Nobel Prize-Winning Economist Stiglitz Tells Us Why ‘Neoliberalism Is Dead’

Joseph Stiglitz, who won a Nobel Memorial Prize in economics in 2001 for his work on information asymmetry, has been one of neoliberalism’s biggest critics in recent years, and he says the “neoliberal euphoria” that has gripped the world since the 1980s is now gone.

Source: Portsider

Author: Will Martin, Business Insider

Emphasis Mine

Speaking with Business Insider after the launch of his latest book, “The Euro: How A Common Currency Threatens the Future of Europe”which argues that the fundamental flaws with the euro and the broader European economy are causing huge problems for the continent and risk leading to its downfall — Stiglitz argued that neoliberalism, the dominant school of economic thinking in the West for the past 30 years or so, is on its last legs.
Since the late 1980s and the so-called Washington Consensus, neoliberalism — essentially the idea that free trade, open markets, privatisation, deregulation, and reductions in government spending designed to increase the role of the private sector are the best ways to boost growth — has dominated the thinking of the world’s biggest economies and international organisations like the International Monetary Fund and the World Bank.
The policies of Ronald Reagan and Clinton in the US and Margaret Thatcher in the UK are often held up as the gold standard of neoliberalism at work, while in recent years in Britain George Osborne and David Cameron’s economic policies continued the neoliberal tradition.
Since the 2008 financial crisis, however, there has been a groundswell of opinion in both economic and political circles to suggest that the neoliberal consensus may not be the right way forward for the world. In the past few years, with growth low and inequality rampant, that groundswell has gained traction.
Stiglitz, who won a Nobel Memorial Prize in economics in 2001 for his work on information asymmetry, has been one of neoliberalism’s biggest critics in recent years, and he says the “neoliberal euphoria” that has gripped the world since the 1980s is now gone.
 
Asked by Business Insider whether he thought the economic consensus surrounding neoliberalism was coming to an end, Stiglitz argued: “I can talk about this from the point of view of academia or even in policy circles. In academia, I think it has pretty well become rejected.
“The young students are not interested in establishing that neoliberalism works — they’re trying to understand where markets fail and what to do about it, with an understanding that the failures are pervasive. That’s true of both micro and macroeconomics. I wouldn’t say it’s everywhere, but I’d say that it’s dominant.
“In policymaking circles I think it’s the same thing. Of course, there are people, say on the right in the United States who don’t recognise this. But even many of the people on the right would say markets don’t work very well, but their problem is governments are unable to correct it.”
Stiglitz went on to argue that one of the central tenets of the neoliberal ideology — the idea that markets function best when left alone and that an unregulated market is the best way to increase economic growth — has now been pretty much disproved.
“We’ve gone from a neoliberal euphoria that ‘markets work well almost all the time’ and all we need to do is keep governments on course, to ‘markets don’t work’ and the debate is now about how we get governments to function in ways that can alleviate this,” he said.
In other words, Stiglitz says: “Neoliberalism is dead in both developing and developed countries.”
Stiglitz is not alone in his belief that neoliberalism has its problems, though his argument that the consensus is “dead” is somewhat more forthright than those of many others. In a blog post in May, three economists from the IMF — long one of the greatest champions of the neoliberal consensus — questioned the efficacy of some aspects of it, particularly when it comes to the creation of inequality.
The increase in inequality engendered by financial openness and austerity might itself undercut growth, the very thing that the neoliberal agenda is intent on boosting,” Jonathan Ostry, Prakash Loungani, and Davide Furceri argued. “There is now strong evidence that inequality can significantly lower both the level and the durability of growth.”
“There are a lot of people thinking the same thing at this point, that basically some aspects of the neoliberal agenda probably need a rethink,” Ostry told the Financial Times on the day the blog was published, adding: “The crisis said: ‘The way we’ve been thinking can’t be right.'”
The decline of neoliberalism
The decline of neoliberalism is also evident in the UK, where austerity has reigned since the accession of the Conservative Party to government in 2010. Prime Minister David Cameron and Chancellor of the Exchequer George Osborne presided over a period of record fiscal-deficit reduction created through a six-year programme of austerity.
But since Cameron resigned following the UK’s vote to leave the European Union, fiscal stimulus in the UK has started to gain traction once again as a viable means of stimulating growth. It is widely expected that Philip Hammond, the new chancellor under newly installed Prime Minister Theresa May, will announce some form of fiscal easing at the Autumn Statement — which will come at some point before the end of the year (last year’s was in late November). As Business Insider’s Oscar Williams-Grut argued in mid-July, “Britain’s age of austerity could be over.”
Across the Atlantic, both US presidential nominees, Hillary Clinton and Donald Trump, both favouring expanded government borrowing to fund infrastructure projects. As Randall W. Forsyth argued in Barron’s magazine last week:
“We are all Keynesians now, President Richard Nixon famously declared after his New Economic Plan was unveiled in 1971. The notion seems to be echoing now, with the two major parties’ presidential candidates calling for increased government spending, notably for infrastructure projects.”
Neoliberalism may not be completely dead, as Stiglitz argues, but it is certainly being challenged from many angles.

 

See: http://portside.org/2016-08-20/nobel-prize-winning-economist-stiglitz-tells-us-why-neoliberalism-dead

Thirty Years of Unleashed Greed

It is class warfare.

From TruthOut, by Robert Scheer, TruthDig

“Class inequality had been rising sharply in the United States even before the banking-induced recession…

It is class warfare.

It was not begun, however, by the tear-gassed, rain-soaked protesters asserting their constitutionally guaranteed right of peaceful assembly. Rather, this war was sparked by the financial overlords who control all of the major levers of power in what passes for our democracy. It is they who subverted the American ideal of a nation of stakeholders in control of their economic and political destiny.

Between 1979 and 2007, as the Congressional Budget Office reported this week, the average real income of the top 1 percent grew by an astounding 275 percent. And that’s after payment of the taxes that the super-rich and their Republican apologists find so onerous.

Those three decades of rampant upper-crust greed unleashed by the Reagan Revolution of the 1980s will be well-marked by future historians recording the death of the American dream. In that decisive historical period, the middle class began to evaporate and the nation’s income gap increased to alarming proportions.

“As a result of that uneven growth,” the CBO explained, “the distribution of after-tax household income in the United States was substantially more unequal in 2007 than in 1979: The share of income accruing to higher-income households increased, whereas the share accruing to other households declined. … The share of after-tax household income for the 1 percent of the population with the highest income more than doubled.”

That was before the 2008 meltdown, which ushered in the massive increase in unemployment and housing foreclosures that further eroded the standard of living of the vast majority of Americans while the super-rich rewarded themselves with immense bonuses. To stress the role of the financial industry in this march to greater income inequality, as the Occupy Wall Street movement has done, is not a matter of ideology or rhetoric but — as the CBO report details — a matter of discernible fact.

The CBO noted in comparing top earners that “the (income) share of financial professionals almost doubled from 1979 to 2005” and that “employees in the financial and legal professions made up a larger share of the highest earners than people in those other groups.”

And no wonder, since it was the bankers and the lawyers serving them who managed to end the sensible government regulations that contained their greed. The undermining of those regulations began during the Reagan presidency, so it’s not surprising that, as the CBO reports, “the compensation differential between the financial sector and the rest of the economy appears inexplicably large from 1990 onward.” Citing a major study on the subject, the CBO added, “The authors believe that deregulation and corporate finance activities linked to initial public offerings and credit risks are the primary causes of the higher compensation differential.”

So much for the claim that excessive government regulation has discouraged business activity. The CBO report also denies the charge that taxes on the wealthy have placed an undue burden on the economy, documenting that federal revenue sources have become more regressive and that the tax burden on the wealthy has declined since 1979.

In the face of the evidence that class inequality had been rising sharply in the United States even before the banking-induced recession, it would seem that the Occupy Wall Street protests are a quite measured and even timid response to the crisis.

Actually, the rallying cry of that movement was originally enunciated not by the protesters in the streets but by one of the nation’s most respected economists.

Last April, Nobel Laureate Joseph Stiglitz wrote an article in Vanity Fair titled “Of the 1 percent, by the 1 percent, for the 1 percent,” and it should be required reading for those well-paid pundits who question the logic and motives of the Wall Street protesters. “Americans have been watching protests (abroad) against repressive regimes that concentrate massive wealth in the hands of an elite few,” Stiglitz wrote. “Yet, in our democracy, 1 percent of the people take nearly a quarter of the nation’s income — an inequality even the wealthy will come to regret.”

Maybe justice will prevail despite the suffering that the 1 percent has inflicted on the foreclosed and the jobless. But to date, those who have seized 40 percent of the nation’s wealth still control the big guns in this war of classes.”

emphasis mine

see:http://www.truth-out.org/30-years-unleashed-greed/1319808045