Neoliberalism has dominated economics and politics for 45 years, despite being based on nothing more than myths, falsehoods, and fantasies that should have discredited the cult promoting it long ago.
This is the audio version, which will not, for reasons I cannot explain, embed this morning. Apologies for that.
This is the transcript:
Neoliberal economics is a work of fiction.
I talk about neoliberal economics quite a lot on this channel, but I realised that I hadn't really put together a video which explains just exactly what I'm talking about and why I think that this whole political ideology and economic theory is based upon a load of twaddle - a technical term - but which I think is appropriate and better than some other words I could have chosen.
There are two strands to this. The first is that we have to look at neoclassical economics and what it has assumed, and then at neoliberal economics and what it has developed from neoclassical economics, and as a consequence, we can draw some conclusions. But we shouldn't see these two strands of thought as isolated from each other because neoliberal economics is the inevitable development of neoclassical economics, and neoclassical economics has been around for a long time, which does not mean that it is in any shape or form right.
So let's go back to that neoclassical economics, something that really developed perhaps with somebody called Alfred Marshall, and in all the theories that followed throughout the 20th century there was developed a type of economics that was essentially deeply, supposedly rational, on the basis that economists wanted to turn their subject into a science, and a science required that they should be able to mathematically manipulate data in a way that they thought could create predictable outcomes, and as a consequence, they needed to put in place a series of assumptions about the behavior of people on which they could build their analysis.
And this is what I'm talking about when I come to the point of saying neoclassical and neoliberal economics are twaddle, because the assumptions that underpin both of them are quite frankly absurd.
Let's look at Neoclassical economics first. The first thing that Neoclassical economics says, and this is driven by its need for a rational mathematical model, is that we ourselves are rational beings. It says we will always seek to maximise our well-being, even though I don't think you've probably ever thought that way.
I bet there have been moments in your life when you have thought, I don't want to do this, or I don't know what to do. I don't know what choice to make. But that doesn't matter. An economist will assume that you did know and that you were rational, and that you always made the right choice based upon the data that was available to you.
And this will also be true of companies, who have never made a mistake because they, too, are always rational, using information in a totally structured and rational way so that the possibility of error is eliminated. This is absurd.
So, too, is the idea that if we behave in this way, we move towards a state of what is called equilibrium. Equilibrium is an optimal situation where our well-being has been maximised; where we are in the best position in which we might be; where we could not change anything and marginally improve our position.
And that word marginal is quite important because the maths that underpins this works out if we can make an incremental change that will marginally improve our position, or not, and if we can't find such a change, then we are at a point of equilibrium. We are, if you like, at the top of the hill, and there is no further we can go. The chart has reached the best point it can reach. That is what equilibrium represents.
And supposedly it is stable. In other words, once we get there, things are going to remain good.
I guarantee you that you do not relate to this experience. I bet you do not think that you are in the best possible place you could be right now. I doubt that you can ever remember a place like that for more than a moment or two. It may have happened on the odd occasion during the course of your life that you have thought, "I am euphoric. This is wonderful. I am at a point of bliss." But it didn't last, because it never does.
This idea of equilibrium is absurd. It is alien to human behaviour. We literally can't understand what bliss, happiness or whatever else we wish to call it is, unless we also know what unhappiness and stress and all those other things are. We live in a world where we understand well-being because we aren't always in that state, and yet economists assume we can be. That is absurd.
They also assume that this point is reached when there is something called perfect competition. Markets then assist us to become optimal in our behaviour by offering us perfect choices because there are any number of competitors in the marketplace between whom we can choose and who provide us with perfect information about the products that they make available so that we can make a rational choice on which one we want to buy. And if somebody comes up with a good idea that they wish to sell in the marketplace, they will get access to all the capital they need to bring it to market to expand our choice in the way they want.
Is that how you think markets work?
Do you think that anybody could set up a new search engine tomorrow and challenge Google, and around the world, the whole world will be made aware of it immediately? No, of course that's not true.
Do you have a free choice of which water company you buy from in the UK? No, you don't. You have no choice at all.
How many supermarkets can you really choose between, given that you don't want to drive miles to reach one? Not many.
When you get there, do you find free choice or do you find the same brands in every supermarket? You find the same brands.
The point is, this idea of perfect competition and free entry into the market is completely absurd.
There is no such thing as perfect competition.
There is no such thing as perfect knowledge.
There is no perfect access to capital so that new competitors can enter into marketplaces as they wish. It just does not happen.
So this is quite crazy. You cannot do that. You cannot therefore profit maximise because there are barriers that prevent you from doing so. However good your idea, you may not be able to put it into the marketplace and therefore make a profit.
And we can't utility maximise as the economists would have it because there are barriers, because there isn't perfect competition. We are not offered the choices we need. Nor do we have the information that we require to make perfect choices. And even if we did, we don't want to spend all our life thinking about what we want to consume. There are other things to think about as well, thankfully.
So all of this comes up with a logic which is quite ridiculous, despite which it is assumed that our preferences are stable. Now, economists are incredibly keen on this idea. Once we have made a choice, we won't change it. As I've always said to my students, you will, in 2037, go into a pizza restaurant and order the same pizza that you did in 2025, because first of all, it will still be on the menu, and secondly, you will have not changed your mind on what you want to eat in that restaurant between now and then because that's not allowed. Stable preferences require that once you have established your position, you will maintain it. And economists are so sure of this that, actually, when they come to do macroeconomics, they don't even consider individual choice at all. They consider that there is a representative person, a single person with stable preferences who will buy the same thing from now to eternity because they've made up their mind as to what is required, and that is it.
It's as if all that expenditure and advertising will never change our minds on anything.
There will be no new products. There will be no changes. We won't change our preferences over time. We might get bored with putting who knows what - pineapple - on the top of a pizza, if that is your poison, but you will always like it if you did once, apparently.
This is another of those crazy assumptions, and yet, without those assumptions that I've just outlined, none of neoclassical economics works. All its forecasts, all its models, all its maths, everything that they use to predict things; none of them work without those assumptions holding true. And they don't hold true. Not one of them does.
But despite that, neoliberalism took neoclassical economics and then made everything much worse by turning neoclassical economics into not just a new form of economics, but into a political ideology as well.
What did they say? They said, first of all, that free markets are efficient, and that's because there is perfect competition and because everybody has equal access to money and all those other assumptions that are implicit in neoclassical economics, all of which are untrue. They said that if these things held true, then we would end up with the best possible outcome for society by having everything run by markets.
And so as a consequence, they made their next assumption, which is that government must be as small as possible, and we must privatise everything we can and deregulate everything else to the point where markets reign supreme, because that will provide us with optimal outcomes.
Yes. That's worked so well with regard to climate change, and water, and so much else, hasn't it? We all know that's worked to perfection, and yet that is what they believe.
They also believe that everything is our individual responsibility, so we must provide for our healthcare. We must insure for it. We mustn't rely on the state.
We must provide for our children's education. We must not rely on the state.
We must provide for our own pensions. We must not rely on the state.
We must provide for our own housing. The state has no obligation to us.
We must save to provide ourselves with a social safety net in case anything goes wrong or we become long-term sick. We must not rely on the state.
This is our responsibility.
The market must provide, and we must provide. And if it all goes wrong, well, bad luck. That's so sad, but you were so imprudent as to not provide for yourself, even though you didn't have the means to do so. But that just means that it's your fault and not the markets. You were the person daft enough not to make the provision. That is their logic.
And they also believe in global free trade. Which is pretty bizarre when we see what's happening right now with Trump. But he will claim that's exactly what he's trying to do: he would actually say that he's trying to promote global free trade, and it is the barriers that he claims have been put in place by the rest of the world that are preventing it, which he is having to counter with US tariffs to try to create a level playing field between the US and the rest of the world even though the US has the massive advantage of running the world's sole reserve currency, the dollar, which means it doesn't in effect have to pay for half its imports, and yet he has failed to notice that. Global free trade is supposedly the answer to everything, according to the neoliberal, but it clearly doesn't work, and we've actually found that their own politicians are admitting it.
Nor does small government work, of course. Small government is actually the whole Trump agenda. That is why Musk went into all the departments he did and tried to sack as many people as quickly as he could. But all we end up with is chaos, mayhem, confusion, a failure to supply, the removal of the safety net, the removal of education, the undermining of healthcare, and so much else. Small government is actually just designed to penalise the majority of people in the state who need the government to partner them in their lives to ensure they can survive in this world where the odds are stacked against them.
And let's come to the final thing that the neoliberal will believe, and that is that monetarism rules. In other words, interest rate policy must be used to tackle inflation, and it is more important to tackle inflation than to promote full employment. People do not matter; the stability of money does. And why is that? Because the stability of money is essential to make markets operate smoothly in the way that the wealthy think is desirable, and, therefore, we can sacrifice those who haven't got jobs to the altar of the increase in wealth of the already wealthy.
These are the assumptions that neoclassical economics has created within neoliberal economics and which drive our politics. In summary, we have an edifice built upon falsehoods, stupid claims, and facts that can't be supported in practice. Ideologies that have already been shown to fail, and a belief system that is actually more absurd than almost any religion in the world has ever promoted, because this is a belief system.
Neoliberalism and neoclassical economics are belief systems, and the fact is there's no evidence to support them. And that's why they're dangerous, because at some point, someone, somewhere is going to say they have no clothes on, and people are going to believe them, and then will be left without any alternative form of thinking, because perhaps the most dangerous thing of all about neoliberalism is that it is thought that 92% of all economics professors in the world are now of a neoliberal orientation. They believe this nonsense, and they teach this nonsense to undergraduates, and because of that, this is a self-perpetuating hierarchy of power.
But there is no one inside most economics departments in most universities in the world who is thinking about what happens when this fails? What are the alternatives now?
And they do exist. There are, of course, alternative ways of economic thinking. I try to promote them, but they're not out in the mainstream, and that is why it's so dangerous. Not only is neoliberal economics false, and it's provably false, it's also eliminating the competition to maintain its power. And the fact that it's destroying the competition in ideas is probably the most dangerous thing about it.
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Your article is very welcome, Richard.
With respect, and I hope I have understood you correctly, but would it not be more correct to say…
So, too, is the idea that if we [as individuals] behave in this way, [the economy, the collective expression of us all] move[s] towards a state of what is called equilibrium.
Along with much else, the fallacy of sub-system optimisation would appear to undermine that neoliberal fantasy as well. That is, we cannot optimise a system by optimising each of its parts.
It is clear that 92% of economics professors do not live in the real world. Neither do their theories, and it time that we stopped listening to them.
Noted
Agreed.
All I would add is something about ‘perspective’. Neo-liberal is a top down perspective of capital.
The goal of ‘perfect competition’ is the product of minds (the rich) that have more resources than others, better information (because of their position in the market, usually as movers, initiators), preferential treatment on how they move their money around (banking that needs fat fees) and more access to influence the regulatory regime (more political power).
And their reality is sold us everyday as something that we can have too.
Except that we can’t have it, because the rich in being rich are constantly eroding our viability to enhance theirs through rents and their increasing ownership of key areas of society – transport, utilities, education, housing, health, regulatory capture etc.
Did you finish “Late Soviet Britain”?. I thought the argument used by Innes that neo-liberalism is utopian & uses circular logic (page 24) was enough to destroy what passes for neo-lib “foundations”. It was a fantasy from the start & the results are around us now & can be seen by all. What is missing (in the media) is making the link between neo-liberalism/Thatcher/Tory party and the turd that Mrs Miggins sees floating down the river (or the overpriced elec that she pays for).
Neo-lib outcomes are, as I write, destroying the Tory party (good) who mindlessly bought into the fantasy.
I have read that bit
I have skimmed it all, I think
Time is a scarce commodity..
The economics of selfishness. Maximise the benefit of the individual. but that is often at a cost to others. The reality is we are all interconnected and we need to co-operate.
The worse aspect of neo-liberalism is that it commodifies not only goods but people as well and loses sight of what is valuable in terms other than money.
We look forward to your book.
Does’nt neoclassical economics account for imperfect competition and market failure? Doesn’t it account for monopolistic or oligopolistic price setting? Doesn’t it account for various theories of the firm other than profit maximisation (work of Marris, Simon, Coase etc etc) The list goes on..or am I imagining all of this and more when I studied it at the LSE 20 odd years ago? It seems you are at your disingenuous best yet again you little terror!
It treats them as imperfections to be corrected, not the norms and realities.
You were, very obviously, very effectively brainwashed.
For the continuing edification of @Stephen
Similar refutation by Richard Werner, Professor of Banking and Economics
All 8 axioms of economic equilibrium being valid have a ~1% chance at 45min 23 s:
https://tube.childrenshealthdefense.eu/w/da49083e-9742-4b11-bc68-53dcb585d3b9
And a whole book collecting together many of the inconsistencies and anomalies of neoclassical /neoliberal economics is Debunking Economics by Steve Keen, heterodox economist.
A short youtube summary of the book :
https://www.youtube.com/watch?v=eNJSeWlw8a8
George Monbiot in a recent 4 part interview on economics / politics :
What is Neoliberalism? – George Monbiot (Part 3)
https://www.youtube.com/watch?v=v5ry7IbHPeQ
Thanks
Might Neo-liberalism be false because it is constructed on the false premise of reification?
Might one of our chief concerns be the negation of reification?
[From T. W. Adorno]
I couldn’t help thinking “Pangloss” during your eye opening explanation of the economic models we are forced to endure.
Wes Streeting hasn’t quite abandoned neoliberal economics yet…
https://www.theguardian.com/society/2025/may/06/wes-streeting-pledges-83m-extra-gp-appointments-funded-by-tax-rises
He still thinks he needs taxes to finance gov’t spending. He’s going to lie his way through a major speech today, to counter Reform criticisms about the NI rises.
He does not think
He’s been indoctrinated
Most economists work within the financial sector, the neo-liberal model is vital to allow the financial sector to extract wealth/asset strip so to get on within the economics profession, professing belief in neo liberal economics is vital. The financial sector also funds academic posts, so they get the economics academics they pay for.
Also economic models assume is that economic entities stay within the law and transgressors are punished. In reality, Large companies/rich entities bend or disobey laws, often with the connivance of pliant governments, the UK water industry is a case in point.
Furthermore rich entities lobby and influence the lawmaking process and make or change laws or get exemptions to allow them to get richer at the expense of others and the environment.
Thanks.
You’ve mentioned that the so-called optimal equilibrium point is predicated on motivations of economic maximisation (for individuals and companies). Of course some folk care about other things…. And imperfections in regulation means that the cost of businesses (like environmental pollution, sub-standard construction), encourages the greedy to behave differently from any optimum model anyway.
It seems all the realistic pressures are all serving to deviate from this so-called optimal operating point.
Of course, economics can never be scientific in its predictions (like, say, classical physics tried to be) …. But it doesn’t even seem to fit retrospective application of its models.
Further, neolibs insist on (ideological) assumptions (on money, for example) that are contrary to empirical evidence….
I guess I don’t mind rough models to help guide in the absence of anything better….. But we’re using these fundamentally flawed models to justify ideological destruction (of people, society, environment and our planet). Yet it is knowingly flawed at so many levels.
“How many supermarkets can you really choose between, given that you don’t want to drive miles to reach one? Not many.
“When you get there, do you find free choice or do you find the same brands in every supermarket?”
I’m probably unusual, but I shop in every supermarket and they are all within a short bus ride. And, yes, they do have a selection of different brands (admittedly limited), which is one of the reasons I use all of them, so that I can choose my favourite products. What’s more I have loyalty cards for all the supermarkets even though I am one of the most disloyal cutomers around. One week I use Tesco, the next Sainsbury’s, the next Asda, interspersed with Waitrose (walking distance), Lidl, Aldi and very occsionally M&S, Morrisons and Co-op (opposite my flat).
How about including a chapter on the rise of Neoliberalism from Mont Pellerin through Hayek, Friedman, IEA, Thatcher/Reagan in your new book?
Noted
But this book is solution focussed, we know the problems.
Sounds alluring. Can’t wait. I just hope your publisher likes the theme.
What I would add is that neoliberalism is full of bad faith arguments. It’s easy, for example, to expose the hypocrisy of big business evangelists for free markets, by suggesting we ditch intellectual property regulation: suddenly they all turn into draconian and litigious regulators – and in any case, it’s blindingly obvious that no market can work at all without huge regulatory (state) infrastructure – contract law, for example – let alone automatically adapt to disasters like climate-ecological breakdown that are decades or centuries in the making.
I wonder how many of that 92% of economics professors that are now of a neoliberal orientation occupy chairs or ‘schools’ funded by that big business bad faith ?
For those who really want to dig deep on I suggest to read the late work by Jon Elster. He once was a believer and tried to explain everything by rational choice and expectations. Yet as he looked, he grew and became aware that he couldn’t. As human beings, we all strive to be rational. Yet we carry emotions inside us and our desire for rationality is always mediated by emotion. The source of these emotions do not know our best interests. They know nothing.
Neoliberalism has one aim profit before people, that benefits the very wealthy.
It misleads in order to justify its aims, and will not think twice about exploitation and poor health and safety.
The evidence is overwhelming: extortionate healthcare costs, or die.
“Free” trade, where “free” means the freedom of corporations to exploit, and ignore health and safety.
Recommended reading:
The Invisible Doctrine: The Secret History of Neoliberalism (& How It Came to Control Your Life), by George Monbiot and Peter Hutchison (2024) https://amzn.eu/d/cGFfsfk
Thanks
Thank you for this illuminating blog.
As a biologist it reminds me of the attempts to reduce descriptions of living processes to something that can like physics be explained in mathematical terms. That whole approach turned out not to be very useful, largely because things aren’t in equilibrium. The only time an organism is at equilibruim is when it is dead, while it is alive it depends on a source of energy (ultimately but often indirectly from the sun) which is also constantly dissipated.
It sounds as if economists have made a similar optimistic attempt to reduce a complex process to equations. Quite apart from the unrealistic simplifying assumptions it is probably doomed to failure for the same reason that it is a dynamic process, there isn’t an equilibrium such that the two sides of a mathematical equation are in stable balance. In that case presumably the constant source of input is human effort (without which even geological raw materials wouldn’t be available) with the economic value ultimately being dissipated with the production of non-recyclable end products.
There is a well known saying that all models are wrong but at least some are useful. It seems that current politics uses an economic model that is neither right nor useful.
100% agreed
Neoliberalism seems to me to be the economic equivalent of leaving one rifle unloaded so that the firing squad can tell themselves that they were the ones who didn’t kill anyone.
Advertising has been based on the manipulation of emotions, creating irrational behaviour since the behaviourists in the 30s showed how to use conditioning to gull the public. It still us, linking positive emotion to product/brand. Kahneman and Tversky got a Nobel for demonstrating the irrationality of human thought. How the hell can economists stagger on with rationality at the heart of their enterprise? It’s a cult, surely?
It is a cult
I’ve actually studied Mankiw’s “Principles of Macreconomics” and the best word I could use to describe its contents is – “dishonest”.
Do these economists actually believe this guff?
They claimn to do so
But they live in their own little bubble, like Westminster politicians
Neoliberalism isn’t some natural law. I found Graeber and Wengrow’s book ‘The Dawn of Everything’ inspiring. In it, they highlight the varied, non-linear ways that societies in the distant past chose to conduct their political and economic affairs. As Graeber has famously stated: ‘The ultimate hidden truth of the world is that it is something that we make, and could just as easily make differently.’
I have no problem with the Neoliberal model…. as a starting point. After all, you have to start somewhere.
The trouble starts when you fail to check your model against reality…. or worse, ignore the bits of reality that fail to fit the model.
This is a problem everywhere – human beings are terrible at neutral observation…. they always have a preconceived view. Yes, and that includes me, too. Luckily, I have kids who will call me out when I am wrong!
Well, there’s an explanation of what I as a non economist concluded many years ago; economic theory is not fit for purpose. We need a new one for an age of planetary limited resources and we are running out of time. Donuts anybody?
The donut theory is interesting, but far too limited tok be of macro use, I am afraid.
This is all good stuff
https://goodlife.leeds.ac.uk/national-snapshots/countries/
It a relatively new framework, it needs detail plugging in
For macro use – why not add some detail to it yourself?
Two observations and a joke
(1) A lot of the theory isnt used, in practice there is a rapacious persuit of monopoly, putting people out of work isnt competition it piracy. IBM consultant (used to) do a class on competition is based entirely on Porter – how to create barrier to entry etc.
And all the leveraged buyouts that put the debt on the business…
And….
(2) You are pessimistic (I get it) but there are challenge to conventional economics amongst those studying it (soem of this is a bit old now but the follow ups still happening)
The FT reports on protests by economics students
https://www.ft.com/content/dfd84240-dcd5-11e3-ba13-00144feabdc0
What happened next https://www.rethinkeconomics.org
Sites pursuing alternative economics https://evonomics.com and https://neweconomics.org
These ideas need to be kept alive until they cease to be impractical a become politicaly inevitable (now who am I paraphrasing).
(3) I’m sure you heard this before. Three people on desert island with nothing but a tin of beans. What shall we do?
Scientist – build a fire, put the beans on the tin will burst – we can get the beans
Engineer – get practical we need to build a cover so we can catch the beans as the tin burst
They turn to the Economist, your a bright guy any better ideas?
Economist – first let us assume we have a tin opener.
Don’t get down hearted you do good work. As Churchill said “Keep buggering on”
I will…