Book review: Chicagonomics

Millions are spent each year on promoting neoliberal ideas worldwide. JP O’Malley reads between the lines of a subtle example of this. 

N 1936 the British economist, John Maynard Keynes, published The General Theory of Employment, Interest and Money. It revolutionised economic theory and changed the course of mid 20th century history.

Before Keynes, conversations about money, public spending, and taxation were dominated by classical economists; they argued that most economic problems could be fixed if the forces of supply and demand in an untrammelled market were simply allowed to work their magic.

Following the Great Depression in the 1930s, Keynesian theory turned the idea of unfettered capitalism on its head, proposing a regulated economy that advocated government spending in times of economic hardship.

In Keynes’s economic revolution, the invisible thread of convention replaced Adam Smith’s invisible hand of the market.

It created the New Deal; a form of progressive politics that led to the welfare state; individuals had lasting economic security; trade union membership soared; and, most importantly, the economy grew exponentially.

During the 30 year post-war period in the United States there was an unprecedented rise in living standards: both GDP and median income doubled.

Keynes was no Marxist though.

Rather than opposing the capitalist system, his ideas actually sought to save it from collapsing. Still, egalitarianism was key to Keynesian economics because, crucially, both the working and middle classes did well out of it.

During these three decades of economic prosperity, a school of economists — most of whom held positions in the economics department in the University of Chicago, and so informally became known as the Chicago school — began plotting a counter revolution to progressive economics.

As an intellectual construct, neoliberalism is a radical form of individualism that aims to smash social democracy. It favours instead a creed of free markets, deregulation, and limited government. Neoliberal thinkers view the citizen as an infinite consumer with an unquenchable thirst for products and, only by unleashing free-market forces, they believe, can true economic progress be achieved.

Ideas of social cohesion, collectivism, and public ownership of assets are seen by neoliberals as disastrous. Private property, individual wealth, and low taxes, meanwhile, are viewed as cornerstones of a prosperous society.

Both inequality and poverty in neoliberal ideology are seen as intrinsic and necessary evils.

Margaret Thatcher, the great champion of neoliberalism, summed it up nicely: “there is no such thing as society.”

The history of neoliberalism has three prominent phases. The first began in the 1920s and lasted until 1950: This took place in Europe, with Friedrich Hayek being a key player.

The ‘Chicago school’ of economists during this period consisted of Frank Knight, Henry Simons and Jacob Viner. But their influence was minimal since they favoured progressive taxation and government intervention, as did Keynes.

Neoliberalism’s second phase started in 1950, lasting until 1980: most of these years, again, were spent in the wilderness, in university departments, coming up with abstract mathematical theories that were rejected in the world of Realpolitik.

The sea change began before 1980 though. Following the oil crisis of 1973, which kick-started a global recession, neoliberalism became the dominant cultural currency in the west.

A third phase began after 1980. This was the era of Thatcherism and Reaganomics, where market liberalisation, fiscal discipline, and trade policy infiltrated nearly every aspect of society: both in western and developing nations; and especially in global institutions like the World Bank, the World Trade Organisation, and the EU.

In Chicagonomics: The Evolution of Chicago Free Market Economics Lanny Ebenstein is primarily concerned with this second phase: this is the Chicago school of Milton Friedman, George Stigler, Aaron Director, and Gary Becker. All of whom, with the exception of Director, have won the Nobel Prize for economics.

Ebenstein traces neoliberal thinking back to its roots which he claims is closer to classic liberalism than contemporary libertarianism. He’s especially keen to point out how the second Chicago school once believed in government intervention: “Both Hayek and Friedman were clear on this point, at least earlier in their careers,” he writes.

But given how far to the right neoliberlaism eventually drifted, a book on this earlier period — when neoliberal economists wielded no power whatsoever— seems to have no point or purpose.

To use an odd analogy, it’s a bit like talking about Hitler’s pathetic painting career before he joined the Nazi party. In other words, given the destruction that came afterwards: who cares? Chicagonomics is a litany of contradictions. Ebenstein claims, for instance, that Milton Friedman “was ultimately a man of the left who was interested in and supported economic equality.” This is claptrap.

Friedman often assured his audiences that ideas like minimum wage, and unions, were not needed to ensure workers would share in the benefit of economic growth.

And in the United States, pace 1976 — the period when Friedman’s ideas gathered momentum — inequality and poverty soared.

Ebenstein doesn’t seem to be able to correlate the Chicago school’s singleminded belief in the marketisation of everything with greater inequality and class divisions.

The market, Ebenstein posits, “does not work perfectly all the time, but it works most of the time.” Here is the crucial part he leaves out though: The high priests of neoliberalism, such as Hayek and Friedman, claimed that markets — without government intervention — were as natural a force in society as, say, nature is in evolution. These ideas are not only misguided, they’re dangerously utopian too. From the 1980s onwards, neoliberalism pushed millions of citizens around the world into drastic poverty.

The political philosopher, Michael Sandel, in What Money Can’t Buy: The Moral Limits of Markets explains how economics during the 1970s went from being a discipline that talked about traditional subjects like inflation, employment, banks and stocks, to hubristically claiming it could understand all of human behaviour.

Gary Becker, a prominent force in the Chicago school, was the chief strategist in creating this all-inclusive market society: where everything gets reduced to a transaction or conversation about profit.

Ebenstein continually calls for higher taxes on the rich, to ensure a more egalitarian society can return, like say, what existed in the progressive era in the United States. This seems overtly hypocritical, however, when one finds out that he sits on the board of the Santa Barbra County Taxpayers Association: who have been “lowering taxes since 1956”. Ebenstein has arduously campaigned over the last few years to diminish workers rights, by destroying the collective bargaining power of trade unions across the United States.

Not only has Ebenstein previously written favourable biographies on both Milton Friedman and Friedrich Hayek, he is also an adjunct scholar with the Cato Institute: a right wing think tank which works tirelessly to promote neoliberal ideology across the planet.

Hundreds of millions of dollars are spent each year on paying journalists and public intellectuals to promote neoliberal ideas across the world. Chicagonomics is a very subtle example of this.

If you want a proper analysis of how neoliberalism actually works — where privatisation of everything is the sacred end goal, government deregulation is the central philosophy, and deep cuts to social spending are implemented at ferocious speed — then I recommend Masters of the Universe by Daniel Stedman Jones, The Shock Doctrine by Naomi Klein, and Inequality by Sir Tony Atkinson.

All three books give one a fundamental understanding about an intellectual movement that has been hollowing out the middle class, and drastically creating more poverty than wealth, across the globe, since the 1970s.

Chicagonomics The Evolution of Chicago

Free Market Economics

Lanny Ebenstein

St Martins Press, £17.99


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