The Rise and Fall of Neoliberalism

“Neoliberalism” has been called a political swear word, and it gets blamed for pretty much every socioeconomic ill we have, from bank failures and income inequality to the gig economy and demagogic populism. Yet for forty years neoliberalism was the principal economic doctrine of the American government. Is that what has landed us in the mess we’re in?

What’s “neo” about neoliberalism is really what’s retro about it. It’s confusing, because in the nineteen-thirties the term “liberal” was appropriated by politicians such as Franklin D. Roosevelt and came to stand for policy packages like the New Deal and, later on, the Great Society. Liberals were people who believed in using government to regulate business and to provide public goods—education, housing, dams and highways, retirement pensions, medical care, welfare, and so on. And they thought collective bargaining would insure that workers could afford the goods the economy was producing.

Those mid-century liberals were not opposed to capitalism and private enterprise. On the contrary, they thought that government programs and strong labor unions made capitalist economies more productive and more equitable. They wanted to save capitalism from its own failures and excesses. Today, we call these people progressives. (Those on the right call them Communists.)

Neoliberalism, in the American context, can be understood as a reaction against mid-century liberalism. Neoliberals think that the state should play a smaller role in managing the economy and meeting public needs, and they oppose obstacles to the free exchange of goods and labor. Their liberalism is, sometimes self-consciously, a throwback to the “classical liberalism” that they associate with Adam Smith and John Stuart Mill: laissez-faire capitalism and individual liberties. Hence, retro-liberalism.

The label “neoliberal” has been attached to a range of political species, from libertarians, who tend to be programmatically anti-government, to New Democrats like Bill Clinton, who embrace the policy goals of the New Deal and the Great Society but think that there are better means of achieving them. But most types of neoliberalism reduce to the term “markets.” Get the planners and the policymakers out of the way and let the markets find solutions.

The scholarly literature on neoliberalism tends to focus either on the intellectual genealogy of neoliberal thought (which starts, more or less, in Europe in the nineteen-thirties) or on the political history of neoliberal policies (which start in the nineteen-seventies). Naomi Oreskes and Erik M. Conway’s “The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market” (Bloomsbury) adds a third dimension to the story. In their account, neoliberalism—they prefer the term “market fundamentalism,” which they credit to George Soros—represents the triumph of decades of pro-business lobbying. They also tell the intellectual story and the political story of neoliberalism, so their book is, in effect, three histories piled on top of one another. This makes for a very thick volume.

The lobbying story is good to know. Most voters are highly sensitive to the suggestion that someone might take away their personal freedom, and this is what pro-business propaganda has been warning them about for the past hundred years. The propaganda took many forms, from college textbooks funded by business groups to popular entertainments like Laura Ingalls Wilder’s “Little House on the Prairie” books, which preach the lesson of self-sufficiency. (The books were promoted as autobiographical, but Oreskes and Conway say that Wilder, with the help of her daughter, completely misrepresented the facts of her family story.)

The endlessly iterated message of this lobbying, Oreskes and Conway say, is that economic and political freedoms are indivisible. Any restriction on the first is a threat to the second. This is the “big myth” of their title, and they show us, in somewhat fire-hose detail, how a lot of people spent a lot of time and money putting that idea into the mind of the American public. The book is an immense scholarly feat, but the authors insist that it is not just an “academic intervention.” They have a political purpose. They think that one role of government has been to correct for market failures, and, if government is discredited, how is it going to correct for what may be the biggest market failure of all: climate change?

Oreskes and Conway suggest that we can get an idea of what we’re up against from the pandemic. Millions of Americans seemed either to disbelieve what government officials were telling them about COVID or to regard public-health measures like vaccines and mask mandates as encroachments on their liberty. (There was also some anti-vaxxer hysteria.) Fantastically well-compensated professional athletes, on whose liberties very little encroaches, were among the worst role models.

Comparing the American response to that of other countries, Oreskes and Conway suggest that forty per cent of this country’s COVID deaths could have been prevented if Americans trusted science, government, and one another. They think that years of science-bashing (the subject of their previous book, “Merchants of Doubt”) and anti-government messaging have taught Americans not to. Now when public officials propose policies for addressing climate change, people will be told, “They want to take your televisions away,” and many will believe it.

The notion of hitching economic freedom to political freedom, or corporate freedom to personal freedom, was not dreamed up by lobbyists. It is the core tenet of the scriptural texts of market fundamentalism, Friedrich A. Hayek’s “The Road to Serfdom” and Milton Friedman’s “Capitalism and Freedom.” Hayek and Friedman were academic economists; they both were awarded the Nobel Prize, in 1974 and 1976, respectively. But their famous books are not academic. They’re polemical, high on assertion and low on evidence. Still, the two books have remained in print. They pushed some buttons.

Hayek wrote “The Road to Serfdom” during the Second World War. He was living in England, after emigrating from Austria to take a position at the London School of Economics, and his book came out there in 1944. If you were looking back at recent world history in 1944, what would you see? A stock-market crash, a worldwide depression, and the rise of two powerful totalitarian states that, if Hitler had not made the mistake of invading the Soviet Union, might have divided Europe between them for generations. You might reasonably have concluded that, even if Germany was finally defeated and the Soviet Union was put back in its box, free-market capitalism and liberal democracy had had their day.

Hayek felt this was what people in England were concluding—that a state-managed economy, of some sort, was necessary to prevent another meltdown. They might not think that this would mean giving up their liberty, but Hayek warned them that that was a fatal mistake. He dedicated the book to “The Socialists of All Parties.” He believed that central planning, even when carried out by an elected government, was a kind of dictatorship. People shouldn’t be told what to do with their property, he said, and “what our generation has forgotten is that the system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not.”

Hayek acknowledged that there are things governments can do that private actors cannot. Presumably, you need laws and courts to protect property rights and to enforce contracts; you need an army, and some form of money. There are also public needs that private enterprise cannot profitably or efficiently address. Oreskes and Conway tell us that Hayek “was not as hostile to social welfare programs as he is often reputed to be.”

But Hayek was making a classic slippery-slope argument. Planning is top-down and requires centralized authority, and, whatever that authority’s motives, this inevitably devolves into totalitarianism. “From the saintly and single-minded idealist to the fanatic is often but a step,” as he put it. He believed that socialism destroys what he saw as a basic principle of Western civilization: individualism. The welfare state might keep people housed and fed, but the cost is existential. It’s not just that people will lose their freedom—it’s that they will not even care.

“The Road to Serfdom” was written in a time of geopolitical uncertainty. The possibility of a totalitarian future, the “Could it happen here?” question, obsessed many intellectuals—including Karl Popper, Hannah Arendt, Isaiah Berlin, and George Orwell, who reviewed Hayek’s book. Hayek is “probably right in saying that in this country the intellectuals are more totalitarian-minded than the common people,” Orwell wrote. “But he does not see, or will not admit, that a return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than the State.” The New York Times called “The Road to Serfdom” “one of the most important books of our generation.” It spoke to its moment.

Friedman’s book, on the other hand, would seem to have been almost comically mistimed. He published it in 1962, in the middle of what the economist Robert Lekachman, in a widely read book published in 1966, called “the Age of Keynes.” Government programs were understood to be essential to stimulating growth and maintaining “aggregate demand.” If people stop consuming, companies stop producing, workers get laid off, and so on. That was taken to be the lesson of the Great Depression and the New Deal: more government intervention, not less.

In the U.K., the postwar Labour government, as Hayek had feared, nationalized key industries and created the National Health Service—“socialized medicine,” as opponents called it. In the United States, government programs like Social Security and the G.I. Bill were enormously popular, and huge spending acts were passed. The National and Interstate Defense Highways Act of 1956 authorized the construction of the interstate highway system, easing interstate commerce and lowering transportation costs. The National Defense Education Act of 1958 pumped federal money into education. In 1964, Congress would outlaw racial and gender discrimination in employment. A year later, it would create Medicare and Medicaid. Government spending more than doubled between 1950 and 1962. Meanwhile, the top marginal tax rate in the United States and the United Kingdom was close to ninety per cent.

It was a neoliberal’s nightmare—and yet between 1950 and 1973 the world G.D.P. grew at the fastest rate in history. The United States and Western Europe experienced remarkably high rates of growth and low levels of wealth inequality—in fact, the lowest anywhere at any time. In 1959, the poverty rate in the United States was twenty-two per cent; in 1973, it was eleven per cent. It was also a period of “liberation.” People felt free, acted out their freedom, and wanted more of it. They weren’t supposed to feel that way. They were supposed to be passive and dependent. It would not have seemed a propitious time to write a full-out assault on government.

And yet Friedman wrote one, and he did not pull punches. “Capitalism and Freedom” begins with a contemptuous response to John F. Kennedy’s Inaugural Address. “The paternalistic ‘what your country can do for you,’ ” Friedman wrote, “implies that government is the patron, the citizen the ward, a view that is at odds with the free man’s belief in his own responsibility for his own destiny.” (Of course, Kennedy had said that Americans should not ask what their country could do for them. But never mind. It’s that kind of book.)

Friedman provided a list of things he was opposed to: rent control, minimum-wage laws, bank regulation, the Federal Communications Commission, the Social Security program, occupational licensure requirements, “so-called” public housing, the military draft, publicly operated toll roads, and national parks. Later on in the book, he came out against anti-discrimination laws (which he compared to the Nazis’ Nuremberg laws: if the government can tell you whom you must not discriminate against, it can tell you whom you must discriminate against), labor unions (anti-competitive monopolies), public schools (where taxpayers are compelled to fund courses on “basket weaving”), and the graduated income tax. He argued that an inheritance tax is no more just than a talent tax would be. Inheritance and talent are both accidents of birth. Why is it fair to tax the first and not the second?