Question

1. Describe the “neoliberal turn.” Discuss its political goals and note its key public champtions; the nature and causes of the 1970s profit crisis and the Federal Reserve’s reaction; the suite of policy changes that followed; and the economic ramifications.

Answer 1

Neoliberalism is a policy model—bridging politics, social studies, and economics—that seeks to transfer control of economic factors to the private sector from the public sector. It tends towards free-market capitalism and away from government spending, regulation, and public ownership.

Often identified in the 1980s with the conservative governments of Margaret Thatcher and Ronald Reagan, neoliberalism has more recently been associated with so-called Third Way politics, which seeks a middle ground between the ideologies of the left and right.

One way to better grasp neoliberalism is through its associations, and sometimes-subtle contrasts, with other political and economic movements and concepts.

It's often associated with laissez-faire economics, the policy that prescribes a minimal amount of government interference in the economic issues of individuals and society. This theory is characterized by the belief that continued economic growth will lead to human progress, a confidence in free markets, and an emphasis on limited state interference.

An early use of the term in English was in 1898 by the French economist Charles Gide to describe the economic beliefs of the Italian economist Maffeo Pantaleoni with the term "néo-libéralisme" previously existing in French and the term was later used by others including the classical liberal economist Milton Friedman in a 1951 essay In 1938 at the Colloque Walter Lippmann, the term "neoliberalism" was proposed, among other terms, and ultimately chosen to be used to describe a certain set of economic beliefs The colloquium defined the concept of neoliberalism as involving "the priority of the price mechanism, free enterprise, the system of competition, and a strong and impartial state" To be "neoliberal" meant advocating a modern economic policy with state intervention Neoliberal state interventionism brought a clash with the opposing laissez-faire camp of classical liberals, like Ludwig von Mises. Most scholars in the 1950s and 1960s understood neoliberalism as referring to the social market economy and its principal economic theorists such as Eucken, Röpke, Rüstow and Müller-Armack. Although Hayek had intellectual ties to the German neoliberals, his name was only occasionally mentioned in conjunction with neoliberalism during this period due to his more pro-free market stance

During the military rule under Augusto Pinochet in Chile, opposition scholars took up the expression to describe the economic reforms implemented there and its proponents (the "Chicago Boys") Once this new meaning was established among Spanish-speaking scholars, it diffused into the English-language study of political economy According to one study of 148 scholarly articles, neoliberalism is almost never defined but used in several senses to describe ideology, economic theory, development theory, or economic reform policy. It has largely become a term of condemnation employed by critics and suggests a market fundamentalism closer to the laissez-faire principles of the paleo liberalsthan to the ideas of those who originally attended the colloquium. This leaves some controversy as to the precise meaning of the term and its usefulness as a descriptor in the social sciences, especially as the number of different kinds of market economies have proliferated in recent years

In the 1970s, the United States’ position as the unchallenged colossus of the capitalist world was suddenly threatened from multiple directions: rising international competition, spiking energy prices, declining productivity and profitability, and soaring inflation and unemployment. The United States’ trade deficit crept up in the course of the 1960s, and government deficits emerged late in the decade and persisted through the 1970s. Declining international confidence in the dollar led to the depletion of U.S. government gold reserves, as international holders of dollars demanded redemption of their dollars for gold. (The Nixon administration responded by ending the fixed-rate convertibility of the dollar for gold.) Inflation picked up in the late 1960s, ratcheting up from about 3% in 1966 to nearly 6% in 1971. While these rates may not look that high now, they were alarming at the time, coming on the heels of a seven-year period in which the annual inflation rate never exceeded 1.6%. (Nixon responded to the threat of inflation with unprecedented peacetime wage and price controls.) In 1973-1974, the first of two major “oil shocks” increased the price of petroleum four-fold, dramatically raising energy costs for both consumers and businesses. Workers’ wage demands outpaced the rate of productivity growth, driving up unit labor costs for businesses. The annual inflation rate spiked to over 10% in 1974 and again in each of the three years from 1979 to 1981. The annual unemployment rate topped 8% in 1975 and would reach nearly 10% in 1982.

The conditions that fostered successful capital accumulation and economic growth in the United States during the “Golden Age” broke down toward the end of this period. The postwar institutional framework, so successful in conventional terms for a quarter century, gave way to crisis not only because conditions changed around it, but because its own operation undermined its continued viability.

All three pillars of the postwar framework were shaken during the 1960s and 1970s. Internationally, the United States no longer enjoyed uncontested economic, political, and military dominance over the capitalist world. The U.S. government had encouraged the reconstruction of the economies of Western Europe and Japan, both to undermine the appeal of communism in those countries and to demonstrate the superiority of capitalism to the rest of the world. The revival of manufacturing in Europe and Japan, however, also meant increased competition for U.S. firms in “core” manufacturing industries like steel and auto. Resistance to U.S. dominance in the global South, meanwhile, undermined U.S. companies’ access to cheap materials and energy resources. The 1973 embargo of Western buyers by petroleum-producing countries and the ensuing oil-price hike coincided with a low point in the United States’ ability to project its military and political power international-ly, just after the defeat of the U.S. military in Vietnam.

The crisis of the 1970s marked the end of the “Golden Age” framework and the advent of “neoliberal” capitalism. The triumph of an economic policy agenda hostile to government economic intervention, social welfare programs, and labor organization was part of a broader shift to the right in U.S. politics. The right drew on currents in U.S. political culture pining for an imagined past of individual independence and blaming government regulation, taxation, and social programs for the perceived economic and moral decay of society. It tapped into and fueled a backlash against the civil rights and women’s liberation movements. Conservatives channeled this rage into attacks on social programs and affirmative action. It also drew on the power of nationalism, and the identification of many ordinary people with the superpower status of the United States. It promised to reverse recent blows to the national self-image—the defeat in the Vietnam War, the rise of OPEC and the oil shocks, the Iranian Revolution and hostage crisis, the apparent loss of economic dominance to international competitors—and to restore the country to its rightful place of worldwide supremacy. These were the pillars of right-wing “populism” in the 1970s and 1980s, and to a great extent remain so today