Neoliberalism's confusion

Stiglitz claimed recently that “neoliberalism has failed.” More accurately, neoliberalism has long suffered from confusion about its origin.

Neoliberalism depends on, and exists because of, beneficial regulation. When it fails, it fails for lack of regulatory authority.

More generally, “free” markets are a structured game whose playing field is defined by government. Even property ownership is a regulatory construct, a form of monopoly sanctioned by government. This sanction has been stable for so long that Americans forget it can exist only within a regulatory structure.

For a dramatic illustration, consider the difference in the fortunes of California and Baja California. The latter fails for lack of a regulatory structure (mainly property rights, environmental law and public safety).

Neoliberalism comes under fire today mainly because of global trading imbalances. That makes sense, because when the global trading system fails, it fails for lack of regulatory authority to normalize across national borders: labor laws, exchange rates, etc.

Despite all that, for the time being, America would be better served to focus on fixing its own manifold internal problems, rather than complain about China’s trade advantages (whether fair or unfair). For example, the U.S. government’s fiscal deficit is a big problem, within our own power to fix, and not China’s fault. The promotion of consumption over production — which is now as much cultural as governmental — is also within our power to fix, and not China’s fault.

This might all be considered a special case of America’s current problem with scapegoating.

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