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FDL Book Salon Welcomes Philip Mirowski, Never Let A Serious Crisis Go To Waste: How Neoliberalism Survived The Financial Meltdown

Welcome Philip Mirowski (Univ. Notre Dame) (Institute for New Economic Thinking) and Host John Cavanagh (Institute for Policy Studies) (The Nation)

Never Let A Serious Crisis Go To Waste: How Neoliberalism Survived The Financial Meltdown

This book addresses 2 major questions:

[A] How did the economics profession come through the economic crisis that began in 2007 unbowed and unscathed?

[B] How did the Neoliberal Program come through the crisis unchecked and unscathed?

Very Brief answer to question [A]

The book argues that orthodox neoclassical economists were blindsided by the crisis. Their theories were completely irrelevant, so they lost control of initial narrative to journalists & others. It becomes clear nothing will change in orthodox doctrines; yet the economics discipline is protected both within academia and the media due to close ties to finance and the general trend to commercialize knowledge.

More elaborate answer to [B]:

The book first asks: Who are Neoliberals? They are not libertarians or ‘conservatives’; rather, they are the most active and successful faction of the Right in recent times. They are distributed widely, from the Kochtopus to the Federalist Society to the Atlas network of dedicated think tanks to affiliated NGOs and beyond. Their intellectual roots can be traced to a wide set of doctrines including Hayekian political economy, the Chicago School of Economics, and the Virginia Public Choice movement. Their concepts now influence all aspects of human endeavor, from advertising to conceptions of the Internet to paeans to the ‘wisdom of crowds’.

It is now well understood that Neoliberals are not advocates of a small or stunted night watchman state. They regularly demean the state to outsiders, but that does not imply they prefer a weak state. Rather, all their political efforts are devoted to recasting the strong state as one that conforms to their doctrinal imperatives.

Two things are necessary prerequisites for understanding the resilience of Neoliberals through the crisis. First, their core doctrine is that The Market is far smarter than any human being, and this has direct implications for how one should pursue politics. Second, they have developed what the author calls a generic full spectrum response to really dramatic crises. This response uses the economics profession, but does not rely solely upon it. It is far more elaborate than the scenario suggested in Naomi Klein’s Shock Doctrine.

The book outlines the generic Neoliberal political response to the disaster of global warming, then the economic crisis.

In a slogan, for Neoliberals, humans can never be trusted to know whether the economy or biosphere is in crisis or not, because both Nature and Society are dauntingly complex and evolving. Therefore, the Neoliberal solution is to enlist the strong State to allow The Market to find its own way to the ultimate solution. According to Neoliberals, it is the only agency that can be relied upon throughout human history to do so. [cont’d.]

Mirowski argues that the role of the strong Neoliberal State is threefold: to becalm and mollify the restive public who are provoked to constrain or neutralize The Market in response to problems; to reiterate and deploy the Neoliberal panacea such that the way to address any (falsely) perceived market failures is to introduce more markets; and finally, to facilitate The Market in discovering its own eventual transformations of Nature and Society which will transcend any economic or biosphere crisis. By contrast with orthodox neoclassical economics, this entails not one, but a whole panoply of diverse ‘policy’ responses, the sum total of which are jointly attuned to bring about the final end of capitulation to the greater wisdom of the ineffable Market.

The author asserts that most progressives don’t fully realize that the phenomena of science denialism, carbon permit trading, and the nascent science of geoengineering are not three unrelated or rival panaceas, but together constitute the full-spectrum Neoliberal response to the challenge of global warming. The promotion of denialism buys time for the other two options; the financialization of carbon credits gets all the attention in the medium-term, while appeals to geoengineering incubate in the wings to swoop down when the other options fail. At each step along the way, the Neoliberals guarantee their core tenet remains in force: The Market will arbitrate any and all responses to biosphere degradation.

The author then turns to the Neoliberal responses to the economic crisis:

Conveniently, the spectrum of Neoliberal policies can be arrayed more or less in parallel with the spectrum of responses to global warming outlined above, because the rough structure of short-, middle- and long-term responses are essentially the same. In the case of the global economic crisis, they comprise denialism, market-based rescue of banks, and financial innovation, and they help us answer the question: How did the neoliberals emerge from the crisis stronger than when it began?

Crisis Denialism: economists had noted that nothing in their orthodox theories had anything whatsoever to say about the global crash, but nevertheless, various protagonists were encouraged to deny that this implied that the theories were impugned in any fashion. In the former case of climate change, the suggestion was floated that existing science did not correctly comprehend Nature; in the latter of economic crisis, the suggestion was that, contrary to all evidence of the senses, economists did nonetheless understand the crisis. The former was fomenting denial on the part of outsiders, the latter emboldened denial on the part of the insiders. The purpose of denialism in both cases has been to sow doubt and confusion in the general public concerning the causes and significance of the crisis in question.

Market-based mitigation: during the crisis a very close analogue was also floated to create new markets to sell off the so-called ‘toxic assets’ that the government would ‘temporarily’ take off the balance sheet of the faltering banks. Market designers were initially brought in to help concoct boutique auctions to somehow actualize and validate the ramshackle expedient of the TARP. In the scramble to quickly implement the TARP, a motley collection of various ‘programs’ were mounted to ‘leverage’ government money with participation of specially induced private investors to vacuum up distressed assets. The obvious prescription of the government taking over the failing banks and forcing their restructuring, deleveraging and downsizing was ruled permanently out of bounds.

Financial Innovation: The prophets of financial innovation are at pains to portray the invention of new pecuniary instruments, practices and products as on a par with the science-based innovation of new physical technologies; in other words, it is the very apotheosis of The Market coming to terms with an evolving Nature. Indeed, one of the first people to promote the notion of financial innovation as a phenomenon commensurate with technological change was the Chicago neoliberal economist Merton Miller. The author asks how financial engineering will help us out of the hole left by the global crisis? He concludes that the promotion of financial engineering is a willfully ideological project.

[As a courtesy to our guests, please keep comments to the book and be respectful of dissenting opinions.  Please take other conversations to a previous thread. – bev]

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