Is Neoliberalism Really Dead? Or Does It Live on Like a Zombie?

Yves here. This new talk by Radhika Desai and Michael Hudson takes issue with recent press stories that depict neoliberalism as being an endangered species by virtue of Biden talking up big government investment programs.

If Biden had been serious about a big change in economic policy, he would have openly embraced dirigisme early on. He hasn’t.

More generally, neoliberalism is deeply institutionalized. There is an explicit hierarchy of prestige in economic journals. As Jamie Galbraith has explained long-form, your odds of getting published in them are zip if you make a heterodox argument, even if you math it up beautifully. Similarly, there are only a small number of academic positions in the US open to heterodox economists, all at schools viewed as second-tier in economics. So the discipline is well able to keep indoctrinating young people in neoliberal orthodoxy, particularly college students who take is as part of getting various business degrees and thus reinforce those views powerfully from the commercial sector,

Similarly, your chances of getting anywhere on the policy side and in pretty much all research positions are effectively zero if you do not believe in monetary economics, as in Chicago-style neoliberalism. Pundits in the US who pretend to be liberal are “American Keynesians” as in neoliberals who treat Keynes as a special case when economies go to hell in a handbasket. You regularly see people who ought to know better like Paul Krugman defend well-debunked foundational neoliberal stories like the loanable funds theory.

Oddly the research side at the IMF is an exception but it has no impact on what is done by the powerful “program” side.

And Russia, which many would see now as a very successful economy due to its success in rebounding from sanctions, has strongly neoliberal policies. Yes, it has strong state influence/control in military production and the energy sector. But its central banker Elvira Nabiullina is a stone orthodox monetary economist. Putin obsesses about balancing the budget. And early in the SMO, he engaged in quite a bit of deregulation, another neoliberal fixation, to stimulate the economy.

Originally published at Geopolitical Economy Newshour

RADHIKA DESAI: Hello and welcome to the 20th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our time. I’m Radhika Desai.

MICHAEL HUDSON: And I’m Michael Hudson.

RADHIKA DESAI: Well, it’s happening again. Reports of the death of neoliberalism are once again proliferating. Just take a look at the UK Guardian. In the UK Guardian website, there’s a whole series of stories, whether neoliberalism is dying, the rise and fall of neoliberalism. Biden just declared the death of neoliberalism. Is neoliberalism finally over? Is neoliberalism finally dead? Is the neoliberal era over yet? And of course, there are also contrary views. The National Institutes of Health say neoliberalism is not dead. And there is also a very interesting story in the Jacobin, which says the rumors are false. Neoliberalism is alive and well.

Well, this is not the first time that the death of neoliberalism has been announced. I remember back at the end of the 1980s, the IMF and World Bank structural adjustment programs were inflicted upon third world country after third world country, each followed in short order by IMF riots against critical food and fuel subsidies being reversed, social spending being cut, joblessness rising, thanks to the recessions induced by these very programs.

And a World Bank report at the end of this period, essentially admitted that the neoliberal recipe was certainly not working in restoring productive dynamism to any economy upon which it had been inflicted. I also remember the death of neoliberalism being announced after the 1997-98 East Asian financial crisis, when the so-called “Committee to Save the World”, as Time Magazine called it, a committee allegedly consisting of Alan Greenspan, Larry Summers, and Rahm Emanuel, who were allegedly saving the world economy from a neoliberalism induced meltdown.

After the 2008 financial crisis, practically everyone was talking about the return of Keynes, the end of neoliberalism, the return of the state, while Alan Greenspan was admitting before a congressional committee that he had been partially wrong about his free market approach to banking, that the crisis had left him in a state of shocked disbelief. He said, I have found a flaw. I don’t know how significant or permanent it is, but I have been very distressed by this fact. And he said further, I made a mistake in presuming that the self interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the funds.

However, even after this massive sort of watershed event, the real story that emerged from it was, as the title of one book about the subject had it, the strange non-death of neoliberalism. And today we have Bidenomics being hailed as the final slayer of the dragon of neoliberalism. Clinton’s Labor Secretary Robert Wright, for instance, thinks that Biden is about to alter the structure of the U.S. economy in ways that help the vast majority and that voters will give Biden another term and reward Democrats with both houses of Congress because it will have transformed the economy in favor of the 90 percent and of workers and unions.

And yet other columnists are praising the same actions of the Biden administration and the same legislative actions as the best business opportunity ever. So even after all these crises, neoliberalism seems to be, if not alive and kicking, at least leading a zombie existence and refuses to die. So today we want to talk about neoliberalism, what it is, where it came from, and why it seems not to die. And what will happen if it dies, and other such questions. So Michael, I’m sure you want to get in here and say something. Please go ahead.

MICHAEL HUDSON: Well, you’ve just made the point that neoliberalism wants to make itself invisible. It’s like the devil. If there a devil, the devil wants to say he doesn’t exist. Neoliberalism says inequality doesn’t exist, exploitation doesn’t exist, and everything is quite fair.

And what it really wants to make invisible or actually disappear in reality is the government. Neoliberalism advocates an economy without government regulation, with no social protection against fraud or exploitation or predatory impoverishment, no usury laws. They’re against consumer protection. They’re against the ability of debtors to use bankruptcy, which is why Biden made sure that students could not wipe out their student loans through bankruptcy, to free themselves from debt.

So neoliberalism, basically, it’s a dynamic of economic polarization. Neoliberalism is a way in which they can justify why the economy is getting more and more unequal, as if this is a perfectly natural thing, a survival of the fittest, and is really a road to efficiency. And in that sense, neoliberalism is a point—this requires a point of view. It’s an ideology. You could almost say it’s the new religion because it’s a new moral value.

Instead of religion saying we’re for mutual aid and we want to uplift the population as a whole, neoliberalism is saying greed is good, Ayn Rand is good, we want to be free from government, free from government regulation, so the rich can do whatever they want to get rich. And if they do get rich, it’s because they’re productive, not because there’s any exploitation. So neoliberalism is really a cloak of invisibility for all of the problems that we’re seeing today.

RADHIKA DESAI: Well, I mean, this is really interesting, isn’t it? Because there’s just so much smoke and mirrors about it, and there’s even smoke and mirrors about the whole question of invisibility, etc. So on the one hand, of course, we know that in the neoliberal era, markets are imposed on, essentially, the ordinary people, on workers, therefore are forced to compete with one another, especially with the attack on unions and so on and so forth.

But meanwhile, as we have seen, after four decades of neoliberalism, it has often entailed socialism for the rich and competition and neoliberalism for the poor, so the rich get bailed out. So in that sense, I think it’s really worth unpacking this a little bit more. Because on the one hand, you’re right, of course, that they kind of, you know, the other part of smoke and mirrors is that neoliberalism claims that it’s about having no government intervention whatsoever. But in reality, the neoliberal period has seen an enormous amount of government intervention.

If you look at practically any country, including the United States, the onset of the neoliberal era has seen only a slight reduction in the role of the state in the economy, and in many cases, hardly anything, any at all. So in that sense, it hasn’t been about markets. Secondly, you know, on the one hand, they want to say, oh, well, you know, we are doing nothing, the state is doing nothing, this is just the outcome of the market.

On the other hand, neoliberalism has also announced itself. So for example, you know, Mrs. Thatcher is very famous for having said, I think sometime in the 70s, before she became a prime minister, she was very aware, she said the other side have an ideology, we need to have one too. So in that sense, neoliberalism was very much a sort of a counter to the sort of center left ideology, whether you call it Keynesianism or welfarism or what have you. So it was very conscious of being an alternative point of view, which was coming to the fore.

But I think, really, to me, one of the key issues about neoliberalism is that it advertises itself as being all about free markets and competition. But in reality, when you look at it, it’s historically been about preserving the power of big monopoly capital. That’s what it’s been about above all else.

MICHAEL HUDSON: Well, the key trick word there is market, and especially free market. And what neoliberalism claims is a market or a free market is exactly the opposite of everything that the classical economists, Adam Smith, John Stuart Mill, even Marx, talked about what a free market is. Any market is shaped by the social institutions. A market is shaped by the tax laws, by the criminal laws, by all sorts of government regulations. There’s no such thing as a market without government. And if you do get rid of a government shaping the market, then what you have is the wealthy people shaping the market.

Well, what did Adam Smith mean by a free market in the whole 19th century? It was a market free from the legacy of feudalism. We’ve talked about this before. A market without a landlord class that was taking money in their sleep to make money without working. A market free of monopolies. That’s what Adam Smith criticized. He wanted to get rid of landlords and monopolies. And that’s what the entire 19th century was about in describing value and price theory.

Classical economics of free markets looked at any market in terms of value and price theory. Value was the socially necessary cost of production. Value was the cost of producing something. But market prices could be way above this cost, such as, and that was economic rent. Rent was the excess of price over and above the actual value. For instance, if you’re charging someone for the use of land for housing, the land doesn’t have a cost. That’s just there. There’s a legal privilege to privatize and appropriate the land and add the costs. The same thing for monopolies. A monopoly is just the legal right to charge whatever you want and have prices far in excess of the cost of production. So that was a free market.

What neoliberalism has done is erased the whole history of economic language and economic terminology and replaced it with saying a free market is a market free for the rent seekers, a market free for landlords to charge whatever they want for rent without any regulation, free for monopolists to be able to charge whatever the market would bear. And if people are willing to pay $10,000 a year, $20,000 for health care, that’s what the market would bear, your money or your life. That basically is the neoliberal slogan.

And in order to do this concept of their kind of a market, a rentier market, they have to erase the whole history of economic thought and even economic history to say, what happens when there’s a market like this? Well, you look at the Roman Empire and when it collapsed, that’s what happened when you had an oligarchy like this. So neoliberalism in that sense, it’s a market, but it’s an oligarchic market, not a democratic market.

RADHIKA DESAI: And you know, you make a very good point, Michael. So I just want to say two things. First of all, you make a very good point. What are prices? Prices are really based on the value of things, which is based on the cost of production of that thing. But in reality, of course, market prices can be, as you put it, way above that. But I would say something else. I would say that in addition to that, market prices for the vast majority of producers are often below their cost. That is to say, they suffer. So workers get market prices for their labor below their cost. Peasants and small producers and mom and pop store owners and business owners get prices that are often way below their production costs and so on. So really, as you rightly say, it’s an oligarchic, it encourages an oligarchic form of production. But I also, so that’s my first point.

But I wanted to take the conversation further also on another point you made. And that is that, you know, you said that neoliberalism is really about erasing the entire tradition of solid economic discourse that was carried on up until the late 19th century. So what happened in the late 19th century? This is very important.

In the late 19th century, on the one hand, Marx and Engels brought the tradition of classical political economy of which Adam Smith or Ricardo were such a big part. They brought it to its culmination by resolving so many of its unresolved problems. What exactly was value? What was surplus value? Where did it come from? How was it that the same amount of capital deployed in different proportions between capital and labor, you know, was it supposed to yield equal rates of profit? Et cetera. All of these were really interesting questions.

Marx and Engels, with their ability to think through all these questions in a dialectical manner, they resolved these problems. And the result was a huge indictment of capitalism. And in fact, even under Ricardo, sorry, please go ahead, Michael, I’ll continue.

MICHAEL HUDSON: Before you go on to that, your point about labor at less than its cost of production, that’s very important because if labor is paid less than its cost of living, it’s forced into debt. And that’s the important thing. Not only is what the rentier class, the landlords and monopolists charge over the cost of production to get a free lunch, but if labor is less than the cost of production, it’s driven into debt, and it’s driven into debt to the creditor class, and this debt becomes a wedge that polarizes the economy. So the market there polarizes.

RADHIKA DESAI: Absolutely. And I would say that even more, I mean, labor, yes, of course, if there is anybody who is going to give them any credit in the first place, because that’s not always been the case. But I would also say that this has historically applied to peasants and small producers of every variety. And that’s why peasants have this constant cycle of debt that they are in, because their products never bring in the kind of return that is necessary.

But to return to the point about what happened in the late 19th century. So, you know, if Marx and Engels brought neoclassical economics to a culmination, Ricardo, even before Marx and Engels, Ricardo’s insistence that all value originated in labor was itself the basis of the various currents of Ricardian socialism. So this type of thinking, economic thinking, which was very good and solid, was already giving rise to anti-capitalist currents, even before Marx. Once Marx comes around, things are going downhill very rapidly. And that’s when you get a completely different way of thinking, making its appearance in the form of neoclassical economics.

And it’s important to remember that neoclassical economics, which emerged in the 1870s, of course, there were some sort of socialistic elements of neoclassical economics. We’ll leave those aside. But on the whole, it was a completecommitment to free market thinking, particularly in its Austrian version. And that free market economics has been developed, and it survived throughout the Keynesian period. And almost 100 years after it was first born, it finallyachieved the influence that it did with the election of governments like Thatcher and Reagan and so on, and has been afflicting our world for the last 40 years.

So neoliberalism, it’s very important to remember, is essentially this extreme free market version of neoclassical economics. And it essentially erases all these questions. For example, neoclassical economics does not recognize anything like value. It does not talk about production, but about markets and exchange. It doesn’t talk about values, but it talks about prices. It does not think of capitalism as a historically specific way of organizing society. It thinks that it’s been around since Lucy, it’s been around since the earliest days of humankind. So in all of these ways, neoclassical economics represents a deterioration in economic thinking.

MICHAEL HUDSON: Well, that means that neoliberalism really should be called anti-liberalism. Because if liberalism was the classical idea of free markets, free of rent and interest and monopoly rent, then the justification of all these is that the market should include rent as being productive. Then this is the opposite.

And so neoliberalism, it’s an anti-social philosophy. That’s what the Austrians were. They said, we have a definition of markets that doesn’t have society at all. As you mentioned, Margaret Thatcher said, there’s no such thing as society. So you have a neoliberal view of society as well as markets without government, without anything that is subsidized, without any social feeling. It’s all individualism. As if you can make the whole society with individualism, there is no public infrastructure because any infrastructure is privatized. There is no public credit and money creation because all money creation, instead of being a public utility, it’s all privatized. And that lets the bankers create the money. The bankers receive the interest on loans of this money. The bankers lend to the landlord class to buy real estate and oil wells and mines and extract economic rent.

So the Austrian economics is really a rationale of fighting back, saying we’re against any reform that is going to make the government the recipient of natural resource rent and land rent and income. It should all go to the wealthy class. That was sort of the last attempt to sort of fight against the whole of free market liberalism that was occurring.

And it was not only Austria, it was in the United States by John Bates Clark saying there is no such thing as unearned income. Everybody earns whatever they want. The landlord earns the rent and the crook earns what he can take.

RADHIKA DESAI: Well, this is exactly, you know, and you know, this is another way in which neoclassical economics, which is the basis of neoliberalism, is different from the tradition of classical political economy, because you see, there was a sense in which in classical political economy, whether they although they didn’t use the term or Karl Polanyi used the term, apparently he got it from from (unclear), the term I’m talking about is fictitious commodities, but they knew that land. labor and money were not commodities, although they were treated in capitalism as if they were commodities. And this led to a whole range of difficulties and problems that Polanyi talked about in great detail.

What’s really interesting, and many people think that what Polanyi said has nothing to do with Marx or with the traditional classical political economy, but it does for the very simple reason that the awareness that land, labor and money were not commodities was reflected in classical political economy by the simple point that all the entire tradition of classical political economy from Smith to Ricardo to Marx, they are all concerned about finding the special laws through which the rent of land, the wages of labor and the interest of money are set. They knew that they are not commodities, so their prices are not set like all the other commodities. There are special laws that determine the wages of labor, the rent of land and the interest of money. So in that sense, they were very aware of this. So this is a very, very different thing.

And so in classical political economy, as you say, all incomes are earned incomes because there is really no question. They don’t really understand the difference between earned income and unearned income. This is the key point. And of course, they even sort of laugh at Polanyi for even using a term like classical political economy. But fundamentally, I also want to say that neoliberal economics, neoclassical free market economics is essentially bad faith economics because it emerges in the 1870s and develops over the next many decades, precisely during the decades when capitalism in its homelands was becoming monopoly capitalism. Precisely at that time, they are celebrating free markets and competition, precisely that which is being erased, in fact.

MICHAEL HUDSON: Well, that’s what de-industrialized the United States, not recognizing the difference between earned and unearned income. You have exactly what’s happened really since the 1980s, since Ronald Reagan here and Thatcher’s there. So you could say that this view of the world leads to not curing the problems, not freeing society from the rentier and creditor interests, but it ends up by you de-industrialize.

The neoliberals agree with Marx that the profits are all made out of employing labor and charging more for what labor produces than what it costs to employ it. But instead of what Marx said, well, let’s raise the price of labor so that labor gets to buy and receive what it produces, the neoliberals say we have to lower the price of labor. It’s an anti-labor strategy.

And this is why under the Clinton administration in the 1990s, America said, how do we lower the price of American labor to increase profits here? Well, we’ll shift labor to China, to Asia, to where labor has paid lower wages and therefore we’ll put American labor in competition with Asian labor and we’ve de-industrialized. All that was the result of following the neoliberal game plan of how to get rich and meaning how to get rich if you’re one of the 1%, not the 99%.

RADHIKA DESAI: No, exactly. And there’s another way in which, so the first point like I’m saying is that just when capitalism is shifting to becoming monopoly capitalism, that’s when they suddenly start talking about competition because the fact is the competition and is the only way in which capitalism can be justified because the idea is that competition imposes upon the capitalists themselves a certain type of discipline that forces them to be more productive. So, and therefore it develops the forces of production, however, brutally and chaotically it may do so, at least it does that.

But once capitalism arrives at the monopoly phase, Marx was very clear at this point, it was ripe for transition to socialism. So think about it. Neoliberalism emerges as an ideology to defend capitalism at that point in historical time when the bell was already tolling for it. In that sense, neoliberalism has been fighting a rear guard battle for all these decades.

MICHAEL HUDSON: Well, it’s an attack on industrial capitalism. A neoliberalism isn’t the result of industrial capitalism. Industrial capitalism wanted to lower the price of labor by having the government provide most of the living costs of labor. The government would provide healthcare, not the workers that corporations would have to pay high enough salaries to afford healthcare, education, and basic needs. So Marx had believed that neoliberalism would fade away because neoliberalism was a defense of the landlord interests and the feudal interests.

You talked about monopoly capitalism. There were always monopolies in the sense of natural monopolies, such as transportation, communications, and neoliberalism wants to privatize these monopolies to take them out of state hands where the government would provide natural monopoly services, transportation, water supply, healthcare, at cost or at a subsidized price. By monopolizing them, you create an enormous source of revenue. Basically it’s rent revenue, and most neoliberal wealth is not made by industrial production. Neoliberal wealth is made by taking assets from the public domain, especially monopolies, especially the transportation system, especially the electrical system, especially the communication system. They privatize healthcare. They privatize education. All of this is taken away from the government.

So you had two competing philosophies leading up to the years just before World War I. You have industrial capitalism evolving into socialism saying we want to have the government provide basic needs of labor so that we don’t have to pay the costs and we can compete with countries that privatize all these services. And then you had the Austrian-American, the privatizers wanting to fight back and saying we want to get rid of government and prevent them from doing this. We want the economy to be free for the privatizers to grab Margaret Thatcher and Ronald Reagan style.

RADHIKA DESAI: But if I may, Michael, you’re absolutely right, of course, that there are natural monopolies, but I think that there are two different types of monopolies and I’m talking about them both, of course, but I think it’s important to distinguish between the two.

The first is, of course, the natural monopolies. Land is a natural monopoly. Moneymaking is a natural monopoly, et cetera. That is to say the creation of money is a natural monopoly of the state and so on. I mean, there are many, as you say, transportation, blah, blah, and so on. All of these things are true.

What Marx, however, is talking about when he talks about the capitalism arriving at the monopoly phase is that the unfolding of the process of competition itself will lead, the natural result of it is the creation of monopolies because after the process of competition has eliminated all the inefficient producers, there is only one or a handful left standing and that creates a context in which essentially society moves from competitive capitalism, even in the non-natural monopoly sectors, to monopoly capitalism where a small number of really big producers tend to monopolize everything.

Marx felt that once this stage was reached and there was nothing necessarily wrong with it, this is what capitalism was doing and it was leading to more efficient production, but it was more efficient production based on a massive socialization of labor involving the cooperation of thousands and hundreds of thousands of people in a single industrial enterprise.

And Marx felt that once this stage had been reached, everybody would be able to see that the myth of the heroic entrepreneur who is owed vast profits, et cetera, is a myth and the myth would be exposed and therefore people would be ready to take things into public hands. People would say, this is our labor, this is social labor and it should be socialized and it should be publicly owned. This is what neoliberalism has made a tremendous contribution to preventing so far.

MICHAEL HUDSON: Well, there are two kinds of monopolies. Now, what you describe, Marx is describing monopolization under industrial capitalism, but some monopolies are natural monopolies. That’s what governments have kept in the public domain like the postal service and other things.

And within industrial capitalism, already in the 19th century, the American laws and presidents said, banks are the mother of trusts and the antitrust laws in the United States that began to be passed in the 1890s realized that the bankers were organizing industry into trust, that this monopolization was not simply the workings of the marketplace that Marx described, but it was actually done in a predatory way by the banks buying up all of the steel companies and making the steel trust, buying up credit to merge all of the copper companies and making a copper trust to make sure that there was not competition. So that while neoliberalism promises to be a doctrine of free competition to everybody fighting to lower the price, it actually is to prevent competition by monopolizing the entire economy so that you can charge high monopoly rents.

As you’re seeing, this is what the legal cases today in the United States, the one good thing that Biden has done, which he’s very embarrassed at having done and doesn’t talk about it is the antitrust laws. You’ve had the antitrust ruling against Google. You’ve had a whole set of antitrust rulings that are being revived today to try to save the economy from being monopolized.

And this is something that Marx did not anticipate, the degree to which industrial capitalism would lose the fight against finance capitalism and essentially not defend its interest, but would be co-opted and somehow evolve into this basically anti-capitalist financialization and neoliberalism that is so economically self-destructive that there’s very little way that you can look at, this is a dynamic of the laws of motion because it’s the law of stopping motion, a law of degrowth, not growth.

RADHIKA DESAI: No, I must say on this point, I would slightly disagree with you, Michael, because the thing is, it’s important to remember that antitrust is actually one of the keystones of neoliberalism.

Let me explain what I mean. So, first of all, let me agree with you, what you were saying earlier, that in the United States, banks like J.P. Morgan played a leading role in essentially the cartelization, the monopolization, the trustification of the economy in the late 19th and early 20th centuries. And of course, Hilferding across the water was talking about similar trends in Germany where banks were playing a central role in aiding the monopolization of capital. But while banks aided it, this was a natural tendency of capitalism.

What Marx pointed out is that at this point, once you arrived at the monopoly phase, it was time to shift to socialism. Indeed, many people laugh at Hilferding because Hilferding said something like, you only have to nationalize six large Berlin banks in order to essentially take a bulk of the German economy into public ownership. But he was right because these banks, through their activity in aiding monopoly, had indeed created that sort of economy. He wasn’t talking about the banks of today, which have very little to do with production. At that time, particularly in Germany, they were very different types of banks.

So, banks were certainly aiding the process of monopolization, but what Lenin called monopoly capital, what Hilferding called finance capital, and what Buharin called the nationalization of capital were all referring to the same thing, that all the major capitalist societies were now dominated by big monopoly corporations. Marx thought that this was the time for socialism.

Antitrust law, therefore, arrives at this point to help the neoliberal defenders of capitalism to try to maintain the appearance of a certain minimum level of competition while actually continuing to have the monopoly structure of the capitalist economy. If it’s not monopoly, then it’s oligopoly, and the competition is largely in name. And it is really, at this point, you go from justifying capitalism in terms of competition to justifying capitalism in terms of consumer welfare.

Because remember now, the fate of capitalism is not being decided in the market as it once was in the competitive phase, but in the courtrooms of antitrust law. So, the whole purpose of antitrust law is to try to mask the fact that capitalism is now past its sell-by date and we have to do something much more radical. And this has been true now for about a century at least.

MICHAEL HUDSON: Okay, you’re talking about structural monopoly of how the economy is structured as opposed to just the competition within a given industry. So, we’re talking about monopoly. I agree with what you said. We’re just talking about two different kinds of monopoly. The structural monopoly of how wealth is made and then the specific industrial monopolies in particular industries.

RADHIKA DESAI: And you know, Michael, though, at the same time, what you were saying earlier, and I think this is absolutely critically important, is very true. Today, what we are seeing is that big monopoly corporate capital is preying upon, of course, first of all, in the days of more robust development of capitalism, even as it was entering in the monopoly phase, what we witnessed was that often the natural monopolistic activities, whether it was transportation or utilities or what have you, were actually often performed by the state. So, you had a fair amount of state ownership, whether it was at the municipal level or the state level or the federal level, you had a fair amount of state ownership.

Now, what we are seeing is the attempt by capital on the one hand to privatize those natural monopolies that were hitherto created and maintained by the state, for the purpose of private profit. And then also, of course, preying upon every other monopoly on which they could try and get their hands, whether it is health services or water provisional  utilities or transportation, education, you name it, the private capital has got its fingers in every one of these spies.

And its purpose is not productive expansion, but rather the purpose today is to skim off the incomes, the ever shrinking share of incomes that are actually made by producing something. And these are largely made by workers, by smaller enterprises, and so on and so forth. And this is what is done through the entire structure of indebting the economy, whether you are indebting households or you’re indebting businesses or you’re indebting governments. And this is the way in which today’s financial monopoly capitalism is skimming off income.

But there is one other thing that I also want to introduce in here, which is that-

MICHAEL HUDSON: You should make one point at a time, not two points.

RADHIKA DESAI: Sorry, I will wait, I will wait, you go ahead.

MICHAEL HUDSON: Okay, what you said is what I said earlier in our discussion. I said, most wealth under neoliberalism is made by privatizing the public domain. And the fight between socialism and neoliberalism is who is going to provide for natural monopolies and basic needs? Who will provide healthcare, education, communications, transportation? Are these going to be public services provided at a low cost for everybody? Or will it be essentially privatized and monopolized, as you say, so that these natural monopolies are going to be able to become vehicles to squeeze out economic rent.

And economic rent is really the key objective of neoliberalism. Not so much profits, but monopoly rent. So neoliberalism denies that there’s any distinction between monopoly rent and profit. As opposed to classical economics that made a very clear distinction. There are rent recipients and profit recipients. And they’re antithetical, not together.

RADHIKA DESAI: And the reason why it’s so important to make this distinction between rent as unearned income, versus wages and profits as having at least some kind of earned element in it, is the simple fact that this, it draws attention to where production is involved. But of course, neoclassical economics is habituated to not focusing on production at all.

But yeah, okay, so I entirely agree with you. And I just wanted to say that in order to understand why we are in this position today, where you say the purpose of all capital today, especially in countries like the United States, seems to be to essentially prey upon and earn rents from these monopoly activities and so on. How did we come here?

Well, I just want to throw in one further thought, which is that, what I was saying earlier, that Marx was expecting that once capitalism arrived at this monopoly phase, that people would realize that it was important to socialize it, et cetera. Now, of course, neoliberalism came along and neoclassical economics came along and started producing these inherently false, and I would say that they were bad faith defenses of capitalism.

But nevertheless, all their efforts could not prevent the cataclysmic crisis. So what Arnold Mayer called the 30 years crisis of 1914 to 1945, from erupting, which involved inter-imperialist wars, which involved Great Depression, and finally, nuclear weapons, the Holocaust, and what have you. All of these things happen, and by the end of this period, I would say that most people were convinced that capitalism, really, that the world was going to move away from capitalism, that capitalism had shown the destruction that it would cause, the misery that it could cause, and that the world was not going to stand for it. People like Keynes or Polanyi expected that the world would move radically leftwards.

But then you got the golden age of capitalism, and most people attributed that golden age of capitalism to capitalism itself, sorry, the golden age of world growth, I should say, they attributed it to capitalism. They said, you know, people like Keynes or Polanyi were wrong, and others who thought that, you know, the capitalism would end in the post-Second World War period, they were wrong. Capitalism had regained its mojo and everything was fine.

But in reality, what we can, what becomes very clear after 40 years of neoliberalism, is that the real source of growth in this period, after three decades after the Second World War, lay in the fact that monopoly capitalism was heavily regulated, was ringed around with the institutions or with socialistic institutions and practices, whether it is the practice of macroeconomic management for full employment, the creation of welfare states, the expansion, massive expansion of domestic demand, etc., and all of these things, these socialistic measures, these are what account for the dynamism of capitalism.

Why can we see that? For the simple reason that after this model got into crisis, not because of the socialistic measures, but because the underlying system remained capitalist. After the crisis of the 70s, when the governments of these countries took the turn to neoliberalism and rolled back many of these socialistic measures, you did not get a revival of capitalism, but the transformation, the morphing of capitalism into the system that you were describing, Michael, as preying upon, you know, public enterprises, privatizing them, and essentially using the state as a (unclear) from which to make unearned profits.

MICHAEL HUDSON: Well, there’s also another factor that we haven’t discussed yet that gave the appearance of capitalism having a golden age after 1945, and that is that every country emerged from World War II almost free of debt, because the Depression had basically wiped out debt, and during the war, consumers were not going into debt because there was nothing they could buy. Corporations weren’t going into debt, and after the war, there were no reparations on the defeated parties as after World War I, so you had every economy beginning with what in Germany was called the economic miracle, a debt-free society.

Now, there were many business cycles after 1945, but each cycle started from a higher and higher debt level, and this rising debt increased the power of creditors and the bringing to power of Thatcher and Reagan and neoliberalism in the 1980s was largely a result of all of this growth in creditor power that resulted from the growth of debt, meaning of savings in the hands of the creditor class that found its counterpart on the other side of the balance sheet in debt by labor, by corporations, and by government, so the governments essentially were prone to a debt squeeze.

You had, since the 1980s, the International Monetary Fund telling countries, well, you have to pay your foreign creditors, and the way you’re going to pay your foreign dollar holders, basically, you’re going to have to sell off your infrastructure to monopolize it. It was debt that forced the privatization of monopolies throughout the global south, largely through the IMF and the World Bank, so you had a neoliberalism that was not only debt-based, but also, as we’ve discussed in our earlier broadcasts, that this is a U.S.-centered phenomenon because after World War II, the creditor-oriented system was really based on the U.S. dollar and U.S. government debt, which essentially was debt run up by balance of payment deficits to pay for America’s military control, and that is what neoliberalism leaves out.

Neoliberalism is wrapped in the iron military fist of 800 American military bases to make sure that there is no alternative. If you’re going to have no alternative, you need to enforce neoliberalism militarily, and that globalizes neoliberalism in the way that we’ve been talking about.

RADHIKA DESAI: I agree with what you say, but I would confine all of that to the neoliberal period because why does debt rise so exponentially in the neoliberal period? It rises exponentially in the neoliberal period because, first of all, the income of workers is being squeezed because there’s an attack on unions and, of course, there is a massive outsourcing and so on and so forth, so you get a squeeze on workers’ incomes and if workers need anything, then in that case they have to be indebted.

Secondly, although of course there are a lot of cutbacks of government spending as far as social spending is concerned, on a whole lot of other outlays, government spending does not decrease. Government spending does not decrease in terms of helping industry, subsidizing industry. Government spending does not decrease in terms of military activities. In fact, it increases on all these fronts massively, so government expenditures do not decrease.

Meanwhile, every government, especially every Republican government in the United States, tries to outdo the previous one in giving tax cuts to the rich, so the tax structure becomes increasingly regressive and therefore, of course, there is a debt crisis of governments and, of course, households, that is to say, yeah, I mean, and businesses are also increasingly indebted because as businesses are taken over by bigger businesses, the bigger businesses or financial interests that take over businesses are only interested in borrowing as much as they can on the basis of the collateral that that business provides, so they burden every business with as much debt that it can possibly take in order to essentially appropriate dividends and profits for themselves.

So in all of these ways, neoliberalism has led to a massive increase in debt and this is itself, to me, a result of the fact that freeing capital, freeing monopoly capital from the burdens of state regulation and social obligation, has not restored to capitalism any kind of productive mojo. It has only set capital, monopoly capital, free to prey upon the earned incomes of the rest of the world, so a tiny elite has as a consequence been getting ever richer at the expense of the vast majority of working people in the world.

MICHAEL HUDSON: Well, I think the protector of  monopoly capital was basically the financial interests and there was an exponential growth of debt beginning already in 1945. There was a build-up of pressure of increasing wealth and concentration of financial wealth that enabled the financial class to really take the lead in protecting monopolies and playing a catalystic and ultimately controlling role in the monopolization. So you have to look at this interaction between the financial sector and the rest.

RADHIKA DESAI: Well, I’ll say two things. Number one, I would say that first of all, if you look at, if you chart the amount of debt in the world, yes, sure it was increasing in the post-second world war period, but there is absolutely no doubt that it goes, I mean, it may be increasing like so, but then it spikes up in the neoliberal period in very noticeable ways.

MICHAEL HUDSON: Yes, because it was created.

RADHIKA DESAI: Yeah, exactly. And on the matter of the United States dollar and the dollar system, the fact of the matter is that again, the amount of debt the United States incurred as a result of the operation of the dollar system compared to what we have today in terms of the sheer amount of debt, not just the US debt to the world, which is a small part of it, but just the explosion of debt of all sorts. Again, it is out of proportion and this explosion of debt and the financial markets upon which it rests and the speculation to which it has given rise to, these are the things, not just the US’s current account deficit that accounts for the indebtedness of the world. The US’s current account deficit, big though it is, is a small portion of the largest structure of indebtedness.

MICHAEL HUDSON: Okay, you made an important distinction that is often left out of account. You’re absolutely right. When I talked about compound interest increasing exponentially, that’s interest on debt that is already in place. But what you’ve just mentioned is the very important fact that most debt isn’t simply the accumulation of interest on past credit, it’s actually the creation of new debt by banks simply creating bank money. And that’s exactly what’s happened. That was the explosion, the creation of bank money, which in a way you could call it the privatization of the monopoly of credit creation. And the credit creation was created, as you just pointed out, out of all proportion to the productive use of credit or to the means of production. It wasn’t created to create new means of production, but to buy existing means of production to take them over and monopolize them, downsize them and financialize them.

RADHIKA DESAI: No, exactly. And you know, Michael, this has been such an absorbing discussion, but I also noticed that we have only been through a fraction of the points that we wanted to go through. But let me just start bringing this hour to a close. We may do another session on the same subject, but let me start bringing this hour to a close by mentioning just one important thing that I think we should put out there, whether or not we do another hour on this.

And that is that precisely because neoliberalism was never an accurate theory of how the economy works or even how the capitalist economy works, precisely because neoliberalism, although, you know, was incapable of delivering the kind of prosperity that it was promising. As a result of that, it has been shifting shape about once every decade. So once every of each one of the four decades that we have seen, we have seen a slightly different type of neoliberalism. And as a consequence, the current debate, the current announcements of the demise of neoliberalism are also not going to lead to… are also, you know, the reports of the death of neoliberalism are greatly exaggerated.

MICHAEL HUDSON: Well, you’re right. Neoliberalism in practice doesn’t work. And yet, if it doesn’t work, and it’s junk economics, what it has done to conceal the fact that it doesn’t work is to redesign the whole picture of the economy that’s depicted in the national income accounts and the GDP accounts. And it actually depicts this unproductive, predatory, rentier overhead as if it’s a product, a product, as if rents are a product. That’s it.

RADHIKA DESAI: No, absolutely. So on the one hand, it sort of tries to create the illusion of growth. You know, right now, everybody’s saying that the United States is growing. But how much of that growth is purely financial growth? So that’s absolutely right. And as I say, we must talk about this as well.

But I just wanted to finish the point. So in the 1980s, you got classic neoliberalism, you know, markets good, states bad. And this is what’s going to lead to prosperity. By the end of the 80s, this was no longer so. Then in the 1990s, you got a different neoliberalism. This was the neoliberalism of globalization. It was enforced not by right wing, new right governments like Reagan and Thatcher, but by new labor and sort of, you know, Clintonite, you know, third way governments like Clinton and Blair and so on and so forth.

And what did they say? They did not deny that neoliberalism was very punishing for ordinary people. And they said to their mostly working class support base, they said, we would love to raise your wages, we would love to increase welfare, we would love to have, you know, better environmental protection. But you know what, our hands are tied, our hands are tied by globalization. Globalization is this unstoppable juggernaut, that’s not going not going to, you know, we’re going to have to bow to it. By the 2000s, you’ve got jobs.

Two more, three more points. So by George Bush, Jr, you got the US as an empire. And by this time, Europe was suffering from euro-sclerosis, and Japan was not doing well. So the United States economy, especially with the housing and credit bubbles was made to look, you know, with great difficulty, of course, but made to look like it was somehow avery dynamic economy. After 2008, you got the massive period of austerity. That was the neoliberalism of the 2010s. And now we are going to see a new version of neoliberalism.

MICHAEL HUDSON: Well, you’re talking about the conflict between illusion and reality. And in the United States, all of the polls show that consumers, workers, consumers are the neoliberal word for workers, say that they’re much worse off.

And President Biden keeps saying, how can you be worse off? Read Paul Krugman in the New York Times, and he said GDP is up. Well, GDP is up, but all the GDP is occurring to the monopoly class, finance, insurance, and real estate, not to the workers. So when they talked about a boom with GDP up, that’s again for the neoliberalized rentier economy.

So the way to make a transition, I guess, from what we’re talking about now to our future broadcasts, is just ask yourself, would China have been better off if it would have abandoned its socialism and adopted the U.S. neoliberal model back in 1990 with Clinton? Should China have just said, well, Russia invited the neoliberals in to just close down all of our industry and give everything in the public sector to the ruling class and the gangs for free? Would China have been better off if it would have followed the Russian Boris Yeltsin’s plan in the 1990s and the Clinton plan in the United States and the Obama plan? Or would it have been better off being socialism? Once you ask that question, you begin to say, what is neoliberalism leaving out of account?

RADHIKA DESAI: Well, exactly. And so, you know, I mean, bang on, you know, I don’t think that the rest of the world is going to do and, you know, the rest of the world is going to benefit by imitating what the U.S. is doing.

But in the U.S. itself, you know, this idea that somehow Bidenomics is going to, you know, is now talking about industrial policy and it is going to essentially constitute the rejection of neoliberalism. This is all complete nonsense.

You’d only believe it if you thought neoliberalism was about free markets. Neoliberalism has never been about free markets. It has always been about hiding the fact that capitalism is now in its senile monopoly phase. Instead, you keep talking about competition as though it’s going to revive it. But in any case, it has always been about preserving the power of an ever-shrinking monopoly, financialized monopoly, capitalist elite.

And in this form, Bidenomics, with its massive subsidies to corporations, etc., is just another version of that. In my book, Capitalism, Coronavirus and More, I call what we are now about to see pseudo-civic neoliberalism. That is to say, our governments will tell us the people must have X, Y, Z goods which are free or very cheap. And they will subsidize massively the production of these things, whether it is vaccines or various forms of green technology or transportation, what have you.

And the governments will essentially give vast subsidies to private corporations to produce these things, which they will sell at high cost to government. And government will then allegedly make it available to us, either for cheap or for free, at least in name. But the fact of the matter is, we are going to pay for it through our taxes. And we are also going to pay for it because the goods and services we get will be so shoddy that they will probably not be worth having. So this is the kind of pseudo-civic neoliberalism that we are about to witness. What is being called Bidenomics is not at all the advent of a new post neoliberal age, but merely the fifth form that neoliberalism will take in its fifth decade.

MICHAEL HUDSON: So neoliberalism is the new Cold War turning into a hot war, basically. It’s a globalized Cold War.

RADHIKA DESAI: I guess, Michael, you might want to elaborate very briefly on it.

MICHAEL HUDSON: Well, in order to maintain the system, you can’t have a rivalry to neoliberalism. There must be no alternative in the United States. Why is it fighting against China? China is an alternative. Russia is an alternative. If the world sees that the US and NATO, Europe are shrinking, and Eurasia is going way ahead, then there obviously is an alternative, and people are going to ask, what makes the Eurasian multipolar development so different from the world that the United States is trying to create, a neoliberal, financialized, privatized world ruling by force and by client military oligarchies?

RADHIKA DESAI: You’re so right. In a certain sense, this new Cold War is the Cold War. I think it’s like the old Cold War. It’s the Cold War between, on the one hand, those countries that refuse to accept that capitalism is past its sell-by date, and on the other hand, countries that know this and are willing to experiment with all sorts of interesting ways of creating economies that are actually going to work for people. I think that’s the divide we are increasingly going to see.

So that really means, you know, perhaps another program which we must do is, really, we should talk about the international manifestations of neoliberalism over the last four decades, and how they have changed, and how they have brought us to this point of this new Cold War.

But for now, I guess we will say goodbye, and looking forward to seeing you, perhaps not in two weeks, but certainly in early January. So look forward to that, and thank you very much. Bye-bye.