– June 5, 2019
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Nobel laureate economist Joseph Stiglitz recently made waves in academic circles by declaring the end of something called “neoliberalism” and pondering the contours of a suitable replacement.

“That question has come to define the current era,” Stiglitz explained. After describing the allegedly dying paradigm with a series of vague economic concepts that include tax cuts, deregulation, and global finance, he declared “the neoliberal experiment” a “spectacular failure.”

His prognostication received a celebratory response from political commentators, many of whom have similarly proclaimed the concept’s demise in anticipation of a more progressive replacement paradigm. Obituaries of this type are now a weekly feature of political and academic commentary. Stiglitz himself also previously announced the “death” of neoliberalism several times to similar fanfare in 2016 — and in 2008 before that.

Curiously, among all the cries that the neoliberalism wolf is dead or dying, little attention has been given to a more fundamental question: Does that wolf even exist? And did it ever exist?

I’ve examined the origins of the term “neoliberalism” before, tracing it back to 1920s Germany, when it served as a favorite term of disparagement for laissez-faire economics used by Marxists and fascists alike. So clearly it has an earlier use. But pejorative terminology originating in discredited extremist ideologies from interwar Germany is a grossly deficient basis on which to establish that the maligned object is anything other than a caricature.

“Neoliberalism” has certainly become a favored academic buzzword used since that time, although common notice of it in the scholarly literature dates no earlier than the mid-1980s, when attention was drawn to it by the French philosopher Michel Foucault. Even then the term did not achieve widespread academic use until the late 1990s, and it has only supplanted another favorite bugbear of the activist world — “globalization” — in the last decade or so.

Still, this usage pattern remains exceedingly strange for an ideological paradigm that is commonly alleged to have dominated American economic policy since shortly after World War II and into the present day. Conventional depictions of “neoliberalism” routinely assert that this paradigm captured the economic policy making apparatus of the United States, and eventually the world, starting around 50 to 70 years ago. The dating alone necessarily entails that the alleged neoliberal takeover took place before the vast majority of the world even knew that neoliberalism existed, let alone what neoliberalism was.

Where Have All the Neoliberals Gone?

When one probes this strange usage pattern a little further, it quickly becomes apparent that the term’s anachronistic deployment is only the beginning of its problems as a suitable descriptor. The term’s very definition is, to put it mildly, fluid and notoriously imprecise. As Jason Brennan and I note in our recent book Cracks in the Ivory Tower, neoliberalism is essentially an intentionally imprecise stand-in term for

free market economics, for economic sciences in general, for conservatism, for libertarians and anarchists, for authoritarianism and militarism, for advocates of the practice of commodification, for center-left or market-oriented progressivism, for globalism and welfare state social democracies, for being in favor of or against increased immigration, for favoring trade and globalization or opposing the same, or for really any set of political beliefs that happen to be disliked by the person(s) using the term.

The “neoliberal” designation has been applied to an array of political and economic beliefs, including internally contradictory ones. In the political-candidate space, it purports to describe everything from Hillary Clinton to Donald Trump. To those who use it with regularity, the only recurring certainty is that neoliberalism is bad. Or to quote left-wing columnist George Monbiot, neoliberalism is “the ideology at the root of all our problems.”

Except there’s also another problem beyond the term’s fluid definition. When investigating the seemingly obvious question of who actually espouses neoliberalism, one quickly finds that almost nobody actually subscribes to this supposedly dominant paradigm. There are almost no actual people who call themselves “neoliberal” — who advocate, adopt, or seek to impose “neoliberalism” on the economy. Nor have there ever been.

Some readers might respond that the term was batted about between the 1938 Walter Lippmann Colloquium and the mid-’50s as a way to rebrand classical liberalism. This is nominally correct. But the adoption of this name was contested from the outset in 1938, and never really stuck on the free market or laissez-faire side of that internal debate, its supposed home in both the interwar German uses and in the academic discussion between 1990 and today.

At best, the self-described “neoliberals” of the midcentury drifted into an attempted melding of (1) international free market liberalism in matters of trade, regulation, and commerce with (2) a robust and fiscally solvent European-style welfare state. Not only does this latter half of this equation meet with approval on the progressive left, but it’s a much more difficult case to maintain that the modern American economy is a derivative of the eventual product of that midcentury discussion, the German Ordoliberal school.

There are also a handful of recent attempts by free market thinkers to re-appropriate the “neoliberalism” label for themselves. But this movement is entirely a response to the term becoming academically trendy in the past decade, not any intellectual continuum to a laissez-faire past. Commendable as the effort to change the word’s overwhelmingly pejorative use into a positive may be, its current adherents probably number in the hundreds. They both postdate the claimed “neoliberal” takeover and remain far removed from the instruments of power that it supposedly wields — and has wielded for over 50 years.

So practically speaking, the total number of people in the world today who would identify themselves with the allegedly dominant ideology of the last half-century is negligible. In fact, the number of academics on the left who devote their lives to decrying “neoliberalism’s” supposed stranglehold over the American and global economies exponentially exceeds the total number of self-described adherents of neoliberal ideology today or at any time in the past.

Taking Neoliberalism Seriously

Neoliberalism, we are constantly told, still runs the show, has run the show for over half a century, and is on the verge of being replaced by a progressive alternative on account of its “failures.” So what happens then if we take this cliché at face value? What happens if we try to actually identify where and how specific neoliberals came to control American economic policy after World War II?

The term’s modern use has exceptionally strong association with Ludwig von Mises — one of the economists who rebuffed the moniker at the aforementioned 1938 colloquium — and with Milton Friedman, who preferred to call himself a classical liberal. As much as we may value their respective economic contributions, neither Mises nor Friedman ever enjoyed anywhere close to the widespread control over economic policy that is often ascribed to them.

Both wrote in an age when Keynesianism was ascendant in economics, and particularly when Keynes’s American expositor Paul Samuelson enjoyed nearly complete saturation in economic education due to the popularity of his college textbook and associated political prescriptions.

Mises articulated a sweeping case against economic interventionism on both philosophical and practical grounds, including a recurring observation that central planning was both inherently susceptible to graft and impossible to implement without disastrous misallocation. Briefly stated, the entire premise of the central planner undercuts the signaling mechanism of prices, which in turn renders him incapable of allocating goods and services to functionally meet even basic consumer wants and needs. Yet Mises remained an outsider to the halls of political influence until his death in 1973, and only found wider vindication after the fall of the Soviet Union validated his longstanding critique of their economic model.

Friedman is a somewhat similar case in that his best-known policy work, Capitalism and Freedom (1962), was an outsider’s critique of the entire New Deal order and subsequent welfare state. His monetary theories did acquire some policy salience in the 1970s, but only after stagflation revealed systemic faults in the dominant Samuelsonian approach to central banking that had taken hold in the previous two decades.

While Friedman’s brand of monetarism is frequently credited in the “neoliberalism” literature for the aggressive interest rate “shock” policies of Paul Volcker at the Federal Reserve (1979-87) in a quest to tame inflation, this common account conveniently neglects that Friedman himself was harshly critical of the Fed throughout the same period that it was supposedly under his philosophical guidance. Near the end of the Volcker term, Friedman went so far as to denounce the Fed’s record as an erratic and politically manipulated succession of missteps that openly rejected a stable monetarist rule even while speaking in nominally monetarist rhetoric.

Note that even here one can still legitimately debate the extent to which a Friedmanite policy undergirded these events, but the record points to a messy implementation at best and one that forced him into confrontation with the blunderous obstacles of political execution. It did not, however, entail a “neoliberal” takeover of even monetary policy either before or since that moment, let alone the entire economic paradigm.

Neoliberalism and Political Influence

Far from signifying its validity, Mises and Friedman are actually illustrative of a central defect in the “neoliberalism” literature. Their prescriptive approaches to economic policy — typically calling for a deeply constrained or rule-based form of economic intervention in Friedman’s case, and broad adherence to economic non-intervention in Mises’s framing — have been eschewed for politically entrenched alternatives that favor proactive government intrusions into most economic matters.

Even more so, the main political instruments of economic policy making reveal a conspicuous absence of supposedly “neoliberal” figures throughout this period.

As my friend Peter Boettke recently remarked, there was never a Treasury Department operating under the guidance of James M. Buchanan; never a Friedman Fed; never a Hayekian Council of Economic Advisors.

Instead, the more common norm for political appointments to key economic positions is (1) traditional Keynesians, (2) liberal and conservative New Keynesians, and (3) technocratic empiricists of both the center-left and progressive variety. Instead of “neoliberals,” we find these roles populated in the more progressive moments by Samuelson, or Robert Solow, or James Tobin, or Walter Heller, or Arthur Okun, or Alan Krueger, or — yes — Joseph Stiglitz (chair of the CEA, 1995-97) himself. In more conservative moments such as the George W. Bush administration, key economic policy appointments have typically gone to New Keynesians such as Ben Bernanke and Gregory Mankiw.

One could extend this observation to international bodies that allegedly represent the “neoliberal” era as well.

Although some recent works have attempted to write Mises and Friedrich Hayek into the deep genealogy of the World Trade Organization, the World Bank, the IMF, and similar institutions, the evidence for such paths of influence resembles more of a “six degrees from Kevin Bacon” game than any meaningful shaping of policy.

Key “neoliberals,” at least of the Misesian free market non-interventionist type, are always noticeably missing from the formative political events of these institutions, such as the Bretton Woods conference of 1944 (attended by Keynes himself, along with an assortment of New Dealers) and the key rounds of the General Agreement on Trade and Tariffs (1948) that eventually produced the WTO in 1995.

And when one looks to the modern political leadership of these allegedly “neoliberal” institutions, they do not find laissez-faire theorists or Friedmanites or Hayekians or Misesians. Instead, one is more likely to find their leadership roles populated by political and economic figures hailing from the left of center and favoring varying degrees of interventionist technocracy. These institutions routinely attract career politicians such as Dominique Strauss-Kahn and Pascal Lamy, left-of-center New Keynesians such as Lawrence Summers, or — once again — progressives such as Joseph Stiglitz (World Bank chief economist, 1997-2000) himself.

Given these and other recurring patterns of political appointments that chafe with the notion of a politically dominant “neoliberalism” paradigm, it becomes entirely reasonable to question the utility of the entire “neoliberalism” literature. Far from fighting to supplant a prevailing ideology for our age, “neoliberalism’s” critics appear to be battling a phantasm of their own imagining.

And conveniently, that phantasm also serves as an intellectually unsophisticated and pejoratively deployed stand-in for any and all things the same people dislike about free market economics without having to actually engage free market arguments.

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Phillip W. Magness

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Phil Magness is a Senior Research Fellow at the American Institute for Economic Research. He is the author of numerous works on economic history, taxation, economic inequality, the history of slavery, and education policy in the United States.

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