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dippin · 03-13-2009, 01:28 AM

As someone who has used "neoliberal" as part of titles of more than a couple of articles and conference presentations, I think I can chime in here.

Liberal in the contemporary American political jargon refers to social liberals who are typically associated with the left and the democratic party. But in the more traditional sense, liberalism refers to what many Americans call "classic liberalism" nowadays: economic liberalism based on free markets and such.

Now, why is it NEOliberalism?

From the late 19th century until the great depression, the world was very "liberal" in terms of its economics. "Free" trade was the norm (international trade as a share of the world economy reached a peak prior to 1930 that was only achieved again about 10 years ago), most basic industries and services were privately owned and operated, the welfare state was small or non existant, and monetary policy was wholly determined by the gold standard.

With the great depression and WWII, most Western nations were part of the Bretton Woods accords. These accords created the IMF and the World Bank, which were very different at their inception than what they are today. Instead of exchange rates being determined by market forces through the gold standard, exchange rates were fixed. To control them, countries could implement capital controls, that is, controls that prevented or allowed foreign money from entering and leaving a nation. On top of this, provisions were made to allow nations to use expansionist monetary policies to fight recessions and such.

On top of this, many nations also instituted higher trade tariffs. Following WWII many basic services were either nationalized, or, in case they were created by the state in the first place, not privatized. Welfare states expanded.

Starting in the 70s, with Nixon, then the OPEC oil embargo, stagflation, and so on, many of these things started to come apart. Hence the NEO part of neoliberalism.
Nations were strapped for funds, and privatized industries. In some places (but less than generally thought), welfare programs were reduced.

Most importantly, however, was the end of the Bretton Woods system of fixed exchange rates. Currencies began being traded in the open market, with exchange rates set that way. Most nations did away with capital controls. In order to fight stagflation, monetary policy was contractionary. Deregulation soon followed.

In the end, neoliberalism represented the belief that the solution to market imperfections as they existed before was more markets being created. The solution to uncertainty regarding future exchange rates was not fixed exchange rates anymore, but buying and selling options contracts. The solution to uncertainties regarding crops and harvest was not government intervention to assuage supply crises, but insurance markets and premium markets. The solution to financial institutions going broke was not increased govt. intervention through the FDIC, but insurance and derivative markets where companies could insure themselves against risk. In short, the belief was that, as long as markets were complete, stability would ensue.

That is how the derivatives market grew to be so enormous.

03-13-2009, 01:28 AM	#12 (permalink)
dippin Crazy, indeed Location: the ether	As someone who has used "neoliberal" as part of titles of more than a couple of articles and conference presentations, I think I can chime in here. Liberal in the contemporary American political jargon refers to social liberals who are typically associated with the left and the democratic party. But in the more traditional sense, liberalism refers to what many Americans call "classic liberalism" nowadays: economic liberalism based on free markets and such. Now, why is it NEOliberalism? From the late 19th century until the great depression, the world was very "liberal" in terms of its economics. "Free" trade was the norm (international trade as a share of the world economy reached a peak prior to 1930 that was only achieved again about 10 years ago), most basic industries and services were privately owned and operated, the welfare state was small or non existant, and monetary policy was wholly determined by the gold standard. With the great depression and WWII, most Western nations were part of the Bretton Woods accords. These accords created the IMF and the World Bank, which were very different at their inception than what they are today. Instead of exchange rates being determined by market forces through the gold standard, exchange rates were fixed. To control them, countries could implement capital controls, that is, controls that prevented or allowed foreign money from entering and leaving a nation. On top of this, provisions were made to allow nations to use expansionist monetary policies to fight recessions and such. On top of this, many nations also instituted higher trade tariffs. Following WWII many basic services were either nationalized, or, in case they were created by the state in the first place, not privatized. Welfare states expanded. Starting in the 70s, with Nixon, then the OPEC oil embargo, stagflation, and so on, many of these things started to come apart. Hence the NEO part of neoliberalism. Nations were strapped for funds, and privatized industries. In some places (but less than generally thought), welfare programs were reduced. Most importantly, however, was the end of the Bretton Woods system of fixed exchange rates. Currencies began being traded in the open market, with exchange rates set that way. Most nations did away with capital controls. In order to fight stagflation, monetary policy was contractionary. Deregulation soon followed. In the end, neoliberalism represented the belief that the solution to market imperfections as they existed before was more markets being created. The solution to uncertainty regarding future exchange rates was not fixed exchange rates anymore, but buying and selling options contracts. The solution to uncertainties regarding crops and harvest was not government intervention to assuage supply crises, but insurance markets and premium markets. The solution to financial institutions going broke was not increased govt. intervention through the FDIC, but insurance and derivative markets where companies could insure themselves against risk. In short, the belief was that, as long as markets were complete, stability would ensue. That is how the derivatives market grew to be so enormous.