Neoliberalism now and forever
I was a neoliberal before it was cool (back in the 1970s)
I was a neoliberal when it was cool (1984 – 2007)
I was a neoliberal after it was no longer cool (in the 2010s)
David Beckworth directed me to a study By Kevin Grier and Robin Grier that confirms my intuition, which is that cross-sectional evidence powerful supports the neoliberal agenda (even if results often seem disappointing from a time series perspective):
Traditional policy reforms of the type embodied in the Washington Consensus have been out of academic fashion for decades. However, we are not aware of a paper that convincingly rejects the efficacy of these reforms. In this paper, we define generalized reform as a discrete, sustained jump in an index of economic freedom, whose components map well onto the points of the old consensus. We identify 49 cases of generalized reform in our dataset that spans 141 countries from 1970 to 2015. The average treatment effect associated with these reforms is positive, sizeable, and significant over 5- and 10- year windows. The result is robust to different thresholds for defining reform and different estimation methods. We argue that the policy reform baby was prematurely thrown out with the neoliberal bathwater.
Update: Commenter TBarron found another recent example.
David also directed me to a twitter thread that discusses the fact that labor’s share of income has been fairly stable over long periods, another point I’ve frequently made. (The real problem is growing wage inequality.)
PS. It’s also good to see Josh Hendrickson and Brian Albrecht carrying on the tradition of good old Chicago-style price theory. Check out their new newsletter.
We are entering an authoritarian, nationalistic, socialistic dark age, and we need to keep the flame of neoliberalism burning for when the madness passes.
PS. When I point out all the awful things Trump says and does, my commenters accuse me of peddling fake news. Now Woodward has it all on tape. What will the commenters say now?
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10. September 2020 at 13:16
The Grier paper also fits with a recent paper on The Baker Hypothesis (https://www.nber.org/papers/w27708):
“In 1985, James A. Baker III’s “Program for Sustained Growth” proposed a set of economic policy reforms including, inflation stabilization, trade liberalization, greater openness to foreign investment, and privatization, that he believed would lead to faster growth in countries then known as the Third World, but now categorized as emerging and developing economies (EMDEs). A country-specific, time-series assessment of the reform process reveals three clear facts. First, in the 10-year-period after stabilizing high inflation, the average growth rate of real GDP in EMDEs is 2.2 percentage points higher than in the prior ten-year period. Second, the corresponding growth increase for trade liberalization episodes is 2.66 percentage points. Third, in the decade after opening their capital markets to foreign equity investment, the spread between EMDEs average cost of equity capital and that of the US declines by 240 basis points. The impact of privatization is less straightforward to assess, but taken together, the three central facts of reform provide empirical support for the Baker Hypothesis and suggest a simple neoclassical interpretation of the unprecedented increase in growth that has taken place in EMDEs since 1995.”
10. September 2020 at 13:18
The cross sectional study reminds me of the fact that even the poorest US states are still richer than most of Europe, etc.
10. September 2020 at 14:19
I think we’ll briefly enter a kind of Wallacian world of spectacular government stupidity alongside the corporate overlords that slowly fall apart, but overall I’m confident it will be fairly easy for capital to route around it. The fascist world of insolvency and cartels and mafia and what not, but that is also much better coordinated and less violent than fascist regimes of the past. The internet allows us to transact (and punish) much more safely and securely, as well as carry forward the torch of neoliberalism. One can hope, at least.
I thought Berkshire’s recent move into gold was perhaps the biggest sign yet of what’s to come.
10. September 2020 at 14:40
Trump and the protectionists are very sloppy thinkers. So this quote from Nucor CEO stands out:
The chief executive of a major United States steel company says tariffs on foreign steel are working.
“We’re very pleased with the results that are happening as a result of the tariffs,” John Ferriola, chairman and CEO of Nucor, told CNBC’s Jim Cramer on “Mad Money” on Thursday evening.
https://www.google.com/amp/s/www.cnbc.com/amp/2019/07/19/nucor-ceo-john-ferriola-says-very-pleased-with-trump-steel-tariffs.html
Nucor and their mini mill technology is what put all the huge steel mills out of business in the 1980s!! Nucor obviously wasn’t hurting in 2019 but they benefit from Trump’s asinine policies and the people that go to Trump rallies. West Virginia is a s hole for one reason—it’s cheaper to mine coal in Wyoming!!
Another example of super sloppy thinking was when the Uber CEO got in trouble. Uber adopted Lyft’s business model but everyone thought Uber was the bad actor because it had Lyft’s business model. So Lyft benefited because people didn’t realize it was Lyft that developed the use the Civic you own to give other people rides!?!
10. September 2020 at 15:14
“The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy Prepared by Reda Cherif and Fuad Hasanov1 Authorized for distribution by Ralph Chami March 2019 Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. Using a theory and empirical evidence, we argue that one can learn more from miracles than failures. We suggest three key principles behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability. “
IMF
http://bilbo.economicoutlook.net/blog/?p=42041
10. September 2020 at 15:27
I love and share your enthusiasm, but I think we should be wary us using the word neoliberal -as MF also was, uncoincidentally- particularly now that most of its young adherents think of themselves more as heirs to Galbraith than to Milton Friedman. Alternatives? I ironically use “paleo-neoliberal”.
10. September 2020 at 15:50
Scott,
the time series evidence is rather disappointing, a lot of the world only started to grow during the 1950-1980s illiberal period.
As an exception, consider Hong Kong: It started to grow rapidly from the 1950s despite no major changes in its institutions compared to the first half of the century, it wasn’t neoliberal as it never stopped being liberal.
Indeed the lack of convergence in GDPPC is a major puzzle, as global conditions 1870-1914 were pretty good for the spread of technology.
10. September 2020 at 15:59
If the neoliberals wanted to retain support in the voting population, they should kept property markets loose and labor markets tight.
Other neoliberal platforms are practical lunacy, such as advocating for one billion Third World immigrants to the US.
To maintain a neoliberal world order takes a globalised and mercenary military, at a cost of $1.3 trillion dollars a year (Department of Defense, VA, DHS, and prorated interest on the national debt).
And today, the globalist-neoliberals are notably mute on Hong Kong and Taiwan. Many neoliberals appear to be full-time Chinapologists. See Jeffret Sachs. Or Disney-Apple, for that matter.
Interesting snag: Michael Pettis and the IMF say the way for nations to compete globally is to increase investment and reduce labor share of income.
10. September 2020 at 16:41
TBarron, Thanks, that’s interesting.
Iskander, One reason you want to use cross sectional data is that growth slowed almost everywhere after the early 1970s, even in communist countries. East Asia was about the only area where growth did not slow.
Ben, More lies. Sachs is not a China apologist.
You said:
“is to increase investment”
So that’s why you favor big fiscal deficits?
10. September 2020 at 18:21
Scott,
complete mood affiliation on entering a dark age. And given the illiberal period of ca 1914-198x, it may be a long one too.
On the industrial policy side I do notice though the approach is a bit different now. To some extent countries have learned to do it better, with less collateral damages (example, East Asia), although I stil believe most countries in Asia achieved their successes in spite of industrial policy, not because of it. Industrial policy was an incidental to other and more important factors (legal and political stability favoring investment), not a cause.
Outside of Asia the current approach seems to be less about any “policy” and more about “outlawing the competition” (Trump, Brexit, xenophobic fears everywhere). Less of a socialist tinge, more of a purely nationalist one.
10. September 2020 at 18:25
TBarron, James Baker might be even more important than Reagan and HW Bush and unfortunately he marred his record by helping W Bush in the 2000 recount. So all the good he did as the “guy behind the guy” was undermined by getting behind the wrong guy.
10. September 2020 at 18:34
Some of think the Democratic Party is worse-
WAY worse.
https://www.dailywire.com/news/dem-staffer-among-dozens-arrested-in-portland-riot-marking-101-days-of-unrest
The Democratic Party has been infiltrated by neo Marxist FREAKS, who want to defund the police, and turn America into a hellhole. I’d take the lesser of two evils, a Richard Nixon thug any day. And yes, Biden and Kamala are in thrall to them. Not personally part of that movement, but too weak and too COWARDLY to stand up to them.
Sincerely, an EX Democratic FUNDRAISER. Not a Trump fan or personality lover.
10. September 2020 at 18:41
I’m the “shy” Trump voter you’ve heard about who doesn’t like him at all, but LOATHES what the Democrats have become and feels utterly betrayed by them.
10. September 2020 at 18:46
I think the description of Jeffrey Sachs as a CCP-parrot, or Chinapologist, is fair and possibly mild. A lie?
This is from the South China Morning Post:
“In November (2018), he (Sachs) wrote a foreword for a Huawei company position paper, highlighting its recommendations for government digital technology policy.
“Huawei is a remarkable company and, by any standard, Huawei’s vision of our shared digital future is powerful, exciting, and uniquely well informed,” he wrote.
Isaac Stone Fish, senior fellow at the Asia Society, tweeted to Sachs: “Did Huawei pay you for that? If so, do not you think you should disclose that?”
—30—
https://www.scmp.com/news/china/diplomacy/article/2180296/us-economist-jeffrey-sachs-retreats-twitter-after-criticising
Thereafter Sachs closed down his twitter account, rather than defend his finances. Sachs has written extensively on the need to avoid a US-China cold war, something I actually agree with, but Sachs always blames the US alone for the heightened tensions.
Sachs’ most recent article is entitled, “America’s Unholy Crusade Against China” Aug 5, 2020 JEFFREY D. SACHS–Project Syndicate
Sachs then plays the race card against US foreign policy:
“Many white Christian evangelicals in the United States have long believed that America has a God-given mission to save the world. Under the influence of this crusading mentality, US foreign policy has often swerved from diplomacy to war. It is in danger of doing so again.”
https://www.project-syndicate.org/commentary/america-evangelical-crusade-against-china-by-jeffrey-d-sachs-2020-08
—30—
Right. You are a racist white evangelical if you dread the growing influence of the CCP, inside and outside China. Jimmy Lai, anyone?
If Sachs has ever murmured the most mild rebukes of the CCP, I hereby ask Scott Sumner, or anyone else, to Google and find that sentiment.
Sachs goes so far as to announce Beijing has no hegemonic ambitions. None!
The South China Sea? The occupation of Tibet? The Vietnam border war? Incursions into India? The occupation of India’s Aksai Chin? The absorption of Inner Mongolia?
There are other points of view on China:
https://foreignpolicy.com/2020/05/22/china-superpower-two-paths-global-domination-cold-war/
The above article seems a bit extreme, but is a worthy tonic to Sachs’ abject toadyism to the CCP.
It is no lie to define Jeffrey Sachs as de facto CCP mouthpiece.
10. September 2020 at 19:43
I think there is confusion about whether Neoliberal includes redistribution as a goal, a willingness to trade off,if necessary some redistribution against growth maximization or even explicit taxation/redistribution for inefficient redistribution by market regulation such as wage subsidy for minimum wages or expanded ACA for employer purchase of health insurance. My understanding of the Washington Consensus (I worked for the World Bank at the time) was that it was not hostile to redistribution per se.
10. September 2020 at 20:01
Is growing wage inequality a problem? I would say: that depends on why it is growing.
10. September 2020 at 20:03
(Cf.: “Never reason from a price change.”)
10. September 2020 at 20:16
“What will the commenters say now?” Judging from the past: (1) Trump didn’t say that. (2) Trump did say that, but he didn’t mean it literally. (3) He did mean it, and thank goodness he had the guts to say that when no one else would.
10. September 2020 at 23:25
“I was a neoliberal before it was cool (back in the 1970s)
I was a neoliberal when it was cool (1984 – 2007)
I was a neoliberal after it was no longer cool (in the 2010s)”
So you ‘believe’ income/output is ‘supply determined’?
11. September 2020 at 02:19
@Iskander – notice Ssumner did not respond to your comment, instead pointing out the desirability of the dataset rather than addressing that nearly all countries grew in the time period in question. Simply put: how do we know the countries that adopted the Washington Consensus would not have grown just as fast under some top-down five year plan (as China has)?
@ssumner: “David also directed me to a twitter thread that discusses the fact that labor’s share of income has been fairly stable over long periods” – so what? The relevant question to many people is whether labor wage growth has slowed down since 1972 (it has) and whether the lions share of any gains has gone to upper management (it has).
11. September 2020 at 05:16
The problems with the neoliberal view or Washington consensus are many, including saddling US taxpayers with $1.3 trillion a year in bills to finance a mercenary, global military establishment—a global guard service for multinationals.
Is it possible to distinguish between the multinationalist agenda (which is devoid or even hostile to human rights concerns), globalism and the “Washington consensus”?
Should Disney, Apple, the NBA and Jeffrey Sachs determine US policy towards the CCP and China?
“Democracies will increasingly have to choose between raising wages and redistributing income or maintaining free trade and capital flows. Because they are likely to choose the former, the world may face a long-term reversal of globalization.”
That was not me who said that. It was Michael Pettis.
https://carnegieendowment.org/chinafinancialmarkets/75972
Neoliberalism in theory is okay, but in practice it has not been delivering the goods.
But hey, Bryan Caplan says bring in a billion immigrants to the US. Open borders and free trade! (“Free trade” defined as imports from nations, such as China, that repress labor share of income).
The neoliberals, like the protestors in Portland, somewhere slipped on an intellectual banana peel, hit their heads a little too hard, and never stopped talking.
11. September 2020 at 07:46
You through a hand grenade into the conclusion of your essay—just as studies (hopefully proper done) show “freedom”–as defined in the study—leads to growth. I am not going to disagree (even though I do not see what you see—-but I may not be looking) that there is a lot od “talk” and “noise” re “nationalism” etc—does not mean its impact is as big as you think
Re:Woodward.One just has to laugh out loud. Trump was saying the same things regarding “panic’ in his press conferences—-while following exactly what CDC wanted to do. When I first saw this “blockbuster” quote–I thought I was reading an old essay. Obviously–not to you—he had a different risk reward trade-off—-he did not want to shut the economy down—which we have never done before. So who are the radicals?
11. September 2020 at 08:07
mbka, I agree. I’d add that in East Asia the freer economies have tended to do better than the more statist economies.
Jason, The difference is that the GOP is actually led by an authoritarian white nationalist. The loonies are not just in the lower ranks, as in the Democratic Party. They are at the very top. (Consider Stephen Miller, Bob Barr, Mike Pompeo.)
Ben, Thanks for showing that you have no evidence to back up your claim, no quote of Sachs praising the CCP.
Ray, Still struggling with reading comprehension?
Michael, First they deny Trump said it, say it’s fake news, then when there’s proof on a tape they say “it’s old news.” Right out of the GOP playbook.
China’s cover-up is also old news, and perhaps Xi just wanted to avoid panic among the Chinese public.
11. September 2020 at 08:11
I will bet anything you do not know the following. Trump told Woodward in February–about its danger–“airborne” etc—as they were trying to develop a policy–A month later–in March–when he was saying the same thing on TV about no panic—told Woodward what he was saying in public–i.e.”no panic”—-while his Dem opponents were saying he was exaggerating its danger
The whole thing is ridiculous. Fauci—didn’t even know what Woodward was talking about—-
11. September 2020 at 08:19
Ben Cole, would you make mining coal in Wyoming illegal?? Would you make steel mini mills illegal?? Would you force Trump’s BFF, Mr. Pillow, to use inferior American cotton instead of superior Egyptian cotton?? Would you require Trump to employ a crew of the same size that redeveloped the Commodore Hotel to build hotels in 2020?? All of those actions would in theory lead to more American jobs.
I agree wages and inequality are an issue but I wouldn’t tackle that problem by undermining “creative destruction”. So the focus should be getting people into affordable housing that they own along with access to healthy food in safe neighborhoods. I believe now is the perfect time to reboot our economy so that economic growth is more equitable while still having a system which properly rewards high achieving type A people that do most of work to grow the economy.
11. September 2020 at 08:36
sumner, Yergin wrote both The Prize and The Commanding Heights which is evidence that oil is the most important commodity and thus has an outsize influence on macroeconomics.
11. September 2020 at 09:38
No answer was the strange reply!
11. September 2020 at 09:41
“We estimate a New Keynesian general-equilibrium open economy model to examine how changes in oil prices affect the macroeconomy. Our model allows oil price changes to be transmitted through temporary demand and supply channels (affecting the output gap), as well as through persistent supply side effects (affecting trend growth). We estimate this model for Canada, the United Kingdom, and the United States over the period 1971-2008, and find that it matches the data very well in terms of first and second moments. We conclude that (i) energy prices affect the economy primarily through the supply side, whereas we do not find substantial demand-side effects; (ii) higher oil prices have temporary negative effects on both the output gap and on trend growth, which translates into a permanent reduction in the level of potential and actual output. Also, results for the United States indicate that oil supply shocks have more persistent negative effects on trend growth than oil demand shocks. These effects are statistically significant; however, our simulations also indicate that the effects are economically small “
https://www.academia.edu/16838142/How_Changes_in_Oil_Prices_Affect_the_Macroeconomy?email_work_card=view-paper
11. September 2020 at 09:51
Hear! Hear!
In an alternate (better) universe, the United States has a Prosperity Party entirely dedicated to neoliberalism.
At least that’s what I would name it.
11. September 2020 at 10:36
Postkey, you need to take Canada out of the group because Canada had the oil sands which provided an outlet for energy investment 2001-2008 which allowed Canada to avoid the energy crisis. Furthermore the energy crisis in America from 2001-2008 involved both oil AND natural gas which is why the energy crisis was effectively over in 2009 when fracking for natural gas was proven economical. So our economy would most likely have been fine had fracking for oil never proven economical. Yergin seems to believe oil was very important during the time period in discussion and I would tend to agree with him. Btw, if you want a book for your shelves behind you when you Zoom l suggest The Prize hardback.
11. September 2020 at 12:18
Michael Rulle,
Sorry, but something must’ve gone horribly wrong for you to just eat up propaganda the way you do. College is supposed to teach students how to think, so I wonder what happened.
11. September 2020 at 12:28
hey Michael—–it really does not matter one way or the other. we are having an election—one these two guys will win–the other side will say he didn’t and if we are lucky—one of them will concede by inaugeration day. That is my first priority.
Do you not see how crazy this all is? each side hates the other and thinks “only” the other side “lies”—in normal election years it is the same crap—except this time it is more extreme. I hope you are happy if Joe becomes President for 8 years—and I hope I am too—and if its Trump-Haley for the next 8 years I am fine with that also.
11. September 2020 at 20:36
Michael Rulle,
Sure, the polarization is crazy, but I don’t see how it isn’t obvious the Republican Party has gone openly fascist, and built a personality cult around Trump. And Trump has zero redeeming qualities.
11. September 2020 at 23:38
“This chapter finds that increased public infrastructure investment raises output in both the short and long term, particularly during periods of economic slack and when investment efficiency is high. This suggests that in countries with infrastructure needs, the time is right for an infrastructure push: borrowing costs are low and demand is weak in advanced economies, and there are infrastructure bottlenecks in many emerging market and developing economies. Debt-financed projects could have large output effects without increasing the debt-to-GDP ratio, if clearly identified infrastructure needs are met through efficient investment. . . .
The point estimates in panel 2 of the figure show that higher public investment spending typically reduces the debt-to-GDP ratio both in the short term (by about 0.9 percentage point of GDP) and in the medium term (by about 4 percentage points of GDP), but the decline in debt is statistically significant only in the short term. There is no statistically significant effect on private investment as a share of GDP (panel 3).
The latter finding suggests the crowding in of private investment, as the level of private investment rises in tandem with the higher GDP as a result of the increase in public investment.
. . . an increase in public infrastructure investment affects output both in the short term, by boosting aggregate demand through the fiscal multiplier and potentially crowding in private investment, and in the long term, by expanding the productive capacity of the economy with a higher infrastructure stock.”
http://www.imf.org/external/pubs/ft/weo/2014/02/pdf/c3.pdf
11. September 2020 at 23:38
Infrastructure investment spending of the government will increase both the marginal product of labour and capital [New Keynesianism and Aggregate Economic Activity by Assar Lindbeck – Economic Journal, 108, 1998 pp167-80]
12. September 2020 at 10:34
Cognitive dissonance?
12. September 2020 at 13:02
Apologies for going off topic, but I’d like to hear Summer’s comment on the initial rise and subsequent fall of the TIPS breakeven rates after the Fed’s announcement. As of Friday, the 5 year rate is lower than at any time since mid August, before the announcement.
A comment to the effect that one should not pay attention to the TIPS would be OK if I understood why not.
Thanks
13. September 2020 at 00:19
https://www.themoneyillusion.com/tips-spreads-are-a-big-problem/
“The oil and stock prices (plus falling metals prices) are telling us that real growth expectations are probably falling. TIPS spreads are telling us that inflation expectations are probably falling. Anyone want to guess what is happening to NGDP growth expectations? We can’t know for sure, but I’d wager that if we had an NGDP futures market, NGDP futures prices would have fallen significantly since May 3.”
https://www.themoneyillusion.com/ngdp-expectations-falling-like-a-stone/
“How Effective is the TIPS Spread in Predicting Inflation?
The TIPS spread is only a projection of inflation, as it’s impossible to know what turns the market will take in the future. In the past 20 years, the TIPS spread has underestimated inflation levels about two-thirds of the time. Overall, however, the TIPS spread is considered to be a reliable way to predict approximate levels of inflation.”
https://www.investopedia.com/terms/t/tips-spread.asp
13. September 2020 at 13:55
Thomas, I have a new post at Econlog. I think the market worries the Fed won’t carry through with their promise, which is why PLT >> AIT.
13. September 2020 at 23:50
Scot,
What’s a neoliberal?
14. September 2020 at 08:17
dtoh, Someone who supports economic freedom.
15. September 2020 at 04:44
@Michael Sandler
Your opinion versus is my opinion is kind of a microcosm of this election.
I think Trump’s presidency has been normal——-but for one feature. His tweets, words, presentation—(—to me all superficial ——even “open”—-for example, he is called a liar by Woodward, even as he was saying the same thing to Acosta. It’s odd—(to me at least.) which has led his opponents to say he is literally a “fascist, unfit, a thief, a Putin lackey, disgusting, dangerous” ——If historically fascism, for example, has any meaning——I.e., a political movement to take over the powers of government—-. He is obviously not a fascist. So how does one take that seriously. He was my last choice among the GOP candidates.
But the obvious behavior of the so called establishment against him—-made this anti-Hillary virtually indifferent supporter a strong supporter—-as I am with Barr—-who is not a Trump “supporter” but a constitutionalist—-which you don’t believe —and I guess actually do not really understand—-most people do not—-and Trump understands it too—-but anything he says that is sensible is never heard
And unlike Scott, who clearly will not vote for Biden, (plus he is in California and I am in NJ—so who cares about our votes)——I find this years Democrat party the most extreme in my life time and worse than Trump.
These are opinions. Hopefully, in 10 years we will wonder what all the craziness was about—-as that is what always happens as time passes.
27. January 2021 at 07:01
For better or worse, the rot in the Democratic party starts at the top.
Harris (now the VP) used the word ‘murder’ to describe the killing of Michael Brown by Darren Wilson (the police officer). Eric Holder’s justice department found the Brown was a violent thug and Darren Wilson was entirely innocent.
Warren also lied about the death of Brown.
Both got 4 Pinocchio’s from Glenn Kesler for lying about death of Michael Brown.
For better or worse, the rot in the Democratic party starts at the top.
Biden has also lied (not quite as badly) about the death of Michael Brown.
For better or worse, the rot in the Democratic party starts at the top.
Obama also lied (not quite as badly) about the death of Michael Brown.
For better or worse, the rot in the Democratic party starts at the top.
Biden has already embraced/endorsed Critical Race Theory (CRT).
For better or worse, the rot in the Democratic party starts at the top.
Biden has already moved to abolish Women’s sports.
For better or worse, the rot in the Democratic party starts at the top.
27. January 2021 at 07:04
The following is from Bari Weiss
“Consider the fact that Hillary Clinton recorded a podcast with Nancy Pelosi this week in which she said of Trump: “I would love to see his phone records to see whether he was talking to Putin the day that the insurgents invaded our Capitol.” And the speaker of the House responded: “All roads lead to Putin.”
Really? That’s still the play after four years?
The group that fell for Russiagate has long owned the culture. Now it’s won the presidency and controls Congress. What will happen?”
With the Democrats, the rot starts at the top