End of an Era

Van Badham

She's always a good read, and possibly betters me on eloquence, but this is one of my pet topics, which I've been blogging on about for years, so here we go again.

"Neoliberal economic policy has defined the Australian Labor party as much as it has their opponents for the past few decades, yet now Labor’s once-fiercest neoliberal champions have come to disavow it. 

The conspicuous lack of outcry, keening or ceremonial hand-wringing around the end of this era is perhaps attributable to Ben Chifley’s example. “It’s no good crying over spilt milk,” the former Labor prime minister once advised, “all we can do is bail up another cow.”"

Neo-liberalism, and its obsession with 'free' markets, was devised in an era when the US was economically competitive. In open competition, an assumed innate characteristic of 'free' markets - a total imaginary theoretical construct since true free markets have never existed at a macroeconomic level; and may not actually be possible in the real world - the US would almost always win. Trumpism is an admission that this is no longer the case.

If we count the beginning of the great neo-liberal economic experiment as coincident with the election of Ronald Reagan in the US in 1980, it's been running for 37 years now and the early regulatory response to the GFC really marks the beginning of the reaction against it. Van cites twenty years. In the US this experiment has been running a lot longer. US society is really the result of a long-running experiment in neo-liberal socio-economic engineering. You would have to say that the results are in and, as predicted by theory, they don't really look too good.

Too understand these things we have to go back to the 70's. Remember the oil shock which caused a phenomenon headlined as 'stagflation' which completely bamboozled the economists of the time to such an extent that we saw conservative president Nixon implement a wage/price freeze, something more in character with a command economy. This really marks the end of the halcyon postwar period of Keynesian New Deal economic policy which contributed to the rise of functional welfare states in much of the West.

In the field of economics the Keynesian New Dealers had controlled policy since 1929 while the classical economists were easily blamed for the Great Depression and therefore in disrepute. Suddenly 'stagflation' (inflation without GDP growth) was happening and the Keynesians could not explain it nor recommend a cure. Off they went to their ivory towers to ponder this puzzle, scratching their heads in consternation, vacating the political discourse.

Enter Milton Friedman, scion of what was now called the neoclassical school of economics, what Paul Krugman calls the 'Freshwater' school