The abdication of liberalism

Posted: 14 July 2016 in Uncategorized
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the-infinite-recognition-1963(1).jpg!Large

René Magritte, “The Infinite Recognition” (1963)

Dan Rodrick, like most mainstream economists, wouldn’t know left-wing economics if it bit him on the proverbial nose (as I explained in early 2015). What he’s really referring to—in his essay, “The Abdication of the Left”—is liberal economics, the left-of-center wing of mainstream economics.

But, if you replace all his references to “the Left” with “liberalism,” you can read Rodrick’s latest column as a forceful indictment of left-of-center mainstream economics over the course of the past few decades.

As an emerging new establishment consensus grudgingly concedes, globalization accentuates class divisions between those who have the skills and resources to take advantage of global markets and those who don’t. Income and class cleavages, in contrast to identity cleavages based on race, ethnicity, or religion, have traditionally strengthened the political left. So why has the left been unable to mount a significant political challenge to globalization?. . .

Economists and technocrats on the left bear a large part of the blame. Instead of contributing to such a program, they abdicated too easily to market fundamentalism and bought in to its central tenets. Worse still, they led the hyper-globalization movement at crucial junctures.

Rodrick is correct. The liberal wing of mainstream economics (in the academy, as advisers to liberal political parties, and in multinational financial and development agencies) did, in fact, embrace market fundamentalism—from domestic financial markets to international trade and capital flows—and the policies they promoted did serve to accentuate existing income and class cleavages. And then, after creating the conditions (in the form of growing inequality and financial fragility) for the crash of 2007-08, they proceeded to manage the imposition of austerity policies, both within and across countries.

So, indeed, liberals are in large part responsible for the resurgence of the Right, in the form of anti-immigrant protests and nativist populism. Those movements, which have been moving from the fringe to center stage in the United States and Europe, are the more-or-less inevitable backlash against free-market fundamentalism and economic austerity.*

That’s not to say those on the Left—the real Left, not Rodrick’s liberal mainstream economists—do not share some of the blame. Their own weak opposition to market fundamentalism and economic austerity, which often meant little more than a return to Keynesian macroeconomics and the defense of existing welfare-state programs, created a vacuum for other policies and strategies. What was needed (both where the Left was in power, from Greece’s Syriza to Brazil’s Workers’ Party, to where it was not, including the United States and the rest of Europe) was an approach that, at one and the same time, highlighted the structural causes of growing income and class cleavages and proposed alternative economic and social institutions.

If, as Rodrick explains, “the right thrives on deepening divisions in society – ‘us’ versus ‘them’.” and liberalism looks to enact “reforms that bridge” those cleavages, the Left aims to overcome those cleavages by creating new, noncapitalist ways of organizing economic and social life. Not just managing the cleavages but actually eliminating them.

That, as I see it, is the challenge for the Left moving forward.

 

*As Brad DeLong admits, the liberal fantasy of free markets and globalization—his own view of the world—”did go horribly wrong”:

Financial globalization was intended to take down barriers to capital inflows erected by rent-seekers in developing countries, and so speed growth in economies that had been starved of capital while also equalizing incomes. Financial deregulation was supposed to break up the cozy investment banking and other oligarchies of Wall Street and diminish their private-sector tax on the American economy. Financial deregulation was supposed to provide the poorer half of America with the access to fairly priced credit that it lacked and with the opportunity to invest in assets that would yield equity-class returns, which it also lacked. And, in a world in which central banks had the powers and the will to successfully stabilize aggregate demand, there seemed little downside to letting people who could not put together a 20% down payment buy a house, to forcing Morgan Stanley and Goldman Sachs to deal with competition from Citigroup and Bank of America, and to allow entrepreneurs in Mexico to raise funds not just from a cozy oligarchy of Mexico City banks but on the global capital market.

And France’s socialist technocrats were right: in highly-open economies the task of managing aggregate demand has to be a global, or at least a North Atlantic-wide, or at least a continent-wide exercise. In a good world, large exchange rate changes should only take place in response to persistent fundamental disequilibria rather than being used as first-line tools for demand management.

It all did go horribly wrong.

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