Thursday, July 02, 2015

If We Can't Pry Our Politics Free of Neoliberalism, We're Screwed

Like it or not, neoliberalism is the prevailing economic orthodoxy in Canadian politics, the NDP included.  It's also the seed of our destruction as a nation and it's going to be a real bugger to kick our way free of it.

For years I've been writing on this blog that neoliberalism and free market capitalism do not work past a certain point at which a society starts running out of stuff and begins running into walls.  That's when you either descend into a form of economic neo-feudalism or else you transition into an allocation-based economy.  When there's not enough to go around, to meet basic needs, people expect pretty egalitarian solutions.

Which is why I was immensely pleased to find Oxford professor and economic historian Avner Offer's insights in Chris Hedges new book, Wages of Rebellion.

According to Offer, our ideology of neoclassical economics - the belief that, as E. Roy Weintraub wrote, 'people have rational choices among outcomes' that can be identified and associated with values, that 'individuals maximize utility and firms maximize profits,' and that 'people act independently on the basis of full and relevant information' - is a 'just world' theory.  'A just world theory posits that the world is just.  People get what they deserve. If you believe that the world is fair, you explain or rationalize away injustice, usually by blaming the victim.'

But, he warned, if we continue down a path of mounting scarcities, along with economic stagnation and decline, this neoclassical model becomes ominous.

'Major ways of thinking about the world constitute just-world theories,' he said. 'The Catholic Church is a just-world theory.  If the Inquisition burned heretics, they only got what they deserved. Bolshevism was a just-world theory. If Kulaks were starved and exiled, they got what they deserved. Fascism was a just-world theory. If Jews died in the concentration camps, they got what they deserved. The point is not that the good people get the good things, but the bad people get the bad things. Neoclassical economics, our principal source of policy norms, is a just-world theory.'

Offer quoted the economist Milton Friedman: 'The ethical principle that would justify the distribution of income in a free market society is, "To each according to what he and the instruments he owns produces."

'So,' Offer went on, 'everyone gets what he or she deserves, either for his or her effort or for his or her property. No one asks how he or she got this property. And if they don't have it, they probably don't deserve it. The point about just-world theory is not that it dispenses justice, but that it provides a warrant for inflicting pain.'

Offer... said that the effectiveness of an ideology is measured by the amount of coercion it takes to keep a ruling elite in power.  Reality, when it does not conform toi the reigning ideology, he said, has to be 'forcibly aligned.'

...As larger and larger segments of society are forced because of declining economies to become outsiders, the use of coercion, under our current model, will probably become more widespread.

...Offer argued that 'a silent revolution' took place in economics in the 1970s. That was a time when 'economists discovered opportunism - a polite term for cheating.  Before that, economics had been a just-world defence of the status quo. But when the status quo became the welfare state, suddenly economics became all about cheating. The invisible-hand doctrine tells us there is only one outcome, and that outcome is the best. But once you enter a world of cheating, there is no longer one outcome. It is what economists call 'multiple equilibria,' which means there is not a deterministic outcome. The outcome depends on how successful the cheating is. And one of the consequences of this is that economists are not in a strong position to tell society what to do.'

The problem, he said, is that the old norms of economics continue to inform our policies, as if the cheating norm had never been introduced.

'Let's take the doctrine of optimal taxation,' he said. 'If you assume a world of perfect competition, where every person gets their marginal products, then you can deduce a tax distribution where high progressive taxation is inefficient. This doctrine has been one of the drivers to reduce progressive taxation. But looking at the historical record, this has not been accompanied by any great surge in productivity; rather, it has produced a great surge in inequality. So once again, there is a gap between what the model tells us should happen and what actually happens. In this case, the model works, but only in the model - only if all the assumptions are satisfied. Reality is more complicated.'

...Our current economic model, he said, will be of little use to us in an age of ecological deterioration and growing scarcities. Energy shortages, global warming, population increases, and increasing scarceness of water and food will create an urgent need for new models of distribution. Our two options, he said, will be 'hanging together or falling apart.' Offer argues that we cannot be certain that growth will continue. If standards of living stagnate or decline, he said, we must consider other models for the economy.

Offer, who studied the rationing systems set up in the countries that took part in WWI, suggested that we examine how past societies coped successfully with scarcity. ...In an age of scarcity, it will be imperative to set up new, more egalitarian models of distribution. Clinging to the old neoclassical model, he argued, could erode and perhaps destroy social cohesion and require the state to engage in greater forms of coercion.

...However, if we cling to our current model - which Offer labels 'every man for himself' - then, he said, 'it will require serious repression.'

He concluded: 'There is not a free market solution to a peaceful decline.'

What professor Offer is arguing for is, essentially, social democracy as the only viable option to safeguard social cohesion and ward off serious repression necessary to continue today's status quo. What a great time for Layton and Mulcair to embrace neoliberalism and guide the NDP to abandon the Left.


Toby said...

"...Offer argued that 'a silent revolution' took place in economics in the 1970s. That was a time when 'economists discovered opportunism - a polite term for cheating."

Professor Offer must have read my post a few days ago.

the salamander said...

.. Outstanding .. of course I'll have to re-read several times to truly begin to process it..
I tend to see things more simplistically.. but its stuff like this that imforms & forms my simple beliefs

The Mound of Sound said...

Sal, my friend, that false modesty doesn't become you. There's nothing in this that you can't get on the first go-around. Don't pull an old guy's leg.

Toby - yes he affirms a lot of our suppositions - only he's credentialed - big time - and we remain just punters.

Ron Waller said...

It seems silly to write a piece on right-wing neoclassical ideology only to attempt to associate the NDP with it. It's the ultimate straw man argument.

Let's fact the facts. The Cons and Liberals have been moving our country further and further right over the past 30 years. This is despite the fact that the Liberals had 3 terms of absolute power. They didn't have to cement in place Mulroney's free-market reforms. But they did him better: spending cuts and corporate tax cuts Mulroney could only dream of.

In any case, the NDP has moved to the center the Liberals abandoned 25 years ago. That does not make them a neo-liberal party. The suggestion is absurd given most of the party members are social democrats. The Liberals could get away with campaigning left and govern right. Liberal partisans only care about winning. A NDP leader is accountable to party members who are in it for a social cause.

You also mistake compromise for opportunism. In a democracy, a party needs the support of the people to govern. So the NDP has to moderate its policies to get power. It's better to govern and decide what compromises are necessary than support the occasional, short-lived minority government and get little in return.

It also takes time to reverse the damage Liberals and Cons have done over the past 30 years. It will take hard work and steady progress, not a revolution. A progressive revolution can get bad press and foment a right-wing counter-revolution.

Ron Waller said...

BTW, the Green party is not a social democratic party. One has to keep an eye on their economic ideology.

There are green neo-cons out their like Chris Ragan and Preston Manning of "EcoFiscal." Neoclassical ideology says taxing income discourages work. Therefore it's better to tax consumption. This is also how many Greens view the economy: cut income taxes and replace them with consumption taxes. But consumption taxes are not just flat taxes, they are regressive (because the rich consume less of their income.)

Also relying on a consumption tax meant to curb that form of consumption is not a good idea, because it will curb the behavior and tax revenues will fall.

So Green economic ideology could mean the people get gouged and tax revenues don't come in as planned.

I prefer the tried-and-true Keynesian economic system we used in the post-war era. European social democratic and centrist countries still use it today. It's based on proper distribution of incomes via progressive income taxation. So instead of making rate-payers fund green-energy projects (the rich pay the least,) they're funded by taxpayers (the rich pay the most.)

The Mound of Sound said...

You know Ron I linked to Laxer's analysis of the progressiveness of the Greens versus the NDP. Team Mulcair did not come out on top, not by a long shot. When you add foreign policy and the environment, Tommy & Friends are even worse off in comparison. Whether you like it or not even Mulcair's NDP is almost as neoliberal as the Libs. Sorry that reality offends you.

Ron Waller said...

Laxer concludes the Greens are just as progressive as the Mulcair NDP.

But the main difference between the two parties is that the Greens embrace neoliberal ideology:

"The Green Party will reduce taxes on things we all want, like income and employment, and we will increase taxes on things we do not want, like pollution that harms people and our environment. ... And they will be revenue neutral because a tax shift is not a tax grab."

This is the same gospel green neocons like Chris Ragan and Preston Manning preach from their EcoFiscal Commission.

They also will end "market distorting" subsidies. And pay down nominal government debt.

Social democrats and centrist liberals embrace the Keynesian mixed-market system which neoliberal capitalists believe is anti-capitalist.

This means restoring income taxes to their pre-Mulroney levels (70% highest income bracket which Linda McQuaig calls for.) And use government spending to stimulate economic growth and properly distribute incomes. (As well as subsidize green-energy infrastructure paid for with progressive taxation.)

Using the Keynesian system, first-world countries paid down most of their debts during the post-war era (1945-1980): from over 100% debt/GDP to less than 40% (now over 90%.) This was done by increasing GDP growth (which increases tax revenues.) Only neoliberals care about paying down nominal debt ("crowding out" ideology.)

In any case, the Green party has neoliberals, progressives and anti-capitalists (anti-growth believers.) The NDP has social democrats (Keynesian), centrists (Keynesian) and anti-capitalists (socialists.) The Liberal party has neoliberals (Blue Liberals) and centrists (Keyensian), with the neoliberals calling the shots over the past 25 years.

The NDP is the only party that does not embrace neoliberal ideology on principle.

Anonymous said...

"To each according to what (s)he and the instruments (s)he owns produces."
Banksters produce nothing...

Ron Waller said...

Saying bankers produce nothing is like saying delivery drivers produce nothing.

Normal (commercial) bankers create money by making loans to people and businesses (whether from private banks or credit unions.)

This process went off the rails when the division between commercial banks and investment banks was deregulated (by Clinton in the US.)

This allowed commercial bankers to engage in predatory mortgage lending while not being on the hook for bad loans — because instead of holding the mortgages, they offloaded them into derivatives (stocks) held by unknowing investors. (The derivatives are CDOs or Mortgage Backed Securities; Joseph Stiglitz identifies the problem as an "information asymmetry" in his book "Freefall"; the 2008 collapse we have yet to recover from was a derivatives meltdown.)

So long story short: strong post-war Keynesian banking regulations are required to stop financial "innovation" fraud. (Which comes in two forms: finance shell-game Ponzi schemes and pump-and-dump market manipulation fraud — investment bankers playing musical chairs with an asset bubble of their creation.)

Also if finance is developed into a science, this will be something better handled by democratic government banks. It makes no difference whether a corporate or government bureaucrat makes loan decisions based on scientific criteria. The result is the same.

Last: in order to make all finance in an economy democratic — where the people own the means of production — sovereign wealth funds could grow over time and become the primary source of market finance (stocks and bonds.)

Presently the top 20% owns over 80% of stocks and bonds. Progressive taxation, wealth taxes and inheritance taxes (say first $1M deductible) will lower income and wealth inequality over time and transfer capital ownership to the people. (A communist dictatorship does this by force, but only pretends to represent the people.)

So I think we need evolution, not revolution, to solve our problems, which are best handled on a case-by-case basis. (All policies have an optimal position on the left-right economic spectrum; but not all policies have the same optimal position.)

The Mound of Sound said...

Ron, if I was you I wouldn't waste precious time debating your beliefs on this meaningless blog. You need to devote all your efforts to getting your movement up and running before that loudly ticking clock runs out.

My final point is that there can be no more pressing issue for progressives today than climate change and securing a livable Canada for our children and theirs. On that score the Angry Beard is a dud. To deflect that by dismissively saying that governments can't deal with climate change is the most nihilistic, boneheaded statement I've heard in a long time but it speaks volumes for the credibility of your positions.

But, as I said, enough of this. Get on with building your movement. There's not a lot of time left. Adios, Ron.

Ron Waller said...

Actually, I said the process of developed countries pretending to reduce GHG emission by exporting them to undeveloped countries is pointless. Robbing Peter to pay Paul. That's why emissions keep rising.

The real threat to humanity is neoliberal/neoclassical ideology, especially free-trade globalization. It creates a regulatory race to the bottom. Allows plutocrats to balkanize democratic governments and torpedo treaties.

The solution is Keynesian fair-trade globalization that lets responsible countries punish ones that abuse workers and the environment with tariffs. That's real incentive-based economics. Social democrats understand this, which puts them ahead of the game.

The Greens, like the Liberals, mistake neoliberal ideology for evidence-based policy. So on the off chance a Green tide swept the nation, Green economic policies would fail to get results. You cut income taxes you get deficits. Doesn't matter if it's well-intentioned or not.

Progressive income taxation is the foundation of a progressive society, whether progressives realize it or not. Too bad so many know so little about economics, especially in a historical context.