The Great Failure of Neoliberalism
“Whoever designed the Obama administration’s bank rescue plan is either in the pocket of the banks or they’re incompetent.”
- Economist Joseph Stiglitz
The 2008 crisis proved beyond denial that the neoliberal economists, with their complex mathematical models, had no understanding of what was actually happening in the financial system. Inexplicably, the Democrats kept them in positions of influence allowing them to design the solutions. Their great achievement was the 849 page Dodd Frank Act-which should be compared to the 37 page and effective Glass Steagall.
* FDR’s solutions laid the foundation for greater economic equality, including the rural areas.
* The Gini coefficient steadily declined to 1970
* The Obama led Democrat’s solutions saved the economy, but only for the upper income earners on the coastal areas.
* The Gini coefficient remained above the 40% mark.
Inescapable Debt
In Serfs Up; Finance, Feudalism And Fascism (p74) , economist Gregory A. Daneke observes that, “When Ronald Reagan took office, the US was the world’s largest creditor nation, and when he left, the largest debtor. His ‘supply side’ economics [a tenet of neoliberalism] had tripled the debt”.
Statista journalist Katharina Buchholz captured the situation in the title to her article:
U.S. Debt Rises Irrespective of Who Is in the White House. In the chart she uses for that piece US debt starts to climb in 1981. Reagan took office in that year. But it didn’t matter. There was no choice between the parties. The Democrats had accepted neoliberalism as wholeheartedly as Regan. This unity was called the ‘Washington Consensus’.
The same pattern was happening as household debt rose with the rise of neoliberalism.
In an article for The Centre for Economic Policy Research (CEPR), economists Moritz Kuhn, Moritz Schularick and Alina Bartscher first note, “ American household debt has skyrocketed in the past seven decades. The household debt-to-income ratio stood at 30% at the end of WWII. It peaked at close to 120% in the wake of the last financial crisis (Jordà et al. 2017)”. The graph from their article is below. Note the increasing upward movement after 1970.
Their research found that the middle class is taking on much of this debt through home equity lines of credit. Historically, the family home had been the primary means by which the middle class transferred wealth down the generations. Now with less to inherit, the millennial middle-class of the future will be further hollowed out.
A large group of white rural voters had recognized that the Republicans were doing nothing to help them in their financial desperation. They had voted for Obama and hope.
The Democrats failed these voters, so they’ve sought a savior.
Democracy had also failed them. In their eyes, the urban coastal people are voting in politicians who benefit only the privileged urban college educated. The fly over state voters now openly speak of resorting to violence to overthrow democracy and install their savior in the presidency to rule as an autocrat.
They now firmly believe that the system is rigged. And they are correct, but they don’t know who is rigging it.
The concentration of so much wealth in the hands of a few has transformed America from a democracy to an oligarchy ruled by the super-rich campaign donors who control a significant number of politicians.
The neoliberal economists have delivered for the US oligarchs. That explains why, when they were proven so wrong in 2008, the neoliberal economists were kept in place to do the reforms- and their values continue to determine policy today.
Let’s look at a few of their most harmful myths that the neoliberals have successfully convinced a massive number of Americans are true:
* Tax cuts for the rich benefit the working class by creating more jobs. But they are low paying jobs. When taxes were high on the rich, the average person could afford a home and had minimal debt-and the rich didn’t flee the country. When taxes were lowered for the rich, national debt began to soar. The workers through higher taxes are paying the interest which goes to the wealthy further increasing economic inequality.
* America is the land of opportunity: the poor are poor because they are lazy. Social welfare should be absolutely minimal to force these entitled welfare cows to work. To the contrary, multiple studies on universal basic income (UBI) have shown that if the marginal citizens are given sufficient income, they use it to improve themselves and lift out of poverty. See: Universal Basic Income Has Been Tested Repeatedly. It Works. Will America Ever Embrace It?
* Socialism is a word that can cause intellectual brain freeze. The neoliberals have conditioned numberless Americans that when they hear the word, fearful images immediately pop up in their mind of three families living in a three bedroom apartment with poor plumbing, like Russia in the 1950s. The fact that all the other develop nations have socialized programs alongside capitalism to reduce some of its predatory aspects cannot enter their minds. Policies of Progressives like Bernie Sanders are 100 years behind the socialist policies of most other development nations. For example, they have all had single payer Medicare for nearly 100 years.
Having been very critical of the mainstream economist, I must mention that there are many economists who are also critical of their neoliberal colleagues. I’ve quoted a number of those in this series. But the government and the media do not listen to them.
What Can Be Done?
The only hope to break the hold of the American oligarchs is to elect politicians who refuse to take donations from them. Voters can ask each candidate at the primaries if they will agree to refuse to accept donations above $5000 from any one source.
Some politicians will worry that this is too idealistic in our imperfect world. Yet, that commitment can be their primary and truly distinguishing message. Along with exposing huge donations to their opponent from the oligarchs that allow multiple ads for manipulation- with consequential obligations to the large donors.
The last word goes to Milton Freeman:
“Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around”.
“The ideas that are lying around “. What happens in a time of crisis all depends on the groundwork that’s been laid. Will enough people make the effort to understand how the corporate, banking and tax systems are used for the upper transfer of wealth, or will the next crisis be like 2008 with an Occupy Wall Street like movement that knew something was very wrong, but didn’t understand what, so inequality was made worse by the reforms.
Acknowledgement: Composite graphic by Mary Parsons for The American Prospect
Originally published at https://jandweir.substack.com.
