I believe it was no accident that all manner of otherwise tolerant eclectic people started claiming that heterodoxy in economics was finally a thing of the past precisely during the Bubble run-up to 2007; perhaps we can now appreciate it as the twin offspring of the neoliberal herald of the “end of history,” akin to the “Great Moderation,” only now in the precincts of intellectual endeavor. The profession had been rendered starkly more homogeneous in outlook and training, not least through graduate recruitment of tyros with no undergraduate degree in economics, which had significant consequences for the bumbling responses of economists when the crisis hit. Training and backgrounds had grown so narrow that the newer generation had no idea there had ever been anything alien to their tradition, and hence their impressions of intellectual freedom were simple artifacts of their ignorance. Things had gotten so bad that some heterodox holdouts felt they had fallen victim to an elaborate fraud themselves: “There is nothing more frustrating for critics of neoclassical economics than the argument that neoclassical economics is a figment of their imagination.”32 No purge is more insidious than that which comes cladded with plausible deniability.
There are many different ways to understand how Big Brother managed to accrue a reputation for political neutrality and an open mind; and this book is an attempt to look at that phenomenon from a number of different perspectives. It is a bit more of a stretch to see how that reputation has been maintained (albeit under persistent duress) throughout the drubbing that the economics profession has suffered in the aftermath to the crisis; that also is the concern of this volume. It seems clear that the faux-tolerance of the “End of Neoclassical Economics” movement in the new millennium actually has made the response to the crisis by economists even more addled than it might have been otherwise.
However, there is one concise explanation of this history that no PhD economist would deign to entertain, although we shall insist it be kept on the table for the duration of this book. It is the proposition that Quiggin turned out to be half-right: it is not just that a few component models found in economics are zombiefied; rather, it is the neoclassical tradition as a whole that is approximating the walking undead, and has been lurching around that way for a while. Patently, this begins to get at why no amount of heterodox brickbats (or incisive reasoning) can halt its inexorable march. Before my audience dismisses this notion out of hand as too draconian, consider the following.
Let us provisionally take the proponents of the dissolution of the neoclassical program at face value. First off, it seems we have arrived at the historical epoch where academic neoclassical economics no longer strives to explain “the economy,” because for sophisticated economists, there is no such thing. Critics who prattle on about “real-world economics” merely flaunt their naïveté to the quiet disdain of the gatekeepers of expertise. Rather, card-carrying neoclassical economists come convinced they possess a Theory of Everything at the End of History, and apply their so-called economic approach to everything great and small under the sun: life and death, sex, neurons, nations, language, knowledge, science itself, personal identity, evolution, aesthetics, global environmental disruption, even human virtues such as dignity.33 Through prestidigitation, a theory of trade has morphed into a “theory of choice”; and choice is everywhere. After all, isn’t that the central message of Freakonomics, the best-selling book of the Great Moderation: that wicked rebel (yet safely orthodox) economists can explain sumo wrestlers, teen homeboys, girls’ first names, and crime statistics? Yet explanatory hubris brings its own special tragedy: it is a philosophical commonplace that a doctrine that nominally explains “everything” in fact explains nothing at all. Everything can potentially be portrayed by neoclassical economists as the orderly product of disembodied “self-interest” as long as the “interest” is defined in a sufficiently post hoc manner, order is conflated with the status quo, and the ontology of the “self” changes from one application to the next. As with all good zombies, there is something missing where a brain should be. Neoclassical economics resembles a catechism for the undead who have palsied difficulty counting to ten.
The unbearable lightness of the economy within neoclassicism is only the tip of the iceberg. Let us look more closely at the practical mechanics of orthodox contemporary “economics imperialism.” While gleefully encroaching upon the spheres of interest of other disciplines, orthodox economics has also freely appropriated formalisms and methods from those other disciplines: think of the advent of “experimental economics” or the embrace of magnetic resonance imaging, or attempts to absorb chaos theory or nonstandard analysis or Brownian motion through the Ito calculus. Indeed, if there has been any conceptual constant throughout the history of neoclassical theory since the 1870s, it has been slavish attempts to slake its physics envy through gorging on half-digested imitations of physical models. A social science so promiscuous in its avidity to mimic the tools and techniques of other disciplines has no principled discrimination about what constitutes just and proper argumentation within its own sphere; and this has only become aggravated in the decades since 1980. Economics, seemingly so powerful because so ubiquitous, parlously teeters on the edge of fragmenting into a pointless succession of whatever turns out to be fashionable in other scientific disciplines, which at least possess the virtue of having intellectual agendas that spawn novel practices and techniques.
Third, it would appear that the corporeal solidity of a live intellectual discipline would be indicated by consensus reference texts that help define what it means to be an advocate of that discipline. Here, I would insist that undergraduate textbooks should not count, since they merely project the etiolated public face of the discipline to the world. But if we look at contemporary orthodox economics, where is the John Stuart Mill, the Alfred Marshall, the Paul Samuelson, the Tjalling Koopmans, or the David Kreps of the early twenty-first century? The answer is that, in macroeconomics, there is none. And in microeconomics, the supposed gold standard is Andrew Mas-Collel, Michael Whinston, and Jerry Green (Microeconomic Theory), at its birth a baggy compendium lacking clear organizing principles, but now slipping out of date and growing a bit long in the tooth. Although often forced to take econometrics as part of the core, there is no longer any consensus that econometrics is situated at the heart of economic empiricism in the modern world. Beyond the graduate textbooks, the profession is held together by little more than a few journals that are designated indispensable by some rather circular bibliometric measures, and the dominance of a few highly ranked departments, rather than any clear intellectual standards. Indeed, graduates are socialized and indoctrinated by forcing them to read articles from those journals with a half-life of five years: and so the disciplinary center of gravity wanders aimlessly, without vision or intentionality. The orthodoxy, so violently quarantined and demarcated from outside pretenders, harbors a vacuum within its perimeter.
Fourth, and finally, should one identify specific models as paradigmatic for neoclassical economics, then they are accompanied by formal proofs of impeccable logic which demonstrate that the model does not underwrite the seeming stolidity of the textbooks. Neoclassical theory is itself the vector of its own self-abnegation. If one cites the canonical Arrow-Debreu model of general equilibrium, then one can pair it with the Sonnenschein-Mantel-Debreu theorems, which point out that the general Arrow-Debreu model places hardly any restrictions at all on the functions that one deems “basic economics,” such as excess demand functions. Or, alternatively, if one lights on the Nash equilibrium in game theory, you can pair that with the so-called folk theorem, which states that under generic conditions, almost anything can qualify as a Nash equilibrium. Keeping with the wonderful paradoxes of “strategic behavior,” the Milgrom-Stokey “No Trade theorem” suggests that if everyone really were as suspicious and untrusting as the Nash theory makes out, then no one would engage in any market exchange whatsoever in a neoclassical world. The Modigliani-Miller theorem states that the level of debt relative to equity in a
bank’s balance sheet should not matter one whit for market purposes, even though finance theory is obsessed with debt. Arrow’s impossibility theorem states that, if one models the polity on the pattern of a neoclassical model, then democratic politics is essentially impotent to achieve political goals. Markets are now asserted to be marvelous information processors, but the Grossman-Stiglitz results suggest that there are no incentives for anyone to invest in the development and refinement of information in the first place. The list just goes on and on. It is the fate of Delphic oracles to deal in obscurity.
Returning to our point of departure in this section, it really will turn out to be of paramount importance to keep the thought collectives of “neoclassical economics” and neoliberalism separate and distinct, for analytical purposes of understanding the nightmare of the current crisis.34 Neoclassical economics as a theory long predated the Neoliberal Thought Collective; it is only lately that it has shown signs of morbidity. As we shall argue, it has fallen to neoclassical economists to swarm over and incapacitate most serious attempts to isolate and diagnose why the crisis came as a shock and an enigma to those tasked with its understanding. The economists have haunted our dreams with their half-coherent struggles to describe and analyze the creeping dread. Yet it has been the neoliberals who have served as the advance shock troops for the zombie hordes, reconnaissance parties deploying their shock doctrines and shock therapies that rally the walking dead in their wake.
Once summoned, lurching across the landscape, scaring the populace with their bad haircuts, dull, staring eyes, and adamantine cries, neoclassical economists became the major enablers of the Neoliberal Resurgence across the land. As Quiggin confessed, “I underestimated the speed and power of Zombie ideas.”35 We need to see why.
2
Shock Block Doctrine:
Neoliberalism as Thought Collective and Political Program
There are many ways that social theory operates in a modality different from the natural sciences; but one standout characteristic is that when it comes to the Big Notions that really matter, the social disciplines often find their acolytes proclaiming the “Death of X” contemporaneously with commensurate authorities insisting that X never really existed. In physics, for instance, analysts might want to claim that Ptolemaic astronomy or aether theory or cold fusion was “dead” for the modern profession, but never go so far as to assert that the theory or concept had historically just been a figment of the imaginations of people who should never have been taken seriously all along. By contrast, this happens all the time in social thought: social theorists often attempt the torturous straddle of denying that some widespread concept ever really existed, while pronouncing last rites over the ectoplasmic corpse. No wonder we have become ensnared in zombie nightmares, as glimpsed in the last chapter. It may be symptomatic of an endemic wobbly sense of ontology, or perhaps a deficiency in sense of decorum for the dear departed, or maybe something worse, but it nonetheless is an occupational hazard that renders debate treacherous.
The theoretical entity “neoliberalism” has suffered this straddle over the unfolding of the current crisis. A chorus of think tanks trumpeted its negligibility, while a smaller choir chanted its dirge. All manner of commentators, including, significantly, no small number of neoliberals, have insisted that the theory behind the label never really existed;1 if they happen to be preternaturally pugnacious, they tend to dismiss it as a swearword emitted by addled denizens of the left. The confusion was then confounded by an outbreak of premature rumors of the Demise of Neoliberalism, when people were suggesting that the economic crisis had finally sealed its fate. The impression back then was so vivid for some that they could practically hear the worms feasting on the carcass of the still-warm ideology. The purpose of chapter 1 was to suggest that a few subsequent years’ experience has vexed and discomfited almost everyone involved, and that political progress demands that this calamity be better understood. It may be the case that even those who feel they have a good working knowledge of political theory need to revisit the entire question of neoliberalism, if only to better focus upon the incongruity of the neoliberals coming out of the crisis stronger than when they were paving the way for its onset. It is one thing to glibly appeal to a nefarious “Shock Doctrine” (see Naomi Klein), it is another to comprehend in detail how the reckoning was evaded: something here dubbed the “Shock Block Doctrine.” Neoliberalism is alive and well; those on the receiving end need to know why.
Questions as to its existence, its efficacy, and its vulnerability to refutation lie at the heart of the concerns that motivate this chapter. Neoliberal initiatives and policies still carry the day, and more to the point, most people still understand their own straitened circumstances through the lens of what can only be regarded as neoliberal presumptions. Can it be chalked up to confusion, or sour grapes, or a gullible temperament? Was it due to the intersection of some otherwise uncorrelated historical tendencies, like the provocation of immigrant labor, the weaknesses of the governmental structures of the European Union, or heavy state dependence on the financial sector? In writing the history, many local conjunctures must be acknowledged, but none of them really get at the Intellectual Teflon: the way the crisis did not provoke any fundamental revision of prior political catechism.2 The most likely reason the doctrine that precipitated the crisis has evaded responsibility and the renunciation indefinitely postponed is that neoliberalism as worldview has sunk its roots deep into everyday life, almost to the point of passing as the “ideology of no ideology.”
Indeed, at this late hour, the world is still full of people who believe that neoliberalism doesn’t really exist. I run into them every day. Mitchell Dean nicely captures this attitude: “Neoliberalism, it might be argued, is a rather overblown notion, which has been used, usually by a certain kind of critic, to characterize everything from a particular brand of free-market political philosophy to a wide variety of innovations in public management.”3 For such skeptics, it is inconceivable to them that contemporary political economy displays any kind of structure, outside of some vague notions of supply and demand. Most people, it seems, have never even heard of the Mont Pèlerin Society, which at one time in its history was the premier site of the construction of neoliberalism. Liberalism, neoliberalism, conservatism, libertarianism . . . at least in America, they are all just a blur. People who live elsewhere in the world have little feeling for the American cultural drumbeat that keeps insisting politics has no theoretical grounding—it is only something dubbed “human nature” that can be theorized. America, that fabled Land of Neoliberalism in European parlance, soldiers on, blissfully unaware that it is neoliberal. One temptation might be to attribute this to some notorious Anglophone allergy to abstract political analysis; but that would be too hasty. Part of the blame might be laid at the door of the neoliberals themselves: as I document below, even though the members of Mont Pèlerin Society initially used the term “neoliberal” to refer to themselves in the early 1950s, by the 1960s they had backtracked, trumpeting the ambagious notion that their ideas all could be traced back to Adam Smith, if not before. But an equal moiety of blame should be dished out to their opponents on the left, who often bandy about attributions of “neoliberalism” as a portmanteau term of abuse when discussing grand phenomena often lumped together under the terminology of “globalization” and “financialization” and “governmentality.” The Washington Consensus, the death of the welfare state, the risk society, the wars in Iraq and Afghanistan, European (dis)integration, the ascendancy of China, and the outsourcing of manufacturing all portend cosmic themes, mostly of interest to those who regard themselves of taking the broad view of power politics.4 But broad characterizations of contemporary political events should not be mistaken for the painstaking construction of political doctrines to motivate organization in the long run, however much they may be related. Abstract dreadnoughts battling in the hyperspace of concepts, as with nationalisms clashing in the dead of night, have done little to illu
minate the nature of neoliberalism for the average person, alas. And then there are those who insist it is really all about “economic theory,” which is guaranteed to make most people want to pass it by as quickly as possible.
The clarification of the neoliberal program is first and foremost a historical inquiry: much of the preliminary spadework unearthing its lineage and development has already been performed. We shall have occasion to reference this body of work over the rest of this volume.5 But rather than simply recapitulating that historical narrative here, this chapter will approach the role of neoliberalism in the crisis in a more analytical register: first by documenting the ways that it was anticipated that the crisis would purportedly change the intellectual landscape; then by summarizing commonplace misconceptions about the core doctrines of neoliberalism which serve to reinforce its longevity; following that up with the indispensable characterization of the “double truth” of neoliberalism; and ending up with one of the major reasons neoliberals have come through the crisis unscathed, as rooted in their approach to knowledge itself. Fortified with this understanding of the political background, we can then turn directly to issues of the conceptual unfolding of the crisis itself in the rest of the volume.
Don’t Look Back
There can be no joy in pointing out just how wrong people have been about the intellectual consequences of the crisis. I recall myself entertaining the notion back in 2008 that perhaps, finally, we just might dispense with some of the rubbish that had sullied a political economy orthodoxy over my lifetime. Apophenia cascades at epidemic proportions when the sky seems to be falling.
In August 2007, the Guardian columnist George Monbiot wrote, “We are all neoliberals now.”6 Now, five years later, Monbiot’s claim must seem eerily prescient. Things were not always thus. In the midst of the downdraft of 2008–9, I remember people saying to me: Yes, it’s been awful, but maybe the trial by fire will cleanse as well as sear. As Jenny Turner reminisced in the London Review of Books, “People imagined that a crash, when it came, would act like Occam’s Razor, cutting out the hedge funds and leaving the world a little saner . . .” Who among us back then did not suspect that the collapse of Bear Stearns, Lehman Brothers, AIG, Northern Rock, Lloyd’s Bank, Anglo Irish Bank, Kaupthing, Landsbanki, Glitnir (and a parade of lesser institutions) would at least cut through the smarmy triumphalism of those who claimed to fully comprehend the workings of the globalized economy? Such a simultaneous worldwide collapse, first of finance, then of the rest of economic activity, had up till then been the hallmark of conspiracy theorists, apocalypse mongers, and some unreconstructed historical materialists. As the world witnessed the meltdown in dazed disbelief, it was not so outlandish to imagine that epochal events so seared into everyone’s consciousness could not help but prompt them to reevaluate their previous beliefs. How could anyone deny something had gone badly awry? The next step in the syllogism, but the link fated to fail, was that everyone would perceive that the prior bubble was the direct consequence of certain modes of thought, and thus, it was these doctrines that would be refuted. Collect those doctrines together under the umbrella term “neoliberalism,” toss into the mix a Little Bo Peep falsificationist psychology, and there materialized the widespread perception that we were living through the demise of an entire way of thinking:
Never Let a Serious Crisis Go to Waste Page 4
