said. Having said all that, it was still kind of foolish to say what he did. Summers strikes me as a guy who is very smart, but not always wise.

  39. Gravatar of David Chester David Chester
    5. May 2010 at 06:46

    The subject is complicated by the need to give and compare all of the conditions in the various countries. One factor that you have not included and which is very significant is the way the land is used or with-held from use. With the taxation of land values of Denmark, there is full and fair use of this valuable resource which is necessary for any kind of production to take place. This is how Denmark was able to manage so well in spite of the high taxes that people who earn also pay there.

  40. Gravatar of passing through passing through
    5. May 2010 at 07:09

    The 74 onwards thing is easy to understand if you were in the right places at the right times.

    The underlying reason for lack of growth is easily visible on any of those charts that show rising productivity per worker versus stagnant real wages per worker (which trend is pretty universal outside of the top income decile).

    In that scenario in real terms the consumer sector becomes a nearly zero-sum area in an accounting sense: since compensation in real terms is ~ fixed increased profitability comes from increasing marketshare (by taking it from others in the same space) or by cutting costs.

    Consumer welfare may increase due to technology improvements and other increases in wealth, but that’s mushy and holistic and doesn’t register in GDP or GNP.

    In the absence of consumer income growth in real terms you need to find alternate sources of growth; this comes in the form of getting consumers taking on debt (which happened), increases in government spending (which happened), expansions in high-end and luxury goods and services (which happened), and so on.

    The root cause of the productivity/wage gap has more to do with culture than with economics.

    When the USSR was a credible threat the elites in the Eurozone and the US both were content leaving “money on the table”, in the forms of social insurance, “above-market” wages, government support for collective bargaining, and so on. The thinking was it was better to be kinder and more generous than you strictly speaking needed to be so as to avoid stoking support for more-explicitly socialistic programs and/or outright communism amongst the disenchanted intellectuals and the workers at the bottom of the pyramid.

    In the now-EU this took the form of regulations and programs — more iron-clad and explicit, but less flexible later — and in the USA it took the form of a kind of gentleman’s bargain and soft social pressure amongst the greatest-generation business elites (essentially: informal peer pressure to practice fordism).

    As the USSR crumbled and a different stepped into leadership roles the bargain crumbled in the US (in the EU the spirit behind the bargain crumbled but the regulations remained).

    In the absence of any kind of external pressure the “everyone pay above-market wages” is an extremely unstable equilibrium with obvious benefits to defect, and so people did (witness, eg, Chainsaw Al, who was remarkable not so much for what he did — believe me, he wasn’t the first person to realize there were untenable amounts of deadweight — but for being so brazenly transgressive in how he did it).

    Once the agreement is broken the usual economic dynamics prevailed and you’re where we are now, with a consumer economy that’s been essentially zero-sum for a few decades and most (apparent) growth coming from debt assumption, government spending, luxury products (eg: in any area that has a work-around to the resource constrained consumer sector). Consumers are mostly better off in a holistic sense — improvements in technology leading to more wealth and better standards of living — but not in the accounting sense, and it’s the accounting sense that matters for GDP and GNP and all that (and for companies servicing the consumer sector, who live or die in the accounting sense, not by how much wealth they create in any holistic sense).

    There doesn’t seem to be an end-run around this issue, either: direct redistribution to produce wage growth in real terms seems unlikely to work (if it’s even been tried), with the likeliest scenario being inflation keeping pace with the transfers. Collective bargaining and unionization used to be a solution that mostly worked, but globalization of labor and changes in approach to production and company organization make it a strategy that won’t work well in modern economies; in places where it still has legislative support you wind up with inflexible labor markets and all that that entails.

    What’s done now in most countries is to move important goods and services partially out of the market economy and supply them more-directly — healthcare, roads, utilities, etc. — which for the recipients simulates some of the benefits of real wage growth, but has its own problems. This does seem to be the future, a kind of pragmatic vindication of Keynes (if not exactly as having been correct than as having been correct as to what system is political attainable and sustainable).

  41. Gravatar of StatsGuy StatsGuy
    5. May 2010 at 11:22

    ssumner:

    “I agree with Warren Buffett—GS did nothing wrong.”

    Uh, Buffett owns 5 _billion_ in GS preferred + warrants. Recently, Fitch put Goldman on rating watch citing legal concerns. Notionally, GS has tanked and Buffett has lost a billion dollars. Buffett’s not exactly a neutral authority here.

    On Larry:

    Larry cited three explanations, one of which was that more men had exceptional math/science innate ability than women. He repeatedly noted that many things that we had attributed to socialization were now being attributed to genetics.

    I cited Freako because it was among the more forgiving for Summers, but even Freako concedes that Larry was suggesting a greater percentage of men were inherently better at X than women. Freako merely takes great pains to note that Summers considered attributing this to differences in the dispersion of talent rather than mean talent. Larry, who at the time was neck-deep in finance (where Beta is often more important than Alpha), probably thought this was a cute argument.

    But what you stated above – that Larry did not say men were better [on average] than women is true. He did however state (or strongly indicate he believed) that more men were inherently better than women at these tasks. In his mind, I’m sure the difference is night and day – it’s not his fault everyone didn’t get the subtleties of his message. After all, he was just the speaker.

  42. Gravatar of If this is progress, I’ll pass « Foseti If this is progress, I’ll pass « Foseti
    6. May 2010 at 04:38

    [...] this is progress, I’ll pass Aretae (thanks for the pointer) links to this post, with which I must disagree. The post is essentially mainstream libertarianism patting itself on [...]

  43. Gravatar of scott sumner scott sumner
    6. May 2010 at 05:55

    David, I didn’t know about the land tax–but I agree that land taxes are more efficient than other taxes.

    Passing through, You said;

    The underlying reason for lack of growth is easily visible on any of those charts that show rising productivity per worker versus stagnant real wages per worker (which trend is pretty universal outside of the top income decile).

    I strongly disagree. Growth is closely correlated with labor productivity. When growth slows sharply, labor productivity also slows sharply.

    You said;

    “In the absence of consumer income growth in real terms you need to find alternate sources of growth;”

    This puts the cart before the horse. Rising consumer income is an effect of growth, not a cause.

    You said;

    “What’s done now in most countries is to move important goods and services partially out of the market economy and supply them more-directly — healthcare, roads, utilities, etc. — which for the recipients simulates some of the benefits of real wage growth, but has its own problems. This does seem to be the future, a kind of pragmatic vindication of Keynes (if not exactly as having been correct than as having been correct as to what system is political attainable and sustainable).”

    Actually the current trend is in exactly the opposite direction–more and more government activities like roads and utilities are being privatized.

    You said;

    “When the USSR was a credible threat the elites in the Eurozone and the US both were content leaving “money on the table”, in the forms of social insurance, “above-market” wages, government support for collective bargaining, and so on. The thinking was it was better to be kinder and more generous than you strictly speaking needed to be so as to avoid stoking support for more-explicitly socialistic programs and/or outright communism amongst the disenchanted intellectuals and the workers at the bottom of the pyramid.”

    If so, wouldn’t you have expected spending on social programs to have declined after 1989? But instead, social spending has stayed at the same high levels as before 1989. Instead, it is military spending that declined after 1989.

    Statsguy; You said;

    “Uh, Buffett owns 5 _billion_ in GS preferred + warrants. Recently, Fitch put Goldman on rating watch citing legal concerns. Notionally, GS has tanked and Buffett has lost a billion dollars. Buffett’s not exactly a neutral authority here.”

    Buffett has argued for higher taxes on the rich. He is giving almost all of his money to charity. I don’t think his public policy views are motivated by greed. He seems like a straight-shooter to me.

    You said;

    “[Summers] probably thought this was a cute argument.”

    In research on gender differences it as been shown that the variation of any particular attribute is almost always wider for men than women. There are many more men at the top and at the bottom of any given attribute. This is even true of attributes that are genetically determined. Of course that doesn’t mean that the wider distribution on math tests is due to genetics. I’m just pointing out that the wide distribution argument is commonplace in gender research, it wasn’t a cute idea by Summers. If Summers was smart he would have said:

    “We know that more men than women score in the top 99.999 percentile on math exams. The explanation may well be environmental. But regardless of the reason, those are the group we hire from at Harvard. Until more women score at that level, it will be difficult for us to reach gender equality in math and science professors at Harvard.”

    That would have made exactly the same point, but in a much less offensive way. But diplomacy is not Summer’s strong suit.

    BTW, There is a third explanation intermediate between genetics and environment. Suppose that men and women have exactly the same innate ability in math. Also suppose that men are more likely to devote their time obsessively to one small area of life. Then more men than women might become math nerds, thinking about mathematical problems all the time. If you read biographies of great mathematicians, they often have seriously unbalanced lives. It is possible that more men that women (innately) have what is called a autistic cognitive profile. They focus single-mindedly on numbers, not social interaction. In this explanation men and women have the same innate ability in math, but the reason why there are more great mathematicians is nonetheless partly genetic–but the genetics of behavior, not ability.

    As Larry Summers would say, I have no opinion on this hypothesis, just throwing it out there. :)

  44. Gravatar of Doc Merlin Doc Merlin
    6. May 2010 at 10:26

    Women could even be better on average than men, but as long as men had a wide enough distribution in ability, men would dominate at the high end jobs/universities. This is very close to what we see. Women are better on average, but there are more/better top men than top women, usually. Of course there are also more men in jail than women and more men who are mentally handicapped than women who are.

  45. Gravatar of Watcher of Weasels » The Council has Spoken 050710 Watcher of Weasels » The Council has Spoken 050710
    7. May 2010 at 04:54

    [...] Place *t* with 1 vote – The Money Illusion - How far we’ve come Submitted by The Glittering [...]

  46. Gravatar of ssumner ssumner
    7. May 2010 at 05:57

    Doc Merlin, Yes, there is no question that the actual performance of men shows a wider variation than women in all sorts of different areas of life.

  47. Gravatar of dieter dieter
    8. May 2010 at 08:33

    btw.

    The UK struck oil in the early 80ies and was a huge oil exporter until a couple of years ago when their production peaked.

  48. Gravatar of dieter dieter
    8. May 2010 at 09:03

    @StatsGuy:
    So your respect for the other gender hinges on sigma for math ability in women being exactly the same as men’s? That probably makes sense from the perspective of an autistic math nerd.

  49. Gravatar of Scott Sumner Scott Sumner
    9. May 2010 at 04:42

    dieter, Yes, that has some effect. But consider that outside of Alaska, Louisiana has the most oil per/capita among American states. It is ranked 48 or 49 in income. The effect of oil is great overrated, unless you are a country with both massive oil production and a low population (like Norway.)

    I notice you have a long comment elsewhere. I will get to it, but not until I return from England.

  50. Gravatar of Robbie Robbie
    9. May 2010 at 18:22

    Chilean living standards were so pulverized after Pinochet’s coup that it was not until the late 1990s that they returned to the levels seen in the early 1970s. I suppose progressives who point this out just can’t comprehend the awesome magic of the free market.

    The reason I don’t believe in the “free market” is the same reason I don’t believe in God. They are both faith-based fictions with no empirical basis in reality. They do not exist. Markets exist and work well in some cases and not so well in others. But they are not, have never been and will never be free. They are structured by governments to serve particular purposes.

    In Chile, the UK and the USA among other examples, market restructuring in the neoliberal reformist period was designed to redistribute national wealth upward and that’s precisely what happened. It was possible to restructure markets to function better without explicit policies to redistribute income upward. This approach was not tried. It was not tried because center-left political parties in developed nations were too unimaginative or complacent or some combination of the two. They were unwilling to evolve, and so they got schooled. Right wing parties are now similarly finding that their redistributive policies have led to social, economic and political instability. They will likely flounder as they are too unimaginative or complacent to revise themselves. And center left parties will fill the void.

  51. Gravatar of Alex Golubev Alex Golubev
    9. May 2010 at 21:02

    Scott, the point was not who relied on slavery, but whether there are any implications that still affect politicians and policy, whether real or perceived. Depending on whether the slaves were brought into the host country or “outsourced” through colonies, allows for different treatment of the underclass in periods of economic recessions NOW… there’s historic path dependency to historic path dependency. While your analysis cuts deeper across countries and time, you have to acknowledge that there’s a multitude of other factors and times that one can cut across. What I’ve ultimately been trying to say all this time, is that you gotta ponder the chicken or the egg question of what’s more important global growth or allocation of global wealth. Defining the goal through Ngdp targeting, takes the side that the simplest unit under consideration is that of a country, which is completely opposed to that of the Bill of rights, which focuses on the individual as the simplest unit. THUS, I believe that your policies are quite statist. Either that or the bill of rights is an illusion of choice.

  52. Gravatar of scott sumner scott sumner
    16. May 2010 at 17:43

    Robbie, You said;

    “Chilean living standards were so pulverized after Pinochet’s coup that it was not until the late 1990s that they returned to the levels seen in the early 1970s. I suppose progressives who point this out just can’t comprehend the awesome magic of the free market.”

    Actually, Chilean living standards were pulverized in the hyperinflation, and in the post-hyperinflation depression of 1974. Economic reforms didn’t start until 1975. The reform process was far from perfect (fixed exchange rates were a huge mistake), but Chile is better off than any other country in South America. I think even the left acknowledges that fact.

    BTW, the reforms were not aimed at helping the rich. Quite the contrary, the statist policies followed by most Latin American countries throughout the middle third of the 20th century were aimed at helping the rich (by preserving economic rents.) You are confusing conservatism with neoliberalism, a common mistake.

    As far as left and right wing parties being unimaginative, you’ll get no argument from me there.

    Alex, Sorry, but I don’t follow your point.

  53. Gravatar of Bookworm Room » Watcher’s Council winners Bookworm Room » Watcher’s Council winners
    17. May 2010 at 13:43

    [...] Place *t* with 1 vote – The Money Illusion - How far we’ve come Submitted by The Glittering [...]

  54. Gravatar of Mekonen Haddis Mekonen Haddis
    22. May 2010 at 22:48

    Neo-Liberalism and the role of Government.

    May 23, 2010 by politicalsnapshots.wordpress.com

    Neo-Liberalism and the role of Government.

    When a government abdicates its responsibility in regulating the economy (as did the U.S. government), capitalist greed accompanied by all sorts of illegal amassing of wealth by the few, at the expense of the majority in society takes place. In other words, policies of neo-liberalism compel governments to abandon regulation of the economy, so that only profit- making becomes the law of the land. Society be damned. The citizen is only a consumer. The government is only a facilitator of business exploitation.

    A government as a body that has the power to enforce environmental, labor and consumer laws was required by neo-liberal philosophy to abandon its most critical responsibility of social policy to “market forces”. While it is true that Democracy gives ordinary people a significant voice in government, at the end of the day, who makes the policies that the U.S. government pursues, is what matters. When that question is properly answered, then, we will find out who has power in America.

    If a government relinquishes its central and essential duty of protecting the poor. If it fails to tackle unemployment, poverty, and income disparity in society, then, who is it working for? When the government makes it its religious duty to propagate privatization and market deregulation, then we see the sleeper hold neo-liberalism has on government. “Under Neo-liberalism everything either is for sale or is plundered for profit”. Giroux.

    Explaining the danger of neo-liberalism on society, Henry A. Giroux writes,

    “Neo-liberalism has become one of the most pervasive, if not, dangerous ideologies of the 21st century. Its pervasiveness is evident not only by its unparalleled influence on the global economy, but also by its power to redefine the very nature of politics itself. Free market fundamentalism rather than democratic idealism is now the driving force of economics and politics in most of the world”.

    Unlike president Reagan who believed that the “government was a problem, not a solution”, President Obama says, “ that the real issue was not whether government ought to be big or small but whether what it did actually worked”. President Obama in his speech on overhauling financial regulation, seems to have understood the failure of neo-liberalism and the economic destruction it has brought on the U.S. in specific, and the world in general. Moreover, he has made the government’s ceding its responsibility as one of the main culprits for the United States’ financial meltdown. Obama said:

    “Now, one of the most significant contributors to this recession was a financial crisis as dire as any we’ve known in generations — at least since the ’30s. And that crisis was born of a failure of responsibility — from Wall Street all the way to Washington — that brought down many of the world’s largest financial firms and nearly dragged our economy into a second Great depression. A free market was never meant to be a free license to take whatever you can get, however you can get it. That’s what happened too often in the years leading up to this crisis”. (Neo-Liberalism, Anarcho-Capitalism).

    For the first time in the last thirty years, the bankruptcy of neo-liberalism is so obvious that neither sorcery nor religion could save it. According to Naomi Klein, Neo-Liberalism “has been a class war waged by the rich against the poor, and I think that they won. And I think the poor are fighting back. This should be an indictment of an ideology. Ideas have consequences. Wall Street crisis should be for neo-liberalism what fall of Berlin Wall was for Communism”.

    Professor Mekonen Haddis.

  55. Gravatar of ssumner ssumner
    23. May 2010 at 12:09

    Mekonen, I’ve read some excerpts from Naomi Klein’s book–she seems to know very little about neoliberalism. For instance she claimed the Chinese government used Tiannenmen as an excuse to speed up economic reforms, when the opposite was true. In addition, neoliberal reforms are strongly associated with liberal democracies, not repressive governments. The Nordic countries are among the most aggressive neoliberal reformers.

  56. Gravatar of Brianne Rhue Brianne Rhue
    21. July 2012 at 09:11

    Håber du lykkes med projektet, men hvad med et stort telt istedet? Det er vel godt også, jeg tror som din søn og dig selv skal trives godt i et telt også.Uhh. Nu ser jeg 4 måneder, ja, så er det jo lang tid. Men sig mig Laerkefuglen fra TV2 blog, havde hun ikke en aflagt campingvogn?Skynd dig hellere at kontakte hende, hun er vist på vej ned mod Spanien igen.Kærligst,Pia-Charlotte

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