Neoliberalism gets blamed for most of the modern world’s ills.
Today, former Reserve Bank Governor and Treasury Secretary Bernie Fraser has joined the chorus of people who should know better. Such as Ross Gittins.
Revenue isn’t the problem
Fraser’s criticism comes in a presentation he gave today at an Australia Institute event called Revenue Summit 18.
Why Revenue summit 18? Well:
The Revenue Summit is a special initiative of The Australia Institute that will discuss the need to increase public spending to strengthen our economy and society, and how to raise public revenue efficiently and equitably.
Of course. The problem is that government doesn’t get enough of your money to spend, not that they waste it or that you cold spend it better.
Fraser says that “favouring the market system ahead of the state system, and individual interests ahead of community interests, can lead to profoundly unfair social outcomes”.
It can. It can also not.
What is neoliberalism?
Favouring the free market over government is basically the idea behind neoliberalism. It’s an idea pioneered by people like Milton Friedman and Friedrich Hayek.
In 1951 Milton Friedman explained what he thought neoliberalism was:
Neo-liberalism would accept the nineteenth century liberal emphasis on the fundamental importance of the individual, but it would substitute for the nineteenth century goal of laissez-faire as a means to this end, the goal of the competitive order. It would seek to use competition among producers to protect consumers from exploitation, competition among employers to protect workers and owners of property, and competition among consumers to protect the enterprises themselves. The state would police the system, establish conditions favourable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress. The citizens would be protected against the state by the existence of a free private market; and against one another by the preservation of competition.
The detailed program designed to implement this vision cannot be described in full here. But it may be well to expand a bit on the functions that would be exercised by the state, since this is the respect in which it differs most from both 19th century individualism and collectivism. The state would of course have the function of maintaining law and order and of engaging in “public works” of the classical variety. But beyond this it would have the function of providing a framework within which free competition could flourish and the price system operate effectively. This involves two major tasks: first, the preservation of freedom to establish enterprises in any field, to enter any profession or occupation; second, the provision of monetary stability.
There is not a lot there that you can hate. And successive Australian governments have done incredibly well to produce a system in which these ideals have allowed flourishment. The machinery of success include the Productivity Commission and the Foreign Investment Review Board, but the greatest accomplishment in Australia has undeniably been the ACCC.
Fraser’s criticism of neoliberalism, despite its successes it to find fault in ‘feels’.
For example, Fraser warns that society has become “less fair, less compassionate and more divided” and “more devoid of trust in almost every field of human activity” in the past 20 years.
This is an argument he has made before, including here in 2012.
It’s not neoliberalism’s fault
Can neoliberalism be blamed for a lack of trust? If so, how?
Fraser says; “As a disinterested player in climate change negotiations and a miserable foreign aid donor, we have slipped well down the list of good global citizens.”
This has nothing to do with neoliberalism. At all. This is a result of governments not being able to mount a strong case for ‘climate action’ or foreign aid.
And unless you are actively advocating for a dictatorship, voters/taxpayers will have the right to object and make their objections known.
Curiously, today, the ABC’s Jonathan Green came out in favour of such a dictatorship, although her and future commenters seems to have missed the implications of what he said:
Seems increasingly necessary to move the more important parts of public administration out of reach of politics. The system we have is cynically manipulated, trapped in the self-interested short term, ineffectual and a betrayal of public faith.
— Jonathan Green (@GreenJ) October 16, 2018
The hilarious problem with Green’s solution is he seems to assume that the bureaucrats will do what he wants them to do on matters like climate change.
What if they don’t? He didn’t quit think it through that far.
Back to Fraser …
Do we we even have neoliberalism?
It can be argued that strong market intervention by governments into energy markets, for example, which have distorted investment decisions and put economic coal-fired power stations out of business, are anti-neoliberal and help reduce trust in the system. In doing so, they have made ‘climate action’ harder (if that’s what floats your boat).
Fraser goes on to suggest that political ideologies appear to have contributed to inequality and disadvantage in Australia in that time, although they are unspecified you can guess they’re the ones that lean to the right.
Thomas Sowell, a disciple of Friedman, says that three questions destroy most liberal ideas (‘liberal’ here in the US sense of the term). They certainly destroy Fraser’s ‘case’ against neoliberalism.
The first is: ‘Compared to what?’
The second is: ‘At what cost?’
And the third is: ‘What hard evidence do you have?’
Fraser in large part blames neoliberalism and its influence on policymaking for the “disconnect between Australia’s impressive economic growth story and its failure on so many markers to show progress towards a better, fairer society”.
Sowell’s three questions sour his case. If not what we have now (which is not neoliberalism but a bastardised example of neoliberalism with huge lashings of intervention), what?
This was never the promise of neoliberalism.
It’s important to reiterate that even Friedman noted that “the state would police the system, establish conditions favourable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress”. So even Friedman did not suggest a government-less system of, er, government. Government has a role to play. Fraser thinks it should play a greater role and will require more taxes to do so. this implies intervention to distort markets. There aren’t many good examples of governments doing so.
In Australia, when it comes to relieving acute misery and distress, we rely on a massive welfare transfers system. There are strong arguments that instead of limiting misery the state increases it.
Fraser goes on:
Those unable to afford access to decent standards of housing, healthcare, and other essential services have to settle for inferior arrangements, or go without.
This is a ludicrous argument to make in Australia about Australia. And again, has nothing to do with neoliberalism.
At present, Australians pay an enormous amount of our taxes into the healthcare system to support Medicare, to state governments to pay for public housing, and we are also compelled through penalty to take out private health insurance, which is itself enormously subsidised by company tax and tax from high-income individuals. It is not a neoliberal system. Perhaps that’s why we are forced to buy the product. It’s a rubbish product. If market forces applied, health insurance would be better or the companies wouldn’t be on life support long enough to save. They’d barely last a week.
So is Fraser suggesting that we pay even more into a highly regulated, subsidised government system?
Of course he is, as that’s always the answer fo the left. Higher taxes will fix whatever ills have been caused by government spending!
As an example of neoliberalism, healthcare is the worst example Fraser could have chosen to make his case.
The GFC was not market failure
The Guardian continues to quote Fraser:
The global financial crisis “should have” marked a tipping point, when the “idealised view of financial markets being self-regulating” was shattered. While Australia “avoided the worst traumas of the GFC” with prompt fiscal and monetary policy responses, in Europe “taxes were increased and spending programs slashed”, resulting in a further five or six years of severe recession.
This is again simply not true and a poor reading of events, tinted and tainted by ideology rather than what actually happened. Markets were not allowed to self regulate. The housing crisis and GFC was largely caused because the US government forced banks to make loans that couldn’t be repaid but which were backed by the US Government through Fannie Mae and Freddie Mac. Many were to blacks and Latinos and were made under the threat that banks would be named and shamed as racists if they did not extend finance.
Because they were ‘guaranteed’ by the government there was no real cost to them – they were not market based. The credit ratings agencies said they were AAA because they were government backed even though the asset was often worth les than the debt.
When banks started to fail they were bailed out and not allowed to fail. Then they were propped to the point that the GFC was one of the most profitable experiences in the history of groups like Goldman Sachs which took a profit on the government bonds issued and bought by the US Treasury through Goldman Sachs. Nice work if you can get it.
The taxpayer got done over.
Austerity in countries like Greece amounted to little more than collecting taxes which the Greek Government had long neglected. These were economies built not on neoliberal principles but on the laziness of Keynesians.
One of the only smart things Wayne Swan ever said was that if you’re Keynesian on the way down you have to be one on the way up. Basically, if you are going to spend when times are bad you have to save and repay debt when times are good. They never were for Swan.
He could only promise a surplus, never actually deliver one.
[Hilariously, if you watch the first Bernie Fraser video from 2012, the commentary includes this ripper line: “Her says the surplus Wayne Swan will announce next week makes no economic sense.” Yeah … never happened. Good economisting, Fraser.]
The reason is that it is bloody hard to reverse government spending. Voters don’t like lid coming down on the cookie jar. Which is why it is best to avoid opening it to unfunded spending in the first place. Like the NDIS, the Building the Education Revolution and other stimulus which commenced long after it was required and in the case of the NDIS might well be beneficial but can’t be afforded.
Arguing that neoliberalism hasn’t been tried is like socialists saying there has never been true socialism so we should keep trying. The fact is that the neoliberalism described by Friedman is basically the model in Australia and it bloody well works. To argue it hasn’t is to assign it values nd outcomes it has never pretended to solve or even tried to.
Fraser can do better. Sadly, he knows it.