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Friday, May 13, 2016

Neoliberalism: the Left’s Eternal Boogeyman

Pyromaniacs in a Field of Straw Men

In a recent article published by the Guardian, George Monbiot claims that the political philosophy of economists F.A. Hayek and Milton Friedman — what he pejoratively calls “neoliberalism” — is “at the root of all our problems.”

Monbiot notes correctly that liberal economists are generally in favor of free markets and minimal government intervention in the economy. However, he also makes some rather weird claims that make you wonder if he has actually read people whose ideas he’s criticizing. For example, he claims that “neoliberals” like Hayek and Friedman believe that “inequality is … virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive.”

This is misleading. In Capitalism and Freedom (1962), Milton Friedman wrote that “special monopoly privileges granted by government, tariffs, and other legal enactments benefiting particular groups, are a source of inequality. The removal of these, the liberal will welcome.” He also wrote, “The extension and widening of educational opportunities has been a major factor tending to reduce inequalities. Measures such as these have the operational virtue that they strike at the sources of inequality rather than simply alleviating the symptoms.”

F.A. Hayek similarly wrote in The Road to Serfdom (1944) that there is a “strong case for reducing inequality of opportunity as far as congenital differences permit and as it is possible to do so without destroying the impersonal character of the process by which everybody has to take his chance and no person’s view about what is right and desirable overrules that of others.”

“Neo” — really, classical — liberals do not celebrate inequality as “virtuous” and inherently good. They prefer to reduce some sources of inequality by expanding economic opportunity and removing legal privileges and monopolies that benefit the few at the expense of the many.

On the other hand, the principle means by which the left wishes to reduce inequality is through progressive taxation and wealth redistribution, which classical liberals generally oppose, on the grounds that, as Friedman put it, “using coercion to take from some in order to give to others … conflicts head-on with individual freedom.”

Perhaps Monbiot has mistaken classical liberal hesitation to support coercive redistribution with opposition to a more equal society per se. He claims “neoliberals” believe “the market ensures that everyone gets what they deserve,” and “If you don’t have a job it’s because you are unenterprising… If your credit card is maxed out, you’re feckless and improvident… If your children no longer have a school playing field: if they get fat, it’s your fault.”

From where exactly did he conjure this impression? It certainly wasn’t from anything Hayek or Friedman actually wrote. In The Road to Serfdom, Hayek argued that a person’s success in the market economy “depends at least partly on the ability and enterprise of the people concerned and partly on unforeseeable circumstances,” and that “in a competitive society it is no slight to a person, no offence to his dignity, to be told by any particular firm that it has no need for his services, or that it cannot offer him a better job.”

If Friedman and Hayek believed that the market always ensured that people got what they “deserved,” why did they also support measures “supplementary to the market system” to provide universal guarantees of economic security? In The Road to Serfdom, Hayek bluntly stated,

In a society that has reached the general level of wealth which ours has attained … some minimum of food, shelter and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody. Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision.

Similarly, in a 1951 article, Milton Friedman wrote, “Our humanitarian sentiments demand that some provision should be made for those who draw blanks in the lottery of life,” and “there is justification in trying to achieve a minimum income for all.” In Capitalism and Freedom, he proposed a negative income tax as a means to achieve that goal. Monbiot really should have known this, since he links to this very article in his own piece.

Nonetheless, Monbiot proclaims, “As it evolved, neoliberalism became more strident. Hayek’s view that governments should regulate competition to prevent monopolies from forming gave way — among American apostles such as Milton Friedman — to the belief that monopoly power could be seen as a reward for efficiency.”

But in the 1951 article cited by Monbiot, Friedman wrote that advocates of laissez-faire had “underestimated the danger that private individuals could, through agreement and combination, usurp power and effectively limit the freedom of other individuals,” and that he personally believed that it was the state’s role to “establish conditions favorable to competition and prevent monopoly.”

After misrepresenting the views and philosophy of Hayek and Friedman, he then absurdly attempts to tie “neoliberalism” to fascism, totalitarianism, and political violence.

He approvingly cites Naomi Klein’s debunked assertions that free market reforms are so unpopular they have to be forced upon people by violent dictators — apparently unaware of research published in the American Economics Journal that found democracies are much more likely to undergo economic liberalization than non-democracies.

Research by economists Indra de Soysa and Krishna Chaitanya Vadlammanati also concludes that “using the best available data and empirical methods, we find positive effects of market-economic policy reforms on government respect for human rights,” and their results “vindicate those who find positive effects of free markets on economic development and other measures of social welfare.”

Klein and Monbiot are also apparently unaware (or unwilling to admit) that the supposedly “socialist” Scandinavian countries they fancy are actually “among the frontrunners in liberalization” — at least according to actual economists in Scandinavia. Sweden, for example, adopted a successful universal school choice system in the 1990s that is nearly identical to the system proposed by Milton Friedman his classic 1955 essay “The Role of Government in Education.”

Monbiot then attempts to link “neoliberalism” to fascism by blaming it for the rise of Donald Trump, because “neoliberals” in the political establishment have supposedly alienated voters and sent them into the arms of demagogues like Trump, who will then push the political system towards fascism.

There is no evidence for any of this. Hayek and Friedman are certainly not the guiding lights of today’s Republican or Democratic political establishments, and it’s laughable to argue that Trump supporters are upset by some nonexistent wave of “neoliberal” deregulation. Monbiot also fails to note that the populist backlash driving Trump’s campaign is the same fuel propelling the rise of Bernie Sanders. Are Hayek and Friedman to blame for every contemporary populist uprising?

Of course not. The great classical liberal economists of the 20th century provided an ethical, nuanced, and empirically rigorous defense of free market capitalism at a time when central planning and totalitarian ideologies were sweeping the globe. Liberals in the West owe them a huge debt, but unfortunately, they are defaulting on their obligation.


Find a Portuguese translation of this article here.

  • Corey Iacono is a Master of Business graduate student at the University of Rhode Island with a bachelor's degree in Pharmaceutical Science and a minor in Economics.