Ordoliberalism and Neoliberalism

Before starting this post I state the obvious, that we live in a neoliberal era. The ideology is all-pervasive. Ordoliberalism has to contend with this reality. Many of the compromises we have to accept are understandable in those terms. Politics is dominated by neoliberal ideas. We see how the EU is itself strongly formed by political ideas of Neoliberalism.

Wikipedia defines neoliberalism in a paradoxical manner, suggesting that it began in the 1930s and revived in the 1970s and 1980s:

Neoliberalism[1] is the resurgence of ideas associated with laissez-faire economic liberalism beginning in the 1970s and 1980s,[2][3][4] whose advocates support extensive economic liberalizationfree trade, and reductions in government spending in order to enhance the role of the private sector in the economy.[5][6][7][8] The usage and definition of the term have changed over time.[7]

Originally neoliberalism was an economic philosophy that emerged among European liberal scholars in the 1930s attempting to trace a so-called ‘Third’ or ‘Middle Way’ between the conflicting philosophies of classical liberalism and collectivist central planning.[9] The impetus for this development arose from a desire to avoid repeating the economic failures of the early 1930s, which were mostly blamed on the economic policy of classical liberalism. In the decades that followed, neoliberal theory tended to be at variance with the more laissez-faire doctrine of classical liberalism and promoted instead a market economy under the guidance and rules of a strong state, a model which came to be known as the social market economy.

This is a very narrow and ahistorical definition of neoliberalism, what one might expect from an internet encyclopaedia entry. There are aspects that I find both worrying and indicative of the extreme form that modern neoliberalism takes. The first concerns the widening gap between the super-rich and the rest of society.

(1) Poverty and economic hardship are increasing in the USA. More and more people are falling into poverty. It has gone so far that this now increasingly includes the middle class, which is declining in size as poverty eats away at its base. The small elite becomes ever smaller, and wealth is more and more concentrated in ownership of the most wealthy. Washington’s Blog has posts directly relevant to this. In January 2015 alone the following five posts covered this:



http://www.washingtonsblog.com/2015/01/poll-people-world-blame-bad-government-policy-runaway-inequality.html http://www.washingtonsblog.com/2015/01/welcome-oligarch-recovery-majority-public-school-students-poverty-first-time-50-years.html



(2) Increased manipulation of markets: I raised this in a post before Christmas: https://ordoliberalism.wordpress.com/2014/12/23/the-mad-world-of-neoliberalism/.

Manipulating markets is increasingly common because (a) the increasing oligopolistic nature of markets makes this possible to do without being caught out. It even does not matter if everyone “knows” that massive rigging is going on: oil and gold are blatant examples, Washington’s Blog adds aluminium, copper, uranium and petroleum, as well as a range of others.

Three posts from Washington’s Blog to illustrate this: http://www.washingtonsblog.com/2014/12/big-banks-conspire-bp-oil-company-manipulate-market.html



and one recent post from a British website: https://hat4uk.wordpress.com/2015/02/03/if-free-markets-were-genuinely-free-theyd-be-in-freefall-or-breaking-free/

David Stockman, who was Director of the Office of Management and Budget in the Reagan administration, has numerous examples of manipulated markets. See for example, http://davidstockmanscontracorner.com/central-banks-have-violated-fundamental-laws-of-finance/http://davidstockmanscontracorner.com/nestles-new-treat-draghis-negative-yield-vortex-draws-in-corporate-bonds/.

The Central European Bank is very powerful, as one might expect from a Germanic organisation, and its manager, Draghi, uses these powers to keep the euro buoyant. See https://hat4uk.wordpress.com/2013/04/29/euroblown-would-you-buy-a-used-car-from-mario-draghi/https://hat4uk.wordpress.com/2012/10/26/draghis-bold-gold-plan/. There are many more such posts in hat4uk.

The conclusion I draw from this is that this form of neoliberalism with its frequent booms and slumps is a particularly extreme form of laissez-faire ideology, that, in a world where the rich get richer and the middle class shrinks as households are thrown into poverty, and where oligopoly has reached such an extreme expression that markets are manipulated in such a way that we no longer have a free market at all. We have politically-steered markets by political oligarchs. This is the exact opposite of laissez-faire, it is the conquest of market economies by the big oligarchs, who increasingly fight each other with market they control or have a large stake in.

This is also the reason why bank crashes are being avoided because shareholders need to be protected. So savers are increasingly becoming liable to cover bank bad debts and so prop up their gambling: the so-called bail-in, rather than bail-out.

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