The Great Deception of Neo-Liberalism

An interesting trend I've come to notice with centrists is their love for graphs. It hits a point to where one can understand what the graph is telling us, but are then unable to explain where it comes from. Probably one of my favourite examples of this is the Twitter account titled "Neoliberal".

Graphs offer a simple message, but for those who study economics we must also ask serious questions. How do we define poverty and economic freedom? To what extent does one affect the other? What is the source of the information and is there room for bias?

The argument that states without liberalised economies don't do well in the long term is rather disingenuous and is evasive of mature debate. The classic example that those on the left use to counter the neoliberal argument is Nordic countries, and for good reason. Sweden, Denmark, Finland and Norway share many characteristics such as large public sectors, a Labour market with strong unions and substantial work protection. Centralised government programs have been the forefront to why Nordic nations have some of the lowest poverty rates in the world. This isn't even touching on how their welfare state and taxes, a discussion those on the right would answer with animosity.

Yet despite the great success of the Nordic model, there has been an increasing global trend to move towards the Neoliberal agenda and the free market.

This can be pinned down to Globalisation, which has brought more people out of abject poverty and has expanded markets to reach out to developing nations. But whilst this may be something to cheer about in the short term, there has been increasing issues which have been ignored by centrists and the right.

These issues have recently been touched upon by three economists at the International Monetary Fund. Jonathan D. Ostry, Prakash Loungani, and Davide Furceri make the argument that the rise of inequality has been a creation of neoliberalism, which "in turn hurts the level and sustainability of growth". What is even more palpable is that neoliberalism has also increased the chance of economic crisis and volatility.

The thinking for Neoliberals is interesting. Whilst those on the left understand the strengths of human cooperation and the balance to keep in check our own self-interest, Neoliberalism instead ignores these factors and see workers as numbers in a profit-loss calculator. It proposes the idea that human competition is only method to which one can structure the economy. Such ideas were that of Margaret Thatcher herself. Under the Thatcher era, the Conservative government re-wrote the rules on the market economy, with the Conservatives arguing that lowering tax rates, particularly at the top, would only make people work harder and to invest more. She also argued that privatisation would, as already said, release economic burden of the state. This, according to Thatcher, would allow incredible new growth from increased competition with inequality, but the inequality would be shared. Growth would be so high that those on the bottom end and in the middle would be better off anyway.

But as we know from my last article, which can be found below, such an economic approach only damaged the economy under Thatcher. Looking at inequality figures in a broader spectrum, it still remains high.

If the benefits of Neoliberalism are so obvious, why do those on the right and centre give such deceit? To truly triumph over inequality and generate growth that is shared amongst the populace, we must first accept that the market is not perfect and can be wrong.

Classic economic theory proposes that the market will fix itself, an idea titled "Efficient Market Hypothesis" (EMH). Such an idea is erroneous for multiple reasons. If we were to accept EMH, then what we are ultimately arguing is that because market outcomes are always right then morally the rich deserve to be rich whilst the poor deserve to be poor. It also argues that government solutions only damage the market and that as long as there is a buyer and seller then almost any transaction is morally acceptable. At the end of the day, Neoliberalism calls for a pure free market.

But why do markets play out differently from each other?

The laws of economics are universal, as demand and supply work on both sides of the Atlantic plus North and South of Europe. However the outcomes, in terms of the level of changes and the level of inequality, have played out very differently. There are some countries with greater market inequalities than others. Nordic nations and Canada have far less market income inequality, let alone after tax and transfers, than the UK, US and Germany. This is mostly down to policy decision and how nations structure the market economy. So really the opposite is true: markets can be wrong and if not taken care of can be self-harming. If we do not regulate our markets then such a lack of action is the consequence of inequality.

What is also rather ironic is that whilst most Neoliberals will fight to their last breath to defend the free market (as long as they can profit from it), there really isn't such a thing as a "free market".

To define something one must understand the set of rules it follows. For example, rugby is rugby because it is defined by its rules. If we were to play rugby without its rules, it would no longer be rugby and thus no longer be enjoyed. So if Neoliberals wish to have a "free" market without regulation, then ultimately it is no longer a market at all. If the market was rugby, then the rules would be the equivalent of regulations. Could you imagine a sport with no rules? Could you imagine what would happen if you just let players do what they wanted?

If you wish to argue that the market will fix itself, then that very same principle can be applied to sport and other forms of games. Of course such an idea would be dismissed if we argued that rugby should ditch all its rules, yet when it comes to those on the right and centre is makes sense for the market.

At the end of the day we must make sure the market serves our needs. If we begin following market trends in the belief that the market is always correct then we sacrifice our values and become servants to a capitalist system with no clear trajectory.

#JeremyCorbyn #LabourParty