Bryan Caplan  

An ITT I Cannot Pass

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I pride myself on my ability to fairly and accurately explain views with which I disagree.  I've tried to enshrine this skill in what I call the Ideological Turing Test - the ability of non-believers to mimic believers in a blind trial.  But when I read these passages in Noah Smith's recent column, I realized I'd met my match. 
The tendency toward ideological commitment is now being tested in the U.S., as free-market dogma -- sometimes known as neoliberalism -- is coming under increasing attack.

Certainly, free markets haven't produced dramatic failures on the level of the USSR or Venezuela, but "not as bad as communism" is a fairly low bar to clear, and there's a definite sense that the reigning economic policies have run out of steam.
The claim that "free-market dogma" is the "reigning economic policy" of the United States or any major country seems so absurd, so contrary to big blatant facts (like government spending as a share of GDP, for starters), that I'm dumb-founded.  Sure, I could defend this position with demagoguery.  But if I wanted to intelligently argue in favor of the claim that neoliberalism actually guides economic policy in any major country, I literally wouldn't know where to start.

A little help?

Or a lot of help?

P.S. Here's David's complementary take on Noah's piece.




COMMENTS (37 to date)
Jon Murphy writes:

Well, I think one could say that the Western World is relatively more "neoliberal" than other parts of the world. Perhaps that is what he means?

Kevin writes:

The big expenditures in US life seems to be driven by a free market -- housing, education, healthcare, employment. None have been looking very good for the avg. consumer in the us compared to OECD. The same goes for high speed broadband --mainstream belief is that EU & Asian countries' internet markets are quite regulated & have big ups in increases in quality for the avg. consumer. If you look @ municipal broadband across the US, a non-market approach appears to be working quite well. With Obamacare, the public option (which scores great on cost-saving by CBO) was omitted by a long-time democrat because he didn't want to disrupt the fetishization of the free market of healthcare. Further, free markets have lead to serious concentration of wealth in Wall Street but the "middle class" isn't getting the same benefits. Finally, gov't isn't addressing climate change, sacrificing our posterity's future for fear of disrupting the free market.

I don't necessarily believe any of this. Take it as a devil's advocate approach.

Grant Gould writes:

I believe the standard anti-neoliberal view would go like this:

Neoliberalism is the view that the fundamental order of the economy should be based on free trade and exchange, but with exceptions and adjustments. For instance, some trades and exchanges need to be regulated for social safety, and some taxes must be extracted for redistribution.

Whether an economy is "neoliberal" or not, then, is not a function of its tax rates, regulation, or share of government as a percent of GDP. If the goods are produced by private enterprises or individuals and purchased by private enterprises or individuals, and if social safety and redistribution are imposed only as exceptions and adjustments on this market template, that's neoliberalism regardless of the tax rate.

A non-neoliberal economy would instead deal with alleged social harm through outright bans, and with poverty through direct government provision.

For instance, Obamacare is a neoliberal approach because it permits private insurance and leaves health care provision to private companies; The UK's NHS is is non-neoliberal because it bans private insurance and provides health care services directly via the state.

Swimmy writes:

I'll give it a shot...

["Neoliberal" isn't actually a set of fixed policies, but it describes a stance toward policy-making. That stance involves a combination of some but not necessarily all of the following:

1) An affinity for free trade deals
2) Hesitancy of using monetary policy to battle inflation
3) A rejection of leftism and radical solutions, an adoption of technocracy
4) Support of the World Bank and the IMF

At least the first 2 can be categorized under 'free market dogma.' To the degree that (3) means keeping current corporate structures and massive inequality intact, it also falls in line with the preferences of the free-marketeers. And (4) involves helping third-world countries only if they embrace 1-3 to a certain degree.

The U.S. consensus fits all 4 rather well. It could be argued that at least 3 of 4 guide economic policy in most developed countries.]

I don't think any of the above is demaoguery. It's just playing a game of "free-market relative to what?" Compared to the mind-blowingly large stimulus amount Paul Krugman wanted to spend, Obama was extremely conservative, which shows that the free-market dogma must have a reign on what Democrats are willing to do. And so on.

But it is playing with words--in a way that totally fits the way people actually use the word "neoliberal," but that seems sly to me regardless. "Neoliberal" is used to describe both Milton Friedman and Hillary Clinton. They are not very much alike.

AS writes:

I think it's a matter of what your comparison is. If you are comparing the status quo to a pure free market system, sure the claim that free market dogma is dominant seems absurd.

However, I think most people who use the term "neoliberal" are comparing to pre-Reagan/Thatcher era. At that time, full-on socialism had major ideological support and even the opposing side favored rather strong government intervention in the economy. Even Nixon instituted wage and price controls, and had proposed a national health insurance system.

If that world is your baseline, it certainly seems like free market ideology has been winning since then. I don't know that even Bernie Sanders would advocate intervention on the level of wage and price controls, and even if he did there is no chance he could actually get it implemented.

To sum up, the claim that "free market policy is the reigning dogma of the United States" makes sense if you interpret it to mean "on the spectrum of pure socialism to pure free markets, the Overton window in the US has shifted towards the free market, relative to where it was 40 years ago". You may think it makes more sense to measure against the theoretical pure market standard, but using the prior consensus as a baseline seems quite reasonable.

Josh Woods writes:

"Current economic policies disregard people's fundamentally equal moral worth and leave those with relatively little to offer in terms of market value condemned to a life of low status and poorer outcomes on almost every measurable dimension. Recent technological advancements have exacerbated this problem as more and more members of the middle class find themselves becoming obsolete as wealth becomes increasingly concentrated in the hands of a lucky few privileged by unearned gifts of high IQ or family connections. Extensive government action is needed to bring people's actual socioeconomic status into better alignment with their true value as equal human beings."

Something like this? Not sure why they think Government attempting to put that into practice would be anything other than horrific given 20th century experience but I think that would get quite a few people nodding along.

zeke5123 writes:

I guess I also fail the ITT, because I cannot believe anyone could consider that "housing, education, healthcare, employment" writ large are driven by the free-market.

Housing
From a federal perspective, there are numerous policies intended to create (i.e., interfere with market choices) home ownership. For example, one of the largest tax expenditures is the mortgage interest deduction. See also Fannie Mae.

Then, look at local restrictions (i.e., zoning/rent control). These are common place in most areas, though some areas are less regulated than others. In areas where zoning / rent control is lax, you see housing doing quite well (e.g., Houston). Compare this with areas with extensive zoning and rental restrictions (e.g., NY/San Francisco).

It seems quite clear to me that there is significant government intervention in the housing market AND such intervention generally increases costs and reduces quality.

Education
The vast majority (i.e., greater than 90%)of K-12 students attend public schools. Efforts to introduce even modest free market reforms (e.g., charter schools, vouchers) are often torpedoed by the government.

As for post-secondary education, subsidized public universities are major players in post-secondary education. Further, government backed loans / funds are available for almost any college, public or private. These funds often come with strings attached.

Thus, the idea that free-markets in education are robust seems crazy to me. It also seems the government intervention has increased the cost.

Health Care

Obamacare. Medicare. Medicade. State regulations preventing interstate (or foreign) competition amongst insurers. FDA. Tax benefit for health insurance. Numerous other regulations for doctors. Occupational license restrictions for Nurse Practitioners.

How could anyone think this is largely a free market?

Employment

Payroll taxes. Minimum Wage Laws. Overtime laws (which now apply to certain salary workers). Anti-discrimination laws based on disparate impact analysis, which forbids e.g., IQ testing. Numerous local law restrictions.

Maybe I just am too blind, but in all four areas I see massive government intrusion.

Jeff G. writes:

Well said Zeke and you didn't even have to mention broadband!

Thomas Strenge writes:

The fundamental problem is that language has lost the ability to convey meaning thanks to the efforts of politicians to obfuscate and lack of proper education by the majority of journalists to convey information in a sensible way. This compounds with a general public lack of understanding and worse, general lack of desire to understand.

For example, liberal means a democrat who supports a Hayekian socialist economy, i.e. government ownership of the means of production is so early 20th century; no, instead private individuals keep title to property, but the government severely curtails their ability to decide what to do with it. Conservative means Republican who still supports a Hayekian socialist economy, albeit with a lower tax bill, but more bond-financed government spending.

Any errors produced by the regulatory state are then blamed on "free markets" because private parties are still technically to blame. For example, I believe that a majority of Westerners probably still thinks that banks are independent businesses instead of extensions of government.

Western civilization at this point is equated with racism and slavery and exploitation instead of the classics, the Enlightenment, abolition of slavery and creation of the middle class. Trump becomes the crazy war monger, even though the interventionist neocon is actually Hillary Clinton. The list goes on. Asinine minimum wage discussions are portrayed as pro-con issues in news rooms instead of 90% economic suicide vs 10% it won't be that bad. It goes on and on.

Only someone with a truly well rounded education can have the stamina to cut through the deluge of misinformation. There is too much data and not enough knowledge. Sorry for the rambling.

Keith K. writes:

@zeke5123

I was just about to say the exact same thing. What kind of delusional world does somebody live in that they seriously believe housing, education, healthcare, and employment are free markets? These are infact some of the most heavily regulated sectors in US society. The only ones I can think of that were left off the list are Financial markets and Power generation.

Matthew Moore writes:

@zeke5123

Thanks for saving me a bunch of typing.

I can only assume that is some masterful ITT submission by Kevin

KevinDC writes:

Let me join the others in the chorus of "what zeke5123 said."

While zeke5123 offered a good rebuttal to the hypothetical ITT offered by Kevin (not me!), there's a more fundamental flaw with his ITT. What Kevin said could very well be the impressions the average man on the street might hold. If you stopped random Americans and asked them "Does the USA have a free market in housing," I'm sure that the majority would say yes. But the whole point of an ITT isn't to sum up the vague impressions of the general public. It's to try to build a specialized case that the highly informed would make. And that, I think, is what leads to Bryan's puzzlement.

Bryan wouldn't be shocked that the average member of the public is ill-informed on these matters - making note of how ill informed the general public is on economics is his motif, after all. But how can someone who knows as much as Noah really, truly believe that actual policy in the United States is a display of "free-market dogma"? One could think that by either being terribly unfamiliar with free market ideas, or being uninformed on actual US policy. Noah Smith should really know better than that.

Lawrence D'Anna writes:

I totally admire your commitment to intellectual charity and the ITT, but at some point you've got to admit that demagoguery exists, and that there are some writers who's output primarily consists of demagoguery.

So what's one to do when confronted with a demagogue? When do you admit that if there's an honest perspective that they're coming from that you just can't see it, and write them off?

Noah Smith looks like a garden-variety demagogue to me, and I don't understand why you even think he's worth your attention. Seeing you argue with him is as silly in my eyes as if you'd debated Donald Trump.

It seems you see merit in him that I don't. I wonder if you'd say what it is? Say something nice about Noah Smith.

MikeP writes:

Noah Smith looks like a garden-variety demagogue to me, and I don't understand why you even think he's worth your attention. Seeing you argue with him is as silly in my eyes as if you'd debated Donald Trump.

Indeed. I don't read Noah Smith, but every time I see him cited he is taking a position that is patently ridiculous.

Maybe you should do a post that highlights something he writes that is actually correct. As it is, it just looks like you're picking on the weakling in the schoolyard.

Bob Loblaw writes:

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Jim writes:

Hi Bryan,

I think that perhaps you are reading into Noah's piece a bit more than he is claiming. He seems to hedge a lot more than I expected from reading your blurb.
For instance, he doesn't say "free-market dogma" is the "reigning economic policy", he says that

"The tendency toward ideological commitment is now being tested in the U.S., as free-market dogma -- sometimes known as neoliberalism -- is coming under increasing attack."

And in the next paragraph, he says that (as far has been tried) free markets are "not as bad as communism." and that the "reigning economic policies (free market as far as has been tried) have run out of steam." (my interpretation supplied in parentheses)

I think that this is a statement about the support for neoliberal policies decreasing. He concedes in the next two paragraphs that it is possible that this is only a step toward neoliberalism that is being attacked, not necessarily full-on neoliberalism. His conclusion is that if half-measures don't work, whole-measures will never be tried.

Zeke5123 writes:

"So no, housing, education, and health care aren't free markets in the United States. But we have been pushing towards more free-market solutions for decades now, and the outcomes have been far short of what was promised (some might say disastrous). Deregulation of housing finance (private-label securitization), charter schools, and private health care markets have not produced the promised results."

1. I think the regulation of housing finance is incredibly complex. I also think CDOs (properly priced) are a really good invention. I'm not sure that it became less regulated, insomuch as it became regulated differently.

2. Care to provide a cite that charter schools haven't been successful? Maybe I am biased (my wife is a charter school teacher) but these schools are doing much better compared to neighborhood public schools. Of course, I know there are complaints against the big ones regarding the success due to attrition policies (e.g., Success Academy). But I've seen studies demonstrate that in the short-term even accounting for those policies charter schools turn out better students. Query whether this result lasts, but early returns seem promising.

Further, I understand that charter schools tend to use less resources. So, even in the event where charter schools don't change educational outcomes between public schools (I don't think anyone claims Charter Schools make students worse off), charter schools are at least more efficient.

3. I think it is really difficult to say healthcare in the last fifteen years has been moving in the direction of a free market.

The two biggest government expansion of health care in US history happened under Pres. Bush (Medicare Part D) and Pres. Obama (Obamacare).

On the other hand, I have heard stories of (IIRC) Singapore medical care, which is based on free markets and is at least as good and cheaper. Only anecdotes, granted.

Tom DeMeo writes:

Maybe your objection to the argument IS the failure: that neoliberalism, even in a place like the US that is highly receptive to its arguments, can't win out in the long run against socialism and crony capitalism.

Yaakov writes:

I think what Smith means in "the reigning economic policies" is that these policies govern the expert economist positions on reforms. That is, in recent decades, the economists are always saying that we should move in the neoliberal direction, and, Smith claims, that did not get us very far.

The fact that policy makers mischievously disobeyed the reigning economic policies is an indication, in Smith's eyes, that these policies did not work. It seems that Smith hopes that if economists would bring up a new set of economic policies, either policy makers will listen and follow the economic recommendations, or policy makers will again disobey, but the results will be better.


Perhaps Noah Smith's choice of terms is shaped by the audience he sees himself addressing. Perhaps he writes, not to reason with market-liberals, but to hearten leftist readers of Bloomberg.

For a mirror image, I often label a leftist ambition for new regulation as "socialist" when I am speaking to another libertarian whom I expect to agree with the spirit of my characterization. I would need to use a different label, I know, if I were addressing a leftist, because leftists commonly fancy themselves "in favor of free markets" (except of course in case A, and B, and C, ...).

Have I heartened the libertarians among y'all?

Chris Thomas writes:

Noah has (kind of) responded:

http://noahpinionblog.blogspot.com/2016/08/free-market-ideology-reply-to-some.html?m=1

hueshi writes:

I'll make an attempt at the basic ITT:

1. Many people are strict ideologues in the matter of economic policy.
2. This can be seen in the case of much of 20th century communism and socialism.
3. All sets of policy prescriptions run into limits, due to inescapable political or physical realities. Whether a policy is good or bad depends in large part on how well it can deal with these real-life limits.
4. Ideologues are bad at creating such policies (noting the socialist experience, where rigidity encountered reality).
5. Free-market ideologues (nominally "neoliberals") have proposed a broad range of reforms. Some have been implemented, though most may have not.
6. Neoliberals feel that policies that were not broadly implemented cannot be said to have failed - "they were not tried".
7. However, this is actually an indictment of those policies, because they were impracticable and non-implementable in the real world. They had no general appeal and could not even be carried out technically.
8. Strict free-market ideologues demanding that their reforms be carried out fully are like socialists demanding that the Central Planning Bureau be furnished with complete information about all goods, services and needs before it can be judged on its capacity to plan. This cannot be done, so the policy cannot be truly "tried".
9. This attitude of strict ideology refuses to deal with the fact that most policies can only ever be partially, occasionally followed. So, the better policy will be one which has enough appeal to be enacted, and best survives being implemented as a half-hearted kludge in a messy democratic-bureaucratic system.
10. Neoliberal policies are not good at this - and their theoretical virtues are inseparable from their real-world insufficiency.

Tim Worstall writes:

The current free market, neoliberal, paradigm and hegemony plucked a mid level educator from a mid level college and made him a leading columnist at one of the world's leading media outlets. Purely on the basis that the new employer valued his services more than his old, that the individual raised their utility through the new job more than the old.

This is simply the market, that free market in operation. The hegemonic insistence that voluntary cooperation is a better organisational methods than the allocation of talent to where it's damn well meant to be.

What a vile system it is.

" but "not as bad as communism" is a fairly low bar to clear, and there's a definite sense that the reigning economic policies have run out of steam."

In other news Noah Smith has been hired by Bloomberg.

Thomas B writes:

Grant Gould,

Just a quick FYI: private health insurance is not illegal in the UK. It's alive, and well - see BUPA, for example, which offers pretty much the kind of health insurance that people need in the US, but that is illegal in the US.

And there are walk-in, non-NHS, pay-cash-and-see-a-doctor clinics in the UK. Yes, people pay to see a doctor, and people carry health insurance, in a country where "healthcare is free".

Zeke5123 writes:

Tim:

I think that is a fair ITT. Good job! I still take issue with it. Primarily, it compares the political failure of neoliberalism with the systematic failure of communism equivocating between them.

But naturally the reaction of former supporters should be different. In the case of communism, we shouldn't listen to those who claim it hasn't been fully tried because the more of communism we get the worse the system and outcome.

Contrast this with neoliberalism where the the more if it we implement the better. The difficulty is getting political buy-in due to a host of well understood realities of democratic politics. Here, arguing for further implementation of neoliberal policies makes sense.

hueshi writes:

Zeke5123:

Sorry, did you mean me or Tim?

Yes, I don't find it really convincing. Note the rhetorical gap I introduced - I blurred the line between the obviously doable ("repeal regulation X, replace it with nothing") and the inherently uncertain ("come up with a plan that coordinates a solution").

You point on proportions is well taken. I think one of the problems is that Noah takes a fraction of the policies in a domain to be representative of the whole, and of the trend in the whole. So to him, the (really very modest) deregulation in some parts of finance and housing is proof that the subprime crisis was the result of withdrawing the regulatory state. But when you look at the whole, and see Freddie and Fannie, the CRA, mortgage subsidies, land-use planning policies, infrastructure priorities, implicit bailout promises, deposit insurance and so on (many of these things expanding at the same time) - the actual magnitude of "deregulation" is either tiny, or nonexistent on balance. In any case it's diminutive compared to the sum total of current regulation. But he doesn't discuss that - Glass-Steagall was repealed, therefore the financial sector is a free market, apparently.

Student writes:

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JK Brown writes:

Neoliberalism is an apropos name for the resurgent free market dogma. If we look at the situation that arose to recover from the failure of the free market in the 1930s, we see what economist Sumner Slichter called "government guided enterprise".

The new economy," says Dr. Slichter, "operates on the principle that fundamental decisions on who has what incomes, what is produced, and at what prices it is sold are determined by public policies." The government interferes with the course of prices by putting a floor under some, a ceiling over others; it regulates in numerous ways how goods may be advertised and sold, what businesses a corporation may be allowed to buy into, and how employees may be paid; in some states with Fair Employment laws it even has a say about who may be hired.

Contrast that with the United States today. Government no longer fixes prices, although, granted it does impose taxes on some harmful items for public health reasons. Similarly, advertising and the sale of some items are restricted to protect minors, unknowledgeable healthcare patients, etc. But on the whole, there is no specific control of prices for the majority of items as one would expect in a free market. No longer are industries afflicted with regulations on prices and service with the free market reigning in areas such as airlines, telecommunications, etc. Even water, the lifeblood of humanity, service is privately held and operated, with government only overseeing the fair and equitable availability of this necessity.

Consider also that with the decline of unionism and the spread of "right to work" wages and working conditions are now open to the free market. True, minimum wages are set, along with hours of work before overtime, but these are not set for economic reasons but rather to protect the poor and unskilled, who are wards of the state and must be protected.

Perhaps the free market of the 1920s is not currently prevailing, but then that did end in a social disaster with the cost and suffering imposed upon all. However, the "neoliberalism" is ruling and the free market dogma is prevailing yet again, even as some smart people try to avoid another free market disaster as happened in the early 20th century.

(I do not hold to the above, but if you want to argue for neoliberalism prevailing today then....)

MikeP writes:

JK Brown, you have succeeded!

Your concluding parenthetical was fortunately scrolled off the bottom of my screen. As I was reading, I was contemplating my response, which would have been a pointer to Wikipedia's neoliberalism entry and a statement something like, "The only people who use 'neoliberalism' are those who don't at all believe in free markets."

Excellent!

theseusthegreek writes:

It's just the rhetoric used. Neo-liberal rhetoric (as this author characterizes it) rules in this country (at least in part) even though it isn't practiced much if at all in reality.

Tom West writes:

@zeke5123: Contrast this with neoliberalism where the the more of it we implement the better.

If we assume that there isn't a universal utility function, then election results are probably the only aggregation of utility that we have.

And those results have made it clear that according to people, *less* neoliberalism is "better".

They also make it clear that *more* neoliberalism is better, albeit at different times.

We should certainly try and persuade people to our belief systems, but trying to claim something is objectively "better" is a fallacious from the start - the only objective method of determining better indicates that "better" changes daily and varies between regions and cultures.

(And certainly using elections results, communism is pretty much the bottom of the heap. However, it's worth noting that there does seem to be a tendency for wealthier societies to purchase more government.)

Zeke5123 writes:

Hueshi -- my apologies. You wrote the ITT.

Tom West -- I think elections, especially national elections in a first past the post system, are terrible measurements for determining what works. Not only is the system amazingly bad at communicating values (what does a single vote for Hillary mean) there is no incentive for voters to consider their decision.

Tom West writes:

Zeke5123, of course they're amazingly bad, but in the end, they're the only mechanism we have in which all people's utility function have equal weight.

Anything else is essentially the imposition of someone's utility function upon the populace.

Claims about what people *really* want are dangerous and thus ignoring what they've revealed is simply too fraught with peril.

Matthew McOsker writes:

I hate the term FREE market. There are markets and there are not. All markets create rules the illicit drug market has its own rules, and governmnet is a more organized rules body that is an extension of markets. It all comes down to the degree of rules that make a market more or less restricted. The illicit drug market too restricted, and some other markets too lax. Then you have to consider the government role in the monetary system - how money that is used by markets is created.

Anton Maier writes:

I guess it's time to pop your (google/social) bubble. That is literally the starting point of every debate against liberals/lefts i encounter. Online or in person in Europe.

benjamin weenen writes:

free markets are not "free for all" markets. I think this is where a lot of faux-libertarians get confused, so we end up with lots of bad policies.

free markets are efficient markets, which need the correct framework of property rights, laws and regulations.

as no country in the World has a correct framework of property rights, we live in a democratised and evolved form of Feudalism. Which people like Caplan wholeheartedly endorse as "freedom".

The faux-libs like Caplan are the enemy of capitalism and free-markets as surely as any socialist.

Only people cannot see this as they attribute capitalism as the cause of excessive inequality and dysfunction when it is not.

hueshi writes:

Benjamin Weenen - if you think that Caplan "wholeheartedly endorses" the current framework of property rights, and the present structure of democratic governance (in the USA, or indeed anywhere on Earth), then all you are demonstrating is that you have not read much of what he has written. He has spent literally decades critiquing these things. You appear to know nothing of his work. And I say this as someone who disagrees with him on many points.

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