Monetary vs. Social Origins of Neoliberalism Inflation, Disinflation, and the Monetarist Delusion

• In Event: 518 - Section on Political Economy of the World System. Open Topic on Political Economy of the World System

Abstract

Recent political sociology of neoliberalism shows that neoliberal policies across advanced capitalist countries are results of distributional struggle between classes in the 1970s and 1980s. The orthodox monetarist view, alternatively, sees neoliberal reform as a nonpolitical attempt to end the stagflation crisis of the 1970s. It argues that monetary and fiscal expansions brought high inflation, and that central bank discipline and government austerity is the solution. However, the monetarist view is increasingly discordant with the trend of low inflation despite accelerating money growth and government spending more recently. Analyzing time-series cross-section data for 23 OECD countries from 1960 to 2009, this paper challenges the monetarist justification of neoliberalism by showing that the rise and fall of inflation is more about distribution of power between labor and capital than about monetary and fiscal discipline. While inflation in the 1970s originated from a strong working class and hurt capital more than workers, neoliberal repression of workers’ power kept inflation low from the 1980s onward. Disempowerment of labor created rising inequality and economic imbalances that fueled a financial boom underlying the global financial crisis of 2008. Re-empowering labor is a remedy to such imbalances and the subsequent deflationary pressure.

Authors

• Ho-Fung Hung, Johns Hopkins University

• Daniel Thompson, Johns Hopkins University