Stiglitz - Neoliberalism has Gutted the Middle Class

Nobel laureate and former World Bank chief economist, Joe Stiglitz, contends we urgently need to replace neoliberalism with progressive capitalism.

Three years ago, President Donald Trump’s election and the United Kingdom’s Brexit referendum confirmed what those of us who have long studied income statistics already knew: in most advanced countries, the market economy has been failing large swaths of society. 

Nowhere is this truer than in the United States. Long regarded as a poster child for the promise of free-market individualism, America today has higher inequality and less upward social mobility than most other developed countries.

After rising for a century, average life expectancy in the U.S. is now declining. And for those in the bottom 90% of the income distribution, real (inflation-adjusted) wages have stagnated: the income of a typical male worker today is around where it was 40 years ago. 

Meanwhile, many European countries have sought to emulate America, and those that succeeded, particularly the U.K., are now suffering similar political and social consequences.

Contrary to what many in the financial sector would like to think, the problem was not too much state involvement in the economy, but too little. Both crises were the direct result of an under-regulated financial sector.

Now, the middle class is being hollowed out on both sides of the Atlantic. 

...Reversing this malaise requires that we figure out what went wrong and chart a new course forward, by embracing progressive capitalism, which, while acknowledging the virtues of the market, also recognizes its limitations and ensures that the economy works for the benefit of everyone. 

We cannot simply return to the golden age of Western capitalism in the decades after World War II, when a middle-class lifestyle seemed within reach of a majority of citizens. Nor would we necessarily want to. After all, the “American dream” during this period was mostly reserved for a privileged minority: white males. 

We can thank former President Ronald Reagan and former British Prime Minister Margaret Thatcher for our current state of affairs. The neoliberal reforms of the 1980s were based on the idea that unfettered markets would bring shared prosperity through a mystical trickle-down process.

...We were told that lowering tax rates on the rich, financialization, and globalization would result in higher standards of living for everybody. 

Instead, the U.S. growth rate fell to around two-thirds of its level in the post-war era — a period of tight financial regulations and a top marginal tax rate consistently above 70% — and a greater share of the wealth and income from this limited growth was funneled to the top 1%. 

Instead of the promised prosperity, we got deindustrialization, polarization, and a shrinking middle class. Unless we change the script, these patterns will continue — or worsen. 

Fortunately, there is an alternative to market fundamentalism. 

Through a pragmatic rebalancing of power between government, markets, and civil society, we can move toward a freer, fairer, and more productive system. Progressive capitalism means forging a new social contract between voters and elected officials, workers and corporations, rich and poor.

Stiglitz spared Mulroney, as much a champion of the "new economy" as Thatcher or Reagan.  Those three genuinely did drink the KoolAid of von Mises, Hayek and Friedman. They drove us into the ditch and none of their successors has had the vision, the courage and the strength to pull us back out.

Today we have Team Trudeau/Morneau and they're avowed disciples of market fundamentalism. Neither has shown the inclination much less the vision to pry us loose from neoliberalism's grip. After all, that's been the source of their considerable riches.

What Neoliberalism Has in Store For You

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From Le Monde, a timely explanation of how disastrous neoliberalism continues to thrive despite an endless string of economic disasters and what it holds in store for you even as you continue to vote for those who inflict it.  Hint. Neoliberalism is class warfare and it's being waged in our own Parliament against us.

Even neoliberal proponents recognize that it is a crisis-ridden system. In his popular book Why Globalisation Works, Financial Times columnist Martin Wolf writes: “Between 1945 and 1971, in what might be called the “age of financial repression”, there had been only thirty-eight crises in all.... Then, between 1973 and 1997, there were 139 crises. The age of financial liberation has, in short, been an age of financial crisis” (3).

Neoliberal policies have been implemented from 1973 in Pinochet’s Chile, in the UK and US under Thatcher and Reagan in the 1980s and then across increasing swathes of the world. These policies include, privatization, the de-regulation of the financial sector, increasing openness to foreign trade and investment, and cuts to public welfare spending. Supporters of neoliberal policies argue that these will increase economic efficiency as state regulation of the economy is replaced by more accurate ‘market signals’. These are held to be better at encouraging and allocating investment, which in turn leads to higher economic growth and greater benefits for the economy and population as a whole.

So why do so many Western governments, including your own, embrace neoliberal, market-fundamentalist policies?  That's because it's actually successful only not in promoting a healthy economy to benefit all.  Its success lies in the quiet transfer of economic and political power out of your pocket and into the pocket of those it's actually intended to benefit.

Can it be said that neoliberalism is a success? And why are crises and austerity policies part of this success? One clue was provided by Andy Haldane, chief economist at the Bank of England, in a speech in early October 2014 where he noted how real wages in the UK are around 10% lower than in 2007.

In his film Inequality for All, Robert Reich, who was Bill Clinton’s labour secretary between 1993 and 1997, documents the collapse of US wages over the last four decades. In the late 1970s the typical male US worker was earning $48,000 a year (inflation adjusted). By 2010, the average wage had fallen to $33,000 a year. Over the same period the average annual income of someone in the top 1% of US society rose from $390,000 to $1,100,000.

Neoliberal policies aim to reduce wages to the bare minimum and to maximize the returns to capital and management. They also aim to demobilise workers’ organisations and reduce workers to carriers of labour power — a commodity to be bought and sold on the market for its lowest price. Neoliberalism is about re-shaping society so that there is no input by workers’ organisations into democratic or economic decision-making. Crises and austerity may not be intentionally sought by most state leaders and central bank governors, but they do contribute significantly towards pursuing such ends. Consequently, these politicians and leaders of the economy do not strive to put in place new structures or policies that will reduce the recurrence of crisis.

...The rising levels of inequality associated with neoliberal policies are often decried by critics as weakening social ties and generating social conflict. But this is exactly what neoliberal policies are designed to do — to break apart social organisations such as trade unions, transform worker’s into individuals at the mercy of firms’ hiring and firing strategies, and transfer resources from workers to owners and managers of capital. In this regard neoliberalism uses crisis and austerity to great effect.

There is one downside for proponents of neoliberal policies however. Because they generate socio-economic crisis they erode public confidence in politics and economic policy. It is here that progressive political organisations can highlight the class basis of neoliberalism and propose a realistic alternative that favours the majority of the world’s population, not the minority.

It's hard to imagine that today's 'permanent warfare state' could ever have arisen absent neoliberalism and the commodification of state violence into for-profit warfare.  Likewise disaster capitalism is utterly dependent on the life support of neoliberalism.  What you need to understand is that, until we throw these people out of Parliament - the lot of them - this is only going to get worse, not just for you but even more so for your children and theirs.

Could Greece Become the Salvation of Western Democracy?

Greece is revered as the nation that gave mankind democracy.  Could it now become the nation that restored democracy to mankind?

Around the world, democracy has taken a pounding from the fist of neoliberalism.  Market fundamentalism and democracy are simply incompatible over time.  Neoliberalism promotes illiberal democracy, ultimately leading to political capture and the rise of plutocracy as the populace is steadily reduced economically and politically, their power quietly transferred to a select minority.

The Guardian's George Monbiot writes that we're witnessing "the sudden death of the neoliberal consensus."  This he sees in the triumph of the Syriza movement in the recent Greek elections.

The lamps are coming on all over Europe. As in South America, political shifts that seemed impossible a few years earlier are now shaking the continent. We knew that another world was possible. Now, it seems, another world is here: the sudden death of the neoliberal consensus. Any party that claims to belong to the left but does not grasp this is finished.

Foreign Policy's Philippe LeGrain agrees with Monbiot and foresees Syriza's win spreading to Spain and beyond.

"Yes we can" may be a stale slogan in Obama's America but in crisis-hit Spain it is the rallying cry of a year-old radical-left party that is taking the country by storm. In a show of strength, more than 100,000 supporters of Podemos (the party’s name means “We Can” in Spanish) filled the streets of Madrid on Jan. 31 to protest against austerity, crushing debts, and the country’s corrupt political system — and demand change. The demonstrators don’t represent a fringe group, either. Podemos is leading in the polls, ahead of both the mainstream center-left and center-right parties in elections that will be held by the end of the year.

The election of a radical-left Syriza-led government in Greece on Jan. 25 has electrified European politics. After years of being told that there is no alternative to bowing to German demands for crushing austerity and wage cuts, the plucky Greeks have dared to stand up to Angela Merkel’s government in Berlin — and other Europeans have stood up and noticed. While the immediate focus is on the showdown between the new Greek government and eurozone authorities over demands for debt relief — and the (unlikely) possibility that Greece could end up ejected from the currency union — Athenian defiance is already having wider political repercussions.

...Debtor-country governments that have obediently complied with the German diktat — notably, Spain, Portugal, and Ireland — suddenly feel very exposed politically. Governments that have mounted a mild challenge to Merkel (think France and Italy) are in a delicate position: They spy an opportunity to advance their own agenda, while fearing that they may be outflanked by those with a more radical one. And not without reason; anti-establishment parties of various stripes have the wind in their sails.

Whenever voters throw out a government, as they have done in nearly every election since the crisis began in 2008, officials from Berlin, Brussels, and Frankfurt — whom they did not elect and cannot hold to account — loudly insist that the incoming administration must stick to the failed policies of the outgoing one. Since voting for establishment parties of the center-left or center-right makes little difference, it’s hardly surprising that voters are seeking a genuine alternative. And for the moment this exists only on the extremes.

Sometimes, as in Greece and Spain, the insurgents are on the radical left. In Ireland, which is not due to vote until next year, Sinn Féin, a left-wing party that was formerly the political wing of the Irish Republican Army, has a narrow lead in the polls. In other cases, the upstarts are on the far-right. In France, Marine Le Pen’s racist National Front is out in front,winning by-elections and pulling ahead in polls for the 2017 presidential election. In Italy, where reformist Prime Minister Matteo Renzi remains popular, all three main opposition parties — the far-right Northern League, the anti-establishment Five Star Movement, and former prime minister Silvio Berlusconi’s center-right Forza Italia — are now anti-euro.

Meanwhile, The Tyee's Crawford Killian ponders whether Canada's politically disaffected could provide the core for our own version of Syrzia or Podemos.

Radical or not, Syriza and Podemos pose a powerful challenge to the narrow centre-right spectrum of acceptable thought. That could encourage some of our cautious Liberals and New Democrats to try out some ideas that are radical only by comparison with the dull orthodoxy of Stephen Harper. If they do, they might find that many Canadians are way ahead of them -- including the two out of five who didn't even bother to vote in the last election.

I agree.  The Liberals and the New Democrats too easily threw in the towel to embrace market fundamentalism and an unhealthy degree of neoliberalism as though these were inevitabilities.  In their unseemly quest for power (NDP) and redemption (LPC) both have abandoned the progressive Left.  They might both do well to lift their eyes, take a look around, and mend their ways.