Wednesday, June 08, 2016

Neoliberalism and the "structural" excuse for bad economic policies

The neoliberal economics endorsed in a somewhat milder form by the first Clinton Administration became firmly established in the Republican Party by the Reagan Administration.

George Monbiot gives an overview of the neoliberal ideology, now shared by Barack Obama and Hillary Clinton, by Angela Merkel and the German Social Democratic Party leadership, by French Socialist President François Hollande and Latin American conservatives like Argentine President Mauricio Macri, in Neoliberalism – the ideology at the root of all our problems The Guardian 04/15/2016:

Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve.

We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.

Never mind structural unemployment: if you don’t have a job it’s because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you’re feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it’s your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.
Wendy Brown talked about neoliberalism in a recent interview, Neoliberalism poisons everything: How free market mania threatens education — and democracy Salon 06/15/2016:

I think most Salon readers would know neoliberalism as that radical free-marketeering that comes to us in the ‘70s and ‘80s, with the Reagan-Thatcher revolution being the real marker of that turn in Euro-Atlantic world. It means the dismantling of publicly owned industry and deregulation of capital, especially finance capital; the elimination of public provisions and the idea of public goods; and the most basic submission of everything to markets and to unregulated markets.

So free enterprise is its clarion call, and even though it requires a lot of state intervention and state support, the idea that goes with it is usually also minimal state intervention in markets. Even if states are needed to prop or support or sometimes bail out markets, they shouldn’t get into the middle of them and redistribute [wealth]. That’s all true. That’s certainly part of what neoliberalism is.
She then goes on to talk about the ways that "neoliberalism ... operates as a whole form of reason." She illustrates it by a currently popular concept:

It’s an understanding of us and the things we do as being ways of simply enhancing our value as bits of “human capital.”

One sees it very clearly, for example, in education today, where instead of thinking about educating citizens for the value of democracy or civilization or simply being educated people, everyone thinks now of education — and especially higher education — as simply an investment in one’s own individual future as a bit of capital that wants to enhance its value, become worth more, and become capable of earning a higher income. [my emphasis]
One concept that became widespread in the United States in the late 1980s was that declining average incomes were due primarily to skill mismatches that were the result of a mismatch between the education the workforce actually had and the kind required by the economy. By 2016, that claim has long since become an alibi for economic policies that don't produce adequate jobs and income, a way of saying the kind of thing that George Monbiot highlights, "Never mind structural unemployment: if you don’t have a job it’s because you are unenterprising."

This was also a favorite argument made by Bill Clinton and the advocates of Democratic neoliberalism in the 1990s. But even then, it was already very clear to economists who looked that "more education" was not a magic wand to create jobs and improve income. In a joint article in 1996, the three labor economists Andy Sum, Neal Fogg and Robret Taggart debunked that claim, The Economics of Despair The American Prospect July-Aug 1996. The education-fixes-all argument has been closely tied to the concept of "structural problems," especially the shift in employment in the US from manufacturing to services:

However, it is easy to overstate the earnings impact of the shift in young male employment from manufacturing to trade and services. We estimate that only 13 to 16 percent of the actual decline in the annual earnings of young men can be explained by changes in the industrial distribution of jobs. Even though manufacturing jobs have paid above-average wages in the past, the differences between what young men earned in different industries in 1973 were actually fairly small—so the effect of the shift away from manufacturing should not have had a substantial impact on earnings. Over the past two decades, young male earnings have declined within virtually every major industry, including goods-producing industries, so that even those employed in manufacturing are earning less in real terms than their 1973 counterparts.

It turns out that much more important than interindustry shifts have been the declines in earnings within industries. Only those employed in public administration posted gains in real earnings between 1973 and 1993, and they accounted for only 2.5 percent of employed young men in 1993. Between 1973 and 1993, the mean real annual earnings of employed young men fell by 22 percent. Earnings declines varied considerably by sector, ranging from lows of 2 percent in personal and entertainment services and 6 percent in professional services to highs of 23 percent in manufacturing, wholesale trade, and business and repair services, and 28 percent in retail trade.
And they observed:

Most proposed remedies have emphasized the quality of the labor supply. But improving education and training, while often worthwhile and necessary, is not by itself sufficient to raise earnings. If this downward trend, which has persisted through recession and recovery alike, is to be reversed, then policymakers and educators must address the demand side as well as the supply side. Raising young adult wages will require not only better academic performance, training, apprenticeships, and school-to-work programs, but also full-employment policies, changes in the configuration of jobs and careers, and larger young adult union membership. [my emphasis]
Andy Sum et al weren't suggesting that developing and implementing effective macroeconomic programs were easy. But neoliberal ideologists are looking more for excuses for declining wages than solutions. In One Percenter economics, declining wages for ordinary workers is a desirable feature, not a bug that needs to be fixed.

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