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Chapter4_Neoclassical to failure

Chapter4_Neoclassical to failure - Chapter 4 Neoclassical...

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Chapter 4: Neoclassical Answer to Failure May 1979, Margaret Thatcher led conservative in Britain and returned to individualist capitalism and free-market economics 1980 Regan’s conservative government aimed to roll back state and free market World Bank and IMF developed free-market ideology This started neoclassical assault, not just 1 st world pressure Contents 1. Neo-classical condition 2. Neoclassical Diagnosis of the 3rd World’s illness 3. New Political Economy 4. From theory to Practice 5. Neoclassical Recipe for Development 6. Conclusion Neo classical condition Dates back to 1870s when math introduced to economics Created fissure between economic and political components new discipline of economics and political science People are self interest, so act rationally and efficiently Theorists argue against government regulation and redistributive taxation which was thought to reduce initiative and innovation Dates back to Smith: if individuals are left to pursuer narrow self-interests, society as a whole benefits, whereas individuals compelled to pursuer collective interests, society as a whole suffers Forerunners (Hayek and Chicago school) of neoclassical theory emerged same time as Keynes Only in 50s/60s that criticism of Keynes moved out of margins of the academic community Milton Friedman in contrast to Keynes, argued that fiscal policy offered an effective means to manage capitalism’s boom and bust cycles
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Friedman contended that monetary policy was a more useful instrument Were Friedman assigned government a greater role in the economy than traditional neoclassical theory, still an approach that implied a reduction in the size of state The task of government was to create right environment for businesses and individuals to maximize Friedman’s’ first impact modest but 70s when stagflation hit the developed economies (majority now middle classes) the prominent constituency proposed extreme solution: complete retreat of the state from economic life Along with neoclassical economics, there arose separate but related school of though: neoclassical liberalism Ideas from Locke, with forefathers Smith, Bentham, Mill all reintroduced Classic liberalism stressed individualism above all else Believed that the minimalist state produced not only a better economy, but a better society as well 19 th century, classical liberalism gradually gave way to modern liberalism However, classical liberalism went through renaissance in 1 st world, resulting in neoclassical liberalism This school of thought had less direct impact on 3 rd world politics as did neoclassical economic lit, did help to push political agenda of 1 st world away frp, statism In turn pushed agendas of donor agencies to the right, making state “leaner/meaner” UP Neoclassical Diagnosis of 3 rd World’s Illness Critiques by neoclassical economists focused attention on 3 rd world began
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