Monday 26 November 2012

Hayek, Friedman and lessons for today’s neoliberals

The intellectual gurus of today’s neoliberals are Friedrich von Hayek and Milton Friedman. But Hayek would probably be crossed off your average Tea Party supporter’s Christmas card list if they ever took the trouble to read him.

That is the conclusion of Robert M. Solow in a fascinating review of Angus Burgin’s book The Great Persuasion: Reinventing Free Markets since the Depression.

Hayek was right to point out that central planning was doomed, since the centralisation of decisions is bound to generate errors and then fail to correct them. But today’s neoliberals are reluctant to acknowledge that Hayek also rejected unrestricted laissez-faire as unworkable, and was keen to identify ethical constraints on market forces.

The interesting angle for Liberal Democrats is that the basic problems with the market fundamentalists on the right-wing fringe of their party are prefigured in the early years of the neoliberal intellectual movement.

Then as now, neoliberals insist that economic theory and policy are a Manichean struggle between free markets and collectivism. In the early years of neoliberalism, we were told we must make a stark choice between unrestrained markets and Soviet communism. Today, the neoliberal fringe in the Liberal Democrats insists the only choice is between unrestrained markets and Fabian-style social democracy. They deny the existence of radical/social liberalism, and dismiss pragmatic policies in favour of ideological dogmatism.

As Solow points out:
...for those of us trying to live on this planet, the issue is not between free markets and socialism/collectivism; it is between an extreme version of free markets and effective regulation of the shadow banking system, or between an extreme version of free markets and the level and progressivity of the personal income tax. The metaphor of the slippery slope is largely an invention to scare off pragmatic exploration of the policy landscape.
...the temptation to frame the intellectual issue as Free Markets v. Communism more or less guarantees that all the important practical questions about economic policy and social policy will disappear from view.
Neoliberals junked Hayek’s moral concerns long ago. Thanks to Friedman, the dogmatic insistance on laissez-faire, regardless of the human consequences, suggests that neoliberals today are unburdened by any ethical concerns.

And that is the fundamental problem with neoliberalism. Like all other rigid political dogmas, it insists that ideological constructs come before human welfare or human values.

It is no accident that most of the neoliberals in the Liberal Democrats today are single young men who spend most of their lives in front of a computer screen, often lost in a virtual world of violent computer games. They should try moving to this planet, meeting real people and engaging with some real world policy concerns. Then they might realise that politics is not primarily an individual quest to refine your ideological purity regardless of the human cost.


  1. Which element of Hayek's writing is neglected? There's often a lot of disagreement between his earlier and later literature. The Road to Serfdom is considerably less concerned with welfare than the Constitution of Liberty, though I think it's hard to say Friedman was more insistent on laissez faire given their divisions on monetary economics.

    Mike Bird
    (Single young man behind computer screen)

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  3. To clarify, I meant specifically which parts are neglected by the'market fundamentalists on the right-wing fringe' of the Lib Dems.

    Mike Bird

  4. This comment has been removed by a blog administrator.

  5. "Thanks to Friedman, the dogmatic insistance on laissez-faire, regardless of the human consequences, suggests that neoliberals today are unburdened by any ethical concerns."

    Is this the same Milton Friedman who opposed the Draft on the grounds that it created an army of slaves?

    Is this the same Milton Friedman who opposed the War on Drugs because it discriminated against ethnic minorities and criminalised vast swathes of the population who were causing no harm to others?

    Is this the same Milton Friedman who advocated vast monetary interventions to stabilise the money supply in a recession?

    Because that Milton Friedman was clearly very concerned with human consequences and driven entirely by ethical concerns.

    - Tom Papworth

  6. Be right back. Off to play Trolling Opinionated Pensioners with a Machete 3 - Planet Loony Left edition.

    Graeme Cowie

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  8. Well, within only minutes of uploading this post, angry neoliberals pile in. The extent and nature of the anger suggests they see criticism not so much as a difference of opinion, more as some sort of blasphemy.

    Well, sorry, I don't see economics as a sphere for religion, so I can't worship at your altar.

    I have moderated two comments. The second comment (from 'Aremay') breached two rules of our comments policy. The author hid behind a pseudonym, and his comments were personally abusive towards me. The fourth comment (from 'Daniel') also broke our pseudonym rule.

    1. This comment has been removed by a blog administrator.

    2. For the second time, I have removed a comment by 'Aremay'. He did at least identify himself this time (Tim Oliver from Hull, since you ask), but he again used personal abuse, in breach of our comments policy.

    3. And for the third time - I ask you directly, Mr Titley, why it is acceptable for you to abuse me, but not the reverse? Or are you simply intent on lecturing rather than debating? Do the laws of the blog only apply to the commenters, not to you? Or will this be deleted as well?

    4. I did not abuse you. I did not name you or any other individual in my post. You, on the other hand, made remarks about me that were personally abusive. You need to calm down.

  9. I have also moderated the seventh comment (from 'Emma'), again for breaching our anti-pseudonym rule.

    1. I didn't realise the name my parents gave me, especially when accompanied with a photo of my face, gave the impression of being a pseudonym...

    2. Our comments policy (see right-hand column) insists commenters use "your real, full name". A first name alone is not sufficient, and a photo is not a substitute.

  10. Let's try again shall we?

    Considering that this is supposed to be a space to debate politics without trolling, ad hominems and personal abuse, the author of this piece would seem to have struck a hat trick of rule breaking if it were not for the fact that I do not consider being a young man who spends most of his time in front of a computer screen an insult.

    In doing this, the author spectacularly misses the point that many on the right wing of the LDs are trying to get across. Namely, that it is the playing for the centre ground of polling based politics, which is what the author is implying is somehow redolant of maturity, which is causing great economic and social harm. It also dangerously betrays his own personal prejudices. One might say that his unwavering support for several politics is ideological, but he would no doubt claim that this is perfectly acceptable, whereas our 'ideology' is not.

    I hope in the future the debate about the future of politics in the country can be conducted on firmer ground.

    Daniel James Edward Alexander Waterfield.

    1. Do you honestly expect anyone to believe that a rightward shift to neoliberal ideology constitutes "playing for the centre ground"?

      If so, this seems an utterly delusional view of the political situation. It certainly isn't "polling based politics", since there is no polling evidence that the majority of people crave this outmoded and failed political dogma.

      Neoliberalism finally collapsed in ignominy in 2008. It is now, in Adair Turner's famous phrase, "a fairly complete train wreck of a predominant theory of economics and finance".

      The challenge is to articulate an alternative, not cling to the wreckage.

    2. No no, I accused you of playing for the centre ground and following polling based politics. I'd also take issue with being called a neolib, as they're contemporarily generally more conservatively corporatist than the classical neolib market based solution I (and others) advocate.

      On a pleasanter note, I do think you're right when you claim that people are misreading Hayek. A reasonably free market is not incompatible with universal healthcare, neither is a social wage/GBI as (along with vouchers for hospital treatment and schools) they encourage competition and minimise the state all while protecting the vulnerable.

      These ideas, however, still come from the wing of the party you are dismissing with one fell swoop as 'neolib', which has become a catch-all term of abuse.

    3. Well, there is no evidence that I follow "polling-based politics". Indeed, in the pages of Liberator magazine, I have frequently been critical of the whole concept of the centre/middle ground. Indeed, I have been criticising it ever since the days of David Steel.

      As to the distinction between a 'neolib' and a 'classical neolib', you seem to be straying into People's Front of Judea territory.

      I am sorry you regard 'neoliberalism' as a term of abuse but it is a recognised term (see the Wikipedia page on neoliberalism), and it seems to encompass what you and your allies advocate.

  11. I would be most interested to hear exactly which "neoliberals" within the Liberal Democrats the author is referring to. I would also like to know which examples of this moral abandonment and "religious" adherence to absolutist free market ideology he is referring to. Perhaps we could have a citation of a speech? A newspaper interview? A book? A blogpost? A government policy?

    I ask because the whole argument as so constructed appears somewhat just to be assertion. I have no doubt that free market fundamentalists exist, but the last time I checked there is virtually no one within the Liberal Democrats advocating a return to the economics of the 19th century or a total withdrawal of the state from regulation of the marketplace or the financing or funding of certain public services. The question has always been about how those services are best delivered, and striking the balance between state interference which is necessary and that which is not. It is not an ideological divide, it is an empirical divide.

    This piece gives the impression to the contrary, and that probably says more about the pre-judgment on the part of the author rather than those he is addressing.

    1. The people who style themselves (or who are styled) 'Orange Bookers' strike me as essentially neoliberal in character.

      Some do so because they believe in a return to an illusory 'pure' liberalism of the mid-nineteenth century. Others do so because of the 'Overton Window', that neoliberalism is what one must articulate if one is 'serious about power'.

      I observe, Graeme, that your comment in effect questions whether there are any neoliberals in the party. If so, why has my criticism of neoliberalism sparked such an angry response?

      If one defends neoliberalism, one is a neoliberal, but if one is not a neoliberal, why leap to its defence?

    2. Could you possibly provide:

      1. A definition of neoliberalism
      2. The names of some self-styled Orange Bookers who has expressed remarks that can be reasonably attributed as neoliberal
      3. Evidence of a single person within the Liberal Democrats who "believes in a return to an illusory 'pure' liberalism of the mid-nineteenth century"
      4. Evidence of a single person within the Liberal Democrats who believes that the only way to show you are serious about power is to articulate a neoliberal vision

      I suspect you have received a response from several people who are perplexed at the suggestion that there is a strong neoliberal presence. Perhaps they're the same sort of people who are fed up being characterised by some on the left of the party as neoliberals when that's not what they believe in, and because their views have been distorted time and time again in that regard.

      No one is "defending" neoliberalism. People are questioning whether a) you are correct to state that there is a meaningful neoliberal presence in the party and b) whether your characterisation of Hayek (not a neoliberal) and Friedman (arguably a neoliberal) is a true and fair reflection either of their actual work, or what little is drawn in terms of thought and critique by those in the contemporary political and economic spheres.

      To derive some observations from the work of Hayek or Friedman no more makes one a neoliberal than to derive some of Marx's analysis makes you a communist or Keynes' analysis makes you a New Liberal. I guess people want to know why you are making such apparently uninformed attacks on a mysterious unidentified group that you seem to think is corrupting the Liberal Democrats, its values and its direction.

  12. Tell me, Simon, you allege that Orange Bookers are some of libertarian purists, have you read the Orange Book?

    When you attack neoliberalism, what, exactly, do you mean? You use the term as some kind of bogeyman, this big scary concept which utterly destroys everything great and good. You do this, without making clear what you mean by neoliberalism. So, please, elaborate?

    Matthew Patrick Downey

  13. In reply to Graeme Cowie: If you want a definition of ‘neoliberalism’, there’s a comprehensive one on Wikipedia ( As for names, there are David Laws and Jeremy Browne in the parliamentary party, plus the members of Liberal Reform, amongst others. As for evidence that anyone believes in “a return to an illusory ‘pure’ liberalism of the mid-nineteenth century”, that was the basic thesis of the Orange Book; it said “reclaiming liberalism” on the cover, implying that liberalism once existed in some pure, unsullied form, and the editors went on to allege that liberalism had somehow been stolen (either by the New Liberals of the 1880s-1900s or by Keynes and Beveridge). And as for “evidence of a single person within the Liberal Democrats who believes that the only way to show you are serious about power is to articulate a neoliberal vision”, there are people who don’t really care about economic dogma one way or the other, but nevertheless believe that you cannot win power unless you align with the orthodoxy du jour (the ‘Overton Window’ theory of politics) – I would include much of the leader’s kitchen cabinet in that category (I would also include the Blairites in the Labour Party), and they’ll swap ideologies again when the Overton Window eventually moves.

    In reply to Matt Downey: I did not “allege that Orange Bookers are some of libertarian purists” [sic]. I read the Orange Book the week it was published in 2004, and wrote a review in Liberator magazine at the time.

    In reply generally:

    I am not sure whether the commenters on this post like the term ‘neoliberal(ism)’ or not, since several have denied it applies to them, while at the same time defending it fiercely.

    In any case, by ‘neoliberalism’ I mean the economic ideology (also described as ‘Austrian School’ or ‘Washington Consensus’) that dominated thinking from the rise of Thatcher and Reagan at the beginning of the 1980s through to the banking collapse of 2008. Even though this ideology (along with the beliefs in ‘efficient markets’ and ‘rational actors’) is now widely discredited, it marches on like a zombie and continues to exert a hold over policy makers. Its final demise is only a matter of time.

    Of course, true believers insist that neoliberalism hasn’t failed but that it hasn’t been tried. They remind me of the Trotskyists I used to argue against in student and youth politics in the late 1970s and early 1980s. When confronted with the failure of communism, they would insist that none of the communist regimes were really ‘communist’ and that a purer form of Marxism would work marvels.

    However, it is obvious to anyone outside a core of true believers that neoliberal ideology (or whatever you prefer to call it) is a practical failure. But in addition, this ideology is objectionable on moral grounds, essentially because it is based on the reductionist idea of economism, which insists that all social phenomena can be reduced to economic dimensions.

    The market is simply a useful mechanism for exchanging goods and services, not a value. But neoliberalism elevates markets to an object of almost religious devotion, valued for itself, a metaphor for everything, an ethic that can guide all human action and replace previously existing ethical beliefs. It reduces ethics to calculations of wealth and productivity. Values like morality, justice, fairness, empathy, nobility and love are either abandoned or redefined in market terms.

    [Reply continued in part two...]

  14. PART TWO

    By putting markets front and centre of political values, neoliberalism diminishes the social nature of human beings (“there is no such thing as society”) and instead implies that the action of buying and selling is central to human experience. This is an extraordinarily stunted view of life. It is also an extraordinarily stunted view of politics, since if one insists that market forces are the only legitimate means of human agency (which neoliberals effectively do when they dismiss collective democratic decision-making as ‘coercion’), then no matter how well markets work, it means that people are extremely limited in what they can say and who they can say it to.

    We now come to the question of whether neoliberals (or neo-classicals or whatever they choose to call themselves) belong within the Liberal Democrats.

    There are two fundamentally conflicting views of liberty. The classical liberal view accepts only negative freedom (an absence of restraint) whereas the new liberals or social liberals, while not rejecting negative freedom, believe also in positive freedom (ensuring individuals have the wherewithal to flourish). The consequences in terms of policy of these two contrasting views are so profound that it is not possible for them to co-exist in the same party.

    Why then should social liberals stay but neoliberals leave? It is not simply that neoliberals are a minority and were hardly evident in the party before 2001. The preamble to the constitution of the Liberal Democrats is quite clear that the party seeks to balance negative and positive freedoms; it begins “The Liberal Democrats exist to build and safeguard a fair, free and open society, in which we seek to balance the fundamental values of liberty, equality and community, and in which no one shall be enslaved by poverty, ignorance or conformity.” In other words, it is a social liberal party and, if you don’t like that, perhaps you would be happier elsewhere.

    Oh, and don’t come back with any of that nonsense about ‘four-cornered liberalism’. That is simply a dishonest rhetorical device intended to redefine the fringe as mainstream and the mainstream as fringe.

    Finally, it is striking that all the critical comments in response to this post are so angry and bad-tempered. I’ve noticed this in the political blogosphere generally, that for people of a neoliberal bent, the dial marked ‘fury and rage’ is permanently turned up to ‘11’. What is it with these people? God knows there is enough genuine injustice in the world to feel angry about, but they reserve it all for perceived acts of blasphemy against their dogma.

    It was noticeable that most of the commenters piled in within a few minutes of my post first appearing. They cannot possibly have had time to read the lengthy book review to which my post linked, which anyone interested in serious debate would have taken the trouble to read and digest before responding in a calm and dignified manner.

    All in all, this short-temperedness is a poor advert for neoliberalism (or whatever you prefer to call it), which suits me just fine.

  15. Comment from Bill le Breton:

    There is RIGHTLY support here for a good deal of Hayek and a great deal of Friedman. Sorry, I had to shout ‘rightly’ because I’m used to being pigeon-holed as a ‘Keynesian’, whatever that is, and even a ‘New Keynesian’, because I favour stimulus in the present situation (mostly monetary, but perhaps some fiscal stimulus too given the entrenchment of expectations of weak growth and the lack of knowledge and leadership concerning monetary stimulus). I ‘got’ Friedman in the early 1980s.

    My beef against those running our party is that they are not sufficiently or even instinctively committed to the best of Hayek and the best of Friedman – the attractive ideas of whom Mike B and Tom P point to.

    There are areas where markets offer the best signals. For instance, financial markets offer extremely good signals about economic policies, yet those who are making the big decisions in our party ignore those signals.

    So, let’s see if we can all agree that Friedman said and was right to say that persistent low interest rates (along with stagnant nominal GDP) are a sign of monetary policy having been and remaining too tight. If we do, then the ‘political’ nonsense coming from our leadership that low gilt rates are a sign of confidence in Coalition policy can be dismissed.

    There are a number of reasons why our leaders cling to this fallacy. They are to do with the ‘politics’ vis-a-vis Labour and perhaps UKIP. They are also to do with not understanding Friedman and his modern day followers, the Market Monetarists.

    What is, however, more important is to ask why central bankers cling to it? They are worried about inflation and are worried about moving away from what these very conservative types regard as the ‘safe anchor’ of an inflation target. But, given that in the UK and elsewhere they are targeting the forecast, why is their target 2% and their latest forecast 1.8%?

    Inflation targeting worked well until 2007, but was utterly the wrong tool for the period of the spike in world commodity prices and especially oil. Given the reduction in NGDP that tight money (inflation-based policy setting) caused in 2008/9, inflation targeting also stops recovery in NGDP – the lower economic activity of which intensifies the private and public debt problems.

    Friedman would look at today’s money supply figures and conclude that further loosening is required, which when rates are this low can’t be achieved by conventional OMO, so (as he did in the 90s with reference to Japan) he would advocate unconventional easing: QE and (who knows, but unlikely) by money creation through public expenditure, scaling back money destruction through over-quick fiscal consolidation. He would also probably think that measures of money, Base or M3 or M4 lending or whatever, were no longer helpful and I think he would for this reason have recommended an NGDP target as containing information about money and real output.

    Interestingly, the new Governor of the Bank of England earlier this year (here: reviewed the use of inflation, price and NGDP targets in relation to Canada. Although for his then employers (the people of resource-rich Canada), he rejected NGDP targeting, he did suggest that there was an argument for it when an economy was stuck for a long time in the Liquidity Trap and when ‘welfare’ reasons were such that it was needed. Surely, the UK (and Europe) today!

    So, if you nimble minds (behind those screens) are not Austrians – let alone neo-liberals at home in the Tea Party – why are none of you campaigning for Friedmanite monetary policy – for the Market Monetarist approach – for NGDP level targeting – for more monetary easing - (perhaps even a little fiscal easing) to get growth started?

    Bill le Breton

  16. Simon: The Wikipedia article doesn't define neoliberalism to any level of precision. The word is meaningless and so indeterminate as to catch just about anyone broadly in favour of any non state-led market in anything. Please explain, with reference to tangible actual physical things, what policies and orthodoxies (in neutral language) you consider to be neoliberal and explain why they are not merely, variously, classically liberal, socially liberal, libertarian (and the various guises thereof, including the left-leaning ones), social market, or pragmatic. Explain what specifically it is about these policies or attitudes which indicates an ideological or dogmatic attitude towards the role of the state, towards the role of markets, and towards the purpose of markets in society.

    Your idea of neoliberalism, so far as you have characterised it here, is that of an uncaring ideological preference for markets, with a total disregard for its consequences. That's not the politics of David Laws, of Jeremy Browne, of Liberal Reform or indeed of the Orange Book. The entire argument of the latter, in particular, was to emphasise that markets, in the appropriate regulatory and state supported (but not dominated) environment, can produce better outcomes in the satisfaction of social liberal goals, which take primacy, than some of the presumptive more extensive state-led settlements we currently have. It's an empirical dispute, not an ideological one.

    As for the whole semantics around "reclaiming liberalism" that's not what it meant. The concern of Laws et al was that the liberal agenda had been ceded to other political parties, and that the Lib Dems lurching too far in the direction of "the state must do more" on a whole host of matters, with the possible exception of civil liberties. The reclaiming of liberalism was a reclaim from paternalism, not a reclaim from social liberals of the David Lloyd George mould. The editors did not accuse DLG, Keynes and Beveridge of sullying liberalism. That's just a distortion of the truth. In the specific case of Laws, for example, he is emphatically a Keynesian. He simply doesn't draw the same lessons as others who call themselves Keynesians from JMK's work. As Hayek once put it, if you could say one thing of Keynes it is that he would not have approved of the abuse of his work by his pupils.

    As for the Overton Widow group, some actual, you know, evidence, would be nice.

  17. The reason people have responded in the manner they have is that they know full well that you are trying to attach the neoliberal label (correctly applied to some Blairites and to many Thatcherites) to those of variously an Orange Book or less state interventionist bent within the party, using generalisations so vague, so detached from actual stated beliefs, the justifications for those beliefs, and how those stated beliefs play out in actual physical policy, that your remarks are neither accurate nor especially testable.

    The Orange Book and most "economic liberals" (for want of a better phrase) in the Lib Dems are not laissez-faire fundamentalists. They are people who interpret the evidence for state intervention in a number of cases differently from the way you do. That doesn't make them ideologues. That doesn't make them fundamentalists. That doesn't make them insensitive to social needs. It doesn't make them extremists.

    When they show scepticism towards an expansionary fiscal or monetary policy, it's not because they hate the poor, believe that free markets are intrinsically good irrespective of their consequences and are greedy and uncaring. They are worried about the tangible effects those actions have: the effect of stubbornly high inflation which remains above the BoE target and well above wages; the effect of market interest rates bearing no relation to the BoE base rate, such as is the hostile lending environment; the harmful effects of forcing banks to lend money they don't have when they're already over-leveraged; the additional harms of government borrowing increasing the rate of borrowing, and by extension the interest rates on mortgages, credit cards, and other variable rate debts.

    Orange Bookers don't want a deregulated free market. They want a different kind of state-market relationship, which explores less invasive ways of achieving the same liberal goals.

    Until you recognise the difference, your false dichotomy between an extensive social market and a laissez-faire propertarian utopia/dystopia will continue to stick out like a sore thumb.

    I don't know of anyone in Liberal Reform who "dismisses" democracy as coercion (though it clearly is a form of coercion, in the way that any state is, not all coercion is necessarily bad). Liberalism and democracy are not wholly philosophically compatible, and both are tempered by each other. The two can and do conflict, and it doesn't make you illiberal or not a democrat to place limits on either. When you give so much priority to democracy as to begin to erode basic liberties, however, it is legitimate to question the extent to which you are facilitating liberal ends.

    Liberals adopt democracy because in many cases it is the least worst means to protecting the individual and their place within society. None of this is remotely incompatible with the LD preamble. We simply disagree what best strikes the balance between the individual and the community lies and how best to prevent Beveridge's evils from manifesting themselves. We belong every bit in this party as you do, and we find it gratuitously offensive that you and others are so openly hostile towards our place within the party. Not even Richard Reeves has been so hostile in reverse, and that is saying something.

  18. Graeme – The term ‘neoliberalism’ may be open to discussion but it is not “meaningless”. A combination of a belief in the minimal state with neoclassical economic theory more or less nails it. In any case, it is puzzling that you and other commenters here simultaneously deny the label ‘neoliberal’ while leaping to neoliberalism’s defence. If you oppose neoliberalism, why not say so? If you support it, then if the cap fits...

    So far as David Laws is concerned, he set out his position in an article for the IEA in June, which was taken apart by David Howarth in a recent article for Liberal Insight (the links are here: The disagreement between them exemplifies the difference. Laws may acknowledge social needs, and doubtless bears disadvantaged people no malice, but the outcome of the policies he advocates would be greater social injustice to no great economic benefit, as Howarth ably demonstrates.

    Leaving aside the term ‘neoliberal’, the overdue emphasis you place on markets is hard to justify. Let me be clear: I don’t object to markets. I object to putting them on a pedestal, making a fetish of them or regarding them as a paradigm for life in general. Liberalism is not basically about markets because life is not basically about buying and selling.

    We should see freedom and liberty as things that are real and felt, not as abstract or legalistic concepts. Therefore the key to liberalism is not market forces but ‘agency’, which means people’s capacity to make meaningful decisions about their lives and to influence the world around them. With the best will in the world, markets can supply only a limited amount of agency. For most people, democratic politics is the only means they have to stand up to concentrations of power.

    Finally, your injured tone and that of your allies suggests that you see yourselves as the victims here. Let me remind you why social liberals are so angry about what is going on. The Liberal Party before the merger in 1988 was overwhelmingly social liberal, from the era of the New Liberals at the end of the nineteenth century onwards. The Liberal Democrats remain a predominantly social liberal party (despite what Richard Reeves says). Then suddenly around 2001, people calling themselves ‘economic liberals’ appeared out of nowhere, and assorted characters such as Paul Marshall, David Laws, Mark Oaten, Mark Littlewood, Chris Fox and Ian Wright began plotting for a right-wing takeover of the party. Various groups such as Liberal Future and the Peel Group have come and gone, but the cast of characters has remained more or less the same. How do you imagine social liberals feel when they have campaigned and rebuilt the party into a serious political force over the past fifty years, then suddenly a small group of right-wing ideologues pops up and declares: “You aren’t really liberals, you were never serious about power, we are the ‘modernisers’, we’ll take your party thank you very much, now fuck off.” And you wonder why social liberals are reacting with mounting hostility?

    1. Simon, you use the word neoliberal so broadly as to remove all meaning of it beyond "people who think markets are quite good". If we use the meaning "belief in the minimal state with neoclassical economic theory" on the other hand, virtually *nobody* believes in that. That's minarchism. People who believe in things like social insurance, state-funded healthcare and schools, extensive regulation of financial services and so forth do not believe in the minimal state, nor indeed can they be regarded as classical economic theory purists, or neoclassical economic theory purists. David Laws is categorically not of that description, nor I suspect is anyone in the Parliamentary party or the overwhelming majority of those within groups like Liberal Reform.

      Not a single defence has been offered for neoliberalism by anyone on this thread, because neoliberalism as you've described it within the Lib Dems just isn't a thing. It has only been disavowed.

      In that IEA article by David Laws to which you refer, he doesn't even use the words "small state". All he says is that having state spending stubbornly at about >40% of GDP suggests that there is likely to be a lot of resource misallocation. This isn't dogma. This is an empirical observation. Howarth erects a straw man that Laws is suggesting all public spending necessarily chokes off economic growth. That is to overstate to the extreme what he said. Howarth then simply ASSERTS, without evidence or justification that Laws' policies lead to greater resource misallocation and more unfairness. Again, though, we see this is an EMPIRICAL not an ideological question.

    2. How can you possibly know that I place overdue emphasis on markets? I have not even expressed my specific and detailed views about the free market or regulated markets on here. All I have said is that of and in so far as they are dynamic and responsive to the needs of individuals and society, they are instrumentally good. When they're not, I argue for intervention in them. Banking regulation. Healthcare. Education. Social housing. Welfare. The police and armed forces. It's always an empirical question that you ask: does the market deliver the best policy outcomes, and if not, which combination of the state and the market delivers the best policy outcomes. If that places too much emphasis on the market, then fine. But it's not neoliberal and it's not outside of the liberal tradition.

      No one here or within the party that I have spoken to "fetishises" markets. Many recognise that economic interactions freely entered into by individuals is at some level an expression of liberty, in the same way as expressing yourself freely through speech, assembly, religion and such like. To recognise that economic interactions between freely consenting persons with the objective of satisfying individual or other needs is not to fetishise the market. It is to recognise that individuals have different interests and that it is not always appropriate for the state or anyone else to interfere with those interests.

      This isn't market-legalese. No one here is against democracy. I think most here would agree that markets alone do not maximise agency. But democracy can't maximise agency either. It is, by its very nature, coercive of the individual (and sub-groups of society), is about conformity and tries to wield some sort of greater legitimacy over other forms of agency within society. This is why a liberal society should not allow even a unanimous legislature to ban freedom of speech or to legalise torture. Democracy itself is a concentration of power, just like the market. Neither are to be glorified for their own sake.

      Your final little ditty is irrelevant, because it's not mutually exclusive to be a social liberal and an economic liberal. No one here cedes the social liberal tag. Hate to break that to you. Also, David Laws has been within the Liberal Democrat fold since at least 1994, Oaten since before the merger. They did not appear out of nowhere. Unlucky for you.

  19. Somehow I have reached the age of 38 and think I've worked out a thing or two abut how the world works.
    You don´t need to buy into the full unregulated free-market and you can accept that the ongoing economic problems challenge (not negate) recent economic orthodoxy to see there is value in economic freedom for the widest number of the people in this country - not just for those with yachts! There a consequences in failing to reduce the size of the state: continued and increased rationing of public services and clientelism to circumvent it, which like in post-war Italy became destructive to the accountability and transparency of politics. When the last Labour government left office public spending represented 47% of GDP - as a country we were sleepwalking into a command economy. I can see no value in the LibDems competing with votes with SWP or Respect as a party of student-dig left.-wing dissidence. I doubt most people are there nor ever will be. The left of the party quote constantly the preamble to the constitution as the immovable social liberal basis of the party. You seem to saying you wish to exclude people that consider themselves Liberal from the party and that cannot be wise - they´ll vote Tory and give that party a lifeline it doesn't deserve. That cannot be what the left of the party want - surely. Now I´m off back to the blood and guts of my music sequencer!

  20. Comment from Bill le Breton:

    Graeme: Your post, with its description of why you (you say “they”, but is this not where you stand too?) are sceptical of both monetary and fiscal easing, mirrors the Austrian School’s explanation for the Great Depression:

    The central banks’ easy money policies of the 1920s leads to an unsustainable credit-driven boom in asset prices and capital goods. By the time monetary policy is tightened in the late 1920s, it is too late to avoid a significant economic contraction. Government intervention after the crash of 1929 delays the market’s adjustment and makes the road to complete recovery more difficult.

    Implicitly, this is denying Friedman’s monetarist explanation that the central banks failed sufficiently to increase the supply of money, post crash.

    Interestingly (is this what Mike Bird was referring to above?), Hayek recanted from his contemporary view, i.e. that “a process of deflation of some short duration might break the rigidity of wages which I thought was incompatible with a functioning economy”. In 1978, he wrote, “I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy”.

    You are being spooked by inflation. There are price rises from hikes in commodity prices, from one-off increases resulting from government policies (e.g. student fees) but, as you admit, there is no sign of wage inflation.

    Your policy is the equivalent of those who at the outset of the Great Depression sought to hang on to the Gold Standard. It was disastrous then and it is disastrous now.

    Deflationary forces dominate in Japan, the Eurozone, the US and the UK and are reinforced by the doom and gloom, the restrictive policies, the fear for the future among the public, the fear for their clients’ future among commercial banks and the banks’ ability to get paid for keeping their money safely at the central bank.

    The wrong kind of expectations are being engrained. People and firms are looking for safe assets, driving up their prices and reducing their rate of return. Everything is conspiring to increase the demand for money and your policies are conspiring to prevent the necessary accommodating increase in the supply of money.

    We need a credible narrative of recovery that changes expectations. That narrative must explain how an increased money supply will boost aggregate demand and, given where we are now, that probably involves some targeted government expenditure as well to give the ‘story’ legs.

    Bill le Breton

  21. @Graeme – You insist this debate is an ‘empirical’ question not an ideological one. But it is ideological because it is fundamentally about competing sets of values. That is the point I have been trying to make throughout, which you seem unable to grasp: that this is ultimately a moral question, as are all political questions.

    Leaving aside the semantic argument about whether you are a ‘neoliberal’, the problem with your view is that you can see the price of everything and the value of nothing. You claim not to place an undue emphasis on markets, in which case why is market ideology the only political topic that moves you? Look how agitated you are about this topic here; you don’t express a similar degree of enthusiasm or agitation about any other political issue. Indeed, your whole perspective is economistic, and you cannot think outside that box.

    Worse, you discuss everything in abstract terms, as if politics were primarily an exercise in refining one’s ideology. There seems no human dimension to your politics, nor any practical grounding in engaging with people and communities and their concerns at grassroots level. Worse still, in your latest comment, you are markedly ambivalent about democracy, seeing it as just another arena alongside markets.

    Your point about when Laws and Oaten joined the Liberal Democrats is irrelevant. The point is that no self-styled ‘economic liberals’ put their heads above the parapet until 2001, so we must conclude that any economic liberals in the party before that time either believed in something else and changed their minds, or were keeping very quiet about their real views and motives.

    @Matt Burrows – So you think reaching the age of 38 confers some sort of special wisdom? Your absurd claim that anyone wants the Liberal Democrats to compete with the SWP and Respect suggests that you’ve still got some growing up to do. You worry about handing votes to the Tories but the proportion of voters whose allegiance hinges on abstract economic ideology is tiny – if you don’t believe me, go out canvassing one night and see how many spontaneous mentions of Milton Friedman you hear on the doorstep. Meanwhile, the thing that actually is damaging the Liberal Democrats is the right-wing plotting since 2001 to take over the party and drive out social liberals.

    Let me conclude this thread by pointing out something obvious that the agitated right-wing commenters seem to have missed. The economic orthodoxy to which you are attached crashed in flames in 2008. It is both an empirical failure and a moral failure. It is intellectually discredited. It is deeply unpopular. It is on the way out. There is no political profit to be had by fighting the other mainstream parties for the right to cling to the wreckage. It is time to move on.

    This correspondence is now closed.