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Friday, November 17, 2006

# Posted 5:39 AM by Patrick Porter  

QUESTION FOR ECONOMIST READERS: Economist Milton Friedman has just died.

It raises a question I've had for a while: What is the difference between 'neo-liberalism' and traditional economic liberalism of the Adam Smith kind?

Is 'neo' just tacked on as a 'shudder' word, to depict people with those opinions as somehow sinister? Or is there a substantive difference?
(10) opinions -- Add your opinion

Comments:
I reckon the easiest way to approach this question is through historical analysis. Traditional liberal economic theory, also known as classical economics, came straight from Smith and was amended to include the support of free trade by Ricardo. It entails a belief that markets function and bring us to optimal, ie efficient, outcomes. The Great Depression proved, along the lines of Keynes´ famous dictum, that yes, the markets may work in the long run, but in the long run, we´re dead.

This, along with the advances in behavioral economics, are what bring the neo. Neoliberals still believe that markets function most efficiently, that governments ought to do as little as possible once they have ensured a climate ripe for functioning markets, and that trade is societally beneficial -- but they´re increasingly willing to admit reservations. Their vehemence in supporting laissez-faire and free market policies stems not from an ideological blindness to their system´s shortcomings, but rather from a recognition that the temptation to meddle with the market for political reasons is too great, and that thus it is better to err on the side of ´´don´t touch it, it works´´ than it is to admit deficiencies.

DT
 
cool, thanks!

Patrick
 
"The Great Depression proved..": surely what it proves depends largely on what you think caused it?
 
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Liberalism is a philosphy that is more than Adam Smith, it also includes Locke, Kant, and other notables in political philosphy. It is one that holds democracy and civil rights at its core. Our founding was a liberal founding, and today [American] Conservatives and Liberals are both liberals in that sense. Neoliberalism adds to this the idea of distrubitive justice and the work of Rawls. Neoliberalists believe that in order to have civil rights and democracy, a society needs to make sure everyone is able to work on an even playing ground that compensates for condidtions that are beyond an indiviuals control (for example being born into a poor household).
 
Dear Robert,

my reason for asking is that I've heard friends on the European left refer to 'neoliberal' as a kind of reversion to laissez-faire economics and minimum state, privatisation, etc. So it seems to be used differently, just as the word 'liberal' has different shadings in North America and Europe and elsewhere. Or not?

Patrick
 
Neo-liberal is a term rarely used in the USA.

In Europe I think the term is popular because it sounds so much like neo-conservative and implies a sort of bastard brotherhood to it. Just as neo-conservatism purports to have brought conservatism up to date, so neo-liberalism purports to have taken the best elements of liberalism and added modern wisdom. But, of course, we know all this is rubbish. The only proper ideas come out of the socialist tradition--and to the extent that the "neos" keep old lies like the moral superiority of capitalism, they are dangerous and wrong.

The only times I've heard "neo-liberalism" used in the USA was by Charles Peters and his colleagues. Peters was the longtime editor of the Washington Monthly. He tried to develop a strategy for the Democratic Party with that name. It involved a decreased reliance on unions, and a concern less with the size of government than with how well it worked.
 
It's funny you should ask, because I just came across a very succint discussion of this; but it was in a paper on an unrelated subject, so I'm not sure where it is filed.

Would it be too simple to say that classical liberal economics pre-dated Keynes and 'traditional' neo-liberal economics came after him?

...
 
In Latin America, 'neoliberal' is usually used to refer to a post-Keynes (and post- or anti-socialist) return to support for free market policies and the sort of structural reforms (often cuts in social services) that are supposed to hold down inflation and increase the stability of currencies. Its implications are much more economic than political - in the 1970s, Pinochet was seen as an early embracer of neoliberalism (which then became more widespread a decade or so later).
 
Noting that (1) neoliberal as used outside the US is label allocated to people, it is not one that folk usually themselves embrace, with exceptions for irony, politeness, etc

(2) The definitions offered even in this short thread are not exactly compatible, even beyond the different US and non-US meanings

and (3) economic liberals were always able to admit exceptions to market efficiency, otherwise they would have advocated the abolition of government, which clearly they didn't.

I remain deeply sceptical about the analytical utility of the term
 
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