Friday, September 17, 2010

Neoliberalism's One-Two Punch

How is it that the founders of two seemingly diametrically opposed schools of economic thought co-founded the neoliberal movement?  Economics, more properly political economy, is really a political science, after all, so if their economics reflect their politics, doesn't that mean that their politics are diametrically opposed?

Only if you believe that each school's economics reflect its true politics.  In the case of the founders of the Chicago School, that isn't the case.

Neoliberalism was founded by Hayek, Mises, Friedman and others as a multi-generational strategy to effectively eliminate public control of democratic governments in order to ensure governments would not interfere with the banks' creation and manipulation of boom bust cycles to their advantage.  The end game is and always was to have a return of laissez-faire boom-bust cycle without governments stepping in to help their citizens during busts.  As discussed previously, the neoliberals believed that classical liberalism had failed because it framed the goal of good governments and good economics as to promote the common good.  Neoliberals removed the concept of the common good from their reforumulation of liberalism, recasting the concept of the market itself as an all-knowing, all-seeing god that could not be interfered without dire consequences.

Given that socialism and Keynesianism were responses to the great damage produced by laissez-faire economics had produced, there was no way to return directly to it in the form of the Austrian School of ecnomics.  The Chicago School of economics was therefore created to provide an incremental move away from Keynesianism economically and an incremental move towards neoliberalism politically.  The Chicago School exists to prove once and for all that government intervention into the money supply and the economy can never work and will always lead to disaster (but not until after eliminating the gains the common people reaped due to government intervention).  Once the Chicago School's economics do their work and flame out spectaculary into a truly Great Depression, the answer will be and must be the Austrian School's economics.  After all, we know from Milton Friedman's revisionist history that the Great Depression was caused by the "government" interference of the Federal Reserve, so what's left but to bend over for the all-knowing god of the market and hold your ankles (and never mind that man behind the curtain).

And the neoliberals will label Chicago School economics as "Keynesian."  In fact, they already are.

That's my theory at least.