The Case for a Reformed Neoliberalism

For many the financial crisis illuminated neoliberal’s fatal flaw – growth was built rising private debt, a pathology dubbed ‘privatized Keynesianism’. When the debt bubble burst, consumption and output collapsed. Barring radical restructuring, the argument goes, the Anglo-American economies will either stagnate from austerity or reflate a new bubble economy destined to burst once again. This paper contests this position. The evidence for debt-driven growth is not as compelling as it is generally portrayed, a disease more of the years immediately preceding the crash than the neoliberal era as a whole. Second, neoliberal economies are painted as macroeconomic underperformers when a fairer assessment is that they have experience periods of robust growth punctuated by downturns eroding the growth achieved during expansions – a two steps forward, one step back pattern. Neoliberalism is not an exhausted growth model, but one in need of reform.  The problems of neoliberalism that must counter are: (1) the tendency of deregulated financial markets to produce excessive credit; (2) widening income inequality, especially as higher in the financial sector returns accumulate to those at the top; and (3) a more recent trend for productivity and wages to become decoupled. This paper will explore policies to correct or ameliorate these problems (e.g., macroprudential financial regulation).  Reform rather than radical restructuring is more likely to produce a positive growth cycle at a lower cost in terms of economic and social disruption.