Economics

On mainstream economics and neoliberalism

mirowskiOne of the most intriguing questions facing the merry band of wanderers interested in the philosophy and history of economics is how mainstream economic approaches appear to have emerged relatively unscathed from the Global Financial Crisis.

Casual observers might well find this a bit of a puzzle. A body of knowledge that professed itself unable to shed any light on one of the most profound social events of recent human history, even though it was squarely in the middle of the relevant intellectual terrain, is on the face of it paradoxical.

Of course, the response from the cognoscenti, bolstered by unfalsifiable doctrines such as the efficient markets hypothesis, is that events such as the GFC are fundamentally unpredictable. So economics cannot be held deficient for failing to do so. And, anyway, mainstream economic ideas such as incentive-incapability in markets subject to significant information asymmetries can do a good job of explaining key aspects of the crisis in retrospect. If that’s any help.

Less enlightened souls might retort that had economists stepped out the ivory tower, removed their theoretical blinkers, and spent a bit more time getting down on the frontline trying to understand the way institutions and behaviours were changing in an increasingly financialised economy then perhaps they wouldn’t have been quite so surprised when a Global Crisis they considered theoretically impossible actually happened.

Economics after the crash

The resilience of mainstream economics is a key question that motivates Philip Mirowski’s most recent book Never let a serious crisis go to waste: how neoliberalism survived the financial meltdown. And a key part of his answer is the way the economics discipline has changed. Having largely purged itself of the need for the serious study of history, philosophy, methodology or heterodoxy the discipline has a serious case of groupthink. And the economists’ response to the GFC can be illuminated with another core social psychological concept – the management of cognitive dissonance. Economists cleave even closer to their beliefs, despite the contrary evidence.

But Mirowski does not restrict himself to an inquiry into the epistemological inadequacies of mainstream economics. His intellectual project has greater ambition. Mirowski seeks to embed an understanding of how economics has responded to the crisis within a broader understanding of the activities of what he terms the “Neoliberal Thought Collective” (NTC).

The Neoliberal Thought Collective

The core of the book’s argument is that the NTC has played the long game on multiple fronts. Starting from the foundation of the Mont Pelerin Society in the 1940s it has engaged in a utopian project to remake society in the image of entrepreneur and the market. Starting from Hayek’s beliefs regarding the limits of human knowledge, and his subsidiary critique of expertise, the project is founded upon the belief that the market is a more efficient information aggregator than any other human institution. So all must be subservient to the benign munificence of the market.

The neoliberal project departs from classical liberalism and libertarianism in rejecting the idea of a minimal or nightwatchman state. Instead, the genius of neoliberalism is to create a veneer of small-state liberalism while retaining at its core the belief that a strong state is required to deliver its vision. For example, populations might consider that rendering their welfare, in all its dimensions, subservient to the whim of the market is unacceptable. They might consider it unacceptable for governments to sign away their rights to shape their own destiny within their own border in the name of globalising trade. So it is imperative to ensure governments are fully signed up to the neoliberal ideal. They must possess a willingness to ignore or override the views of their own electorate, if the logic of marketization demands it.

In outline this story is not so different from histories of neoliberalism that exist elsewhere. Mirowski expands on the idea of the NTC by suggesting it isn’t a closely-coupled conspiracy but a rather looser collection of fellow travellers that has expanded from the MPS to include a range of think tanks, media outlets, academics and other thinkers. He uses the metaphor of a Russian Doll, and argues that the appearance of the project on the exterior and the appearance at the core can be very different.

While Mirowski rejects the idea that he is positing a global conspiracy, the NTC plays a rather elusive role in his argument. It is invoked repeatedly as moving behind the scenes to realize desired geopolitical outcomes. The argument is strongest when it descends a level and starts to identify the capillaries through which power is exercised – for example, the way in which a substantial proportion of the academic economics profession in the US is beholden to the Fed or the way in which the Koch brothers directly intervene to ensure the academic appointments they fund have the correct ideological complexion. But overall the idea of the NTC is rather undeveloped. It is not quite the deus ex machina of the story but it is never very clearly identified nor is agency very explicitly theorized. The NTC has an elusive and protean nature.

Neoliberalism after the crash

Mirowski is not, however, simply interested in the rise of neoliberalism. He is more interested in the fate of neoliberalism after the GFC and the way in which economics has responded. Here he does a good job of laying out the ways in which economists have both intervened in the crisis as it evolved and provided rationalisations for retaining bodies of economic thought that might be viewed as ripe for rejection. His is also an argument about how economists aligned with financial interests to argue against substantial reform of the finance industry. Some significant individual conflicts of interest are laid bare. He provides a valuable account of the rather unedifying role some leading economists – but not necessarily “economics” in general – have played in supporting and advancing a particular set of sectional interests.

Unusually for a book about economics and the crisis, in chapter three Mirowski takes what appears at first sight to be a significant detour into the neoliberalization of the individual. While the entrepreneurialisation of the self is something that you’ll find discussed in particular branches of the sociological literature, it more rarely penetrates analysis that is rooted in economics. The central importance of the entrepreneurial self to his argument gradually becomes clear. It is integral to his reflection on why effective alternatives to neoliberalism have struggled to develop.

The argument is that after 30 years of largely undiluted neoliberalism our subjectivity has been well and truly colonised, although Mirowski doesn’t quite put it like that. Most people view the world through neoliberal spectacles. Genuinely critical analysis – such as analysis in terms of class interests – is impossible if everyone accepts the idea that individuals are in charge of their own destiny, treats their life as a project with risks to be mitigated, and views failure as weakness of individual will rather than a product of structural inequalities. In Mirowski’s view acts of resistance such as the Occupy movement ultimately fail to escape a neoliberal mindset and hence are ultimately ineffective.

My feeling is that Mirowski is right to highlight this issue, and isn’t the first to do so, but he overdoes it slightly. His argument can be read as suggesting that the NTC has created an effective totalizing discourse. But, if nothing else, the fact that Mirowski’s argument is from an Archimedean point suggests that the discourse of entrepreneurialisation has boundaries.

The full-spectrum approach

One of the most intriguing elements of Mirowski’s argument is what he calls “the full-spectrum approach to neoliberal political mobilization”. Here he is joining the dots and arguing that a pattern emerges. The neoliberal response to a problem takes short-term, medium-term and long-term forms. It may be that responses over different timescales appear to emanate from very different social locations, but they are directed to a common aim of realizing the neoliberal utopia of market pre-eminence.

Mirowski argues this pattern can be detected in different policy areas. He takes the example of climate change. The short-term neoliberal response is to engage in agnotological activity – in this case climate change denial. This is not necessarily because climate change is doubted. The aim is to manufacture sufficient doubt to undermine the justification for or consensus about swift policy intervention. The underlying aim is to buy time in order to develop, propose and embed market-based “solutions” to the problem. In this case the solution is carbon trading. As a solution this makes traders a lot of money, costs polluters at lot of money, and does almost nothing to reduce carbon emissions in practice. That is the intention. Meanwhile governments delay making any more serious direct interventions. The long term response is geo-engineering. Because carbon trading will ultimately fail and source of the problem – level of emissions – has not been addressed, a market will develop for novel solutions like cloud seeding or reflectors in space. These are all technologies that can be patented and from which vast amounts of money can be made by the corporate sector.

Mirowski argues that you can trace the same moves from the neoliberal playbook in the response to the financial crisis. The short-term response was to muddy the debate and distract from the finance industry as the source of the problem. Mirowski argues that neoliberals in the US have had considerable success in implanting the idea that government regulatory behaviour and Government-Sponsored Entities (Fannie Mae and Freddy Mac) were the cause of the GFC, even though there is no evidence for this at all. Secondly, the medium term response was a selection of market-based mechanisms for state purchase of poor performing assets, the privatisation of gains and the socialisation of losses. The longer-term objective is to fundamentally weaken the role of government and increase the role of the corporate sector in governing our lives. The imposition of austerity leading to waves of privatisation and withdrawal of state services moves the agenda forward.

While Mirowski’s argument here is not compelling, he is absolutely right to be standing back and trying to discern the big picture. It would be well worth developing the argument and testing it against other policy areas.

Placing the protagonist

An interesting question is quite where Mirowski is coming from on these issues, politically and theoretically.

He is clearly a man of the left, but he has little time for those seen as on the left in the economics debate (eg Krugman, Stiglitz) and nor does he have a very positive view of responses to the GFC such as the Occupy movement. He laments the absence of an effective counter-narrative to neoliberalism. But he argues that this is partly a product of the entrepreneurialisation of the self – people are so imbued with neoliberal identities that they cannot think beyond it to a different form of social order. Again, while there is something in this argument, it would benefit from refinement.

In theoretical terms, Mirowski draws on an eclectic range of resources but rarely does he do so uncritically. He draws quite heavily on Foucault circa Discipline and Punish and, particularly, the Birth of Biopolitics, but considers that Foucault succumbed to the very neoliberal tendencies he presciently identified. He is quite critical of materialist analysts of neoliberalism for being too deterministic and of sociologists of science such as Donald MacKenzie for lacking an adequate political economy.

He also has limited time for those one might naively have assumed were kindred spirits. For example, the Institute for New Economic Thinking is dismissed as not saying anything particularly new. I can see why he says that, but I don’t think it’s entirely fair. I’ve no particular association with the INET, but it is a relatively broad church and some strands of work under its banner are trying to do something different.

It would be fair to say that Mirowski isn’t on a mission to recruit a coalition of the willing to charge the neoliberal citadel. Perhaps the group that gets away most lightly under Mirowski’s gimlet eye is Old Institutional Economists like Veblen and Galbraith. It’s a little unfortunate that the ranks of the OIE are rather depleted these days.

Where next?

Mirowski’s book is an attempt to answer the question “Why did the neoliberals come through the crisis stronger than ever?”. At the end of the book he notes that he has “passed lightly over some other highly contentious collateral issues”. These include:

  • What were the key causes of the crisis?
  • Have economists of any stripe managed to produce a coherent and plausible narrative, at least so far? What role have heterodox economists played in the dispute?
  • What are the major political weaknesses of the contemporary neoliberal movements?
  • What is the current topography of the Neoliberal Thought Collective?
  • What lessons should the left learn from the neoliberals, and which should they abjure?
  • What would a vital counternarrative to the epistemological commitments of the neoliberals look like?
  • Is there a coherent alternative framework within which to understand the interaction of the financialization of the economy with the larger ebbs and flows of political economy in the global transformations of capitalism?

If one were convinced by Mirowski’s analysis then addressing these questions would appear a sensible next step. But at the same time it feels like we need the answers to some of these questions before we are likely to be convinced by Mirowski’s analysis. While some of it is plausibly evidenced, some of it is rather more assertive. The issue of the “topography” of the Neoliberal Thought Collective seems fundamental. I don’t think Mirowski’s analysis, at its current stage of development, is anywhere near compelling on this point.

Following this list of questions, Mirowski goes on to observe (p356):

These are serious inquiries, demanding lavishly documented advocacy and lengthy disputation (and maybe a different species of Mont Pelerin Society to hash them out?), which should be on the agenda of the left. Of course, there may not be the luxury of decades of time similar to that available to the neoliberals back in the 1940s (with tipping points looming for world climate and corporate domination).

I think he is right to note the issue of tipping points. Whether or not we accept the argument that the NTC is acting as Eminence Grise in the whole affair, it is clear that current trajectories represent the progressive self-disempowerment of states and increased corporate domination. That may be a neoliberal utopia, but it is a dystopian future for any democrat.

I found Never let a serious crisis an intriguing but frustrating book. It is passionately argued and it addresses a topic of the utmost significance. The book contains many passages that are illuminating. There are ideas and hypotheses that are pregnant with possibility and worthy of further exploration. The author lands quite a few of his punches. But, equally, he frequently swings and, in my view, misses. The argument becomes a little too strident and a little too assertive.

The book is erudite and ambitious. But the argument is a bit baggy. I’m not entirely sure who the book is aimed at. Those who are already concerned about the rise of neoliberalism and corporate power will no doubt enjoy it. But I don’t think Mirowski sees himself as purely preaching to the converted. Yet, it is unlikely to be sufficiently closely argued to convince the sceptic. There is a suggestion that it is aimed at the general public, but it’s pretty heavy-going for the non-specialist reader and unnecessarily sesquipedalian at times.

One thing is for sure – if there are any mainstream economists willing to do battle with the book then they are almost certain to hate it.

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  1. My apologies for taking so long to read this: I’m very glad that I did. There are 4 things I’d really like to hear you say more about, if you have the time.

    1) “the metaphor of a Russian Doll”

    Sometimes he uses it as a relatively loose heuristic device, an image which helps us think about the core and the periphery of neo-liberal ideology and practice. An onion, or other such, might have done the same work. At other times, however, he uses it more literally and descriptively, asserting that there really are 7/8 layers concealed within one another, each with their own distinctive yet interrelated features. I wonder whether the metaphor serves to evoke or describe. Either way, as you suggest, it lacks a complete account of inter-layer diffusion and recursion: sometimes the relationship between layers is made very clear, other times it really is not. Which leads me to wonder: would he be better off dispensing with the image all together? Or do you think his argument requires it?

    2) “the fact that Mirowski’s argument is from an Archimedean point suggests that the discourse of entrepreneurialisation has boundaries”

    I think this sense for limits is the basis of his critical project. His is currently a very lonely place, however, since so many contemporary critics of neo-liberalism are said to have been co-opted/compromised. INET, as you underline, is almost dismissed as such. Occupy is also dismissed, however, largely on account of its disparaging response to Worker Movements. Even David Harvie isn’t on the side of the angels to come for having prematurely dismissed neo-liberalism as little other than a class project, rather than properly coming to terms with the many innovations it has made. Mirowski sets the bar extremely high, I think, because he reckons the left’s response to the crisis in particular and to neoliberalism more generally has not yet been made but might some day be made. The “Archimedean point”, in other words, might grow and the book should be understood as an attempt to foster that growth. Would you agree?

    3) “It would be fair to say that Mirowski isn’t on a mission to recruit a coalition of the willing to charge the neoliberal citadel”

    I disagree with you on this point. Certainly, he isn’t one for spontaneous struggle or militant politics. Nevertheless, he is writing for/in anticipation of a group/movement of people who share his analysis and, consequently, his call for further investigation where investigation is understood as a political project, as it was for the MPS. The intellectual/political project he lays out in the final chapter is, I think he thinks, one which might eventually become the basis for the future of the left. Throughout, he laments the fact that the left didn’t have anything ready when the opportunity to intervene came and, were it to have better understood the enemy, perhaps it might have done something other than capitulate. While the MPS is at the bottom of/behind so much, and while it is obviously the main villain of the book, Mirowski nevertheless admires the fact that it was able of producing so much: this is something which he thinks we need to understand in detail. So I think he thinks the left can learn a lot about the sociology of knowledge from the story of the MPS so as to better arm itself with its own institutionally oriented epistemology. In that sense the coalition of the willing he has in mind would be something like a group of (organic) intellectuals. Whether or not we agree with him on this point is another matter, of course, but he does have a coalition, a movement and an enemy in mind. So I understand this book as a manifesto, of a quite pecuilar variety.

    4) The dismantlement of the non-market centred model of the university which he so convincingly discusses here and in Science Mart might well be the undoing of the movement (if it can be called such) which he is trying to bring about. To put it vulgarly, who will be economically capable of engaging in the discussions and investigations mentioned within Point 3, other than those currently presiding within the largely co-opted neo-liberalised university, privately wealthy individuals/groups, and/or friends of the likes of Engels and Felix Weil? If he does put his faith in the emancipatory potential of revolutionary thought, as I think he does, then he needs to consider the economic conditions of possibility of such thought in a lot more detail. In other words, I think the very revolution which he is calling for is held back by everything he has described. Again, I’d be very interested to hear what you think about this.

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