Neo – what?
A brief look at the policy of neoliberalism
An unfamiliar term to most of us, but could be of utmost importance. An article in The Guardian starts as follows:
Imagine if the people of the Soviet Union had never heard of communism. The ideology that dominates our lives has, for most of us, no name. Mention it in conversation and you’ll be rewarded with a shrug. Even if your listeners have heard the term before, they will struggle to define it. Neoliberalism: do you know what it is?
The amorphous term is neoliberalism. Let me turn to an expert for help with the definition:
Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices.
All forms of social solidarity were to be dissolved in favour of individualism, private property, personal responsibility, and family values.
The basis of neoliberalism sounds praiseworthy. The individual is given apparent priority over the general society. But,
The freedom that neoliberalism offers, which sounds so beguiling when expressed in general terms, turns out to mean freedom for the pike, not for the minnows.
Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.”
The concept is nebulous and, at least for me, is best used in generalizations. Few like to be labeled neoliberalists as the term is usually used pejoratively.
Neoliberal policies were instituted first in the U.S. under Jimmy Carter (Jim Callaghan in Great Britain). The labels “right” or “left”, Democratic or Republican, do not apply in the analysis of neoliberalism. The heroes of the movement actually were Ronald Reagan and Margaret Thatcher. Reagan’s crushing of the air traffic controller strike is a prime example of neoliberalism. Another example might be George W. Bush’s strategy for the establishment of the new Iraqi government. As we know, that did not work out too well.
The governing concept was developed in the ‘50s. The adherents, which included former Federal Reserve president Milton Friedman, use the term ‘liberals’ (in the traditional European sense) because of their fundamental commitment to ideals of personal freedom. The neoliberal label signaled their adherence to those free market principles of neoclassical economics. I find it helpful to think of libertarian, as opposed to liberal principles, when thinking of the theory.
I first heard a warning against neoliberalism in Noam Chomsky’s movie “Requiem for the American Dream” and The Guardian article mentioned above. The term neoliberalism again showed up on my radar screen upon reading John Cobb’s prophetic 1992 book Sustaining the Common Good. Cobb is a noted theologian, and besides having great initials, is known for still teaching at age 92! He argued against both neoliberalism and free trade maintaining they destroyed community and required continued growth in the economy to succeed. Growth can only be supported long-term by use of nonrenewable natural resources and technology. Cobb continues to ask how long can technological advances “cover” the drawdown of nonrenewable resources.
As mentioned, neoliberalism is blamed for the stalled economic growth of the middle class. Consider the following graph:
The top blue line represents the percentage of wealth held by those of us in the bottom 90% of wealth. The red line represents the wealth held by the very top 0.1%. The graph is a stunning picture of US inequality. The top 0.1% now own as much as the bottom 90%.
Need for Virtue
As said, neoliberalism sounds honorable. But run by the elite, the scales do not tip to the majority’s benefit. In my blog The Golden Triangle, I summarized Os Guinness’ book A Free People’s Suicide. I believe some of his observations are very applicable. He writes,
Unfettered freedom could prove to be the Achilles’ heel of the modern world, dissipating into license, triviality, corruption and a grand undermining of all authority….
For at the heart of freedom lies a grand paradox: the greatest enemy of freedom is freedom.
Guinness makes the case that the Founding Fathers thought a Golden Triangle was necessary for the country to survive.
Without virtue you cannot have true freedom. Does neoliberalism ignore this important fact?
The Rise of Trump
In his wonderful memoir Hillbilly Elegy, JD Vance writes of the importance of his grandmother (known as Mamaw) in his life as he grew up in the rustbelt of Ohio. He writes,
Mamaw always had two gods: Jesus Christ and the United States of America.
If Mamaw’s second God was the United States of America, then many people in my community were losing something akin to a religion. The tie that bound them to their neighbors, that inspired them in the way my patriotism had always inspired me, had seemingly vanished.
We know we’re not doing well. We see it every day: in the obituaries for teenage kids that conspicuously omit the cause of death (reading between the lines: overdose), in the deadbeats we watch our daughters waste their time with.
The Pew Economic Mobility Project studied how Americans evaluated their chances at economic betterment, and what they found was shocking. There is no group of Americans more pessimistic than working-class whites. Well over half of blacks, Latinos, and college-educated whites expect that their children will fare better economically than they have. Among working-class whites, only 44 percent share that expectation. Even more surprising, 42 percent of working-class whites—by far the highest number in the survey—report that their lives are less economically successful than those of their parents’. 
From Vance’s observation and the income inequality graph, it is not hard to see the attraction of a Bernie Sanders or Donald Trump. Trump carries an appeal to the “common” man, even if he himself is wealthy. He does not appear to promote neoliberalism policies, but Hillary Clinton carried an unspoken promise that they would continue.
Maybe the words of noted bond trader Jeffery Gundlach, in speaking of Brexit (which is widely felt to have a lot of populist attributes in common with the Trump election) are worthwhile. He said many people did not understand the vote because they had never been divorced. He recounted during the breakup of his own marriage he thought, “I don’t know what life will look like on the other side of this valley, but I don’t really care. I can’t go on with this.”
If you mix your politics with your investment decisions, you’re making a big mistake.
– Warren Buffett, February 27th, 2017
These indeed are interesting times. What does this mean from a financial standpoint? Anatole Kaletsky labels the change Capitalism 4.0-the fourth time the capitalist system has reinvented itself. Change is uncomfortable, but history has proven it is worthwhile. An estimated 40% of US jobs are projected to be lost to robotics. As big an issue to our nation as that seems, China’s problems may be more insurmountable. China is the largest user of robotics, but needs to keep one billion workers happy.
These indeed are interesting times. A case can be made that “America will be great again.” But as noted analyst Stephanie Pomboy wrote, “While investors are casting an eye across the valley to the bucolic landscape on the other side, we do have to travel the terrain in between. And it’s guaranteed to be a bumpy ride.”
- We think it is a time to remain conservative.
- We think it is a time to expect volatility.
- We think it is a time to monitor our portfolios closely.
These indeed are interesting times and we stand ready to discuss your portfolio.
 Harvey, David. A Brief History of Neoliberalism, OUP Oxford. Kindle Edition.
 George Monbiot
 Guinness, Os, A Free People’s Suicide: Sustainable Freedom and the American Future
 Vance, J. D.. Hillbilly Elegy: A Memoir of a Family and Culture in Crisis (pp. 194-196). HarperCollins. Kindle Edition.
 Gundlach, Jeffrey, Real Vision Interview, August 19, 2016
 Malmgren, Pippa, RealVisionTV interview (accessed 3/7/2017)
 Eddy, R.P., RealVisionTV interview, (accessed 2/17/2017)
 Malmgren ibid.
 Pomboy, Stephanie, https://www.realvision.com/publications/p/macromavens/i/the-day-everything-changed, (accessed 1/31/2017)