Never Let a Serious Crisis Go to Waste

by Philip Mirowski

  10 Speakers included Deepak Lal, Amity Shales, John B. Taylor, Peter Boettke, Steve Forbes, Niall Ferguson, Hannes Gissurarson, Timothy Congdon, Martin Wolf, and Gary Becker. The papers, once available on the Mont Pèlerin website, have since been removed. For some further description, see Plehwe, “Neoliberal Think Tanks and the Crisis.” The dominant neoliberal narrative of the crisis, which had stabilized by 2010, blaming it entirely on government policies, is described below in chapter 5.

  11 Lehmann, “Let Them Eat Dogma.”

  12 This statement takes into account the numerous assertions of “reform,” from the Dodd-Frank bill in the U.S. to the Basel III international bank regulations. On these issues, see R. Lee, Running the World’s Markets; Konzelman et al., “Governance, Regulation and Financial Market Instability”; and Konczal, Will It Work? How Will We Know? “I am surprised—more than surprised, shocked even—that all that’s transpired since 2007–8 has produced as little as it has” (the historian Steve Fraser quoted in Chan, “Dissenters Fault Report on Crisis in Finance”). This point is reprised in chapter 6, which proposes that this was a conscious outcome.

  13 This story is still developing: www.huffingtonpost.com/2013/03/12/aig-hank-greenberg-lawsuit-bailout_n_2862195.html

  14 Tabulated and graphed at www.dailystaghunt.com/markets/2012/1/12/the-correlation-of-laughter-at-fomc-meetings.html#entry14562168.

  15 Adam Curtis,“The Economists’ New Clothes,” www.bbc.co.uk/blogs/adamcurtis/2010/02/the_economists_new_clothes.html.

  16 Tkacik, “Journals of the Crisis Year.”

  17 The quote is from Ezra Klein, “What ‘Inside Job’ Got Wrong.” Yves Smith at nakedcapitalism.com immediately responded to this attack on the movie with a riposte that will be expanded upon in this book: “This is worse than useless, since Klein incorrectly throws up his hands and effectively says no one can understand what happened and therefore there’s no answer. One of the reasons the crisis has been so ‘difficult to understand’ is that the government and banking elites have been taking extraordinary efforts to obscure the truth. The AIG bailout, the GSE bailouts, the alphabet soup of Fed facilities, the con game of the ‘stress tests,’ the refusal to release information, the ridiculous government programs to ‘restart’ the market, the efforts to deny the mortgage crisis, HAMP, the ongoing efforts to prop up the banks even though they are insolvent, they are all massive efforts at obscuring what really happened and what is still going on. This is not a coincidence; it is a deliberate effort orchestrated by the banks, the Fed, and the Treasury.” Compare Klein’s position with the neoliberal attack on Inside Job: see Kling, “Economics: A Million Mutinies Now.”

  18 John Kenneth Galbraith started out his PBS series The Age of Uncertainty with this quote from Keynes. It did not bode well for the rest of the series.

  19 Crouch, The Strange Non-Death of Neoliberalism, p. 179.

  20 Far and away the best systematic account of how the entire system of finance had become corrupted, beginning with the mortgage loan originators, extending through the rating agencies and regulatory agencies, and ending up at financial behemoths such as Goldman Sachs, is the U.S. Senate’s Subcommittee on Investigations, Wall Street and the Financial Crisis, available at: www.hsgac.senate.gov. It is far superior to the final report of the Financial Crisis Inquiry Committee, archived at http://cybercemetery.unt.edu/archive/fcic/20110310173538/http://www.fcic.gov/report; this latter report was itself torpedoed by neoliberal attempts to neuter its findings, as I describe in chapter 5. The website nakedcapitalism.com has performed a valuable service in tracking down numerous technical aspects of the crisis. Other superior accounts of the crisis can be found in Taibbi, Griftopia; Engel and McCoy, The Subprime Virus; Buckley, Financial Crisis; and Ferguson, Predator Nation. Characteristically, none of these are covered in the orthodox economist’s “survey” of crisis literature (Lo, “Reading About the Financial Crisis”).

  21 “‘In the US,’ Alan Blinder told me weeks later, a little bleakly, a little apologetically, ‘there is no left left’” (quoted in Wallace-Wells, “What’s Left of the Left”). Of course, most Europeans would surely disqualify such Americans from claiming that mantle of the left; but I think the generic debility runs much deeper. This notion of the intellectual capitulation of the left to neo­liberal dominance is a frequent topic on such blogs as Naked Capitalism, Crooked Timber, and Slack Wire.

  22 In a review of Simon Johnson and James Kwak’s 13 Bankers, the economist Guillermo Calvo (“Yes, the Rich Will Drive Recovery”) neatly summarized the neoliberal case: “The authors detail at prolix length the oscillation between Team Greed and Team Regulation, each of which perpetually insists it has brought systemic problems to heel, and each of which is inevitably embarrassed. . . . The authors seem, in that instant, on the verge of realizing that the problem is the dynamic itself—that the choice between greed and regulation is a false one, that the dance of bankers and regulators is exactly what ends in a tangle on the floor, with the markets a shambles.”

  23 The latest to insist upon this is Bernard Harcourt (The Illusion of Free Markets); even he admits the central observation dates back to Karl Polanyi (The Great Transformation) and even earlier to the American Institutionalists (Samuels, Essays in the Economic Role of Government; “The Economy as a System of Power”) and the early legal realists. For other clear statements from historians and political scientists, see Roberts, Victorian Origins of the British Welfare State; Campbell and Pedersen, The Rise of Neoliberalism and Institutional Analysis.

  24 This precept is made explicit in a recent Graeber interview: “I first was putting it together in a piece for Mute in the immediate wake of 2008, and I began by saying that when you’re in a crisis, the first thing you have to do is ask, What is the larger rhythmic or temporal structure in which these events are taking place? So I decided to cast my net as widely as possible, to say, What if this was part of a genuinely world-historic breaking point, the sort of thing that happens every 500 years or so—my idea of a long oscillation between periods of credit” (in R. Jones, “Bookforum Talks with David Graeber”). Here we observe that Graeber serves as the Ken Rogoff of the left, insisting, “The very notion that we exist in a totalizing system is itself the core ideological idea we need to overcome.” Rogoff and Reinhart’s headline generalization that economic growth generally turned negative when the ratio of public debt/GDP breached the 90 percent barrier was later shown to have been an artifact of suspicious data ‘‘errors’ in those authors’ analyses by Herndon, Ash and Pollin, ‘‘Does High Public Debt . . .’’ Not only did Rogoff misrepresent the history, but he also indirectly revealed the extent to which he approached it as a malleable truth subservient to neoliberal imperatives.

  25 Friedrich Hayek, “Why I Am Not a Conservative,” in The Constitution of Liberty, pp. 397–411); James Buchanan, Why I, Too, Am Not a Conservative.

  26 This is one place where I must demur from the otherwise perceptive Jamie Peck (“Zombie Neoliberalism and the Ambidextrous State”). Surely neoliberalism is beset with internal contradictions; but it is also important to have some appreciation for the lack of identity between the neoliberal program and the statecraft that can often fail in its implementation. This may also be a problem with some of the work of David Harvey.

  27 John Quiggin at http://crookedtimber.org/2007/06/01/heterodoxy-is-not-my-doxy/. The footnote (*) to the text reads: “I guess the big exception to this is if you want to discard methodological individualism altogether, but the theoretical enterprises that took this route (such as structuralism) don’t seem to me to be prospering.”

  28 Quiggin, Zombie Economics, p. 83, 129, 121, 87.

  29 Paul Krugman blog, http://krugman.blogs.nytimes.com/2010/11/26/the-instability-of-moderation/#more-14713, November 26, 2010.

  30 See, for instance, the letter of Paul Samuelson to Assar Lindbeck, February 14, 1977, in Box 4, Folder “Nobel Nominating Committee,” Paul Samuelson Papers, Perkins Library, Duke University.

&
nbsp; 31 This literature became so prevalent that this footnote offers just a representative sampling: Backhouse, The Puzzle of Modern Economics; Brock and Colander, “Complexity, Pedagogy, and the Economics of Muddling Through”; Colander, “The Death of Neoclassical Economics”; Colander, Holt, and Rosser, “Live and Dead Issues in the Methodology of Economics” and “The Changing Face of Economics”; J. Davis, “The Turn in Economics,” “The Turn in Recent Economics and the Return of Orthodoxy” and “The Change In and Recent State of Economics”; Eichengreen, “The Last Temptation of Risk.”

  32 Arnsperger and Varoufakis, “What Is Neoclassical Economics?”

  33 Bowmaker, Economics Uncut; Lehrer, “Can We Prevent the Next Bubble?”; Camerer et al., “Neuroeconomics”; Mirowski, ScienceMart; Akerlof and Kranton, Identity Economics; Benabou and Tirole, “Identity, Dignity and Taboos.”

  34 “But we have a Chicago economy, not a neoclassical one.” (Crouch, The Strange Non-Death of Neoliberalism, p.122). While the spirit of this observation is mostly correct, the situation is far more complicated than the “Privatized Keynesianism” described by Crouch.

  35 Quiggin, Zombie Economics, p. 122.

  2. Shock Block Doctrine

  1 Some representative instances: Barnett, “The Consolations of Neoliberalism”; Caldwell, “The Chicago School, Hayek, and Neoliberalism”; Boas and Gans-Morse, “Neoliberalism”; Kingfisher and Maskovsky, “Introduction.” Even stranger is the assertion that we have entered upon a period of “postneoliberalism” (Brand and Seckler, Postneoliberalism). The economist’s refrain of “this time is never different” (Rogoff and Reinhart, This Time Is Different) is taken to an extreme by Kean Birch, “Have We Ever Been Neoliberal?”: “If financial crises have happened before—and they have, repeatedly [see Roubini and Mihm, Crisis Economics]—then this would suggest that neoliberalism has and does not necessarily play a consequential role in the current crisis.”

  2 “Bruce Caldwell . . . said he hoped that we were experiencing, partly through [Paul] Ryan’s ascendancy, the first stage of a slow but steady embrace of Hayek’s philosophy” (Davidson, “Prime Time for Paul Ryan’s Guru”). As if it hadn’t been happening well prior to the 2012 election—but one neoliberal trick is to insist they are the perennial underdogs, even as they overrun one intellectual citadel after another.

  3 Dean, “Rethinking Neoliberalism.”

  4 Some examples: Saad-Filho and Johnston, Neoliberalism; Calhoun and Derluguian, The Deepening Crisis; Harvey, A Brief History of Neoliberalism. Indeed, the otherwise very interesting book by the Manchester group on the reaction of the financial sector to the crisis abjures recourse to the concept of Neoliberalism, because it emphasizes cross county similarities of processes that the authors wish to call into question (Engelen et al., After the Great Complacence, p. 33).

  5 Some of the most important sources will be Cockett, Thinking the Unthinkable; Mirowski and Plehwe, The Road from Mont Pèlerin; Walpen, Die offenen Feinde und ihre Gesellschaft; Burgin, “The Political Economy of the Early Mont Pèlerin Society” and The Return of Laissez Faire; Amable, “Morals and Politics in the Ideology of Neoliberalism”; Jackson, “At the Origins of Neo-liberalism”; Harcourt, The Illusion of Free Markets; O’Neill, The Market; Ban, Neoliberalism in Translation; Wacquant, “Three Steps to an Historical Anthropology of Actually Existing Neoliberalism”; Zuidhof, Imagining Markets; Dean, “Rethinking Neoliberalism”; D. Jones, Masters of the Universe.

  6 George Monbiot, “How Did We Get into This Mess?” Guardian, August 28, 2007; available on his website, www.monbiot.com.

  7 Kunkel, “On Your Marx.”

  8 Peck, Theodore, and Brenner, “Postneoliberalism and its Malcontents,” p. 94.

  9 Birch and Mykhnenko, The Rise and Fall of Neoliberalism, p. 255. Kean Birch has come to repudiate this verdict in an interesting manner, as discussed in “Have We Ever Been Neoliberal?”

  10 Judt, Ill Fares the Land, p. 7.

  11 Duménil and Dominique Lévy, The Crisis of Neoliberalism, pp. 1, 9.

  12 Wilby, “All of Us Live by the Logic of Finance.”

  13 Gusenbauer, “La Strada on Wall Street.”

  14 Charles Mudede, in a review of DeAngelis’s The End of History at http://slog.thestranger.com/slog/archives/2011/05/13/the-end-of-neoliberalism-explained.

  15 Stiglitz, “The End of Neoliberalism.”

  16 http://news.infoshop.org/article.php?story=20081017213027248. This interview was published in Berliner Zeitung, October 9, 2008. Stiglitz grew more circumspect in outlets that were print-based: see Stiglitz, Freefall .

  17 Saskia Sassen, “Too Big to Save,” www.opendemocracy.net, April 1, 2009.

  18 www.counterpunch.org/harvey03132009.html.

  19 Konzelmann et al., “Governance, Regulation and Financial Market Instability.”

  20 For the specifics see Nik-Khah, “Chicago Neoliberalism and the Genesis of the Milton Friedman Institute.” There are some subsequent indications that this fund drive did not go well.

  21 Campbell, “Neoliberalism in Crisis.”

  22 See, for instance, Callinicos, Bonfire of Illusions; Cassidy, How Markets Fail; Fox, The Myth of the Rational Market; Westbrook, Out of the Crisis; Yves Smith, Econned; Mason, Meltdown; Kaletsky, Capitalism 4.0; Stiglitz, Freefall.

  23 The various approaches to social epistemology within the philosophy literature are fascinating; without endorsing any specific position, one can sample the options in Goldman and Whitcomb, Social Epistemology; Kourany, Philosophy of Science after Feminism; Kusch, Knowledge by Agreement; Longino, The Fate of Knowledge; Solomon, Social Empiricism; Fuller, Social Epistemology; Harding, Can Theories Be Refuted?.

  24 Festinger et al., When Prophecy Fails, p. 3.

  25 Lord et al., “Biased Assimilation and Attitude Polarization”; Fischer et al., “The Theory of Cognitive Dissonance.”

  26 D. Jones, Masters of the Universe, p. 7.

  27 Nicholls, Freedom with Responsibility, p. 96; Hartwell, A History of the Mont Pèlerin Society, pp. 84, 93; Walpen, Die offenen Feinde und ihre Gesellschaft, pp. 1072, 1074.

  28 Thanks to Anette Nyqvist and Jamie Peck for the translation of this document from the Norwegian.

  29 See, for instance, Hulsmann, Mises: “We find a clear expression of the neo-liberal world view in a paper Hayek wrote in 1935” (p. 710); “The exchange between Mises and his neo-liberal opponents set the tone in the Mont Pèlerin Society for years to come” (p. 871); “In the 1960s Austro-libertarianism came to be largely supplanted . . . [by] the takeover of the Mont Pèlerin Society by Chicago School neoliberals in the 1960s, and the emergence of an organized Randian or ‘Objectivist’ movement” (p. 989). Other general historians of the larger conservative movement use the term in the same way, e.g., Nash, The Conservative Intellectual Movement in America, p. 32.

  30 Nash, The Conservative Intellectual Movement in America; Phillips-Fein, Invisible Hands; Gross et al., “The Contemporary American Conservative Movement.”

  31 Even historians sympathetic to neoliberalism have concluded that Hayek’s approach to knowledge preclude a direct genealogy rooted in Hume (Kukathas, Hayek and Modern Liberalism; Petsoulas, Hayek’s Liberalism and Its Origins). That Smith would never have accepted neoliberal politics is a hallowed theme in the history of economic thought.

  32 Quoted in Hartwell, A History of the Mont Pèlerin Society, p. 33.

  33 Friedman, “Interview,” 1995.

  34 Milton Friedman, “Economic Freedom behind the Scenes” (2002), at www.cato.org/special/friedman/friedman/friedman4.html. A nice introduction to hard libertarian doctrines of Hoppe and others is Dittmer, “Journey into a Libertarian Future.”

  35 This key point repeatedly trips up otherwise perceptive historians of the movement. For instance, “transatlantic Neoliberalism, as used in this book, is the free market ideology based on individual liberty and limited government that connected human freedom to the actions of the rational, self-interested actor in the competitive market
place” (D. Jones, Masters of the Universe, p. 2).

  36 Brown, Edgework, p. 40.

  37 See, for instance, Brown, Edgework; Campbell, “Neoliberalism in Crisis”; Jackson, “At the Origins of Neo-liberalism”; Zuidhof, Imagining Markets; Plehwe et al., Neoliberal Hegemony; Mirowski and Plehwe, The Road from Mont Pèlerin; Peck, Constructions of Neoliberal Reason; Walpen, Die offenen Feinde und ihre Gesellschaft.

  38 See Jackson, “At the Origins of Neo-liberalism,” p. 135 et seq.; Dardot and Laval, La nouvelle raison du monde. Hayek in The Road to Serfdom notoriously opined, “Probably nothing has done as much harm to the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez-faire” (p. 71). Wacquant (“Three Steps to an Historical Anthropology of Actually Existing Neoliberalism”) points out that neoliberals advocate laissez-faire only for the rich and powerful, not for the subalterns.

  39 James Buchanan, “Man and the State,” MPS Presidential talk, August 31, 1986, pp. 2, 11. LAMP, 1986, Saint Vincent, Italy, meeting records. Henceforth, all primary source material from Mont Pèlerin meetings is quoted with permission from the Liberaal Archief, Ghent, Belgium, and will be cited in this chapter as [LAMP, date]. The hand list for this collection can be consulted at www.liberaalarchief.be/MPS2005.pdf.

  40 Quoted in Burgin, The Return of Laissez Faire, p. 203.

  41 To avoid testing the reader’s patience, I will not deal here with more recent academic works that pursue obfuscation to ever greater degrees, such as Bockman, Markets in the Name of Socialism, which argues that the origins of neoliberalism should be traced to Eastern European socialist intellectuals. Worse is Zingales, A Capitalism for the People, which attempts to argue that neoliberalism is pro-capitalism, but hostile to the elite rich and their political power. This latter work is an exemplar of the neoliberal practice of the manufacture of ignorance, discussed later in this chapter.