Wednesday, October 29, 2014

Ronald Reagan and Neoliberalism

In the article, "The Sad Legacy of Ronald Reagan" published at "The Free Market" in 1988, Sheldon L. Richman laments the unfortunate legacy of Ronald Reagan. He acknowledged that the world believed that Reagan was a staunch defender of limited government, liberty and free market. However, the forces behind interventionism was so strong that led Reagan to abandon his "free market position and acquiesced in further crippling" the American economy and liberties. To prove this argument, Richman dissected Reagan's track record, which includes government spending, taxation, regulation, bureaucracy, and trade. 

As to government spending, Reagan's administration spent higher than Carter's. Instead of fulfilling his promise to abolish the Dept. of Education and the Dept. of Energy, he doubled the budget of these two departments. Social Security spending increased from $179 billion to $269 billion, and Federal entitlements from $197 billion to $477 billion. Foreign aid also increased "from $10 billion to $22 billion", and so is the contribution to the IMF. The final outcome was the tripling of government debt "from $900 billion to $2.7 trillion."

In taxation, the "Tax Reform Act of 1986 is more deception than substance." 

In regulation, "some deregulation has occurred for banks, intercity buses, ocean shipping, and energy. But nothing good has happened in health, safety, and environmental regulations, which cost Americans billions of dollars, ignore property rights, and are based on the spurious notion of 'freedom from risk.'" As a whole, despite the talk about deregulation, "in fact, the economic costs of regulation have grown under Reagan." 

The size of bureaucracy has also grown and added "230,000 more civilian government workers. . . ."

In terms of trade, "The Reagan administration has been the most protectionist since Herbert Hoover's." "Ominously, Reagan has adopted the bogus fair-trade/free-trade dichotomy, and he was eager to sign the big trade bill, which tilts the trade laws even further toward protectionism."

The admirers of Ronal Reagan applaud him as the champion of limited government, free market, and personal liberty and "argue that he has changed the terms of public-policy debate, that no one today dares propose big spending programs." For Richman, Reagan brought no real change. Instead of shrinking the size of the government, he has caused it to grow even more.


William A. Niskanen in "Reaganomics" based Reagan's economic policy on four major objectives: 

(1) reduce the growth of government spending, 

(2) reduce the marginal tax rates on income from both labor and capital, 

(3) reduce regulation, and 

(4) reduce inflation by controlling the growth of the money supply. 

Niskanen has a different assessment of Reagan's legacy. For him, "Reagan delivered on each of his four major policy objectives, although not to the extent that he and his supporters had hoped." "The major achievements of Reaganomics were the sharp reductions in marginal tax rates and in inflation." However, "Reagan left three major adverse legacies at the end of his second term:"

(1) the privately held federal debt increased from 22.3 percent of GDP to 38.1 percent 

(2) the failure to address the savings and loan problem early led to an additional debt of about $125 billion. 

(3) the administration added more trade barriers than any administration since Hoover. 


In his September 29 article, Paul Verhaeghe of "The Guardian" describes neoliberalism as the EXISTING economic system "that rewards psychopathic personality traits that has changed our ethics and our personalities." It "has brought out the worst in us."

Verhaerghe associates neoliberalism with free market and privatization. In order to succeed under this economic system, you must possess the following qualities: 

(1) Articulateness. Disregard the superficiality of human interaction. The important thing is the ability "to win over as many people as possible." 

(2) Ability to "lie convincingly and feel little guilt."

(3) Ability to evade responsibility for personal behaviour.

(4) Flexibility and impulsiveness. You must always be "on the lookout for new stimuli and challenges. In practice, this leads to risky behaviour, but never mind, it won’t be you who has to pick up the pieces."

Verhaerghe accepts that his description of an individual under neoliberalism is "a caricature taken to extremes." However, his main concern is to paint a dark picture of neoliberalism by identifying the worst things that come out of us as result of this economic system:

(1) "The main preoccupation always being to extract more profit from the situation than your competition."

(2) "Social ties with colleagues weaken, as does emotional commitment to the enterprise or organisation."

(3) Bullying spreads from schools into the workplace. 

(4) "A buried sense of fear, ranging from performance anxiety to a broader social fear of the threatening other" is widespread.

(5) "Constant evaluations at work cause a decline in autonomy and a growing dependence on external, often shifting, norms." 

(6) "Adults display childish outbursts of temper and are jealous about trivialities, tell white lies, resort to deceit, delight in the downfall of others and cherish petty feelings of revenge."

(7) It caused serious damage on "people’s self-respect." 

(8) "Our society constantly proclaims that anyone can make it if they just try hard enough, all the while reinforcing privilege and putting increasing pressure on its overstretched and exhausted citizens."

(9) "We are forever told that we are freer to choose the course of our lives than ever before, but the freedom to choose outside the success narrative is limited."

(10) Neoliberalism "would have us believe that success depends on individual effort and talents, meaning responsibility lies entirely with the individual and authorities should give people as much freedom as possible to achieve this goal."

(11) Neoliberalism believes "in the fairytale of unrestricted choice, self-government and self-management are the pre-eminent political messages, especially if they appear to promise freedom."

So for Verhaerghe, neoliberalism "is the greatest untruth of this day and age."


Two articles were written as a response to Paul Verhaeghe. The 2nd article is just an extension of the 1st. I just want to mention the 2nd article first for there are ideas in it that I think are relevant. Ryan McMaken wrote this article on the 30th of September. Concerning the use of the word "neoliberalism", he states:

"Whenever you see someone use the word 'neoliberalism' you are probably dealing with someone who spends most of his or her time in a left-wing echochamber where people believe they are being oppressed by 'free markets' and that things will be set right only when the kind, calming hand of government is able to tame the vile 'free for all' that is people enjoying personal freedom." 

For McMaken, the fallacy of Paul Verhaeghe's argument is the mistaken identification of neoliberalism with the free transactions that characterize the market. He did not mean "the modern system of state-subsidized and controlled corporatism that actually prevails in the world today." And therefore Verhaeghe commits a serious mistake by saying that "neoliberalism" meaning the free market is the existing economic system today. 


The first response is more perceptive. The owner of the blog is Predrag Rajsic. At the outset, Rajsic acknowledges that his academic achievements are far below compared to Dr. Verhaeghe, but he is not worried for based on the logic of the professor, his lower achievements are good and the professor himself would be placed among the psychopathic for he is "a successful academic, close to the top of the academic achievement scale and pretty high in the general social structure." However, Rajsic avoids to think that way and considers that the professor "climbed to the top despite the goodness of his heart, and not because of some psychopathic personality traits on his part." 

After clarifying that part, Rajsik dissects the logic of the professor's argument on its own merit. Dr. Verhaeghe's conclusion that neoliberalism "rewards career and penalizes one's love for his family" is problematic on two points:

(1) "We don't know how other social systems perform in this regard. Did feudalism favour 'success' to a lesser extent than the system Dr. Verhaeghe is critiquing? How about communism? Were there fewer psychopaths at the top of the social structures in the communist/socialist Yugoslavia or the USSR than in the current system?"

Under the communist version of socialism, "Tito sent about 16 thousand political prisoners to something that looked more like a concentration camp than a prison. No one of the top Yugoslavian political or economic officials complained strongly enough to change this system. Did they exhibit more or less psychopathic tendencies than the people at the top of today's social structures in neoliberal societies?"

(2) Dr. Verhaeghe's conclusion that rewards and punishments are objectively determined outside of our minds is also problematic simply because "human choice is based on subjective valuations." "This means that the definition of success and failure is subjective. Each individual defines her own success."


Predrag Rajsic noted that the term "neoliberalism" has been abused. We need to study the historical formation of The Mont Pelerin Society in order to clarify the confusion that surrounds the use of the term "neoliberalism". Two additional articles written by Jörg Guido Hülsmann and Stephan Kinsella will help us achieve this.

Jörg Guido Hülsmann wrote "Against the Neoliberals" on May 2012. The article starts with a story about the formation of The Mont Pèlerin Society, and describes it as "an 'ecumenical' undertaking, bringing together purebred liberals of the classical tradition and neoliberals, who endorsed interventionist schemes to one degree or another." For Hülsmann, the role of Albert Hunold of Switzerland and Ludwig Erhard of Germany is vital to understand how neoliberalism dominated The Mont Pelerin Society.

Albert Hunold is a devout neoliberal and at the same time an admirer of F. A. Hayek's "Road to Serfdom". He was elected secretary of the society, and dreamed of becoming its president. Hostility arose between him and Hayek. The struggle between these two men became visible in 1958, "which for the first time brought a Mont Pèlerin Society meeting to the United States — to Princeton." During the next three years, the conflict between Hayek and Hunold "lurked beneath the surface. The conflict culminated "at the Kassel meeting in 1960" where "both Hayek and Hunold stepped down from their positions, but Hunold would become vice president of the society and wreak havoc for a while longer." The following year, the society was "to celebrate Mises's eightieth birthday, but Hunold turned it into yet another battle between neoliberalism and laissez-faire." "The Ordoliberals would soon be pushed into the background for a while; the power vacuum was not to be filled with Austro-libertarians, but economists from the Chicago School."

Another advocate of neoliberalism is Ludwig Erhard. His economic policies were favorably received in Germany. But for classical liberals such as Mises, "Erhard's success was problematic because it gave unwarranted credentials to his middle-of-the-road philosophy" and "was used to vindicate subsequent interventionist policies, in particular, antitrust laws and inflation."

Ludwig von Mises avoided to be involved in the company of neoliberals. He "did not have the highest opinion of most German economists." "He declined to write an entry for the new standard social-science dictionary, the Handwörterbuch der Sozialwissenschaften." He perceived the "Ordo School" as "Ordo-interventionists" and did not like to cooperate with them. 

Erhard's and the Ordo School's influence in Geremany was opposed by the classical liberals. "The leaders of this laissez-faire group were Volkmar Muthesius and Hans Hellwig." However, "Being denied professorships at the universities, their foremost means of action was Muthesius's journal, to which Mises contributed several articles."


Stephan Kinsella's article, "Capture of Mont Pelerin Society by Neocons" was published at in August 2008. The article includes some historical details not covered by Jörg Guido Hülsmann that will give light to the confusion that surrouns neoliberalism. 

Kinsella starts with his narration that "classical liberal economists were usually not employed in institutions of higher learning." So what they did was to build "other institutions from loose networks to political parties." "By 1860 governments realized the danger to themselves that the classical economists posed." As a response, they created "their own economists and thus control the market of ideas." Kinsella continues:

"This strategy was first applied in Germany with the German Historical School or 'Schmollerism' and soon spread to other countries, each with its own specific national feature. John Stuart Mill in Britain for example changed the meaning of liberalism into interventionism, while the Russian government thought that Schmoller was too tame and hired Marxist economists instead."
"This trend continued into the 20th century, with Ludwig von Mises being one of the very few setting himself against it. After demolishing the case for socialism and putting the case for radical liberalism, he insisted that no 'third way' was possible, as this would invariably lead to a loss of prosperity and in the end, socialism."
At this point, we return to the formation of Mont Pelerin Society. Kinsella identifies the composition of the ecumenical character of the society into four schools of thought: 

(1) Neoliberalism, i.e., practical and theoretical compromise with socialism; 

(2) F.A. v. Hayek, for whom a small amount of intervention was permissible; 

(3) Alexander Rüstow, who considered natural hierarchies as necessary for society; 

(4) and Ludwig von Mises, who stood for complete laissez faire.

As we already know from Jörg Guido Hülsmann, the Mont Pelerin Society was already dominated by neoliberalism through the influence of Albert Hunold and Ludwig Erhard. Kinsella confirms this: "Today, the MPS, a society of eminent scholars, mainly represents Neoliberalism."



Ronald Reagan is considered a champion of free market, limited government, and personal liberty, but in actuality due to interventionist forces, he gave up his free market position, and contributed to the expansion of the power of the State and bureaucratic management. 

As for neoliberalism, Dr. Paul Verhaeghe was mistaken to associate it with free market simply because the ruling economic system in the world today is interventionism. It is better therefore to distinguish between free market capitalism and crony capitalism. Free market capitalism is now represented by the Foundation for Economic Education, and Ludwig von Mises Institute and economists like Ludwig von Mises himself, Henry Hazlitt, Murray N. Rothbard, Ralph Raico, and George Reisman. If Jörg Guido Hülsmann and Stephan Kinsella's association of neoliberalism with interventionism is correct, then it is fair to say that out of this system, crony capitalism emerged, and therefore it is best represented by Mont Pelerin Society, the Chicago School and its most popular economist, Milton Friedman, "the 20th century savior of capitalism and champion of free market."

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