Wednesday, January 23, 2013

The Neoliberal Revolution

by Scott Sumner


February 2013

The 20th century saw two great economic revolutions: socialism and neoliberalism.

Socialist ideas were already floating around the democratic West in the early 1900s, but they gained much greater popularity after the Great Depression, which was widely seen as a failure of capitalism. One part of this shift entailed a greater role for the government in regulating or owning business enterprises. The second part involved a major expansion of social insurance programs.

Beginning in the late 1970s, there was a backlash against excessive government intervention in the economy. This neoliberal revolution involved privatization, deregulation, and cuts in marginal tax rates, but it left most social insurance programs in place.

Daniel Stedman Jones, an independent historian (and barrister) in London, has written a balanced and informative study of neoliberal thinkers such as F.A. Hayek and Milton Friedman, exploring their impact on policy making, particularly during Margaret Thatcher’s administration in the United Kingdom and Ronald Reagan’s in the United States. Jones suggests a policy revolution that began in the 1970s drew on 30 years of neoliberal research and advocacy, partly financed by businessmen hostile to Franklin Roosevelt’s New Deal policies. Although Jones is skeptical of the more radical elements of neoliberalism, he is mostly respectful of the major neoliberal figures, despite the fact that his own politics are clearly left of center.