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Neoliberalism fails because of what economists call "the theory of the second best". Neoliberalism fundamentally assumes that the best practical system is as cl

by wisty 2y ago

Neoliberalism fails because of what economists call "the theory of the second best". Neoliberalism fundamentally assumes that the best practical system is as close as possible to an ideal free market, but it's not, due to local minima (often ones we've already found!) often being better. The best system is a free market, if possible. But the second best system may not be close to the best system, it may be a local minima that is very different. A classic example is that small companies and no unions is theoretically best, but monopoly unions vs monopoly companies is the second best (since there's no single monopoly, so they negotiate something close to the theoretical ideal). Free markets are best, but if the government is going to heavily subsidise and regulate the power companies (as they are natural monoplolies, so they either get regulated or they abuse their position) then maybe it's best to just cut out the middle man.

mindslight 2y ago
You're still assuming that free markets will find the global optimum, which is equivalent to asserting P=NP and shrouding it in no true Scotsman.
- Arrath 2y ago
  Isn't part of the problem assuming that there is a single global optimum? It seems there are at least two, such as in the case of utilities: best services or best profits for the shareholders. Again in the case of utilities we see time and again that these are mutually exclusive optimums as a privatized utility makes cuts to investment, build out, maintenance, customer service, or other aspects of the business in the goals of increasing profits, to the detriment of the quality of their service.
  - hgomersall 2y ago
    It's hard to argue that as a society we should construct systems that have any goal that isn't optimising (in this example) services. If that aligns with maximising profits for shareholders, then great, if not then the system is not working as it needs to. IMO it's never really about free markets per se, but about competition. If the market is not delivering effective competition, then it should be made to do so. Competition is what aligns shareholder interest with customer interest.
  - mindslight 2y ago
    Yes, although usually when people are making these arguments they're imagining optimization across different entities and through time (relative to foreseeable events / probabilities). It then becomes much easier to write off conflicting higher-level subjective goals as not being actually valued in some imagined universal sense. The fallacy is rejecting the stickiness of human-made structure, even though that structure is all around us.
forgetfreeman 2y ago
I think it's very important to define who's being optimally served when declaring a market ideology "best". Free markets are demonstrably better at servicing capital, but I'm pretty sure that doesn't equate to optimum outcomes for the proletariat (why isn't there a better word for this, I can just see the redbaiting coming from a mile away).
- walthamstow 2y ago
  FDR's VP Henry Wallace used the term 'the common man' which I always liked.
- AnthonyMouse 2y ago
  > Free markets are demonstrably better at servicing capital This premise is highly questionable. Certainly for competitive markets it's entirely false. Uncompetitive markets suffer largely the same failure mode as government bureaucracies, but it's not even clear that this is actually worse, because government bureaucracies are susceptible to not only charging bloated service fees for mediocre service, they can also be captured into diverting tax dollars to private cronies. Just because the government owns the real estate doesn't mean it's manufacturing its own trucks and networking equipment and copy machines, but as soon as it isn't, it's buying that stuff from the market and you need a competitive market or you're still screwed. So what it comes down to is, you need a competitive market.
  - forgetfreeman 2y ago
    If you find that premise highly questionable produce a cogent explanation for why real wages have been flat as a fucking strap for the last 40 years despite massive gains to GDP. Once you've cleared that hurdle your next task is justifying the current massively skewed (and worsening) income distribution in the US. Clear that bar and all that's left is justifying private equity eating everything from fast food franchises to the healthcare system. Apologists love to complain that <insert problematic market outcome> isn't the product of a true market but that dog doesn't hunt. We have the economic system we have. We call it capitalism. It produces the above mentioned (and countless other) excerable outcomes. No excuses.
hgomersall 2y ago
It fails fundamentally because the underlying economic theory is built on a sink hole and constructed from cheese. There's pretty much no relation between the models that espouse neoliberal policies and reality, except those bits that were too egregious to ignore so were patched in as afterthoughts.
AnthonyMouse 2y ago
> A classic example is that small companies and no unions is theoretically best, but monopoly unions vs monopoly companies is the second best (since there's no single monopoly, so they negotiate something close to the theoretical ideal). This is a pretty bad example because monopoly unions vs. monopoly companies is extraordinarily bad to the point of being a plausible worst case scenario. The company is then free to run roughshod over its customers and suppliers and use its resources to capture the government and the union not only does nothing to prevent this but actually encourages it because then they can extract more of the monopoly rents for themselves. Then the normal tendency for the public to demand antitrust enforcement when met with an abusive monopolist is blunted by the union's support for the monopoly and prevents the monopoly from being toppled.

by wisty 2y ago

mindslight 2y ago

You're still assuming that free markets will find the global optimum, which is equivalent to asserting P=NP and shrouding it in no true Scotsman.

Arrath 2y ago
Isn't part of the problem assuming that there is a single global optimum? It seems there are at least two, such as in the case of utilities: best services or best profits for the shareholders. Again in the case of utilities we see time and again that these are mutually exclusive optimums as a privatized utility makes cuts to investment, build out, maintenance, customer service, or other aspects of the business in the goals of increasing profits, to the detriment of the quality of their service.
- hgomersall 2y ago
  It's hard to argue that as a society we should construct systems that have any goal that isn't optimising (in this example) services. If that aligns with maximising profits for shareholders, then great, if not then the system is not working as it needs to. IMO it's never really about free markets per se, but about competition. If the market is not delivering effective competition, then it should be made to do so. Competition is what aligns shareholder interest with customer interest.
- mindslight 2y ago
  Yes, although usually when people are making these arguments they're imagining optimization across different entities and through time (relative to foreseeable events / probabilities). It then becomes much easier to write off conflicting higher-level subjective goals as not being actually valued in some imagined universal sense. The fallacy is rejecting the stickiness of human-made structure, even though that structure is all around us.

forgetfreeman 2y ago

I think it's very important to define who's being optimally served when declaring a market ideology "best". Free markets are demonstrably better at servicing capital, but I'm pretty sure that doesn't equate to optimum outcomes for the proletariat (why isn't there a better word for this, I can just see the redbaiting coming from a mile away).

walthamstow 2y ago
FDR's VP Henry Wallace used the term 'the common man' which I always liked.
AnthonyMouse 2y ago
> Free markets are demonstrably better at servicing capital This premise is highly questionable. Certainly for competitive markets it's entirely false. Uncompetitive markets suffer largely the same failure mode as government bureaucracies, but it's not even clear that this is actually worse, because government bureaucracies are susceptible to not only charging bloated service fees for mediocre service, they can also be captured into diverting tax dollars to private cronies. Just because the government owns the real estate doesn't mean it's manufacturing its own trucks and networking equipment and copy machines, but as soon as it isn't, it's buying that stuff from the market and you need a competitive market or you're still screwed. So what it comes down to is, you need a competitive market.
- forgetfreeman 2y ago
  If you find that premise highly questionable produce a cogent explanation for why real wages have been flat as a fucking strap for the last 40 years despite massive gains to GDP. Once you've cleared that hurdle your next task is justifying the current massively skewed (and worsening) income distribution in the US. Clear that bar and all that's left is justifying private equity eating everything from fast food franchises to the healthcare system. Apologists love to complain that <insert problematic market outcome> isn't the product of a true market but that dog doesn't hunt. We have the economic system we have. We call it capitalism. It produces the above mentioned (and countless other) excerable outcomes. No excuses.

hgomersall 2y ago

It fails fundamentally because the underlying economic theory is built on a sink hole and constructed from cheese. There's pretty much no relation between the models that espouse neoliberal policies and reality, except those bits that were too egregious to ignore so were patched in as afterthoughts.

AnthonyMouse 2y ago

> A classic example is that small companies and no unions is theoretically best, but monopoly unions vs monopoly companies is the second best (since there's no single monopoly, so they negotiate something close to the theoretical ideal). This is a pretty bad example because monopoly unions vs. monopoly companies is extraordinarily bad to the point of being a plausible worst case scenario. The company is then free to run roughshod over its customers and suppliers and use its resources to capture the government and the union not only does nothing to prevent this but actually encourages it because then they can extract more of the monopoly rents for themselves. Then the normal tendency for the public to demand antitrust enforcement when met with an abusive monopolist is blunted by the union's support for the monopoly and prevents the monopoly from being toppled.