The Guardian has a mostly terrific article Neoliberalism – the ideology at the root of all our problems.
So pervasive has neoliberalism become that we seldom even recognise it as an ideology. We appear to accept the proposition that this utopian, millenarian faith describes a neutral force; a kind of biological law, like Darwin’s theory of evolution. But the philosophy arose as a conscious attempt to reshape human life and shift the locus of power.
The history this article provides may be eye opening to those who didn’t live through neoliberalism’s ascendancy or didn’t understand its flaws.
The article does go seriously off the rails when it talks about the failures of John Maynard Keynes’ “general theory of employment interest and money.”
But in the 1970s, when Keynesian policies began to fall apart and economic crises struck on both sides of the Atlantic, neoliberal ideas began to enter the mainstream.
Every invocation of Lord Keynes is an admission of failure. To propose Keynesian solutions to the crises of the 21st century is to ignore three obvious problems. It is hard to mobilise people around old ideas; the flaws exposed in the 70s have not gone away; and, most importantly, they have nothing to say about our gravest predicament: the environmental crisis. Keynesianism works by stimulating consumer demand to promote economic growth. Consumer demand and economic growth are the motors of environmental destruction.
The trouble of the 1970s was not a failure of Keynesian policies, it was a failure to realize what Keynes’ theories demanded in the situation. At the time, people were saying that you cannot have a policy of “guns and butter” or it would cause inflation according to Keynes. This proved to be exactly right, as the “guns and butter” policy of fighting the Vietnam War and trying to fight a war on poverty at the same time proved to be impossible. With the rise of the oil cartel, OPEC, it became impossible to get inflation back under control. In the 1980s, Ronald Reagan applied Keynesian theory to stop inflation. He brought on a huge recession, people cut way back on purchases of petroleum based products, and the power of OPEC was broken.
I don’t know what flaws in Keynesianism were exposed in the 1970s. It seemed to me to work perfectly well. Even Richard Nixon helped free up the application of Keynesian theory by taking us off the gold standard around 1972. Some theorists are only now trying to explain the policy options that Nixon (perhaps unknowingly) opened up to us. Neoliberalism does not want us to use those options if it means fairly distributing wealth.
Keynesian Theory explains how the economic cycle works, and explains the causes and cures for the ups and downs of the cycle. With problems of global warming we now know that we have to be careful about the consequences of economic growth. As we learn how to fairly distribute the fruits of economic growth to all the people of the world, Keynesian Theory will still tell us how to control that growth. Other theories will need to be developed to figure out how to channel that growth onto environmentally non-destructive paths, but Keynesian theory will still tell us how to control economic cycles.