I know what liberal ideology in economics is all about. I’ve encountered it at every turn, even before I began my formal studies in economics. The same is true of liberal ideology in politics, which has shown its ugly face once again in the current electoral campaign.
In both cases, liberal ideology is based on the idea that the existing system, while perhaps imperfect, is the only game in town. It is a conception both of what is and of how change can and should take place—gradually and without major disruption. According to liberals, the biggest threat is populism, when the masses of people challenge the existing common sense and seek radical change. It therefore works with conservative ideology, as two bookends of mainstream discourse, to limit the theoretical and policy debate to a narrow set of options.
Here’s how liberal ideology works in economics: At the microeconomic level, capitalism (or, as liberals generally refer to it, the market system) has the potential of achieving an efficient allocation of resources. As for the macroeconomy, capitalism is capable of providing stable growth and full employment. Capitalism, therefore, promises the best possible outcomes both for individuals and for the economy as a whole.
Now, while conservative mainstream economists believe that efficiency, growth, and full employment stem from allowing markets to operate freely, liberal mainstream economists argue that markets are often imperfect and therefore the only way to achieve (or at least approximate) those goals is to intervene in and regulate markets. Those are the terms of the mainstream debate in economics, from the origins of modern economic discourse in the late-eighteenth century right on down to the present.
Think about it as the difference between the invisible hand and the visible hand.
Liberal mainstream economists, of course, hotly contest the free-market doctrine of their conservative counterparts. But notice also that they hold in common both the goals and the limits of economic policy with conservatives. Liberals and conservatives share the idea that the goals of an economy are to ensure efficiency, growth, and full employment. And they share the idea that economic policy should be limited to tinkering with capitalism—in the direction of more regulation or, for conservatives, more free markets—in order to achieve those goals.
That’s it, the limits of the mainstream debate.
Liberals, in particular, believe that the appropriate set of government institutions and regulations can move capitalism toward microeconomic efficiency (within individual markets, national economies, and across the global economy) and macroeconomic stability and full employment (especially, during a downturn, with expansionary fiscal and monetary policies). Anything else, from the perspective of liberal ideology, represents an unscientific view of the economy and an unwarranted attempt to dismantle existing economic institutions.
What liberal mainstream economists don’t see is that capitalism, despite its premises and promises, fails to deliver on them. For example, capitalism holds up “just deserts” as an ideal—everybody gets what they deserve—but it actually means that most people are forced to surrender the surplus they create to their employers, who are allowed to either keep it (and do with it what they want) or distribute it to still others (the tiny group at the top that manages the way those enterprises operate). Capitalism also pledges stable growth and full employment but then, precisely because of that private control over the surplus, regularly delivers boom-and-bust cycles and throws millions out of work.
Liberals also don’t see (because they don’t want to or, given their theory, can’t see) that even the policies they endorse to make capitalism work better are frustrated at every turn. Why? Because, even when regulations are imposed (such as they were during the New Deal programs of the 1930s), they leave in place both the interest and means on the part of employers and their allies to first evade and then, eventually, overturn those regulations.
Not only does liberal economic ideology offer a limited view of how capitalism works; it is also serves to keep out of the debate both other theories of capitalism and other ideas of how the economy might be organized. It’s premised on the notion that here are the acceptable terms of discussion—capitalism is characterized by markets that work more or less well, at the microeconomic and macroeconomic levels—and that other conceptions of capitalism—which introduce things like class exploitation into the discussion—are simply wrong or irrelevant. And it limits the discussion to regulating markets and rules out of court the possibility of imagining and creating other economic institutions—ways of organizing the economy that seek, for example, to actually eliminate class exploitation.
Part of the problem is that, from the perspective of liberal ideology, fundamental changes to the way the economy is organized aren’t necessary. That’s the liberal fantasy that markets can be made to work correctly. The other part of the problem is the liberal stoking of fears that changing current institutions—dismantling some and creating new ones—leads to chaos.
The latter is the basis of the ever-present charge of populism. Creating economic institutions that give “too much” to the mass of working people—whether high minimum wages or guaranteed lifetime incomes or taking areas of the economy out of international trade or giving workers some say in how the enterprises in which they labor operate—are deemed to be too costly or simply unfeasible.
And then, when those arguments fail to work, if radical ideas appear to capture the popular imagination, liberal economic ideology casts the final die: fundamentally changing how the economy works would be so disruptive of existing arrangements that it would invite a negative reaction by those currently in charge. It would create, so the argument goes, chaos. Therefore, it is necessary to protect existing regulations and perhaps introduce a few new regulations to markets and leave things at that.
That’s how liberal ideology works in economics. And, as it turns out, that’s exactly how liberal ideology is being deployed in our current political debate—to normalize one, very limited set of options and to marginalize any discontent or desire that threatens to go beyond them.