The Surprising Cause of the Much-Feared Next Major Economic Crisis

Neoliberalism & Economic Crisis

Economic Crisis: The Unwholesome—and Inevitable—Fruit of Neoliberalism

Neoliberalism will be the cause of the next major economic crisis. In economics—or politics, for that matter—”neoliberalism” has become a catch-all term to describe the prevailing orientation of policy.

Advertisement

Just about everyone these days uses “neoliberalism” without understanding what it implies.

Neoliberalism has little to do with the classic meaning of “liberal” as Americans understand it. Rather, in the American sense, the word describes the liberals’ shift away from the values of FDR or JFK to those of Ronald Reagan.

The term represents a shift to traditional classical free-market ideas, unencumbered by State intervention. In other words, there’s little to distinguish the neoliberals from the neoconservatives.

Where the neoliberals differ from neo-conservatives is in social and cultural ideas—or better ideologies.

Advertisement

Granted, neoliberalism sounds good from the point of view of basic economics. It’s Adam Smith redux.

How could a system that elevates market forces above all other characteristics—while ostensibly advancing the cause of social justice—be bad for investors, for finance, or for the economy as a whole?

It’s not immediately evident, but neoliberalism’s danger resides in its singular reliance on market forces.

The Rejection of Keynes

It refutes the very Keynesian concepts that helped lift the U.S. economy out of the Great Depression.

Those principles helped regulate and temper the worst traits of a market-based economy (supply and demand) by including a big role for government intervention.

Before any Milton Friedman or Richard von Mises purists rush for the keyboards with comments of fire, understand that State intervention in the economy is not a bad thing.

Yes, the market system left unfettered can produce more wealth—perhaps.

It does so for a smaller number of individuals, who then must invest in heavier security to enjoy even a few of the benefits of that wealth.

Pure market approaches encourage the worst kind of economic impact. This impact is not “poverty.” Rather, it’s relative poverty, otherwise known as income inequality.

In a regulated system, incomes may not be as high ($1.5 billion instead of $2.0 billion?). But neither is the disparity that exists between the lowest and highest social classes.

A Keynesian or interventionist structure corrects or mitigates excesses and risks with policies that sustain the poorest in times of slow or no growth.

Often ignored by the proponents of a pure free-market approach, Keynesian alternatives help sustain demand even during a recession.

In other words, corporations can keep selling their goods even when things go bad.

Neoliberalism, Hillary-Style

The “Hillary Clinton”-style neoliberals (to use a popular contemporary description) have corrupted the original intent and meaning of the liberals of a not-too-distant yore.

There is no more balance. The economy is lopsided and heading in a single direction, just as it does under any ideology.

In an analogy anyone who has driven a car or ridden a bike will readily understand, the convergence of neoliberals and neoconservatives on the economy has all but eliminated the need for political parties.

It wasn’t the Russians who somehow sabotaged the U.S. elections in 2016. It was the lack of choice. The winner, Donald Trump, for better or worse, understood and exploited the vacuum.

The “liberals”—as the conservatives before them—have embraced such concepts as deregulation, low taxes for the rich, privatization of state assets, and cuts in social spending.

And Here’s Where the Problem and Where the Risk of Economic Crisis Reside

Neoliberals—as opposed to traditional liberals—no longer have any policies to offer to distinguish them from their rivals.

They welcome the reduction of public spending. And they have fueled considerable discontent among the population. For most of the lower and middle classes, Bill Clinton or Barack Obama were no better than (father and son) Bush or Reagan.

The lower social classes have suffered the loss of many social assistance benefits since the early 80s. All the while, they’ve also endured continuous pay cuts in relation to purchasing power.

The dialectic and competition for votes that once existed in the United States (and many parts of the West) has died. Nobody seems to promote ideas or policies to attract votes.

The political landscape has become characterized by a monolithic interpretation of the ruling elites’ needs and goals.

Both liberals and conservatives pursue, albeit using different condiments (mustard vs ketchup), the same recipes that encourage the eradication of the State in favor of the free market and private entrepreneurship.

What battlefield is left between the liberals and conservatives must be found in propaganda.

The economic message, at first, (as it was in the Reagan and Margaret Thatcher years) got a turbo-boost from the collapse of the Soviet Union.

Now, whether described as neoliberalism or neoconservatism, it’s the same all-encompassing ideology.

How Is the Ideology Leading to Economic Collapse?

While the Rachel Maddows and Anderson Coopers of this world try to convince you that there’s an enemy—and his name is Donald Trump—the fact is that there’s no alternative.

In economic terms, Trump and Clinton understand each other. In military terms, Clinton had the more Napoleonic tendencies. But differences are slight and come down to the individual.

Perhaps that’s what the Clinton supporters have failed to grasp. It’s no longer about political parties; it’s about individual personality because the parties express the same general ideas.

This general idea can be summarized, and there’s nothing new or groundbreaking. Just about everyone has heard or experienced its axioms. Markets self-regulate and resources “magically” trickle down to where they are most useful (not where they’re most needed, mind you).

In finance, the neoliberal/neoconservative ideas have encouraged the notion that any risk can be predicted and calculated.

The energy to perpetuate this idea is constant gross domestic product (GDP) growth. Hopefully, consumption will also keep growing.

Somehow, falling salaries and higher underemployment are supposed to achieve both enviable goals.

If You Caught the Sarcasm of the Short Description Above, You’re in Good Company

Several analysts have already attributed the economic crisis that began with the financial crash of 2008 to the failure of neoliberal policies. For that matter, the entire economic and sociopolitical project of so-called “globalization” has risen and fallen due to “neoliberal” policies.

But the pied pipers of neoliberalism or globalization have not yet received the message. Their lines of communication remain clogged up. That’s why the next economic crisis is around the corner.

The mainstream politicians and economists have purported to lead the United States—and Europe—out of the Great Recession without changing the ingredients that led to the sub-prime crash in the first place.

Neither liberals nor conservatives offered solutions to the crash and resulting recession other than to continue parroting the same tired ideas.

Instead, the economic crisis—which we continue to experience, beyond the make-up—was a “glowing” testament to the destructive power of neoliberal theories.

The Neoliberal Recipe: Private Debt Becomes Public Debt

One of the most important, if forgotten, fruits of the rampant neoliberalism was deregulation.

It was deregulation that allowed American banks to abuse credit policies that, on the surface, appeared highly democratic, even generous.

Instead, the policies’ main result was to achieve a credit crunch that sent the markets crashing and resulted in a global economic crisis. The neoliberal policies, for their part, accentuated the negative effects of the credit crunch.

Fewer social services and higher costs made the crisis more intolerable. Making things worse was the fact that the government pumped liquidity into the very banking sector that had caused the economic crisis in the first place.

Thus, it was that privately accumulated debt through speculation. It was abetted by the lax banking rules passed under “liberal” President Bill Clinton’s nose, becoming everybody’s problem.

The same elements in society that created and fueled this calamity remain in power. They champion the eradication of what’s left of the welfare state as the only solution. That’s why another massive economic crisis is inevitable.

While the current neoliberal/neoconservative elites that rule over us have hijacked economics, they have sharpened finance into a tool to perpetuate the distortion of society.

Finance was a tool of the economy; indeed, it was the servant that helped manage actual productive activities. Now, the relationship has been turned on its head. The real economy has become the slave of finance.

The economic crisis isn’t just coming. It has been here all along.

Read More on LombardiLetter.com
Exit mobile version