Tuesday, May 12, 2020

Bill Mitchell — The coronavirus crisis is just exposing the failure of neoliberalism

The – RAID (Redundant Array of Inexpensive Disks) – technology marks best-practice in data storage and backup systems. It replaced SLED (single large expensive disk) to improve performance and insure against data loss from hardware failures. I have a series of RAID disks backing up the IT systems that I manage within my research centre. But when it comes to humanity, we do not follow this practice. Neoliberalism clearly subjugates human development and opportunity to the interests of profit. It has created a ‘Just-in-Time’ culture in manufacturing, in work (the gig economy), in our personal finances (debt vulnerability) as part of the deliberate strategy to gain a greater share of national income for profits at the expense of workers. But, in doing so, it has demonstrated a remarkable myopia and created the conditions for massive crises to wreak havoc. In this blog post, I outline my thoughts on how capitalism is now on life support and that we should end this charade forever and ‘reclaim the state’ for progressive ends and build in the essential redundancy that allows us to minimise the damage that arises when unpredictable events confront us....

I would add this observation to what Bill says.

There is a tradeoff between efficiency and resilience, which necessitates redundancy. Efficiency requires reducing redundancy. The sweet spot lies at optimal efficiency along with resilience. Capitalism is supposed to work by penalizing those firms that don't build in enough resilience through loss and the potential for insolvency.

There are two major trends in economic liberalism. Classical liberalism advocates minimizing the role of the state in an economy to "night watchman" status. Neoliberalism is based on state capture and using the state to further the interests of "capital."

Under neoliberalism, firms deemed "economic or financially significant" are protected from the rigors of capitalism by the state, which large firms effectively control politically. This is oligarchy — plutocracy, in particular.

When this happens, "economic and financially significant" firm face the moral hazard of being able to assume with high confidence that they will be backed by the state in the event of "systemic shock," which conventional economists view as exogenous to standard economic modeling.

This result in price pressure that also affects smaller firms and an economy become unstable for lack of resilience in the pursuit of maximum efficiency instead of optimal efficiency allowing for resilience.

On the other hand, I don't want to minimize the difficulty in assessing tradeoffs. For example, when the Army Corps of Engineers was planning the levies in New Orleans, there was a tradeoff between safety and expense. This meant assessing the potential from storms of different categories.

Given the historical record, it was decided to build against a category three situation. Going to cat 4 or 5 would entail greater expense and used of real resources, which would seem unnecessary in light of data. It turned out to be a bad choice, owing to "emerging" challenges that were not foreseen in the planning stage. Anyway, this is the way I recall it when it was discussed after the catastrophe.

Bill Mitchell – billy blog
The coronavirus crisis is just exposing the failure of neoliberalism
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Andrew Anderson said...

Neoliberalism is based on state capture and using the state to further the interests of "capital." Tom Hickey

Except the MMT School would further the interests of capital (those deemed the most "creditworthy") too - by INCREASING* the privileges of "the banks."

*e.g. unlimited deposit guarantees for free.
*e.g. unlimited, unsecured loans of fiat at zero percent interest.

Bob Roddis said...

Neoliberalism is based on state capture and using the state to further the interests of "capital." Tom Hickey

I agree. And therefore, it has nothing to do with following the policies of Hayek, Mises or Rothbard.

What Rothbard taught was that the giant all-intrusive regulatory state would ALWAYS be captured by the .1% and, in fact, they were the ones who initiated and imposed it.

Laissez faire is the way to defang them. "Progressives" have everything backwards.

Andrew Anderson said...

One cannot be for laissez faire and be for needlessly expensive fiat, Bob.

Nor can one be opposed to citizens using their Nation's fiat in account form and be anything but a bank dupe or worse - not a champion of liberty.

If ONLY the Austrians were in favor of genuine reform rather than worshiping shiny metals and lazy, risk-free fiat hoarding.