Neoliberalism is an anxious form of crisis management attempting to cover over the gaps in its ideological contradictions. The goal of neoliberalism is to remove all impediments to capitalist enterprises. Economic elites mobilized support from media, political parties, universities, in particular think tanks to develop this new hegemony. This process creates a noticeable transfer of wealth from the general population to the economic elite, in particular, the 1%. This activity includes a concurrent assault on the labour movement and labour rights. While this ideology champions that individuals have maximum freedom, a crisis exposes the clash with neoliberal interpretation of freedom and responsibilities, on the balance between personal freedom and the common good. Neoliberalism has not only created an economic crisis but also a political crisis. To the admirers of Trump, facts and arguments appear irrelevant. However, it is not enough to oppose a corrupt system – a coherent alternative has to be proposed.
The Mississippi Bubble, a financial scheme in 18th century France, was engineered by John Law who convinced the government to allow him to establish the Banque Générale, with the authority to issue bank notes. Law established what would become the Company of the Indies to develop the vast French territories in the Mississippi Valley along with French tobacco and African slave trade. In 1719 he merged the bank and the trading company. A frenzy of wild speculation drove up the price of shares that were sold to the public. The French government took advantage of the situation by printing increased amounts of paper money with the idea of paying off the debts of Louis XIV – which stimulated galloping inflation – triggering a general stock market crash in France and other countries. In 1802 Thomas Jefferson observed: banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that grow up around the banks will deprive people of all property until they lose everything.
Louis Brandes (1856-1941) became known as the ‘people’s lawyer’ for fighting for workers’ rights and breaking up monopolies. He spent several years defending the constitutionality of state laws that set limits on the number of hours or types of conditions in which a worker could work. In 1914 he published Other People’s Money and How Bankers Use It, in which he attacked monopolies and the ways investment bankers controlled American industry. When President Woodrow Wilson appointed him to the Supreme Court in 1916, he faced bitter opposition from anti-Semites and supporters of big business. Brandes opposed unlimited government power and an interpretation of ‘individual liberty’ that allowed a few people to control economic entities that affected the public at large. Justice Brandes observed: We can make our choice. We can have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both.
In the 1980s there were people who were skeptical of market fundamentalism in general and big banks in particular. In order to decrease the cognitive dissonance, bankers linked home ownership to financial instruments and complex securities. They borrowed upbeat language from the IT world, including the positive message that innovation was good. This was part of a targeted message that Wall Street was good for America. In particular, that complex securities could help low and middle-income families own homes was a key message to disarming any suspicion. Over time, this message alleviated any remaining concern many had about mortgage lenders and investment bankers. The image of the large banks evolved from untrustworthy to being part of the American innovation scene, creating innovative new products that would supposedly improve the life of everyone. They road the wave of financial innovation – the complex financial transactions were inherently good because they helped ordinary citizens own their own homes.
Meanwhile the economic elite established think tank organizations (institutes) who prepared an intellectual war of position that pre-positioned neoliberal ideas to exploit economic and political crisis of the late 1960s and 1970s to make neoliberal solutions appear to be common sense. This activity was facilitated by campaign finance, lobbying, and revolving doors that promoted the ‘deregulation, de-supervision, and the de facto decriminalization’ of (finance) big banks. Neoliberalism generalizes and intensifies contradictions on a world scale, such that, world crisis becomes possible. Neoliberalism creates zones of insecurity and instability as well as zones of prosperity and stability. The system allows the dominance of finance over profit producing capital, affecting investment and production. Consumption tends to be sustained by extending credit. The old saying goes: Give a man a gun and he can rob a bank, but give a man a bank and he can rob the world.1
The Wall Street bankers’ power comes from the ability to provide campaign contributions to both parties, which allowed them to place key individuals in regulatory positions in Washington. This meant decisions in government were handled from the perspective of the big banks. These activities thrived during the two decades prior to the 2008 meltdown. The search for greater and greater profit created a climate to use loopholes to bypass regulations. The big banks made use of the new instruments to get around the rules. By using loopholes, structures were developed that reduced the capital requirements while the risk remained the same. There was no intervention by the regulators even when it was recognized that the banks were attempting to avoid regulation on minimal capital requirements. The Fed did not investigate compliance; banks used subsidiaries not covered in regulation, which created enough churn and confusion to stay ahead of regulators.
The state rescue orchestrated by the Obama administration transformed the crisis in private finance into a crisis of public finance and sovereign debt, which has to be solved through the austerity politics of neoliberals. What followed closely was the beginning of the roll back of post-war safety nets to help balance budgets. Neoliberal policies of austerity are intended to reorganize the balance of forces in favour of capital rather than make policy adjustments – in order to safeguard the existing economic and political arrangements. This can be interpreted as a deliberate strategy to subordinate the policy more directly and durably to the ‘imperatives’ of globalization as construed in neoliberal discourse. Basically, elites try to impose the cost of their mistakes on to others, and seek to allocate costs of crisis management / adjustment, and also shape the learning processes. When the neoliberal bubbles burst in the 1990s and early 2000s, the system was rescued by creating more conditions for bubbles.
Actually, the economic elite are in the process of rebalancing the economy from wage led to finance led which includes the redistribution of income from wage earners to capital. This includes promoting the ‘precarity’ in all areas of life as a disciplinary tool to reinforce the financialization of every day life. The recent budget discussions illustrated the power of financial elites to drive financial budget decisions. Financialization is a pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production. This includes derivatives – involving the money market and investment in commodity future markets. Neoliberalism constructed a system that not only exclusively benefits the upper class but also effectively justifies this outcome – the political and social domination of the upper class are presented as normal outcomes of the functioning of the free market.
“Instead of delivering growth,” a 2016 IMF report explains that neoliberal policies of austerity and lowered regulation for capital movement have in fact “increased inequality.” This inequality “might in itself undercut growth …” As a result, the report states that “policy makers should be more open to redistribution than they are.”2 This issue of inequality amongst the working class was a factor in the 2016 US election. An outsider, Donald Trump tapped into a pool of angry voters just by promising change in Washington. Now in 2017 the Republicans who carry water for the neoliberals, faced a crisis management issue – how to balance an opportunity for image boost vs damage your brand by alienating voters seeking change. With the usual smoke and mirrors, the leadership packaged the Tax Cut and Jobs Act that permanently slashes the corporate tax rate by 40% which trickles down as one time bonuses for some senior workers and $1.50 an hour increase for others, as well as promises of better jobs appearing when the economic elite spend their new money on capital investment – which few Wall Street CEOs committed to doing.
Crisis creates moments for learning which can be linked to critiques: a critique of neoliberalism in crisis includes two important aspects: a critique of domination as well as a critique of ideology, as basis for change. The first observation is that the Great Recession did not alter the economic and ideological domination of neoliberalism. The present neoliberal state mentality stymies introduction of state directed economic intervention to rectify the problems. While ideologies are perceived to be rooted in interests, values, and social relations of power, they actually seek to legitimate existing social orders or delegitimize them in favour of another. We need solutions to the growing social problems aggravated by a corrupt system. We need to unmask the illusion around individual freedom, and contrary to arguments proposed by neoliberals – the state has consistently been a relevant actor in the organization of the economy and society.
1 Jessop Bob. Neoliberalism redux? Managing the contradictions of neoliberalism in crisis http://wp.lancs.ac.uk/cperc-conf/files/2015/08/Jessop-Neoliberalism-Redux-2015.pdf
2 Dangl, Benjamin. (01 June 2016) After Empowering the 1% and Impoverishing Millions, IMF Admits Neoliberalism a Failure. https://www.counterpunch.org/2016/06/01/after-empowering-the-1-and-impoverishing-millions-imf-admits-neoliberalism-a-failure/