10 Myths Propagated by Neoliberals

April 9, 2014

Neoliberalism is a political philosophy which is to the right of the economic spectrum. It originated in the 1930s and 1940s with such scholars as Friedrich Hayek, who proclaimed an approach in opposition to the dominant economic and political philosophy of the time–Keynesianism.  While the term is specific for economic historians, this philosophy has evolved to best identify today with the key precepts of the political Right. From my list below, it will be easily seen that this political philosophy is largely characteristic of that of the Republican party.

I do not consider myself a Marxist or a socialist. I think capitalism is the best economic system known.  However, that doesn’t mean it is perfect in the sense of universally serving all needs, especially when unrestrained or relied upon as the only tool for sustainable growth–but that is generally the position of neoliberals. I believe there is a role for government–to meet the needs which private investors are not prepared to meet (without substantial government subsidies), and to govern and manage the free market such as to do our best to avoid or correct for abuses of the free market.

A few of the most crucial myths which neoliberals have sold to much of the American public:

1.  That the uncontrolled market is best for everyone–we should reduce or eliminate the influence of government except in very limited areas.

The uncontrolled market brought us the global recession of 2008 to the present. Culprits included complex mortgage securitization instruments. Major financial institutions failed and citizens lost critical amounts of savings and were left with very low fixed income returns for years thereafter. While the wealthy also lost in the first stage of the recession, those at the top end of income and wealth gained dramatically during the recovery, while the middle class did not, and many are still unemployed.

2.  Reducing taxes is always beneficial to the economy and to citizenry.

Neoliberals have lured the middle class and the poor with the siren song of reducing taxes, which behind the scenes is called “starve the beast.” The beast of government, when starved, is forced to cut whatever is discretionary, which usually includes public schools, infrastructure, and any social support programs.  So, the lesser privileged end up voting in the small tax savings (big tax savings for high earners), with the unexpected end result that their critical services are lost.

3.  Reducing taxes always results in savings which go into investment and creates job–that’s the “trickle down.”

There hasn’t been any substantiation in recent years to the arguments made by Art Laffer and others. In fact, it appears that much of the savings increasingly going to the wealthy through tax reductions is going into liquid investments, expensive multiple homes, art, and the like, and relatively little into investments creating jobs for the underprivileged.

As to the trickle down, evidence such as this picture of income growth for the wealthy since about 1970 clearly shows that there has been no trickle down–it’s all been flowing up.


THOMAS PIKETTY, EHESS, Paris EMMANUEL SAEZ, UC Berkeley and NBER 2004, Fig. 11.

4.  Government is almost always poorly managed vs the private market, which is usually well managed.  Government leaders are “bureaucrats” who will simply do what is in their personal best interest.

History is replete with exceptionally competent government leaders in many nations.  Business is also replete with many leaders who have had less than admirable character or competence. While government generally doesn’t have the competitive pressure that sometimes motivates efficiency in private enterprise, not everything can be accomplished by competitive forces. We can’t have two airports built in competition or two parallel highways built in competition. Furthermore, who can argue that it is entirely appropriate that the top 10 CEO’s last year earned more the $100 million each?  Can this really be argued to be “efficient,” in the best interest of shareholders and the public?

5.  Incentives in the form of bonuses, stock options, and the like are necessary to motivate good management, and even to motivate people to work hard or do the right thing.

I worked in the trenches for years before those kinds of rewards were available to me. I don’t remember lacking any motivation then, or gaining more motivation when I did have access to those. There is something in most of us which wants to do the right thing, advance and improve the area of responsibility we have.  This is not to argue against incentives, although some of those have reached outrageous proportions, such that we are left to wonder just how much more effort and focus was provided for the difference between perhaps $10 million and $100 million in compensation for those top CEO’s last year. This is to simply ask recognition that financial incentives are not the only motivation for good work–and/or that those incentives have advanced to well beyond what is necessary to keep leaders hustling.

6.  Liberty is the ultimate positive to be achieved, meaning that any form of collectivism is to be avoided because it means I have to accept some limits on my freedom, just in order to achieve the betterment of someone else in society.

There are times when my total freedom means less freedom or opportunity for someone else.  Along with freedom to worship as we please and freedom of speech, neoliberals have added freedom from taxes, freedom to have and carry a gun, and freedom to treat employees as commodities.

7.  Open borders are always better than any form of protectionism.

It is disingenuous for the US to continue to promote this key element of neoliberal economic philosophy, considering that in the early decades of our own industrial development, we used protectionism heavily to enable the nurturing of our infant industry. So did Japan, Korea, Taiwan, England, and most other developed countries. Furthermore, even at our now advanced industrial state, we continue to protect our industry, even to the extreme of providing subsidies to well-to-do US farmers who cannot otherwise compete with foreign agricultural products, as just one example. Yet, we continue to ask other nations to take down their border controls. Global trade is a good thing, but it needs to be managed, sometimes uniquely by each nation, weighing all consequences.  The US should also yield power in IGO’s to a better representation of the developed and developing world–the WTO is a good example.

8.  Private markets can handle most all the needs and ills of society, and do so far better than government.

A good example might be the evolution of housing policy for those without homes. Across the last 30 years in both England and the US, there has been a massive move toward moving housing for the poor to the private sector, using tax benefits and reduced regulation as the carrots.  This has not had the intended effect–we have seen no improvement overall in the quality or accessibility of housing for the poor.

Consider schools and infrastructure. Are these also all going to be best handled by private capital and/or by philanthropy? The ultra wealthy can use helicopters to avoid traffic and poor roads, private airports and private jets to avoid tired airports, and private schools to avoid the malais of our public schools.

It does not seem evident that private markets can do it all.

9.  Inequality is really a good thing–because it means we have maximized the incentive motivation, which is at the heart of capitalism.

To a degree, inequality IS a good thing, but inequality in the US has risen to among the highest in the world, a dramatic increase since the 60s and 70s when we were relatively egalitarian. Across this period, income and wealth have flowed to the wealthy while wages have stagnated for the middle class and the poor. I do not argue to eliminate incentives, just that the pendulum has swung too far. See the work of Emmanuel Saez of UC Berkeley in regard to taxation. There is little evidence that a higher tax rate on the wealthiest would result in significantly diminished incentive, investment, or economic growth.

10. Any form of redistribution is harmful because it diminishes the equal opportunity that everyone has in this country to succeed.

There are many forms of redistribution, and the choices need not take what has been gathered to date by the wealthy, but simply adjust some of the future incentives (e.g., capital gains taxes, wealth transfer taxes, carried income taxes, certain deductions, taxes on the earnings above a very high level) that uniquely benefit those of high income and wealth. A little less flowing to the highest incomes can be directed to better enable equal opportunity for everyone else.  There are a number of economists who also argue that economic growth is slowed at very high levels of inequality. Plus, there are non economic (moral, societal) reasons of improving the lot of the lower classes.  And, we potentially forestall a revolution, such as we have seen in a number of other countries.

There are more than 10 myths, and there are more arguments to show the weaknesses of the comprehensive neoliberal philosophy which has evolved across the last thirty years.  This post is simply intended to provoke some thought from all of us regarding a few of the examples of failure.

The pendulum has swung too far to the Right!

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