The sad death of free market pessimism

The hostile response to Paul Mason's Postcapitalism raises a question: why are rightists economic optimists?

I ask because that reaction seems to me to be part of a pattern. It tends to be free market types who are most critical of Malthusian-type pessimism, and I get the impression that it is left-liberal economists who are more worried by secular stagnation whilst rightists are more sanguine about it.

There is, though, no necessary logical connection between optimism and pro-capitalism. Joseph Schumpeter was an admirer of capitalism but feared it could not last. David Ricardo advocated free markets but feared that diminishing returns would choke off growth. And there was for a long time a melancholy tendency within conservatism - expressed most eloquently (pdf) perhaps by Michael Oakeshott.

It would be perfectly coherent to be believe that freeish market capitalism is a good thing but that it is imperiled not just by bad policy but by intrinsic developments such as diminishing returns or a loss of entrepreneurship. And yet free market pessimism is a view that seems to have faded.

Why?

Here - in no order - are some theories:

1. My premise is wrong. The fact that index-linked gilt yields are negative suggests that gilt investors, many of whom have pro-market views, are pessimistic about future GDP growth. 

This, though, deepens the puzzle of why such a view isn't expressed much in the right-wing media.

2. Optimism is justified. Capitalism has survived many dangers, and has lifted millions out of poverty.

The problem with this is that, as Bertrand Russell famously said, the fact that something has happened in the past does not ensure its continuance. Paradoxically, the optimists might be making the same error as Malthus. Just as he looked at centuries of human history and inferred that mankind was doomed to subsistence, so free market optimists might be over-inferring from two centuries of success. It's quite possible that, at some time, the race between diminishing returns and technical progress will be won by the former.

3. The collapse of communism has led to triumphalism on the right.

The problem here is that centrally planned economies are not the only alternative to capitalism - though many on both left and right fail to see this.

4. Wishful thinking. Just as lefties want to believe that capitalism is doomed because it is bad, so the right wants to believe the opposite.

5.Class. Henrik Cronqvist and colleagues have shown that investors from wealthy families tend to own more growth stocks than those from poor ones, even controlling for their own wealth. This suggests that family backgrounds can predispose people to optimism. For example, Matt Ridley, author of the Rational Optimist, went to Eton - as did one of Mason's critics Douglas Murray.  Of course, it's not true that all rightist optimists are posh and pessimists not so, but there might be a tendency here. I conform to it, being very risk-averse and from a poor home.

Points 4 and 5 suggest that what's going on here might not be based wholly upon a rational assessment of the facts. This is, of course, true of both right and left.

For that reason, I don't say this to attack rightist optimism. Instead, I do so to lament the disappearance of an important perspective - that of free market pessimism. 

Comments

[Luis Enrique]

wouldn't an Oakeshott conservative also react badly to Mason's over-excited forecasts that the old ways are dying?

[Luis Enrique]

duh. please ignore that comment and blame hasty reading.

[Agog]

Myrdal's analysis of the intellectual basis of laissez-faire, written at the end of the last gilded age in his 'Political Element in the Development of Economic Theory', is still very cogent.

It comes down to a mixture of selfish pragmatism (obviously, "leave my business alone") and wishful thinking ("there is a natural order and harmony to things; if we don't interfere, things will right themselves"). That strain of optimism about free markets will always exist, I'm afraid.

[Luis Enrique]

where my confusion came from:

isn't Paul post-capitalism story and optimistic one? (replace capitalism with something better) so why are those who don't like it the optimists?

I'd have guess the right-wing response to Paul (aside from the 'this is incoherent nonsense' variety) is simply that privately owned enterprise as the backbone of the economy isn't going away any time soon. That's almost like Oakeshott conservatism isn't it? Not wide eyed optimism

[Nick Rowe]

Anecdotally, I would go with a variant on 3.

I was a pessimist in the 1970's, thinking that capitalism was probably doomed in the long run (Schumpeter's reasons for this seemed more plausible than Marx's). Because that's the way History seemed to be going.

In the 1980's (with Thatcher and Reagan) I became a little more optimistic. But was it just a blip in the longer term trend towards socialism?

In the 1990's I was stunned into optimism when communism collapsed. I still can't quite believe it happened.

Maybe some mixture of 2 and 3, with a bit of Russell thrown in. We all try (and fail) to filter temporary from permanent shocks, to try to figure out the underlying trend.

[Dinero]

The internet discourse has a strain of "free market libertarinism" discourse that you did not see light of before.

[cjcjc]

I think the hostile response has a lot more to do with stuff like this.
(Am I being thick, but I have no idea what this actually means?)

"As with virtual manufacturing, in the transition to postcapitalism the work done at the design stage can reduce mistakes in the implementation stage. And the design of the postcapitalist world, as with software, can be modular. Different people can work on it in different places, at different speeds, with relative autonomy from each other. If I could summon one thing into existence for free it would be a global institution that modelled capitalism correctly: an open source model of the whole economy; official, grey and black. Every experiment run through it would enrich it; it would be open source and with as many datapoints as the most complex climate models."

http://www.theguardian.com/books/2015/jul/17/postcapitalism-end-of-capitalism-begun

[Peter K.]

If the free market is behaving badly then you require more government intervention. The rightwing doesn't like that.

In the U.S. currently the rightwingers are attacking the idea that wages are stagnant and inequality is increasing.

My pessimism as a lefty is about the possibility of a Piketty doomloop.

Political corruption and ideology enable bad economic policy which increases inequality which increases political corruption and bad ideology.

I think it's an open question, but these past 40 years show a bad trend. The post war golden social democratic years weren't good enough or durable enough to prevent the Reagan/Thatcher counter revolution.

[DavidM]

Another theory: power dynamics and incentives.

The collapse of communism did not only bring triumphalism to the right, but a very actual triumph: winning elections, left parties moving to the centre (since it was first and foremost the left the one that couldn't conceive an alternative to capitalism different from a planned economy), businessmen getting a higher profile than before. In short: the right gained a lot of power.

While, in the economic sphere, a whole mess of different factors led to the same result: power shifting big time from workers to corporations.

Free market optimism is profitable to this agents: it makes extraction of rents easier for them. And these agents have more power than before. So, the conclussion...

[Bob]

"I was stunned into optimism when communism collapsed."
Yes but 1990s Russia was in many ways even worse than under communism. Extreme cronyism, loans for shares, etc.

[Steven Clarke]

Perhaps the vitality of the free market system depends on optimism about the future vitality of the free market system. Maybe you shouldn't encourage more pessimism.

[aragon]

Financialisation leads to extra-ordinary returns, without productive investment. The crash brought £385Bn of QE for the rich, asset inflation proceeds with Government support. They control politics and the media, and the agenda with austerity why should the party end?

[Keith]

Economics is inextricably linked to politics and ideology. The left were in the vanguard of ideas and action until the 1970s Then the right realised "another world is possible" all be it the new world was going back to an older model.

To be brutal the right blamed high inflation on left wing Governments and movements and interventionist economic policy, building up fear of hyper inflation to counter act the fear of mass unemployment that dominated politics after the 1930s. The cycle turned as cycles always do allowing a generational shift in attitudes. Exploited and encouraged by right wing think tanks, lobbyists and the wealthy elite.

The cycle may turn again but how or when we cannot know for sure. As for there being many alternatives to Capitalism; yes in theory. But central planning has the virtue of being very simple and easy to apply in a revolutionary seizure of power. The clue is in the word "central". It may be inefficient in many ways as a purely economic system, but it works well with a centralised state run from above by a self appointed elite. Under neoliberalism the state often seems to end up reinventing the methods of Lenin and trotsky such as the target culture, benchmarking etc all of which is really central planning by another name. Big business is a series of centrally planned economies often with monopoly power. Bankers bonus culture is not far removed from the use of bonus payments for hitting the plan objectives. In many ways we have not really moved to "free" markets from planning, the names change but the attempt to direct things does not. So far however no one has proposed shooting bankers who screw up, but if they scrap human rights then may be that Leninist policy will return. !4 years in Gaol for Libor rigging may be the start. But at least it will not be served in Siberia.

[Dave Timoney]

I suspect the chief culprit for this demise is the hegemony of neoliberalism, and in particular its belief in human perfectibility (the representative agent, efficient markets, the end of history etc), which it inherited from Christian teleology (via, ironically, Marxism). The failure of conservatives to mount any sort of critique of capitalism after 2008 - preferring to double-down on blind faith and ignore inconvenient facts - is surely proof of this hegemony.

Traditional conservative pessimists emphasised a different dimension of Christianity, namely original sin and the belief that salvation would be restricted to a few. Conservatism is now intellectually moribund, not so much because of the decline of religion as the infection of ethics by personal optimism (as opposed to social pragmatism). What passes for theory in rightist circles has been wholly colonised by neoliberalism, with the heterodox increasingly limited to the lunatic fringe or the wilfully eccentric.

The media will only indulge critics of capitalism who are similarly evangelical, and ideally willing to write in the style of speculative fiction. Mason is typical of many who have sought to replace the now redundant proletariat, in its role as the agent of history, by technology itself. But this isn't really existing tech so much as a nebulous connectivity that evokes the Holy Spirit. Fifth Monarchists for Jeremy Corbyn.

[Donald Pretari]

What about John Gray?

[Dave Timoney]

Gray is a critic of the free market, particularly in the context of globalisation (see 'False Dawn'), so his pessimism is of a different order. Though he dallied with the right in the 80s, he is probably best thought of as a liberal skeptic heavily influenced by Eastern philosophy.

[FreddyLovesKarl]

It isn't a huge mystery - the Right wants to suck the oxygen from any critique of the existing order of things. Any criticism of neoliberal capitalism is a criticism of that order.

[rogerh]

I think point 5 touches on the answer. If you are rich and well educated and well connected you can be assured that you have a good chance of optimising outcomes. Perhaps we are seeing a kind of hill-climbing optimisation problem with Global capitalists stuck with climbing one hill. The difficulty is that such other 'hills' as are visible are not so high and separated from our current situation by an economic trough. Get some good spiky boots and be prepared to do some trampling - if you have the stomach for it.

[BD Sixsmith]

Conservatives lost a sense of themselves as having a moral and cultural philosophy. To your points I would add the decline of religious faith (as it was hard to replace Original Sin with secular ideas); the conflict between Yankee liberals and Southern traditionalists (as cultural progressives like Mencken became more fashionable on the right than the likes of the Southern Agrarians) and the Cold War itself (as conservatives began to perceive themselves as defending mere "freedom" against tyranny, and to place overmuch emphasis on international affairs). This left a void that libertarians, objectivists and neocons could fill with their quite anti-conservative optimism.

[Matt Moore]

Why are you conflating capitalism with free markets? You were the first one to point out to me that they are different. I'm highly optimistic about free markets, agnostic about capitalism.

[Matt Moore]

@from arse to elbow: that's a straw man version of neoliberalism. You don't have to think that markets are fully efficient to think they are almost always better than the alternative.

[Igor Belanov]

I think FATE is right but needed to differentiate between the optimistic neoliberalism of 'new' centre left parties such as New Labour, and the cynical neoliberalism of traditional right-wing parties like the Tories and the German Christian Democrats. While Blairites are naive and conceited enough to believe that enlightened managers can bring about a free market that benefits everyone, the traditional right knows that capitalism is inherently inegalitarian and exploitative and is there to be manipulated to the benefit of the few.

[Dave Timoney]

@Matt Moore, I wasn't commenting on the efficacy of markets, or their relative benefits compared to any other resource-allocation mechanism, but on the ideological importance of the efficient markets hypothesis to neoliberalism. It's not a strawman because I didn't invent the EMH.

@Igor, I like your distinction between optimistic and cynical neoliberalism, which I suspect owes something to Philip Mirowski's "double truth" idea, not least because it casts Blairites as useful idiots, but I suspect the optimists are more cynical than you give them credit for (Blair, Mandelson, Campbell?), while the cynics have probably drunk more of the Kool-Aid than even they realise. That's the trouble with hegemonic ideology: it gets everywhere.

[Igor Belanov]

I think the cynicism of New Labour in its 'pomp' was the opposite side of its optimism in socio-economic ideology. They regarded democratic institutions (as opposed to abstract notions like 'the people') and political activity as something that could wreck their beautifully laid-out vision. Hence the constant sermons on the necessity for change and the abuse of the 'dinosaurs' that might question it.

I think the 2008 crash also took its toll on Blairite optimism, and the current leadership campaign proves just how generally cynical they are nowadays.

[sam g]

the question of whether we should be growth optimists or pessimists is one you could only pose to a casual empiricist, so invoking B Russell is not appropriate (and perhaps demonstrates a lack of empirical arguments for growth pessimism)

the question is incoherent, though. it helps to split it into two parts

1) will the developing world with capitalist institutions continue to experience catch-up growth?

hard to see how the answer to this could be no. we understand the growth trajectory this would imply fairly well, through studying the industrialization of advanced economies, as well as the spectacular growth of developing economies in the last thirty years. for catch-up growth it's clear to me that the burden or proof is on pessimists: what alternative theory tells you that this will not continue to apply?

2) will developed countries at the growth frontier continue to experience growth?

this is much more speculative. it is not an economist's job to predict future technological progress, and i think we should be at least theoretically agnostic on the point. however, 2 things to note here. first, we know that capitalism is good at providing institutions and incentives that make technological innovation possible. second, as noted by Piketty, even a growth rate of 1% is revolutionary. and even developed countries net above that on average.