100 years of statism, 100 years of neoliberalism

I’d like to argue that to understand what’s going on in the world, one needs to understand the megatrends.  Yes, I know that ‘megatrend’ is a rather disreputable term, associated with crackpots.  But I’m going to use it anyway.  Here’s my basic hypothesis:

1.  For nearly 100 years statism was on the advance in the US, and indeed in almost every country.

2.  In the US the period of growth of government started at least as far back as 1887 (the ICC) and continued until 1977, after which deregulation, free trade agreements, and MTR cuts kicked in.  In other countries one saw MTR cuts, deregulation and privatization.

3.  During the statism megatrend, the term ‘reform’ implicitly meant bigger government.  That’s how governments reacted to crises.  During the current (neoliberalism) megatrend, the tern ‘reform’ implicitly means less government.

4.  In the US this pattern has recently been hidden by health care, which is one aspect of the welfare state that was never completed in the statist era (although it was completed in all other developed countries.)

5.  During the megatrends, there are periods of consolidation, which are falsely viewed as countertrends.  They are not countertrends.  The trend is still intact.  In the US the 1920s and 1950s were falsely viewed as countertrends.  Don’t be fooled, we are only 1/3 of the way through the neoliberalism megatrend.

The following three examples come from a single issue of The Economist.  First, how Greece spells “reform”:

WITH a target of €50 billion ($72 billion) by 2015, Greece’s privatisation plan aims to raise more cash as a share of GDP than any OECD government has managed before. If the goal for listed companies is met, the market capitalisation of the Athens stock exchange would double. The economic benefits of privatisation are widely accepted: a 2003 OECD study found “overwhelming support” for the idea that “privatisation brings about a significant increase in the profitability, real output and efficiency of privatised companies.”

Of course one could find many such examples in Europe.  Even where progress is slow, such as Spanish labor reforms, the long terms direction of change is very clear, and exactly the opposite of what FDR did in the Great Depression.

Reform is even more in evidence in developing countries, despite a drumbeat of press reports that reform has stalled in places like India and China.  Here’s a report on China:

China leads the way to freedom

For the first half-century of its emergence after the second world war, civil aviation was dominated by the huge American market, where distance favoured air travel for domestic journeys. Internationally, other countries were afraid of the dominance of the two biggest American carriers, TWA and Pan American. For their part, Americans were afraid of hostile European planes flying over their homeland, perhaps to drop bombs rather than passengers. That mutual lack of trust gave rise to the Chicago Convention on air travel in 1944 and then to restrictive bilateral air-traffic deals, exemplified by the so-called Bermuda agreement covering transatlantic flights. IATA was formed to run this regulated aviation commerce, acting as a clearing house for payments between airlines and drawing up rules for everything from the size of sandwiches to the price of headphones for in-flight films.

Those days are on the way out. Mr Bisignani, the retiring boss of IATA, reckons that China will lead the way now.  .  .  .

Asia is also proving an unlikely champion of free trade, with little enthusiasm for clinging to outdated, traffic-limiting bilateral deals. ASEAN, the Association of South-East Asian Nations, is working on establishing a single aviation market with no traffic restrictions by 2015. “China will break Bermuda and the old IATA system,” says Mr Bisignani. Thus a new economic power that joined the World Trade Organisation only in 2001, whose trade policies are frequently criticised by members of longer standing, is likely to play a leading role in tearing down the restrictions of the most regulated of global industries.

And here’s what going on in the most dynamic region of India:

SO MANY things work properly in Gujarat that it hardly feels like India. In a factory packed with kit from Germany and China, slabs of rubber and bags of carbon black are turned into tyres. After being X-rayed for imperfections, they will be distributed across India or sent for export within three days. Sandeep Bhatia, a manager for CEAT, the firm that owns the project, says it took only 24 months to complete, including the normally fraught process of buying land. There is constant electricity, gas and abundant water. The state government, he says, kept red tape to a minimum, did not ask for bribes, and does not interfere much now.

.  .  .

The state government uses the usual tricks to try to jump-start growth, including special economic zones. But more important, it has provided the bog-standard things that businesses pray for across India but often do not get””less onerous labour laws, passable roads, reliable electricity and effective bureaucracy.

Don’t just look at national governments.  The states that reform race ahead of those that don’t.  Eventually the voters of the lagging states get disgusted and throw out the bums (or communists in the case of West Bengal.)  But also don’t be too influenced by ‘left/right’ terminology.  There is little difference between the rate of liberalization in governments of the left and the right.  They both respond to the political pressures of the day.

In America, progressives are scratching their heads trying to figure out how the Bush-produced Great Recession failed to deliver FDR II:

Liberals are furious that President Obama agreed to massive spending cuts, and the promise of more, without any increase in revenues. They should be: Given how much the Bush tax cuts have contributed to the deficit (and how little they’ve spurred economic growth), it’s mind-boggling that they’ve apparently escaped this deficit-reduction deal unscathed.

But there’s a reason for that: since the economy collapsed in 2008, only one grassroots movement has emerged in response, and it’s been a movement of the right. Compare that with what happened during the Depression. In 1933, Franklin Roosevelt assumed the presidency and launched the hodgepodge of domestic programs that historians call the first New Deal. By 1935, however, he was looking warily over his left shoulder at Huey Long, whose “Share our Wealth” movement demanded that incomes be capped at $1 million and every family be guaranteed an income no less than one-third the national average.

At the same time, the Townsend plan to guarantee generous pensions to every elderly American had organizers in every state in the union. To be sure, FDR had vehement opponents on his right, but he was at least as concerned about the populist left, which helps explain why he enacted the more ambitious “second new deal,” which included Social Security, the massive public jobs program called the Works Progress Administration and the Wagner Act, which for the first time in American history put Washington on the side of labor unions.

Obama, like FDR, had a reasonably successful first two years: a stimulus package that while too small for the circumstances was still large by historical standards and a health care bill that while subpar in myriad ways still far exceeded the efforts of other recent Democratic presidents.

And then, unlike FDR, he ran into a grassroots movement of the right. Historians will long debate why the financial collapse of 2008 produced a right-wing populist movement and not a left-wing one.

Of course historians are confused.  They don’t like the idea of megatrends, especially right wing megatrends.  But we know better.

Update:  Note to equity investors.  Ultra-low real interest rates as far as the eye can see and persistent neoliberal reforms—the trend is your friend.

Update#2:  Just to be clear, I am not recommending people rush out and buy stocks.  The EMH says all this “good news” is already incorporated into stock prices.



42 Responses to “100 years of statism, 100 years of neoliberalism”

  1. Gravatar of Stephan Stephan
    1. August 2011 at 07:06

    Aha. So we’ve only about 70 years to go before the neoliberal right-wing megatrend is finished with its mission of scorched earth. Fine for me. Won’t be around then.

  2. Gravatar of Morgan Warstler Morgan Warstler
    1. August 2011 at 07:11

    Yeah, yeah…. deep insights.

    Meanwhile, I’ve told you the far nastier story, you just don’t like to look under the covers.

    Starting in 1980 (although nixon had some thoughts this way too), Reagan said, “I didn’t come here to balance the budget.”

    And since that time the right has run massive deficits driven by lower taxes and spending on non-social programs to hack the premise of Democracy: vote to get free shit.

    In 1913, it was oh-so new and interesting! Vote. Free shit! It took us SIXTY years to finally figure out how to end that crap.

    And many of you, MANY OF YOU, aren’t man enough to look at the long term game plan and accept that there was no other way.

    If we hadn’t started this process, the 1970’s would have spiraled us right into becoming France.

    NOTE: We’re FINALLY seeing progressives have to choose between broad based entitlements VS. narrow special interest pay-offs – forcing THEM into a moral crisis, lots and lots of moral crises coming for the left.

    And NOW TODAY, if you don’t honestly admit to yourselves what really bought us “neo-liberalism” hahahahaaha what a funny phrase – like an idiot touching a nuclear bomb, you will screw it up.

    It is a DELICATE nuanced fight, and yes we are winning, but it could go the other way if we are not careful.

    This is WHY it is imperative that things like “targeting NGDP” get saved for when the good guys are president, and why the guys who argue for it MUST be screaming to shrink government at the same time.

    Over in Greece, we’re seeing what one man, one economist can do in his lifetime. Mundell has done more for the conservative cause than all the other right wing economist alive.

  3. Gravatar of Left Outside Left Outside
    1. August 2011 at 07:18

    You sound exactly like an anti-Karl Polanyi.

  4. Gravatar of david david
    1. August 2011 at 07:20

    It is worth recalling that the statist trend did very poorly by the lights of its own idealism, Marx and Keynes both. Never mind what you think of their results (and failure to achieve theorized utopia); oftentimes their governments never even did what they were supposed to do.

  5. Gravatar of W. Peden W. Peden
    1. August 2011 at 07:48


    One could say the same thing about neoliberalism. We haven’t got anywhere near the society that Hayek or Friedman would want. But we’ve broadly moved in the right direction, with annoying reversals and an undesirable ballooning of state size, though not state power.

  6. Gravatar of david david
    1. August 2011 at 08:02

    Well, right direction is a vague thing. The point of revolutionary communism wasn’t supposed to be to cause a lot of starvation; it was to put control of capital in the hands of the revolutionaries, which it certainly succeeded at. The starvation was the unintended side effect.

    Likewise, insofar as the driver here is principally the reduction in state power, neoliberalism would certainly succeed. But there will, almost certainly, be side effects caused by political quid pro quos, or unforeseen happenstance.

    Perhaps hiking redistribution is one. Or perhaps undermining clear property rights in favor of corporatism is another (insofar as the statist capitalist world comprised the tripartite of Big Government, Big Labour, and Big Business, dismantling two out of three leaves the last with a lot of captured rent).

  7. Gravatar of david david
    1. August 2011 at 08:09

    As a thought: think free-trade agreements. You’ll get freer trade, and that is generally a good thing in the aggregate, but every step along the way is going to reward a lot of new vested interests and cause a lot of uncompensated suffering when past vested interests fall apart. Call it the best of bad policy options.

  8. Gravatar of Scott Sumner Scott Sumner
    1. August 2011 at 08:11

    Stephan, Neither will I.

    Morgan, Perhaps Mundell just sped up a change that was inevitable in any case.

    Left outside. In what way?

    David, Yes, things are never exactly as one would wish, but don’t you think Keynes would have mostly approved of 1960s-style liberalism?

  9. Gravatar of david david
    1. August 2011 at 08:30

    Keynes (and Hicks) became more explicitly Chapter 12ers (to borrow Krugman’s phrase) as time went on, so probably not. And Keynes wanted the Bancor to prevent trade deficits from becoming problematic, which did not happen.

    But I think even Book 1 Keynes would have winced if you told him that the US intended to (1) fight a war in Indochina (2) vastly expand the welfare state under the Great Society (3) without raising taxes (4) at full employment, and (5) without amending the value of the dollar.

    Maybe he would have mostly approved, but I think he would have vigorously objected to some elements. He was already vigorously objecting by 1945.

  10. Gravatar of Morgan Warstler Morgan Warstler
    1. August 2011 at 08:59


    my god, THAT IS OUR TASK. I mean look at technology, what do you think productivity gains are about?

    We face a single moral dilemma daily: speed up human history.

    That is what I mean, SURE, if we all sat around in being an egghead econmist, we could talk megatrends that eventually some day, some time, in the future, everyone will be more libertarian, and the government will not be a opportunity for losers to interfere with winners.

    But, if that is the glorious future, than anything that gets us there faster, including spending all the money to hack Democracy, including holding off on arguing for NGDP until a conservative politician gets the credit – all of it is justified.

    It is always annoying to listen to libertarians complain about GOP spending on and on and on, when in fact there was no other damn way.

    We had no choice:

    1. It all had to be spent to rein it force it into submission.
    2. It couldn’t be spent on liberal voters, or they would BELIEVE in free shit for voting.

    Mundell rolled up his sleeves and gored some oxen for the betterment of Europeans in the future.

    Scott, its your turn. And NO ONE needs to hear you bitch equally about the right.

    When progressives are ham-strung because targeting NGDP means that fiscal is forever off the table, and progressive taxes are based only on consumption – sure the DeKrugman’s of the world will be vanquished, and sure Dem pols won’t be able to hand out goodies paid for by other people, but the lowest of the lo…

    THEY WILL BE BETTER OFF. They will have free college when they buy a TV, they will get an onslaught of new drugs and medical treatments 12 years after the middle class gets them.

    And when some idiots says, “well, if Sumner hadn’t done it, maybe eventually the poor would have these things.”

    Someone like me will fix him.

  11. Gravatar of StatsGuy StatsGuy
    1. August 2011 at 09:46

    Scott, you have some of your dates wrong, and facts a bit odd…

    1) Under GWB, measures of government consumption increased by just about every metric

    2) Prior to 1890, the US was incredibly statist. We simply used policies that that did not involve direct government employment (exception being the military).

    For example, consider tariffs…


    The average tariff actually STARTED DECLINING in 1890, from a peak in 1870. By 1980, it had hit 3%, and declined a bit more – but most of the decline was right in the middle of what you call the century of “statism”. One pillar of Neoliberalism is free trade, so it seems Neoliberalism has been on the march basically since about 1880, give or take a decade.

    I would also take issue with your identification of deregulation as a megatrend. Recently, we’ve seen financial re-regulation (first spawned by Enron, then by the banking crisis). We’ve seen travel regulation (not of airplane fares, but security). Energy deregulation basically ran its course.

    Honestly, the only megatrend I can see is complexity, and our inability to handle it.

  12. Gravatar of david david
    1. August 2011 at 09:54

    The nature of state growth does appear to relate to how technology moves on – when wealth is generally creatable by bureaucratically mobilizing resources, states grow; otherwise they shrink (politically unstable regions excepting – those are unpredictable anyway).

  13. Gravatar of Wonks Anonymous Wonks Anonymous
    1. August 2011 at 10:16

    Isn’t the reason FDR was more politically successful than Obama that he devalued the dollar and got more NGDP growth?

  14. Gravatar of david david
    1. August 2011 at 10:26

    @Wonks Anonymous – that may be politically endogenous, so to speak. FDR had a base likely more actively familiar with the destructive impacts of deflation and disinflation (rural farmers) – in his radio broadcasts he explicitly appeals to them.

    But the modern left has no real enthusiasm for inflation, particularly when it is presented in the context of reducing real wages rather than real prices.

  15. Gravatar of Nixonfan Nixonfan
    1. August 2011 at 10:38

    The Tea Party is an artifact of the Democatic strategy to appeal to every voting bloc except white non-union taxpayers. Nominating Obama was a huge mistake, because the Dems already owned the progressive & minority voters. What the Dems forgot was that white voters make up 75% of the electorate, while only around 60% of them vote GOP. That means that the other 40% of the white vote is the real battleground, which the Dems are forfeiting by catering to their smaller base. Clinton did not scare white voters (outside of the WSJ editorial board). My explanation of the 2008 election is that McCain/Palin was not a credible ticket. 2012 will depend of who are the GOP nominees.

  16. Gravatar of John John
    1. August 2011 at 12:50

    The biggest historical failure of liberalism and the crucible for it’s progress in the future will be the establishment of a completely free-market banking system. The attempts of national or locally sponsored banks to expand credit helped undermine the free market system by creating repeated boom-bust cycles even at the height of classical liberalism. The process continues today as bad as ever and free banking seems as distant a dream as it ever was. Today, anyone who favors free market reforms and the classical liberal idea in general should join the call to end the Federal Reserve.

  17. Gravatar of Neal Neal
    1. August 2011 at 12:56

    I’m really not a fan of empirically identifying “trends” — history and society are so complex it’s very easy to cherry-pick the evidence to support whatever you want to say.

    But granting for a moment the existence of these megatrends, what sorts of mechanisms could conceivably drive them? Is this part of an enormous simple oscillation about some semi-statist mean? Is it driven by demographic or technological factors? By the economy( and labor force)’s sectoral makeup and hence different relative rent-seeking powers? (Look at the difference between the unionization rates in 1933 and 2009! Surely that difference alone can partially explain why there is no left-wing grassroots movement to counter the Tea Party.) By broad, arching geopolitical and geo-economic patterns?

    I’m not convinced that the megatrends described in the OP exist (especially because Scott has outlined a convenient “out” in the form of “consolidation”), but if they do, I think that looking behind them to the driving mechanisms would be far more illuminating than simply extrapolating the megatrend to the next fifty years.

  18. Gravatar of John John
    1. August 2011 at 12:57

    @ Stats Guy

    Great point. I think the megatrend Scott is talking about has a lot of facts going against it. For instance, Bush was one of the most statist presidents in American history. FDR would have been proud of his vigorous response to the 2008 crisis, doubling the budget of Roosevelt’s SEC, prescription drug benefits, use of emergency powers, disrespect for civil liberties (Guantanamo=Manzanar), and growth in government spending, along with the things you mentioned.

  19. Gravatar of Neal Neal
    1. August 2011 at 12:59

    Oh, also – what happens when we extend the megatrends back before the industrial revolution? Through all of history? Did they hold in Roman times? In agricultural pre-Columbian North America?

    I think maybe we want a more sophisticated model of political economy here.

  20. Gravatar of Bababooey Bababooey
    1. August 2011 at 13:04

    I was with you until, Of course historians are confused. They don’t like the idea of megatrends.

    Fernand Braudel thinks your 100 years is a blink in la longue duree. For an update on how historians think, you could read the excellent Europe Between the Oceans
    9000 BC-AD 1000,
    by Barry Cunliff.

  21. Gravatar of johnleemk johnleemk
    1. August 2011 at 13:59


    As I recall, Braudel divides history into three scales of time, the shortest one on the scale of decades or centuries. He calls this I think political time, and I think he referred to it as “the scum upon the tides of history”.

  22. Gravatar of Fredrik Fredrik
    1. August 2011 at 14:40

    I don’t see many signs of popular support for less statism. I do see more and more anti-gay, anti-immigrant and anti-science rhetoric from popular right wing movements from both sides of the atlantic.

    That trend is nothing to be happy about regardless of your position on statism.

  23. Gravatar of W. Peden W. Peden
    1. August 2011 at 15:36


    I think that, when talking about taking a country in one direction or another, G. W. Bush doesn’t hold up a candle to Roosevelt or Johnson in terms of moving the country to statism. If he’s what statism looks like in the 21rst century, then we live in a very new world.

    Is there any government in the West currently believing in-

    (1) The complete nationalisation of industry.

    (2) Incomes policies.

    (3) Exchange controls.

    (4) 90% nominal income tax rates for the rich.

    (5) Wealth taxes.

    (6) A centrally planned economy, with democratically accountable indicative planning.


    If not, then there has been an unmistakable trend away from traditional statist economic policies.

    (One of the fascinating things about the “Keynesian resurgence” is that it wasn’t a resurgence of Keynesianism. Certain Keynesian ideas got revived, but no major economist is calling for continuous fiscal stimulus to keep up full employment (say 2.5%) with an incomes policy to control inflation. Keynesianism, as it was once understood in Britain at least, is totally and utterly dead.)

  24. Gravatar of Scott Sumner Scott Sumner
    1. August 2011 at 17:16

    David, His views shifted many times, and would have kept shifting. So it’s hard to say. Maybe he had a personality a bit like Krugman–never happy with the status quo.

    Statsguy, Almost everyone on both the left and the right thinks that the US got far more statist between 1877 and 1977. Your entitled to your opinion, but I don’t see you providing any persuasive evidence. Suppose you visited DC in 1877, when it was a small town. Do you think Washington bureaucrats were doing more of less intervention than in 1977? Tariffs are only one of the many ways in which government distort trade. In 1877 they were basically the only way, whereas now we have lots of other non-tariff trade barriers. The fact that tariffs are lower doesn’t even mean trade is freer, but even if it is, the government got much more intrusive in all sorts of other ways.

    In any case, These are broad trends, it’s not necessary that every single detail of government follow the trends–there are always exceptions.

    You said;

    “Recently, we’ve seen financial re-regulation (first spawned by Enron, then by the banking crisis). We’ve seen travel regulation (not of airplane fares, but security). Energy deregulation basically ran its course.”

    I have to strongly disagree with this. What about the post S&L crash regulations? In any case, when you already have FDIC, it’s not clear whether things like higher capital requirements represent the government becoming more involved in the financial system, or less involved.

    David, You said;

    “The nature of state growth does appear to relate to how technology moves on – when wealth is generally creatable by bureaucratically mobilizing resources, states grow; otherwise they shrink”

    A very shrewd comment.

    Wonks Anonymous, Yes, that’s the main reason he was popular.

    Nixonfan, The problem in 2008 wasn’t McCain, it was Bush.

    John, That’s going to be an uphill struggle. Even many on the right are afraid of getting rid of FDIC.

    Neal, You said;

    “(Look at the difference between the unionization rates in 1933 and 2009! Surely that difference alone can partially explain why there is no left-wing grassroots movement to counter the Tea Party.)”

    Actually, the rates weren’t all that different.

    John, I mean statism in a limited sense of economic policies. Bush was mostly bad on issues outside of trade/regulation/privatization/high MTRs.

    Neal, I am only applying this to modern times. 100 years of classical liberalism, then 100 years of big government liberalism, and now 100 years of neoliberalism.

    Bababooey, I defer to your expertise, but I still think most historians would find my megatrend to be way too simplistic. They like Obama, and assumed he’d turn things around.

    Fredrik, The neoliberal revolution has been led by the elites, although ironically the more democratic countries tend to be more neoliberal. Gay rights are making tremendous progress, especially with the young.

    W. Peden, Yes, those are the sorts of things I was thinking about as well.

  25. Gravatar of Barnley Barnley
    1. August 2011 at 18:14

    Re: Left/right I would mention New Zealand’s fourth Labour government in the eighties which was nominally a social democratic party, but was arguably the most neo-liberal government ever. See: http://en.wikipedia.org/wiki/Fourth_Labour_Government_of_New_Zealand

  26. Gravatar of Neal Neal
    1. August 2011 at 18:27

    Scott, you said:
    “Actually, the rates weren’t all that different.”

    I stand corrected then.

    Then you said:
    “I am only applying this to modern times. 100 years of classical liberalism, then 100 years of big government liberalism, and now 100 years of neoliberalism.”

    I still stand by my point that mechanisms are far more interesting and informative than purported empirical megatrends.

  27. Gravatar of OGT OGT
    1. August 2011 at 19:43

    Interestingly, since Brazil, China and India are all significantly more ‘statist’ than the US or Europe, the world on a weighted average GDP measure is getting more statist every year even if those countries are slightly less ‘statist’ than they were.

    Most people think of China as a state directed alternative to neo-liberalism (significantly including China’s current rulers). It’s not surprising China would be a ‘reformer’ in aviation, given that they are eager to grab market share and the reforms proposed do not touch the state directed finance system that subsidizes capital for large corporations like airlines, aircraft makers and, of course, publicly funded airports. This is a very strategic and targeted ‘reform.’

  28. Gravatar of libertaer3000 libertaer3000
    1. August 2011 at 23:08

    To bring back statism, you need war.

    Don’t forget that in the 30’s Keynesianism never really got off the ground. Instead they got the “Austrian” solution: austerity, high unemployment, electing a guy from Austria (in Germany). This enabled FDR to do War Keynesianism.

    If we have to replay all that, at this step we should lookout for signs of fascism, xenophobia etc. Keynes will show up later.

    Since everybody is too saturated, I don’t believe we will do a replay, I think the big danger today is that we all (US and Europe) end up like Japan.

  29. Gravatar of Rien Huizer Rien Huizer
    2. August 2011 at 01:04


    Pse define “statism” and “neoliberalism” (both are used in a derogatory way by opposing camps of political economists.

    I am personally a bit ambivalent about the proposition that all privatizations are necessarily good and all involvement of the state in the production of private goods is necessarily bad (your story may well reflect the evolution of the public/politicians’ position though). It depends on the nature and maturity of industries and their technologies, etc. There are health care solutions involving gvt roles beyond regulation that provide outstanding outcomes. I challenge everyone to prove that replacing the current banking system in the US by a glorified payment system run (maybe by private firms) unfer full gvt responsibility partnered with a completely free, and explicitly gvt uninsured finance industry would be less efficient that what we have now, the cost of cycles included.

    Governments are not necessarily more prone to the criticisms of rational choice than large privately-owned non-competotive structures (and those structures subvert especially the private-sector-regarding state to enhance and protect their rents against outsiders).

    If I compare two successful economies often regarded as free market successes, Singapore and Australia, a quick look at the stock exchanges in both countries reveals that in Spore, the bulk of high-caps have high/controlling levels of gvt ownership and prefered acces to gvt resources (in a broad sense). In australia 13 of the 15 highest caps are stocks that rely on gvt licences of a kind (banks (operating in an official oligopoly and carrying high gvt guarantees on their liabilities), Media companies relying on broadcast licences (a closed shop symbiotic with politicians on both sides) and mining companies (relying on licences to explore and exploit). The ones with the least gvt involvement are the two (a very strong duopoly) supermarket chains. No entrepreneurship (maybe with the exception of Murdoch) but lobbying skills. Where is the theory that makes unaccountable quasi politicians skilled in lobbying more likely to foster welfare than elected politicians operating under the rule of law? I suspect that the ruthlessly selected Sporean “civil servants” doing time in executive roles may be more efficient that their executive peers in Australia

    And as to China: they are going through a highly sophisticated version of what Russia did in half a decade: the transfer of state wealth to oligarchs. Only, the population of wannabe oligarchs is so large that you end up with a very competitive system within the boundaries of the elite (as there is in Singapore, but much less so in Australia). Anyway, all of that is of course mainly conjecture…

  30. Gravatar of StatsGuy StatsGuy
    2. August 2011 at 06:52


    It’s not really my opinion, so much as the simple fact that from 1877 to 1980, US tariffs declined dramatically, and US imports massively increased as a share of total consumption (or GDP, or whatever). Fact. Free trade is one of the key pillars of neoliberalism (do you disagree? google any definition of the term, and you will see free trade within the first few sentences).

    From 1877 to 1980, trade was made massively freer. The US went from a massive trade surplus (which helped create the post WWI monetary imbalance) to a massive deficit (which has since helped jump start export led growth in the developing world). Your arguments about “invisible trade barriers” are pure nonsense – please show me the data where US trade has decreased decade-on-decade in the 1900s due to these invisible barriers?

    Likewise, GATT was created in 1947, soon after cane the WTO, and the US expanded its most favored nation status soon after that. Much of this was done to facilitate the economic development of strategic allies against the USSR. We witnessed a strange and uneasy alliance between neocons and neoliberals (the former using access to US markets for strategic purposes, the latter wanting to reduce trade barriers in general).

    I know that you like to paint very broad brush strokes and write in terms of century-spanning trends, but the real world is so much more complex than the generalization. On the issue of trade and globalization, 1870-1970 was not at all an era of statism.

  31. Gravatar of david david
    2. August 2011 at 18:37

    It’s quite possible to have a government engaging in high tariff barriers whilst having a relatively small bureaucracy… the federal government relied on tariffs for revenue until WW1, and the replacement of tariff revenue with income revenue was a conscious choice.

  32. Gravatar of Lorenzo from Oz Lorenzo from Oz
    2. August 2011 at 20:16

    On megatrends, at its simplest, a ballooning welfare state increases the policy premium for economic efficiency, since you have to pay for it: one way or another. An effect magnified by any slowdown in productivity growth, as there was post 1973. That, along with the stagflation decade, has been the most powerful spur to economic reform in the developed world.

    Which is a major reason why popular activism in the US came to be of the right. Health was just about the only “unfinished” basic welfare-state business (as Matt Yglesias has acknowledged). There is a lack of plausible “new fields to conquer” for welfarism and too many nagging problem issues: debt, school quality, taxes, etc. There is also no “socialist light on the hill” to inspire large-scale utopian yearnings from the left but plenty of issues to generate angst from the right. So the context is indeed very different from 1932+.

  33. Gravatar of Political Realist Jim Political Realist Jim
    3. August 2011 at 15:17

    The author of this piece is apparently unaware that the rest of the planet uses the term “neoliberalism” to mean almost precisely the opposite of the meaning he assumes. Only in the US would someone think of calling the past 70 years or so a period of “neoliberalism.” Everywhere else–and I do mean everywhere–“neoliberalism” means a combination of small, limited government and a free market economy. Ask any of your foreign friends if you doubt this.

  34. Gravatar of Rien Huizer Rien Huizer
    3. August 2011 at 22:30


    The light on the hill. Never thought I would see that on a US monetarist blog.. It is not too bright right now, I would say. How would you apply the current subject to Oz?

    There is a pretty big state but it is very rich (very little debt) and it is far from exhausting its efficient taxation potential I guess nobody wants to challenge it too much, especially since the largest businesses and especially the political donors are quintessential rent seekers (miners, developers, gambling operators and UK style unions. The country lacks any form of Schumpeterian capitalism. Nevertheless, many people believe that this process (towards neoliberalism, for what it is worth -it is quite a bit more complicated) has come a long way here. One thing puzzles me: the main parties have each undergone quite a bit of change over the years. Could that happen again? This curious amalgam of ex-marxists, gender people and environmentalists seems to be producing many more opponents than suppoprters, but they are the only ones who apply idealist rhetoric (the PM is a former barrister, hence inherently lacking the ability to be idealistic).

  35. Gravatar of John Michael Dique John Michael Dique
    3. August 2011 at 23:12

    Politics is just acting for ugly people.
    What smells funny ? Clown tea…..
    Seriously though, folks, Ireland got by for the last “x + y = ? ” number of years, on ab out fore tea per scent under employment, and look where they are today, well you could take a look, but let’s face it, we are all grounded until mum says differently.
    we are growing popcorn, sunflowers, and tea this spring, and we can have a few buddies airdrop the aforementioned seeds, just as soon as we figure out how to attach a seed dispersal thingy to our kites…..

  36. Gravatar of Steven Steven
    4. August 2011 at 08:53

    Just look at CA alone as the former 5th largest economy for the future ill liberals offer. Look at all socialist countries of Europe and states failing constantly with more to come. This article belies certain facts that prove ill liberals and unions breed mediocracy and hinder American excellence and growth. Ill liberals are the yes PARTY of only giving people fish. The conservatives have to be the NO party to check ill liberals that still only know tax and spend money we keep wasting. Idealism is great, but it costs lots of money we dont have! Ill liberals are the world biggest menace with little original thoughts of their own.

  37. Gravatar of biL. biL.
    4. August 2011 at 15:30

    Ultra-low interest rates as far as the eye can see? So, do you see adjustable-rate mortgages as superior to fixed-rate ones currently (from the borrowers point of view)? Seems to me that this would be an implication.

  38. Gravatar of TallDave TallDave
    6. August 2011 at 12:23

    Some intriguing notions, but I don’t see much evidence for a neoliberal gov’t-cutting megatrend, unless it just started in the past few days.


  39. Gravatar of OGT OGT
    7. August 2011 at 14:05

    By the way, the corollary to my observation above is that the Saez/Dufflo generation is the last generation of US economists that can expect their careers to be in an environment of US economic intellectual hegemony. If you want to know what the future of the economic consensus is, you’ll have to look at the top Chinese schools are teaching.

  40. Gravatar of JimP JimP
    8. August 2011 at 17:45


  41. Gravatar of Scott Sumner Scott Sumner
    12. August 2011 at 11:41

    Barnley, Good point about NZ.

    Neal, We’ll revisit this debate in newer posts.

    OGT, China is doing well because it is rapidly becoming more neoliberal. If you go from 0 to 50 on a 0 to 100 scale, you obviously grow fast. They aren’t an “alternative model” they are gradually adopting the Western model. They are just too proud to admit it. If they don’t continue to liberalize, they’ll end up much poorer than us.

    libertaer3000, I agree about the risk of becoming Japan.
    Rien, The government plays a big role in all economies, even neoliberal economies. Neoliberalism is a relative concept. The higher the rating on the Hoover/Fraser indices, the more neoliberal. Check out their definitions.

    I agree that government can and should do lots of good things.

    Statsguy; You said;

    “Your arguments about “invisible trade barriers” are pure nonsense – please show me the data where US trade has decreased decade-on-decade in the 1900s due to these invisible barriers?”

    Technology is the big driver of trade growth, not trade barriers. I’m not the only one who’s argued that non-tariff barriers have replaced tariff barriers, trade experts have made the same observation. Trade is far from the most important element of neoliberalism for an economy as large as the US.

    I agree that trade was freed somewhat after WWII, never denied it. But almost everyone would agree that overall the government was far more intrusive after WWII than in the Cleveland administration, or even the Coolidge years. In fact the biggest liberalizations after WWII weren’t trade, they were civil rights.

    David, Yes, and a far more intrusive choice.

    Lorenzo, Good point.

    Political realist Jim, You said;

    “The author of this piece is apparently unaware that the rest of the planet uses the term “neoliberalism” to mean almost precisely the opposite of the meaning he assumes. Only in the US would someone think of calling the past 70 years or so a period of “neoliberalism.””

    Of course I never said anything remotely like that.

    bil, Adjustable rates aren’t necessarily better, as the market also sees rates staying low. My forecast is now priced in (even more than when I made it.)

    TallDave, Google my post “The world change around December 1978”

    JimP, An excellent choice.

  42. Gravatar of Neal Neal
    13. August 2011 at 12:37

    Scott, you said:
    “We’ll revisit this debate in newer posts.”

    I look forward to it 🙂

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