Liberals and Neo-Liberals

Professor David Howarth, formerly LibDem MP for Cambridge, contributes to the new Social Liberal Forum book with a powerful, closely argued essay on Liberal economics. This an extract:

Here is a puzzle: if JS Mill, JM Keynes and James Meade were all Liberals and economists, what is a ‘neo-liberal’ economist? One might have thought that it would be someone who updated their thought to consider new facts and new problems.

In a highly successful example of propaganda and disinformation, ‘neoliberal’ has come to mean the doctrines of Friedrich Hayek or Milton Friedman. But those doctrines are anything but ‘neo’. They hark back to the era before Mill. We need to rectify names. Instead of ‘neo-liberals’ the followers of Hayek and Friedman might be called ‘paleo-partial liberals’.

The next step is to reclaim the Liberal tradition. That was the avowed aim of the editors of the Orange Book, but what some of them seemed to mean was not updating Mill, Keynes and Meade but abandoning them in favour of paleo-partial liberalism. Admittedly the diagnosis was not entirely wrong. The Liberal Democrats, as a political party, had wandered a long way from the Liberal tradition and had succumbed to various forms of conventional wisdom.

But the most distinctive feature of Liberal policy was its stance on corporate governance. From Mill onwards, through the Yellow Book to support for codetermination, Liberals argued for a different way of organising firms, not as hierarchical structures dominated by the owners of capital but as partnerships between labour and capital, incorporating democratic representation. James Meade provided a continuation and deepening of this tradition that should have formed the basis of the merged party’s position.

The Liberal Party showed interest in another intellectual movement pre-figured by Mill, ecological economics and rejection of GDP growth as a universal measure of success.

The way forward, as seen from the early 1980s, was a new synthesis of old themes: economic policy should be aimed at political liberation; the market is a useful tool but not a God; the aim of political liberation encompasses reform of the internal organisation of firms on a more democratic basis; and the search for endless environmentally damaging economic growth is a painful phase elongated by mistakes of policy. Added to those older themes a newer theme was awaiting incorporation, the theme of community, which was the centre of the party’s community politics but whose economic consequences were never fully thought through. The value of voluntary association and small scale collective effort as an alternative to both the market and the state was implicit, but the economics of community remained largely unspoken.

But that new synthesis did not happen. Instead the party drifted into dull conformity with a centre ground between paleo-partial liberals and conventional macro-economics. Eventually the Orange Book took the party so deep into that conventional wisdom that it became indistinguishable from other parties ‘of government’ (which was, of course, its purpose).

Regardless of why the new Liberal synthesis failed to materialise in the previous generation, it is now time to revive it. That means above all reclaiming the name Liberal. The Liberal tradition in economics is that of Mill, Keynes and Meade, and now Ostrom, not that of Hayek and Friedman. The question is where it goes next.

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* Gordon Lishman is over 70 and has campaigned for older people and on issues concerned with ageing societies for about 50 years.  Nowadays, he does it with more feeling!

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  • david thorpe 8th Mar '18 - 10:46am

    the only thing in the orange book about economics is written by Vince Cable, who is a Keynesian economist. The rest of your article is a worthless strawman. Economic Liberalism is precisely what the colaiton implemented, as Cable andMervyn King jhave both pointed out. I have no great respect for the Austrian School economuts, though no one calls those guys neo liberals, they use the term of themselves “classical liberals2 which implies looking back, not updating Keynes. Your article implies you know little of economic history.

  • david thorpe 8th Mar '18 - 10:53am

    Keynes was many things social liberals dont like, he was the old etonian multi millionaire city fund manager, a snob of the highest order, aggresively against localist politics. He was also many things SLfers like, such as an internationalist and a liberal on matters of social policy. He was therefore, a four cornered liberal, who took the best of the classical liberal tradition and mixed it with a new way to look at economics. He was the greatest liberal and greatest britian of the 20th century. He was a hero. He jsut wasnt what most people on the left think he was.

  • Neo-liberalism is used as a term of abuse by the far left who hate globalisation and market economics and the far right who hate globalisation and immigration.

    Privatisation, outsourcing, offshoring, deregulation, investor protection, foreign ownership, immigration and open global markets have been remarkable in improving standards, lives and wealth globally. For the party to turn its back on this and either become “weak Corbynite” or “weak UKIP”, would not only be monumentally crazy, but it would end up not only impoverishing British citizens but those abroad.

    The idea that Britain should return to post war Keynesism is basically Corbynism lite. It will fail the very people it claims will benefit, and will be gamed by hard left unions. Coupled with migration controls ala UKIP, and you have effectively done a 180 degree turn on everything we are supposed to stand for.

    The railways are a great example of why a partnership with labour will never work – the RMT, ASLEF, Unite and even the Police Federation will game the system to ensure gold plated pensions and free first class passes for jobs technology has displaced and an army of coppers everywhere. The only people to benefit will be the workers, not the customers or investors.

  • Gordon Lishman 8th Mar '18 - 11:58am

    David Thorpe: thank you for your comments, although their patronising tone does grate a little. I think you are less than kind towards a number of the Orange Book contributors who made substantial comments on economic issues, including Paul Marshall’s introduction, David Laws on economic liberalism, Ed Davey on local choice models, Chris Huhne, Susan Kramer, David Laws on the Health Service, Steve Webb on tax and benefits and Paul Marshall on pensions.
    The term “neo-liberal” is widely applied to Hayek, Friedman and the IEA in everyday debate.
    It is for David Howarth to comment on your categorisation of him as knowing “little of economic history”. I suggest you buy the book and read his full article.
    If, like many, you reduce “post-war Keynesianism” to deficit spending in a downturn, I have some sympathy with you. If, as David does in his essay, you take a much wider view of his contribution, along with Mill and Meade, I think you will find much more substance as a contribution to liberalism.
    Both Keynes and Beveridge were people of their time and I agree that it’s helpful to recognise that reality as part of our wider understanding.
    More generally, you will find in David’s essay that he agrees with your view that Keynes “took the best of the classical liberal tradition and mixed it with a new way to look at economics”. That’s why David suggests that he was more of a “neo-liberal” than the people to whom that label is usually applied.
    Finally, I suggest that you confuse “economic liberalism” with economic competence. Vince Cable, reflecting on his time in the Labour Party, and Assar Lindbeck in “The Political Economy of the New Left” make the point that economic competence can be combined with an approach which recognises and promotes social justice.

  • Gordon Lishman 8th Mar '18 - 12:07pm

    Stimpson: I suggest that your characterisation of partnership between capital and labour illustrates exactly why the Labour Party’s attempts to address these issues has floundered and failed. That is, because it assumes that organised trade unions are the only voice of labour and that it has to be organised on a top-down basis. The Liberal tradition emphasises workers rather than unions and starts from the immediate working environment. A significant challenge is that accountabilities in the public sector and in charities are different from the private sector, which is why partnership and representative approaches are more relevant than “co-ownership”. Recent work (for instance from NESTA and by David Boyle (another contributor to the book) have helpfully addressed issues around “co-production of services”.

  • I am dismayed that some find these views to be “weak Corbynite”. Such comments show just why this article is needed. Liberals should embrace cooperatives and understand that there is sometimes a need for the state to intervene in the free market.
    After all, our very constitution commits us to:
    “foster a strong and sustainable economy which encourages the necessary wealth creating processes, develops and uses the skills of the people and works to the benefit of all, with a just distribution of the rewards of success. We want to see democracy, participation and the co-operative principle in industry and commerce within a competitive environment in which the state allows the market to operate freely where possible but intervenes where necessary.”

  • Neil Sandison 8th Mar '18 - 12:45pm

    Agree with Jenny Barnes neo -liberalism aka Johnson and Fox is closer to laissez faire economics hence their stance on Brexit .It has nothing to do with social liberalism and they are simply stealing our cloths to re-introduce Thatcherite 1980s small state ideas back into the political debate ,lets not fall for it .

  • Wot no Adam Smith!
    More importantly, if you want to know where economics goes next, may I suggest the following.
    Look at the website of Paul Ormerod who specialises in complex systems and networks.
    See also Brian Arthur and his work at the Santa Fe institute on complexity theory, technological innovation and the impact on economies of increasing returns.
    Thirdly, Geoffrey Hodgson, a party member, who has written on evolutionary economics.
    Lastly, read some of Steve Keen’s work on the importance of money and credit

  • Thank you for the article Gordon and I look forward to reading Professor Howarth’s essay. I have never regarded the work of Hayek and Friedman as doctrines and certainly not propaganda. I think Keynes discourse with Hayek was quite productive. I believe Friedman developed his ideas largely from Keynes monetary framework in the General theory. We have has considerable experience in the post-war period of alternative approaches, certainly enough to be able to marry actual experience with theory.
    Your comment about reducing “post-war Keynesianism” to deficit spending in a downturn is a valid one but should be equally applied to the appication of Austrian or Monetarist theory. Of course that leaves us with the rebuttal of Marxist economists that communism as envisaged by Marx and Engels has never actually been tried.
    I would concur with your assessment that the Liberal tradition in economics is that of Mill, Keynes and Meade’s property owning democracy and leave you with this 1871 quote from J S Mill:
    “Land is limited in quantity while the demand for it, in a prosperous country, is constantly increasing. The rent,therefore, and the price, which depends on the rent,progressively rises, not through the exertion or expenditure of the owner, to which we should not object, but by the mere growth of wealth and population. The incomes of landowners are rising while they are sleeping, through the general prosperity produced by the labour and outlay of other people.”

  • William Fowler 8th Mar '18 - 1:12pm

    Workers should have a fair share of the profits and boardroom representation, should be good for everyone but doesn’t that mean that they should also face lowered income if the company gets into trouble.

    Unfortunately, the terrible mess the last Labour govn made of the economy and the huge debt we have built up since then means the country will need to run a small budget surplus for the next decades unless you want the value of Sterling to head towards zero with resulting third-world country style inflation which will hit the poor hardest. You can probably get another 50b in tax rises without completely crashing the economy so the NHS and care can be salvaged without too much pain but beyond that you are still looking at small budget cuts and a much smaller State sector over time.

    Within that context you can make things fairer for the poor by rearranging the welfare system, removing disincentives to working for a living, etc.

  • @ Stimpson Could I, in all seriousness, politely ask whether or not you are a member/supporter of the Liberal Democrat Party ? It would be helpful for the rest of us to know what your motivation is in posting on here.

    @ William Fowler Again, in all seriousness, you told us you very recently left the Conservative Party, but again, it would be helpful to understand your views if you could tell us why you were attracted to the Liberal Democrat Party.

  • Peter Martin 8th Mar '18 - 1:39pm

    @ David Thorpe,

    “………the only thing in the orange book about economics is written by Vince Cable, who is a Keynesian economist.”

    Is he really? So why didn’t he speak out against raising VAT in the teeth of the deepest recession since WW2?

  • I am broadly a Lib Dem supporter, as I see them as the best fit – I did agree very much with the positions taken by Clegg / Alexander, and less so by Farron however.

    I could never support the Tories – I find the nationalism, the patriotism, Brexit and the socially illberal positions of the Tories to be utterly repugnant, so although I support liberal economics and open economies immensely, I cannot support a party which clings to nationalist ideals, wants to utterly destory our reputations with foreign countries, enact illiberal immigration policies, and many of who’s members have stood in the way of progress for rights of persecuted individuals – be they miniorities, refugees, women, the LGBT community and religious groups. The Feudal system and aristocracy have no place in a modern global interconnected society.

    Similarly Labour I’m afraid have always existed as a vehicle to push militant trade unionism – which simply benefits the members of that union or sister unions, rather than the world as whole. I look at the actions of the FBU, RCN, ASLEF, RMT, POA, NAPO, Police Federation and Unite and I’m afraid all I see are a bunch of luddites who are unable to adapt to the modern world who want to go back to the full employment policies of the post war years – and actively put foreign workers into poverty by either restricting immigration, or opposing job offshoring. Many of these union members simply do not understand macroeconomics and see the world only within their tiny sphere of influence – and their desire for good pensions and jobs for life is as selfish as the “bosses” they complain about – in fact more so as their responsibilities are often much less. Blair’s attempt to embrace globalisation has led to Corbynism, because ultimately the Blairites were unable to control their own members or unions – who now want protectionist solutions to protect their own empires – whether in the factory, the mess room, the hospital or the prison.

    I could be persuaded to vote for someone such as David Miliband, or George Osborne, if the baggage of their parties didn’t act as a millstone around their neck.

  • Patrick Ellis 8th Mar '18 - 2:02pm

    I’d like to make a correction, both to this article and to some people in the comments. Firstly, a disclaimer, I am not a liberal, nor a neo-liberalism, I am a Marxist-Leninist.

    However your definition of neo-liberalism is wrong. In his 1951 essay “Neo-liberalism and it’s prospects” Martin Friedman defines neo-liberalism as standing in contrast to what he sees as the two big ideas of individualism and collectivism. Neo-liberalism, argues Friedman, is the ideology that promotes competition above all things, it is not, he is quick to point out, Laissez-faire economics, the belief that the state’s role should be as small as possible. Rather the role of the state in neo-liberalism is to promote competition, provide stable monetary policy and provide a safety net for the most disadvantaged. It is not the doctrine of “the freer the market the freer the people”, which it is often presented as being, for example Friedman praises Sherman’s anti-trust laws, which a laissez-faire “classical liberal” would not. That is the fundamental principle of neo-liberalism.

    Because of this misunderstanding, the article does not read well as an attack on neo-liberalism, and unfortunately seems more akin to the blind and uninformed attacks on neo-liberalism by elements of the Left, which have a fundamental misunderstanding of what neo-liberalism is and thus make incorrect criticisms of it.

  • Gordon Lishman 8th Mar '18 - 2:12pm

    Mike Jay: I had a conversation with David Howarth about introducing Adam Smith into the argument, but he didn’t want to add the complexity it would involve. If you can find a copy, I would strongly recommend Robert Falkner’s John Stuart Mill Institute booklet on “Reclaiming Adam Smith” and, more generally, the principle of “moral sentiments” as the basis for political economy.
    I keep meaning to catch up with Geoff Hodgson who was a university contemporary and, in those days, very much a stalwart of Labour. Thanks for the reminder.
    You and others will, I think, be interested in the last part of David’s essay which turns to more modern challenges. I am particularly struck by his link between anti-state “neo-liberalism” and climate change denial.

  • Gordon Lishman 8th Mar '18 - 2:15pm

    Stimpson: I’m struck by the link you mention between large, organised trade unionism, and the current or recent public sector. That illustrates why it’s important to develop distinctive policies on participation in that sector. The private sector position is very different.

  • Richard Underhill 8th Mar '18 - 2:56pm

    ” see the world only within their tiny sphere of influence”
    Roy Hattersly (Labour) has written about the attitudes of the many and various trade unions who wanted more, male, people to be allowed to vote for their MPs, rivalling suffragist and suffragette campaigns for the enfranchisement of adult females. The way to compromise was to do both, according to a Speakers’ Conference and a free vote in the Commons in 1917, in time for a general election immediately after the end of the Great War. I remember a trade unionist in the UK civil service saying emphatically that “We do not want part-timers” for much the same reasons, fear of dilution of pay and conditions of work. Plus ca change, plus c’est la meme chose.
    Please add cedillas and circumflexes as needed.

  • david thorpe 8th Mar '18 - 3:22pm

    Gordon-didnt mean to be patronising. Of course mahny of the toher chapters referred to economics, but they werent about that, david laws chapter was not about economic loiberalism, it was about the public services and NHS. I dont care what is widely applied, unless they are self described as that, widely applied just means their detractors use the term, as a term of abuse., and you are letting the abuswers win. Its the difference between what is widely believed to be true and reality, liberals like reality, its waht sets us apart from the two old parties, who have each and seperately constructed a worldview based on their prejudices, biases and self interest, the reality ois different. Thatcher intervened in the economy every day, she didnt believe in free markets or Hayek. Labour say they founded the NHS, when the founder resigned from the labour govt because labour introduced pension charges. Both of those ideas are widely believed, they are wrong. For example Friedman hated any association of his ideas with thatcher, because he disagreed with her, is he a thatcherite? Im not sure the term neo liberal existed when hayek was alive. Tony Blair’s new labour were neo liberals, and lib dems tried to merge with them. Ken Clarke is a neo liberal. Classical liberals refrer to gladstone as one of theirs, economic liberals refer to keynes and lloyd george.

  • david thorpe 8th Mar '18 - 3:24pm

    I have never met a neo liberal climate change denier. Condservatives deny climate change, but one cannot be a conservative and a neo liberal at the same time.

  • …one cannot be a conservative and a neo liberal at the same time.

    Absolutely. Immigration controls are anti neoliberal. Free movement and opportunity to benefit from globalisation must be open to every single person on the planet. Conservative obsession with controlling immigration and curtailing economic migrants show that they are simply protectionists in the Trumpian mould. Labour too have been quick to jump on the UKIP immigration bandwagon as their working class supporters may like a bit of socialism, so long as it is for the British.

  • “Instead the party drifted into dull conformity with a centre ground between paleo-partial liberals and conventional macro-economics. Eventually the Orange Book took the party so deep into that conventional wisdom that it became indistinguishable from other parties ‘of government’ (which was, of course, its purpose).”

    Remembering that by “paleo-partial liberals” David Howarth means what most people would term “neo-liberals”. Indeed we must reject neo-liberalism and the current economic orthodoxy which believes that having at least 5% of the working population unemployed is an acceptable way to control inflation.

    Our policy should be one in which society is run for the benefit of the mass of individuals and not those who own capital. This means having a National Living Wage of more than the relative poverty line of 60% of average earnings. This means no one living below the relative poverty line in the UK. This means having a Basic Citizens Income to give individuals more choice about what they spend the majority of their time doing. This means providing working life-long free training making it easy to acquire the necessary skills to change careers easily. This means everyone who wants to work having a job. This means everyone who wants a home of their own has one. This means running society so everyone can have fulfilling lives and not feel they have no choice.

    @ Stimpson

    Are you aware that economic inequalities in the UK were the lowest in the 1970’s after 30 years of Keynesian economics and since 1979 economic inequalities have risen dramatically?

    @ William Fowler

    It might be useful if you attended Federal Conference regularly and you could pick up our attitudes – being optimistic and thinking well of people.

    Workers may well agree to a real-term reduction in wages if they believed it would be limited in time and would keep them in employment and assist their employer exist in the future.

  • Michael BG.

    Piketty’s Capital sketches out the evolution of inequality since the beginning of the industrial revolution. In the 18th and 19th centuries western European society was highly unequal. Private wealth dwarfed national income and was concentrated in the hands of the rich families who sat atop a relatively rigid class structure. This system persisted even as industrialisation slowly contributed to rising wages for workers. Only the chaos of the first and second world wars and the Depression disrupted this pattern. High taxes, inflation, bankruptcies and the growth of sprawling welfare states caused wealth to shrink dramatically, and ushered in a period in which both income and wealth were distributed in relatively egalitarian fashion. But the shocks of the early 20th century have faded and wealth is now reasserting itself. On many measures, Piketty reckons, the importance of wealth in modern economies is approaching levels last seen before the first world war.
    There is good essay here on Keynes thought’s on inequality “…there is a social and psychological justification for significant inequalities of incomes and wealth… There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition.|”

  • Christopher Haigh 8th Mar '18 - 5:45pm

    Neo-liberalism and Social Democracy relate to completely differing cultures. The views of each are reflected by articles and comments on here. This makes it difficult for the party to put out any sort of coherent personality for to gain the trust of the electorate.

  • John Marriott 8th Mar '18 - 7:08pm

    Neoliberal? Marxist-Leninist? Paleo-partial Liberal? Keynesian? Orange Book Liberal? Me, I’m still C of E and proud of it!

  • Katharine Pindar 8th Mar '18 - 7:32pm

    “Our policy should be one in which society is run for the benefit of the mass of individuals and not those who own capital.” Well said, Michael BG. I look forward to our party putting flesh on the bones of such fine endeavours as you mention there.

  • Just ‘skimmed’ through some of the comments. What a wide, great & dare I say proud history of Liberal economic wisdom we have to draw from. I wish I was smart enough to pull this together for Liberalism 21st Century! BTW my youngest son is studying economic at Keynes College University Kent….hes also a Lib Dem member!

  • david thorpe 9th Mar '18 - 12:28am

    peter martin,

    the liberal democrats were in government 2010 to 2015, when there was no recession in the uk. theyn entered government when the economy was growing and left when it was growing, therefore they didnt pit vat up in a recession. there are many things to ask vince about his conduct his giovernent, but not that. it suits a ceratin type of liberal to believe there was a recession during the coaltion, but its a belief that cost us seats, as toroes got crediot for fixing it and we didnt, we could hardly expect to when we acted like the recovery didnt happen.

  • I do not recognise a world in which there are providers of capital and providers of labour. The reality – or rather a model of reality which in accord with the advances of knowledge over the last years is that we have groups of people who get control of capital and they works as all groups of chums work. And we have other people who have control of workers through the trade union movement. They behave as groups of chums work. If we are to make progress we need to be open about these things. This is of course basically behavioural economics. However this works in the same way as any other human activity from politics to the church or business. Liberal Democrat’s in government were humans and acted accordingly.
    In the meanwhile we live in a world where we are selling arms to kill people. Where in our own country people are sick with worry about losing their jobs and being homeless. Where bullying is commonplace in places of employment. Where people are sick and stressed in a land of plenty.
    All very simple really. We just start by recognising our own greed.
    As a declaration of interest I am retired with an occupational pension. So I am rich beyond the dreams of avarice or whatever. And as it says in the good book when the good lord asks me to give up all that I have and follow him I turn down the invitation because I am very rich. Behavioural economics – but not much comfort for those in need.

  • I think getting bogged down in an argument about what Neo-Liberalism is misses the point. What we’ve had is the erosion of the 20th century achievements of mixed economy Nation States in favour of things like franchising, attacks on welfare, offshoring, cheap labour and so on. Of course this has handed small economic gains to the global poor, but the basic reality is the people live and vote in Nation states and the natives are getting restless. Neo-liberalism has become the simple short hand way of describing the resultant mess of stagnation, high personal debt, poor services and policies no-one really wanted that has dominated Western governance since the “end of history” was accepted in the early 1990s. It’s a tick box asking the disabled about their race or sexually orientation whilst their support is rationed before being removed. It’s multi millionaires looking concerned whilst finding ways to avoid paying tax and so on. Essentially it’s the economic Right-wing with a P.R gloss to make it seem progressive.

  • What’s wrong with Hayek? Have any of you actually read his work? No – try “The Road to Serfdom”. Socialism of any flavour is one of the greatest evils visited on humankind, and should be resisted in all its forms. The coercion that follows command economies and central planning has destroyed many economies and shattered lives. Yet this once great Party dabbles in the outer fringes of socialism and has done so for some years. Social Democracy is dead and buried in the UK and you cannot ressurect it under a new old name of Social Liberalism. If the SLD party is to be a potent counterweight to St Jeremy on one hand, and the Maybot on the other new Liberal thinking is required, so time to go back to classic liberalism, stir in some Hayek, highlight the rights and responsibilites of individuals over collectivism, take aim at vested interests, champion the market, globalisation and free trade, cherish equality, and above all put freedom first.

  • Peter Martin 9th Mar '18 - 10:15am

    @ David Thorpe,

    The Labour Force Survey is done according to internationally agreed criteria by the ILO and it showed 8% levels of unemployment for much of the time of the coalition. It was highly skewed away from the SE of course!

    So you can fiddle around with definitions along the lines of two consecutive quarters of negative growth, if you like, and you can say that technically there was no recession. But when people can’t find work, or if they do find it, it is below the level of a living wage then, as far as they are concerned, we’re in a recession.

    If you insult their intelligence and tell them we aren’t they will be extremely cross indeed. They will strike back at you when you when they have an opportunity. Like on the EU for example.

  • david thorpe 9th Mar '18 - 10:21am

    “fiddle around with defintions”0-Im using the international standard definiton of a recession, we had very low growth but not a recession. I made no comment about the unemployment rate, though I will say I would have thought it wwould have been higher, that it wasnt is the sresult of structural changes in the economy.

  • Arnold Kiel 9th Mar '18 - 11:47am

    There is one reason why we are not stumbling out of a dark, unheated hut in the morning to fetch some potatoes from a small field, which we enjoy with some river-water until our early deaths: human greed. If you want to go back there, democratize decisions in firms, i.e. abolish private property. I’d call this the real Brexit, not from the EU, but from civilization. While at it, don’t forget to bring global birthrates to below 2. But don’t call this liberal, please.

  • @ David Thorpe

    It was reported at the time that the UK had returned to recession at the end of 2011 and beginning of 2012 ( It wasn’t until June 2013 that the figures were revised. The economy still shrunk at the end of 2011 but instead of shrinking again at the beginning of 2012 it flat lined ( In our manifesto we promised a stimulus in our first year, but instead the Coalition government cut public spending and drove the UK economy to the brink of a double dip recession. We didn’t get any credit for the recovery because we said there was no plan B we were continuing doing exactly what had caused the downturn and not doing anything to help people.

    @ Alan

    I think Hayek rejects social justice. I am sure we can attack vested interests and have policies to reduce it. And I do indeed “cherish equality” but I don’t see “championing the market” and globalisation as ways to increase economic equality in the UK. The government has to take action to fight the rise in economic inequalities caused by unrestricted markets and globalisation.

  • Bill le Breton 9th Mar '18 - 4:42pm

    Gordon and David, you cannot hope to build on Meade’s work if you both insist on dismissing Milton Freidman.

    Meade’s Nobel Prize Lecture certainly does not do this. His economic programme allocated demand management policies to the *pursuit of price stability* to achieve full employment (Bean 2007) – my emphasis between *…*. The stress on price stability is the ‘take forward’ from his earlier work, Balance of Payments (1951) and surely is a thoughtful reaction to Friedman’s work.

    Meade’s novel approach in the 1978 lecture is that of using/adopting targets. Three targets for the three policy objectives. And a further novelty is the allocation of demand management to control total money (rather than real) expenditure to achieve price stability and provide full employment. His choice? National Income targeting or Nominal Gross Domestic Product Targeting (NGDPT).

    In May 2010 the Lib Dems had a fantastic opportunity to put Meades’ idea into practice. NGDP had risen constantly between 5 and 4.5% prior to the Great Financial Crisis – had plunged in 2007/8, dragging down real GDP with it ( – 4.2% in 2009) but by May 2010 NGDP had recovered to +5% in Q2.

    The opportunity to the incoming coalition to instruct the Bank of England to replace its inflation target of 2% in the medium term to a target of 4.5% growth in NGDP was there for the taking.

    Instead they allowed Osborne, Harrison and Macpherson to run a policy of deflation. David Thorpe may huff and puff, but the Coalition’s RGDP performance was just + 1.5% and 1.5% in their first two years, the weakest recovery from a recession in a 100 years. And the weakest recovery of any country that controlled its own monetary policy.

  • Another look at Hayek in the attached article, arguing that his economic findings and stress on self-organising complex systems actually contradicts the political slot he is traditionally pushed into. I would add that Liberal economic arguments need to explore the findings of (for example) the Santa Fe institute on complex systems and disappointed to see this new book seems to be unaware of these debates.

    How Hayek’s evolutionary theory disproves his politics.

  • Galen Milne 10th Mar '18 - 7:32am

    To the layman like me economics needs to be explained not in sound bite adjective like neo-classical etc but on likely outcomes/impacts, be it from a public and/private sector perspective, as well as what impacts on our economy things relating to our environment can be progressive in terms of jobs as well as helping prevent erosion of the planet we inhabit. Start getting those messages put together in simpler language rather than quoting the more intellectual pros and cons arguments of the economic theorists of the past as well as the present and you might just begin to reach a better understanding with a greater % of the voting public.

  • Peter Martin 10th Mar '18 - 8:40am

    @ Galen Milne,

    ” economics needs to be explained……. on likely outcomes/impacts……”

    I agree. The problem is that there’s a lot of politics involved in economics. If you’d asked me about the build up of levels of private debt prior to the GFC I would have said that a crash was in the offing. I had a rule of thumb that a crash wasn’t too far away when I could read stories in the press of people buying houses without first inspecting them.

    Somehow those who believed in all that kind of neoliberal nonsense had convinced themselves that high levels of private debt were economically neutral. Famously, when the Queen asked a collection of highly paid professors at the LSE about the causes of the GFC they just shrugged their shoulders and had no answer.

    Similarly with the euro. I’d have said that there’s no chance of 19 countries sharing a single currency successfully. But those who believe, against all evidence to the contrary, that economies are largely self correcting, disagreed and decided to go for it anyway. Did they expect any different outcome to what we’ve got? If they did, have they learned from their mistakes? If they didn’t, why aren’t they facing charges of criminal negligence?

    You really have to find an economist who makes sense to you. I’d suggest you could start with these two.

  • Peter Martin 10th Mar '18 - 9:12am

    @ Bill le Breton,

    Friedman is usually associated in the public mind with monetarism in his later works. “Dismissing Friedman”, isn’t quite the same as dismissing monetarism. Some of his work was probably OK. I know he issued warnings on the euro, for example, and I can’t disagree with him on that.

    Monetarism started off as being a tarted up quantity theory of money. I can remember Sir Keith Joseph, in the mid 70’s, trying to convince a sceptical group of us students that all the Govt needed to do was control the “supply of money” and all would be well in the economy. Inflation would be reduced. The economy would grow faster leading to an increase in real wages etc etc. I think this is where I first heard the phrase “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

    The theory is and was quite wrong. Its been known to be wrong since at least the 30’s. It ignores the velocity of circulation of money. A single pound coin which changes hands ten times has the same economic effect as a £10 note which changes hands once. In the modern age, money is created and destroyed digitally. There’s really no such thing as “the money supply”.

  • Bill le Breton 10th Mar '18 - 9:38am

    The great difficulty about economics is that many of its ideas are counter-intuitive. For instance. If interest rates are very low, nominally, people ‘naturally’ think that monetary policy is easy or ‘loose’. In some cases that may be true, but it can also mean that monetary policy has been too tight, deflated the economy, and discouraged people from spending and firms from investing.

    Think how counter-intuitive Keynes’ idea was that the way to revive a depressed economy was simply to pay some people to dig holes and others to fill them back in again.

    Simplistically, economists work in universities, politicians with control of economic management work in Westminster. For economists to be influential they have to persuade politicians – if their ideas match the intuitions of politicians they tend to be adopted, if they don’t they are thought weird and wrong.

    The idea that debt is ‘wrong’, matches many people’s intuitions. So an economic idea that reducing debt in a recession (normally thought by many economists to deepen that recession) can be expansionary, strikes a chord with ‘gut’ reactions. It did with Osborne’s gut … and with the 2010 leadership of the Lib Dems.

    It was hogwash. Prof Wren Lewis has calculated recently that the Coalition’s implementation of this expansionary fiscal contraction policy cost every person in the country £10,000 each.

    As I mentioned above, the UK economy had been going along at a nominal (ie in £s) rate of 4.5 – 5%. And this growth rate had been resumed by the time the Coalition had come into power. If they had managed to maintain this rate for the life of the Parliament output over this period would have been £500,000,000,000 greater than it was.

    Liberals never listen to our gut instincts. We are children of the Enlightenment and superstition never has a place in our decisions. Right?

  • Peter Martin 10th Mar '18 - 10:13am

    @ Bill,

    Is macroeconomics really “counter intuitive”? It’s perfectly intuitive that all assets have to be offset by liabilities. So if we as individuals and companies want to hold assets, ie be in the black, then it follows that Government has to hold the liabilities. ie be in the Red. It’s trivial as some academics would say. It’s more a question of looking at the problem in the correct way. It’s when we wrongly imagine that a currency issuer is a currency user that the problems arise.

    My first degree was in Physics. If you want “counter-intuitive” there’s plenty in there, like Quantum Mechanics and Einsteins Relativity theories, there that really is counter-intuitive. Some would say it’s only really possible to understand it via the mathematics involved. It does help also if you bear in mind that our senses have evolved to understand the world as we see it and then we can start to appreciate that we don’t see the ultra tiny detail of QM or the huge generalities of the universe as a whole.

  • Peter Martin 11th Mar '18 - 7:36pm

    @ Gordon Lishman

    You quote David Haworth as asking the question:

    Here is a puzzle: if JS Mill, JM Keynes and James Meade were all Liberals and economists, what is a ‘neo-liberal’ economist?

    It would make more sense if he’d asked “Who is a neo-liberal economist..”

    I’d suggest we could include people like Arthur Laffer, Robert Mundell, Marcus Fleming, Robert Lucas, Eugene Fama, and Robert Barro.

    Others may disagree with my choice. But if we can agree who the neoliberals are, then it should be easier to define what neoliberalism is. It’s what they write.

    It’s fundamentally, IMO, an attachment to perfectly efficient markets and an notion that economies are largely self correcting. So, for example, if Govts cut their spending and raise taxes to balance their budgets, all wages and prices should naturally adjust so that we don’t see high levels of unemployment as a consequence. If we don’t see that then it is likely that organisations like Trade Unions are distorting the market.

    Naturally this world view appeals to those who have a right wing Libertarian, rather than a liberal view, and it is unfortunate that this confusion does arise.

  • Laurence Cox 11th Mar '18 - 8:11pm

    It is also worth reading Andrew Hindmoor’s (Professor of Politics at Sheffield University) article in today’s Observer:

  • Tom Papworth 12th Mar '18 - 3:37pm

    A very good answer to the question of why businesses are organised as hierarchies was provided by (yet) another Nobel Laureate, Ronald Coase. Companies are organised as hierarchies precisely because this is the most efficient mechanism for decision making: the transaction costs involved in market (and, by inference, democratic) decision-making outweigh any benefits, so workers submit to a hierarchical structure in return for the higher wages that hierarchically-structured firm can pay.

    Coase explains this theoretically, but one can infer this from the fact that hierarchical firms have come to dominate the marketplace. If coordination in pursuit of complex business ends were more efficient if based on individual contracting or democratic decision-making then such firms would out-compete hierarchies. In the real marketplace, however, the hierarchies won!

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