What Jonathan Chait Gets Wrong About Neoliberalism and the Left

Jonathan Chait has recently written a polemic about the popularization of the term ‘neoliberal’ in political discourse. (The title of the article, “How ‘Neoliberalism’ Became the Left’s Favorite Insult of Liberals”, seems ungrammatical, given that ‘neoliberalism’ is a term for a social policy, while ’neoliberal’ is the term for those who espouse it.) Chait’s main claim is that while the term is used to push a false narrative about how the Democratic Party has moved rightward, it is otherwise a relatively empty pejorative for those on the left to wield against conservatives and moderate liberals. This is a not a new complaint – see for example this article in the Blairite mouthpiece Progress. However, before I examine this claim, I’d like to discuss the history of the word, since Chait largely glosses over it.

Chait writes that ‘neoliberal’ was once “the chosen label of a handful of moderately liberal opinion journalists, centered around Charles Peters, then-editor of the Washington Monthly” in the late 1970s and early 1980s. Chait’s failure to mention any other uses of the term over the 20th century suggests that it was Peters who coined the term, but in fact the word has a rich history, dating back to 19th century France, where it was used to describe economist Maffeo Pantaleoni’s endorsement of laissez-faire capitalism and public choice theory. These ideas would be echoed by economists such as Friedrich von Hayek, Ludwig von Mises, and Milton Friedman, who together founded the Mont Pelerin Society in 1947 in an effort to revive the classical liberalism of the 19th century. This is to say that they believed that because individual freedom was best expressed in the marketplace, the only role for the state was to protect markets from external interference, especially by the government. In the Society’s manifesto, they wrote that “The central values of civilization are in danger” due to “a decline in belief in private property and the competitive market”, without which it would be “difficult to imagine a society in which freedom may be effectively preserved.” Notably, this was not just a set of policy prescriptions for economic growth, but instead a normative claim about the centrality of free markets to western values of freedom of expression. Although the Mont Pelerin Society did not yet have a name for this ideology, it would later coalesce under the label of neoliberalism in Friedman’s 1951 essay “Neo-Liberalism and its Prospects”.

The ideals of the Mont Pelerin Society would take root in Chile in 1975, when Augusto Pinochet hired economists known as the “Chicago Boys” to restructure the ailing Chilean economy. The Chicago Boys were so called because they had studied at the University of Chicago School of Economics, where they had studied under Friedman. With his ideology in hand, the Chicago Boys proceeded to work with the International Monetary Fund to make the nation more attractive to foreign investment by privatizing previously nationalized industries as well as social security, allowing the unregulated development of natural resources, and eliminating trade barriers. These policies would be referred to as neoliberalismo by critics, and would later find favor with Anglophone politicians such as Margaret Thatcher and Ronald Reagan. Both appointed Friedman as an economic advisor.

As neoliberalism went from prescription to policy, academics in American and the United Kingdom began to identify its defining traits. For example, David Harvey, in A Brief History of Neoliberalism, defines it as:

a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property right, free markets, and free trade.

Similarly, John Campbell, in The Rise of Neoliberalism and Institutional Analysis, has characterized neoliberalism as:

a heterogeneous set of institutions consisting of various ideas, social and economic policies, and ways of organizing political and economic activity that are quite different from others. Ideally, it includes formal institutions, such as minimalist welfare-state, taxation, and business-regulation programs; flexible labor markets and decentralized capital-labor relations unencumbered by strong unions and collective bargaining; and the absence of barriers to international capital mobility. It includes institutionalized normative principles favoring free-market solutions to economic problems, rather than bargaining or indicative planning, and a dedication to controlling inflation even at the expense of full employment. (Full disclosure: Campbell was a professor of mine at Dartmouth.)

In their research, Harvey and Campbell demonstrate that adoption of neoliberal policies strongly correlates with increased income inequality and the “restoration or reconstruction of the power of economic elites”. Thus, Chait is wrong to suggest that ’neoliberal’ is nothing but an emotive insult – it refers to a specific normative vision of the world and its attendant fiscal and social policies, and left-wing discontent is directed directly at its pernicious effects.

Chait criticizes those who use the word for suggesting that neoliberalism is “the source of all the ills suffered by the Democratic Party and progressive politics over four decades, up to and (especially) including the rise of Donald Trump” and for charging self-proclaimed liberals (such as himself) with “betraying the historic liberal cause.” Those on the left, claims Chait, believe that:

from the New Deal through the Great Society, the Democratic Party espoused a set of values defined by, or at the very least consistent with, social democracy or socialism. Then, starting in the 1970s, a coterie of neoliberal elites hijacked the party and redirected its course toward a brand of social liberalism targeted to elites and hostile to the interests of the poor and the working class. 

But, Chait counters, the Democratic Party has not moved to the right at all. As evidence, he marshals research by Keith Poole and Howard Rosenthal that has tracked the policies of Republicans and Democrats in Congress since the late nineteenth century. Pointing to the chart below, Chart argues that the Democratic Party has actually moved to the left, thus disproving the vile left-wing accusation that Clinton-Obama liberals have in any way turned away from the progressivism of FDR.

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Except it’s not so simple, for Poole and Rosenthal themselves have cautioned against the exact sort of glib conclusions that Chait draws from their work (2). First, they note that because definitions of ‘liberal’ and ‘conservative’ change over time, it is difficult to capture changes in policy and ideology in a single variable, especially when it comes to Democratic politicians, since “the Democratic agenda has shifted away from general social welfare to policies that target ascriptive identities of race, ethnicity, gender, and sexual orientation”. Second, they explain that most of the leftward trend in the above chart can be attributed to the exodus of conservative Southern Democrats from the party after the passage of the Civil Rights Act of 1964. Third, they explicitly state that

Our findings do not, however, suggest that the Democrats continue to support policies that would reduce inequality as much as they did in the New Deal. After all, nineteenth-century Democrats, centered on populist southern whites, supported railroad regulation and antitrust legislation, and in this sense were to the economic left of current Democrats. The Democratic party pushed through the financial regulation of the 1930s, while the Democratic party of the 1990s undid much of this legislation in its embrace of unregulated  financial capitalism, including the Interstate Banking and Branching Efficiency Act of 1993, which eliminated previous restrictions on interstate banking and branching; the Gramm–Leach–Bliley Act of 1999, which repealed the 1933 Glass–Steagall Act that had separated commercial banking from other financial services; and the Commodity Futures Modernization Act of 2000, which prevented the Commodity Futures Trading Commission from regulating most over-the-counter derivative contracts, including credit default swaps.

This list of misdeeds only covers the Clinton era, but we might add that Obama oversaw the extension of the Bush-era tax cuts, chose not to push for single-payer healthcare despite a Democratic majority in Congress, failed to support the Employee Free Choice Act, put forth an enormously inadequate stimulus package (with the help of Larry Summers and Tim Geithner), and approved Eric Holder’s decision not to prosecute the perpetrators of the Great Recession – indeed, he called them to the White House and told them that “My administration is the only thing between you and the pitchforks.”

Overall, the takeaway is that Poole and Rosenthal’s research is not only completely compatible with the conclusion that Bill Clinton and Barack Obama were neoliberal figures who pitched the Democratic Party to the right – rather, it supports this conclusion. Furthermore, other academics have drawn the same conclusions from their research. For example, Yale political scientist Ian Shapiro has written that, “It is scarcely surprising, in light of McCarty, Poole, and Rosenthal’s account, that the New Democrats in the United States and New Labour in the UK adopted strongly pro-business and ‘neoliberal’ economic policies in the 1990s that had been anathema to their predecessors as recently as the 1970s and 1980s.” Thus, this closer examination of Rosenthal & Poole’s own research squarely deflates Chait’s argument that the Democratic Party has not moved rightward on economic issues in recent years.

To be fair, Chait does acknowledge that “the Poole-Rosenthal measure does not end the discussion”. However, he goes on to charge leftists with taking a rosy but historically inaccurate view of Democratic policy from Roosevelt to Kennedy. Roosevelt, he notes, was criticized for being too cozy with business, Kennedy lowered income taxes for the rich, and LBJ reduced public spending. Even Medicare, that “shining example of health-care policy”, Chait notes, ceded ground to private hospitals and insurers. However, I don’t think that anyone of the left is holding any of these figures as paragons of social progress who ought to be emulated by future politicians. They acknowledge that many steps forward, like the New Deal and the Great Society, have been sullied by corporate interests and political tepidity. Moreover, acknowledging such programs as largely good is compatible with seeing other options as even better. The New Deal was a step forward, but it was a missed opportunity to pursue bank nationalization. Medicare is a fine program, but universal single-payer healthcare would be superior. When leftists accuse New Democrats like Obama and both Clintons of being neoliberals, the criticism is essentially that instead of building on the progress of liberals like FDR, they retreated and ceded ground to corporate interests.

The point that leftists wish to make by pointing to these past achievements while still looking to the future is that the Democratic Party can build on these past achievements, and that its rightward bent need not continue. Instead of retreating toward neoliberalism, we can treat programs like the New Deal as stepping stones toward a more equitable and just society.