Martin Sandbu recounted 20 years of neoliberal failure in the FT yesterday under the headline:
The west's 20 years of policy self-harm
As he noted:
The crisis itself only happened because of the huge build-up of debt that policymakers treated with reprehensible neglect.
He added:
With huge cross-border credit growth, of course, came huge domestic credit growth. It bears mentioning that this growth was largely in private credit – governments were not particularly profligate, though some had hangovers over legacy debt and, in a crisis, private debts usually end up in public balance sheets anyway. But it was clearly a policy error to allow private credit at this scale: we now know that beyond a certain point, more private credit (whether a higher level or faster growth) is harmful for economic growth and an indicator of a looming financial crisis.
And as he noted:
And we know this not from the sworn enemies of the financial sector, but from such stalwarts of the liberal economic order as the IMF, the OECD and the BIS.
I usually refer to them as the hotbeds of international socialism when I make the same point when speaking in public.
But this was only the start of the error-driven policy. He then says:
After the welcome outburst of good policy in 2008-09, which arrested the downturn and triggered an initially strong recovery, the mistakes continued. In the US and Europe alike, fiscal stimulus was reversed and monetary stimulus was never pushed to the limit, and was sometimes prematurely withdrawn. The result was slower growth and lower economic activity than would have been achievable, manifest in less than full employment almost everywhere.
In other words, Keynesian policy worked in 2008-09 and thereafter austerity totally failed to deliver.
And this does not just have serious economic ramifications, although that is true. He then notes:
These economic policy mistakes matter beyond the trillions lost in economic value. They are also political mistakes. Economists have shown empirically that financial crises as a rule strengthen hard-right extremes and erode the political centre.
That is, of course, what is happening.
It is good to see such facts being noted in the FT. But it is depressing that Sandbu is not optimistic of the chances of political change. And that's what is really needed.
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I have only one contention with the article and that is a lot more than 20 years. I am 53 and I have lived under the Neo-lib yolk since before I left school. And I’m sick of it.
Certainly feels like 40 years to me.
Absolutely. The history of neo-liberalism in the UK can trace this back to 1976 and Healey’s speech to the T.U.C trying to speak over the shouts and heckling. healy was later to explicitly state that governments were in the thrall of financial markets. he moved the Labour Party to the Right. The housing bubble goes back to 1971 when the more or less unbroken stability of real house prices started to bubble for the first time since the War – the rest is a disastrous history of rentier rapine, a dmaged and stressed society and incredible political volatility that is deeply worrying.
I’d guess at 1970 with the import of hard-hat ex-pat managers and the cap-in-hand visit to the IMF in 76 (due to dud accounting) for the neo-liberalism. There were a lot of isms in that decade. Even Thatcherism started before her rise to PM. The academy went postmodern to evade all blame and business schools “bloomed” to teach excellence, kwality, financial engineering and boot-boy human resource management.
As it’s behind the FT pay-wall I’ve not read the entirety of Martin Sandu’s article, but based on your selected quotes it’s seems he doesn’t understand the how & why of the Neo-liberal project, leading to where we are today; (what’s troubling is his cv: ” ….he worked in academia and policy consulting. He has taught and carried out research at Harvard, Columbia and the Wharton School, and has advised governments and NGOs on natural resources and economic development. He is the author of two books, one on business ethics and one on the eurozone, and has degrees from Oxford and Harvard.”)
It’s not really rocket-science for anyone with an objective & inquisitive mind. As most of your contributors know, the roots of the Neo-liberal project, and its subsequent societal (often criminal) damage, go back a lot longer than 20 years Austerity is just one of the tools recommended in its handbook of how to control society.
However, I agree with his conclusion that for the host to eliminate this parasite (ref.Michael Hudson) is going to be excruciatingly difficult and painful, with those least able to endure the pain being the most affected, as always. As you conclude, and as has been articulated here for many years, what’s needed for the survival of communities and planet is a ‘brand new politics’ – making a radical break from all that has preceded since the Industrial Revolution. One can only hope and pray that such systemic change can be achieved with the minimum of violence. But I fear there will be increasing outbreaks – especially in Latin America which has borne the brunt of Neo-liberalism for the past 40+ years – and in the USA, where both major parties are wedded to Neo-liberal ideology.
And as for the UK and continental Europe, I can’t see any evidence of significant resistance to Neo-liberalism – not even in the more progressive Nordic states. They’re just better at mitigating its worst effects, essentially via Keynesianism wedded to their national cultures; but even this more enlightened approach won’t save the planet nor deliver socio-economic justice fairly for the 80%. We’ve stretched the elastic almost as far as it will go.
I’ve already said more than intended but, of course, it’s the most important issue confronting society possibly since recorded history. For the first time a small group of people have the ability to either blow up our planetary home literally via atomic weaponry or by a process of gradual destruction (physical and economic) past a point of no return. The frustration is being able to stop and then reverse this potentially cataclysmic trend. The ensuing chaos – which we’re starting to witness – provides a platform for neo-Fascists, like Bolsanaro, to step in with nativist ‘solutions’.
Enough rambling. I’m hoping that many more informed responses will be posted as I’m just a boring old arm-chair critic who finds politics and macro-economics more interesting than soccer 🙂
For the FT he’s remarkably on the ball I would say
And I think he does get it
“…After the welcome outburst of good policy in 2008-09, which arrested the downturn and triggered an initially strong recovery,”
Nice to see that getting a mention. The mainstream narrative entirely ignores this, to the extent it now didn’t happen at all. History rewritten. Inconvenient facts removed from the record. Very Nineteen Eighty Four.
Pity the Labour party never thought it worthwhile to make the case and mutely accepted the blame for causing the 2007/8 crash and the Tories being the ones to have repaired the damage.
Big enough lie, repeated often enough,…….. always works.
Its the unconsciousness of the neo-lib scourge that bothers me. Classical paradigm rendering business and politics “unconsciously incompetent” at operating economically for the good of all. How to raise this consciousness is the big challenge; to point to the symptoms as indicators, e.g. in business it would be bonuses, PRP etc., in politics it would be lack of MMT and, at the operational level, targets and commissions, and outsourcing etc.
Even some unions apply bonus policies, which is beyond me. That indicates the level of unconsciousness.
We need to help people see the link between current capitalist norms and the misery.