/Two areas where I am out of step, by Scott Sumner

Two areas where I am out of step, by Scott Sumner

I read a lot of material from experts on politics, economics and international affairs. As a result, I think I have a pretty good idea of the consensus views of respected pundits, which are sometimes called the “Very Serious People.” Here I’d like to discuss two views that seem increasing popular, which I view as extremely misguided. Feel free to correct me if I’ve misjudged the zeitgeist; if these are not two widely held views.

The first consensus view is that neoliberalism is passé. Tyler Cowen recently linked to a Wall Street Journal article that made this claim:

“The zeitgeist of globalization and liberalization is over,” said Ralf Stegner, vice chairman of the 130-year-old Social Democratic Party, the junior partner in Chancellor Angela Merkel’s government coalition. “The state needs to become much more involved in key areas such as work, pensions and health care.”

The policies mark the end of an era in Europe that started four decades ago, with the ascent of former British Prime Minister Margaret Thatcher and her U.S. ally, President Ronald Reagan. . . .

The reaction from European economists is decidedly mixed.

Some have greeted the shift as a welcome correction to years of pro-business and free-trade policies they think have dug deep rifts in Western societies.

If “economists” have mixed views, you can imagine the views on neoliberalism from other pundits, such as experts on politics and foreign affairs.  Economists are practically the only intellectuals for whom neoliberalism is not a swear word.

Of course people have announced the end of Thatcherism for 30 years, ever since she lost power in 1990.  Here’s the Financial Times in 2009, for instance:

“The British people had given up on socialism. The 30-year experiment had plainly failed – and they were ready to try something else.”

So mused Margaret Thatcher on the eve of her first general election victory on May 3 1979. But as we approach the 30th anniversary this weekend of the Iron Lady’s arrival in Downing Street, many British people have concluded that once again “a 30-year experiment” has “plainly failed”. This time, however, it is the experiment with Thatcherism.

The closing of the Thatcher era is an event of global significance. Many of the policies pioneered by her government in Britain were copied in the rest of the world: privatisation, deregulation, tax cutting, the abolition of exchange controls, an assault on the power of the trade unions, the celebration of wealth creation rather than wealth redistribution.

Germany

And the actual data in the WSJ article shows pretty much the exact opposite of what they claim; one graph shows that German government spending over the past 7 years has been growing at a very slow rate (and indeed it has grown far slower than German GDP), and another graph shows that European privatizations continue to occur at a healthy rate.

Even though the WSJ was unable to provide a single graph supporting their claim, I’m willing to entertain the possibility that the neoliberal era is finally over, as there are indeed some signs of a backlash.  So let’s move on to the second view held by Very Serious People.

China must become a neoliberal nation!  The Chinese government is far too involved in the economy, and they must move toward a free market regime without foreign investment barriers, government subsidies, state ownership of firms, capital controls, and other forms of interference in the economy.

Not only must China become a neoliberal nation; it’s the duty of the US (the world’s leading superpower) to force China to become a neoliberal nation.  If they refuse, the US should launch an economic war against China, and force other countries to join us in that war.

I strongly dissent from both views.  I believe that neoliberalism is still the way to go, and indeed Europe would be better off becoming far more neoliberal.  Learn from Switzerland.  I believe the relatively neoliberal regimes of northern Europe are far superior to the more statist regimes of southern Europe.  I believe that Germany’s neoliberal reforms have been a huge success, as what was the “sick man of Europe” in 2004, with unemployment stuck at double digit levels, now has some of the lowest unemployment in the world (3.1%).

I also believe that while China itself would be better off adopting a more neoliberal policy regime, it’s not the job of the US to bully other countries into adopting the sort of policies that we favor, and it’s certainly not the job of the US to bully third parties into agreeing to help us bully China.

Why do the Very Serious People believe that it is time for Europe to abandon neoliberal policies and return to a mixed economy, and also that the US must bully China into moving from a mixed economy to a neoliberal regime?  You’ll have to ask them—I’m not a mindreader.

PS.  And I haven’t even addressed the absurdity of the claim that Europe went too far toward laissez-faire capitalism.  We are talking about a continent that has close to 50% of total global spending on social programs, where many governments spend roughly 50% of GDP, and where countries such as Greece and Italy continue to have highly statist policy regimes.  It would be like someone in the year 2019 claiming that New York City’s problem was that they didn’t have enough rent control.

Oh wait . . .