In his first White House news conference yesterday, President Obama took a number of direct shots at Chicago School economics and the purist free market theories of Milton Friedman that have guided U.S. and global policy since Ronald Reagan.
Obama didn’t directly name Milton Friedman and his zealous band of disciples, but it was who he had in mind when he said "those theories have been tested, and they have failed. And that’s what part of the election in November was all about."
Though the press conference was mostly about the economic stimulus package, what the president had to say bodes well for climate action, too. It’s okay again to regulate corporations, as a matter of governing philosophy.
Here’s some of what the president said:
Now, you have some people, very sincere, who philosophically just think the government has no business interfering in the marketplace. And, in fact, there are several who’ve suggested that FDR was wrong to interfere back in the New Deal. They’re fighting battles that I thought were resolved a pretty long time ago.
Most economists almost unanimously recognize that, even if philosophically you’re wary of government intervening in the economy, when you have the kind of problem we have right now…..that government is an important element of introducing some additional demand into the economy.
As I said, the one concern I’ve got on the stimulus package, in terms of the debate and listening to some of what’s been said in Congress, is that there seems to be a set of folks who — I don’t doubt their sincerity — who just believe that we should do nothing.
So, you know, we — we can differ on some of the particulars, but, again, the question I think the American people are asking is, do you just want government to do nothing, or do you want it to do something? If you want it to do something, then we can have a conversation. But doing nothing, that’s not an option from my perspective.
And I’m happy to get good ideas from across the political spectrum, from Democrats and Republicans. What I won’t do is return to the failed theories of the last eight years that got us into this fix in the first place.
The reference to FDR was not merely a populist gambit. It is a signal of an important philosophical shift in economic policy that rehabilitates the Keynesian theories which propelled the New Deal. The Chicago School theories that delivered the financial crisis have also prevented climate action: the fanatically free market theory does not believe in regulation of any sort.
Here’s a summary of the failed policies of the Chicago School, courtesy of Naomi Klein in The Shock Doctrine.
It all came back to Friedman’s single-minded message: everything went wrong with the New Deal. That’s when so many countries "including my own, got off on the wrong track." To get governments back on the right track, Friedman, in his first popular book, Capitalism and Freedom, laid out what would become the global free-market rulebook and, in the U.S., would form the economic agenda of the neo-conservative movement.
First, governments must remove all rules and regulations standing in the way of the accumulation of profits. Second, they should sell off any assets they own that corporations could be running at a profit. And third, they should dramatically cut back funding of social programs. Within the three-part formula of deregulation, privatization and cutbacks, Friedman had plenty of specifics. … In short, and quite unabashedly, he was calling for the breaking of the New Deal.
The Bush administration failed in its attempt to achieve the Holy Grail of the Chicago School — dismantling Social Security — but it had a long run reshaping the global economy until the system came crashing down.
It’s time for Obama’s New Deal.