This article (May 5, 2004) by Thomas Palley gives a brief history of neoliberalism, how it replaced Keynesianism in the UK and the US, and what he thinks Post Keynesians need to do to reclaim the lost territory.
Read it at Foreign Policy In Focus
From Keynesianism to Neoliberalism: Shifting Paradigms in Economics
by Thomas I. Palley | Schwartz Economic Growth Fellow at theNew America Foundation
29 comments:
Superb!
what a bunch of Communist "Post-Keynesian" Propaganda
:)
"Throughout the period of Keynesian dominance, there remained deep conservative opposition within the United States, providing a base from which to launch a neoliberal assault."
American conservatives/fascists plotted a military coup against FDR in 1933, called the "Banker's Plot." The coup was aborted after General Smedley Butler leaked the story to the press.
American fascist Lammont DuPont laid out what would become the Neoliberal agenda in a speech to the National Manufacturers Association in 1942: "We will win the war by reducing taxes on corporations, high income brackets, and increasing taxes on lower incomes, by removing unions from any power to tell industry how to produce, how to deal with their employees or anything else, by destroying any and all government agencies that stand in the way of free enterprise."
Dupont's 1942 speech coined the phrase "free enterprise."
Dupont had a shady relationship with facism before and during WWII. The Duponts were also involved in the 1933 Banker's Plot.
http://www.scribd.com/doc/34240728/Unholy-Alliance-GM-DuPont-and-Hitler
"Eroding institutions of social protection increases income inequality, while maintaining protections holds income inequality constant. A pure neoliberal policy configuration would aim at eroding protections, since these are a form of market distortion, and would abandon full-employment countercyclical policy as unnecessary.
In practice, policy has not been applied as pure neoliberal theory would suggest. The United States has pursued a path of expansionary macro policy built on large budget deficits, countercyclical interest rates, and the erosion of social protections. "
Looks like Ramanan has dropped the ball here so if I may ;) .... NO mention here about the concurrent developments wrt the external sector....
Right along this same schedule was the advent of ever increasing USD "savings desires" aka "USD-love" by the external sector...
Perhaps these developments wrt the external sector were the real "game changer" over this time. As no counter-measures were taken in the fiscal balance to offset them. Foreigners USD hoarding is where the wealth of the middle class went.
This is how it looks to me in mathematical terms...
Palley's line of reasoning here very semantic ie "erosion of social protections", I have little understanding/agreement with this semantic description of events... what was "eroded" for instance?
This is a very subjective semantic statement.
Palley may not have a full mathematical appreciation for what the sectoral balances equation represents....
rsp,
Matt: "Palley's line of reasoning here very semantic ie "erosion of social protections", I have little understanding/agreement with this semantic description of events... what was "eroded" for instance? This is a very subjective semantic statement."
I believe that what he means is that regressive tax cuts and military expansion have been substituted for social spending, along with disadvantaging labor bargaining power. As a result, inequality has been rising under neoliberalism.
Tom,
For instance if somebody out there asked: "Where did the wealth of the middle class go?"
My answer would be, "Right here, to the penny":
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
Perhaps Palley's answer would be, "Well you see, it was eroded by undermining institutions of social protection which increased income inequality, while policies did not maintain protections that otherwise would have prevented income inequality"..... Whaaaaaaat?????
rsp,
Matt, I assume that Palley's response would be that the wholesale importation of cheap good was a key factor in making this possible. What happened along with increasing private indebted was (apparent) benefit in terms of real terms of trade. The corollary was stagnant wages, but with cheap imports people could substitute downward.
See what youre saying Tom, but I still think Palley's analysis here is a bit incomplete without addressing the external sector (as YOU have done btw)...
I'm surprised Ramanan let this one slip thru, unless I misread Ramanan's concerns wrt the external issues.
Rsp,
Matt,
Sorry couldn't catch you.
What about the external sector?
@ Matt,
Yes, I agree that Palley missed the external sector. This would have much harder to pull off without cheap imports for substitution. The falling price of digital technology also helped.
Ramanan,
Seems to me that Palley did not take into account what had/has been going on in the external sector wrt to what MMT terms 'savings desires'.
As far as the problems with US domestic economic distribution, I see causation coning from these emerging and growing 'desires' for USD savings by agents in the external nations.
Ive always viewed yourself as being very concerned with the external deficit in this case of the US. As far as it being "sustainable".
It may not be "sustainable" but in my opinion the causation of this perhaps unsustainable situation will be because the US system will break down socially first due to the inequitable distribution that results from external entities hoarding USD NFAs with impunity.
rsp,
Matt Franko,
What about…
1) 'free trade' agreements like nafta that put downward pressure on middle to lower income brackets
2) the lowering of upper income tax rates leads to greater RELATIVE wealth disparity
3) further automation that allows the owners to assume more profits (less going to the expense of labor)
4) lower taxes on capital gains than on wages
Can you further explain why hoarding of U.S. dollars by foreigners "is where the wealth of the middle class went?
JK,
It's like the way my brain works if somebody asks me a quantitative question, I have to be able to point to a bunch of numbers to be able to answer it.
The hypo here "where did the WEALTH go?", implies a stock, not a flow.
If you ask a hypo "where did the INCOME go?" I think yes for sure the issues you raise are key factors.
All this "free trade" policy has made it so easy for mercantilists to outsource labor, that the middle class has lost wealth building opportunities and on-going income potential.
Close the borders, or perhaps settle all trade in real terms instead of via banking.
rsp,
Matt,
The article is mostly written generally and not specifically for an open economy.
I am still unsure as to what you wish to say.
Ramanan,
The only countries he writes about are the US and the UK, making all sorts of political claims about their governance, last I checked, both open economies and the major cheerleaders for establishing open economies across the globe...
You do realize there is a term (X-M) in the GDP equation correct?
It is not clear to me based on this article that Palley does... it is absent from his analysis here.
rsp,
Matt,
It's true that everything is related and the external sector has big implications but certain things can be discussed without it.
@Matt
These guys (and the economics mainstream in general) apparently don't think that the flows and stocks external to (I-S) have any real effect on the functioning of the private economy .
Everything happens re actions of agents in the domestic sector. Money creation and leakages are apparently neglegible afterthoughts that don't figure into the main economic arena in any big way.
At least thats what it looks like from my view.
Ramanan,
"It's true that everything is related and the external sector has big implications but certain things can be discussed without it."
OK, sounds good, I'll remember that next time you go off on MMT about how they miss it wrt the external deficits.... I'll just point out that we are not discussing that issue at that time so it isnt applicable....
Rsp,
Paul,
They all have to be applied at all times... what world are these people living in????
"Hey we're going to design this aircraft but we wont take potential wind speeds into account for now..." Whaaaaaat????
I dont get how their brains work... rsp,
Matt,
"OK, sounds good, I'll remember that next time you go off on MMT about how they miss it wrt the external deficits.... I'll just point out that we are not discussing that issue at that time so it isnt applicable...."
While I won't start again on this, that is precisely where the external deficits is discussed or as if it doesn't matter in the discussion.
In Tom Palley's article, he is discussing ideas which can be discussed in the context of a closed economy.
For example there is no need to bring in the external sector to say that markets by themselves do not achieve full employment and neither do they resolve the issue of income inequality.
It is not necessary to bring in the external sector to argue that the neoclassical idea that workers get what they deserve are all wrong.
These matters can very well be discussed in a closed economy context.
Ramanan,
??????
I guess it's just me....
rsp,
Matt,
When (some) others use the phrase…
"closed economy context"
…it means something completely different than what we think of in a mathematics or physics context.
Talk about semantics and getting definitions right…????? Guess it only matters if WE aren't semantically pure.
Thus the limitations that we associate with closed systems aren't seen as limitations to some others. The limitations are either not considered important, relevant or they don't recognize them.
That's the only explanation I can come up with anyway.
Matt,
Okay peace. Possible I can't see something simple in this discussion.
Have you heard the joke: Why did Bernie Madoff go to jail? A: Because he robbed the 1%.
Paul,
I'm trying to follow this...
So Bill M says we can use fiscal to provide FE & PS and then Ram says 'you cant do that because the external balance will go to ever increasing levels, etc..."
And what Bill is talking about could be talked about in the context of a closed economy.
So Palley here goes off on "Thatcherism" and "Reaganism" or wtf and how this causes problems with 'distribution' SPECIFICALLY in terms of two OPEN ECONOMIES (ie US and UK) and I want to gig him a bit about not taking the external sector into account but then Ramanan thinks it's not applicable because it COULD be discussed in context of closed economies????
Could not Bill's propositions wrt fiscal be discussed in terms of a closed economy too?
Is this what you see too? Am I missing something??? Is it just me????
External sector need not be included in any analysis of open economies if you could make the same points about a closed economy????
rsp,
Ramanan,
Peace too, but as I look at things I continue to try to judge analysis as to whether the writer has taken all environments into account.
It looks easy to forget about the external sector... and BTW: I got this from YOU my friend!
The external sector is always important to include when you are analyzing policies of open economies... again this is what I learned from you.
So thanks my friend!
"Peace out."
Resp,
Matt,
When we use the term "closed" economy we are simply defining a boundary where it's convenient to keep the discussion focused.
Thus, we can use "closed" in reference to the universe of dollar-denominated NFA's (the non-government) or we can imagine the boundary enclosing dollar NFA's within the domestic sector only.
It appears that some consider it an "open" system if we include the external sector and that it changes the math.
The arithmetic is identical, One way we are looking at a simple closed system, the other we are looking at a closed system with leakages/injections.
In th ecase of the U.S. leakage is a known that has major effects on the domestic economy.
I don't see how we could make any sound judgements re unemployment and/or price stability without considering a leakage that great.
Somehow this confuses certain people. Not sure why.
I've used the tub or pool of water analogy in the past and been told that its not representative.
Never been told why though. Thats a tell.
What's ironic is this is about as simple as arithmetic gets in a relative sense.
Paul,
I think "closed economy" is one where there is no imports or exports... I could be wrong...
rsp,
Matt,
"I think "closed economy" is one where there is no imports or exports... I could be wrong..."
That's how many define a closed economy but that's not the same as a closed system.
The non-government is a closed system when you define it as the Universe of dollar-denominated NFA's.
The non-government includes net exports ie dollar NFA's held by foreigners.
So it may be an open economy but it's a closed system.
Dollar-denominated NFA's cannot be created or destroyed from within that system. You can change the composition but the quantity is unchangeable without external action (govt deficit/surplus).
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