Extravagances of Neoliberalism

“I gotta use words when I talk to you,” T.S. Eliot had a character in one of his plays complain, not unreasonably. The chronic problem becomes acute in the case of economic history, where the available words seem at once too technical and too vague. The problem word for the period stretching roughly from 1948 to 1973 is Keynesianism. There, the technical part concerns the prewar idea of the English economist John Maynard Keynes that governments should borrow and spend to keep people working and firms operating during economic downturns, when confused common sense typically maintained that governments should instead tighten their belts during lean times. After the war, Keynes’ recommendation of emergency borrowing became a description of perennial policy, as the budgets—and budget deficits—of rich countries ballooned in hopes of purchasing social peace through full employment. The vague allusions accompanying the term Keynesianism have to do with developments stemming in large part from such policies: further elaboration of the welfare state; advances in the rights and status of women and racial and sexual minorities; declining inequality; higher income taxes; greater labor militancy; and so on.

For a period stretching from the early 1980s (say, Reagan’s defeat of the air traffic controllers’ strike in 1981) until at least the financial crisis of 2009, the handiest unhelpful word is neoliberalism. Technically, this refers to the economic philosophy that populations tend to prosper to the extent that markets are free and the government sits on its hands. In practice, the philosophy was most often honored in the breach by those administrations friendliest to it; government budgets remained about the same size, and markets were still managed, only now to the clear advantage of owners rather than workers. Socially, neoliberalism is therefore associated with a host of opposite phenomena to the Keynesian cohort: retreat of the welfare state; uneven and sometimes undone progress in the emancipation of women and minorities; mounting inequality; lower income taxes; a cowed labor movement; and so on. How did Keynesian conditions become neoliberal ones? In her new book Counterrevolution: Extravagance and Austerity in Public Finance, the economist Melinda Cooper concentrates on the interregnum between Keynesianism and neoliberalism. Her uncommonly radical and eloquent history shows how what were once the fringe ideas of a set of American neoliberals became, over the last four decades, a new and pervasive way of life.

Melinda and I spoke about Counterrevolution over Zoom last month. Our conversation has been condensed and edited for clarity.

—Benjamin Kunkel

Benjamin Kunkel: Maybe the first thing to do is to ask you about neoliberalism because your book, which discusses the rise of neoliberalism since the 1970s, adds to a pretty considerable literature on the subject, and a complaint you’ve probably heard in recent years is that the word has been used too widely to be meaningful anymore.

Melinda Cooper: My response to that critique is to say, well, let’s get a better definition. And if you’re someone who is attentive to the history of political thought, if you have an agonistic rather than a structural account of capitalist history, then you can’t not think in terms of these long traditions of thinking and practice. I see classical economic liberalism and conservatism as agonistic expressions of modern capitalism. And I am interested in the specific forms they have taken in recent history.

What I understand by neoliberalism is partly Philip Mirowski and Dieter Plehwe’s idea of the “thought collective,” which traces the collective biography of people who began meeting in the 1930s—people like Milton Friedman, Ludwig von Mises, and Friedrich Hayek, people connected with the Mont Pelerin Society—and I think almost all the characters in my book have some link to that ongoing network. This was an effort to salvage classical economic liberalism from the crisis of the Great Depression and the rise of Keynesianism after the Second World War, at a time when economic liberalism was very much on the defensive. It’s a project that escalates after the leftist uprisings of the 1960s and takes real political form in the 1980s.

However, the “thought collective” framework doesn’t work when we take into account so-called third-way neoliberals who came from the labor left or social-democratic center, so my definition expands to include these people, like Bill Clinton in the United States or Tony Blair in the UK and Prime Minister Bob Hawke in Australia.

BK: The title of your book is Counterrevolution. In what way did the Keynesian regime, even if it didn’t quite constitute a revolution, amount to something in that direction, such that there could then be a counterrevolution?

MC: There’s an interesting thesis that was contemplated by only a few on the left at the time—but widely anticipated by theorists on the right, beginning with Austrian economist [Joseph] Schumpeter in the 1910s. The idea was that the welfare state itself, if pushed beyond the framework of consensus or mediation, could be an alternative route to revolution. That is, the expansion of social spending beyond the Keynesian consensus would lead toward another kind of revolution than that which we associate with classical Marxism. We’re no longer talking about an external seizure of the state. We’re talking about an intensification of the Keynesian redistributive promise beyond the limits that are tolerable to capital.

The fiscal expansionism of Keynesianism is necessarily limited because it can never go so far as to endanger profits. There is always a margin of the working class that is defined as surplus or lumpen and so excluded from the public spending remit of the Keynesian state. But this exclusion also tends to express itself in the form of already established social hierarchies of gender and race. What you see in the 1970s is an incredible efflorescence of militant labor politics on the one hand, but you also have all these minorities who are making demands on the fiscal state, minorities that were explicitly excluded from the New Deal social contract. You have women claiming equal wages at the same time that working-class men are pushing up the industrial wage, single and African American women claiming equal rights to welfare, and public sector workers engaging in wildcat strikes. The exclusion or marginalization of these minorities was what maintained the fiscal and monetary equilibrium of the Keynesian state. When it is disturbed, you have a real threat to the Keynesian project of mediation between labor and capital. There is a definite note of hysteria in right-wing fears of hyperinflation and unsustainable debt burdens during this period. But there is also a simple recognition that business interests only bought into the New Deal social contract because its beneficiaries were limited in number.

BK: And you point out the public sector workforce was disproportionately Black.

MC: The neoliberal thinkers of the time were extremely frightened by this new kind of unionism, partly because it sprung up from within the state and partly because its actors were disproportionately Black and female. Many of the neoliberal thinkers I talk about had made their peace with a certain kind of New Deal business unionism. But once they saw this new wave of working-class militancy arising in the early 1970s, where wages were rising faster than consumer prices, and then they saw women and people of color becoming militant in public sector unions later in the decade, this is when they rejected the project of the welfare state en bloc. This was the catalyst for what I call counterrevolution.

BK: You point out the backlash wasn’t merely racial, it also had lot to do with anxieties about the Keynesian welfare state ultimately undermining the heterosexual nuclear family.

MC: Keynesianism as implemented in the United States and elsewhere is tightly connected to the institution of the male breadwinner wage. So you make a kind of bargain with the unionized male working class, primarily white, that they will see rising wages sufficient to provide for a wife and children. This is not a wage premium that will be extended to women, of course, despite the fact that single women (compared to single men) are much more likely to find themselves in the situation of looking after children alone. The presumption is that women will provide non-waged labor in the home.

BK: So as soon as you see married women reentering the workforce that’s going to upset that equilibrium.

MC: This is the institutional form in which the Keynesian limit is enacted—there’s always a limit to the concessions that the capitalist state is prepared to make. And that limit is: “We will not go beyond the white male citizen worker.” As soon as you get demands that come from the margins, then the whole fiscal architecture collapses. All of a sudden, business associations that were very much part of the New Deal social compact are saying, “Oh, no, this isn’t working for us anymore.”

BK: The wage demands of the 1970s are often discussed in terms of erosions of profits and the unleashing of inflation, but you point out they were also important in terms of what the right feels are the deleterious effects of full employment (or something approximating full employment) on the sexual behavior of both men and women.

MC: All these right-wing thinkers are much more comfortable thinking about the blurred lines between sexual and economic politics than many thinkers on the left. And they understand that Keynesianism rests on a certain kind of sexual contract. Any challenge to this order—whether it be an escalation of wage or benefit claims, or the flight from sexual normativity, or unmarried women claiming welfare benefits—disrupts the fiscal and monetary calculus on which Keynesianism rests. Public spending becomes profligate, debt burdens become intolerable, inflation spirals out of control. All of which is to say that the state is subsidizing marginal lives more than it is subsidizing capital.

BK: Moralizing women’s sexual behavior is such a familiar part of American political life down to the present day, where we’ve just seen abortion outlawed in many states, that we sometimes don’t think about the ways in which male sexual behavior is meant to be disciplined by economics as well. You’ve got a remarkable passage early on in the book about “the feminized man” and 1970s stagflation. How did that work?

MC: There was certainly a fear of women becoming too waged and too powerful, and this was very much exploited by the right to divide private against public sector workers at the time. But the fear could also express itself, in opposite terms, as a feminization of men. What made it worse was the perception that some men were willingly embracing their feminization. Someone like the supply-side economist Martin Feldstein blamed stagflation on workers and an over generous welfare state. He looked at the data and said, “What is really happening here is that workers are just dropping out of the workforce because unemployment benefits incentivize them to be indolent, to be nonproductive, and to forsake their roles as working men and breadwinners.”

BK: One of the things we might expect from the first half of your book, if we didn’t know what had happened next, after the 1970s, would be a reintroduction of the family wage, in order to shore up the traditional family. In fact, that’s not what happened at all. In our neoliberal times, the breadwinner wage tends to disappear, with effects on family formation for working class people that are talked about a lot these days. And the reinforcement of the traditional family takes place differently than through wages. Do you want to explain how that happens?

MC: In order to go back to the family wage, you’d have to have a return to some kind of welfare state project, however chauvinistic, and some kind of compact with labor. There are elements on the right today that do want to revive that option. I’m thinking of the journal Compact and the people associated with that. But there aren’t that many of them and their labor politics don’t go much further than rhetorical gesturing. So it really has been forty years of neoliberalism tending towards libertarianism, which really foregrounds the old poor-law idea of private family responsibility—

BK: But not through wages—more through finance. The counterrevolution that you talk about involves a lot of tax breaks that favor suburban home owners, and the way that the family seems to be shored up, for a certain class, is through asset-price appreciation, especially that of homes.

MC: When we look at the bottom of the social ladder, the earned income tax credit is the only concession to low-income households that Democrats wholeheartedly embrace. The idea comes straight out of Milton Friedman’s response to the welfare rights movement of the 1970s. His basic argument was: “Okay, if we’re going to have some kind of baseline form of welfare, it has to be something that’s retroactively paid in exchange for productive work. So you have to work first, and then there will be a tax credit. We don’t want to incentivize non-work.” And that’s as good as it gets. It doesn’t apply to the very poor or those whose work is non-formal or illegal; it only applies to people who have a formal, taxable working history. But from the 1990s on, Republicans are attacking even that.

On the other hand, for people who are better off, you have all kinds of incentives to wealth accumulation through capital gains, which is the tax-accounting word for asset-price appreciation, or asset inflation if you want to be more polemical. That might take the form of tax preferences for capital gains in liquid financial assets such as shares, for instance. But for most people, it takes the form of tax subsidies for homeownership. Partly, this is about supporting the real estate industry, but it’s also informed by the idea of private family responsibility for welfare. If you own your own home, we will do everything in our power to promote rising house prices, and this in turn will allow you to borrow against your home to support your family into the future. Perhaps your wages are stagnating, but your home will be rising in value like any other financial asset. So you exchange asset-price inflation for wage inflation. And family asset holdings for the family wage. Neoliberals and social conservatives, particularly religious conservatives, are very much in favor of tax preferences for home ownership because they see it as a way of rehabilitating the family as much as ensuring economic security. The supply-side politician congressman Jack Kemp, who I spend a lot of time writing about in the book, very much straddles these two positions.

BK: Something that might surprise some readers is your treatment of tax breaks as state expenditure, which is not what we think of them as being most of the time. This is part of your theme of the secret—and reactionary—extravagance of neoliberalism.

MC: The idea that tax cuts are functionally equivalent to direct spending is not controversial analytically. Even quite conservative scholars will recognize that as soon as you introduce some kind of exception to an existing baseline rate of income taxation, this will have the same effect on government budgets as direct spending. The idea of tax expenditures is politically controversial, however, as it undermines much of the rhetorical advantage won by tax cut enthusiasts of the right. It is in their interest to sell tax cuts as a way of shrinking state power and forcing frugality on the big “tax and spend” state. Quite a few of the characters in the book went out of their way to try to get rid of any form of government accounting that recognized tax cuts as equivalent to government expenditures.

Norman B. Ture is one of the hidden figures behind the supply-side movement. He was enormously important because he had worked for many years in government and knew how budget accounting worked, so under Reagan he went on a personal campaign to delegitimize the tax expenditure budget. In reality, supply-side neoliberals were all about extravagant spending, but they were very clear that this spending had to take the form of so called tax incentives, their euphemism for tax expenditures. Why? Because this kind of spending lends itself much more easily to conservative ends. It is not generally perceived as spending. It is much easier to push through the legislative process. It excludes the very poor and for various technical reasons, it is much easier to deploy regressively.

BK: One of the interesting dynamics of the book is between conservatives who promote a balanced budget and conservatives who, without explicitly promoting this, favor a bonanza of state debt. Explain how this works. Because if you buy the self-description of neoliberalism, it sounds like shrinking the budget of the state.

MC: My book focuses on Virginia school neoliberalism and supply-side economics because these are the two currents that most dramatically influenced the tax and spending practices of American government from the late 1970s onward. Interestingly, however, they often look like they are espousing radically different policy positions, notably on the question of public debt issuance and deficit spending

Virginia school neoliberalism is all about austerity. They are, I think, genuinely naive about the way that public debt works in modern economies. There’s almost a theological element to their reading of debt and deficits as tantamount to sin. And this has everything to do with its roots in the conservative Southern Democratic tradition.

Supply-side economics, on the other hand, is all about extravagance. The people I call the elite supply-siders came out of successive Republican Treasury Departments, a lot of them involved in the bond market. They know that American public debt is playing multiple roles, and, after the closing of the gold window by Nixon, they are aware that the floating dollar becomes absolutely pivotal in global markets, not least as a form of collateral, which enables the United States to escape many of the limits that weighed on its public spending and interest-rate policy under the gold convertibility regime of Bretton Woods. The supply-siders understand this perfectly, and are some of the first to really analyze this in microscopic detail. Robert Mundell, the Nobel Prize–winning economist and father of supply-side economics, from very early on said, “This is what is going to happen. We’re going to be released from all these limits to spending.” All we have to do is suppress domestic inflation.

This last element is missing from the account of a heterodox economist like Michael Hudson, who tends to say, “Well, look at U.S. debt imperialism—it’s just all extravagance. While the rest of the world is condemned to austerity, because of dollar hegemony the United States can spend wildly.” That’s not quite right. Dollar hegemony means selective austerity at home too. Extravagance is only admissible when it comes to certain kinds of spending. It’s spending that will not promote wage inflation or empower labor or the poor. Why? Because as soon as there’s any threat of wage-price inflation, you will have a flight from the dollar by financial asset holders around the world, as you saw in 1978. The United States can be extravagant with military spending or tax expenditures, but not with redistributive social spending. The supply-side economist Paul Craig Roberts put it succinctly when he said that there are basically two kinds of deficits—Keynesian and non-Keynesian, inflationary and non-inflationary. Obviously, they preferred the latter.

BK: So austerity and extravagance are two sides to the same dollar?

MC: Yes, for supply-siders and the Virginia School, there is finally a kind of entente. They both end up endorsing austerity of a certain kind—it’s just that the supply-siders have realized that the United States can spend ad infinitum on subsidies to financial asset-holders. As long as they’re subsidizing an increase in asset prices, rather than the social wage, it’s all fine. They can only indulge in spending extravagance if its redistributing upwards. With the end of dollar-gold convertibility under Nixon, the United States enters a period where technically speaking it can be much more extravagant than other countries in its issuance of public debt. And yet the public spending which this authorizes cannot be redistributive in any way.

BK: We’ve just discussed the reactionary asset-price Keynesianism of recent decades, in which the extravagant issuance of public debt becomes a boon to holders of wealth. One of the most interesting and exciting suggestions in your book is that, in theory, something very different might happen instead, that these tools of relentless financialization might be bent to the purposes of the left. Let me quote from your conclusion: “There can be no truly radical change to capitalism today without some larger vision of collectivized money creation and spending. The question of how to organize money creation while releasing it from the constraints of private property is key to a postcapitalist praxis. Without this horizon, anarchist mutual aid becomes a leftist adaptation to austerity and Marxist anti reformism, an admission of defeat. What then would it take to radicalize the project of socialized finance?”

MC: I think a lot of people on the left have arrived at this position by different pathways. There has been a revival of interest in the later work of the Marxist state theorist Nicos Poulantzas, not because his solutions are immediately applicable to our current moment (on the contrary) but because his acute strategic sensibility can be helpful in thinking about the historical complexities of the relationship between the state and the revolutionary left. Poulantzas committed suicide in 1979, so he was only just beginning to write about the neoliberal turn of the state. He was part of a current within Marxism that was attentive to the fact that many of the practices and demands of the late nineteenth-century workers’ movement had been folded into, and captured within, the Keynesian welfare state either retroactively or preemptively, so that any desire to simply smash the state becomes impossible. Are you going to smash public schools or libraries, for instance? There were elements within the global left that were grappling with this issue and what it meant for left practice well into the 1980s. I’m thinking of the London Edinburgh Weekend Return Group, which proposed the notion of working “in and against the [late Keynesian social] state” as a form of revolutionary praxis, very different to the kind we associate with nineteenth-century Marxism.

Today, we are faced with a much more difficult set of circumstances. How do we work “in and against the state” when we are dealing with a neoliberal state that is so deliberately antisocial?  A state that is intent on downsizing or outsourcing its historically assumed social obligations and public services? Firstly, it’s not as if the neoliberal state has abandoned its social functions en bloc. It’s just that it takes a very circuitous and regressive route to financing them. For some, any access to basic social goods translates into a constant state of personal and household indebtedness. So debt refusal as a way of collectively amending the public ledger becomes incredibly important. I’m thinking here of the strategic vision of the Debt Collective but also of attempts to simply shut down the mechanisms of petty debt collection in the lower courts. This is not just a way of evading the punitive power of the state, it is also a strategy for forcing certain kinds of expenditure back onto state ledgers, hence turning them into “free” public services again.

In other instances, the state is subsidizing employment-based health insurance or pensions, yet this money is being funnelled into giant mutual funds such as BlackRock and from there into corporate equities or private equity ventures that are terrible exploiters of renters and nursing home patients or outright hostile to the conditions of workers in other sectors (I’m thinking of the ways in which public pension funds have been leveraged to downsize companies and attack workers in the private sector). Is the Republican right really afraid of Larry Fink and BlackRock and its supposedly woke ESG campaigns? I doubt it. But it may be afraid of the growing rank-and-file militancy we see in the union movement and the effect this might ultimately have on institutional capital flows. Public pension fund trustees are at one remove from public sector unions themselves. But there is a pressure point there, and public sector unions have become increasingly adept at connecting the dots between the wage, social insurance, institutional capital, and private equity.

Of course, I am very interested in the various technical proposals for socializing finance and rethinking central banking that have come out in recent years. But I also think to get there we need to be thinking from the bottom up, looking at what kinds of militant strategies are likely to pull the levers of public finance from below.

BK: What might a world of socialized finance look like? What we could do that we don’t do now as societies?

MC: It would mean all kinds of public goods and services that today are de facto privatized or written off as unaffordable would be freely available or low cost. Not just public schools but high-quality public schools with well-paid teachers, free college education, universal medical care that funds a public health care system, free childcare, and free aged care. It would mean that the essential infrastructures of daily life—housing, transport, water, and energy—would be redefined as public goods.

On the flip side, a world of socialized finance would cut out the middle men that currently make public investment so laborious: instead of coaxing private actors and asset managers into investment projects with tax expenditures and instead of forcing “users” to subsidize their returns into the far future, public investment projects would revert as far as possible to direct government spending sustained by a progressive tax system and an accommodative central bank. We cannot avoid the tax issue, as Modern Monetary Theory sometimes does, because we need to actually eliminate tax subsidies to private investment. This would allow us to accelerate urgent projects such as renewable energy transition that are currently failing not because they are too expensive but because they are too cheap and provide too few opportunities for private profit making and rent extraction.

BK: And in such a world, presumably, the family or the household would look different too.

MC: With greater public abundance, intimate coercion becomes escapable. It becomes escapable for those whose historic economic dependence have made them most vulnerable to personal violence: women, mothers, children, the young. We’ve seen this historically. In periods where unemployment benefits rise, tuition is free, and housing is cheap, people are much more free to experiment. They have more space not just for creating new kinds of relationship or kinship structure but also for escaping them when they don’t work.