The first intellectual consequence of the economic crisis was to undermine Neoliberalism—or the belief in the sufficiency of markets to secure human welfare—as the age’s default ideology.7
The free market project is on the ropes. Never before has the question of neoliberalism’s political, economic and social role—culpability might be a better word—been debated with such urgency, so globally, in such a public manner.8
Neoliberalism has self-destructed. The thirty year long global march of free market ideology has come to an end.9
Today there has been a partial awakening . . . A striking number of free market economists, worshippers at the feet of Milton Friedman and his Chicago colleagues, have lined up to don sackcloth and ashes and swear allegiance to the memory of John Maynard Keynes.10
The crisis revealed the strategy’s unsustainable character, leading to what can be denoted as the “crisis of neoliberalism” . . . No distinction is made between hegemony and domination as in approaches of Gramscian inspiration.11
The promises of neoliberalism are revealed for what they were: a sham. An ideology that seduced most of the population is broken. The psychic and political consequences are incalculable.12
The fall of Wall Street is to neo-liberalism what the fall of the Berlin Wall was to communism.13
This naturalization of market logic (or “values,” to use Massimo de Angelis’s language) was nothing more than a spell. This spell was broken in 2008, a year after The Beginning of History was published. The point of all this: When I argue that we now live in a postneoliberal world, I do not mean that its practices or program have ceased (Ireland, Greece, and Portugal make it loud and clear that it’s alive and kicking), but that the narrative of the market’s universality is no longer unchallenged. The market is not the one and all; it has an outside, it has a limit.14
Just so it doesn’t appear that I am unfairly taking advantage of a certain class of people who might have been overly inclined to jump the gun, let’s sample some people closer to the orthodoxy in American economics like, say, Joseph Stiglitz:
Neo-liberal market fundamentalism was always a political doctrine serving certain interests. It was never supported by economic theory. Nor, it should now be clear, is it supported by historical experience. Learning this lesson may be the silver lining in the cloud now hanging over the global economy.15
In an interview with the Berliner Zeitung, Stiglitz was quoted as saying, “Neoliberalism like the Washington Consensus is dead in most western countries. See the debates in South America or other countries. The U.S. has lost its role as the model for others. Everyone only laughs when U.S. technocrats give lectures in other countries and say: ‘Do as we do, liberalize your financial markets!’”16 Stiglitz, as one of the few neoclassical economists who has periodically attempted to intellectually refute neoliberalism over the course of his career, should therefore be regarded as someone who had significant credibility tied up in expressing his conviction that the demise of neoliberalism was at hand.
Or, alternatively, suppose we consult an eminent proponent of globalization analysis, Saskia Sassen, prognosticating “The End of Financial Capitalism”: “The difference of the current crisis is precisely that financialized capitalism has reached the limits of its own logic.”17 David Harvey more tentatively and cautiously asked whether it was “really” the end of neoliberalism.18 Some members of the faculty at Cambridge and Birkbeck declared, “The collapse of confidence in financial markets and the banking system . . . is currently discrediting the conventional wisdom of neo-liberalism.”19 Various politicians temporarily indulged in the same hyperbole: Prime Minister Kevin Rudd of Australia openly proclaimed the death of neoliberalism, only to succumb to his own untimely political demise at the hands of his own party; Senator Bernie Sanders prognosticated that as Wall Street collapsed, so too would the legacy of Milton Friedman. Yet, unbowed, the University of Chicago solicited $200 million in donations to erect a monument in his honor, and founded a new “Milton Friedman Institute.”20 “Wakes for Neoliberalism” were posted all about the Internet in 2008–9; a short stint on Google will provide all the Finnegan that is needed.
More elaborate analyses of the unfolding of the crisis by academics on the left followed suit. John Campbell, for one, has argued that the financial meltdown was itself a manifestation of the crisis of neoliberalism, in that defective understanding of markets led to the loosening of financial regulation and other trickle-up government policies—that ideas were just as important as the inertia inherent in institutions.21 Of course, Campbell tempers the analysis with the warning, “Despite theoretical arguments about the moment of crisis triggering radical change, many scholars now recognize that institutional change tends to be much more incremental even at historical junctures like this one.” Others were a bit less cautious. Yet, whether circumspect or perfervid, each crisis diagnostic held fast to the syllogism that people can learn from their mistakes; the deep contraction and financial breakdown stands as irrefutable evidence that neoliberalism is false; and therefore, neoliberalism must be on its last legs. That credo was the fuel of the machine that churned out reams of crisis commentary from 2008–10; it put the hi-fi in early litanies of financial reform. One encounters this admonitory approach to the death of neoliberalism in the most diverse accounts of the crisis.22 It could even be found in authors who would not themselves otherwise be caught dead using the term “neoliberalism” in elevated company.
While it would be a digression to plunge into the bramble thickets of formal epistemology in a book about the crisis, there was at least one major flaw in all these prognostications that needs to be taken into account here. Social psychology, the history and philosophy of science, and the sociology of knowledge all combine to instruct us that people don’t generally behave like that. Only the most ersatz Popperian believer in the awesome power of local falsificationism would begin to presume that some finite observation would immediately impel people to cast their most cherished beliefs into doubt and reconsider long-held ideas that anchor much of their worldview. Such conversions have been known to happen, but they have been few and far between. Predominantly, the long history of schooling, socialization, and past experience induces a stubborn inertia into cognitive processes. More commonly, people react to potential disconfirmation of strongly held views by adjusting their own understandings of the doctrine in question to accommodate the contrary evidence; this has been discussed in the social psychology literature under the rubric of “cognitive dissonance,” and in the philosophy literature as Duhem’s Thesis. Cognition sports an inescapable social dimension as well: people cannot vet and validate even a small proportion of the knowledge to which they subscribe, and so must of necessity depend heavily upon others such as teachers and experts and peers to underwrite much of their beliefs.23 And then there is a second major consideration relevant to our current conundrum, namely, the issue of whether most people who may subscribe to something like neoliberalism actually understand it to be constituted as a coherent doctrine with a spelled-out roster of propositions, or instead treat their notions as disparate implications of other beliefs. As we have already intimated, many people still have no clue what neoliberalism is, much less harbor opinions about how their own thought processes might relate to it. In other words, how could they come to reject something which for them putatively lacks spatio-temporal solidity, or at minimum, must they themselves consciously understand their beliefs as part of a coherent intellectual tradition?
This volume is dedicated to exploring the ways in which the crisis has not yet served as an exemplary instance of falsification of much of anything; it explores various defense mechanisms of critical groups such as orthodox economists and members of the Neoliberal Thought Collective; the intention is to clear a path to some potential remedy to that situation. However, in order to reach that point, it is first necessary to become better acclimatized to the notion that a burst of bad news does not generally bring a dogma crashing down of
its own accord. It takes a whole lot more than that; and thus a preliminary admonition of epistemic caution is the touchstone of the current chapter. The rest of this section is devoted to a quick sketch of the sobering lessons of social psychology for the premature expectations of the demise of neoliberalism; whereas the next section is devoted to the difficult question of whether neoliberalism could or should be considered a tolerably coherent phenomenon that has exhibited sufficient integrity over past decades for any refutation to have something to stick to.
What happens when a seductive synoptic ideology suffers “breakage,” as our commentators have it? It would be odd if this had not been a major topic of exploration, since it speaks so directly to our images of ourselves and others. While there have been many modes and idioms in which the question has been broached, for the sake of brevity we shall describe but one: the attempt to comprehend these responses as a case study in the social psychological problem of cognitive dissonance. The father of “cognitive dissonance theory” was the social psychologist Leon Festinger. In his premier work on the subject, he addressed the canonical problem situation which captures the predicament of the contemporary economics profession:
Suppose an individual believes something with his whole heart . . . suppose that he is then presented with unequivocal and undeniable evidence that his belief is wrong: what will happen? The individual will frequently emerge, not only unshaken, but even more convinced of the truth of his beliefs than ever before. Indeed, he may even show a new fervor about convincing and converting people.24
This profound insight, that confrontation with contrary evidence may actually augment and sharpen the conviction and enthusiasm of a true believer, was explained as a response to the cognitive dissonance evoked by a disconfirmation of strongly held beliefs. The thesis that humans are more rationalizing than rational has spawned a huge literature, but one that gets little respect in economics.25 Cognitive dissonance and the responses it provokes venture well beyond the literature in the philosophy of science that travels under the rubric of Duhem’s Thesis, in that the former plumbs response mechanisms to emotional chagrin, whereas the latter sketches the myriad ways in which auxiliary hypotheses may be evoked in order to blunt the threat of disconfirmation. Duhem’s Thesis states that there are an infinite number of auxiliary hypotheses that may be invoked to explain why an empirical event did not actually impugn the target doctrine at risk: instead, uncontrolled factors intervened. Philosophy of science revels the ways in which it may be rational to discount contrary evidence; but the social psychology of cognitive dissonance reveals just how elastic the concept of rationality can be in social life.
Leon Festinger and his colleagues illustrated these lessons in his first book (When Prophecy Fails) by reporting the vicissitudes of a group of Midwesterners they called “The Seekers,” who conceived and developed a belief that they would be rescued by flying saucers on a specific date in 1954, prior to a great flood coming to engulf Lake City (a pseudonym). Festinger documents in great detail the hour-by-hour reactions of the Seekers as the date of their rescue came and passed with no spaceships arriving and no flood welling up to swallow Lake City. At first, the Seekers withdrew from representatives of the press seeking to upbraid them for their failed prophecies, but soon reversed their stance, welcoming all opportunities to expound and elaborate upon their (revised and expanded) faith. A minority of their group did fall away; but Festinger notes they had tended to be lukewarm peripheral members of the group before the crisis. Predominantly, the Seekers never renounced their challenged doctrines, as reported by Festinger. At least in the short run, the ringleaders tended to redouble their proselytizing, so long as they were able to maintain interaction with a coterie of fellow covenanters.
In a manner of speaking, the legacy of renunciation of philosophy and methodology in graduate education led much of the orthodox economics profession, and many of the denizens of the neoliberal world of think tanks and media outlets, to behave from 2008 onward in ways rather similar to the Seekers. The parallels between the Seekers and the contemporary economics profession, on the one hand, and the Neoliberal Thought Collective, on the other, are, of course, not exact. The Seekers were disappointed when their world didn’t come to an end; economists and neoliberals were convinced their Great Moderation and neoliberal triumph would last forever, and were disappointed when it did appear to come to an end. The stipulated turning point never arrived for the Seekers, while the unsuspected turning point got the drop on the economists. The Seekers garnered no external support for their doctrines, indeed, quitting their jobs and contracts prior to their fated day; the economists, and more clearly, the Neoliberal Thought Collective, persisted in being richly rewarded by many constituencies for remaining stalwart in their beliefs. The public press was never friendly toward the Seekers; it turned on the economists only with the financial collapse. (There are now plentiful signs it has been reverting to its older slavish adoration, however.) But nonetheless, the shape of the reactions to cognitive dissonance turned out to be amazingly similar. The crisis, which at first blush might seem to have refuted almost everything that the NTC and the economic orthodoxy stood for, was in the fullness of time more often than not trumpeted from both the left and the right as reinforcing their adherence to, respectively, neoclassical economic theory or the neoliberal tradition.
In the last few years, there may have opened up a divergence between the explicit behavior of professional economists and that of other groups who may have displayed some allegiance to neoliberal doctrines. This distinction, insisted upon in chapter 1, now begins to bite. The difference comes with the economists readily accepting that they do share some common doctrines and intellectual orientations. Their PhD from a ranked institution does double duty as a membership card; few of them spend any time doubting whether “economics” as a body of doctrine exists. Thus it will prove relatively straightforward to demonstrate that they have not revised their erstwhile doctrines dating from before the crisis. But the denizens of the think tank planisphere and journalists and political actors in these contentious times may not subscribe so intently or openly to a fixed, discrete set of doctrines in quite the same unself-conscious manner. (Indeed, chapter 6 will propose a stratified spectrum of crisis response under neoliberalism.) Consequently, demonstration of the fundamental premise of cognitive dissonance theory—that people don’t shift allegiances in the throes of contravening evidence—will require more elaborate documentation for the neoliberals. Once again, the imperative to treat both groups separately will prove clarifying.
Does Neoliberalism Really Exist?
The really fascinating battles in intellectual history tend to occur when some group or movement goes on the offensive and asserts that Something Big really doesn’t actually exist. A short list of blasts from the past would include: the earth-centered universe, God, the Philosopher’s Stone, atoms, the vacuum, the divine right of kings, perpetual motion machines, evolution, a formally complete axiomatic system, aether, global warming, society, and human consciousness. As chapter 1 noted, we have just passed through a period when a substantial cadre were insisting that orthodox neoclassical economics didn’t exist. Nothing gets the blood roiling like the assertion that we have been arguing over nothing. Whatever the eventual outcome, these negations are the flash points that tend to force thought out of its complacent ruts and tend to mark periods of lush proliferation of theoretical and empirical innovation. I would like to explore the possibility that we might approach the concept “neoliberalism” with the same appreciation. In order to accomplish this, a certain modicum of intellectual history is indispensable.
We elect to start with the manifest phenomenon that most people whom outsiders would identify as neoliberals would reject the label outright, and indeed, deny the position exists as a coherent doctrine. For them, it is just another swearword bandied about by their opponents, rather like “fascism” or “equality.” Some go further, adopting the nominalist position that if �
��we” refuse to call ourselves neoliberal, then no one else has the right to do so, either. More recently, one can find certain authors on the left advocating that the doctrine is so ephemeral and diffuse that it displays insufficient quiddity for analysis.
The nominalist position can be rapidly dispensed with. As my collaborators and I have insisted elsewhere, the people associated with the doctrine did call themselves “neo-liberals” for a brief period lasting from the 1930s to the early 1950s, but then they abruptly stopped the practice.26 In the early phases, various figures such as Alexander Rüstow vied for bragging rights in coining the term.27 Others simply acknowledged its currency. To give one pertinent example from many, Milton Friedman wrote in the Norwegian journal Farmand in 1951:
Never Let a Serious Crisis Go to Waste Page 5
