March 14, 2013 at 1:27 pm #17698
This is more an European problem I suppose because everybody on the left uses neoliberalism to designate their economic enemies on the right. I have read a couple of articles that argues that there is no real definition of the word. And few identify with the word.
In my international studies we often talk about neoliberal policies that were unleashed in the 80’s. The focus is often on capital. What happened that supposedly deregulated capital in the 70’s/80’s?March 14, 2013 at 9:07 pm #17699
As you imply, the term neoliberal is practically useless since it is defined differently by various groups. It’s often associated with Prime Minister Margaret Thatcher in England, who famously held up a copy of Hayek’s The Constitution of Liberty declaring “this is what we believe” as she slammed it down on a table. Reagan is often taken as her American counterpart.
Reagan cut the capital gains tax in his tax reform bill of 1981 to 20 percent and then raised it again in his tax bill of 1986 to 28 percent. The tax burden during the Reagan administration shifted from upper-income to middle-income taxpayers, mainly because of the sizable increase in payroll taxes in 1983 to fund social security.
There was some re-regulation during the Reagan years. Politicians are willing to sell legislation and regulation to the highest bidders, so naturally there is re-regulation in every administration. But to characterize Reagan’s administration as reducing regulating is dubious. The Garn-St. Germain Act, often cited as “deregulating” the S&Ls in the early 1980s, for example, is clearly re-regulation. Here’s the FDIC page on it:
In contrast to new regulations whose net effect on the regulatory state is controversial, the Monetary Control Act of 1980 increased the regulatory power of the Fed.March 14, 2013 at 9:14 pm #17700
But in International Development class we keep hearing how during the 70’s/80’s the free flow of capital was let loose. This is constantly presented as a damaging era where the market came to help control governments which we have since suffered from. Is this just hype did something occur in this period that tipped the balance in favor of the financial sector that restrained the government?March 15, 2013 at 8:56 am #17701
Here is a limited historical analysis of capital flows from the World Bank:
Since the mid-1800s governments have set up and attempted to manage an international monetary system. The classic gold standard of the second half of the nineteenth century was designed by governments to manage monetary inflation by punishing countries that inflated their currencies excessively. The fatal flaw of the system is that it required redemption of each currency into gold and yet governments continuously inflated their currencies faster than the gold stock increased through production. When their monetary inflation produced booms and busts, they blamed markets and the free-flow of capital. Governments destroyed the classic gold standard to inflate their currencies to pay for spending during the First World War. They cobbled together the gold exchange standard in the 1920s. but their inflation destroyed it in the early 1930s. After the Second World War, governments erected the Bretton-Woods System, in which all other currencies were redeemable into the dollar and the dollar was redeemable into gold. Their inflation destroyed this system in 1971 and ushered in the miserable decade of the 1970s. The U.S. government cobbled together another dollar reserve standard, without gold, in the 1980s. We will see if this system will survive the inflation, and consequent boom and bust, governments generated in the last decade.
Of course, markets always constrain government activity whether they are international or not. In these international monetary systems, capital flows are a means of punishing wayward governments. A more recent example of this was the fall of the Asian tigers in the 1990s. Thailand over-inflated its currency, the baht, in response to the Fed’s inflation of the dollar after the recession of 1990-91.
Rothbard has written about some of this:
Also, consult James Grant’s book, Money of the Mind.
Finally, government borrowing has dominated bond markets throughout this entire period. Today, for example, bond markets in the U.S. are $70 trillion and $40 trillion of that is government debt at all levels. Governments want to support bond markets because they are the biggest borrowers of all. The Federal government wants to borrow from foreigners, so its demand helped create and support international bond markets. Complaining about how such markets constrain its financing is not objective science but merely special interest pleading.March 18, 2013 at 5:30 pm #17702
Thank you very much for your answers. Just one last question. In my International Development class The Asian Crisis is often used to bash the free market and neoliberalism. Can I assume that what you said of Thailand was true of those countries as well in that crisis, namely that they over-inflated their currency?March 19, 2013 at 10:45 am #17703
Indeed, that is the case. Thailand, Malaysia, Indonesia, and other southeast Asian countries over-inflated their domestic currencies on top of the reserves provided by dollar inflation.March 20, 2013 at 12:33 pm #17704
Thank you very much. The Asian crisis pops up again and again as evidence that capital has been too liberalized.
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