von Mises

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Neoliberal Angst?

I wonder why it is that neoliberals so reject the label we have given them.  Is it because they’e embarrassed?  I don’t think so.  They all seem very proud of their attachment to the old order.  Every so often one of them will surface and proclaim bitterly that they are misunderstood and they they don’t deserve the opprobrium piled on them by those nasty “leftists” who want to sully the pristine reputations of people like Mises and Hayek.  Poor dears.  Are we to feel sympathy for a group of thinkers who, collectively, opened the door to regression and decline?  All in the name of some misty eyed nostalgia for ideas that had been overwhelmed by history in the early part of the twentieth century? 

I recently came across this problem at a much narrower and personal level.  A correspondent engaged in an short investigation into what neoliberalism is and determined that  “there is no single definition”.  It is thus a meaningless concept.

No it isn’t.

But why do proponents of neoliberal ideas have to take this tack?  Why is it necessary for them to go underground and conduct an anonymous campaign rather than defend neoliberalism from behind the recognizable ramparts its originators erected for themselves?  Why do the relish the notion of being underdogs engaged in a struggle against the oppression of government and tyranny?

Because neoliberalism failed.

The enterprise that Mises, Hayek, and the others pursued was the undoing of the progress made in the first decades of the twentieth century towards a more democratic and less rigid, inflexible, and inhuman conception of our political economy.  The real anathema to the neoliberals was the mitigation of the outcomes of laissez-faire capitalism by the injection of democratic ideas into the mix of social governance.  That mitigation was seen as an occlusion of “liberty”.  So something like the New Deal here in America was cast by neoliberal thinkers as the first ugly step on the road to serfdom.  That it appeared to be popular and that it worked as a policy set in the depths of depression were of no consequence.  

Popularity was seen as the dead hand of ignorance.  How could ordinary voters, riven through as they are with narrow self-interest and lack of awareness, possibly be relied upon to see the benefits of economic liberty?  Especially economic liberty for the wealthy folk and large corporations whose generosity supported the academic work of the early neoliberals.  No.  Popularity was a bad thing.  Very bad.  As expressed in democracy it was particularly bad.  Being opposed to democratic governance became a feature of neoliberals.  They didn’t emphasize it too much because of the obvious ramifications — they were in a minority, especially during the Cold War when America was loudly proclaiming the virtues of democracy hither and yon.  Being anti-democratic in an era of burgeoning democracy is not, dare I say it, popular.  Which is, perhaps, why neoliberals cast themselves as defenders of freedom instead of democracy.  It keeps them within the framework of American ideology.  

Policy is another matter.  Keynesian ideas seemed to work.  This was even more anathema to the neoliberals who proselytize the efficacy of pure market solutions to every problem known to mankind.  Interference in “the market”, whatever that is, is pure tyranny.  It is also a restriction on the liberties of the wealthy and large corporations whose generosity supported the academic work of the early neoliberals — sorry: I am repeating myself.  That slippery slope towards serfdom has many entrances.  Neoliberals are stalwart in their ability to identify and defend against the foul contamination of the free market by the evil forces of the state.  Especially, it turns out, in democracies. 

Perhaps the sensitivity of the neoliberals to being so-called is that they want simply to be “liberals”.  Their problem being that the word liberal has many interpretations, as is, perhaps, normal for an idea that has been in current in politics for so long.  Meanings mutate as context changes.  Meanings mutate as different minds wrap themselves around an idea and bend it to a particular circumstance.  

Liberalism has always been a contentious idea.

The literature is replete with both adoration and scorn of liberality.  It is a hydra like concept.  And its various strands are inconsistent.  Indeed, they often contradict themselves.  The issue is that each step along the road towards liberality limits the scope of the prior steps.  So the first gains in civic justice were limited by the expansion of political justice.  That’s where the neoliberal hatred of democracy begins.  How can someone be free and then have to give up some of that freedom within a commonweal?  And if that community is expressed through the construct of the state, how is that different from the oppression of authority under the ancient systems that civic justice was supposed to eliminate?

Even more recently the progress towards political justice has been, itself, limited by the search for social justice.  Liberalism has introduced into itself another limitation.  Equalities of various sorts appear to contradict what appeared to be earlier achievements.  

There’s no need to explicate this progression here other than to note that those who gained from the first steps towards liberality have seen those gains reduced subsequently as others claimed their own right to progress.  Neoliberals are defending the early gainers against the later followers.  They cast themselves as in possession of an absolute definition of liberality when, in fact, they represent a moment in time.  Their beliefs are contingent on a social and political arrangement that subsequent liberal moments have rendered obsolete.  Their purity implies a negation of that subsequent history.

There’s nothing wrong, of course, with representing the past.  There is virtue in all of us remembering the route we have taken.  There was an awful lot of hard work and blood spilled along the path we have taken into modernity.  The project is not yet complete, as the current battles over social justice demonstrate.  Liberalism is not a static idea.  It twists and bends as contexts change.  As it always has.  

And some of its offshoots are left behind as failed experiments.  There is, within the urge towards liberality, always the complication that when it fails it leads us back to subjugation.  Regression is as likely as progression when we lose the sense of balance needed to build upon past progress rather than uproot it.  We are, I think, in such a moment.  

Which is why confronting the neoliberals is essential.  Their definition and beliefs are not liberal in today’s context.  They fail to account for the rise of popular self-governance which they still see through the lens of the inter-war chaos that so distorted the views of both Mises and Hayek.  Inter-war Austria was hardly an archetype of modern democracy, and yet both of those early neoliberals used its chaos as demonstrative of the inevitability of regression in the face of popular self-governance.  They thus utterly failed to adapt to modern democracy.  Modern libertarians remain stuck in that same intellectual space.  

On consequence of this inability to progress is the narrative that neoliberals have had to create to explain the origins of “the market”.  In their telling markets are natural phenomenon.  They can only be restricted and not enabled by the state.  History tells us otherwise.  But to side with history is to align with the state as a beneficial and not malign actor.

This is, perhaps, our biggest problem of engagement with neoliberals.  Not only are they defending an anachronistic view of society — one long swept away by the very forces they so adore, after all the division of labor is now so extensive that the consequent complexity has eliminated the possibility of simple interpretations of “the market”.  But they are reduced to defending, through denial of its existence, the power and status of this who benefitted from the early achievements of liberality.  They have to tolerate the concentration of political and economic power because to argue otherwise introduces the state as a distributive agent.  

Did I mention the gratitude of their wealthy and large corporate supporters?

So we arrive at the apparent upset that defenders of neoliberalism have when called neoliberal.    They call the word an epithet hurled at them by, gasp, leftists who want to restrict freedom and do all sorts of harm to the liberties attributed to “free markets”.  

But, there never were such free markets.  So there never were the associated liberties.  

And that is their underlying problem.

Nostalgia is often a veil over an illusion.  Our memories fail us too often.  The trajectory of what Balibar has called, aptly, “equaliberty” is a difficult one.  Liberty in the neoliberal sense emerged first from the old order because it was something that a rising newly powerful group sought.  They carved it out from the old way of life to their own benefit.  The equality part that has been fought over since, and which the neoliberals attempt to disparage and reduce, is a natural consequence of that first step.  It implies a struggle for power between that first liberated power group and those who want to follow in its footsteps.  

Neoliberalism is an entirely appropriate word to describe the effort to prevent that second step. Neoliberals are dedicated the the jealous guardianship of the power amassed by the first to achieve liberty.  No wonder they see power-sharing as tyranny.  Their entire intellectual edifice is a construct to preserve power within a constrained group.  

That they reject such an interpretation of their efforts as being a leftist epithet simply means that they feel vulnerable.  Of course they do.  Their project has been exposed over the past few decades as a power grab by the wealthy and large corporations who generously support their academic work.   How hard is it for neoliberals too understand the term “follow the money”?

Isn’t following money something they applaud?  Are they damned by their own ideas?

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The Paradox of People

Yesterday I stirred up a certain curiosity as to why I had lumped Peter Drucker into the same bag as both von Mises and Hayek.

Well, simply put, the three of them, along with Karl Popper and Joesph Schumpeter, had an enormous, even oversized, impact on modern economics. Yes economics. Let’s not fall into the same trap as economists do when they, with a sweep of their hands, dismiss business theory as not an aspect of economics. Of course it is. After all if business is not an aspect of the economy, what is?

In any case, the general point is that there is a distinct Austrian flavor to modern economic/business theory that can be traced back to the work of that group. More importantly, the influence of that group, particularly Hayek, was to emphasize the terrors and the tyranny of socialism to a degree that precludes social democracy as well. In the hands of their various followers that emphasis became exaggerated eventually emerging as doctrinaire anti-government theory.

We thus end up with a profound ideological stance as we enter economic thought: anything the government does almost invariably dilutes or pollutes the so-called perfection of the market. So deeply is this stance accepted that most economists fail to realize its political import: that the democratic expression of the people’s will through their elected representatives is viewed negatively automatically in economic thinking. What economists are saying is that the people are entirely rational in their economic dealings, thus producing the perfection of markets, but are irrational in their political dealings thus mucking up that same perfection. The contradiction is exquisite. The paradox unresolved.

This paradox of people sits as testimony to the gulf between what would be a holistic social science and the much more limited study of allocation and/or choice that economics has opened up for itself. Since it is my belief that economies are first and foremost social phenomenon and are thus enmeshed in the political, institutional, cultural, and historical milieu of general social activity, the limitations of economics and its ability to discuss real economies is rather glaring. In fact it can’t contribute much at all other than its over-developed enquiry into choice under a highly restrictive set of assumptions which seem entirely designed to eliminate any connection to the larger milieu just referenced.

The emergence of the of the paradox of people can be traced, substantially, back to the personal biases and histories of the group of Austrians I mentioned yesterday. Let me give you a lengthy quote from Tony Judt on the topic:

“… We live in the long shadow of a debate with which most people are unfamiliar. If we ask who exercised the greatest influence over contemporary Anglophone economic thought, five foreign-born thinkers spring to mind: Ludwig von Mises, Friedrich Hayek, Joseph Schumpeter, Karl Popper, and Peter Drucker. The first two were the outstanding “grandfathers” of the Chicago School of free-market macroeconomics. Schumpeter is best known for his enthusiastic description of the “creative destructive” powers of capitalism, Popper for his defense of the “open society” and his theory of totalitarianism. As for Drucker, his writings on management exercised enormous influence over the theory and practice of business in the prosperous decades of the postwar boom. … All were forced into exile … and all — Hayek in particular — were to cast their writings and teachings in the shadow of the central question of their lifetime: Why had liberal society collapsed and given away — at least in the Austrian case — to Fascism? Their answer: the unsuccessful attempts of the (Marxist) left to introduce into post-1918 Austria state-directed planning, municipally owned services, and collectivized economic activity and not only proven delusionary, but had led directly to a counterattack.” — “What is Living and What is Dead in Social Democracy?” Tony Judt, a public lecture at NYU, October 2009

A long shadow indeed.

Judt is correct. Much of modern economics thought, indeed much of the underpinnings of neoliberalism generally, is directly attributable to the lifetime experiences of a small group of emigre Austrian thinkers who managed to exert an outsized influence. Why? because their fears fit well within those of the postwar West: the dark cloud of Marxist authoritarianism hanging over the West during the early Cold War years made the Austrian experience appear a lot more relevant than it is.

And, as I have already said, one consequence is that modern economics has no theory of government that is democratic. It assumes tyranny from the outset. It dresses this as tampering with “freedom”. With freedom exclusively expressed as the kind of libertarianism advocated by the likes of Milton Friedman.

I make no apology for agreeing with Judt on this issue. Hayek and the others built considerable theories based on their personal, albeit profound, experiences of tyranny. They made the error of transferring the ills of far-left Marxist politics onto all forms of social action. They became blind to the subtleties of democracy, and especially blind to the crucial role democracy plays in balancing or mitigating against capitalism. Instead, in various ways, they preferred to believe that impersonal individual action could somehow accrete into perfect collective action as expressed through a market. Moreover such expression was always preferable to any other expression including, for example, that through the ballot box.

But why was the government always a source of tyranny for these thinkers?

Because once instantiated it becomes a self interested agent with goals of its own that are not wholly those of the voters. Government by the people for the people thus becomes government by an agent of the people for the people, introducing along the way all the issues of agency that economists love to wrestle with. Since economics has no theory of politics within it, other than the Hayekian version, it has great difficulty squaring the economic and political motivations of the people. Indeed it doesn’t really try.

What we end up with is a modern economics that not only harkens back to its roots as an effort to wrest the economic sphere away from post-medieval monarchic interference, but also is now infused with a deeply anti-democratic vision built on the more recent conflicts inside the decaying Hapsburg Empire and its immediate successor state.

For anyone advocating democracy that’s a pretty potent one-two punch. Until economics incorporates a modern post-marxist theory of politics it will always appear to be resolutely opposed to the popular will. This is despite its purported advocacy of radical individualism accumulated into the collective known as the market.

The paradox of people lives on. With an Austrian twist no less.

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Trump, Denial and The End of Normal

Shocking is an understatement. Donald Trump is unfit for public office, be it town clerk or president of the US. He’s an unbalanced egomaniac. He’s a racist. He’s an immature misogynist. He’s many other awful things. Presidential, he is not.

How did we get here?

Failure. But a particular kind of failure. Failure dressed as success. A success so sweeping and deep that we hardly recognize the extent of the change that it wrought. Naturally I am speaking of the victory of neoliberal thought. Perhaps you were thinking of something else.

For a brief moment after World War II, for a generation and a bit, the western world basked in a quiescence of steady growth, political solidarity, industrial calm, and rising living standards. That much of this was an illusion, or rather a reflection of the prior chaos of the spasmodic ending of the elongated nineteenth century, we ignored. Instead we imagined that a new normal had emerged. Economic depressions had been defeated. Western Europe had settled its ancient scores. And America had emerged as a beacon of democratic freedom, albeit one willing to exert quasi-imperial tendencies in its foreign dealings. Compared with the authoritarian alternative of the Marxist east, America’s heavy hand was tolerable for a generation able to recall the terrors of 1914 through 1945.

This period, though, was bound to end. Within its fabric was an unrest bound to tear at the fragility of the apparent unity.

That unrest was the desire of many to return to the chaos of a more unfettered way of life. They disliked the growing tendency of post-war governments to intrude into spheres of life and activities that previously had been private domains. They especially regarded such intrusions as obstacles to personal enrichment.

They questioned social democracy as if it were Marxist authoritarianism. They asked: Where was the private incentive? Where was the opportunity? What was the intellectual footing upon which those intrusions stood? And: were those footings not insecure against the tide of uncertainty best dealt with by private initiative?

The rebellion, when it finally burst into open life, swept away the temporary stability of that generation and a bit. And like all movements recapturing some imagined version of a glorious past it was even more radical than the original. It preached ideas producing an ever growing insecurity, constantly accelerating change, wrenching social re-aligments, and loss of opportunity for anyone incapable of being the kind of calculating insensitive and morally ambiguous trooper in its corporate divisions.

At its core the rebellion has one theme: liberty. A return to an idealized version of liberty such as that taught by the likes of Hayek and his most potent student Milton Friedman. Others, like von Mises, Peter Drucker, as well as Hayek were members of what the essayist Tony Judt so eloquently called the Austrian cabal. They all grew up within the fetid declining years of the old Hapsburg Empire. They all misunderstood the causes of that decline. They all witnessed the horror of demagoguery of Hitler. They all feared the repression of Marxism, Lenin and Stalin. So they all overcompensated.

Their error, as they built the intellectual features of neoliberalism, was to mistake democracy as a form of socialism. In this they echoed the fears of their intellectual ancestors. The founders of the American republic were just as fearful of the people. The phrase “we the people” refers to a select few: those entitled to participate. It does not refer to the vast mass who were thought unfit to participate.

By making this error Hayek and his ilk debauched liberalism. No: they tore it in two. They ripped away any references to equality or the dignity of community, leaving only the much rawer individuality to stand alone as a beacon of freedom. This primitive liberalism was then packaged as economic and political theory to stand against any attempts to leaven it with those lost, yet appropriate, features of mature liberalism.

So that’s how we arrived here.

The consequences of the neoliberal rebellion are all around us. Trump. Brett. La Pen. Haider. Berlusconi. The people’s reaction to insecurity, austerity, globalization, deregulation, and the decay of social cohesion wrought by the single minded pursuit of the individual ideal.

With respect to Brexit, let me quote at length from Jonathan Freedland’s essay in the New York review of Books:

“There is an overlap here with those white working-class voters in the US who are backing Donald Trump. In both cases, they are often people who once enjoyed secure, relatively well-paid work and who have seen their jobs, and their factories, shipped eastward. Working low-status jobs on zero-hours contracts, they live in places that have been hollowed out and left behind … While London and other major cities gleam and sparkle with investment and regeneration, many of these English towns — post-mining, post-industrial, post-their-best — are still reeling from the Thatcher-era policy of privatization, which saw the state shut down industries it had once propped up. They have grown derelict. In each wave of change — Thatcherism, globalization, automatization [sic] — they have lost out.

It meant that the Remain campaign’s central argument — that Brexit risked Britain’s prosperity — cut no ice with these voters, because they had no prosperity to risk.”

A little later Freedland quotes a Conservative minister, Michael Gove, as saying:

“I think people in this country have had enough of experts.”

And that’s also why we are where we are.

The experts blew it.

The elite. The center. The experts.

They are the people who brought us rising inequality, globalization, shareholder value, austerity, infrastructure neglect, rotting schools, dilapidated cities, insecurity in retirement, health, and personal finances, stagnant wages, and all the other ailments of an economy and society run solely in the name of private profit.

Worse still: those experts are scarcely attached to democracy because they, like Hayek and his confreres, believe that popular will is akin to a chaos imposed by an unwashed undereducated mob. Those experts believe that they alone understand the so-called “national interest”.

But why is it in the national interest for almost half the population to live perilously close to poverty?

As it turns out, that fleeting glimpse of normal back in the immediate post-war years was no illusion. It was simply a threat to the old establishment and to big business. It was a democratic moment that had to be ended not extended. It had to be ended so profits could be made as they had back in the Golden Era. So ended it was.

Which is why we are where we are.

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Inflation and von Mises

Yesterday I speculated that the decline in the cost of basic goods like gasoline was a contributory cause of the uptick in retail sales in October. Today’s consumer price report supports that notion.

The headline rate of inflation, the consumer price index, declined 0.1% last month bringing the rate for the last twelve months down to 3.5%. That’s a large decline in the annual rate – in September it had been 3.9%. In contrast, the more important “core” rate, which strips out volatile items such as gasoline and food, rose 0.1% and has risen 2.1% over the last year. The biggest factor behind the decline in the headline rate was a 2.0% drop in energy prices, while food prices rose, but only a slim 0.1%.

The decline in the CPI, coupled with a very slight increase in hourly wages, meant that inflation adjusted earnings rose 0.3% for the month. This modest improvement in incomes appears to be the basic reason retail sales were slightly stronger than expected.

The importance of this report is simply that it debunks, or helps to at any rate, the notion that expansionary monetary policy deployed to get the economy going will inevitably feed into inflation. This is a view held by many right wing analysts, and has no substance or foundation, but exerts a tenacious hold on their thinking. It has it modern roots in the writings of von Mises, and still occupies a leading role in right wing economic policy thinking even though such right leaning luminaries as Milton Friedman considered the idea daft. If you recall we were treated to an outburst of terrifying warnings of imminent hyperinflation this summer when commodity prices drove the CPI up temporarily. The cause of those warnings was the right winger’s view that recent Fed actions such as QE1 and QE2 could only create inflation and not help the economy. In von Mises words:

“Attempts to carry out economic reforms from the monetary side can never amount to anything but an artificial stimulation of economic activity by an expansion of the circulation, and this, as must constantly be emphasized, must necessarily lead to crisis and depression”

There’s not much wiggle room in those words. The analysis is definitive: tinkering with the money supply necessarily leads to crisis and depression.

That it hasn’t, ought, in a scientific world, permanently disprove von Mises’ view. It won’t. It will linger on because of its ideological purity. But it isn’t science.

But we could say that about a lot of economics.

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Its Official! The Recession’s Over … Yawn.

Hang out the flags. Set off the fireworks. The recession is officially over. Whoopee. The National Bureau of Economic Research says so. In fact, by their count, the recession ended in June 2009.

There, don’t you all feel better?

Not really.

The “Great Recession” was officially 18 months long, making it a full 2 months longer than the slumps of 1973/1975 and 1981/1982. Those two recessions were doozies and unemployment surged in both. Banks shuddered. Businesses lost money. Shops were closed. But neither felt like this last one. The reason being that both were followed by decent recoveries. Obviously I have a personal gripe about the 1973/1975 slide since its aftermath was sufficiently meandering to set the stage for the Reagan takeover and all the deterioration in our economy that his slippery illusion has implied.

Still, here we are, on the other side of what history will record as the worst slump since World War II. We are edging slowly away from the abyss. So slowly that many of us cannot tell the difference between being in recession and being in recovery. But let’s not be churlish: we should acknowledge that we are afloat and not sinking. At least those of us still gainfully employed. As for those other folks …

If you are someone who believes in market magic, let’s say you were schooled in textbook economics, then the slump has failed to clear out the dead wood sufficiently for the recovery to be robust. In particular you are really annoyed that wages have not dropped low enough to make it attractive for businesses to hire workers in droves. For you magic lovers the lunacy of government intervention has prevented the market from solving our ills. This slow growth is a direct result of that persistent and foolhardy intervention. If only, you mutter to yourselves, unemployment had reached 20%. Whatever it takes. Maybe 25%, like back in the good old days of depression era economics. Back when workers took their medicine like the undeserving ingrates that they are. Silly things like the minimum wage have stopped the market from “clearing”. Demand for workers is too low only because – you suggest – wages have failed to drop to a market clearing level. Then there’s all those payroll taxes imposed by the silly politicians who seem to think we should set aside cash for workers retirement. Phooey! If workers cannot save for their own retirement they should starve. That’s what the market says. And you believe the market magic myth.

It helps if you are a tenured professor when you articulate this myth. That way the slump never actually gets too close to the comfortable surroundings within which you pursue academic freedom.

But that’s another story.

No one ever said that hypocrisy and academia were not entwined.

Meanwhile those of us who base our economics on reality, and not magic, see it very differently.

We see the entire problem as one of insufficient demand. There are no jobs because businesses are being very sensible. They aren’t hiring until they can expect to make a profit from the labor of those new workers. Until business expectations turn more optimistic unemployment will persist. So the central aim of government is to stoke the economy in order to boost expectations. Once we get the engine rolling it will take off on its own and we can withdraw our support. Since the taxpayers are the ones who benefit from the growth in the economy, they get new jobs, pay raises, and all sorts of other neat stuff, it is not unreasonable for them to chip in up front and pay for the necessary boost to get the engine going. They chip in by taking on the responsibility to pay back the debt the government issues as it primes the pump.

Its a perfect example of “we the people” taking responsibility for our own welfare. Its also reality. It also is an affirmative rejection of the notion that “we the people” have to get hammered before we react to the mess that the bankers made.

We are grown ups. We will fix our own mess thank you. We do not have to wait for the market fairy to awake and wave her magic wand.

I am always astonished at how many good people grow up to reject the idea of Santa Claus or the Tooth Fairy, yet still cling to the Market Magic Myth.

It was always a made up story designed to keep the workers supine. The suffering inflicted by the depressions of the 1800’s and that of the 1930’s was turned into a punishment for the ills of the laboring class. It was converted into a parable about the “natural workings” of an economy. The story telling reached its apogee in the arcane and obscure pages of academic economics. Generations of workers were told that the decentralized mechanisms of the free market produced wealth for all. They would get a share of that wealth if only they obeyed the workings of the mechanism. Sometimes that meant hunkering down and starving as the market sought to work its magic and locate a new wage level. That new level seemed always to be lower than the old. But hey, there were new jobs in new places if only you all were willing to take that new wage.

This was the essence of the myth that became modern economic theory. In the hands of people like Schumpeter – he of the “gales of creative destruction” – and then the postwar wave of right wing theorists like Friedman and Lucas, economics became an apologia for naked capitalism. It gave up the pretense of being a science. Instead it contented itself with a justification of a particular form of economic activity.

Nowhere, and I mean nowhere, is there a scientific argument that free markets work to the benefit of society. Nowhere is there a body of scientific proof that central planning is worse than decentralized planning. On the contrary. You may be shocked to hear that during the 1930’s a great debate raged within economics between those who argued central planning was at least as efficient as capitalistic decentralized planning. The argument became known as the “Socialist Debates”, and engaged some of the most famous thinkers of that time. Oscar Lange defended socialism, while Hayek and von Mises defended capitalism. You might be even more surprised to hear that it was generally agreed that the socialists won the debate. There is no proof to support the contention that markets are better at anything. There never was. There was simply assertion and assumption. The victory was hollow. Poor Lange lost on points because of the horror of authoritarianism in Nazi Germany and then in the Soviet Union. That horror so tainted the discussion that postwar economics in the West became single mindedly pro-market, even in the absence of proof.

Back in the 1930’s it was Keynes who acted as the bulwark. He provided the realist view that saved capitalism from its own doings. He saw that the magic was a myth, and argued for a realist intervention in order to prevent the carnage that an imploding market can inflict on the workforce. By mitigating those effects he realized that he could stabilize democracy and allow the middle class to flourish.

This is, of course, nothing new to you. I bring it up because the Great Depression acted as an inflection point. The great debates back then were left incomplete and the proofs were never provided. Keynesian economics prevailed for three decades. It was only when the 1973/1975 recession seemed to disprove Keynes that market magic theorists like Friedman were able to get back into the discussion. With voters disillusioned by the oil shock and the falling away from the heady postwar growth rates of the 1950’s and 1960’s, it was easy to turn their heads back to the capitalist side of the 1930’s debate. Only this time, the Cold War ensured that there was no socialist or centralized side in the discussion. The debate was entirely one sided.

I think, perhaps, that our Great Recession is another inflection point. It is time to redress the one sided nature of the debate and ask simple questions of the magic believers. Questions like: where’s your proof?

I think of the last thirty years as a great experiment. The economy has been managed, by Republicans and Democrats alike, along free market lines. Regulations have been limited and reduced. Taxes have been cut. Welfare has been gutted. The minimum wage has been held down. Laws protecting trade unions have been eliminated or neutered. The list goes on. It may shock you to learn that it took a personal call from Milton Friedman to the SEC in order to persuade that body to allow the establishment of options trading. Up until his call the SEC saw options trading as a form of gambling. Friedman’s reputation was sufficient for them to open up trading. The derivatives melt down of 2007/2008 was thus a direct heir to his theorizing. It was his set of ideas that underpinned the financial collapse. To Friedman and magic believers derivatives are a way markets mitigate risks. Realists see them as gambling.

The experiment failed.

We now have the proof.

Then again, we always did. Ask any CEO whether they believe in free markets and they will respond with a resounding “yes”. Just as long as we retain patent laws; copyrights; restrictions on unions; import quotas where “necessary”; subsidies for agriculture; price supports etc. And just so long as they can establish centralized strategic plans to guide their businesses.

In other words not one CEO truly believes in market magic. Not one. They all run their businesses along centralized planning lines. General Motors is not a free market. Nor is General Electric. Apple. Microsoft. None. They are centrally planned mini economies.

In fact more economic activity in America goes on within the safe harbor of corporately constructed centrally planned economies than takes place in supposedly free markets. Even the OECD, hardly a socialist haven, supports that observation.

Now I am not going to support socialist economics. I find it fails too. But we must be more realistic about the economy in which we operate. We need to recognize that the free market experiment failed. It was always going to fail. It was based on ideas that were incomplete or highly tailored to the 1930’s. In the hands of ideologues masquerading as economists it became twisted. Economics was conflated with politics. It became the American state religion to argue that unfettered capitalism was the only economic system to believed. And like all state religions it turned from being believed, to being revered, to being enforced without thought.

We forgot why the debates of the 1930’s took place. And we forgot that neither of the two sides was correct. Keynes was. And he was in the middle.

I hope we can forget the extremism of the free market magic myth, and return to practical realistic economics. There are jobs depending upon it. Indeed, our respective futures do.

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