#61 Classical Liberalism Under Siege

The many attacks on liberalism and the shrinking middle ground that it stands on

This newsletter is really a public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?

Welcome to the mid-week edition in which we write essays on a public policy theme. The usual public policy review comes out on weekends.

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— Raghu Sanjaylal Jaitley

We take the classical liberal position on many issues in this newsletter. We like to think we avoid being dogmatic about it. It is a frame that we are most aligned to when we think about policy issues. This explains our allegiance to the invisible hand, spontaneous order, free markets, limited state interventions, free speech, economic growth as a moral imperative and Rawlsian principles of justice. When Fukuyama wrote The End of History And The Last Man, he meant these values represent the final state of evolution of the human government. Nations who hadn’t embraced these values would take time but get there. I’m not sure if he envisaged a scenario where those who had reached this final stage would want to regress to a more ‘primitive’ state.

The Attack On Liberalism

But that’s what is happening all around. The global financial crisis (GFC) of 2008-09, the subsequent bailouts and the monetary response to it, the rise of China, the discontent with globalisation, rising income disparity and the use of social media as a platform for mobilisation have led to the re-emergence of two forces at the ideological extremes. The far-right with its populist impulses that views minorities, immigrants, and free trade with suspicion. And the far left that lays the blame of every current societal failure at the door of what they term the liberal ideological fanaticism. Any critical issue confronting us, from income inequality to climate change, no longer unites the society. Instead, it drives the wedge deeper. Occupying the middle ground is parlous.

The classical liberal position is under attack from both sides. The pandemic has made this worse. The middle is shrinking as the simultaneous economic and health crises has encouraged calls for an overhaul (or overthrow?) of established social and political orders. The right has gone crazy with anti-mask, anti-vax, protectionism and several other conspiracy theories while the left has taken cancel culture, de-platforming, check-your-privilege, free-market paranoia and climate change absolutism to another level.

What’s worrying is how these extremes can no longer be termed ‘far’. In a few editions in the past month, we have written about books and articles written by those who might belong to the middle, that have challenged the liberal order or blamed it for much of our current ills. These are intellectuals who pick up a single failure of classical liberalism during a crisis to examine its failings. Once this strawman is established, they go about destroying it while unwittingly shrinking the middle space and consolidating the extreme position further.  

I have outlined three arguments that have come up in recent works that excoriate liberalism. The idea is to appreciate their grouses and to explore what they mean for classical liberalism in the face of this pushback. The books and articles that I have read include Bland Fanatics by Pankaj Mishra (a collection of essays attacking liberalism), The Deficit Myth by Stephanie Kelton (on Modern Monetary Theory and questioning public finance orthodoxy), Radical Uncertainty by Kay and King (on the limitations of economic models and rationality), Caste by Isabel Wilkerson (on entrenched social hierarchies), Apocalypse Never by Michael Shellenberger (a deeply researched argument against environmental alarmism) and a whole bunch of articles and interviews of Michael Sandel whose new book The Tyranny of Merit will be published next month. I have covered a couple of books (Radical Uncertainty and Caste) in previous editions of the newsletter and I intend to discuss some of these books in more details in future. In this post, I have summarised the three core arguments against liberalism covered in various forms in these books (except Apocalypse Never which bats for liberalism in many ways).  

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Against Political Liberalism

The broader Washington consensus is fraying. More so because Washington itself isn’t interested in it. The rise of populist leaders across democracies is seen as a repudiation of the liberal values that prevailed at the end of the cold war. There are three arguments made here.

First, the rise of populism and nationalism across the globe isn’t an aberration but a natural culmination of the liberal project. Liberalism was a cloak used to cover the imperial excesses of the great empires, the building of military-industrial complex during the cold war, the leeching away of resources of poorer nations in the name of globalisation and the elite oligarchy that now has a stranglehold on capital and media. This argument trashes enlightenment ideals of individual liberty, self-interest and merit as a means of perpetuating class privileges. The breathtaking sweep of this argument ignores the history and the evolution of liberal thought over two centuries, the dangers of collectivism seen under communism during the cold war and the rise in prosperity in nations that have embraced these values over the past century.

Second, the conservative right believes liberalism as a plank has been hijacked by the left that has used it to legislate fringe causes that are antithetical to the silent majority. Liberalism has been used by cultural warriors on the left to shame the conservatives who are anxious about the pace of change and the ability of a fragile society to manage them. The clubbing of left with liberalism has been the unfortunate outcome of this. In defence, the classical liberal values are rooted in the individual, the notion of consent and of self-interest. The idea of a top-down change in social norms isn’t how liberalism works or how liberal values themselves were embraced by any society. Those who have tried (like India) to impose them face an eventual backlash from society.

Third, there is an argument in developed economies about liberalism perpetuating over generations the privileges of the elites and rigging the system to concentrate wealth in fewer hands. This can’t be disputed. There’s data to show this. It’s difficult for liberalism to shrug this off as not its problem when it has been the dominant political ideology in the last four decades. There is a lot to introspect and checking of their premises for the classical liberals here.

Against Economic Liberalism

The GFC broke the spell of a sustained period of consensus on financialisation of the economy, globalisation, easy monetary policy and looser regulations. But there was no real moment of reckoning. The bailouts and the quantitative easing kicked the can down the road. This led to an equity asset bubble in the last decade and deepened income inequality. This has meant a steady and rising drumbeat against free markets, global trade and big business while ideas like redistribution of wealth, greater state intervention and deficit spending by the governments to provide ‘free’ services have gained ground.

The political left has embraced these ideas and the modern monetary theory (MMT) has emerged to provide a scaffolding of economic reasoning to them. At its heart, MMT seeks to do away with monetary policy, or at the very least, make it subservient to fiscal policy. The idea that a government can print its way to spend money on whatever they wish to while controlling inflation through taxes or through credit rates is untested and somewhat impractical. But it is quite seductive to those who are asked – where will you get the money to fund your ‘free’ scheme? The simple answer these days is print money because MMT says so. There’s no doubt that excessive veneration of supply-side economics and the belief in monetary tools for policymaking led to the GFC. The response to that can’t be to revert to proven failed policies of excessive state interventions or convenient and untested theories like MMT.

Against Merit

This has been a blind spot for classical liberalism which has viewed merit in a narrow frame without paying adequate attention to the starting position of individuals and the idea of a level playing field. Over the years, the notion of merit has been contested by sociologists and philosophers who have argued for principles of justice that account for advantages of starting position and social lottery of birth. There is truth in odds being in favour of the already advantaged.

The liberal position over time has evolved to understand and champion the Rawlsian view of fair equality of opportunity and the difference principle. This meant the inclusion of affirmative action and the recognition of historical prejudices of specific social identities within the classical liberal worldview. This led to greater social mobility and reduction in inequality for the most part of the last half a century than ever. However, it is true this has stalled over the last decade in the developed economies.

Instead of searching for what changed in the last decade that led to this, we are seeing a renewed attack on merit. This has meant questioning merit based on biological advantages and seeking to level the playing field here too. In addition, this line of attack also questions technocratic solutions and role of experts in areas of governance because such competencies have been built on flawed notion of merit. The question why an Ivy league degree should provide an advantage for addressing public policy issues often comes up as part of this. This is dangerous and provides ammunition to the ‘anti-expert’ worldview of the far right that’s prevalent currently. Beyond a point, individuals will have different capabilities and respect for merit differential is important for society to be productive and retain its ability to solve its most difficult problems.

Questioning merit has also manifested in variations of “check your privilege” arguments. This framing gets the problem definition mostly right: yes, discrimination based on caste, gender, class, and ethnicity are all persistent realities. What it gets wrong is the solution.

The implied solution is to bring down and ‘expose’ the privileged — businesspersons, politicians, sportspersons, and so on. Essentially anyone this movement thinks is successful or powerful. With an ever-increasing circle of who gets labelled as ‘privileged’, this framing descends into identitarian warfare, not qualitatively different from religious bigotry. This solution starts losing people at the margin once the process of bucketing every individual as a privilege-beneficiary begins.

Fighting On Many Fronts

Classical liberalism is facing the crisis of a doctrine that’s been dominant for long. It is simultaneously seen as the problem by ideologies that are poles apart. Its many achievements are glossed over while its imperfections of recent vintage have been played up. The alternatives being suggested border on anarchy through right-wing populism, untested wild theories via MMT and unfettered deficit spending, or ghosts of our failed past in opting for an overbearing state, redistribution, and socialism. But revolutions don’t have to offer a better alternative. They succeed by pulling down the incumbent. Classical liberalism has a fight on its hands.

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HomeWork

Reading and listening recommendations on public policy matters

1. [Podcast] Yascha Mounk takes on his teacher and rockstar Harvard professor Michael Sandel on meritocracy in The Good Fight podcast. Sandel is a great teacher but struggles here to defend his fairly extreme positions against merit.

2. [Article] A longform piece by Pankaj Mishra in the London Review of Books where he rails against Anglo-American exceptionalism, globalisation, liberalism and everything in between. It is a great work of rhetoric but all sound and no light which is sort of expected.

3. [Video] MMT (Warren Mosler) versus Austrian School of Economics (Robert Murphy) debate on macroeconomic theory and monetary policy.

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If you like the kind of things this newsletter talks about, consider taking up the Takshashila Institution’s Graduate Certificate in Public Policy (GCPP) course. It’s fully online and meant for working professionals. Applications for the August 2020 cohort are now open. For more details, check here.