The Decline of Neoliberalism: Its Ideological Collapse and the Shifting Role of Economics

Suresh Naidu, a professor of economics and public affairs at Columbia University, dissects neoliberalism as a multifaceted ideology operating on three distinct levels: high theology, concrete policy arguments, and folk wisdom. He explains that its intellectual foundation lies in the First Fundamental Welfare Theorem, which posits that laissez-faire, under ideal conditions of no externalities, complete contracts, perfect markets, and perfect competition, yields an optimal outcome that government intervention cannot improve upon without making someone worse off. The policy aspiration of neoliberalism, therefore, became to actively create or replicate these ideal market conditions by removing barriers to entry and establishing clear property rights, while its folk wisdom propagated the belief that markets are inherently superior guides for societal well-being compared to an incompetent and distortionary government.\n\nNaidu argues that neoliberalism's underlying coalition of intellectuals and interest groups has fragmented, leading to its demise. He attributes this collapse primarily to its inability to adequately address the escalating global challenges of inequality and the climate crisis, which have grown too large for the ideology to contain. He points to political shifts like Brexit and the election of Donald Trump as early indicators of this ideological breakdown, suggesting that the number of true neoliberals has significantly dwindled.\n\nA key economic argument for neoliberalism's obsolescence, according to Naidu, is its failure to account for modern economic realities. The doctrine of pricing according to marginal cost, central to neoliberal thought, becomes nonsensical when confronted with global congestion problems like carbon emissions, where returns to scale, low marginal costs, non-rivalries, and common pool problems are not peripheral but central to humanity's challenges. The First Fundamental Welfare Theorem's underlying economics, he notes, was not designed to handle such pervasive returns to scale.\n\nThe profound implication of neoliberalism's end, Naidu concludes, is the potential "dethroning of economics as the master social science." This suggests a necessary re-evaluation of economic paradigms and a shift away from models that prioritize marginal cost pricing and perfect market replication, towards new frameworks capable of addressing complex global commons issues and the inherent characteristics of a modern economy dominated by increasing returns and non-rival goods.

"every ideology operates like the catholic church it operates at the level of like high theology big abstract ideas it operates at the level of concrete policy arguments and things to do it's like an advice to kings and princes and then it operates as like folk wisdom is just like the common sense that everyone has"

"neoliberalism as any good successful ideology also operated at all three levels"

"intellectually kind of derives from in some sense the first fundamental welfare theorem of economics where it's like okay well if you have blah blah no externalities complete contracts perfect markets perfect competition then laissez-faire basically delivers an outcome that the government can't improve on without making somebody worse off"

"the policy aspiration becomes to replicate the conditions under which laissez faire works"

"government can't really do anything properly better better better let the market do it the market will guide entrepreneurs to doing the best by society's metrics and you know the government's kind of this bloated incompetent distortionary force"

"inequality and climate crisis have just gotten too big for the ideology of neoliberalism to just its coalition has just fallen apart"

"one of the reasons we need to go past neoliberalism is that i don't know that there are that many neo-liberals anymore"

"if we clearly face this congestion problem on a global scale of filling the air with carbon that the doctrine of pricing according to marginal cost just makes no sense"

"given that we have transitioned to this economy in which returns to scale sort of low marginal costs non-rivalries common pool problems are just not on the periphery of the problems of humanity but rather front and center to the problems of humanity and economics kind of coming out of the doctrine that price equals marginal cost is the the thing to aspire to just doesn't work"

"what i think will come along with kind of an end of neoliberalism is just a dethroning of economics as the master social science"