This is the beginning – not the end – for neoliberalism

Charlie Paice

November 22, 2019

Paul Mason, who is just a journalist and definitely not an activist, is cropping up on our screens a great deal recently. He has been answering the calls for a kinder, gentler politics with screams of “we’re coming for you, Boris Johnson. Ready or f***ing not!”

His core message for a while now has been that neoliberalism is broken, in collapse, in crisis, or some other permanent end-of-days disaster scenario. He articulated this at interminable length in his 2015 book Postcapitalism: A guide to our future.

It is an entertaining book which manages to marry a criticism of communist central planning with a call to nationalise the financial sector. The key point, however, is that Mason mistakes the status quo for neoliberalism.

He might be surprised to learn that many of the things about which he complains are also frequently moaned about by neoliberals, albeit with vastly different perspectives on how we should go about tackling those problems.

In typical fashion, he kicks off with the financial crisis. He is broadly correct in his analysis of the role of Federal Reserve policy, writing that “from 1987 until 2000, under Greenspan’s leadership, the Fed met every downturn with a rate cut”.

He claims that this is down to “the second basic reflex of neoliberalism: the assumption that all crises were solvable”. In reality, this was simply a poor implementation of neo-classical economics. Even new Keynesians such as Paul Krugman defended it at the time.

Mason’s claim that “neoliberalism as an ideology fell apart” with Greenspan’s admission, “I found a flaw”, is false. If anything, the crisis has allowed neoliberals to identify areas where the state made mistakes and distance themselves from the status quo to an even greater extent.

Mason also criticises many of the changes to financial regulations, which he attributes to neoliberalism. For instance, he describes the method of weighting assets introduced in Basel II as “an open invitation to game the system”.

Such regulations can create warped incentives that, in fact, increase systematic risk. Kevin Dowd, senior fellow at the Adam Smith Institute, has consistently criticised the way current capital requirements and stress testing create bad incentives for banks. The patching over of the industry since has been met with criticism by many neoliberals.

Neoliberals, like us at the ASI, recognise the negative role of low interest rates for the economic cycle. We acknowledge that ‘cheap money being used to fix a crisis caused by cheap money’ is not a good idea.

Neoliberals are critical of cheap money and warped incentives. The primer on Austrian economics written by Eamonn Butler, Director of the ASI, has some great content in this area.

Mason goes on to posit that high levels of neoliberal growth are only accessible through the generation of “unsustainable distortions”. He confidently claims that “neoliberalism can only exist because certain key countries do not practice it”, choosing instead to pursue “neo-mercantilism”.

Raghuram Rajan, the former governor of the Indian central bank, argued in his book Faultlines that many countries such as Japan and Germany had sought export-led growth strategies that the UK and US would have found it politically impossible to refuse.

The role of demander of last resort meant that their populations could enjoy the increased living standards brought by foreign exports, a position they felt pressured into by democratic will.

Fears that America may devalue its currency (a proposal dismissed by presidential hopefuls on both sides) along with the threat of increased protectionism, may result in the acceptance of a new consensus whereby countries with large current account surpluses allow their currencies to depreciate.

Moreover, for some countries like China to maintain a large trade surplus, they will find themselves having to suppress their middle and upper classes – who are key supporters of the ruling parties – which now depend on western goods.

An argument, therefore, which states both that growth relies upon these trade imbalances and that those imbalances will not balance seems quite unconvincing.

Another frequently raised issue is that of rentier capitalism. It is, in reality, less prevalent than ever before. Furthermore, the amount earned in dividends from capital has fallen as a percentage value of that capital.

Mason even admits this himself, describing the way in which the “ratio of share prices to earnings… which had meandered between 10x and 25x since the year 1870, now spiked to 35x and 45x earnings.”

It might be argued that rentier capitalism is more reliant on overinflated asset prices from quantitative easing. Once again, though, neoliberalism must not be confused with the status quo.

Milton Friedman proposed an alternative to QE in the form of helicopter money, which would see new money going towards public services.

The dominance of Silicon Valley billionaires in rich lists also shows how the haute-bourgeoisie have earned their money through innovation. They are being rewarded for the creation of whole new products and sectors, rather than living off the interest of capital.

If they fail to remain innovative, creative destruction will result in them going the same was as Kodak, Blockbuster and Thomas Cook. The real rent-seekers are those who benefit from regulation, which they then hide behind.

It is no surprise that Mason cannot see this. It is difficult to see anything at all when your head is buried in Marxism and the ‘metaphysical’ Labour Theory of Value.

Neoliberalism is not broken, nor is it struggling to come up with new ideas. The Adam Smith Institute, 1828, and indeed various other proudly neoliberal groups and organisations continue to strive for free markets, freer people and greater prosperity for all.


Written by Charlie Paice

Charlie Paice is a political commentator. He was formerly a research associate at the Adam Smith Institute.


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