The End of Neoliberalism and the Rebirth of History

For 40 years, elites in rich and poor countries alike promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. Now that the evidence is in, is it any wonder that trust in elites and confidence in democracy have plummeted?

NEW YORK – At the end of the Cold War, political scientist Francis Fukuyama wrote a celebrated essay called “The End of History?” Communism’s collapse, he argued, would clear the last obstacle separating the entire world from its destiny of liberal democracy and market economies. Many people agreed.

Today, as we face a retreat from the rules-based, liberal global order, with autocratic rulers and demagogues leading countries that contain well over half the world’s population, Fukuyama’s idea seems quaint and naive. But it reinforced the neoliberal economic doctrine that has prevailed for the last 40 years.

The credibility of neoliberalism’s faith in unfettered markets as the surest road to shared prosperity is on life-support these days. And well it should be. The simultaneous waning of confidence in neoliberalism and in democracy is no coincidence or mere correlation. Neoliberalism has undermined democracy for 40 years.

The form of globalization prescribed by neoliberalism left individuals and entire societies unable to control an important part of their own destiny, as Dani Rodrik of Harvard University has explained so clearly, and as I argue in my recent books Globalization and Its Discontents Revisited and People, Power, and Profits. The effects of capital-market liberalization were particularly odious: If a leading presidential candidate in an emerging market lost favor with Wall Street, the banks would pull their money out of the country. Voters then faced a stark choice: Give in to Wall Street or face a severe financial crisis. It was as if Wall Street had more political power than the country’s citizens.

Even in rich countries, ordinary citizens were told, “You can’t pursue the policies you want” – whether adequate social protection, decent wages, progressive taxation, or a well-regulated financial system – “because the country will lose competitiveness, jobs will disappear, and you will suffer.”

In rich and poor countries alike, elites promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. To get there, though, workers would have to accept lower wages, and all citizens would have to accept cutbacks in important government programs.

ps subscription image no tote bag no discount

SUBSCRIBE NOW

Subscribe today and get unlimited access to OnPoint, the Big Picture, the PS archive of more than 14,000 commentaries, and our annual magazine, for less than $2 a week.

SUBSCRIBE

The elites claimed that their promises were based on scientific economic models and “evidence-based research.” Well, after 40 years, the numbers are in: growth has slowed, and the fruits of that growth went overwhelmingly to a very few at the top. As wages stagnated and the stock market soared, income and wealth flowed up, rather than trickling down.

How can wage restraint – to attain or maintain competitiveness – and reduced government programs possibly add up to higher standards of living? Ordinary citizens felt like they had been sold a bill of goods. They were right to feel conned.

We are now experiencing the political consequences of this grand deception: distrust of the elites, of the economic “science” on which neoliberalism was based, and of the money-corrupted political system that made it all possible.

The reality is that, despite its name, the era of neoliberalism was far from liberal. It imposed an intellectual orthodoxy whose guardians were utterly intolerant of dissent. Economists with heterodox views were treated as heretics to be shunned, or at best shunted off to a few isolated institutions. Neoliberalism bore little resemblance to the “open society” that Karl Popper had advocated. As George Soros has emphasized, Popper recognized that our society is a complex, ever-evolving system in which the more we learn, the more our knowledge changes the behavior of the system.

Nowhere was this intolerance greater than in macroeconomics, where the prevailing models ruled out the possibility of a crisis like the one we experienced in 2008. When the impossible happened, it was treated as if it were a 500-year flood – a freak occurrence that no model could have predicted. Even today, advocates of these theories refuse to accept that their belief in self-regulating markets and their dismissal of externalities as either nonexistent or unimportant led to the deregulation that was pivotal in fueling the crisis. The theory continues to survive, with Ptolemaic attempts to make it fit the facts, which attests to the reality that bad ideas, once established, often have a slow death.

If the 2008 financial crisis failed to make us realize that unfettered markets don’t work, the climate crisis certainly should: neoliberalism will literally bring an end to our civilization. But it is also clear that demagogues who would have us turn our back on science and tolerance will only make matters worse.

The only way forward, the only way to save our planet and our civilization, is a rebirth of history. We must revitalize the Enlightenment and recommit to honoring its values of freedom, respect for knowledge, and democracy.

Charles Murray on populism, globalization, “The Bell Curve,” and American politics today

The American Enterprise Institute scholar Charles Murray discusses our current political moment.
Chapter 1 (00:1533:22): Working Class Decline
Chapter 2 (33:2244:36): A Universal Basic Income?
Chapter 3 (44:361:00:45): From Tea Party to Trump
Chapter 4 (1:00:451:10:55): The Bell Curve Revisited
In his second conversation with Bill Kristol, American Enterprise Institute scholar Charles Murray discusses the state of American civic life and how this can help us understand the current political moment. Murray explains how the decline of communities, the effects of immigration, and the growth of anti-trade sentiment have fueled populist impulses in 2016. Kristol and Murray also revisit Murray’s prescient The Bell Curve (1994) and discuss how cognitive ability might affect American life in the future.

How U.S. Banks Took Over the World

A decade ago, they almost brought down the global financial system. Now they rule it.

When two of Europe’s corporate titans sat down to negotiate a merger this year, they called American banks.

Fiat Chrysler Automobiles hired Goldman Sachs Group Inc. as its lead adviser. France’s Renault SA hired a boutique bank stacked with Goldman alumni. In a deal that would reshape Europe’s auto industry, the continental banks that had sustained Fiat and Renault for more than a century were muscled aside by a pair of Wall Street deal makers.

A decade after fueling a crisis that nearly brought down the global financial system, America’s banks are ruling it. They earned 62% of global investment-banking fees last year, up from 53% in 2011, according to Coalition, an industry data provider. Last year, U.S. banks took home $7 of every $10 in merger fees, $6 of every $10 in stock commissions, and $6 of every $10 paid to hold and move corporate cash.

urope’s banks are smaller, less profitable and beating a hasty retreat from Wall Street.

From their central perch in London and with close ties to developing countries, Europe’s banks were primed to benefit as financial services went global. They charged onto Wall Street in the 1990s and pressed their advantage as U.S. banks limped out of the 2008 crisis.

Then, “they handed the whole system on a platter to the Americans,” said Colm Kelleher, the Irish-born former Morgan Stanley executive.

Coming out of the crisis, U.S. banks quickly raised capital and shed risk, unpleasant tasks that Europeans put off. American businesses recovered quickly, and its consumers are eager to borrow and spend. A tax cut in 2018 boosted profits. Interest rates have risen.

Meanwhile in Europe, regional economies are sputtering and borrowing has slowed.

Central bankers have cut interest rates below zero, which leaves banks struggling to eke out a profit on loans. Banking policy in Europe remains fractured, with national and continental regulators pursuing often conflicting agendas.

“It is not our remit to promote national, or even European, champions,” said Andrea Enria, the European Central Bank’s top banking regulator.

Twenty-five years ago, European banks charged into the U.S. They bought storied firms like Donaldson, Lufkin & Jenrette and Wasserstein Perella and dangled big paydays for rainmakers. When Deutsche Bank announced a $10 billion takeover of Bankers Trust in 1998, it promised at least $400 million in bonuses to retain top bankers.

The challenges of merging a conservative European commercial lender and a U.S. derivatives shop gave competitors pause. Goldman’s CEO, Hank Paulson, shared his doubts with a hotel ballroom of his bankers: Deutsche Bank “just signed up for 10 years of pain,” attendees remember him saying.

Henry Paulson is sworn in as Treasury secretary by Supreme Court Chief Justice John Roberts in 2006. Before he headed the Treasury, he ran Goldman Sachs. PHOTO: JIM YOUNG/REUTERS

But in an era of cheap debt and light regulation, the land grab seemed to pay off. Deutsche Bank had a $3 trillion balance sheet in 2007 and that year earned twice as much as Bank of America Corp. in securities-trading. Royal Bank of Scotland was briefly the largest bank in the world, wielding a balance sheet bigger than Britain’s entire economy.

Even the financial crisis looked at first like an opportunity. When Barclays PLC bought Lehman Brothers in a fire sale, it got 10,000 of the firm’s U.S. bankers and few of its bad debts. On Lehman’s Times Square trading floor, the loudspeakers played “God Save The Queen.” Deutsche Bank pounced on Wall Street’s clients.

The high-water mark was in 2011, when global investment-banking fees were roughly split between European and U.S. firms.

The good times didn’t last. A 2012 sovereign-debt crisis across the continent put new pressure on the region’s biggest banks. Economic growth slowed across the continent. Central bankers turned interest rates negative in 2014. German media calls them “Strafzinsen,” translating roughly to “penalty rates.”

UBS slashed 10,000 jobs and cut big parts of its trading operation. Royal Bank of Scotland fired thousands of investment bankers and sold its U.S. retail arm to focus on the U.K. Three-quarters of the Lehman bankers Barclays picked up in 2008 were gone within five years, according to Financial Industry Regulatory Authority records.

Meanwhile, U.S. banks were quietly encroaching on European rivals’ territory. In 2009, JPMorgan completed an acquisition of Cazenove, the U.K. investment bank. Every year since 2014, JPMorgan has generated more investment-banking revenue across Europe than anyone else, according to Dealogic. (The London-listed owner of Peppa Pig, a British cartoon character, hired JPMorgan Cazenove to advise on its sale in August to U.S. toy giant Hasbro Inc. )

As U.S. banks got stronger and their European rivals weakened, client loyalties began to change.

Today’s companies are increasingly global. They make more of their money in the U.S. and have swapped a shareholder register stacked with old-line European families and trusts for the likes of BlackRock Inc. and other U.S. investment giants, where Wall Street banks are better connected. The percentage of U.K. companies’ stock owned by foreigners rose from 16% in 1994 to 53% in 2016, according to government statistics.

Fiat, the Italian car maker that pursued a tie-up with France’s Renault this year, makes two-thirds of its money in the U.S.,  where it owns Chrysler. Its shots are called by John Elkann, the New York-born scion of the family that founded Fiat in 1899.

One of Mr. Elkann’s closest advisers is a Goldman Sachs banker who for the past 15 years has organized a yearly gathering of European billionaire business owners, according to people who have attended. They swap stories, share advice and, more often than not, hire Goldman for deals.

Globalization has cost the Europeans not just on headline-grabbing mergers, but in the everyday business of managing money for clients. Deliveroo, a food-delivery startup based in the U.K., sought to ramp up in Europe and the Middle East. Instead of hiring local banks in each market, it consolidated its money flows with Citigroup , which has local licenses in 98 countries and a global digital platform.

JPMorgan has made a big push to expand transaction banking for European clients. In 2010 it established a new unit of global bankers to pitch day-to-day transaction services to big companies, and later took over dozens of European transaction relationships from RBS.

UBS’s Stamford, Conn., trading floor in 2005. It was able to accommodate 1,400 traders and staff. PHOTO: RICK FRIEDMAN/CORBIS/GETTY IMAGES

Most recently JPMorgan said it is extending its commercial banking business globally, targeting hundreds of midsize businesses across Europe. It has sought to take on a more local flavoring, doing things like sponsoring math-and-science programs for students in France, Germany and Italy.

Last year, Citigroup and JPMorgan were two of the three biggest providers of day-to-day transaction banking globally, along with Britain’s HSBC Holdings PLC, according to Coalition. U.S. banks accounted for 57% of the global transaction-banking revenue pool among the biggest banks in that business, versus 22% for Europeans, Coalition said.

Mark Blyth – Why People Vote for Those Who Work Against Their Best Interests

Mark Blyth’s best seller Austerity: The History of a Dangerous Idea https://amzn.to/2Lcw556 Mark Blyth is a British political scientist from Scotland and a professor of international political economy at Brown University.
37:43
here’s a story when they did the Podesta
email Hawks when they got the Democrats
emails somebody took the data from
WikiLeaks and decided it was called geo
locate the data in other words what were
the place names that the leading
Democrats who are the last part of her
mentor represent all of us remember
right not the elite Republicans what
were the police names that he talked
about and their private communications
and their selection what was the number
one most frequently named place in their
communications can you guess have a
guess Martha Martha’s Vineyard yeah
number two Eastern Southampton then New
York then San Francisco then I think it
was Ellie in DC and the rest of the
country two standard deviations out so
what’s the imaginary of a party this
seeks to represent all if that’s all the
places did they talk about because
that’s where the money is and it’s not
just to castigate the Democrats the
British Labour Party was like this under
blare of the German SPD under shorter
it’s done that’s the left is
systematically failed the people that it
supposedly represents so why should we
be in the least surprised that they
defect and then go to any one at all
that actually says here I know that
everyone’s ignored you for 25 years I at
least hear the fact that you’re crying
and I understand why people’s everyday
experience is very different from a
national average walking out and telling
people that the price of iPods has
fallen which means that really they’ve
got more money than they think at a time
when they can’t afford to send their
kids to college or their kids would be
insane to take on that much debt because
it’s like having a house with no ASSA
it’s just parts on izing and the example
of immigration occupied to that one it’s
very different depending on where you
live
immigration to me is another person from
another interesting country who has a
phd but that’s what it means where I
live right but that’s because I’m in the
top 20% if you’re living in public
housing in France right and those
resources are been finite and those
resources are being cut and you’re the
ones are confronted with incredibly
different cultures coming and not
integrating with you taking the
resources from you at least as you
perceive it and that’s what’s been
narrated by the National Front don’t
expect them not to make end roads
because it gels with everybody’s common
sense regardless of whether we can say
well on average and migrants benefit the
economy no one lives in an average now
the problem here now close with us is
.. prompted the following response I think

the election of Trump has been good for
climate change because it stops the rest
of the world waiting around for America
to solve the problem
so if the gentleman’s and the Chinese
now get together and do technolog
greentech bring it to scale China for
example has installed more solar in the
past few years in the United States has
right if they end up doing that we’re
the suckers because we should have been
leading the investment we’ll be buying
it from them
but in a way if that forces them to do
that and that’s good in a global sense
go for it so does that mean Trump was a
good leader in that regard well that’s a
different question right but it can have
a positive effect so the mark like let’s
not summit all up to you know the one
leader the genius the charisma whatever
the doesn’t that’s not good we are
thinking about it they can’t make a
difference but the key thing is when
they’ve actually got the trust of
everybody who’s who wants them to lead
that’s when societies work better but
when you have leaders who are divisive
who pet people against each other I
never walk so for anybody that’s the
type of populism you want to avoid all