Neoliberalism: the idea that swallowed the world
By Stephen Metcalf, The Guardian
Friday 18 August 2017
That Hayek is considered the grandfather of neoliberalism – a style of thought that reduces everything to economics – is a little ironic given that he was such a mediocre economist. He was just a young, obscure Viennese technocrat when he was recruited to the London School of Economics to compete with, or possibly even dim, the rising star of John Maynard Keynes at Cambridge.
The plan backfired, and Hayek lost out to Keynes in a rout. Keynes’s General Theory of Employment, Interest and Money, published in 1936, was greeted as a masterpiece. It dominated the public discussion, especially among young English economists in training, for whom the brilliant, dashing, socially connected Keynes was a beau idéal. By the end of the second world war, many prominent free-marketers had come around to Keynes’s way of thinking, conceding that government might play a role in managing a modern economy. The initial excitement over Hayek had dissipated. His peculiar notion that doing nothing could cure an economic depression had been discredited in theory and practice. He later admitted that he wished his work criticising Keynes would simply be forgotten.
Hayek’s was a total worldview: a way of structuring all reality on the model of economic competition. He begins by assuming that nearly all (if not all) human activity is a form of economic calculation, and so can be assimilated to the master concepts of wealth, value, exchange, cost – and especially price. Prices are a means of allocating scarce resources efficiently, according to need and utility, as governed by supply and demand. For the price system to function efficiently, markets must be free and competitive. Ever since Smith imagined the economy as an autonomous sphere, the possibility existed that the market might not just be one piece of society, but society as a whole. Within such a society, men and women need only follow their own self-interest and compete for scarce rewards. Through competition, “it becomes possible”, as the sociologist Will Davies has written, “to discern who and what is valuable”.
What any person acquainted with history sees as the necessary bulwarks against tyranny and exploitation – a thriving middle class and civil sphere; free institutions; universal suffrage; freedom of conscience, congregation, religion and press; a basic recognition that the individual is a bearer of dignity – held no special place in Hayek’s thought. Hayek built into neoliberalism the assumption that the market provides all necessary protection against the one real political danger: totalitarianism. To prevent this, the state need only keep the market free.
This last is what makes neoliberalism “neo”. It is a crucial modification of the older belief in a free market and a minimal state, known as “classical liberalism”. In classical liberalism, merchants simply asked the state to “leave us alone” – to laissez-nous faire. Neoliberalism recognised that the state must be active in the organisation of a market economy. The conditions allowing for a free market must be won politically, and the state must be re-engineered to support the free market on an ongoing basis.
That isn’t all: every aspect of democratic politics, from the choices of voters to the decisions of politicians, must be submitted to a purely economic analysis. The lawmaker is obliged to leave well enough alone – to not distort the natural actions of the marketplace – and so, ideally, the state provides a fixed, neutral, universal legal framework within which market forces operate spontaneously. The conscious direction of government is never preferable to the “automatic mechanism of adjustment” – ie the price system, which is not only efficient but maximises liberty, or the opportunity for men and women to make free choices about their own lives.
It is a grand epistemological claim – that the market is a way of knowing, one that radically exceeds the capacity of any individual mind. Such a market is less a human contrivance, to be manipulated like any other, than a force to be studied and placated. Economics ceases to be a technique – as Keynes believed it to be – for achieving desirable social ends, such as growth or stable money. The only social end is the maintenance of the market itself. In its omniscience, the market constitutes the only legitimate form of knowledge, next to which all other modes of reflection are partial, in both senses of the word: they comprehend only a fragment of a whole and they plead on behalf of a special interest. Individually, our values are personal ones, or mere opinions; collectively, the market converts them into prices, or objective facts.
Hayek’s Big Idea isn’t much of an idea – until you supersize it. Organic, spontaneous, elegant processes that, like a million fingers on a Ouija board, coordinate to create outcomes that are otherwise unplanned. Applied to an actual market – one for pork bellies or corn futures – this description is little more than a truism. It can be expanded to describe how various markets, in commodities and labour and even money itself, form that part of a society known as “the economy”. This is less banal, but still inconsequential; a Keynesian accepts this description happily. But what if we bump it up one more step? What if we reconceive all of society as a kind of market?
Markets may be human facsimiles of natural systems, and like the universe itself, they may be authorless and valueless. But the application of Hayek’s Big Idea to every aspect of our lives negates what is most distinctive about us. That is, it assigns what is most human about human beings – our minds and our volition – to algorithms and markets, leaving us to mimic, zombie-like, the shrunken idealisations of economic models. Supersizing Hayek’s idea and radically upgrading the price system into a kind of social omniscience means radically downgrading the importance of our individual capacity to reason – our ability to provide and evaluate justifications for our actions and beliefs.
As a result, the public sphere – the space where we offer up reasons, and contest the reasons of others – ceases to be a space for deliberation, and becomes a market in clicks, likes and retweets. The internet is personal preference magnified by algorithm; a pseudo-public space that echoes the voice already inside our head. Rather than a space of debate in which we make our way, as a society, toward consensus, now there is a mutual-affirmation apparatus banally referred to as a “marketplace of ideas”. What looks like something public and lucid is only an extension of our own pre-existing opinions, prejudices and beliefs, while the authority of institutions and experts has been displaced by the aggregative logic of big data. When we access the world through a search engine, its results are ranked, as the founder of Google puts it, “recursively” – by an infinity of individual users functioning as a market, continuously and in real time.
According to the logic of Hayek’s Big Idea, these expressions of human subjectivity are meaningless without ratification by the market – as Friedman said, they are nothing but relativism, each as good as any other. When the only objective truth is determined by the market, all other values have the status of mere opinions; everything else is relativist hot air. But Friedman’s “relativism” is a charge that can be thrown at any claim based on human reason. It is a nonsense insult, as all humanistic pursuits are “relative” in a way the sciences are not. They are relative to the (private) condition of having a mind, and the (public) need to reason and understand even when we can’t expect scientific proof. When our debates are no longer resolved by deliberation over reasons, then the whimsies of power will determine the outcome.
This is where the triumph of neoliberalism meets the political nightmare we are living through now. “You had one job,” the old joke goes, and Hayek’s grand project, as originally conceived in 30s and 40s, was explicitly designed to prevent a backslide into political chaos and fascism. But the Big Idea was always this abomination waiting to happen. It was, from the beginning, pregnant with the thing it was said to protect against. Society reconceived as a giant market leads to a public life lost to bickering over mere opinions; until the public turns, finally, in frustration to a strongman as a last resort for solving its otherwise intractable problems.
What began as a new form of intellectual authority, rooted in a devoutly apolitical worldview, nudged easily into an ultra-reactionary politics. What can’t be quantified must not be real, says the economist, and how do you measure the benefits of the core faiths of the enlightenment – namely, critical reasoning, personal autonomy and democratic self-government? When we abandoned, for its embarrassing residue of subjectivity, reason as a form of truth, and made science the sole arbiter of both the real and the true, we created a void that pseudo-science was happy to fill.
A little too mystical for me but it does point out why Neo Liberalism is a failure as a Philosophy as well as an Economic Policy.