What the EA community can learn from the rise of the neoliberals

By Kerry Vaughan

Note: This post should note be taken as an endorsement of neoliberal ideas or policies. Instead, the post is intended to be a case study of how the neoliberals built an influencial intellectual movement over a relatively short perior of time.

John Maynard Keynes

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.

-John Maynard Keynes, The General Theory of Employment, Interest and Money Ch. 24 “Concluding Notes” p. 383-384

It is possible to forget how marginalized non-socialist economists were just fifty years ago – when they could not publish in mainstream journals, could not obtain tenure at major universities, and lacked the respect of their academic colleagues. Part of their ascendancy is due to careful and strategic planning.

-Sabina Alkire and Angus Ritchie, Winning ideas: Lesson from free-market economics, OPHI Working Paper Series

Introduction

Neoliberalism was an intellectual and social movement that emerged among European liberal scholars in the 1930s as an attempt to chart a so-called 'third way ' between the conflicting policies of classical liberalism and socialism. Its advocates supported monetarism, deregulation, and market-based reforms and supported an ideology based on individual liberty and limited government that connect human freedoms to the actions of the rational, self-interested actor in the competitive marketplace.

Neoliberalism has two distinct characteristics that make it relevant for strategic movement builders in the EA community. First, the movement was extremely successful, rising from relative outcast to the dominant view of economics over a period of around 40 years. The movement has launched 400 think tanks across 70 countries and directly influenced the policies of the United States (Reagan), the UK (Thatcher), and influenced the liberalization of China under Deng Xiaoping.

Second, the movement was strategic and self-reflective. They appear to have identified and executed on a set of non-obvious strategies and tactics to achieve their eventual success. This differs from the circumstances of many other social movements which are often catalyzed by particular sociopolitical events instead of being generated strategically.

It is important to treat the history of neoliberalism (and the goal of this document) with the appropriate levels of skepticism. Nearly all successful movements and organizations rewrite their history. Sometimes this is innocuous in the sense that they include some relevant facts in the history but exclude others that fit the narrative less well. Sometimes this is more blatant as in the case of Tesla where Elon Musk is widely reported to be the founder of the company despite only becoming involved during the Series A round. Additionally, even if the historical account was perfect, the tactics that worked in the 1940s are not necessarily going to work today. Instead I intend historical accounts such as this to serve as sources of inspiration and idea generation -- although the ideas they inspire should be verified through argumentation outside of historical precedent.

This article proceeds as follows. First, I provide a basic history of neoliberalism including some of the key characters and their roles. Then, I outline their strategies and tactics (which they are generally quite explicit about). I finally identify some cautionary tales from the movement. However, for ease of reading, I first begin with the three most important messages that I believe the study of Neoliberalism provides for EAs.

Key Ideas

Academic influence as a source of power

As the quote at the beginning of this document explains, the neoliberals focused on academic influence as their most important mechanism of power. Hayek believed that defending liberalism from the socialists would only be possible by systematically changing the intellectual climate of the time such that their ideas would seem obvious decades hence. To this end they were overwhelmingly successful. The neoliberals worked to explicitly gain impressive academic bonafides like the Nobel Prize in Economics and impressive academic appointments. These accomplishments helped establish them in academic circles.

For the EA community, it is tempting to focus on clear, tangible aims: money, recruits, attention. Yet, the study of neoliberalism shows us that strong intellectual communities committed to practical, yet rigorous scholarship also have their place to play in the development of a successful community.

Utopian narratives: for good or ill

Hayek believed that liberalism was losing to socialism because the socialists had the courage to be Utopian. The socialists explained the values they were working to attain and justified their project in the context of these values. To combat the socialists, Hayek insisted on explaining the Utopian vision of the neoliberals -- a vision he couched in human freedom with competitive markets as the only way to ensure this freedom. As the development of the movement shows, this focus on Utopian visions is an extremely potent weapon.

Yet, it is not without its drawbacks. Neoliberalism was built on a foundation of vanquishing an enemy (socialism) and a narrow conception of freedom that ensured the supremacy of markets. As socialism lost the intellectual war, the boundless, and sometimes irrational, faith in markets reigned unchecked. It seems possible to draw a connection between this utopian faith in markets to a number of questionable policies especially in financial deregulation which may have contributed to the 2008 financial crisis.

The EA community has not had the courage to be Utopian so far (c.f. Beth Barnes’ talk). In some sense this is surprising given that, to my mind, the Utopian vision for EA is extremely compelling. It seems plausible that we should avail ourselves of this tool, but if we do, we should proceed with caution.

While there seem to benefits to this Utopian narrative approach, it is also a core component of the effective altruism movement to maintain epistemic humility. This allows us to be open to important new ideas and makes it easier to limit biases that might prevent us from finding the most effective ways to do good. Still, if we act with this in mind we still have strong potential for presenting a compelling Utopian vision.

Fostering intellectual talent

The neoliberals focused from the beginning on fostering intellectual talent. In the early days when neoliberal thinkers could not gain tenure they paid for their most promising thinkers to study at places like the University of Chicago. To this day, organizations like the Mont Pelerin Society conduct essay contests to identify the most promising intellectual in relevant fields.

This is something the EA community has done well at, although we have tended to focus on talent that current EA organization might wish to hire. It may make sense for us to focus on developing intellectual talent as well.  

A Brief History of Neoliberalism

Neoliberalism rose from ‘heretical’ ideology to shaping the policy agenda of the most powerful nations in the world over a period of forty years. Below I provide a brief outline some of the key events on this pathway. However, we should take a moment to appreciate the speed of the neoliberal ascendency into power:

During the 1950s and 1960s, when socialism ruled the UK’s academic institutions, news media and politicians, the [neoliberal] publications and those of their colleagues were seen at best as heretical and at worst as fascist.

Says Harris, ‘We were a scorned, dismissed, heretical minority. There was a preordained path for the state to regulate, to plan and to direct – as in war, so in peace. If you questioned it, it was like swearing in church. At times this overwhelming consensus intimidated us, and we sometimes held back. We often felt like mischievous, naughty little boys.’¹

Yet, a mere 20-30 years later, the situation had changed dramatically:

John Ranelagh writes of Margaret Thatcher's remark at a Conservative Party policy meeting in the late 1970's," Another colleague had also prepared a paper arguing that the middle way on economic policy was the pragmatic path for the Conservative party to take. Before he had finished speaking to his paper, Margaret Thatcher reached into her briefcase and took out a book. It was Friedrich von Hayek's The Constitution of Liberty. Interrupting the speaker, she held the book up for all of us to see. 'This', she said sternly, 'is what we believe', and banged Hayek down on the table.²

Here I provide an outline of some of the key events and figures in the movement as as brief chronicle of the events that led to their rise to power.

1938: The Colloque Walter Lippmann

The Colloque Walter Lippman was a conference of intellectuals organizer in Paris is August of 1938. At the time interest in classical liberalism had declined due in part to a decrease in faith in free markets after the Great Depression. The aim of the gathering was to construct a new liberalism that could reject collectivism and socialism. The event was named after Walter Lippmann whose 1937 book An Enquiry into the Principles of the Good Society was studied in detail at the meeting. Participants included Fredrich Hayek and Ludwig Von Mises who would later become major figures in the neoliberal movement. At the meeting the term 'neoliberal' was coined by Alexander Rüstow

1944: The Road to Serfdom is published

Between 1940 and 1943, Friedrich Hayek writes The Road to Serfdom which is later published in 1944. The book warns of "the danger of tyranny that inevitably results from government control of economic decision-making through central planning." The book also challenges the general view among British academics that National Socialism was a capitalist reaction against socialism. Instead, he argues that fascism, National Socialism and socialism all have roots in central economic planning and giving the state power over the individual.

The book was very popular when published leading Hayek to call it "that unobtainable book" although this was due in part to wartime paper rationing. In 1945 an abridged version of the book was published in Reader's Digest which helped it reach a broad audience beyond academics. According to those in the neoliberal movement, the book was:  

[T]he opening salvo of the attack on the ideas of the Fabian Socialists that had taken over thinking in the UK and on the continent.

1947: The Mont Pelerin Society

The first meeting of the Mont Pelerin Society

In 1947, 36 scholars, mostly economists, were invited by Hayek to meet and discuss the fate of classical liberalism. The society aimed to "facilitate an exchange of ideas between like-minded scholars in the hope of strengthening the principles and practice of a free society and to study the workings, virtues, and defects of market-oriented economic systems." The society was a scholarly community arguing against collectivism and socialism while also ensuring not to engage in public relations or propaganda.

The Mont Pelerin Society is often credited as setting off an international Think Tank movement in favor of neoliberal principles. Today there are close to 400 neoliberal think tanks in more than 70 nations across the world.

1950: Hayek leaves LSE for the University of Chicago

In 1950 Hayek leaves LSE and takes a position at the University of Chicago. Interestingly, his salary is paid not by the University of Chicago itself but by an outside foundation. Over time he works to establish the Chicago school of economics which becomes a major intellectual force in economics.

1955: The Institute of Economic Affairs is started

Without Fisher, no IEA; without the IEA and its clones, no Thatcher and quite possibly no Reagan;without Reagan, no Star Wars; without Star Wars, no economic collapse of the Soviet Union. Quite a chain of consequences for a chicken farmer!³

The Institute for Economic Affairs is one of the earliest and most influential think tanks in the neoliberal movement. The founding of IEA is often summarized in nine words:

Hayek advised Fisher; Fisher recruited Harris;
Harris met Seldon.

As the story goes, Anthony Fisher was a highly decorated fighter pilot who read Hayek’s Road to Serfdom in Reader’s Digest. He traveled to London to seek out Hayek. “What can I do? Should I enter politics?” he asks. As a decorated veteran with good looks and a gift for public speaking, this was a live possibility.

“No.” replied Hayek “Society’s course will be changed only by a change in ideas. First you must reach the intellectuals, the teachers and writers, with reasoned argument. It will be their influence on society which will prevail, and the politicians will follow.”

Later in 1949, Ralph Harris, a young researcher from the Conservative Party gave a lecture with Anthony Fisher in the audience. Fisher loves what he hears and takes Harris aside after the talk. He explains his idea for an organization to make the free market case to intellectuals. Harris is excited. “If you get any further” he says, “I’d like to be considered as the man to run such a group.”

In 1953 Fisher starts the Buxted Chicken Co. which brought factory farming to Britain. The company begins to show a profit which allows him to revisit his idea for for a free-market institute. Fisher signs the trust deed with two friends and gets back in contact with Harris about running the institute. Harris agrees and becomes the new general director on 1 January 1957. Harris meets Arthur Seldon in 1956 and in 1958, Seldon joins the organization. He was initially appointed Editorial Advisor and become the Editorial Director in 1959.

Thirty years later in 1987, Harris become Lord Harris of High Cross and oversaw an institute which boasted 250 major corporate supporters and a budget equivalent to around £1.6M (in 2016 pounds). Seldon helped produce more than 300 publications and nurtured and developed more than 500 authors. Fisher founded the Atlas Economic Research Foundation which worked to aid in the creation of new think tanks, creating 36 institutes in 18 countries all based on the IEA model.

1970s: Stagflation

Between 1973 and 1982 several major economies (including the US and the UK) experience a prolonged period during which both the inflation rate and the unemployment rate increased. This was dubbed “stagflation.”

The cost in human terms of stagflation was great, but stagflation also led to upheaval in economic thinking. In the Keynesian macroeconomic theory that dominated between World War II and the late 1970s, stagflation was supposed to be impossible. Indeed, unemployment and inflation were supposed to have an inverse relationship as described in the Phillips Curve. This helped to set the stage for alternatives to Keynesian theories to take center stage.

In Milton Friedman’s words: “the role of thinkers, I believe, is primarily to keep options open, to have available alternatives, so when the brute force of events make a change inevitable, there is an alternative available to change it.”

1971: The collapse of Bretton Woods

The Bretton Woods system of monetary management established the rules for commercial financial relations among the US, Canada, Western Europe, Australia and Japan beginning in 1944 and ending in 1971.

Bretton Woods established a system according to which the exchange rate of various currencies were pegged to the US Dollar which was in turn convertible into gold at a fixed rate. At the time there was a high level of agreement among powerful nations that the failure to coordinate between WWI and WWII was in part responsible for the economic and political tensions that set of WWII. The hope was that Bretton Woods could help stabilize global economic policy. In 1971, the US unilaterally ended the convertibility of US Dollars to gold amid a growing balance of payments problem and increasing public debt due to the Vietnam war and the Great Society Program.

Many interpreted the failure of Bretton Woods as an indication that Keynesian economic policy was misguided.

1974: Hayek wins the Nobel Prize in Economics

Hayek accepting the Nobel Prize Over the intervening years the movement was making steady progress in establishing academic credibility. They received a nice boost in this endeavor with Hayek winning the Nobel Prize in 1974 and Friedman winning it in 1976.

1979: Volcker becomes Chairman of the Fed

In August of 1979 Paul Volcker is appointed chairman of the board of governors for the Federal Reserve system. Inflation peaked in March of 1980 at 14.8 percent and fell below 3 percent when Volcker was reappointed in 1983. Volcker made fighting inflation his primary objective and restricted the money supply to tame inflation in the economy. This was broadly in line with the monetarism school of thought in economics (and advocated for by the neoliberals) which thought of fighting inflation as the primary role of central bankers.

1979 & 1980: Thatcher and Reagan are elected

Margaret Thatcher became British prime minister on May 4 1979 and Ronald Reagan was elected in 1980. Both governments were broadly monetarist in their thinking and were heavily influenced by neoliberal economists like Milton Friedman. Market liberalization was a signature feature of both governments but especially the Thatcher administration through widespread deregulation and privatization.

In some sense this represents the zenith of neoliberal power. The neoliberals had influenced the chairman of the Fed and two of the most powerful governments on Earth. More strikingly, however, they had completely shifted the ground for public discourse about economics. Many of the critiques of socialism advanced by the neoliberals were now taken for granted by both those on the Right and those on the Left.

Neoliberal strategies and tactics

The neoliberals are relatively explicit about the strategies and tactics they pursued to achieve their goals. The key strategic thinker appears to be Hayek himself who provided guidance in a number of articles, in particular: ‘Historians and the Future of Europe’ (1944); ‘Opening Address to a Conference at Mont Pélerin’ (1947); ‘The Intellectuals and Socialism’ (1949); ‘The Transmission of the Ideals of Economic Freedom’ (1951); ‘The Dilemma of Specialisation’ (1956).

Below I first distill Hayek’s strategic content into a few specific strategic insights. I then provide a more general list of tactics and strategies employed by the Neoliberals.

Hayek’s key strategic insights

According to an IEA publication, Waging the war of ideas: why there are no shortcuts, Hayek’s advice can be distilled as follows:

The failure of liberalism

Socialism came into ascendancy partly because of the failure of liberalism to be a seemingly relevant, living, inspiring set of ideas. Liberalism needed reviving and toward this end, Hayek viewed his creation in 1947 of the Mont Pélerin Society, an international community of classical liberal scholars and other intellectuals, as a critical first step.

The importance of history

History plays a major role in the development of people’s political philosophy. For Hayek, ‘There is scarcely a political ideal or concept which does not involve opinions about a whole series of past events, and there are few historical memories which do not serve as a symbol of some political aim.’

Hayek agreed with an insight others had offered – that more people get their economic opinions through the study of history than through the study of economics. Hayek’s key example in this regard is the German historical school, which promoted the role of the state and was hostile to spontaneous order. To Hayek, it was very much responsible for creating the atmosphere in which Hitler could take power.

Focus on the long-run

Practical people who concern themselves solely with current day-to-day problems tend to lose sight of, and therefore influence on, the long run. This is because of their lack of idealism. In a paradoxical way the principled, steadfast ideologue has far greater long-term influence than the practical man concerned with the minutiae of today’s problems.

Avoid politics

Hayek argued that the neoliberal movement should not go into politics where they would become imprisoned in a slow process whose outcome was already determined decades ago. Instead, he argued that they should look for leverage in the world of ideas as a scholar, intellectual, or intellectual entrepreneur.

Focus on the ‘intellectual’

Over the long run, it is a battle of ideas, and it is the intellectual – the journalist, novelist, filmmaker and so on, who translates and transmits the ideas of the scholars to the broader public – who is critically important. He is the filter who decides what we hear, when we hear it, and how we hear it.

Have the courage to be Utopian

Finally, I quote the whole of the last paragraph of ‘The Intellectuals and Socialism’:

The main lesson which the true liberal must learn from the success of the socialists is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote.

Conclusion

To summarise Hayek’s message: Keep liberal thought vibrant and relevant; recognise the importance of history; be principled and steadfast; avoid special interests; eschew politics and instead search for leverage; recognise the critical role of the intellectual; and be Utopian and believe in the power of ideas.

Neoliberal tactics

In this section I highlight some specific tactics employed by the neoliberals. Many are mirrored in Hayek’s writing although others are generated elsewhere. All originate from writings by the neoliberals themselves in Waging the War of Ideas or from the excellent paper Winning Ideas.

Vigilant patience

Graph that illustrates the so-called "Miracle of Chile" As the story goes, the neoliberals focused on waging a long-term intellectual war against socialism. They advise against the kinds of action that might yield gain in the short-term: entering politics, caving to special interests or aligning too closely with successful political parties. Instead, they prefer the slow, steady work of building an intellectual community, carefully developing their ideas and gaining academic consensus. It was only after the hard work had been done that they began to achieve widespread political success.

Yet, the approach was not purely passive. The neoliberals understood that their goal was to ‘have on hand alternatives’ that might be useful if the geopolitical facts demanded a new way forward.

The so-called Miracle of Chile in the 1970s and 80s is illustrative. After a coup in Chile in the early 70s, inflation in the country soared reaching heights of 140 percent per annum under socialist President Salvador Allende. After deposing Allende in a coup, Pinochet turned to the so-called Chicago Boys, who were Chilean Economists that studied under influence neoliberal Milton Friedman at the University of Chicago. The Chicago Boys implemented a number of reforms in accordance with neoliberal principles and were ultimately able to dramatically decrease inflation and poverty rates. When opportunities presented themselves, the neoliberals made sure they took advantage.

Moral narratives and Utopian visions

From the early days, Hayek argued that proponents of liberalism were losing to proponents of socialism because of their ‘courage to be Utopian.’ They wanted to couch their aims in ideals like freedom and liberty and to work to claim the moral high ground. This is as opposed to the usual tendency in academia to focus exclusively on empirical or economic assertions. Indeed, The Road to Serfdom is hardly a work of economics at all. It makes a few empirical claims, but most are not about economic efficiency. Instead, the claims are about the kind of society that would result from socialist planning.

Second-hand traders

Hayek drew a distinction between those who generated novel intellectual content and those who communicate that content to a mass audience (who he also dubbed ‘intellectuals.’) Second-hand traders included journalists, novelists, entrepreneurs, filmmakers and even some academics.

Developing an intellectual community

When distributing their ideas, the neoliberals focused on second-hand traders. Yet, when developing ideas for dissemination they created intellectual communities committed to excellence in scholarship. It is no accident that some of the earliest action of the neoliberal movement were to establish academic communities to improve their ideas.

However, even in the development of an intellectual community, the goal was not simply to be an ‘ivory tower’ -- the group aimed to develop ideas that could have real influence. They were very clear that they were defending liberalism from socialist assault and that the goal of their intellectual communities was to prepare the way for the battles to come.

Additionally, they drew a distinction between the different members of the intellectual community. The number of true originators of ideas is quite small in neoliberal sense. They viewed think tanks, for example, as a particular type of intellectual community:

Their task is not to originate big ideas – either off-the-peg or bespoke – for the benefit of politicians. Rather, it is to apply an existing body of ideas – classical liberal economics in the case of the IEA – to contemporary problems, in order to gain wider understanding of the issues and insights into possible solutions. If they are successful, one consequence will be a change in the wider climate of opinion, which in turn stretches the boundaries of the politically possible.

Having an enemy

The neoliberals had an enemy from the beginning -- socialism. Their goal was to avoid the occurrence of socialist or collectivist societies that they feared would erode human freedom. They made sure to define the values they were promoting and to showcase how their opponents were unable to promote those values. Indeed, it seems difficult to conceptualize the neoliberals without also understanding them as fighting against socialism.

Fostering talent

The neoliberals are intentional about fostering talent, especially academic talent to support their cause.

Yet in the 1940s, free-market ideas had not yet permeated the academy, where the next generation of economists were being taught and examined, were taking up teaching posts, and building up research groups. In an external environment in which free market economists were marginalized from the academic mainstream, they were also unable to recruit the top talent from the younger generation. What was the answer to this impasse? Money and organization. Financial resources were marshalled from interest groups external to the academy and directed to endow chairs in free enterprise across America for the senior intellectuals, and direct support for the incoming generation. The amounts of money were vast, but more to the point they were invested very strategically, so as to focus on the people.

Creating a natural constituency

Finally, the neoliberals were able to foster a natural constituency with the business community. The Chicago school in particular advocated for the relatively harmless nature of monopolies, the positive role of large corporations and worried about the monopoly power of trade unions -- all policies favored by the business community. In the US, business interests were catalyzed by opposition to the New Deal and became significant funders of the neoliberal movement. It seems likely that this was crucial to neoliberal success in the postwar US.

The neoliberals were careful to stay relatively independent of such interests (or so they claim). They made it clear that donations to neoliberal Think Tanks provided no editorial control, and the neoliberals avoided becoming too cozy with any particular political party to avoid the fate of the Fabian Society which founded the Labor Party and thus lost their intellectual independence. Whether they were successful in the endeavor to avoid special interests is not entirely clear.

Cautionary tales

Despite the success of the neoliberal movement they also offer some useful cautionary tales for effective altruists. Below I describe three such lessons.

The role of luck

While the neoliberals were both successful and strategic, it is important not to forget that they were also lucky. Had the geopolitical events played out differently the world might have looked very different. Jones makes the point as follows:

The political, theoretical, and cultural transformation wrought by neoliberal politics after the 1970s brought with it a series of social and economic consequences... [s]uch a radical change in political culture and public debate from social democracy to a market-driven society was not planned or mapped out in advance. Luck, opportunism, and a set of contingent circumstances played the most crucial roles. Above all, it was far from inevitable.

More specifically, a number of events were critical to neoliberal success. If the Labour Party had entered the 1980s with Denis Healey as a moderate leader, or if the Falklands War had not happened, Labour might have recovered to benefit electorally from the deep recession the Conservative economic strategy had induced. If the second oil shock had not struck before the Iranian hostage crisis, Jimmy Carter may not have been unfairly characterized by the sense of “malaise.” Luck and historical contingency played central roles.

Cooption

As noted earlier, the neoliberals engendered a natural constituency by appealing to entrepreneurs and business elites. While the intellectuals made a point of attempting to keep the ideology pure, it seems plausible that the neoliberal state tended to favor this constituency even in cases where doing so was in tension with neoliberal theory.

The clearest example of this is the tension between the deregulation of the financial system and the implicit (and often explicit) guarantee of the integrity and solvency of the financial institutions. As Harvey puts it:

But the habit of intervening in the marketplace and bailing out financial institutions when they get into trouble cannot be reconciled with neoliberal theory. Reckless investments should be punished by losses to the lender, but the state makes lenders largely immune to losses. Borrowers have to pay up instead, no matter what the social cost. Neoliberal thought should warn ‘Lender beware,’ but the practice is ‘Borrower, beware.’

Examples of this practice are easy to find. Internationally, the IMF is designed to protect the world’s main financial institutions from default, yet, what this amounts to is that the IMF covers lenders to unstable countries from default as it has done for the lenders of 41 countries around the world. The US government provided bailouts during the savings and loan crisis of 87-8, the Long Term Capital Management crisis of 97-8, and, most recently, the 2008 financial crisis.

Similarly, there is a strong tension between the neoliberal's proclaimed defense of individual liberty and their support of undemocratic regimes responsible for massive human rights abuses, such as Pinochet's. This support has caused incalculable reputational damage to the neoliberal movement.

Give me liberty or give me death

All of us might miss the consequences of pushing the ideological case too far.

-Geoffrey Howe, interview, 2007.

As I mention above, a centerpiece of the neoliberal strategy was the courage to be utopian. As they saw it, the disagreement between socialists and proponents of free markets was not a question of optimal resource allocation. It was a question of freedom versus serfdom; liberty versus subordination. Taken to the extreme, the view that markets promote freedom and that freedom is the ultimate value entails that the neoliberals are essentially immune from criticism. In some sense it matters not whether markets work because either way, they are the only pathway to promoting human freedom.

The neoliberals were relatively explicit about this view. Two illustrative quotes come from John Blundell. the leader of the influential Institute for Economic Affairs:

Basic to the struggle to promote personal liberty is the task of persuading our fellow men not only that free market allocation of goods and services is economically efficient and wealth-enhancing but also, and much more importantly, that market allocation is morally superior to other methods of exchange. (Waging the War of Ideas)

Or, to put an even finer point on it:

If prosperity correlated highly with socialism I would still be for freedom and so would Antony have been. Freedom is a good in and of itself and the fact that freedom happens to bring prosperity in its wake is a happy bonus.

It may be that Blundell’s absolute belief in the moral superiority of markets is particular to him, although I doubt it. Indeed, the original “statement of aims” of the Mont Pelerin Society is similar in tone to Blundell:

Over large stretches of the Earth’s surface the essential conditions of human dignity and freedom have already disappeared. In others they are under constant menace from the development of current tendencies of policy. The position of the individual and the voluntary group are progressively undermined by extensions of arbitrary power. Even that most precious possession of Western Man, freedom of thought and expression, is threatened by the spread of creeds which, claiming the privilege of tolerance when in the position of a minority, seek only to establish a position of power in which they can suppress and obliterate all views but their own.

The tone in these quotes is perhaps unsurprising given the explicit commitment of the neoliberals to being utopian. However, the utopian fervor was not without its consequences. In Masters of the Universe, Jones makes the following case about the ultimate legacy of neoliberalism:

The apotheosis of the neoliberal faith in markets came with the financial crisis of 2007-8. The crisis was the direct result of a culture that had endowed the free market with a divine status it has never merited.... It was a calamity that graphically illustrated the limits of what the journalist John Cassidy has called “Utopian economics,” the unthinking and uncritical acceptance of the logic of the free market.

The neoliberal faith in free markets opened the door for widespread financial deregulation including the Garn-St. Germain Depository Institutions Act under Reagan, Thatcher’s “Big Bang” deregulation of the City of London, the repeal of Glass-Steagal under Clinton, and the decision not to regulate the emerging derivatives market as suggested by the chair of the Commodity Future Trading Commission.

That neoliberal politics was able to effect so much was indicative of the simple power of a firm faith in markets as the best means of allocating resources. But this commitment to markets was rarely subjected to detailed empirical examination and criticism. The skepticism of mainstream professional economists towards the claims of general equilibrium theory or rational expectations, for example, was largely ignored.... They found it increasingly impossible to think differently about economy and society.

Of course we should not approach the utopian proclamations of the neoliberals or their implication in the 2008 financial crisis uncritically. The neoliberals may well have understood the difference between the Utopian proclamation they made in public and the actual evidence in favor of free market reforms. The fact that many economists associated with the neoliberals won the Nobel Prize in Economics suggests that their project was more than mere proclamations. And, we should look be skeptical at any attempt to explain a widespread and unforeseen financial crisis in terms of a singular policy agenda.

Yet, the basic story -- that utopian narratives are powerful but potentially dangerous-- seems persuasive. When ideas are war, moderation is treason. If the neoliberal movement became divorced from the evidence it would hardly be surprising. Indeed, if we take them entirely at their word, we are faced with the troubling possibility that the beguiling belief in markets and the collapse that resulted is a feature and not a bug of neoliberalism.

Nevertheless, given the epistemic values of the EA community we should see the neoliberals as both a source of inspiration and of caution.