From Depoliticisation to Dedemocratisation: Revisiting the Neoliberal Turn in Macroeconomics

ABSTRACT

The last decades of the twentieth century saw a liberal turn in macroeconomic policy from government discretion towards policy rules and depoliticisation. Intellectually, this turn was inspired by the wave of the New Classical Macroeconomic (NCM) theory that emerged to eclipse Keynesianism in the 1970s. This paper revisits some of the central papers and models of NCM, including Kydland and Prescott’s 1977 ‘Time Inconsistency Model’, Sargent and Wallace’s 1976 ‘Policy-ineffectiveness proposition’ and the micro foundations of the Lucas-critique from 1976. Through an investigation of the political and economic context inspired by Ellen Meiksins Woods’ social history of political thought, this paper investigates the ideological tenets of the neoliberal turn in macroeconomics associated with NCM. In policy and scholarly debates, NCM has primarily been viewed as a critique of government intervention in the economy. This paper challenges this notion and stresses that NCM is not primarily a critique of government action, but rather a critique of the role of democracy and popular participation in governance. This rereading offers new insights into the relationship between neoclassical economics and neoliberal policy in the 1970s transition and casts new light on our general understanding of the relations between liberal political economy and democratic governance.

KEYWORDS:

• History of economic thought
• depoliticisation
• neoliberalism
• economic governance
• democracy
• critical political economy

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 I am indebted here to Wendy Brown, who in Undoing the Demos (2015), centres the idea of dedemocratisation as a main function of neoliberal economic thought (see also Kiely 2017). Her use of the term is distinctly different from the way it is employed in this article as Brown’s Foucault-inspired framework identifies the dedemocratising effects of neoliberalism primarily in the realm of subjectivity (Brown 2015, p. 17).

2 The definition of democracy in this article is rather ‘thin’, dealing with the control of state institutions by officials elected by a majority of the adult population under free and universal suffrage. This also means considering liberalism, the rule of law, and democracy as separate entities/principles, in contrast to many classifications of ‘liberal democracy’ as simply meaning ‘full democracy’ (Møller and Skaaning 2012). It also means not considering deeper forms of democratic participation such as deliberative or direct democracy (Held 2006). The aim of the article is to discuss the real, existing forms of democratic participation, in which elections have been dominant in the period surveyed, rather than a full history of the idea of democracy, which lies outside the scope of this investigation.

3 Without trying to integrate the two perspectives on a theoretical and ontological level, one can, in the model presented above, see Skinner as focusing on the rhetorical and political levels, while Wood focuses on the social and political context.

4 The concept of depoliticisation has since been developed further and expanded to cover more than just economic policy by amongst others, Hay (2007), and Buller and Flinders (2005). Here, the focus will be solely on employment on the economic terrain.

5 Given the logically maximal scope of this rationality and foresight, all government intervention in the economy would tend to be detrimental as the welfare preferences of the electorate would not be aligned with market actors.

6 The later fusion of NCM elements with neo-Keynesianism have been described as new consensus macroeconomics, encompassing the dominance of monetary over fiscal policy, and the relegation of the problem of unemployment as primarily a supply side problem concerned with inflexibilities in the labour market (Arestis and Sawyer 2004, 2008).

7 In a 1994 interview, Sargent mirrored this opinion when stating that the interventions of the rational expectations school were especially ‘destructive’ for Keynesianism because they were seen as insiders (Sent 2006, p. 166).

8 In the UK case after the 1997 implementation of full operational independence for the Bank of England by the recently elected Chancellor of the Exchequer Gordon Brown.

9 This denial of state intervention in liberal economic theory should not be seen as directly mirrored in a denial of the use of state power in practical liberal economic governance. For more on the ambiguous relation to the state in the history of economic liberalism, see (Stahl 2019).

10 In time, this meant that the Keynesian programme went from being seen by business as a programme for shoring up the capitalist economy, the increasing power of the state and an emboldened work force, and instead began to be seen as a threat to corporate profits (see Panitch and Gindin 2012, p. 136).

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Rune Møller Stahl

Rune Møller Stahl is a postdoctoral fellow at the Department of Political Science at University of Copenhagen. He studies the historical tension between principles of democratic governance and capitalist accumulation, with a special focus on macroeconomic regulation. His research has appeared in journals such as Politics & Society, Constellations, Politik, and New Political Economy.