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[flagged] Neoliberalism Is a Simplistic Perversion of Economics (bostonreview.net)
66 points by huihuiilly 27 days ago | hide | past | web | favorite | 76 comments

"Yet too many economists believe their quantitative tools and theoretical lenses are the only ones that count as “scientific,” leading them to dismiss disciplines that rely more on qualitative analysis and verbal theorizing"

Sorry if I don't want to trust the fate of the nation's economy to someone's well intentioned verbal theorizing and 'qualitative' analysis. What could go wrong? (lol)

I thought HN liked and trusted the scientific process and quantitative research methods over verbal theorizing and hand waving.

Social outcome is a political problem, not a scientific one. We should decide what we want society to look like, and use the scientifically/mathematically understood systems of economics to steer us in that direction.

I don't think the market-driven ideals of 1980s economics were intended to deliver the results we are seeing today. They would not have predicted the drastic disparities, or the insecurity of working people. Therefore, even on a scientific basis, they're kinda fails.

> the market-driven ideals of 1980s economics... they're kinda fails

On what basis? The share of people living in extreme poverty globally has gone down from 43% to less than 10% since 1980. Global literacy rates have climbed from 70% to 86% in the same period. Global child mortality has gone down from 11% to 4% in the same period. Global life expectancy has climbed from 63 to 72 in the same period.

It's ironic that you claim they're failing on a "scientific" basis.

It is about the 1,5 million homeless children in the USA [1]

It is about the income inequality which has increased since the '70s in the USA [2]

It is about tax avoidance in the USA, and increasing taxation for the very rich, and how the discussion about it is being avoided as recently happened on Fox News or at the conference in Davos, Switzerland [3]

[1] https://en.wikipedia.org/wiki/Poverty_in_the_United_States

[2] https://en.wikipedia.org/wiki/Income_inequality_in_the_Unite...

[3] https://twitter.com/rcbregman

1 - Yes, numbers are high but by your own source, you can see the rate has not been increasing since 1980. 2 - Hand waving about income inequality is fine, it's an issue.. but what do you think should be done about it? Tax the rich just enough so that they don't leave and take their wealth somewhere else? How do we find that threshold? 3 - Tax avoidance is a law issue, not an economics issue. If it's legal, businesses will do it. I saw the conference in Davos. It was just a guy saying "but what about tax avoidance?". This was not brave or insightful, it was just more hand waving and blaming the ones who have been pillars of industry, creating jobs, products, and economic prosperity.

1) Ah, the "the rich will leave!" card. The rich won't leave if you fight the problem under an international flag, and all their businesses will be accounted for. Even if all the rich want to live solely in the Bahama's or Cayman Islands, let them be. If large countries plot together its not like you can't boycott such small countries. Just like almost the entire world has copyright laws. See also #3.

2) The problem is that large companies such as Amazon don't pay tax which by itself is unfair. On top of that, the side effect is that small and medium businesses [on a worldwide scale] cannot compete with them, leading to less competition which is bad for the customer and bad for the economy. And it isn't just Amazon. It is also for example Starbucks, who pay no tax whatsoever whilst local coffee shops diminish.

3) Not addressing the topic of tax avoidance is political unwillingness kept intact by the rich world elite who give breadcrumbs to servants such as Tucker Carlson.

4) Given the conference was visited by billionaire philanthropists who avoid taxes, it was a highly insightful and appropriate comment.

> it was just more hand waving and blaming the ones who have been pillars of industry, creating jobs, products, and economic prosperity.

If you give me billions of USD I can also promise you I will be a pillar of industry, creating jobs, products, and economic prosperity. The lack of these is caused by the inequality. If people wouldn't live in poverty, their happiness would increase, and they'd be more productive in society; not less. Instead, they're being squeezed out.

1 - Ok, so abolish the free market worldwide? Not sure what you're suggesting. Removing incentive structures and high taxation does cause the wealthy to leave. It's happening in the U.K. right now. Who does this hurt? Everyone but the rich. 2,3 - I think we agree here. Unfair loopholes should be closed as they are found on an individual case basis and I even think that Amazon should be broken up on anti-monopoly grounds. 4 - They didn't come by their wealth through forcibly taking it from poor people. The free market dictates voluntary exchange of goods and services. They are wealthy through a long series of voluntary transactions with the public.

> Ok, so abolish the free market worldwide?

Actually, it'd empower the free market, as we'd have more fair competition. Tax avoidance breeds unfair competition. After all, if your competitor is paying tax while you don't, then you get more profit. More profit allows you to invest more, take more risks, do more R&D, etc.

> Removing incentive structures and high taxation does cause the wealthy to leave.

I never argued otherwise; I argued if we, as humanity, fight this problem on a world-wide level the rich have no place to go.

> It's happening in the U.K. right now.

We're not addressing the problem on a world-wide scale right now (AFAICT), and it'd be a process. Not a one day project. During such a process you'll see a lot of rough edges, like with alpha software.

The response: "the plan isn't perfect" is a straw man. Of course the plan isn't perfect. Of course they can move to the Bahama's, Monaco, or what not. It isn't meant to be perfect; it is meant as a first step in the right direction, after which reflection must take place to continue to tackle the problem.

> They didn't come by their wealth through forcibly taking it from poor people. The free market dictates voluntary exchange of goods and services. They are wealthy through a long series of voluntary transactions with the public.

However if they paid their taxes fair and square they'd have less profit, and the little guy who starts their own company would have an easier barrier of entry. Hence, entrepreneurs (for whom you could argue HN is for) would benefit from this climate. Instead, what we have is a few successful ponies who get bought by the big fish.

Your comment is severely lacking in numbers that would indicate market-friendly policies have been a "failure".

> It is about the 1,5 million homeless children in the USA

How has this number changed over time, compared to previous time periods?

> It is about the income inequality which has increased since the '70s in the USA

How has the actual income of poor people changed in the same time period?

> It is about tax avoidance in the USA

Please explain how the statement "tax avoidance in the USA" proves market-friendly policies have been a "failure".

> Please explain how the statement "tax avoidance in the USA" proves market-friendly policies have been a "failure".

This one i can explain. Whether its ordo-liberalism, social liberalism or any kind of post-1929 liberalism, a market-friendly policy aim to brake cartels, monopolies and remove unfair advantages, and help new companies start even in an already competitive field.

You can easily see how tax avoidance, easier to avoid for big, international, old companies is a failure of "market-friendly" policies. This is not the only point where those policies fail, but this one of the most obvious. Sadly i don't have any english papers on this, but even really old-school liberals (like the ones you can proably see on fox, although i don't know if they invite PhD or lobbyists there) are saying this is becoming an issue.

Also income inequality should never be a problem. Wealth inequality, however, especially when more money is gained from wealth than from work, is. And its easy to fix: less tax on work income, more taxes on wealth/wealth income. There.

I don't see how anything you said proves "tax avoidance" is a consequence of market-friendly policies. If anything, it's an indication the tax code should be streamlined and simplified, which itself would also be market-friendly.

I agree but I understand where they were coming from. It's easy to point out flaws in any system and it's something I'm seeing more and more in politics and religion. People are willing to throw the baby out with the bathwater because it's easy to become blind to the benefits of the system you are raised within until the revolutionaries tip the scales and then the system resets through widespread suffering.

Poverty and inequality have increased sharply in the US during that period. It's wonderful that the global average is improving, but that doesn't mean you can just ignore problems affecting hundreds of millions of people.

> Poverty [has] increased sharply in the US during that period.

Do you have numbers for that?

> that doesn't mean you can just ignore problems affecting hundreds of millions of people

That's just a straw man.

US poverty rates have hovered around 11%-15% since the '70s, my bad. https://poverty.ucdavis.edu/faq/what-current-poverty-rate-un... Income inequality has, however, increased substantially (I assume you agree since you edited that part out). It seems clear enough, therefore, that the financial policies of the last 40 years have at best not helped, and have made some things worse.

> That's just a straw man.

That's not a straw man. Here's a straw man: On an article about US economic policy, Beat claimed that '80s US economic policy had failed. You disputed that based on global economic outcomes since then, refuting an argument that no one had actually made.

> I assume you agree since you edited that part out

I edited it out because I find it, for the most part, irrelevant. I'd rather live in a world where everyone is better off to different extents than one where everyone is equally poor and miserable, as in post-reform vs. pre-reform China. Do you prefer the latter?

> It seems clear enough, therefore, that the financial policies of the last 40 years have at best not helped, and have made some things worse.

Non sequitur.

> That's not a straw man.

Weighing the costs and benefits by analyzing the bigger picture is not "ignoring problems affecting hundreds of millions of people". That's just plain stupid.

> On an article about US economic policy...

Proof that you didn't read the article, because it discusses other countries and international trade.

> Beat claimed that '80s US economic policy had failed

Where did beat say "US" in their comment?

I both agree and disagree. I agree that the world is getting much better, very rapidly. I disagree that this is a consequence of neoliberal economic policies. Rather, it's a consequence of technological advances that have little to do with economics.

Vaccination isn't a neoliberal triumph.

I think it's likely that they were intended to deliver the results we see today. The public-facing rhetoric supporting those policies notwithstanding.

I'm not that cynical. I find the whole concept of attributing malice as the primary motive of those whom I disagree with to be one of the most basic (and common) of political failures.

No, I think they actually believed what they were saying. They believed the rising tide lifts all boats, and none of them would get swamped.

> No, I think they actually believed what they were saying. They believed the rising tide lifts all boats, and none of them would get swamped.

I do too. I think their primary motive was selfish and short-signed motivated reasoning about the effects of their ideas. They ignored how those ideas could harm others because they were so captivated by how they could help themselves.

Yeah. This is such a common fallacy. "This works for me, therefore it must work for everyone."

But while those policies didn’t benefit the public they did benefit the people who formulated the policies. That’s the smoking gun. When someone shoots themselves in the foot it is likely an accident. If someone shoots me in the foot and somehow winds up with my wallet in their hands, I’m inclined to think it was intentional.

Are you trying to draw an analogy between market-friendly policies and stealing your wallet?

Yes. They scuppered the middle class, pillaged the commons and made a boatload of money doing it. The whole small-government argument was insincere.

> They scuppered the middle class, pillaged the commons

How so? This is just empty rhetoric.

"smoking gun" is an understatement.

neo-liberalism: "a modified form of liberalism tending to favour free-market capitalism."

The movement has been very right wing, pro-corporate and pro-billionaire since the beginning.

What do you mean by "right wing" here? Do you just mean "capitalist"?

The term “right wing” comes from revolutionary era France, where in the general assembly the aristocracy sat on the right, and everyone else sat on the left. In the modern world the “aristocracy” would be the capitalist class, so yes, anything that benefits the capitalist class is right wing, in that sense.

Why not just say "capitalist" since "right wing" can mean many other things? Why use the more ambiguous term when the more precise one will do? Is it intentional?

Once you adopt that line of thinking you can't trust anybody, any arguments, any theories anymore.

Precisely so. Let me give you an example: in medieval times it was taken as fact that the king's authority came from God, that god wanted you to obey, and so forth. That sounds absurd today, but at the time no other point of view was available. The way to see through that belief is to ask, who does that belief benefit? It was in the material interest of the king to promulgate such a belief system regardless of whether it was true. In the same sense it's now in the material interest of the investor and political class to promulgate the belief that unfettered capitalism is the only rational economic system. But who benefits?

This isn't my own original idea mind you. Marx called it "dialectical materialism".

Certain scientific facts can be proven. You can measure things like the speed of light for instance. But ideology always reflects the material interest of some group or another.

But if the king believed it as well, wasn't he also deceived ?

My point is: it doesn't follow the results we observe were the objectives those people were expecting. It doesn't make them liars.

But I do agree with you: `follow the money` is a useful compass to navigate those waters.

One thing is the metrics and, another, the model that you use to understand the metrics and to make predictions.

The problem is that you can make a model to justify whatever you want.

"With four parameters I can fit an elephant, and with five I can make him wiggle his trunk." John von Neumann.

For instance, metrics tell us that public health system are more efficient, but this is anathema to the "neoliberal mindset" and, therefore, to their models.

That's without taking into account the big interests that are passed as sound economics. Just check who finance many of the think tanks that publish economic recommendations.

We could also talk about development economics and the recipes sold by the IMF.

Yeah, I too will trust models built from statistical analysis over "thinking". As a side note, in the financial world -- where being right means making money and being wrong means losing money -- the quants now rule the trading floor because statistics based models run circles around people "thinking" all day long. Qualitative analysis and verbal theorizing.... lol

"More fiction is written in excel than in word".

Better not to have a model than to follow a wrong model.

Better not to have an economy than to have a flawed economy

Non sequitur.

The two "neoliberals" identified in this article are Hayek and Friedman.

Hayek absolutely did not believe that his "quantitive and theoretical lens" counts as scientific. Apart from economics he's known as an opponent of scientism.

I don't believe Friedman believed his theories to be scientific either.

You are making a strawman. "the scientific process" has very little to do with economics.

Making a strawman by quoting directly from the article where the author was criticizing traditional economists for relying on quantitative analysis as prescribed by the scientific method?

Yes, and you are doing it again.

"Yet too many economists believe their quantitative tools and theoretical lenses are the only ones that count as “scientific,” ..."

Economist want to believe that economics is "scientific", while is clearly not, and you keep hinting that they are "relying on quantitative analysis as prescribed by the scientific method".

Are you saying that the scientific method cannot be applied to economics? :O

While qualitative analysis can be considered empirical, it's not something often seen when money is concerned and the stakes are high. Most often you will see papers relying on qualitative methods in the "soft sciences" such as social science. Not to mention "verbal theorizing".. this is the kind of stuff that gets laughed out of real conversations.

Economics IS a soft science, that’s the point people are trying to get across.

I would also suggest you look up what you call ”the scientific method”, it’s a misconception that there is one abstract scientific method to apply to all fields of research. The process of science necesserally differ between formal, natural and social science.

I personally like to summarize economics as ”the art of pretending that sociology (social science) is physics (natural science), by abusing math (formal science).”

Saying that the qualitative stuff is unscientific doesn't make the quantitative stuff scientific - just quantitative. At least, I think that's eeZah7Ux's point.

Right, we certainly would never have a global credit crisis, blowup, and ill-justified austerity based on rigorous quantitative financial economics.

On the topic of the article: The desire to focus on questioning whether a framework for economic analysis and planning is achieving outcomes for humans that we want isn't properly and morally substituted by 'rigor' papering over one's policy preferences if those human outcomes are at odds with the human outcomes we want. If that makes less sense than I intended, let me simplify: A key part of the scientific method is examination of whether what you are doing is even working.

You're totally right, there are issues. However, I think the current system is better than the alternatives I've heard. I would never claim that it's perfect and I'm always open to slow, small tweaks over time.

The stakes are too high to drastically overhaul or throw out the same system that has resulted in our prosperity over the past 100 years.

Neoliberal microeconomics is just a model of markets? No model is perfect. All models are all far simpler than reality and probably perverse in some way. If they weren't they wouldn't be useful as models. Don't blame the model, blame the people that abuse it.

right, the criticism of neolibralism is that it doesn't acknowledge the problematic simplicity of the models they apply. Things aren't as simply as supply and demand in labor markets for instance, The socially constructed notion of productivity and negotiating power aren't included in econ 101 models of labor markets, leading to misguided arguments against minimum wages. No model is perfect isn't a good argument for misapplying conceptual models to real world situations.

Quoth George Box: "All models are wrong, but some models are useful."

So many people use that quote as a blanket defense of bad modelling.

Some models are useful. Some models are harmful. Do you have the means to tell the difference?

Neoliberalism generally refers not just to a set of economic theory but to a whole political ideology. A common application is the idea that privatising any public assets and reducing regulation will lead to better service and lower cost to consumers, or that lower company taxes will lead to economic growth, but after almost fifty years of this being the mainstream modus operandi in the west this has basically failed every time we've implemented policy based in the ideology. All that happens is that (in aggregate) wealth is shifted more and more towards the already wealthy. So it's not just a misused model, it's a theory and ideology that says it will achieve one thing but consistently does something else (and generally worse for most of society).

An interesting thing about neoliberalism is that it often purports to just be about 'free-market' but isn't really. It actually relies on Government to create a lot of the wealth which is shifted to wealthy people through privatisation, and relies on Government to protect monopolies, subsidise private sector activity etc.

For example, in Australia we have universal healthcare (basically the complete opposite of neoliberalism) that the right-wing of politics has been trying to cut funding to and sell off for the last 30 years or so, but so far have failed (it's political poison). At the same time, anybody can choose to use private hospitals, and to do that you really need health insurance. But our public system is so high quality that in general most people would rather just use that (the main exception being waiting times for elective surgery given underfunding). So to keep the private insurers in business, the Government brought in a health insurance rebate where they basically pay a quarter or so of your health insurance premium. At the same time, if you make a certain salary, you are penalised for not having private health insurance through an extra tax. So most people earning average wage or above do. This is purportedly to take pressure off the public system, but studies have shown that the public system is actually quite a bit more efficient than the private system here.

This latter scheme is based in the neoliberal ideology. Even though it would be a lower cost to society to just divert that rebate into the public system (where every 10c more goes to patient care for dollar spent vs. the private system according to studies), this way the private insurers are subsidised with public funds.

No model is perfect, but some models are better than others. I think it's fair to blame models that don't work very well. It's true that they are presenting neoliberalism as a boogieman. I don't even really understand what that actually translates to in econ: Chicago School perhaps. But there is a lot of disagreement on the efficiency of markets and the need for regulation in the discipline. I think a lot of recent economics research makes a good case for increased regulation in order to correct real market inefficiencies.

This article is full of strawmen fallacies. Paints with a broad brush by using "Economists" and "Economics" to mean the whole discipline.

>Economists also often get overly enamored with models that focus a narrow set of issues and identify first-best solutions in the circumscribed domain, at the expense of potential complications and adverse implications elsewhere.

Can loosely translate to: Economists like to study optimization problems whereby rigorous mathematical models conclude that to maximize one variable, other variables may be minimized.

> Economists like to study optimization problems whereby rigorous mathematical models conclude that to maximize one variable, other variables may be minimized.

Thereby proving precise facts about models that are imprecise at best, and downright misleading at worst.

No, the false assumption this article makes is that the models are the problem. The problem is how policy makers are influenced and advised by any inaccurate model and inability to learn quickly from it.

My point was that you can't have it all. "Inclusive Economics" whatever that means is never going to be "good enough" so it's a very easy basis for an attack on "Economics".

I read that sentence as being more about economic models failing to adequately account for externalities.

I had a really hard time understanding all that, but I'm wondering about some of the ideas here:

"offering plenty of tools we can use to make society more inclusive"

Isn't half the issue with ALL economic points of view now that actions aren't having the effect we think they should and the "tools" don't work like we think they used to?

Almost any article about neoliberalism is at least somewhat disingenuous. It's mostly a term that gets used by critics, and it groups together movements that aren't related and don't call themselves neoliberals.

I can't recall any proponents of neoliberalism.

This article is a good example. Everything is euphamized (neoliberalism is market fetishism). Nothing is addressed directly. There's a disagreement between camps, but nowhere does it bother to delve into what they disagree about specifically.

It's also simply not true that economics is monolithic, or that the majority of policies are based in economics of any flavour.

The EU was (i suppose, see first paragraph) a neoliberalism exercise. It promoted free trade, and dismantled all sorts of industrial structures and regulations as part of that. But, the actual goal was peace, moreso than prosperity. The history of us-china trade is similar.

Headline is clickbait and it's not the article's headline.

In practice, on the Internet "neoliberalism" seems to be a word used by people who dislike capitalism and want another abstract enemy to complain about. If you're not doing that, the word doesn't seem very useful?

But the folks behind this article seem to want to do educational outreach about economics research and that does seem useful.

Neoliberalism is a word that is used to describe policymakers who seem ignorant of the fact that indiscriminately resorting to "market forces" often leads to undesirable outcomes.

They're not ignorant of it, they simply don't care. They don't care because the public good is not, never has been, and never will be, the primary goal of politicians and bureaucrats. They spout "economics" rhetoric to support the policies they want because it helps garner support from certain sectors of society. They only do that because, in a representative democratic system, they need to maintain support else they will lose the power to do what they want. So the solution should be obvious (which doesn't imply that it's easy).

Okay, what's an example?

Attempting to reform national health care but thinking it's possible to preserve for profit health insurance companies as part of the mix.

You mean like in Switzerland? [1] I think the mistake here is being overconfident. Most of us (including me) don't know much about heath care economics.

[1] https://en.m.wikipedia.org/wiki/Healthcare_in_Switzerland

No, I live in the United States, where health insurance companies are basically a giant bloodsucking leach affixed to a large chunk of the economy. We're also not nearly as good at trains and making watches.

Interestingly, now that neoliberal is being used as a slur, there's a rising movement reclaiming the term and offering policies that solve a lot of the issues earlier neoliberals went wrong with.

Here's one site: https://neoliberalproject.org

Also see: https://niskanencenter.org

My interactions with these folks have found them very reasonable. They're kind of like reformed libertarians who've learned that we need social safety nets, etc., but still believe more in markets than standard Democrats do.

Even with a growing number of Democrats willing to identify as socialists (or even leftists) rather than liberals... I haven't yet made the acquaintance of one that doesn't believe in the wide power of a market economy.

There's just lots that also believe there are some areas where markets are sub-optimal to wrong because (a) a commons is more efficient and/or (b) it's difficult to impossible to line up incentives correctly and/or (c) there are values in play that supersede market activity.

(None of these beliefs are necessarily unique to Democrats, either -- lots of people would believe that public transportation infrastructure greases the wheels of private activity, that insurance incentives are different than other goods/services, or that assassination markets might not really be a good thing)

Maybe that's a notable fact because markets are equivocally equated with capitalism. Mutualism[1] is also a socialist economic theory and is a form of market socialism[2]

[1]: https://en.wikipedia.org/wiki/Mutualism_(economic_theory)

[2]: https://en.wikipedia.org/wiki/Market_socialism

Yea, I think you're right that most people believe in regulated markets, but the question is how to regulate them.

A lot of ideas on the Left have government paying for and executing public services (single pay healthcare, etc.), which can work some times, but can be subject to lack of accountability and poor efficiency.

These next-gen neoliberals are more likely to recommend public-private partnerships of various kinds where the government is paying / overseeing the execution by competitive private entities.

"Neoliberalism", or the story of one of the dumbest terms used on economics. No liberals -or "libertarian" for north americans- consider itself a neoliberal. No existing bibliography talks about it, only detractors of traditional liberalism. Then why to add the neo prefix to it?

I mean, the IMF hosts (but not necessarily agrees with) articles that use the word [1].

[1] https://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm

Does anyone have to personally identify with a term in order for it to be useful? I think it's quite easy to look at recent history and identify a largely top-down political/economic/philosophical movement embodied by the likes of Thatcher and Regan which has been impactful on the current state of the world. I don't see why Neoliberalism isn't a perfectly good name for it.

for the same reason that you will rarely find neoconservatives describing themselves as such, despite checking all the boxes

I get this is parroted ad nauseum but the reason for rising inequality (and a reduction in the middle class) in the US is mobility of people from the bottom and middle to the upper class.

That is not even a little bit true. The exact opposite of that has been taking place: a reduction in upward mobility between socioeconomic classes.

Citation needed on that one.

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