David R. Henderson  

Sumner on Neoliberalism

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The neoliberal policy revolution that began in the late 1970s might be the most important recent event in world history. But it remains a curiously elusive and underreported phenomenon. Many on the left question the motives behind the reforms, as well as their efficacy, while some on the right talk as if the neoliberal revolution never happened.

Yet, the neoliberal revolution has been widespread and highly successful. And the motives of neoliberal reforms are much purer than one would imagine after reading left-wing criticisms of free-market reforms.


So does Scott Sumner begin this month's Feature Article on Econlib. The article is titled, "The Unacknowledged Success of Neoliberalism." I asked Scott to do this piece after I read a blog post he had done on it in May and realizing that there's a lot to tell here that isn't being widely told. Scott documents the neoliberal revolution in economic policy that has swept the world in the last three decades, and shows that countries that most reformed in the direction of economic freedom have done better, measured by growth of real GDP per capita, than countries that have done least.


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COMMENTS (6 to date)
david writes:

Note that when Sumner uses "neoliberal" he means free markets plus social insurance; he doesn't mean "small government". For that he uses "laissez-faire". The point was made here:

http://www.themoneyillusion.com/?p=5298

and StatsGuy's post (which Sumner's post describes) is also a good one:

http://baselinescenario.com/2010/05/27/heritage-index-good-government-vs-less-government/

Also, Sumner tends to discount coercive measures if they don't contribute to costs. Western liberal democracies of course hesitate to use sticks where carrots will do, creating an expensive large government, but places like Singapore have no such hesitation. For instance, the British tax gum to offset the costs of cleanup; the Singaporeans just famously ban it and threaten the cane. This is, I think, indicative of the wider philosophical differences and the former obviously generates larger taxes and spending. But the latter is not especially libertarian either.

David R. Henderson writes:

@david,
Thank you for reminding readers of that. He also makes that point in the Econlib piece. In paragraph 5, he writes:
"The neoliberal revolution combines the free markets of classical liberalism with the income transfers of modern liberalism."
Best,
David

david writes:

@David R. Henderson,

You're welcome. I felt it might be important to emphasize, since most readers of EconLib probably already agree with 'free markets' but not the 'income transfers'. Sumner is probably to their left! And of course your quote and description doesn't make this obvious (and perhaps slightly misleading, depending how one might interpret "economic freedom").

David R. Henderson writes:

@david,
Good point. But, just so you know, it does come across very clearly in the piece. Check out this quote from Scott's piece:

There is an unfortunate tendency to associate the term "neoliberal" with right-wing political views. In fact, the quite liberal social democracies of northern Europe have been among the most aggressive neoliberal reformers. Indeed, according to the Heritage Foundation's Index of Economic Freedom, Denmark is the freest economy in the world in the average of the eight categories unrelated to size of government.

However, you may be going too far in your statement about where Scott is on the spectrum. I don't know him well enough to know. But I do know that when a person simply acknowledges that a government engages in income transfers, that person is not necessarily advocating such transfers.

Tracy W writes:

The distinction is plausible. If you read the two top NZ reformers' autobiographies - Roger Douglas and Ruth Richardson - Roger Douglas is clearly left-wing, one of the leftists who responded to the evident collapse of communism by reformulating the left side of politics as use markets, and then redistribute the results. Ruth Richardson is in the libertarian mould, somewhere in her autobiography she says that every unemployed person in NZ could find work tomorrow if they had to.

david writes:

I asked Sumner. He replied:

I certainly favor some income transfers. The question of whether those transfers should be done by private charity or government is much more complex, and I don’t have strong views. But I regard government income transfers as inevitable, and to some extent desirable if private charity is not adequate. Thus I try to think about ways of making government more efficient. I have recommended the Singapore fiscal model, which is a low tax model combined with forced saving.

I have argued with Sumner before in the comments to his previous posts that the 'Singapore fiscal model' is inextricably tied to numerous forms of coercion and control which don't show up in tax statistics, in a manner similar to the chewing-gum policy differences I mentioned earlier here. These measures lend the Singapore model both fiscal and political viability. But I understand he disagrees, and thinks that it can be replicated elsewhere without said coercion, except for forced savings.

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