The Strange Persistence of Free-Market Ideology

How can we explain the continued strength of free-market policies in the face of their stark consequences?

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This is the month for taking stock of the year that passed and imagining what the year before us may hold. For me, two broad and contradictory trends have emerged that just might shape politics and policy in 2011: the extraordinary resilience of neoliberal ideology and the reemergence of inequality as a defining public issue.

Recall the days and weeks after the financial crisis of 2008 when just about everybody was wondering out loud about the limits of unfettered greed, unregulated markets, the separation between the financial economy and the “real economy.” The leaders of France and Italy talked about restoring morality to capitalism and bringing the financial system under collective control. Books were written on the fall of neoliberalism. Blogs of the left saw new opportunity for “progressive” alternatives. The G20 focused on issues of regulation and old style Keynesian stimulus. Governments got involved in banking and the auto industry in ways that couldn’t have been imagined just months before. Cowboy capitalism was over. The invisible hand of the market had shown us the finger. But by the time those books on “the rise and fall of neoliberalism” were published they already seemed naïve or at least dated. The pronouncements of neoliberalism’s death were, it seems, premature. So what happened?

Neoliberalism, simply put, is an approach that trusts in the market and is scornful of government intervention, favours private over public, market over state. If its poet was Friedrich Hayek, its most influential proponent was academic and advisor to Ronald Reagan, Milton Friedman. I don’t want to caricature free market economics; the writings of Friedman and particularly Hayek are more nuanced than the utterings of their apostles, but the message is clear – less tax, less spending, less regulation. So, in Friedman’s own words, “there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”

On tax and spend:

I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, ‘How do you hold down government spending?’ … The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.

On government intervention: “The government solution to a problem is usually as bad as the problem.”