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The Slow Death of Neoliberalism: Part 4C Conclusion

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Part 1.
Part 2.
Part 3.
Part 3A. This post at Naked Capitalism expands on Part 3, and adds a discussion of Simcha Barkai’s paper and methodology; I discuss other aspects in Part 4A.
Part 4A.
Part 4B.

It’s fairly easy to criticize neoliberalism from the inside, just based on its incoherence and its failure to deliver good outcomes to most of us. The Barkai Paper discussed in parts 3A and 3A, and the Paradise Papers and the Panama Papers make it obvious that the benefits of neoliberalism flow to the wealthy at the expense of the rest of us, whose wages are largely stagnant and have been for decades, and whose share of overall wealth has fallen.

Neoliberalism can also be criticized from the outside as a form of capitalism, and that seems to me to be more revealing. The constricted logic of capitalism leads directly to domination by the few in business and society generally. The logic that pushes towards dominance is the result of the nature of reason as it has evolved since the Enlightenment. I’ve discussed similar descriptions of the drive to domination in Polanyi, Arendt and to a lesser extent Veblen; click name above to visit my author page. My recent discussions of these points based on my first readings in Critical Theory can be found here, here, and here.

The members of the Frankfurt School were trained in classical German thought, including Hegel, Kant, and Marx. Initially they accepted Marx’ theory of an inherent contradiction in capitalism: that the rich would accumulate all the money and impoverish the workers, who would rise up and lead the revolution. That didn’t happen. Instead, the drive to domination was restrained by legislation. The majority’s insistence on restraints was so strong that the Supreme Court, that playground of the elites, was forced to allow the legislation to stand. But the scholars of the Frankfurt School knew that the drive to domination didn’t disappear. Today it’s just as strong as it was in the late 19th Century.

The natural logic of capitalism is gigantism. Marx said that in unrestrained capital, smaller businesses will be swallowed up by larger businesses, and he was right, as we see today. Organizations with massive capital wield enormous power, and can easily take over control of a society. We see the beginnings of all this today. There is a long tradition in the US of distrust of large piles of money and the people who control them, a sentiment that drove the progressive movement of the late 19th Century. That doesn’t disappear accidentally. It requires an external force to change it. I wouldn’t say it has disappeared today, but far too many of us have lost that natural distrust.

Somehow many people think billionaires as just like the rest of us. They aren’t, and the vulgar braggart in the White House is a perfect exemplar. But far too many of us are willing to accept rule by the rich. One of the central influences that led to this sorry situation is the Law and Economics movement, with its single-minded focus on economic efficiency. Economic efficiency: who could object that? Of course we should be efficient.

Once courts decided that the most important part of justice is insuring economic efficiency, they began to eat away at the laws and theories that enabled the majority to control the rich and powerful. Ideals like the importance of fairness, or social equality, or recognizing and correcting power imbalances through legislation, withered and vanished. Gradually we lost the ability to govern by majority rule. Our Supreme Court feels no compunction in overruling the will of the majority on health care, on voting rights, even on actual elections.

That is the result of the same kind of logic that drives capitalism, the logic of economic efficiency applied to every area of life. A somewhat simple idea that might be useful in limited settings becomes the overall mindset, the formula for decision-making that jumps from the tiny number of cases in which it might be a useful to the absurd idea that it works in every area of law.

It would be interesting to see a history of the erosion of the Securities Laws beginning under Reagan and his hit-man SEC Chair John Shad, followed by mildly limiting legislation, which the courts expanded to cut way back on the ability of the regulator to regulate, and the investor to sue. The Supreme Court bought into Posner’s principle, and then expanded it beyond recognition.

Friedrich Pollock, a member of the Frankfurt School, said that the profit motive has always been a form of the power motive. It just gets dressed up in fancy reductive logic by the likes of Posner and Bork for public consumption. Regardless of their motives, they are no different from Frank Luntz, who uses the tools of rhetoric to hide the ugly transformations sought by the rich.

All these changes start small, and require something that seems like a justification, but eventually, it’s just the whim of the elites. That’s how Trump acts, and that’s how the more effective members of his cabinet and his other appointees act. Rex Tillerson is destroying our capacity to engage in diplomacy. Scott Pruitt is destroying our ability to protect ourselves from climate change and pollution. Jeff Sessions is wrecking the Justice Department. All this was foreshadowed by the destruction of the SEC under Shad.

When government is dismantled, how does a society work? The rich take over and run things according to their fancies.

That’s the logic of capitalism. Control the capitalists or they controls you.

The Slow Death of Neoliberalism: Part 4B

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Part 1.
Part 2.
Part 3.
Part 3A. This post at Naked Capitalism expands on Part 3, and adds a discussion of Simcha Barkai’s paper and methodology; I discuss other aspects in Part 4A.
Part 4A.

In Part 4A, I laid out the neoliberal theory of the person, and the beginning of an appraisal of the effect of that theory on elites. In this post I add to that appraisal, and take up the impact of this theory on the rest of us. In the next post I will offer a possible explanatory context, but not a solution.

The neoliberal theory of the person is the basis of the economics most of the elites learn as undergrads, and in business schools. Lawyers are taught neoliberal principles in anti-trust classes and in the jurisprudential aspects of other courses, through the impact of the law and economics movement. When elites get jobs in business or law or government, they are surrounded by others who are deeply enmeshed in neoliberalism, even if they can’t name it. They believe that the market, whatever that is, is a wonderful, if occasionally erratic, judge of worth. They earn what they make because the market rewards the productive, and everyone finds their level in that system of rewards, based on their personal merit and their productivity. As they rise in pay and prestige, that opinion is cemented. It’s like Calvinism, with the market substituted for the Almighty. And if the market rewards the productive and dumps on the “non-productive”, then that is right and just.

The farther elites get from the productive work of businesses, the more they come to regard employees as cogs in a machine, not fully human, merely factors of production. The ease with which they fire people is the result of their belief that elites are productive and the rest tools. Lawyers and politicians may see their employees as humans, if weak versions, but the rest of the working world vanishes, except when needed. In brief, the elites operationalize Karl Polanyi’s concept of labor as a fictitious commodity.

And how does this work out for the lesser people? They are forced to live and work in the neoliberal world. They learn to repeat its tropes. For a beautiful piece of research on this, see Coming Up Short: Working-Class Adulthood in an Age of Uncertainty, 2015, by Jennifer M. Silva, The people Silva interviewed describe themselves in the terms in the Mirowski quote in Part 4A, as bundles of skill sets, who must take risks and invest in themselves to get ahead; when it doesn’t work, they think it’s their fault, they blame themselves, and they struggle to find some other way forward.

I saw this many times in my 25 years of bankruptcy practice. People who file Chapter 7 always blamed themselves, and never could understand how their failures resulted from the cruel form of capitalism we enjoy in the US. Here’s a composite case. A young couple with two low-level jobs in a county near Nashville decide that the husband will go back to school so he can get a better job. The wife gets pregnant, suffers a bad miscarriage and can’t go on working. They don’t have insurance, and the bills pile up. He drops out to get a job to support them and tries to pay down the debt. She gets well enough to work, and then he loses his job. They can’t pay the medical and student debt. They get money from family, but it doesn’t work. They file Chapter 7, but they can’t discharge the student debt and they feel obligated to pay back their families. And when we talk to them, they blame themselves in words and phrases exactly like those Silva reports in her book.

In Part 4A, I describe two of the prevalent ideas that neoliberalism has given us, Bork’s antitrust revisionism and Posner’s Law and Economics. For the elites, the first was a boon. It was easy to explain how the markets would protect consumers after a merger. Corporations became larger and larger. Regulators allowed almost every merger, and the elites became more and more powerful, with more and more assets under their control. Combine the new wealth and power with their belief that they are superior, as shown by the rewards heaped on them by the all-knowing market, and suddenly elites are exerting even greater control over the government and using it to enrich themselves as managers and shareholders. According to Mirowski, this is a desired outcome of neoliberalism. See, e.g. point 10.

The Law and Economics movement supports this view. Courts following Posner look at economic efficiency above any other interest, and interpret the laws narrowly so as not to interfere with the sacred market. The consistent rulings in their favor support elites in thinking they are wonderful.

After the Great Crash, brought on by elites at gigantic banks, hedge funds, big law firms and other cheats and liars, not a single member of the elites went to jail, and they all got paid, and they all got to keep their ill-gotten gains. Many of the political elites defended their Wall Street friends. Pundits and academics and think-tankers sprang to the defense of Wall Street. Both of these groups pretended that it was everybody’s fault, or the fault of those evil subprime borrowers or nobody’s fault because it was all perfectly legal and the deals were between equally sophisticated and brilliant people, but it surely wasn’t the fault of the well-known people who organized and sold RMBSs and other deals. The prosecutors said they couldn’t indict any individual because responsibility was spread out among lots of people, or it was too hard to get a conviction, or because something something. When elites are not held accountable, it reinforces their sense of how wonderful they are.

But the effect of these two two neoliberal theories on the rest of us is bad. As I note in Part 4A, based on this paper by Simcha Barkai, increasing concentration is perhaps the most important cause of the wage-productivity gap. Wage stagnation as profits increased has left workers struggling to get ahead, to the point that less than half of US households can pay an unexpected $500 bill without borrowing or selling something.

In the same way, the law and economics movement has hurt workers. For example, Banks and other large corporations put arbitration clauses in all their contracts, and clauses that bar class actions, and courts routinely uphold these clauses, because it’s so efficient. That means that when you get cheated in one of Wells Fargo’s schemes, you have to arbitrate, and class actions are barred.

So far, the legacy political parties and the elites have been able to deflect the anger that is slowly building up in our society as frustration turns into pain. It’s dawning on all of us that the way we treat our people is disgusting, whether it’s cops killing unarmed Black people, sexual predators attacking women, unfair pay for people of color, massive corruption, lawsuits with utterly unjust results; the list is endless.

My prediction of the slow death of neoliberalism is based on my profound hope that people are realizing that neoliberalism is a nightmarish theory, the spell will be broken, and people will demand to be treated like human beings with natural rights that must be the central focus of social organization.

[Photo: Annie Spratt via Unsplash]

The Slow Death of Neoliberalism: Part 4A The Nature of the Person

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Part 1.
Part 2.
Part 3.
Part 3A. This post at Naked Capitalism expands on Part 3, and adds a discussion of Simcha Barkai’s paper and methodology; I discuss other aspects below.

In this post, I take up the nature of the person in neoliberal theory and neoliberal society. I begin by describing the nature of the person in theory, and then apply it to elites. In a separate post I will discuss the nature of the average person in neoliberal theory and society. Then I will try to put this in a general context, based on my initial readings on Critical Theory.

The nature of the person in a neoliberal society is simple: a utility-maximizing computing machine, only interested in satisfying wants and needs in a world of scarce resources, where survival depends on the ability to grab stuff ahead of other people. Somewhat more elegantly, Philip Mirowski explains it this way

Neoliberalism thoroughly revises what it means to be a human person. Classical liberalism identified “labor” as the critical original human infusion that both created and justified private property. Foucault correctly identifies the concept of “human capital” as the signal neoliberal departure that undermines centuries of political thought that parlayed humanism into stories of natural rights. Not only does neoliberalism deconstruct any special status for human labor, but it lays waste to older distinctions between production and consumption rooted in the labor theory of value, and reduces the human being to an arbitrary bundle of “investments,” skill sets, temporary alliances (family, sex, race), and fungible body parts. “Government of the self ” becomes the taproot of all social order, even though the identity of the self evanesces under the pressure of continual prosthetic tinkering; this is one possible way to understand the concept of “biopower.” Under this regime, the individual displays no necessary continuity from one “decision” to the next. The manager of You becomes the new ghost in the machine.

Mirowski could be describing corporations: they are in fact the Platonic Ideal of this version of human nature. They have only one goal: to succeed in the market, whatever that is, by grabbing everything they can, money, power, resources, everything. We should all aspire to be like corporations.

In the neoliberal universe, the market, whatever that is, is the perfect computer. It balances all desires with money and spits out the perfect answer. The market can do no wrong. It disciplines everyone to its demands. There is no need for external government oriented regulation. Any regulation will simply make everything worse. In fact, there is no need for or room for democratic control of any kind. The market also selects our leaders, as Thorstein Veblen observed over a century ago.

We’ve been living under this intellectual regime for half a century now, and we can see its impact all around us. On the corporate side let’s look at two of the main theoretical innovations, Robert Bork’s antitrust revisions and Richard Posner’s Law and Economics movement.

As far back as 1960, Bork was fretting that socialism would be enforced on the US through antitrust law. In his seminal 1978 book, The Antitrust Paradox, he claimed that the purpose of the Sherman Act, the crucial antitrust law, was to protect consumer welfare, and that the existing law protected inefficient firms and thus drove up consumer prices. That view was adopted by the Supreme Court in 1979. Supposedly it would protect consumers better than prior law focused on the dangers of concentrated money and power.

A recent paper by Simcha Barkai shows how that worked out. Barkai is now a professor at the London School of Economics. His paper, Declining Labor and Capital Shares, is here. The first two sections and the conclusion lay out the thesis in English, not econspeak. The labor share is declining. The cost of capital is low and little additional capital has not been added to the existing depreciating stock, so the capital share is low. Profits are up in an amount sufficient to cover both drops. The profit share has risen because of increased concentration, which occurred because of the adoption of Bork’s opinion. See Part 3A, Observations.

Across specifications, the profit share (equal to the ratio of profits to gross value added) has increased by more than 12 percentage points. To offer a sense of magnitude, the value of this increase in profits amounts to over $1.1 trillion in 2014, or $14 thousand for each of the approximately 81 million employees of the non-financial corporate sector. P. 3.

Profits go to the owners of firms, who distribute the money as they see fit. Profits are not distributed to the 99%; they go to shareholders and top management. This is terrible for consumers, whose wages have stagnated while profits soar. Bork was totally wrong, and wrong in ways that hurt people and society.

The second neoliberal innovation is the Law and Economics Movement, driven by Richard Posner, recently retired from the Seventh Circuit. This is from a 1987 speech he gave at the American Economic Association, behind pay-wall but available through your local library. According to Posner, these are the basic premises of Law and Economics:

1) People act as rational maximizers of their satisfactions in making such nonmarket decisions as whether to marry or divorce, commit or refrain from committing crimes, make an arrest, litigate or settle a lawsuit, drive a car carefully or carelessly, pollute (a nonmarket activity because pollution is not traded in the market), refuse to associate with people of a different race, fix a mandatory retirement age for employees.

2) Rules of law operate to impose prices on (sometimes subsidize) these nonmarket activities, thereby altering the amount or character of the activity.

A third premise, discussed at greater length later, guides some research in the economics of nonmarket law:

3) Common law, (i.e., judge-made) rules are often best explained as efforts, whether or not conscious, to bring about either Pareto or Kaldor-Hicks efficient outcomes. P. 5

You can find my discussion of Kaldor-Hicks efficiency here, with a link to a discussion of Pareto Efficiency. Posner is quite serious about this.

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This is from [Posner’s] 1985 article in the Columbia Law Review, An Economic Theory of the Criminal Law:

My analysis can be summarized in the following propositions:
1. The major function of criminal law in a capitalist society is to prevent people from bypassing the system of voluntary, compensated exchange-the “market,” explicit or implicit-in situations where, because transaction costs are low, the market is a more efficient method of allocating resources than forced exchange. Market bypassing in such situations is inefficient — in the sense in which economists equate efficiency with wealth maximization — no matter how much utility it may confer on the offender. … (P. 1195, footnote omitted)

Posner carefully explains how this works with rape. I’m sure Weinstein, O’Reilly and all of the sexual predators heartily endorse his conclusions. It’s just sick to think in terms of the utility these predators gain balanced against the “disutility” to the people they attack. In Kaldor-Hicks terms, the predator can make everything right with a few bucks and/or a part in a movie, and Posner would be fine with that.

This analysis is explicitly inhuman: it takes no account of human dignity, or bodily autonomy and personhood of people under assault. The disutility caused by rich predators? What kind of person thinks like that?

To be precise, that is the exact mindset that neoliberalism calls out. That focus on economic efficiency defined in the most dehumanizing terms possible is at the core of the education of the elites and it perfectly explains their behavior in their institutional roles. All of them are sure they are perfection of humanity because they were selected by the perfect market. And it is therefore right and just that they should be in charge of everything. Screw democracy; as Posner put it in a 2007 opinion, the value of voting to the individual is elusive.