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Sunday, April 22, 2007

What is Neoliberalism?

Ezra Klein on neoliberalism followed by parts of "A Neoliberal's Manifesto":

A Neoliberal Education. An interview by Ezra Klein, Washington Monthly: In his March 11 column, David Brooks of the New York Times declared that neoliberalism is dead. ... Good riddance, was more or less the swift response from a host of liberal bloggers, such as the American Prospect’s Ezra Klein. “Substantively, [neoliberalism] didn’t move the country very far forward at all,” he wrote ..., associating neoliberalism with Rubinomics and the “glittering vision” of NAFTA’s backers. Neoliberalism’s lasting legacy, he went on to say, “will be the elevation of counterintuitive argumentation and sardonic detachment in the press corps.”

This characterization somewhat dismayed the Washington Monthly’s editor in chief, Paul Glastris, because neoliberalism is a subject close to the magazine’s historical heart. The term ... was coined by the magazine’s founder, Charles Peters, in the late 1970s, and many of the ideology’s founding disciples were the young editors who worked at the magazine in the 1970s and 1980s, including Taylor Branch, Nicholas Lemann, James Fallows, Mickey Kaus, and Jonathan Alter. Later, Katherine Boo and James Bennet came along, as did Jon Meacham and Jason DeParle. In an effort to persuade the liberal blogosphere that neoliberalism is not, in fact, synonymous with pro-market, K Street–friendly centrism, we republished Peters’s 1983 article, “A Neoliberal’s Manifesto,” online, and asked Ezra Klein to read it. Recently, Klein sat down with Peters ... to discuss neoliberalism’s past, present, and future.

Ezra Klein: This essay, “A Neoliberal’s Manifesto,” is a much clearer explanation of neoliberalism than I’ve seen anywhere else. You write, “We no longer automatically favor unions and big government, or oppose the military and big business. Indeed, in our search for solutions that work we’ve come to distrust all automatic responses, liberal or conservative.”

That struck me as one of the real contributions of neoliberalism. But what has happened, at least to some younger folks like me, is that at times this appears to have become not an honest critique, but a positioning device. The idea that it’s not about the quality of the argument, but the display: you show honesty by attacking Democrats, you show independence by attacking liberals. At times I think that has been a damaging impulse on our side.

Charles Peters: [Laughing] I understand the way you’re feeling. In 2004 Mickey Kaus was savaging Kerry. And I kept telling Mickey, For chrissake man, you’re going to reelect a guy who’s clearly a monster and an idiot. Mickey was right that a lot was wrong with Kerry. But Kerry was still a lot better than Bush. And of course Mickey ultimately took that position. But by that time anybody who had read the column was thoroughly convinced that Kerry was a jerk.

We don’t believe in being different for the sake of being different. We believe in being different when it helps us get to a truth that liberals don’t seem to grasp. One thing we said was that we’re concerned that just as conservatives become automatically pro-religion, Democrats become automatically embarrassed by religion. ... FDR sold the New Deal on the basis of Christian values. That’s a perfect example of what we as neoliberals tried to do. The point about criticizing the teacher’s union is not just to bitch about them, but to get decent education for kids who are being deprived of it by incompetent teachers who are protected by the unions. ...

EK: One of the themes lacing the essay was how the neoliberal critique really took the idea that we need more risk in the economy, that people need to be more free to be entrepreneurs.

CP: In the late seventies, there was this stagnation, and you desperately needed a rebirth of entrepreneurship. The neoliberals can’t take complete credit for this rebirth, because it was happening right as we were calling for it. It began to happen with people like Bill Gates and the Apple guy in their garages. Things were ready to explode. But as in so many revolutions that are desirable, it went too far. All these people got to be concerned not with just having the exciting new business, but with making more and more dough, to the point that it made no sense.

EK: There was also a lot of praise for politicians like Gary Hart and Paul Tsongas, who were making the investor class a focus of the Democratic Party. That’s important for reinvigorating the economy, but somewhat neither here nor there when you’re talking about the risks and the gains for the poor, the less educated, or even the lower middle class. This is a common critique of neoliberalism, that the focus was almost myopically on the middle class, whereas traditional liberalism had focused more on the marginalized.

CP: Well, back then it was so bad, you needed to encourage entrepreneurship. The situation has changed now. There began to be a need to address the terrible excesses of capitalism that occurred, and we began to hammer away at those.

EK: So, do you agree with David Brooks when he talks about the vanishing neoliberal?

CP: I think in many, many areas, the neoliberals, in effect, won. But in some cases we won too much. For instance, the rebirth of capitalism produced such extremes that we then had to turn around and say no, that is wrong. But where we clearly haven’t won is with the government bureaucracy, the teacher’s unions. We have hardly made a dent, and they still have terribly strong power. You have to be able to fire incompetent teachers and incompetent civil servants. ...

EK: The roots of the Monthly and its version of neoliberalism were in the desire to make government work better. You have supported a national health care system for a very long time. That was not something the original neoliberals were afraid of. How did we get to this moment, where everyone thinks neoliberals want to chart a centrist, somewhat conservative course away from liberalism?

CP: Well, I have to say that I think that a lot of people haven’t been reading Charlie Peters and the Washington Monthly, where these ideas were laid out, because then they would know what we believe. I read what people have said recently, and it’s absurd. You know, like, we are anti-tax. Just last month, I pointed out that the lowest unemployment has come when we’ve had the highest taxes. I have defended the estate tax over and over again. And one thing that we helped bring about, that truly represents the neoliberal spirit, is the earned income tax credit.

EK: Do you still worry about entitlement programs?

CP: Oh, in essence, yes. I am a redistributionist. I hate wasting public money on the rich, I hate the agricultural subsidies that go to the rich. It drives me crazy. And I hate wasting Social Security money on the rich... I’ve said many times that, if anything, we want to give more to the poor and take away money from the rich.

EK: Again, the prototypical neoliberal is sounding more liberal than any liberal I know.

There has been a strange generalizing of neoliberalism from the concept which you created, and your magazine nurtured, and it generalized into a sort of antiliberalism on the left. That has caused a lot of confusion.

CP: ...Neoliberalism came out of the journalistic doctrine of the Monthly. This was rooted in part in my experience in the Peace Corps, to find out what we were doing right and wrong in government...

EK: Also, I think that the true Washington Monthly brand of neoliberalism got overtaken by Michael Kinsley and Andrew Sullivan and folks like that at the New Republic, and that became the association. The DLC too, to some degree, but that was incorrect.

CP: I’m very fond of Mike. He’s genuinely brilliant, but I think there has always been a tension between Mike and me, in that I sense he is embarrassed by passion. Mike’s detachment has notably decreased since his marriage and the onset of Parkinson’s, both of which had a pronounced humanizing effect, but his more sardonic imitators have become a major problem in journalism—very bright people who seem too concerned with being bright. ...

Let me backup a bit. First, what problems did Neoliberalism address? What was the reason for the movement? According to the manifesto, Neoliberals believed traditional liberals were unable to address some big national problems "that began to cripple the nation in the 1970s." The problems they saw included "declining productivity; the closed factories and potholed roads that betrayed decaying plants and infrastructure; inefficient and unaccountable public agencies that were eroding confidence in government; a military with too many weapons that didn't work and too few people from the upper classes in its ranks; and a politics of selfishness symbolized by an explosion of political action committees devoted to the interests of single groups."

Why couldn't traditional liberals address these problems effectively? Neoliberals believed liberals were unable to address these problems because of "four observable if unacknowledged principles":

The Neoliberal's Manifesto: . . . . The first was Don't Say Anything Bad About The Good Guy. The feeling here seemed to be that any criticism of institutions they liked-the public schools, the civil service, and the unions are good examples-was only likely to strengthen the hand of their enemies. A corollary was Don't Say Anything Good About The Bad Guys, meaning the police, the military, businessmen (unless small), and religious leaders (unless black or activist). What all this meant was a shortage of self-criticism among liberals and an unwillingness to acknowledge that there just might be some merit in the other side's position.

The second principle was Pull Up The Ladder. In both the public and private sector, unions were seeking and getting wage increases that had the effect of reducing or eliminating employment opportunities for people who were trying to get a foot on the first rung of the ladder. If, for example, more and more of the library's budget was used to pay higher and higher salaries for the librarians in the system, there would belittle or no money to hire new librarians or even to replace those who left. So the result was not only declining employment but declining service. In the District of Columbia, libraries that were open 70 hours a week at the beginning of the decade were down to 40 hours by its the end. The city of Los Angeles has eliminated 1,995 jobs while radically reducing its street repaving and its library hours. At the same time it increased to 75 percent the proportion of its budget devoted to salaries and fringe benefits, including $93,688 to its fire chief and $98,908 to its police chief.

In the case of the auto and steel industries, the continuing wage increases meant that the industries became uncompetitive and went into decline. For awhile all this meant was that the workers already on the ladder were doing better than ever. There just weren't any new jobs. Then as orders declined, layoffs followed and younger workers began dropping from the ladder. And, finally, as whole plants were closed, many of the fellows who had been pulling up the ladder found themselves out of work, too.

During this time too many liberals followed the Don't Say Anything Bad About The Good Guy principle, and refused to criticize their friends in the industrial unions and the civil service who were pulling up the ladder. Thus liberalism was becoming a movement of those who had arrived, who cared more about preserving and expanding their own gains than about helping those in need. Among this kind of liberal there is powerful need to deny what they are doing, which means they become quite angry when it is exposed. When this magazine revealed that Washington's black upper class was pouring money into a fancy YMCA for its own use while neglecting the Y (now closed) that served poor blacks, there were howls of outrage. There is a similar reaction whenever we come close to suggesting that a poor black child might have a better chance of escaping the ghetto if we fired his incompetent middleclass teacher.

The third principle is The More The Merrier. The assumption here-and it is often correct-is that the more beneficiaries there are of a program, the more likely it is to survive. Take Social Security. The original purpose was to protect the elderly from need. But, in order to secure and maintain the widest possible support, benefits were paid to rich and poor alike. The catch, of course, is that a lot of money is wasted on people who don't need it.

Similarly, the original justification for the tax breaks for capital gains and mortgage interest was that they would stimulate investment in new plants and new housing, thereby creating new jobs. But the breaks were also given to trading in stocks that represented only existing plants and to trading in existing housing. This cost the treasury a bundle and the only new jobs it created - were for stock and real estate brokers.

The fourth principle is Politics Is Bad And Politicians Are Even Worse. Liberalism entered the seventies having just depoliticized the last refuge of patronage, the post office. The catch was that in destroying patronage-the last nail in the coffin was a mid-seventies Supreme Court decision that actually held it was unconstitutional to fire a political appointee for political reasons no one noticed that democracy was the fiat casualty. If democracy means we are governed by people we elect and people they appoint, then it is a not insignificant fact that the people we elect can now choose less than one percent of those who serve under them. Without the lifeblood of patronage, the political parties have withered and been replaced by a politics of special interest. And since liberals assumed that patronage was always bad, they could see no answer to the problem.

What will Neoliberals do differently?:

Opposed to these four principles of the old liberalism are the primary concerns of neoliberalism: community, democracy, and prosperity. Economic growth is most important now. It is essential to almost everything else we want to achieve. Our hero is the risk-taking entrepreneur who creates new jobs and better products.

"Americans," says Bill Bradley, "have to begin to treat risk more as an opportunity and not as a threat."

We want to encourage the entrepreneur not with Reaganite policies that simply make the rich richer, but with laws specifically and precisely designed to help attract investors and customers...

We also favor freeing the entrepreneur from economic regulation that discourages desirable competition. But on the matters of health and safety, we know there must be vigorous regulation, because the same capitalism that can give us economic vitality can also sell us Pintos, maim employees, and pollute our skies and streams. Our support for workers on health and safety issues does not mean support for unions that demand wage increases without regard to productivity increases. That such wage increases have been a substantial factor in this country's economic decline is beyond reasonable doubt. ...

We also oppose management compensation that encourages a focus on short-term profit instead of long-term growth. And we favor giving the worker a share in the ownership of his company...

Another way we depart from the traditional liberal's support for organized labor is in our criticism of white-collar unions for their resistance to performance standards in the evaluation of government employees. We aren't against government... But we are against a fat, sloppy, and smug bureaucracy. We want a government that can fire people who can't or won't do the job. And that includes teachers. Far too many public school teachers are simply incompetent.

Our concern about the public school system illustrates a central element of neoliberalism: It is at once pragmatic and idealistic. Our practical concern is that public schools have to be made better, much better, if we are to compete economically with other technologically advanced countries...

Another way the practical and the idealistic merge in neoliberal thinking is in our attitude toward income maintenance programs like Social Security, welfare, veterans' pensions, and unemployment compensation. We want to eliminate duplication and apply a means test to these programs. They would all become one insurance program against need.

As a practical matter, the country can't afford to spend money on people who don't need it-my aunt who uses her Social Security check to go to Europe or your brother-in-law who uses his unemployment compensation to finance a trip to Florida. And as liberal idealists, we don't think the well-off should be getting money from these programs anyway--every cent we can afford should go to helping those really in need.

The pragmatic idealism of neoliberals is perhaps the clearest in our reasons for supporting a military draft. A draft would be a less expensive way to meet our need for military manpower because we would no longer have to use high salaries to attract enlistees. It would also be the fairest way, because all classes would share equally in the burdens and risks of military service.

Those who are drafted and opposed as a matter of conscience to military service should have the option of entering a domestic or overseas peace corps. But if that option is taken, the term of service should be three years instead of two... In the long run we hope a draft will not be needed. We want to see a rebirth of the spirit of service that motivates people to volunteer to give, without regard to financial reward, a few years of their lives to public service, including military service. But for now we realize that the fear of being a sucker, if not just plain selfishness, will keep the upper classes from volunteering.

There is another reason for our support of a draft at the present time. We want to bring people together. When I was growing up, social classes were mixed by both the public schools and the draft. Today the sons of the rich avoid the public schools and scorn the military service. ...

On the income-security issue, the neoliberal approach has won small but significant victories as taxes were enacted in 1979 and this year on unemployment compensation and Social Security income above certain levels. These are steps toward the means test we advocate for all income maintenance programs. Our opposition comes from two sources. One is the Brookings Institution- type liberal who sees only incremental reform as realistic and therefore refuses to take radical solutions seriously. Then there are the old liberals who see a means test as hurting the feelings of the recipient. This could be called the Don't Embarrass Little Orphan Annie principle. The recipient is always seen as some pathetic child who would be humiliated to have to hold up his hand and say, "Teacher, my Mother and Daddy can't afford to pay for my lunch so can I please have one of those free school lunches for poor people?"

Neoliberals don't want children to endure such an experience either, and we oppose programs that require them to do so. But, by the time someone is an adult, shouldn't he be able to face reality, and say, I need help because I'm poor? Is not facing reality at the very heart of adult responsibility? ...

It goes on, and the above isn't the full expression of neoliberalism from the Manifesto, but I think you get the idea.

Update: For me, one thing that's missing from the neoliberal framework is a clear expression of when the government ought to intervene in the marketplace and when it ought to step aside and let the market function without interference (and that comment extends beyond neoliberalism).  Many of the institutions the neoliberals oppose arose originally for good reason - to solve some problem - and simply removing the institutions without replacing them with a better means to address the underlying problems is not an effective economic or political strategy unless we are sure that the problem no longer exists. I have no problem supporting market solutions when they are viable, but many of these programs came into existence because market failures prevented the private sector from addressing important needs.

When market failure is significant and we try to address it through government intervention there will always be tradeoffs, solutions rarely have perfect incentives. Somebody will abuse unemployment compensation. Somebody will game welfare. We should expect that and design incentives to minimize such behavior when formulating government assistance programs, but we won't eliminate such behavior entirely no matter what we do and if the test of these programs is the ability to tell a story about an uncle who used the money to go to Vegas, then no program will withstand scrutiny.  I'm not saying that means testing, etc. isn't ever appropriate, though the politics of limiting programs such as Social Security to lower income classes has to be considered, but rather asking that programs be evaluated with a clearer analytical framework than is implied by simple anecdotes supporting the ideology about "my aunt who uses her Social Security check to go to Europe or your brother-in-law who uses his unemployment compensation to finance a trip to Florida."

Update: One more question. On the charge the liberals believe "Politics Is Bad And Politicians Are Even Worse", do I have to choose between

(a) special interests (don't like the sound of that), or
(b) patronage (federal prosecutors come to mind), or
is there (should there be) a third choice,
(c) none of the above?

Those are a few quick thoughts, I'll leave it to you to make what you see as the important points in comments, but it's not clear to me how the neoliberalist expression of these ideas advances the Democrat's chances in the next election.

    Posted by on Sunday, April 22, 2007 at 12:00 PM in Economics, Politics | Permalink  TrackBack (0)  Comments (15)

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