Month: September 2020

Neoliberal supporters often quote iconic politicians and philosophers in order to legitimise their ideology. These quotations are usually incomplete and out of context.

Margaret Thatcher.

Margaret Thatcher once said

“They are casting their problems at society. And, you know, there’s no such thing as society. There are individual men and women and there are families. And no government can do anything except through people, and people must look after themselves first. It is our duty to look after ourselves and then, also, to look after our neighbours.”

The quote is from an interview on BBC Radio 4’s Women’s Hour programme in 1987. In its full version Thatcher makes an unremarkable claim, of course society and government is made up of people. However, this quotation is rarely given in full. It is usually abbreviated by Neoliberals to- read more

The fallacies in Neoliberal assumptions.

“ Every epoch therefore develops a range of contradictory discourses and ideologies for the purpose of legitimising the inequality that already exists or that people believe should exist”

Thomas Piketty – Capital and Ideology

Neoliberal ideology is the means by which inequality in our society is legitimised. The following is a brief list of the fallacies that form the core of Neoliberal economic theory.

• “The market tends towards equilibrium.” The market has never done this. The market is a highly complex system with a tendency towards instability-hence regular bubbles and recessions.
• “Consumers are rational actors, always seeking the lowest cost.” Consumers are far from rational. Purchase decisions are influenced by peer pressure, aspiration, conformity to trends, impulse and are readily manipulated. If consumers were purely rational actors, branding and advertising would not function.
• “The Price Mechanism. The interaction of buyers and sellers in free markets enables goods, services, and resources to be allocated prices. Relative prices, and changes in price, reflect the forces of demand and supply and help solve the economic problem.” The purchaser rarely has perfect information. The context within which a purchase decision is made can contain many inconsistencies in data and lack complete information. This difference in data allows better informed buyers to make better decisions and so data rationing is a common strategy in the market- hence the rules against insider trading to offset this tendency.
• “The value of products and services is determined by the market through price.” There is no recognition of socially valued services and products -e.g. sewage systems, transportation, security, national defence, which individual consumers would find difficult to price. Additionally, there is no recognition in orthodox economics of civilisational wealth, intelligence applied to base matter, as the fundamental wealth building function.
• The Neoliberal model assumes the only source of money is debt. Issuers of money, e.g. Governments, or government franchised banks, were not modelled by neoliberals until the GFC in 2007/8. The models are still incomplete.
• The Neoliberal model assumes that new economic demands will be fully served by the market adapting to meet the new need. However, some new needs are beyond the scope of private actors- e.g. war, climate change, global pandemics etc, and require the action of government scale entities. This need is not considered by Neoliberal economics and privately owned resources are never reserved for unpredictable large scale events.
• Neoliberal economists produce models that are highly abstracted. Unlike the hard sciences, like physics for example, these models are not tested by experimentation, indeed, they cannot be as this would require economists to arrange large scale experiments that may result in loss of quantity or quality of services to a population which would not be tolerated and would be unethical to perform. Economic models are so abstracted that, although they may appear self consistent and calculable, they bare no relationship to real world observations. If these models were proposed as representing physical activity, they would be rejected by the physics community for their lack of fit with observations.
• Neoliberal economics has an incomplete picture of the economy and is hampered by legacy concepts. This incomplete legacy dominated picture prevents the identification of more efficient models.
• Neoliberal economics assumes society is external to the economy. There is overwhelming evidence that this is a destructive model for society. Economics needs to recognise that the economy exists within and is supported by society and is entirely dependent on society to function. The economy exists to serve society, society does not exist to serve economics.
• Neoliberal economics does not recognise the environment as part of its model and treats natural resources as free and infinite. Real world economics recognises the environment is the foundation of wealth and it is essential for any economic system to account for environments protections.
• Neoliberal economics is short term focussed and has limited predictive power. It cannot inform policy on a societies long term goals or objectives as it has no mechanism for accommodating external events that act over the long term.
• Neoliberal economics limits its scope to a single utility function, ‘efficiency’. This goal is not rigorously defined by neoliberal proponents allowing wide interpretation, but more importantly, it is a subset of societies goals and objectives. The complexity of all human goals and objectives cannot be represented by a single economic objective. A composite utility function e.g civilisational wealth, encompasses a broader set of societies goals.
• Neoliberal economics assumes that competitive activity will increase the number of economic actors, however the existence of a small number of large global corporations that dominate each market sector proves this is a false assumption. Scale begets greater cost efficiency and greater market share which automatically drives out smaller competitors either by their market failure or by their absorption by larger actors.
• Neoliberal economics assumes growth in wealth will be evenly distributed “ a rising tide raises all boats”. This has been disproven by the increase of inequality over the past 40 years to extremes not seen since the Laissez Faire Victorian period or Le Belle Epoch on France. This is an inevitable, and predictable, consequence of Neoliberal economic policy.
• Neoliberal economics assumes workers will adapt efficiently to changes in work practices, moving from one form of employment to another. This ignores the reeducation and relocation costs which act as friction on the workers ability to adapt. This adaptation cost is omitted from Neoliberal economic models and/or is declared to be an externality.
• Neoliberal economics assumes a level playing field for all actors. Subsidies given to actors in markets e.g. energy, automotive, aerospace etc. are not acknowledged or are declared externalities despite their obvious distortion of the level playing field. This deliberate narrowing of scope using the principle of an externality is a mechanism for limiting debate.

• Orthodox Neoliberal economics omits energy from its modelling, but energy is a fundamental physical phenomena that applies to all human activity. It directly effects the economy and should be modelled as a constraint on resources or as a resource in its own right
• Orthodox Neoliberal economics omits entropy from its modelling, Entropy is a fundamental physical phenomena that applies to all human activity. Entropy directly effects the economy and should be modelled as an inefficiency.

Neoliberal economic models are abstractions that Adam Smith would find absurdly removed from societies needs.

“It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” read more