Mike Konczal – Roosevelt Institute
Over the past several decades, an empirical revolution in economics has undermined many of the assumptions of the reigning approach to economic policy, which we refer to here as “neoliberalism.” This issue brief elevates five of the leading arguments made by advocates of neoliberalism and explores their theoretical claims. It then tracks these arguments against recent research by leading scholars of economic inequality to show how neoliberalism has failed to deliver increased growth, equality, or mobility.
There has been a significant amount of empirical work done since the financial crisis and Great Recession that pushes back on ideas that were, just 15 years ago, seen as common- sense among economic policymakers. This shift is important, and this paper looks to document some of the high-level changes in economic thinking, along with the work that best covers it. By elevating the leading empirics that turn neoliberalism’s theoretical claims on their head, we aim to energize a thoughtful reevaluation of the arguments and lay a foundation for a new set of economic policies that are capable of building a stronger, more inclusive economy and democracy by curbing the concentrated power in our economy and political system while also building on the strengths of government to directly address both the individual and collective challenges facing our nation (see Abernathy, Hamilton, and Morgan 2019).
In analyzing each argument, we focus on three elements. First, we explore how the data challenge neoliberal arguments. Next, we examine causation: to what extent can we assume that inequality slows growth, or that increased concentration leads to higher corporate profits, even if we know the trends are real? Finally, we begin to explore solutions, assessing how clear a path forward is and whether the contours of solutions are known and thought through.
We take the term “neoliberalism” for granted here, as it has been defined and debated at large in other forums. Though we try not to tie each argument to specific people, we believe that each of these ideas, in some form, has been hegemonic over the past several decades. We also don’t try to ascribe motivations or histories for why each became a central feature of economic decision-making. Whether it was a response to the 1970s, the influence of corporate decision-making and abstract economics, or simply the best way people could understand the world they were facing, doesn’t matter here for evaluating their history against the record. Each of these theories has been brought into question not just by research but also by the lived experience of Americans.
GROWTH, INEQUALITY, AND MOBILITY
Advocates of deregulation promised both more efficient markets and economic growth (as measured by gross domestic product) that would “trickle down” to benefit the economy as a whole. Such an approach, they promised, would be like a rising tide that lifts all boats. Contrary to the theory, however, regressive policies, including lower tax rates for corporations and the already wealthy, deregulation, and privatization, have resulted in slower growth, greater income inequality, wage stagnation, and decreased labor market mobility.
WAGES AND HUMAN CAPITAL
A marketized approach to labor policy argues that investment in human capital—i.e., education and “upskilling”—is the solution for economic inequality. In other words, if workers want higher wages, they can increase and adapt their skills, education, and ability to work in the marketplace. Therefore, the theory views inequality as an individual problem best solved by individualized solutions rather than as a structural problem to be solved by policies that redefine economic outcomes. It is clear that skill and education gaps do not sufficiently explain economic inequality—nor do more skills and education solve for it. Notably, research shows that unequal access to education is a result of inequality as much as a driver of it.
MARKETS AND RACIAL INEQUALITY
Advocates of deregulation promised that markets—unconstrained by government—would reduce discrimination and racism. As the theory goes, in free, competitive labor markets, discrimination would be competed away. Therefore, any racialized inequality is the result of individual choices and a lack of personal ambition, which can be solved by taking more “personal responsibility” for individual economic status and well-being. Recent research by leading thinkers studying racial inequality has exposed the shortcomings of this theory by analyzing data on employment, income, and wealth disparities for people of color.
THE FINANCIAL SECTOR AND ECONOMIC GROWTH
For nearly half a century, neoliberals have argued that deregulation of the financial sector would lead to a more efficient—i.e., less rent-seeking—and resilient financial sector. Instead, we got higher financial profits, more extraction, and the 2008 financial crisis.
ANTITRUST AND GROWTH
Neoliberal doctrine led policymakers, regulators, and courts to believe that the relaxation of antitrust enforcement increases competition and innovation within and across markets. Any possible rents, the theory went, would be competed away by new businesses. As researchers have shown, though, the evidence proves otherwise.
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