Neoliberalism’s Bailout Problem

>> Read article published in the Boston Review

This is the first of a series of articles on the political economy of neoliberalism to be published by the Boston Review. The upcoming articles are by PERI economists and associates Prabhat Patnaik, Josh Mason, Arjun Jayadev, Jayati Ghosh and C.P. Chandrashakar.

Summary

Proponents of free market capitalism—within both the realms of academic economics and policymaking—ignore the fact that the neoliberal framework that has dominated economic policymaking for the past 40 years has been dependent on regular, and increasingly massive government bailouts to continue functioning. This article documents the centrality of government bailout operations, both in the U.S. and other high-income economies, over the past 40 years. This includes the most recent bailouts, of unprecedented magnitude, following from the COVID pandemic, as well as those that followed from the 2008-09 global financial crisis. The article also reviews the analytic framework of Hyman Minsky, whose “Wall Street paradigm” was unique in the extent to which it gave prominence to government bailouts as a central feature of the operations of contemporary capitalism. The article closes by reviewing three policy scenarios moving forward that take full account of the impact of bailout operations on the trajectory of capitalism coming out of the COVID recession: 1) maintaining neoliberal hegemony, with its ongoing requirement of huge bailout operations to keep the status quo system intact; 2) a more genuinely free market variant of ‘practice what you preach’ capitalism, in which governments do not bail out capitalists during crisis periods; and 3) a Green New Deal variant. Under the Green New Deal, the enormous powers of government financing, as demonstrated repeatedly by bailout operations, would be mobilized for advancing a more egalitarian and ecologically robust variant of capitalism, as opposed to simply reinforcing the huge inequities and environmental malignancies resulting from neoliberalism.