Yet, as the year grew to a close, it slowly dawned upon most of us that the natural presumption that we were capable of rousting ourselves from the gasping nightmare, that we might proceed to learn from the mistakes and fallacies of the era of Neoliberal Follies, was itself just one more insidious hallucination. A dark slumber cloaked the land. Not only had the sense of crisis passed without any serious attempts to rectify the flaws that had nearly caused the economy to grind to a halt, but unaccountably, the political right had emerged from the tumult stronger, unapologetic, and even less restrained in its rapacity and credulity than prior to the crash.

In 2010, we were ushered into a grim era of confusion and perplexity on the left. It took a rare degree of self-confidence or fortitude not to gasp dumbfounded at the roaring resurgence of the right so soon after the most dramatic catastrophic global economic collapse after the Great Depression of the 1930s. "Incongruity" seems too polite a term to describe the unfolding of events; "contradiction" seems too outmoded. Austerity became the watchword in almost every country; governments everywhere became the scapegoats for dissatisfaction of every stripe, including that provoked by austerity. In the name of probity, the working class was attacked from all sides, even by nominal "socialist" parties.

By contrast, the financial institutions that had precipitated the crisis and had been rescued by governmental action were doing just fine—nay, prospering at precrisis rates—and in a bald display of uninflected ingratitude, were intently bankrolling the resurgent right. Indeed, the astounding recovery of corporate profits practically guaranteed the luxuriant postcrisis exfoliation of Think Tank Pontification.

The weight of the 1920s-decorated rooms, and the grey presence of so many headliners of the economics profession (which we are making the most of with the interviewing) is creating great confusion about what is “new” in New Economic Thinking. One line is nostalgia and it began with the opening session when Rogoff recalled with regret and humor how as a young man he was unengaged by Charles Kindleberger’s teachings . . . In a trope that I saw repeated thrice, it was said that economics is at a stage where a Copernican revolution has occurred but one needs still to use Ptolemaic cosmology for a few decades more, for policy advice . . . None of this is new, and worse still, none of it is very critical.

Unlike Gordon Brown, Mr. Summers portrayed himself in the role of a Chinese mandarin tired at the world daring to challenge his mandate from heaven. For example, when the irrepressible Yves Smith asked Larry Summers about whether banking risks in the United States could not be helpfully diminished if its large institutions were run (read: compensated at the top) more like utility companies, he immediately aborted any effort at an intellectually honest answer by making it sound as if she were proposing to bring state socialism to banking.

For Summers, the problem is that there is so much that is “distracting, confusing, and problem-denying in . . . the first year course in most PhD programs.” As a result, even though “economics knows a fair amount,” it “has forgotten a fair amount that is relevant, and it has been distracted by an enormous amount.”

Yet the nightmare cast its shroud in the guise of a contagion of a deer-in-the-headlights paralysis: beyond their pretense of expertise, no one who fancied themselves opposed to neoliberal decadence really possessed solid convictions concerning where the intellectual failure behind the crisis should have been well and truly situated.

To a historian, it is striking the extent to which the neoliberals have repeatedly taken ideas from the left over the last half of the twentieth century and twisted them to their own purposes. Perusing the papers from the New York conference, however, one finds instead mostly predictable platitudes and tired retreads about the wicked government causing the crisis.

But the neoliberals have not won by default—that would be a sorry interpretation of events. Neoliberals don’t let a serious crisis go to waste. Instead, the thought collective subsequently made a number of moves that cemented their triumph.

Monotonous repetition seems to have fortified the right admirably well in weathering the crisis, whereas by contrast, it has delegitimated the left to an even greater degree than its rather parlous status during the decade of the Great Bubble.

Nothing substantial has been altered in the infrastructure of the global financial system from its state before the crisis. Government “reforms” have proven superficial at best in both Europe and the United States. Further post-2008 evidence of debilities, such as the “flash crash” of May 2010, the epic failure of the BATS IPO in March 2012, and the Knight Capital meltdown in August 2012 passed without serious concerted response, even though they suggest that market malfunctions run deeper than the conventional fixation over mortgage securitization and banking fraud.

The predominant focus upon government austerity programs as the central response to the crisis demonstrates that public discourse has degenerated to an analytical level that one would have recognized in the early 1930s. The MPS apparently has not suffered the ignominy of dramatic falsification of its cherished economic ideas; rather, it has been its opponents situated on the “level-headed left” that have collapsed instead.

Furthermore, as if that weren’t bad enough, no one volunteers to relive a nightmare; what they want is to be rousted back to the comforts of consciousness. The latter-day appeal of these crisis books seems to have become limited to those who harbor a penchant for crunch porn. By 2012, it seems most people had begun to tune out most serious discussions, and flee the tsunami of l’esprit de l’escalier.

What if the people who helped bring on the crisis were quite literally laughing all the way to the bank as the financial system approached the precipice? Gales of merriment apparently rocked the meetings of the Federal Reserve Open Market Committee, as revealed by a tabulation of all the recorded instances of stipulated “[laughter]” in meetings transcripts from 2001 to 2006, reproduced in Figure 1.1.

The filmmaker Adam Curtis has written in disgust, “Despite the disasters we are [still] trapped in the economists’ world.” Yet it will become necessary for us to differentiate the world of the economists and the world of the neoliberals. This conflation is an affliction of many on the left. A major sticking point here is that neoliberals themselves generally do not believe in the comic-book version of laissez-faire sometimes promoted by the economists. They may profess it to the masses; they may even propound it in Economics 101; but it does not characterize their sophisticated internal discussions, and is belied by their political activities.

Maureen Tkacik caught a glimpse of what is disturbing about the plenitude of Monday-morning quarterbacking: … What was easy to convey was that something about the past ten years had been unsustainable. But the truth—that an entire ideology had been unsustainable—is one that we have not yet grasped. And that is why so many journalists, economists, intellectuals and financiers now scramble to churn out books that for the most part read like the memoirs of people trying to make themselves feel less stupid. The current financial system was constructed to make us all feel stupid, and in the process of building it the architects allowed themselves to become stupid as well.

The crisis has not only wrought the economic insult mutely suffered by so many; it has also inflicted a breakdown in confidence that we can adequately comprehend the system within which we are now entrammeled. It has been de rigueur to denounce the antics of groups like the Tea Party, Golden Dawn, the True Finns, and the Front National; but can the left really claim it has been all that more sober, thoughtful, and incisive since 2007? The problem I grope toward in this volume is: How can people dismayed at the unexpected fortification of the Neoliberal Ascendancy feel less stupid? What would a useful intellectual history of the crisis and its aftermath look like?

The complexity of the system far exceeded the capacity of the participants, experts and watchdogs. Even after the crisis happened, it was devilishly hard to understand what was going on. Some people managed to connect the right dots, in the right ways and at the right times, but not so many, and not through such reproducible methods, that it's clear how we can make their success the norm. But it is clear that our key systems are going to continue growing more complex, and we're not getting any smarter.

After the crisis, professional explainers from all over the map were throwing up their hands and pleading that the economy was just too complex to understand. Better to treat the Great Recession like an Act of God, and simply move on. This is a cultural debility that predated the crisis but has worked wonders in immobilizing responses to the debacle. As described in chapters 2 and 3, and anatomized in chapter 6, the neoliberals have developed a sophisticated position with regard to knowledge and ignorance; getting a grip on how they manage to deploy ignorance as a political tool will go some distance in dispelling the onus of having been transparently duped.

When considering the relationship of formal economic knowledge to social movements, it has become commonplace for pundits to quote the dictum of John Maynard Keynes in the General Theory: "Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back." However stylish was Keynes's prose, the rudimentary sociology of knowledge propounded therein has turned out badly flawed. Far from ectoplasmic missives from the late lamented, a simulacrum of a genteel Edwardian séance, the injection of economic ideas into quotidian politics has been conducted in ways both more concrete and yet more convoluted than is suggested by this rather tendentious bit of economists' self-flattery.

In the throes of the red-misted nightmare, it looks as if the crisis, otherwise so virulent and corrosive, didn't manage to kill even one spurious economic notion. This is not exactly news. John Quiggin has entertainingly dubbed the phenomenon Zombie Economics, and deserves kudos for stressing this point. Incongruously, Friedrich Hayek's Road to Serfdom has returned to best-seller lists after a long hiatus. Even Ayn Rand has apparently enjoyed a new lease on (undead) life. One can readily agree with Colin Crouch: "What remains of Neoliberalism after the financial crisis? The answer must be 'virtually everything.'"

This book therefore seeks to supplement it along a crucial dimension: it explores the economic crisis as a social disaster, but simultaneously a tumult of intellectual disarray.

The Great Contraction has completely wrong-footed people who used to be called “socialists” or “progressives,” confounding every expectation that they had finally achieved some small measure of vindication for their understanding of the economy. It ushered in a mongrel regime leaving them baffled and bewildered, such that one frequently heard them wonder out loud whether there was any left left.

Without a doubt, there had been important alterations in regulatory structures since 1980, and I will point to some of them in this book; but in no sense were they a simple removal of strictures that could or should be reinstated in any sense. To accept the language of “deregulation” is to become ensnared in a web of concepts that serves to paralyze political action. The neoliberals have openly expressed contempt for their opponents’ easy appeals to “reregulation”; and I think the time has come to take them far more seriously.

Appeals to “free markets” treat both freedom and markets as undefined primitives, largely by collapsing them one into another. It takes substantial theoretical sophistication to keep this fact front and center in the political disputes of the modern era; both neoclassical and Marxian economics have not proven salutary in this regard. This book aims to remind us that economics turns out to be good to forget with; one prophylactic will be recourse to a different approach to economics, one that is antithetical to core neoliberal tenets at its ontological base.

There is another way Team Regulation inadvertently capitulates to Team Greed. Team Regulation often has quipped a quick one-liner justification for its prescription: there were no financial crises (often left unstated: in the United States) from the 1940s to the mid-1980s; therefore, all we need do is reset all the dials back to that Golden Era. In subscribing to this notion, the left unconsciously accepts the key notion of the populist right and the neoclassical orthodoxy, that “nothing is substantially different between then and now.” Markets are timeless entities with timeless laws, they insist. Indeed, this is the identical premise of some of the most popular crisis books of the last few years, from Kenneth Rogoff and Carmen Reinhart’s This Time Is Different to David Graeber’s Debt: The First 5,000 Years. Yet that is precisely where the polemical divergence should originate on the left. Things are profoundly different about the economy, the society, and in the global political arena than they were during the Cold War: some recent neoliberal innovations have lent the current crisis its special bitter tang; understanding precisely how and where they are different is a necessary first step in developing a blueprint for a better world.

There is one very basic example how Team Regulation has served to betray the left, a lethal dynamic that has played out in the previous three decades. When financial crises erupted, first in peripheral countries, and then increasingly in the metropoles, technocratic economists in alliance with the neoliberals claimed they could contain it and “clean it up” by substituting sovereign state debt and rich-country guarantees for the insolvency of private actors; hence, when the Big One hit in 2007–8, responses reverted to the standard scenario. The mantra had always been to have the government in question “rescue” the collapsing sectors by shoring up their balance sheets, through the instrumentality of taking more debt onto its own accounts; and then purportedly when the worst had finally passed, subsequent efforts could be devoted to addressing any structural flaws, perhaps with more regulation. Imprimatur was sought indifferently from both Milton Friedman and John Maynard Keynes for this practice.

Yet I shall argue in chapter 6 there was something new and sinister about the way the “rescue” was prosecuted, so as to prevent any return to older structures. The “level-headed” response turned out to be a shell game, with much of the mechanics of the rescue handed over to private interests, and where so much sovereign debt was being piled on over time that the backstop character of state fiscal authority was undermined; private sector insolvency had infected state solvency. In other words, recurrent banking crises revealed the basic incapacity of the Keynesian state to immobilize and rectify endemic macroeconomic crises, rendering “regulation” a hazy memory. Indeed, by 2012, people were actually forgetting that this was at base a crisis of capitalism, and only derivatively a fiscal crisis of the state. Sovereign debt looked as wobbly as private bank debt. This dynamic was avoidable because it was entirely predictable.

Quiggin and I both propound the thesis that our culture is held in thrall to dead and rotten ideas concerning the economic crisis. Suspended in a gauzy red nightmare, it can be hard to discriminate zombies from mere bit players; I think Quiggin is also right to suggest that it is the economists who are the ambient zombies, and not the neoliberals (yet another reason it is indispensable to keep neoclassical economics and neoliberalism separate and distinct as analytical categories).

Although I'm clearly to the left of most people in the economics profession (including a fair number who would call themselves heterodox), I'm happy to identify myself with the mainstream research program in economics. The first reason for this is one of personal/political strategy. Starting from broadly social-democratic premises about the way the world works, I'm concerned to identify and advocate policies that will lead to better outcomes for society as a whole and particularly for the working class and the disadvantaged. Mainstream economics provides a set of tools (the theory of public goods, externality and market failure, taxation and income distribution) to do the analysis and a widely-understood language in which to express the results. No existing alternative body of thought in economics comes close to this.

I am sure Quiggin didn't intend it, but this came too perilously close to Margaret Thatcher's “There Is No Alternative” for comfort. These notions that serious intellectual work outside well-worn paths sanctioned by the established disciplines has often proven ineffectual when it comes to political rough and tumble; that every valid critique of neoclassical economics has already been made by someone else long ago and, furthermore, has been adequately absorbed by the cognoscenti; that you must voluntarily shackle yourself to the tropes of the modern economic orthodoxy if you have pretentions to be taken seriously; and that every doctrine should be judged in a cod–John Dewey fashion by its immediate proximate uses—all constitute major impediments to understanding how the left has failed in the current crisis.

The brand of economics I use in my daily work—the brand that I still consider by far the most reasonable approach out there—was largely established by Paul Samuelson back in 1948, when he published the first edition of his classic textbook. It’s an approach that combines the grand tradition of microeconomics, with its emphasis on how the invisible hand leads to generally desirable outcomes, with Keynesian macroeconomics, which emphasizes the way the economy can develop magneto trouble, requiring policy intervention. … It’s a deeply reasonable approach—but it’s also intellectually unstable. For it requires some strategic inconsistency in how you think about the economy. When you’re doing micro, you assume rational individuals and rapidly clearing markets; when you’re doing macro, frictions and ad hoc behavioral assumptions are essential. So what? Inconsistency in the pursuit of useful guidance is no vice.

During the Cold War, the economics profession was growing more exclusive, but was not completely intransigently intolerant of rival doctrines, for reasons of ideological appearances. For instance, evidence from the Paul Samuelson archives suggests he really did nominate Joan Robinson for the Bank of Sweden economics “Nobel.” Things really ratcheted upward in terms of imposed conformity only after the Fall of the Wall, for equally obvious political reasons. However, the apogee of denial of divergent thought occurred during the Great Bubble. A very strange literature sprang up in the early 2000s, asserting that there was no such thing as neoclassical economics anymore, in the sense that the legitimate orthodox economics profession had explored every possible analytical divergence from the rigid Walrasian general equilibrium model of days past, and someone, somewhere, sometime had built formal models addressing the previously heterodox concerns. Rationality? Who needs it? Equilibrium? We can do without it! Maximization? We can get around it! Individual greed? Just read Amartya Sen! Supply and demand? That just gets fed to people insufficiently mathematical to grasp the latest interpretation of the Sonnenschein-Mantel-Debreu theorems! Bubbles? We got 'em, hot, foamy, and rational. Complexity? How much can you handle? And so on and so on. Point to anything you may not find salubrious, and we've got a "not-so-new" model (and maybe a bridge) to sell ya. And yet, all this putative open-minded tolerance and catholic heedfulness was accompanied by bald attack on and excommunication of any last vestige of heterodox economics in top-ranked universities throughout the world, and the redoubled exclusivity of top-ranked economics journals. History of doctrines was banished, and scattered ghettos of heterodox thought were unceremoniously leveled. Even European holdouts were vigorously routed in their national contexts. For those on the front lines, it was wrenching to witness this contradiction up close.

I believe it was no accident that all manner of otherwise tolerant eclectic people started claiming that heterodoxy in economics was finally a thing of the past precisely during the Bubble run-up to 2007; perhaps we can now appreciate it as the twin offspring of the neoliberal herald of the “end of history,” akin to the “Great Moderation,” only now in the precincts of intellectual endeavor. The profession had been rendered starkly more homogeneous in outlook and training, not least through graduate recruitment of tyros with no undergraduate degree in economics, which had significant consequences for the bumbling responses of economists when the crisis hit. Training and backgrounds had grown so narrow that the newer generation had no idea there had ever been anything alien to their tradition, and hence their impressions of intellectual freedom were simple artifacts of their ignorance.

However, there is one concise explanation of this history that no PhD economist would deign to entertain, although we shall insist it be kept on the table for the duration of this book. It is the proposition that Quiggin turned out to be half-right: it is not just that a few component models found in economics are zombiefied; rather, it is the neoclassical tradition as a whole that is approximating the walking undead, and has been lurching around that way for a while. Patently, this begins to get at why no amount of heterodox brickbats (or incisive reasoning) can halt its inexorable march.

Third, it would appear that the corporeal solidity of a live intellectual discipline would be indicated by consensus reference texts that help define what it means to be an advocate of that discipline. Here, I would insist that undergraduate textbooks should not count, since they merely project the etiolated public face of the discipline to the world. But if we look at contemporary orthodox economics, where is the John Stuart Mill, the Alfred Marshall, the Paul Samuelson, the Tjalling Koopmans, or the David Kreps of the early twenty-first century? The answer is that, in macroeconomics, there is none. And in microeconomics, the supposed gold standard is Andrew Mas-Collel, Michael Whinston, and Jerry Green (Microeconomic Theory), at its birth a baggy compendium lacking clear organizing principles, but now slipping out of date and growing a bit long in the tooth. Although often forced to take econometrics as part of the core, there is no longer any consensus that econometrics is situated at the heart of economic empiricism in the modern world. Beyond the graduate textbooks, the profession is held together by little more than a few journals that are designated indispensable by some rather circular bibliometric measures, and the dominance of a few highly ranked departments, rather than any clear intellectual standards. Indeed, graduates are socialized and indoctrinated by forcing them to read articles from those journals with a half-life of five years: and so the disciplinary center of gravity wanders aimlessly, without vision or intentionality. The orthodoxy, so violently quarantined and demarcated from outside pretenders, harbors a vacuum within its perimeter. … Fourth, and finally, should one identify specific models as paradigmatic for neoclassical economics, then they are accompanied by formal proofs of impeccable logic which demonstrate that the model does not underwrite the seeming stolidity of the textbooks. Neoclassical theory is itself the vector of its own self-abnegation. If one cites the canonical Arrow-Debreu model of general equilibrium, then one can pair it with the Sonnenschein-Mantel-Debreu theorems, which point out that the general Arrow-Debreu model places hardly any restrictions at all on the functions that one deems “basic economics,” such as excess demand functions. Or, alternatively, if one lights on the Nash equilibrium in game theory, you can pair that with the so-called folk theorem, which states that under generic conditions, almost anything can qualify as a Nash equilibrium. Keeping with the wonderful paradoxes of “strategic behavior,” the Milgrom-Stokey “No Trade theorem” suggests that if everyone really were as suspicious and untrusting as the Nash theory makes out, then no one would engage in any market exchange whatsoever in a neoclassical world. The Modigliani-Miller theorem states that the level of debt relative to equity in a bank’s balance sheet should not matter one whit for market purposes, even though finance theory is obsessed with debt. Arrow’s impossibility theorem states that, if one models the polity on the pattern of a neoclassical model, then democratic politics is essentially impotent to achieve political goals. Markets are now asserted to be marvelous information processors, but the Grossman-Stiglitz results suggest that there are no incentives for anyone to invest in the development and refinement of information in the first place. The list just goes on and on. It is the fate of Delphic oracles to deal in obscurity.

Returning to our point of departure in this section, it really will turn out to be of paramount importance to keep the thought collectives of “neoclassical economics” and neoliberalism separate and distinct, for analytical purposes of understanding the nightmare of the current crisis. Neoclassical economics as a theory long predated the Neoliberal Thought Collective; it is only lately that it has shown signs of morbidity. As we shall argue, it has fallen to neoclassical economists to swarm over and incapacitate most serious attempts to isolate and diagnose why the crisis came as a shock and an enigma to those tasked with its understanding. The economists have haunted our dreams with their half-coherent struggles to describe and analyze the creeping dread. Yet it has been the neoliberals who have served as the advance shock troops for the zombie hordes, reconnaissance parties deploying their shock doctrines and shock therapies that rally the walking dead in their wake.

Indeed, at this late hour, the world is still full of people who believe that neoliberalism doesn’t really exist. I run into them every day. Mitchell Dean nicely captures this attitude: “Neoliberalism, it might be argued, is a rather overblown notion, which has been used, usually by a certain kind of critic, to characterize everything from a particular brand of free-market political philosophy to a wide variety of innovations in public management.” … Part of the blame might be laid at the door of the neoliberals themselves: as I document below, even though the members of Mont Pèlerin Society initially used the term “neoliberal” to refer to themselves in the early 1950s, by the 1960s they had backtracked, trumpeting the ambagious notion that their ideas all could be traced back to Adam Smith, if not before. … But an equal moiety of blame should be dished out to their opponents on the left, who often bandy about attributions of “neoliberalism” as a portmanteau term of abuse when discussing grand phenomena often lumped together under the terminology of “globalization” and “financialization” and “governmentality.”

Indeed, at this late hour, the world is still full of people who believe that neoliberalism doesn’t really exist. I run into them every day. Mitchell Dean nicely captures this attitude: “Neoliberalism, it might be argued, is a rather overblown notion, which has been used, usually by a certain kind of critic, to characterize everything from a particular brand of free-market political philosophy to a wide variety of innovations in public management.” For such skeptics, it is inconceivable to them that contemporary political economy displays any kind of structure, outside of some vague notions of supply and demand. Most people, it seems, have never even heard of the Mont Pèlerin Society, which at one time in its history was the premier site of the construction of neoliberalism. Liberalism, neoliberalism, conservatism, libertarianism . . . at least in America, they are all just a blur. People who live elsewhere in the world have little feeling for the American cultural drumbeat that keeps insisting politics has no theoretical grounding—it is only something dubbed “human nature” that can be theorized. America, that fabled Land of Neoliberalism in European parlance, soldiers on, blissfully unaware that it is neoliberal. … Part of the blame might be laid at the door of the neoliberals themselves: as I document below, even though the members of Mont Pèlerin Society initially used the term “neoliberal” to refer to themselves in the early 1950s, by the 1960s they had backtracked, trumpeting the ambagious notion that their ideas all could be traced back to Adam Smith, if not before. But an equal moiety of blame should be dished out to their opponents on the left, who often bandy about attributions of “neoliberalism” as a portmanteau term of abuse when discussing grand phenomena often lumped together under the terminology of “globalization” and “financialization” and “governmentality.”

The next step in the syllogism, but the link fated to fail, was that everyone would perceive that the prior bubble was the direct consequence of certain modes of thought, and thus, it was these doctrines that would be refuted. Collect those doctrines together under the umbrella term "neoliberalism," toss into the mix a Little Bo Peep falsificationist psychology, and there materialized the widespread perception that we were living through the demise of an entire way of thinking: The first intellectual consequence of the economic crisis was to undermine Neoliberalism-or the belief in the sufficiency of markets to secure human welfare-as the age's default ideology.

The crisis revealed the strategy's unsustainable character, leading to what can be denoted as the “crisis of neoliberalism” . . . No distinction is made between hegemony and domination as in approaches of Gramscian inspiration.

When I argue that we now live in a postneoliberal world, I do not mean that its practices or program have ceased (Ireland, Greece, and Portugal make it loud and clear that it's alive and kicking), but that the narrative of the market's universality is no longer unchallenged. The market is not the one and all; it has an outside, it has a limit.

Neo-liberal market fundamentalism was always a political doctrine serving certain interests. It was never supported by economic theory. Nor, it should now be clear, is it supported by historical experience. Learning this lesson may be the silver lining in the cloud now hanging over the global economy.

In an interview with the Berliner Zeitung, Stiglitz was quoted as saying, “Neoliberalism like the Washington Consensus is dead in most western countries. See the debates in South America or other countries. The U.S. has lost its role as the model for others. Everyone only laughs when U.S. technocrats give lectures in other countries and say: 'Do as we do, liberalize your financial markets!'” Stiglitz, as one of the few neoclassical economists who has periodically attempted to intellectually refute neoliberalism over the course of his career, should therefore be regarded as someone who had significant credibility tied up in expressing his conviction that the demise of neoliberalism was at hand.

Yet, whether circumspect or perfervid, each crisis diagnostic held fast to the syllogism that people can learn from their mistakes; the deep contraction and financial breakdown stands as irrefutable evidence that neoliberalism is false; and therefore, neoliberalism must be on its last legs. That credo was the fuel of the machine that churned out reams of crisis commentary from 2008–10; it put the hi-fi in early litanies of financial reform. One encounters this admonitory approach to the death of neoliberalism in the most diverse accounts of the crisis.

While it would be a digression to plunge into the bramble thickets of formal epistemology in a book about the crisis, there was at least one major flaw in all these prognostications that needs to be taken into account here. Social psychology, the history and philosophy of science, and the sociology of knowledge all combine to instruct us that people don't generally behave like that. Only the most ersatz Popperian believer in the awesome power of local falsificationism would begin to presume that some finite observation would immediately impel people to cast their most cherished beliefs into doubt and reconsider long-held ideas that anchor much of their worldview. Such conversions have been known to happen, but they have been few and far between. Predominantly, the long history of schooling, socialization, and past experience induces a stubborn inertia into cognitive processes. More commonly, people react to potential disconfirmation of strongly held views by adjusting their own understandings of the doctrine in question to accommodate the contrary evidence; this has been discussed in the social psychology literature under the rubric of "cognitive dissonance," and in the philosophy literature as Duhem's Thesis.

This volume is dedicated to exploring the ways in which the crisis has not yet served as an exemplary instance of falsification of much of anything; it explores various defense mechanisms of critical groups such as orthodox economists and members of the Neoliberal Thought Collective; the intention is to clear a path to some potential remedy to that situation. However, in order to reach that point, it is first necessary to become better acclimatized to the notion that a burst of bad news does not generally bring a dogma crashing down of its own accord. It takes a whole lot more than that; and thus a preliminary admonition of epistemic caution is the touchstone of the current chapter.

Suppose an individual believes something with his whole heart . . . suppose that he is then presented with unequivocal and undeniable evidence that his belief is wrong: what will happen? The individual will frequently emerge, not only unshaken, but even more convinced of the truth of his beliefs than ever before. Indeed, he may even show a new fervor about convincing and converting people.

In a manner of speaking, the legacy of renunciation of philosophy and methodology in graduate education led much of the orthodox economics profession, and many of the denizens of the neoliberal world of think tanks and media outlets, to behave from 2008 onward in ways rather similar to the Seekers. The parallels between the Seekers and the contemporary economics profession, on the one hand, and the Neoliberal Thought Collective, on the other, are, of course, not exact. The Seekers were disappointed when their world didn’t come to an end; economists and neoliberals were convinced their Great Moderation and neoliberal triumph would last forever, and were disappointed when it did appear to come to an end. The stipulated turning point never arrived for the Seekers, while the unsuspected turning point got the drop on the economists. The Seekers garnered no external support for their doctrines, indeed, quitting their jobs and contracts prior to their fated day; the economists, and more clearly, the Neoliberal Thought Collective, persisted in being richly rewarded by many constituencies for remaining stalwart in their beliefs. The public press was never friendly toward the Seekers; it turned on the economists only with the financial collapse. (There are now plentiful signs it has been reverting to its older slavish adoration, however.) But nonetheless, the shape of the reactions to cognitive dissonance turned out to be amazingly similar. The crisis, which at first blush might seem to have refuted almost everything that the NTC and the economic orthodoxy stood for, was in the fullness of time more often than not trumpeted from both the left and the right as reinforcing their adherence to, respectively, neoclassical economic theory or the neoliberal tradition.

A new ideology . . . must give high priority to real and efficient limitation of the state’s ability to, in detail, intervene in the activities of the individual. At the same time, it is absolutely clear that there are positive functions allotted the state. The doctrine that, on and off, has been called neoliberalism and that has developed, more or less simultaneously in many parts of the world . . . is precisely such a doctrine . . . But instead of the 19th century understanding that laissez-faire is the means to achieve this goal, neoliberalism proposes that competition will lead the way.

In another historical phenomenon that I feel has not received sufficient attention, soon after many of the neoliberals renounced the label, opponents to their right began to resort to it in order to be provocative. Murray Rothbard, from a more libertarian perspective, began to excoriate Friedman for his position. Later classical liberals, dissatisfied specifically with the evolution of the Mont Pèlerin Society, would resort to the term to contrast the position of Ludwig von Mises with what they considered the debased version found in Friedrich Hayek and elsewhere. … But for the nonce, I trust everyone can accept that the nominalist position is flawed: the term was and sometimes still is used in a sensible way on both the left and right, and moreover, the roster of people and institutions referenced is fairly stable over time: members of the Mont Pèlerin Society and their close associates. To a first approximation, the MPS will serve as our Rosetta Stone: any idea or person with membership or strong ties to the organization will qualify as "neoliberal." With further research, we can expand the purview to encompass outer orbits of the Neoliberal Thought Collective.

Much pandemonium concerning the existence of neoliberalism derives from the fact that outsiders often confuse it with libertarianism or classical liberalism; and this, in turn, is at least partly due to the fact that many key neoliberal figures themselves often conflated one or another alternative position with their own. For instance, Friedrich Hayek notoriously pioneered the notion that his own ideas could be traced in a direct line back to classical liberals such as David Hume and Adam Smith. Combined with his statement concerning Mont Pèlerin, “I personally do not intend that any public manifesto should be issued,” we can begin to detect a concerted policy to blur the boundaries between factions, itself part of the larger move to impose détente.

That is why "neoliberalism" is not only a historically accurate designation of a specific strain of political thought, but it is descriptively acute as well: most of the early neoliberals explicitly distanced themselves from what they considered the outmoded classical liberal doctrine of laissez-faire. They sought to offer something newer, and less passive.

Strident demonization of some bugbear entity called "the government" is not at all the same as rejecting "The State" tout court. That is because mature neoliberalism is not at all enamored of the minimalist night-watchman state of the classical liberal tradition: its major distinguishing characteristic is instead a set of proposals and programs to infuse, take over, and transform the strong state, in order to impose the ideal form of society, which they conceive to be in pursuit of their very curious icon of pure freedom. I agree with Wendy Brown that neoliberalism became a "constructivist" project, no matter how much it was a term against which Hayek often railed. That neoliberalism turned out to be very nearly the polar opposite of libertarian anarchism is something that has taken a long while to sink in, but is now becoming widely accepted in circles concerned with political economy.

Among our members, there are some who are able to imagine a viable society without a state . . . For most of our members, however, social order without a state is not readily imagined, at least in any normatively preferred sense . . . Of necessity, we must look at our relations with the state from several windows, to use the familiar Nietzschean metaphor . . . Man is, and must remain, a slave to the state. But it is critically and vitally important to recognize that ten per cent slavery is different from fifty per cent slavery.

Similar sentiments were expressed at other comparable conclaves. For instance, John MacCallum Scott proposed to the 1956 meetings of the Liberal International, "Liberty, too, must be limited in order to be possessed"; the British economist Arthur Shenfield pronounced in a speech to the 1954 MPS conference, "It does no service either to liberalism or to democracy to assume that democracy is necessarily liberal or liberalism is necessarily democratic." Thenceforth, for neoliberals, "freedom" would have to change its connotations.

Thus there are at least two imposing obstacles confronting anyone seeking a deeper understanding of neoliberalism: the fog thrown up around the term “neoliberalism” and attendant doctrines by the participants themselves, in pursuit of their own political unification ambitions and projects with other movements on the right; and the fact that the tenets of neoliberal doctrine evolved and mutated over the postwar period. The ten-plus commandments of neoliberalism were not delivered complete and immaculate down from the Mont in 1947, when the neoliberals convened their first meeting of the MPS. Nor can one reliably reconstruct it from a small set of “Hayekian encyclicals,” as Jamie Peck so aptly puts it. In fact, if we simply restrict ourselves to Mont Pèlerin itself (and this is unduly narrow), there rapidly precipitated at least three distinguishable sects or subguilds: the Austrian-inflected Hayekian legal theory, the Chicago School of neoclassical economics, and the German Ordoliberals.

David Harvey propounds the Marxist position that it is straightforwardly a class project masked by various versions of “free market” rhetoric. For him, the ideas are far less significant than the brute function of serving the interests of finance capital and globalized elites in the redistribution of wealth upward. Michael Howard and James King proffer what they term an historical materialist reading, fairly similar to Harvey, one that “stresses the importance of the contradictions inherent in the institutions prevalent in the postwar era, and the crises these contradictions spawned in the 1970s.” Daniel Stedman Jones divides neoliberalism into three phases characterized by dominant political practices: the prehistory up to the first meeting of Mont Pèlerin, a second phase up to the ascendancy of Reagan and Thatcher consisting of a monetarist critique of neo-Keynesianism, and a modern phase since the 1980s. Jamie Peck gives greater weight to ideas, suggesting that the fragmentation is real, but still offset by a shared commitment to an unattainable utopian notion of freedom. Nevertheless, he credits success in infiltrating the state as permitting wide latitude in divergent component theories: “Only with the capture of state power could immanent critique become rolling autocritique.” Peter-Wim Zuidhof suggests that the fragmentation is part of a conscious program of rhetoric to empty out any fixed referent for the term “market.”

I would suggest that the Mont Pèlerin Society evolved into an exceptionally successful structure for the incubation of integrated political theory and political action outside of the more conventional structures of academic disciplines and political parties in the second half of the twentieth century. Perhaps, one day, it will come to be studied as something new in the sociology of knowledge in the twentieth century. It was a novel framework that served to confine any tendencies to intellectual dissolution, holding the three subguilds in productive tension. Hayek in 1946 initially promoted a vision of the MPS as “something halfway between a scholarly association and a political society,” but it evolved into something much more than that. The main reason the MPS should serve as our talisman in tracking neoliberalism is because it exists as part of a rather special structure of intellectual discourse, perhaps unprecedented in the 1940s, one I would venture to propose to think of as a “Russian doll” approach to the integration of research and praxis in the modern world. The project was to produce a functional hierarchical elite of regimented political intellectuals … Henceforth, I will use the term “thought collective” to refer to this multilevel, multiphase, multisector approach to the building of political capacity to incubate, critique, and promulgate ideas.

The Neoliberal Thought Collective was structured very differently from the other “invisible colleges” that sought to change people’s minds in the latter half of the twentieth century. Unlike most intellectuals in the 1950s, the early protagonists of the MPS did not look to the universities or the academic “professions” or to interest-group mobilizations as the appropriate primary instruments to achieve their goals. Those entities were held too in thrall to the state, from the neoliberal perspective. The early neoliberals felt, at that juncture with some justification, that they were excluded from most high-profile intellectual venues in the West. Hence the MPS was constituted as a closed, private members-only debating society whose participants were hand-picked (originally primarily by Hayek, but later through a closed nomination procedure) and which consciously sought to remain out of the public eye. The purpose was to create a special space where people of like-minded political ideals could gather together to debate the outlines of a future movement diverging from classical liberalism, without having to suffer the indignities of ridicule for their often blue-sky proposals, but also to evade the fifth-column reputation of a society closely aligned with powerful but dubious postwar interests. Even the name of the society was itself chosen to be relatively anodyne, signaling little in the way of substantive content to outsiders. Many members would indeed hold academic posts in a range of academic disciplines, but this was not a precondition of MPS membership. The MPS could thus also be expanded to encompass various powerful capitalists, and not just intellectuals.

One then might regard specific academic departments where the neoliberals came to dominate before 1980 (University of Chicago Economics, the LSE, L’Institut Universitaire des Hautes Etudes Internationales at Geneva, Chicago Law School, St. Andrews in Scotland, Freiburg, the Virginia School, George Mason University) as the next outer layer of the Russian doll, one emergent public face of the thought collective—although one rarely publicly acknowledging links to the MPS. Another shell of the Russian doll was fashioned as the special-purpose foundations for the education and promotion of neoliberal doctrines; in its early days, these included entities such as the Volker Fund, the Earhart Foundation, the Relm Foundation, the Lilly Endowment, the John M. Olin Foundation, the Bradley Foundation, and the Foundation for Economic Education. These institutions were often set up as philanthropic or charitable units, if only to protect their tax status and seeming lack of bias. Some of these foundations were more than golden showers for the faithful, performing crucial organizational services as well: for instance, the Volker Fund kept a comprehensive “Directory” of affiliated neoliberal intellectuals, a list that had grown to 1,841 names by 1956.

To facilitate mass production in a transnational setting, neoliberals actually concocted a “mother of all think tanks” to seed their spawn across the globe. The Atlas Economic Research Foundation was founded in 1981 by Antony Fisher to assist other MPS-related groups in establishing neoliberal think tanks in their own geographic locations. It claims to have had a role in founding a third of all world “market oriented” think tanks, including (among others) the Fraser Institute (Canada), the Center for the Dissemination of Economic Information (Venezuela), the Free Market Center (Belgrade), the Liberty Institute (Romania), and Unirule (Beijing). Atlas provided, among other services, one convenient conduit to launder contributions from such corporations as Philip Morris and Exxon to more specialized think tanks promoting their intellectual agenda.

When addressing their venture capital angels, the entrepreneurs of the Russian doll would admit that this interlocking set of institutions should be regarded as an integrated system for the production of political ideas. For instance, Richard Fink, one of the primary protagonists in building up George Mason University as a neoliberal outpost, by linking it directly to the Koch Foundation, of which he later became president, informed his prospective funders: … The translation of ideas into action requires the development of intellectual raw materials, their conversion into specific policy products, and the marketing and distribution of these products to citizen-consumers. Grant makers, Fink argued, would do well to invest in change along the entire production continuum, funding scholars and university programs where the intellectual framework for social transformation is developed, think tanks where scholarly ideas get translated into specific policy proposals, and implementation groups to bring these proposals into the political marketplace and eventually to consumers.

Although the language dealt in terms of “markets” and “consumers,” the reality was a vertically integrated set of operations, whose outlines were apparent by the 1980s. The expansion of the think-tank shell proceeded apace with the expansion of the MPS presence, as revealed in Figure 2.1. One can appreciate the amount of groundwork that had preceded the “breakout” decade of the 1980s for the neoliberal project described by Fink from this and other indicators of the activities of the thought collective.

Some aspects of the so-called Tea Party in the U.S. reveal how the practice of astroturfing has had direct impact upon reactions to the crisis. “FreedomWorks say they hope to turn the inchoate anger of the Tea Party into a focused pro-Hayek movement.” Fostering the appearance of spontaneous organization was often just as important for neoliberals as the actual political action that the astroturf organization was tasked to accomplish. Outsiders would rarely perceive the extent to which individual protagonists embedded in a particular shell served multiple roles, or the strength and pervasiveness of network ties, since they could never see beyond the immediate shell of the Russian doll right before their noses. This also tended to foster the impression of those “spontaneous orders” so beloved by the neoliberals, although they were frequently nothing of the sort. Moreover, the loose coupling defeated most attempts to paint the thought collective as a strict conspiracy. It was much beyond that, in the sense it was a thought collective in pursuit of a mass political movement; and in any event, it was built up through trial and error over time. It grew so successful, it soon became too large to qualify.

Public opinion on these matters is the work of men like ourselves . . . who have created the political climate in which the politicians of our time must move . . . I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.

The Russian doll structure of the Neoliberal Thought Collective would tend to amplify and distribute the voice of any one member throughout a series of seemingly different organizations, personas, and broadcast settings, lending it resonance and gravitas, not to mention fronting an echo chamber for ideas right at the time when hearing them was most propitious. … Not without admiration, we have to concede that neoliberal intellectuals struggled through to a deeper understanding of the political and organizational character of modern knowledge and science than did their opponents on the left, and therefore present a worthy contemporary challenge to everyone interested in the archaeology of knowledge.

Throughout the second half of the twentieth century, the neoliberal project stood out from other strains of right-wing thought in that it self-consciously was constituted as a multitiered sociological entity dedicated to the continued transnational development, promulgation, and popularization of doctrines intended to mutate over time, in reaction to both intellectual criticism and external events. It was a movable feast, and not a catechism fixed at the Council of Trent. Much of the time the litmus test was shared political objectives inculcated through prolonged internship in the thought collective; but infrequently, even that was open to delicate negotiation. Nevertheless, it was a sociological thought collective that eventually produced a relatively shared ontology concerning the world coupled with a more-or-less shared set of propositions about markets and political economy. These propositions are, of necessity, a central focus of a book on the relationship of neoliberals to the crisis. It should be very important to have some familiarity with these ideas, if only to resist simple-minded characterizations of the neoliberal approach to the crisis as some evangelical "market fundamentalism."

Acknowledgment of neoliberalism as a living, mutating entity makes it hard for people who are not historians to wrap their arms around the phenomenon, and prompts those seeking a three-by-five-card definition to throw up their hands in defeat. … As long as we possess similar multiple markers of participation and discernment of designated doctrines for the Neoliberal Thought Collective, from exclusive organizations like the MPS and certain designated think tanks, to denumerable membership lists to vade mecum texts covering keynote ideas and theories, to archival reflections of the principals, then a working characterization of neoliberalism is perfectly possible.

Clearly, neoliberals do not navigate with a fixed static Utopia as the astrolabe for all their political strivings. They could not, since they don’t even agree on such basic terms as “market” and “freedom” in all respects, as we shall observe below. One can even agree with Brenner et al. and Naomi Klein that crisis is the preferred field of action for neoliberals, since that offers more latitude for introduction of bold experimental ‘reforms’ that only precipitate further crises down the road. Nevertheless, Neoliberalism does not dissolve into a gormless empiricism or random pragmatism. There persists a certain logic to the way it approaches crises; and that is directly relevant to comprehending its unexpected strength in the current global crisis.

The starting point of neoliberalism is the admission, contrary to classical liberal doctrine, that their vision of the good society will triumph only if it becomes reconciled to the fact that the conditions for its existence must be constructed, and will not come about “naturally” in the absence of concerted political effort and organization. As Foucault presciently observed in 1978 “Neoliberalism should not be confused with the slogan ‘laissez-faire,’ but on the contrary, should be regarded as a call to vigilance, to activism, to perpetual interventions.” The injunction to act in the face of inadequate epistemic warrant is the very soul of “constructivism,” an orientation sometimes shared with the field of science studies, and the very soul of the Neoliberal Thought Collective. Classical liberalism, by contrast, disavowed this precept.

While one wing of the MPS (the Chicago School) has made its career by attempting to reconcile one version of neoclassical economic theory with neoliberal precepts, other subsets of the MPS have innovated entirely different characterizations of the market. The "radical subjectivist" wing of the Austrian School of economics attempted to ground the market in a dynamic process of discovery by entrepreneurs of what consumers did not yet even know that they wanted, due to the fact that the future is radically unknowable. Perhaps the dominant version at the MPS (and later, the dominant cultural doctrine) emanated from Hayek himself, wherein the "market" is posited to be an information processor more powerful than any human brain, but essentially patterned upon brain/computation metaphors.

Here we find the first intimate point of connection with the narrative of the global crisis. From this perspective, prices in an efficient market "contain all relevant information" and therefore cannot be predicted by mere mortals. In this version, the market always surpasses the state's ability to process information, and this constitutes the kernel of the argument for the necessary failure of socialism. All attempts to outguess the market, even in the midst of crisis free fall, must fail. But far from a purely negative doctrine, another related version of the efficient-markets hypothesis underwrote much of the theories and algorithms that were the framework of the baroque financial instruments and practices which resulted in the crisis in the first place.

Another partially rival approach to defining the market emanated from German ordoliberalism, which argues that competition in a well-functioning market needs to be directly organized by the state, by embedding it in various other social institutions. Hence, contrary to much that has been written on the beliefs of our protagonists, neoliberals do not speak with one voice on the key concept of the nature of the market. They most certainly do not uniformly subscribe to neoclassical economic theory, nor do they all pledge their troth to the cybernetic vision of the market in lockstep.

Even though there has not existed full consensus on just what sort of animal the market “really” is, the neoliberals did agree that, for purposes of public understanding and sloganeering, neoliberal market society must be treated as a “natural” and inexorable state of mankind. Neoliberal thought therefore spawns a strange hybrid of the “constructed” and the “natural,” where the market can be made manifest in many guises. What this meant in practice was that there grew to be a mandate that natural science metaphors must be integrated into the neoliberal narrative. (This is explored further in chapter 6.) It is noteworthy that MPS members began to explore the portrayal of the market as an evolutionary phenomenon long before biology displaced physics as the premier science in the modern world-picture. If the market was just an elaborate information processor, so too was the gene in its ecological niche. Poor, unwitting animals turn out to maximize everything under the sun just like neoclassical economic agents, and cognitive science “neuroeconomics” models treat neurons as market participants. “Biopower” is deployed to render nature and our bodies more responsive to market signals. Because of this early commitment, neoliberalism was able to make appreciable inroads into such areas as “evolutionary psychology,” network sociology, ecology, animal ethology, linguistics, cybernetics, and even science studies. Neoliberalism has therefore expanded to become a comprehensive worldview, and has not been just a doctrine solely confined to economists.

With regard to the crisis, one wing of neoliberals has appealed to natural science concepts of “complexity” to suggest that markets transcend the very possibility of management of systemic risk. However, the presumed relationship of the market to nature tends to be substantially different under neoliberalism than under standard neoclassical theory. In brief, neoclassical theory has a far more static conception of market ontology than do the neoliberals. In neoclassical economics, many theoretical accounts portray the market as somehow susceptible to “incompleteness” or “failure,” generally due to unexplained natural attributes of the commodities traded: these are retailed under the rubric of “externalities,” “incomplete markets,” or other “failures.” Neoliberals conventionally reject all such recourse to defects or glitches, in favor of a narrative where evolution and/or “spontaneous order” brings the market to ever more complex states of self-realization, which may escape the ken of mere humans. This explains why the NTC has rejected out of hand all neoclassical “market failure” explanations of the crisis.

A primary ambition of the neoliberal project is to redefine the shape and functions of the state, not to destroy it. Neoliberals thus maintain an uneasy and troubled alliance with their sometimes fellow-travelers, the anarchists. The contradiction with which the neoliberals constantly struggle is that a strong state can just as easily thwart their program as implement it; hence they are inclined to explore new formats of techno-managerial governance that protect their ideal market from what they perceive as unwarranted political interference. Considerable efforts have been developed to disguise or otherwise condone in rhetoric and practice the importance of the strong state that neoliberals endorse in theory. As Peck puts it, the pursuit of neoliberal policies is “a self-contradictory form of regulation-in-denial.” One implication is that democracy, ambivalently endorsed as the appropriate state framework for an ideal market, must in any case be kept relatively impotent, so that citizen initiatives rarely are able to change much of anything.

One way to exert power in restraint of democracy is to bend the state to a market logic, pretending one can replace “citizens” with “customers” (see point 5). Consequently, the neoliberals seek to restructure the state with numerous audit devices (under the sign of “accountability” or the “audit society”) or impose rationalization through introduction of the “new public management”; or, better yet, convert state services to private provision on a contractual basis. Here again our commandments touch directly upon the crisis. The financial sector was one of the major sites of the outsourcing of state supervision to quasi-private organizations, such as the Financial Industry Regulation Authority (FINRA) or the credit rating agencies such as Moody’s, Fitch, and Standard & Poor’s.

Neoliberals seek to transcend the intolerable contradiction of democratic rejection of the neoliberal state by treating politics as if it were a market, and promoting an economic theory of “democracy.” In its most advanced manifestation, there is no separate content of the notion of citizenship other than as customer of state services. This supports the application of neoclassical economic models to previously political topics; but it also explains why the neoliberal movement must seek to consolidate political power by operating from within the state. The abstract “rule of law” is frequently conflated with or subordinated to conformity to the neoliberal vision of an ideal market. The “night watchman” version of the state is thus comprehensively repudiated: there is no separate sphere of the market, fenced off, as it were, from the sphere of civil society. Everything is fair game for marketization.

The neoliberals generally have to bend in pretzels to deny that in their ideal state, law is a system of power and command, and is, rather, a system of neutral general rules applicable equally to all, grounded in something other than the intentional goals of some (that is, their own) group’s political will. As Raymond Plant explains, for the Rothbard anarchists, this is something like natural law; for the Buchanan-style public-choice crowd, it is contract theory; for Chicago economics, it is a world where the economy is conflated with the universe of human existence; and for Hayek, it is his own idiosyncratic notion of cultural evolution. In everyday neoliberalism, the Chicago story seems to win out. However, in the recent crisis, the evolution story has been brought out of mothballs, as we shall observe in chapter 6.

Classical liberalism identified “labor” as the critical original human infusion that both created and justified private property. Foucault correctly identifies the concept of “human capital” as the signal neoliberal departure—initially identified with the MPS member Gary Becker—that undermines centuries of political thought that parlayed humanism into stories of natural rights. Not only does neoliberalism deconstruct any special status for human labor, but it lays waste to older distinctions between production and consumption rooted in the labor theory of value, and reduces the human being to an arbitrary bundle of “investments,” skill sets, temporary alliances (family, sex, race), and fungible body parts. “Government of the self” becomes the taproot of all social order, even though the identity of the self evanesces under the pressure of continual prosthetic tinkering; this is one possible way to understand the concept of “biopower.” Under this regime, the individual displays no necessary continuity from one “decision” to the next. The manager of You becomes the new ghost in the machine.

First off, the timeworn conventional complaint that economics is too pigheadedly methodologically individualist does not begin to scratch the neoliberal program. “Individuals” are merely evanescent projects from a neoliberal perspective. Neoliberalism has consequently become a scale-free Theory of Everything: something as small as a gene or as large as a nation-state is equally engaged in entrepreneurial strategic pursuit of advantage, since the “individual” is no longer a privileged ontological platform. Second, there are no more “classes” in the sense of an older political economy, since every individual is both employer and worker simultaneously; in the limit, every man should be his own business firm or corporation; this has proven a powerful tool for disarming whole swathes of older left discourse. It also appropriates an obscure historical development in American legal history—that the corporation is tantamount to personhood—and blows it up to an ontological principle. Conversely, it denies personhood to government: “Government has no economic responsibility. Only people have responsibility, and government is not a person.” Third, since property is no longer rooted in labor, as in the Lockean tradition, consequently property rights can be readily reengineered and changed to achieve specific political objectives; one observes this in the area of “intellectual property,” or in a development germane to the crisis, ownership of the algorithms that define and trade obscure complex derivatives, and better, to reduce the formal infrastructure of the marketplace itself to a commodity. Indeed, the recent transformation of stock exchanges into profit-seeking IPOs was a critical neoliberal innovation leading up to the crisis. Classical liberals treated “property” as a sacrosanct bulwark against the state; neoliberals do not.

Neoliberals extol "freedom" as trumping all other virtues; but the definition of freedom is recoded and heavily edited within their framework. Most neoliberals insist they value "freedom" above all else; but more hairs are split in the definition of freedom than over any other neoliberal concept. This is probably a necessary consequence of the development of other neoliberal tenets, like that covered in thesis 6. It is a little hard to conceptualize freedom for an entity that displays no quiddity or persistence; and most neoliberal discussions of freedom have been cut loose from older notions of individualism.

Some members of the Neoliberal Thought Collective, like Milton Friedman, have refused to define it altogether (other than to divorce it from democracy), while others like Friedrich Hayek forge links to thesis 2 by motivating it as an epistemic virtue: "the chief aim of freedom is to provide both the opportunity and the inducement to insure the maximum use of knowledge that an individual can accrue." As this curious definition illustrates, for neoliberals, what you think a market really is seems to determine your view of what liberty means.

Late in life, Milton Friedman posited three species of freedom—economic, social and political—but it appears that economic freedom was the only one that mattered. Some modern figures such as Amartya Sen attempt to factor in your given range of choices in an index of your freedom, but neoliberals will have none of that. They seek to paint all "coercion" as evil, but without admitting into consideration any backstory of the determinants of your intentions. Everyone is treated as expressing untethered context-free hankering, as if they were born yesterday into solitary confinement; this is the hidden heritage of entrepreneurialism of the self. This commandment cashes out as: no market can ever be coercive.

In practice, neoliberals can't let others contemplate too long that their peculiar brand of freedom is not the realization of any political, human, or cultural telos, but rather the positing of autonomous self-governed entities, all coming naturally equipped with some version of "rationality" and motives of ineffable self-interest, striving to improve their lot in life by engaging in market exchange. It follows from the human-capital concept that education is a consumer good, not a life-transforming experience.

Whatever else it betokens in the neoliberal pantheon, it is axiomatic that freedom can only be “negative” for neoliberals (in the sense of Isaiah Berlin), for one very important reason. Freedom cannot be extended from the use of knowledge in society to the use of knowledge about society, because self-examination concerning why one passively accepts local and incomplete knowledge leads to contemplation of how market signals create some forms of knowledge and squelch others. Meditation upon our limitations leads to inquiry into how markets work, and metareflection on our place in larger orders, something that neoliberals warn is beyond our ken. Knowledge then assumes global institutional dimensions, and this undermines the key doctrine of the market as transcendental superior information processor. Conveniently, “freedom” does not extend to principled rejection of the neoliberal insurgency.

Neoliberals begin with a presumption that capital has a natural right to flow freely across national boundaries. (The free flow of labor enjoys no similar right.97) Since that entails persistent balance-of-payments problems in a nonautarkic world, neoliberals took the lead in inventing all manner of transnational devices for the economic and political discipline of nation-states. They began by attempting to reintroduce what they considered to be pure market discipline (flexible exchange rates, dismantling capital controls) during the destruction of the Bretton Woods system, but over the longer term learned to appreciate that suitably staffed international institutions such as the WTO, the World Bank, the IMF, and other units are better situated to impose neoliberal policies upon recalcitrant nation-states. Initially strident demands to abolish global financial (and other) institutions on the part of early neoliberals such as Friedman and some denizens of the Cato Institute were subsequently tempered by others—such as Anne Krueger, Stanley Fischer, and Kenneth Rogoff—and as these neoliberals came to occupy these institutions, they used them primarily to influence staffing and policy decisions, and thus to displace other internationalist agendas. The role of such transnational organizations was recast to exert “lock-in” of prior neoliberal policies, and therefore to restrict the range of political options of national governments. Sometimes they were also used to displace indigenous “crony capitalists” with a more cosmopolitan breed of cronyism.

However, the drive to offshore outsource manufacturing in the advanced economies, which was mutually symbiotic with the frustration of capital controls, was clearly a function of neoliberal doctrines concerning the unbounded benefits of freedom of international trade, combined with neoliberal projects to reengineer the corporation as an arbitrary nexus of contractual obligations, rather than as a repository of production expertise. The MPS member Anne Krueger was brought into dialogue with her fellow member Ronald Coase, and the offspring was the flight of capital to countries such as China, India, and the Cayman Islands.

Neoliberals regard inequality of economic resources and political rights not as an unfortunate by-product of capitalism, but a necessary functional characteristic of their ideal market system. Inequality is not only the natural state of market economies from a neoliberal perspective, but it is actually one of its strongest motor forces for progress. Hence the rich are not parasites, but a boon to mankind. People should be encouraged to envy and emulate the rich. Demands for equality are merely the sour grapes of the losers, or if they are more generous, the atavistic holdovers of old images of justice that must be extirpated from the modern mind-set. As Hayek wrote, “The market order does not bring about any close correspondence between subjective merit or individual needs and rewards.” Indeed, this lack of correlation between reward and effort is one of the major inciters of (misguided) demands for justice on the part of the hoi polloi, and the failure of democratic systems to embrace the neoliberal state, as discussed in tenet 5, above. “Social justice” is blind, because it remains forever cut off from the Wisdom of the Market. Thus, the vast worldwide trend toward concentration of income and wealth since the 1990s is the playing out of a neoliberal script to produce a more efficient and vibrant capitalism.

Thus the modern "reengineering of the corporation" (reduced vertical integration, outsourcing supply chains, outrageous recompense for top officers) is itself an artifact of the neoliberal reconceptualization of the corporation.

The MPS set out in the 1950s entertaining suspicions of corporate power, with the ordoliberals especially concerned with the promotion of strong antitrust capacity on the part of the state. But starting with the Chicago law and economics movement, and then progressively spreading to treatments of entrepreneurs and the "markets for innovation," neoliberals began to argue consistently that not only was monopoly not harmful to the operation of the market, but an epiphenomenon attributable to the misguided activities of the state and powerful interest groups. The twentieth-century socialist contention that capitalism bore within itself the seeds of its own arteriosclerosis (if not self-destruction) was baldly denied. By the 1970s, antitrust policies were generally repudiated in the United States, as neoliberals took the curious anomaly in American case law treating corporations as legal individuals and tended to inflate it into a philosophical axiom. Indeed, if anything negative was ever said about the large corporation, it was that separation of ownership from control might conceivably pose a problem, but this was easily rectified by giving CEOs appropriate "incentives" (massive stock options, golden handshakes, latitude beyond any oversight) and instituting marketlike evaluation systems within the corporate bureaucracy, rectifying "agency problems." Thus the modern "reengineering of the corporation" (reduced vertical integration, outsourcing supply chains, outrageous recompense for top officers) is itself an artifact of the neoliberal reconceptualization of the corporation.

This literature had a bearing on the crisis, since it was used to argue against aspersions cast that many financial firms were "Too Big to Bail," and that the upper echelons in those firms were garnishing dangerously high compensation packages. Nothing succeeds like market success, and any recourse to countervailing power must be squelched.

The market (suitably reengineered and promoted) can always provide solutions to problems seemingly caused by the market in the first place. This is the ultimate destination of the constructivist orientation within neoliberalism. Any problem, economic or otherwise, has a market solution, given sufficient ingenuity: pollution is abated by the trading of “emissions permits”; inadequate public education is rectified by “vouchers”; auctions can adequately structure exclusionary communication channels; poverty-stricken sick people lacking access to health care can be incentivized to serve as guinea pigs for privatized clinical drug trials; poverty in underdeveloped nations can be ameliorated by “microloans”; terrorism by disgruntled disenfranchised foreigners can be offset by a “futures market in terrorist acts.” Suitably engineered boutique markets were touted as a superior method to solve all sorts of problems previously thought to be better organized by governments: everything from scheduling space shots to regulating the flow through airports and national parks. Economists made money by selling their nominal expertise in setting up these new markets, rarely admitting up front that they were simply acting as middlemen introducing intermediate steps toward future full privatization of the entity in question.

The neoliberal program ends up vastly expanding incarceration and the carceral sphere in the name of getting the government off our backs. Members of the Mont Pèlerin Society were fond of Benjamin Constant's adage: “The government, beyond its proper sphere ought not to have any power; within its sphere, it cannot have enough of it.” Although this might seem specious from the perspective of a libertarian, it is central to understanding the fact that neoliberal policies lead to unchecked expansion of the penal sector, as has happened in the United States. As Bernard Harcourt has explained in detail, however much tenet 11 might seem to suggest that crime be treated as just another market process, the NTC has moved from the treatment of crime as exogenously defined within a society by its historical evolution, to a definition of crime as inefficient attempts to circumvent the market. The implication is that intensified state power in the police sphere (and a huge expansion of prisoners incarcerated) is fully complementary with the neoliberal conception of freedom. In the opinion of the MPS member Richard Posner, “The function of criminal sanction in a capitalist market economy, then, is to prevent individuals from bypassing the efficient market.”

In this neoliberal perspective, there is also a natural stratification in what classes of law are applicable to different scofflaws: “the criminal law is designed primarily for the nonaffluent; the affluent are kept in line, for the most part, by tort law.” In other words, economic competition imposes natural order on the rich, because they have so much to lose. The poor need to be kept in line by a strong state, because they have so little to lose. Hence, the spectacle of (as yet) no major financial figure outside of Bernie Madoff and Raj Rajnarathan going to jail because of the crisis, while thousands of families behind on their mortgages are turfed out into the street by the constabulary, is a direct consequence of this neoliberal precept.

The neoliberals have struggled from the outset to have their political/economic theories do dual service as a moral code. First and foremost, it would appear that the thought collective worshipped at the altar of a deity without restraints: “individual freedom, which it is most appropriate to regard as a moral principle of political action. Like all moral principles, it demands that it be accepted as a value in itself.” However, Hayek in his original address to the first MPS meeting said, “I am convinced that unless the breach between true liberal and religious convictions can be healed, there is no hope for a revival of liberal forces.” The very first MPS meeting reflected that wish, and held a session called “Liberalism and Christianity”; but it revealed only the antagonisms that percolated just below the surface. As a consequence, the neoliberals were often tone-deaf when it came to the transcendental, conflating it with their epistemic doctrines concerning human frailty: “we must preserve that indispensable matrix of the uncontrolled and non-rational which is the only environment wherein reason can grow and operate effectively.”

Other MPS figures such as Buchanan entertained the notion that a certain specific type of moral order would support a neoliberal state, or that morals could reduce the costs of rent-seeking losers throwing monkey wrenches into government. It took a lot of effort, and a fair bit of pussyfooting around the danger of alienating the partisans of one denomination (often in some other part of the world) by coquetting with different denominations or versions of religion, but the project of intellectual accommodation with the religious right and the theocons within the neoliberal framework has been an ongoing project at the MPS, although one fraught with contradictions that have dogged the liberal project since the Enlightenment.

These thirteen more or less echt-commandments gathered here characterize the rough shape of the program eventually arrived at by the Neoliberal Thought Collective. In this summary, I have sought to highlight the stark divergence from both classical liberalism and libertarianism; further, the individual tenets will also serve as touchstones for our account of the intellectual history of the global economic crisis in subsequent chapters. Yet, having strained to discern unity in what sometimes appears a free-for-all, we should now confront the contrary proposition—that neoliberalism, in some fundamental conceptual sense, does not hang together in actual practice.

Just to be clear about the nature of what will be asserted, I am not referring here to the Platonic doctrine of the “noble lie,” nor the Latin Averroist precepts concerning the tensions between philosophic reason and faith. Neither is it the “doublethink” of Orewellian provenance, which has more to do with the state twisting the meaning of words. It may have some relationship to the thought of Leo Strauss—the hermeneutic awareness that “all philosophers . . . must take into account the political situation of philosophy, that is, what can be said and what must be kept under wraps,” as the Cambridge Companion to Leo Strauss puts it—but exploring the possible Chicago connections between his writings and the neoliberals would be too much of a distraction, given all the other topics we must cover. What I shall refer to here is the proposition that an intellectual thought collective might actually concede that, as a corollary of its developed understanding of politics, it would be necessary to maintain an exoteric version of its doctrine for the masses—because that would be safer for the world and more beneficial for ordinary society—but simultaneously hold fast to an esoteric doctrine for a small closed elite, envisioned as the keepers of the flame of the collective’s wisdom. Furthermore, whereas both the exoteric and esoteric versions would deal with many similar themes and issues, the exoteric version might appear on its face to contradict the esoteric version in various particulars. It will be necessary to explore the possibility that these seeming contradictions are not cynical in the modality one often encounters in career politicians, but rather grow organically out of the structural positions that motivate the thought collective.

I don’t think it has gone unnoticed that the NTC embodies a budget of paradoxes, to put it politely. It starts with the strange behavior we already encountered: the neoliberals had begun acknowledging in the 1930s–’50s that they were in pursuit of something “neo,” only to subsequently deny all divergence from an ancient time-honored “liberalism,” against all evidence to the contrary. Subsequently, the continuity story became the exoteric stance, whereas the “neo” remained an esoteric appreciation. But then the dichotomy expands into all manner of seemingly incompatible positions. As Will Davies has put it: market competition should stand as a guarantor of democracy, but not vice versa; unimpeded economic activity would guarantee political freedom, but not vice versa.

In 1946, as he toured the United States attempting to drum up support for his new society, he explicitly stipulated that he was “using the term Academy in its original sense of a closed society [my emphasis] whose members would be bound together by common convictions and try to both develop this common philosophy and to spread its understanding.” This evocation of Plato’s Academy was not harmless, as he doubtless understood; it has been the recourse of other MPS members whenever the closed, secret nature of the society has been raised. Hayek managed to have his way in this regard—from the start, recruitment, participation, and membership in the NTC has always been strictly controlled from within—but this starkly raises the issue of whether the MPS could practice what it nominally preached.

Popper had just published The Open Society and Its Enemies in 1945, attacking Plato, Hegel, and Marx; he was already closely allied with Hayek, who would conspire to bring him to the LSE. Popper notoriously had argued that a regime of open criticism and dispute was the only correct path to political progress; this dovetailed with his influential characterization of science as an ongoing process of conjecture and refutation.

Popper continued to argue at early MPS meetings against the idea that fruitful discussions of politics required prescreening for ideological homogeneity, or as it was delicately put, “common basic assumptions”; but essentially, he was ignored. Many other participants, rather, expressed concern that ideological agreement was already not being sufficiently policed; a few, such as Maurice Allais, withdrew due to its perceived dogmatism.

Popper himself at least glimpsed that his youthful exaltation of tolerance for unlimited criticism was unavailing in many circumstances that resembled those the MPS was constructed to counter. For instance, in a long footnote in Open Society he grants the plausibility of paradoxes of tolerance (“Unlimited tolerance must lead to the disappearance of tolerance”) and democracy (“the majority may decide that a tyrant should rule”), but had little to offer concerning how those paradoxes should be defanged. Yet around the same time, Popper was already flirting with the Hayekian “solution”: membership in the Open Society had to be prescreened to conform to a “minimum philosophy”: but the principles of selection for that philosophy were never made as explicit as they were by Hayek in practice.

Here, I believe, we can witness the birth of one of the trademark “double truth” doctrines of neoliberalism at the MPS. By professing a continuation of classical liberalism to outsiders, neoliberals lauded a tolerant open society that let all positions have a fair hearing and full empirical test. Hayek's Road is written in this register, with its dedication, “To socialists of all parties.” Divergent views should compete and be criticized from the opposing camp. Everyone, they said, was welcome to participate.

Yet there abided a closed subset of MPS insiders who recognized the force of the paradoxes of tolerance and democracy; and consequently they ran their thought collective as an exclusive hierarchical organization, consisting of members preselected for conformity, which encountered opposed conceptions of the world only in highly caricatured versions produced by their own true believers. Esoteric knowledge was transgressive: a liberalism for the twenty-first century could be incubated and sustained only by an irredeemably illiberal organization. Part of the price of admission was initiation into the double truth of the “minimum philosophy”: insiders could learn to live with this esoteric doctrine after a long period of apprenticeship. Outsiders need never know anything about it, and could persist snug in their belief that liberalism meant the tolerant dialogue of the open society; of course, they need never apply to actually enter the MPS.

As the house historian of the MPS reports, Milton Friedman joked in a letter to Hayek, “Our faith requires that we are skeptical of the efficacy, at least in the short run, of organized efforts to promulgate [MPS doctrines].” The problem, quite clearly, was if the neoliberal portrait of market order was so overwhelmingly superior, then why hadn’t it just naturally come to dominate all other economic forms? Why hadn’t it already summoned the spirit of liberalism that would guarantee it to flourish? Who really needed the shock troops of the Neoliberal Thought Collective? Classical liberals had adopted the consistent position either that it already had or would happen inexorably, so just sit back and enjoy the inexorable trend of history. Neoliberals had rejected all that in favor of an activist stance, but then had to face up to the vexatious intellectual lack of consilience between their sneers at the impudence of the will to planning and their own presumption of the utter nobility of their own will to power.

All this taxonomizing was fine; but the question that was motivating Hayek, even if he never adequately addressed it directly, was: What sort of “order” was the MPS, and what sort of order was the Neoliberal Thought Collective dedicated to bringing about? The provisional answer began by blurring the boundaries of the sharp distinction he had just wrought: “while the rules on which a spontaneous order rests may also be of spontaneous origin, this need not always be the case . . . it is possible that an order which would still have to be described as spontaneous rests on rules which were entirely the result of deliberate design . . . collaboration will always rest both on spontaneous order as well as deliberate organization.” Here he elided acknowledgment that the MPS and the larger NTC did not themselves qualify as a spontaneous order, if only because it was predicated upon stipulated rules that were not the same for all members; nor were they independent of any common purpose. When you unpacked all the shells of the Russian doll, it was just another elaborate hierarchical political movement.

[I]t is impossible, not only to replace spontaneous orders by organization and at the same time to utilize as much of the dispersed knowledge of all its members as possible, but also to improve or correct this order by interfering in it by direct commands. Such a combination of spontaneous order and organization it can never be rational to adopt.

Since Hayek’s original point had been that no one “rationally” adopts a kosmos, here was where his construct broke down. Either the dividing line between kosmos and taxis was bright and clear, and the MPS was an example of a taxis, which was thus illegitimate by his own lights, or else kosmos and taxis were hopelessly intertwined, but then there was no dependable way in his system to separate “government” from “market,” and the politics of the NTC would threaten to become unintelligible. The Hayekian wing of the thought collective has never been able to square this circle, so it has to resort to double-truth tactics. For outsiders, neoliberal thinkers are portrayed as plucky individual rebel blooms of rage against the machine, arrayed against all the forces of big government and special interests, and in a few hyperbolic instances, even against the “capitalists.” They are neither sown nor cultivated, but are like unto dandelions after a spring rain, pure expressions of the kosmos. But once initiated into the mysteries of the thought collective, only the organization men rise to the top, and they know it. The Richard Finks, Leonard Reads, and Antony Fishers of the world are the true movers and shakers of the neoliberal movement, not some blogger in a basement. Salarymen are the purest expression of taxis, but must not say so.

Hayek is noteworthy in that he placed ignorance at the very center of his political theory: "the case for individual freedom rests chiefly on the recognition of the inevitable ignorance of us all." Most commentators tend to interpret this as an appeal to ignorance as some kind of primal state of mankind; but I think they need to expand their horizons. The distinction begins to bite when we take note that Hayek harbored a relatively low opinion of the role of education and discussion in the process of learning, and notoriously, an even lower opinion of the powers of ratiocination of those he disparaged as "the intellectuals." These, of course, were the mirror image of his belief in the market as a superior information processor: Nor is the process of forming majority opinion entirely, or even chiefly, a matter of discussion, as the overintellectualized conception would have it .

For Hayek and other advocates of "emergent" social cognition, true rational thought is impersonal, but can occur only between and beyond the individual agents who putatively do the thinking. As he wrote in The Constitution of Liberty, "to act rationally we often find it necessary to be guided by habit rather than reflection." As Christian Arnsperger so aptly put it, for Hayek, "rational judgment can only be uttered by a Great Nobody." That may seem odd in someone superficially tagged as a methodological individualist supporter of freedom; but it just goes to show how far ignorance has become ingrained in American political discourse. The trick lies in comprehending how Hayek could harbor such a jaundiced view of the average individual, while simultaneously elevating "knowledge" to pride of place in the economic pantheon: Probably it is true enough that the great majority are rarely capable of thinking independently, that on most questions they accept views which they find ready-made, and that they will be equally content if born or coaxed into one set of beliefs or another.

Probably it is true enough that the great majority are rarely capable of thinking independently, that on most questions they accept views which they find ready-made, and that they will be equally content if born or coaxed into one set of beliefs or another. In any society freedom of thought will probably be of direct significance only for a small minority.

For Hayek, “Knowledge is perhaps the chief good that can be had at a price,” but difficult to engross and accumulate, because it “never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” You might think this would easily be handled by delegating its collection and winnowing to some middlemen, say to academic experts, but you would be mistaken, according to Hayek. He takes the position that all human personal abilities to evaluate the commodity are weak, at best. And this is not a matter of differential capacities or distributions of innate intelligence: “the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant.” Experts are roundly disparaged by Hayek, and accused of essentially serving as little more than apologists for whomever employs them. On the face of it, it thus seems somewhat ironic that Hayek would be touted as the premier theorist of the New Knowledge Economy. But the irony dissolves once we realize that central to neoliberalism is a core conviction that the market really does know better than any one of us what is good for ourselves and for society, and that includes the optimal allocation of ignorance within the populace: “There is not much reason to believe that, if at any one time the best knowledge which some possess were made available to all, the result would be a much better society. Knowledge and ignorance are relative concepts.”

It was men’s submission to the impersonal forces of the market that in the past has made possible the growth of civilization . . . It does not matter whether men in the past did submit from beliefs which some now regard as superstition . . . The refusal to yield to forces which we neither understand nor can recognize as the conscious decisions of an intelligent being is the product of an incomplete and therefore erroneous rationalism. It is incomplete because it fails to comprehend that co-ordination of the multifarious individual efforts in a complex society must take account of facts no individual can completely survey. And it also fails to see that . . . the only alternative to submission to the impersonal and seemingly irrational forces of the market is submission to an equally uncontrollable and therefore arbitrary power of other men.

The second salient implication is that, from the neoliberal vantage point, “science” does not need special protection from the ignorant, be they the partisan government bureaucrat, the craven intellectual for hire, the lumpen MBA, the Bible-thumping fundamentalist, the global-cooling enthusiast, or the feckless student. In an ideal state, special institutions dedicated to the protection and pursuit of knowledge can more or less be dispensed with as superfluous; universities in particular must be weaned away from the state and put on a commercial footing, dissolving their distinctive identities as “ivory towers.” Science should essentially dissolve into other market activities, with even its “public” face held accountable to considerations of efficiency, profitability, and subservience to personal ratification. “Competition” is said to ensure the proliferation of multiple concepts and theories with the blessing of the private sector. The only thing that keeps us from enjoying this ideal state is the mistaken impression that science serves higher causes, or that it is even possible to speak truth to power, or that one can rationally plan social goals and their attainment. Despairing of extirpation of these doctrines from within the university in his lifetime, Hayek and his confederates formed the Mont Pèlerin Society and then forged a linked concentric shell of think tanks to proselytize for the neoliberal idea that knowledge must be rendered subordinate to the market. Little did he suspect just how successful his crusade would be after his death.

Perhaps the greatest incongruity of the Neoliberal Thought Collective has been that the avatars of freedom drew one of their most telling innovations from the critique of liberalism that had been mounted by totalitarian German and Italian political thinkers from the interwar period. Although there were a fair number of such writers who were important for the European MPS members, the one that comes up time and again in their footnotes is Carl Schmitt, whom Hayek called “Adolf Hitler’s crown jurist Carl Schmitt, who consistently advocated the replacement of the ‘normative’ thinking of liberal law by a conception of law which regards as its purpose ‘concrete order formation’”; another was Bruno Leoni, who posited law as something best fortified as resistant to all popular alteration. … Hayek insisted that his central epistemic doctrines about knowledge dictated that freedom must feel elusive for the common man: “Man in a complex society can have no choice but between adjusting himself to what to him must seem the blind forces of the social process and obeying the orders of a superior.” Paraphrasing Walter Benjamin, citizens must learn to forget about their “rights” and instead be given the opportunity to express themselves through the greatest information conveyance device known to mankind, the market. The Neoliberal Thought Collective, through the instrumentality of the strong state, sought to define and institute the types of markets that they (and not the citizenry) were convinced were the most advanced. Hayek’s frequent appeals to a “spontaneous order” often masked the fact that it was the NTC who were claiming the power to exercise the Schmittian “exception” (and hence constitute the sovereignty of the state) by defining things like property rights, the extent of the franchise, constitutional provisions that limit citizen initiatives, and the like.

Liberalism and democracy, although compatible, are not the same . . . the opposite of liberalism is totalitarianism, while the opposite of democracy is authoritarianism. In consequence, it is at least possible in principle that a democratic government may be totalitarian and that an authoritarian government may act on liberal principles . . . [in] demanding unlimited power of the majority, [democracies] become essentially anti-liberal.

As in so many other areas, they were merely echoing Schmitt's position that "Only a strong state can preserve and enhance a free-market economy" and "Only a strong state can generate genuine decentralization, [and] bring about free and autonomous domains." This was echoed (without attribution) by Hayek: "If we proceeded on the assumption that only the exercises of freedom that the majority will practice are important, we would be certain to create a stagnant society with all the characteristics of unfreedom."

One can therefore only second the verdict of Christi that, “In truth, Hayek owed much to Schmitt, more than he cared to recognize.” For Hayek and the neoliberals, the Führer was replaced by the figure of the entrepreneur, the embodiment of the will-to-power for the community, who must be permitted to act without being brought to rational account. While he probably believed he was personally defending liberalism from Schmitt’s withering critique, his own political “solution” ended up resembling Schmitt’s “total state” more than he could bring himself to admit. If it had been apparent to his audience that he was effectively advocating an authoritarian reactionary despotism as a replacement for classical liberalism, it would certainly have not gone down smoothly in the West right after World War II. Further, there was no immediate prospect of a strong authority taking over the American university system (by contrast with Germany in the 1930s) and sweeping the stables clean. In an interesting development not anticipated by Schmitt, Hayek and his comrades hit upon the brilliant notion of developing the “double truth” doctrine of neoliberalism—namely, an elite would be tutored to understand the deliciously transgressive Schmittian necessity of repressing democracy, while the masses would be regaled with ripping tales of “rolling back the nanny state” and being set “free to choose”—by convening a closed Leninist organization of counterintellectuals. There would be no waiting around until some charismatic savior magically appeared to deliver the Word of Natural Order down from the Mont to the awestruck literati. Intellectual credibility could not be left to the vagaries of “spontaneous order.” The constellation of double-truth doctrines enumerated in this chapter are the direct consequence of Schmitt’s definition of politics as the logic of the friend/enemy distinction. … It was, as Arnsperger puts it, a theory to end all theories; not so different from the “end of history” scenarios so beloved of his epigones. The doctrine of special dispensation for the Elect is one very powerful source of ongoing attractions of neoliberalism, viz., the feeling of having surrendered to the wisdom of the market by coming to know something most of the nattering crowd can’t possibly glimpse: freedom itself must be as unequally distributed as the riches of the marketplace.

Let’s be clear, I don’t believe in democracy in one sense. You don’t believe in democracy. Nobody believes in democracy. You will find it hard to find anybody who will say that if, that is democracy interpreted as majority rule. You will find it hard to find anybody who will say that at 55% of the people believe the other 45% of the people should be shot. That’s an appropriate exercise of democracy . . . What I believe is not a democracy but an individual freedom in a society in which individuals cooperate with one another.

Christian Arnsperger has captured the double-truth doctrine nicely, by insisting that Hayek had denied to others the very thing that gave his own life meaning: the imprimatur to theorize about “society” as a whole, to personally claim to understand the meaning and purpose of human evolution, and the capacity to impose his vision upon them through a political project verging upon totalitarianism.

In the aftermath of the crisis, Hayek is now treated as a seer of prodigious perspicuity; and at the exhortation of Glenn Beck, his Road to Serfdom has been read (or maybe just scanned) by thousands who will never be bothered to delve much deeper into neoliberalism, or come to comprehend the political project that they feel speaks to them. But then again, it may be because the actual dry and stilted Hayekian encyclicals have less to do with all that than the fact that neoliberal images now so pervade cultural discourse that the situation has far transcended explicit political theory.

Starting from a heightened appreciation for the complexity and double truth of the neoliberal heritage, we can now make a fortified assault on this question: How did neoliberalism apparently come through the crisis unscathed?

It is not that many of these writers don't realize that neoliberalism has become entrenched at a very personal level of existence: indeed, Foucault is often credited with having insisted upon that very notion. However, the proposition, if contemplated at all, has mostly been explored at an austere level of abstraction—for instance, Foucault himself comments upon the theoretical writings of Gary Becker and the German ordoliberals; he was seemingly uninterested in how the dynamics actually played out at ground level. One might have expected Foucauldians to pursue that option; the next section inquires why this apparently hasn't happened. Consequently, as Konings suggests, it has not been the political theorists or philosophers who have made the greatest strides toward understanding everyday neoliberalism; rather, progress has been made by a motley clique from anthropology, business schools, marketing agencies, law schools, and cultural studies who have explored the contemporary contours of neoliberal consciousness.

Another, more productive line of inquiry eschewed spelunking the ontology of the commodity in favor of Radin's astute observation that questions of commodification would themselves rapidly devolve into questions of the nature of personhood; and this resonated with all manner of feminist scholars, anthropologists, and cultural studies advocates. As this contingent pursued their empirical explorations of recent alterations in what it meant to be a free and autonomous agent in the modern world, they increasingly found themselves brought back into confrontation with neoliberal political economy. Their writing was pitched just about as far from formal disciplinary economics as it is possible to go in the contemporary academy; perhaps it was this fact that allowed them to more directly access accounts of the NTC as germane to their concerns. Once they made the connection, they uncovered all manner of unexpected facets of the new personhood.

The nimble trick of portraying a neoliberal world as an insurgency always on the edge of defeat, a roiling rage against the system, the rebel bloom of dissent from a stodgy cronyism of corporate and government governance, not to mention the epitome of all futuristic hope, is the secret weapon of the Russian doll structure, deflecting the gale-force winds of prolonged economic contraction. It offers more, better neoliberalism as the counter to a sputtering neoliberalism, all the while disguising any acknowledgment of that fact. It is the promotion of ignorance as the neoliberal first line of defense.

One of the better ways to become aware of everyday neoliberalism is to approach it from a slightly oblique angle. Many works of art have set out to do just that; one of my favorites is Gary Shteyngart's popular novel Super Sad True Love Story. The overarching narrative line of this vaguely futuristic novel involves the political collapse of the "American Restoration Authority" and a coup by a for-profit security firm, backed by Chinese investors in American government debt. But the author is less fixated upon such macro-level political science fiction than his plausible exaggerations of trends in the organization of everyday life. For instance, urban streets are equipped with "Poles" that give instant LED readouts of your credit ranking as you pass by, accompanied by personalized investment advice; the protagonist works for the Post Human Services Corporation, which provides unspecified rejuvenation services to those of advanced age (that is, over thirty) by means of prostheses. Everyone wears a device called an "apparat," which continually streams data between people in near proximity, and allow the user to FAC (Form a Community) on the fly by scanning a standardized set of statistics concerning compatibility, income, and history: Streams of data were now fighting for time and space around us.

I can imagine my reader poised to retort, "That was precisely Foucault's point!" Power is not simply exercised between the ruler and the ruled; it has been integrated directly into the makeup of modern agency, it fills up the pores of our most unremarkable day; it is the default option of our reflex assumptions about what others think and do. It gets under our skin; which is one way to try to understand what Foucault meant by his seductive term "biopolitics." Yet, as I have already hinted, leaning on Foucault as a guide to everyday neoliberalism can be a treacherous proposition, at best.

D) "The malleability of the self presumed by the theory of human capital investment will extend down to the most basic corporeal level, which will eventually mean investment in genetic manipulation."

Foucault was the first to insist that Becker's "human capital" was a first move in the neoliberal disintegration of the self. This race to the empty bottom is the terminal meaning of "biocapital."

E) "The Entrepreneurial self cannot be passive, but must move strategically in a world rife with risk. Hence, reward and punishment are accepted by the agent as the outcome of calculated risks, not as the dictates of 'justice.'"

Casinos are not cynical scams taking advantage of the naïve and improvident; they are the practice tables for life. Risk is the oxygen for the entrepreneurial self, but also the means through which failure is leached of its political valence. The failed should accept the verdict of the market without complaint or pleas for help. Insecurity is the incubator for risk-loving behavior. The birth of actuarial tables is the death of tragedy.

"Everyone must be uncertain with regard to the collective outcome if this positive collective outcome is really to be expected. Being in the dark and blindness of all the economic agents is absolutely necessary . . . Invisibility is absolutely indispensable. It is an invisibility which means that no economic agent should or can pursue the collective good. But we must no doubt go further than economic agents; not only no economic agent, but also no political agent . . . You cannot because you do not know, and you do not know because you cannot know." Ignorance as the linchpin of the neoliberal project was already stressed in the previous chapter. These quotes reveal that Foucault got there first.

I am not the first to demur that Foucault’s treatment of neoliberalism leaves something to be desired. It seems that a few scholars are coming around to the position that Foucault managed to be so very prescient with regard to everyday neoliberalism precisely because he took on board such a large amount of the neoliberal doctrine as a font of deep insight into the nature of governmentality. … Again, to be clear, I am not accusing Foucault of being a member of the Neoliberal Thought Collective—an absurd counterfactual—but rather, suggesting that he shared quite a bit of common ground with their doctrines, and was coming to appreciate that incongruous fact toward the end of his life.

One way to interpret this is to say that the cast of historical figures in capitalist societies operated within a regime of truth that elevated the construct identified as “the economy” to pride of place in their exercise of power; and further, the appeal to self-limitation was a means to their expansion of power; but that does not correspond to what appears in the lectures. Rather, Foucault seeks to interrogate government as the assemblage of techniques, beliefs, practices, and excuses that try to maintain order; but he leaves “the economy” as the independent Representative of the Real, a placeholder without interrogation or even any description. The market as portrayed by Foucault in his late lectures on neoliberalism is the sole legitimate site for the production of indubitable knowledge of the whole; in other words, an absent deity rendered in a manner no different from Hayek or Stigler or Friedman or Buchanan. The “market” (always referenced as a monolithic entity) provides the boundary condition for governmentality, because it alone knows things we can never know.

If I had to summarize where the otherwise prescient Foucault took a wrong turn, it was in too readily swallowing the basic neoliberal precept that the market was an information processor more powerful and encompassing than any human being or organization of humans. What Foucault missed were the critical notions of double truths outlined at the end of the last chapter. The neoliberals preach that the market is the unforgiving arbiter of all political action; but they absolve themselves from its rule. They propound libertarian freedoms but practice the most regimented hierarchy in their political organization; they sermonize about spontaneous order, while plotting to take over the state; they catechize prostration of the self before the awesome power of the knowledge conveyed by the market, but issue themselves sweeping dispensations. Most significantly, they reserve to themselves the right of deployment of the Schmittian exception.

I leave it to others to sort through the biographical record to try to figure out the motives and considerations that may have steered Foucault in the direction of the neoliberals. In this book, Foucault’s acquiescence in the neoliberal doctrine of the market as über–information processor renders him pretty useless for our discussions of the crisis. The point of relevance for our present concerns is that Foucault’s lectures reproduced an asymmetry between the “state” and the “market” that smacks far more of the exoteric caricature promoted by Mont Pèlerin, rather than its internal esoteric understanding.

A more typical Foucauldian approach would commence to undo the invisibility of the economy and the market as an invisible “telescope” and “information machine.” This would mean rendering visible the market’s own “machine of seeing,” rather than seeing like the unseen market itself.

People rebel, that is a fact. In this way subjectivity (and not just that of great men but of any given person) enters into history and breathes life into it. A prisoner sets her life against excessive punishment. A mentally ill person does not want to be incarcerated and robbed of rights. A people sets itself against a regime that oppresses it. In this way, the prisoner does not become innocent, the mentally ill person does not become healthy, and the people do not take part in the promised future. And no one must show solidarity with them. No one must believe that these voices might sing more beautifully than others and pronounce the final truth. It is enough that they are there and that everything attempts to silence them in order that it becomes meaningful to want to listen to them and understand what they say . . . Because such voices exist, the era of humans does not have the form of evolution, but of history.

Our approach in this volume will be different. We shall maintain there is no such thing as “the market” as monolithic entity, and in any case, it does not come equipped with supernatural powers of truth production. Markets don’t “validate” truth; rather, markets are the product of struggles over the truth.

The jumble that gets lumped together as “the market” is constructed on the fly in such situations; and it is as much a bricolage as its counterpart, the neoliberal construct of the self. Both are not constructed top-down, from blueprints kindly supplied by Mont Pèlerin, nor bottom-up through the aimless evolution of the kosmos, but rather outward, in trial-and-error mutual adjustment of the politically fortified market and the everyday entrepreneurial self.

Furthermore, Foucault was just dead wrong about neoliberalism as fostering the autolimitation of state power. He bought into the exoteric doctrine that the market is the backstop of the state, keeping it in check. The state has not been limited in purview by the neoliberal response to crisis, but instead, has greatly expanded its role, in finance, in “picking winners,” and in the discipline of citizens through the further injection of neoliberal themes into everyday life.

Tom Frank in an earlier incarnation had seemingly understood this: "Making the world safe for billionaires has been as much a cultural and political operation as an economic one"; it was only when he artificially set them at odds that he attained best-sellerdom with Kansas, but at the price of losing his way.

The core insight of the Neoliberal Thought Collective was that the cultural and the economic should not be treated as substitutes, much less discrete spheres of experience, but rather, as integrated into a virtuous whole: surrender your selfish arrogance and humbly prostrate yourself before the Wisdom of the Universe, as nurtured and conveyed by the market. "Be all you can be" had jettisoned the injunction to "know yourself" and replaced it with "Start your own business!" even if it only meant homeschooling your children. As religion took on more of the trappings of just-in-time provision of entertainment services, and "values" assumed the mix-and-match character of Do It Yourself bricolage, the materiality of rock-solid "interests" melted into thin air. After all, neoliberals deny that you are the unimpeachable judge of your own welfare, however much they worship at the altar of Freedom. The more the line between "The Sphere Previously Known as the Economic" and culture or religion was progressively obscured and erased, the more irreversible the neoliberal long march.

Does the neoliberal self have an archetype, or a birthday? With everyone from Jesus CEO to the “Founding Fathers” undergoing retreads, facelifts, and résumé rewrites, challenging the historical authenticity of many of the icons of neoliberal selfhood could become a full-time operation on its own.

The average person may be encouraged to believe all sorts of things about the government that have no correspondence to the esoteric neoliberal playbook, or untethered from any facts, for instance, and this is a key aspect of the construction of a viable neoliberal self under the sway of the double-truth doctrine. The average citizen severely underestimates the amount of their livelihood that comes from the government; and are utterly deluded about their current place in the distribution of income and wealth.

The proof of the project will not come in adherence to some Identikit notion of accuracy, but rather with personal recognition of the subconscious prompts that lurk in each of our own lives, the attitudes that have grown to be the unremarkable furniture of waking life, and their possible instrumentality when it comes down to acquiescence in the neoliberal wisdom of crowds. The advent of the neoliberal way of being quite literally transforms the subject, and consequently, inhibits all tendencies to interpret the crisis as a system-wide failure of economic organization.

I have used the term “personal property” to refer to categories of property that we understand to be bound up with the self in a way that we understand to be morally justifiable . . . Since personal property is connected with the self, morally justifiably, in a constitutive way, to disconnect it from the person (from the self) harms or destroys the self. The more something takes on the indicia of an attribute or characteristic of the self, or at least the self as the person herself would wish, the more problematic it seems to alienate it . . .

Radin builds upon this observation to argue in favor of imposition of spheres of “incomplete commodification,” and to prohibit some markets altogether, such as the selling of human infants. The Rosetta Stone of neoliberalism rejects the basic premise of this version of liberalism, not only by denying that any such spheres should exist, but more important, insisting there is no self that is harmed by the creation and alienation of private property. Indeed, one might reasonably wonder if there is much of any Archimedean Self whatsoever in the neoliberal game plan. Absent such a self, there is nothing left of a “positive” notion of freedom to preserve and protect.

Ferriss's life is his brand, his data, his evidence, his project. In his books he shares—no, sells—every feature of his daily life, including details of ejaculations and defecations. Every aspect of Ferriss's life is on the market, just as he engages with market transactions to advance many of his professional and personal aims.

Homo economicus was not so much "atomistic" as atomized in the mathematics. The conceptual problem with human capital was that the purely plastic self could hardly be asserted to exhibit self-identity. To solve some technical problems, economists began to write down models with "multiple selves" collated into a single mega-utility function. This, in turn, led to Sissyphyssian task of shoring up whatever was left of the concepts of "agency" and "preference." … It is a mug's game to trumpet the virtues of a market that gives people what they want, if people are portrayed as desperate to transform themselves into the type of person who wants what the market provides.

The neoliberal contempt for human categories has become well ensconced in everyday life in the last three decades. Whatever their predicament, whatever their station in life, everyone is encouraged to think they, too, can be Metis, unperturbed (or ignorant) that their fate is to be consumed by Zeus. Time and again, the supposed success of some teen idol or hedge fund manager or sports star is said to illustrate the tired platitude that “you can be anything that you want to be, if you want it bad enough.” This presumes a self that can incorporate any attribute, take up any challenge, transcend any limitation, and embody any quality. There are few neoliberal tropes more cynical, or incantations more convenient. This catechism of permanent metamorphosis has spawned a number of cultural devices that structure everyday neoliberalism. Here we will merely touch upon two: the modern disappearance of economic class as a serious taxonomy, and the hollowing out of the notion of “risk” when elevated to a general imperative of agency.

One major cultural development over the last three decades is that the only permissible mention of “class” in the economic sense has been the utterly superfluous habit of treating oneself and others as solidly “middle class.” … The suppression of the obvious point that every “middle” needs two substantial extremes to be legitimate is an artifact of the neoliberal doctrine that there is no such thing as social class, and most decidedly, “economic” classes (working class, upper class, proletariat) do not exist. The only class in which one can safely profess membership is the “middle class,” or the class of no class. But this all-inclusive category is nervously duplicitous, because it really consists of the denial of all personal categories.

For instance, during the 2008–10 crisis, the Obama administration encountered great difficulty in rolling back regressive tax cuts of the previous administration, because it had equally invested in the ludicrous language of “not raising the taxes of the middle class.” They became bogged down in a game of guessing where the upper tax boundary of that elusive middle class might be found: $100,000, $200,000, $250,000, $1 million? This was occurring when the median household income in the United States (2009) was $51,221 and the average per capita annual money income was $27,041; the public discourse was consequently conducted in a pristine fact-free zone.

The denial of legitimacy of personal categories has also had profound implications for the construction of the keyword “risk” in neoliberalism. The connotations of the term “risk” are treacherous in the modern world. Should one approach risk as an actuarial concept, then the ability to sort individuals into stable categories and identities is the indispensable prerequisite for the application of probability algorithms to what would otherwise be merely the idiosyncratic and incommensurate life trajectories of historical personalities. Classical approaches to risk parlayed stable categories into prudential outcomes. Yet, because of the first commandment of the plasticity of the individual, this is increasingly not how everyday neoliberalism understands risk.

This is one reason that participation in neoliberal life necessitates acting as an entrepreneur of the self: unreserved embrace of (this version of) risk is postulated to be the primary method of changing your identity to live life to the fullest. Contemporary entrepreneurial autobiographies almost always start out with some variation on: “I am not sure what it is about entrepreneurs that makes us risk-taking thrill seekers, but every entrepreneur I know is an adrenaline junkie. We kite board, heli ski, race cars, and keep finding new creative ways to challenge ourselves.” Alternatively, anyone who participates in the welfare state is just a dull drone, lost in a vegetative state. They are debased because they expect the state to shield them from risk, when in fact, they should be reveling in the opportunity to remake themselves.

As long as it can be shown that risks could have been better managed—by diversification, better models, better rules, better institutions, better professionals—the loss is morally justified. The retrospective argument that risk could have been better managed becomes the moral justification for the losses of everyone involved . . . the risk management discourse enables us to simultaneously celebrate the indeterminacy of outcomes and to retrospectively moralize these outcomes; to deny a singular causality before an outcome materializes and to attribute a moral causality after an outcome materializes.

Hence the modern culture of risk is the very embodiment of the neoliberal commandment: there is no such thing as commutative justice, and consequently, the participant must simply acquiesce in the verdict of the market. The discourse of risk, which seems to be forward-looking, in fact stands as the post-hoc justification of any outcome whatsoever.

In the United States, individual states have been falling over one another to promote every form of gambling they might tax. Not only was it lucrative, but it taught the precariat to live suspended in a delirium of lottery fever, the better to be distracted from working life.

There was a time when gambling was regarded as the immoral fleecing of the working man, which motivated many attempts to declare it illegal, or at minimum, confine it to a strictly controlled sphere. A mid-twentieth-century opinion held that it was better to drive it underground than to sanction the bankrupting of people with limited means lacking the fortitude of will to walk away from the racetrack or gaming table. But in the neoliberal pantheon, the person who abjectly submits to risk (even handicapped by house advantage) is a hero, not a weak-willed fool. Hence, in modern life, and in contrast with prior regimes, gambling takes on an aura of moral probity. In a sense, playing slot machines or attending betting parlors or blackjack or roulette tables is not just the privilege of the idle rich, but rather, a mass version of simulated practice for an ideal life. In the neoliberal era, the state went from trying to quarantine gambling to insinuating it into every hamlet, high street, filling station, and Indian reservation.

The makeover of the worker/consumer into daredevil risk-taker turns out to be central to the neoliberal blanket absolution of the financial sector for causing the crisis. In this construct, there can be no such thing as “predatory lending,” since any economic transaction, no matter how studded with booby traps, is freely entered into by the ideal entrepreneurial agent, and therefore is prima facie noncoercive or free of exploitation. Since all those “subprime” and “alt-A” mortgages were merely shiny products responding to the desires of all those income-challenged potential home owners (not inconsequentially overrepresented by marginal borrowers from disadvantaged racial and demographic groups), the buck stops with the latter.

Experts often describe the run-up to the financial crisis as a “race to the bottom.” In reality it was a veritable track-and-field meet of such contests: some of them played out in the marketplace, others inside the government. Out in the financial marketplace, in the 2000s, opaquely marketed subprime products pioneered by unregulated, fly-by-night, nonbank mortgage lenders began to take off in the mainstream. Much as in the credit card business—where the boldly marketed 4.9 percent teaser rate masks the 18.9 percent rate that will eventually kick in—these were often mortgages that masked exploding costs down the line. Banks and thrifts, in order to hold their own, had to jump in with similar products, lest their plain-Jane fixed-rate mortgages look expensive by comparison. In market after market, hiding the true costs and risks of a product became a requirement for survival.

The naïve Elizabeth Warren–style reaction to this travesty is to enforce bureaucratic simplicity and transparency upon the lenders, perhaps combined with some “consumer education”; but this displays a distressing lack of understanding of the neoliberal mind-set. Banks and other vendors have generations of marketing savvy built into their understanding of the entrepreneurial self, a persona for whom they were instrumental in parturition. They are masters of sales pitches that seem “simple” but in fact are highly manipulative and empty of key information. The nascent Consumer Financial Protection Bureau is only beginning to confront this fact, realizing that the dream of a transparent two-page standardized mortgage agreement is only marginally less prone to manipulation than the balloon-option ARM. If one is serious about countering modern bank practices, then tinkering with legal forms is utterly ineffectual: you have to be willing to muck in and manipulate the entrepreneurial self, as much as or more so than the banks.

This is how neoliberalism works: first it moves heaven and earth to induce you to manage your own portfolio and assume more risk; then it demonizes the victim when the entire structure comes crashing down, as it inevitably must. The most famous (and consequential) attack on the poor for their indebtedness was the rant on the floor of the Chicago Mercantile Exchange by Rick Santelli, which is credited in retrospect with jump-starting the Tea Party in the United States. Santelli was catapulted to instant fame after his five-minute outburst on CNBC in February 2009—where he decried government bailouts, called struggling home owners "losers" and speculated aloud that a new Tea Party might be needed—went viral.

The fallacy with the Tea Party slogan "Your mortgage is not my problem" is that most people are not continually scheming to live beyond their means: they have to be introduced into structures and schemes larger than themselves that are constructed precisely to attain that end. To attribute the crisis to the profligacy of the average person presumes a level of understanding that is otherwise denied to the individual in the neoliberal era. As John Lanchester put it: "From the worm's-eye perspective which most of us inhabit, the general feeling about this new turn in the economic crisis is one of bewilderment . . . People feel they have very little economic or political agency, very little control over their own lives; during the boom times, nobody told them this was an unsustainable bubble until it was already too late."

To distinguish it from stigmatized wagering on the demise of some arbitrary policy-holder, various prohibitions were instituted against purchase of insurance on the lives of unrelated strangers. In other words, life insurance was successfully rendered palatable for mass market purchase by presenting it as a product whereby you might “personalize” your prudence with regard to those closest to you, most generally, bereaved family members. But once life insurance had become a mass commodity, then the standardized narrative unraveled.

But while all the little entrepreneurs were assiduously busy striving to morph into Galateas exquisitely engineered to succeed without really trying, special panopticons had to be erected to maintain actuarial notions of class membership and fixed identity. Credit proliferation required concerted management; liabilities had to be recurrently affixed to a vigorous continuous human identity; and an augmented scale of loan activity required further standardization of the entities that would be granted this credit. In the crisis literature, most attention has been focused on the transition from an “originate and hold” model of granting of loans to consumers (where the lender keeps possession of the loan) to a model of “originate and distribute,” facilitated by the process of securitization. This watershed was preceded by another just as critical: the extraction of judgments of creditworthiness out of a web of local personal relationships and the consequent injection of automation of judgment in the format of uniform quantitative indices provided by for-profit firms. For corporations, these services had been provided by the “Big Three” ratings agencies; for consumers, these were constructed as the FICO® scores from an algorithm invented by Fair Isaac and Company.

Martha Poon has flagged this watershed as a shift from "credit-control-by-screening" to "credit-control-by-risk-category"; we just designate it "neoliberalism," the latest installment in the surveillance of the modular entrepreneurial self. Indeed, by the late 1990s, FICO scores had become all-purpose quantitative proxies for your "worth" as a human being, rendering your debts comparable with those of a million others, incorporated directly into the models that served to justify stratification into the various trenches of the mortgage-backed securities that were one direct cause of the crisis.

Even though the Panopticon was conveniently privatized, neither Fair Isaac nor the credit raters were held to be responsible for “risk” created by their own activities offloaded onto their subjects, unlike the neoliberal selves that they kept under close surveillance. This again illustrates the sharp asymmetry of neoliberal concepts of “risk.” Should the chains of identification be breached in FICO, say, by “identity theft” or “data errors” or “computer glitches,” these firms did not bear the responsibility of making the person whole; no, that devolved to the frantic individual in extremis to somehow “correct” or otherwise rectify their deviance from the imperatives of actuarial accuracy. It should be noted that the credit raters did not make rectification easy. An elaborate secondary market grew up in service providers who themselves charge the agents to monitor the records of the consumer credit-rating firms, in order to flag any divergence of the surveillance dossiers from the notional identity that the entrepreneurial self entertained about his own autobiography. This nicely illustrated the key neoliberal precept that any “problems” generated by neoliberalism could be adequately addressed by a redoubled bout of entrepreneurial innovation and further market activity. Unfortunately, that particular neoliberal precept was embarrassed by the further breakdown of the whole credit-scoring edifice in the crisis of 2008. And yet, just as in so many other instances, the entrenched character of FICO scores in everything from credit cards to background checks, plus their purported “convenience,” prompts them to live on, unfazed by their tenuous connection to reality.

But beyond a little virtual reality, the normalization of everyday sadism fulfills deeper functions as well. The “double truths” of neoliberalism outlined in the last chapter cannot be permanently confined within the ambit of the NTC, but tend to leak out as barely repressed contradictions in quotidian life—between populism and plutarchy, between freedom and control, between smug ignorance and fervent conviction, between Christian theology and norms of efficiency, between kosmos and taxis, between the enjoyment of pleasure and the deployment of pain. These contradictions could not be confronted directly by the larger populace without fomenting utter disenchantment with the promises of neoliberal order. To get around the cognitive dissonance, cultural outlets square the circle by staging little neoliberal allegories in the public sphere, directing anger away from intractable predicaments in the political sphere and toward the victims. As one analyst put it, every system of cruelty requires its own theater.

Given the vast hollowing out of the income distribution, it makes sense that the working poor constituted one of the only substantial customer segments that left any room for expansion: Jared Davis [CEO of Check 'n Go] .

In the current climate, it seems there is almost nothing you could do to the poor that would earn you opprobrium and ostracism from polite company, (maybe) short of sexual molestation of children. Prior to the 1980s, the practice of “salary purchase,” aka “payday loans,” had been outlawed; but a concerted effort beginning at the state level progressively legalized this particular form of predatory lending. As of 2008, there were more payday lender outlets in the United States than there were McDonald’s and Burger King restaurants combined, with turnover that dwarfed casinos, the other major poverty vampire operation. What is astounding about such operations is that they are no longer treated as reviled bottom-feeders by both the media and politicians, but rather as exemplary of the types of legitimate businesses that provide opportunity and salvation in the current contraction.

A district director who used to work for him called a press conference a few years back to talk about the company’s methods for choosing new store locations. “I have been responsible for selecting sites for new stores in D.C. and northern Virginia,” he said—and to those who claim the company doesn’t target minority communities, “I can tell you emphatically that it does.”

The mantra “your debt is not my problem” has permitted other bottom-feeding organizations like personal debt collection agencies to revive the once-banned practice of debtor prisons. As people fall behind in their debts and are often unaware of being subject to lawsuits, any arrest whatsoever now can trigger jail time, often for sums as small as five hundred dollars. Hundreds of fly-by-night firms scoured databases to find those falling behind in their mortgages, and hired offshore phone banks to endlessly call and promise false hope, only to swindle them with false stories of help with principal reductions, stealing from them fees they could ill afford. Yet no major media outlet has mustered even a scintilla of outrage for what is, at bottom, cheap illegal ways to harass and torture debtors.

In many instances, the audience is even encouraged to pay to “vote” for those to ostracize and banish—a clear simulacrum of the neoliberal marketplace. Game shows used to reflexively reward the poor; now pay-to-play reality TV crushes them. Computer gaming used to be about triumphs of virtuosity; now, as in Grand Theft Auto, it is all about debasement of the losers.

Martijn Konings has pointed out that the dark underbelly of the bright shiny neoliberal self is the daily spectacle of the public put-down. Not only must the truly entrepreneurial life embrace the risk and insecurity of a constantly revised self tossed hither and yon by market forces beyond our ken; the fundamental narcissism encouraged by neoliberalism demands that we participate in an active externalization of the experience of insecurity and vulnerability to revaluation. The complement to a culture of celebrity has become therefore the unabashed theater of cruelty, the public spaces where we gaze upon the half-speed car wrecks of the lives of others in the throes of failure, Nascar for the politically challenged.

Even if disease strikes you blind after graduation, existing law forces you to run a gauntlet of one degrading court appearance after another, to see if you might possibly qualify for a standard called “certainty of hopelessness”; and even then, there is only a slim chance to have the debt repudiated. I cannot think of a more depraved and decadent theater of cruelty than having to repeatedly prove before an audience and some smug judge that your life has become “hopeless.”

With mortgage defaults, banks seize and resell the home. But if a degree can’t be sold, that doesn’t deter the banks. They essentially wrote the student loan law, in which the fine-print says they aren’t “dischargeable.” So even if you file for bankruptcy, the payments continue due. Hence these stern words from Barmak Nassirian of the American Association of College Registrars and Admissions Officers. “You will be hounded for life,” he warns. “They will garnish your wages. They will intercept your tax refunds. You become ineligible for federal employment.” He adds that any professional license can be revoked and Social Security checks docked when you retire. We can’t think of any other [debtor] statute with such sadistic provisions.

Once upon a time, this oversight was deemed a devastating criticism of orthodox economics. In a sense, this was the original accusation of the bait-and-switch complaint, now blown up to system level: what goes on in markets is not primarily the conveyance of goods and services to those in need, but rather the conjuring of symbols and the fabrication of felt needs. The market, it was said, is not your humble servant, but rather a Svengali or a Stromboli. This point was popularized by John Kenneth Galbraith in his New Industrial State: Most goods serve needs that are discovered to the individual not by the palpable discomfort that accompanies deprivation, but by some psychic response to their possession.

Most goods serve needs that are discovered to the individual not by the palpable discomfort that accompanies deprivation, but by some psychic response to their possession. They give him a sense of personal achievement, accord him a feeling of equality with his neighbors, divert his mind from thought, serve sexual aspirations, promise social acceptability, enhance his subjective feeling of health, well-being or orderly peristalsis, contribute by conventional canons to personal beauty, or are otherwise psychologically rewarding.

This approach to the economic agent as dupe never caught on, either within economics or in vernacular discourse. Leaving neoclassical economics aside (because it could never condone pervasive massive disconnect between purchases and ends), it is of some interest to explore why average people in pursuit of everyday ends could not be brought to entertain the idea that much of the economy was devoted to the manipulation of their beliefs and actions, in the face of overwhelming empirical evidence. The answer has something to do with another neoliberal technology, this one bound up with the innovation of “murketing.”

Neoliberals, as one might expect, have come to concoct a much more plausible justification of the phenomenon. They have carefully read and absorbed their leftist critics, from Thorstein Veblen to Naomi Klein, and far from rejecting them outright, they openly use their ideas to render the process of persuasion both more unconscious and more effective. Neoliberals have pioneered the signal innovation of importing the double-truth character of their project into the everyday lives of the common man. The modern hidden persuaders have gladly nurtured the conviction of the average person that he is more clever than those who seek to manipulate him in order to render him all the more open to that manipulation; the set of techniques predicated on this inversion has been dubbed “murketing.”

The primary technique of murketing is to blur the boundaries between branded entities and the rest of everyday life, and then proceed to engage the frank complicity of the consumer in embracing branded pecuniary culture while believing they are immune to it. It is symptomatic of the dramatic shift in conceptualization of the market away from mere conveyance of commodities and toward the neoliberal framing of the market as uniquely omnipotent information processor. It is intimately conjoined to the neoliberal project of the permanent revolution of the self: by constantly conjuring the magic of self-transformation through purchases, one must understand one's projects as subverting all external attempts by the powers that be to impose conformity to external manufactured identities. It incites the targets to believe that they can "see through" and comprehend all the brands, the con artistry, the flimflam, the propaganda, the logos, and marketing culture, all the while easing their acquiescence into that very same culture. It is another manifestation of the neoliberal promotion of ignorance, covered in the last chapter.

Murketing takes on a political dimension because it is always concerned with defining personal activity with regard to rebellion and resistance. Older muckraking work about the nefarious "hidden persuaders" would point toward clumsy techniques of subliminal appeal, like subconscious messages or sex appeal, as though we were still trapped in Orwell's Ministry of Truth. These techniques existed to get around the fundamental contradiction that some product could help you express your cherished individuality only if the corporation behind it could afford the ads by selling it to millions of people. Of course, those apparati are still in the toolbox, but the modern neoliberal murketer is far more sophisticated, because his major occupation is to replace lived experience with prefabricated "lifestyles," always seeking to move beyond the intrinsic contradiction between "belonging" and assertion of individuality. What murketing always promises to provide is the experience of thrilling rebellion from conformity, but safely nested within a popular shared script. Apostasy takes on a cozy air; insurrection is hardly distinguished from playtime. It takes what could potentially become the spark of political activity and turns it into another occasion for shopping. Murketing is therefore one of the prime defenses against actual political mobilization in the modern polity.

What is striking is the resemblance of such promotional techniques to those of the open-source movement. There also, people are recruited to provide the fruits of their labor gratis in the guise of a rebellion against the market system, which is then reprocessed by other parties into fungible commodities. Although promoted under the banner of "freedom" the process is much more attuned to fostering the self-image of the insolent anarchic hacker culture, while averting participants' gaze from the sheer amount of hierarchical coordination that is required to invest any such project with a modicum of persistence and continuity. Their work is cherished as direct expression of their individuality, but assumes significance only when folded into a well-integrated scheme of insiders and outsiders. The consciousness of participants is so thoroughly socialized that many of them voluntarily become avid acolytes of Hayek and his notions of spontaneous organization, without detecting the possibility of their own personal collapse of kosmos into taxis.

That's the pitch on the flashy CETUSA website recruiting young college students from around the globe to work shit jobs in the US, on J-1 visas ostensibly for cultural exchange. In this case, CETUSA [Council for Educational Travel in the U.S.] delivers the students to SHS Onsite Solutions, a temp agency furnishing workers to Exel North American Logistics Inc. The latter, a subsidiary of Deutsche Post DHL, manages all the labor and operations at the big Hershey warehouse, packing and distribution center. The students pay around $3,000 to get into the program, then earn around $8 an hour, from which exorbitant rent and other fees are docked till they get down to somewhere between $140 and $40 PER WEEK of intense factory labor.

This situation appeared in the New York Times after an organized walkout from the indentured student workers at Hershey. CETUSA then decided to retaliate, and terminated the visas of some of the ringleaders, effectively getting them deported. The subcontracting arrangement allowed them to claim plausible deniability about the labor practices. Similar programs then came to light at other employers, because the larger program run by the State Department had placed 130,000 students in jobs during 2011.

2. Buycotting. The second great neoliberal innovation in murketing is the creation of the phenomenon of "buycotting," or as it is sometimes called, "ethical consumerism" (Yates, "Critical Consumption"). Instead of seeming to bypass the market altogether, as in the first case, here everyday participants are enticed to believe that it is possible to mitigate some of the worst aspects of market organization by paying an "ethical premium" for particular commodities and helping to make the world become a better place. Previous generations had sought to punish firms that were perceived to violate ethical norms by boycotting them, viz., organizing the wholesale withdrawal of purchasing power from the products of the targeted firm. In the current neoliberal era, people have been weaned off the notion that concerted political abdication from market behavior can ever succeed in its objectives, and instead have been seduced into believing that the market itself can offer sufficient choice in expression of political programs along the entire spectrum. Worried about global warming? Imaginative entrepreneurs have endeavored to purvey "carbon offsets" to consumers. Want to help African AIDS patients? Get yourself an AMEX Red Card. Want to support small independent producers in underdeveloped countries? Other entrepreneurs have conveniently developed "fair trade" brands for coffee, textiles, glass, and other imports.

However, the results have been less than unequivocal. For instance, while branded fair trade coffee may indeed come from sanctioned cooperatives, it may also be packaged by prison labor or used to launder drug money. Furthermore, the majority of fair trade planters manage to sell only around 20 percent of their output to fair trade markets, so on balance, the brand has had little impact upon poverty at the ground level.

The commodification of "social justice" tends to be a dicey proposition even predicated upon the best of intentions, but in this instance there is constant pressure on FLOI to loosen its definitions and slacken its demands for certification throughout the commodity chain. In practice, the FLOI system is devised to make it possible for coffee consumers to "express themselves" through purchases, more than it is about changing the supply chain; this is a signal characteristic of neoliberal life, as we have argued.

However, now that fair trade coffee has achieved a substantial presence in the marketplace, along comes a concerned member of the Neoliberal Thought Collective just in time to insist that you only hurt yourself by purchasing fair trade coffee. Primarily, the critique rests upon a standard neoclassical economic argument about misaligned "incentives": it is asserted that whenever prices rise, co-ops sell their inferior beans to the FLOI system and reserve their quality stock for the utterly free market in specialty coffees—in other words, the fair trade brand dupes clueless café liberals into paying more for a crappier cup of coffee. Unabashedly taking a page from the left, this critique also suggests that the FLOI funds don't really trickle down to a substantial degree to the peasant level, and that free trade has proven little more than a marketing ploy that channels much of the profits back into advertising. It is not that these questions have been settled by concerted empiricism—they have not—but the payoff comes in the moral of the story: if you had capitulated to the wisdom of the totally free market in the first place, everything would have worked out just fine.

Proponents of buycotting see these premiums as pure political expression . . . Some even argue that cash-voting goes further than ballot-casting: we buy, and therefore incentivize producers, every day; but we vote far less often. "We are convinced that how people buy can be more effective than how they vote," said Francesco Galante, director of Comitato Addiopizzo, a civic group in Palermo, Sicily, that has taken on the mafia using an analogue of fair-trade labeling. In 2004, some volunteers in Palermo decided to bypass politicians: they approached local businesses, many of which paid the mafia 'pizzo,' or bribes, and asked them to certify that they paid pizzo no longer; in exchange, the Comitato brought them business from pizzo-averse Sicilians. Today 400 businesses and 9,000 customers have joined, even though products from the law-abiding companies often cost more.

One of the oddities of contemporary everyday neoliberalism is that people rarely get worked up anymore when encountering overt cruelty to the poor or murketing or endless scams consisting of privatized schemes of self-improvement, and seem to have passively capitulated to fallout from the crisis, but do tend to get distinctly queasy when entrepreneurialism of the self digs down deep into the corporeal. Somehow, that pound of flesh is deemed all the more offensive or transgressive when it really is a pound of flesh traded in the marketplace.

This abiding somatic integrity of the self is the last great double truth of the neoliberal era. It is the rock-solid foundation of our freedom, and yet the fleeting evanescent product of the imperative of flexibility. It is a myth promoted by the orthodox neoclassical economist, if only because dispelling it would reveal the great gaping emptiness of their entire edifice: Should we bar people from improving a very bad economic lot because it requires a deprivation of their personhood?

Should we bar people from improving a very bad economic lot because it requires a deprivation of their personhood? Justice may not be “served by a ban on desperate exchanges” as, for example, selling human organs . . . An immediate reaction might well be to let each individual decide what is essential to his or her self-constitution and act accordingly . . . To put the matter another way, who is to decide what is essential to the constitution of the self other than the self ?

Who or what indeed, once we start swapping out body parts, neural transmitters, biological components, and somatic identities? This breathtaking interpretation of “freedom” has not in fact been passed down through the annals of legal or institutional tradition; rather, it has been the catalytic agent in many recent interventions to render the fleshy body better tuned to respond to the exacting demands of the marketplace. The self, inevitably, takes the hindmost.

The fact that somatic selfhood can be sliced, diced, and reshuffled in such dramatic fashion in a relatively short time frame only goes to show that once we submit to a regime of entrepreneurship of the self, then the Archimedean fulcrum of personhood starts to slip rather perilously.

Whereas the hippie drug culture was notionally an artifact of a rebellious counterculture, in fact the experience of taking these psychotropic hallucinogens provided one of the early testbeds for the discipline of the neoliberal transmogrification of the self. Some of the drugs heightened the experience of being a spectator at one's own performance, while others fostered dissociation from past behavior; endless analysis of trips after the fact reinforced belief in the plasticity of the self.

From this baseline, all that was required to activate the neoliberal playbook was to reorient these attitudes and practices from a feckless narcissism to a conviction that one was engaged in concerted self-modification to propitiate a market rationality far more omnipotent than anything promoted by any counterculture. One way this happened was a progressive shift in emphasis to the image of a “neurochemical self,” itself a bubbling brew of neurotransmitters and electrolytes, which required pharmaceutical management and enhancement. Both pharmaceutical companies and the neuroscience community promoted a doctrine of the brain as the primary corporeal organ responsible for conferring identity and selfhood. This heightened academic activity in turn attracted the attention of the economics profession, always on the lookout for any nouveau trend in the physical sciences to co-opt and absorb (not to mention new funding sources to tap). Hence another neoliberal development has been the rise of subfields of “neuroeconomics” and behavioral economics, which purport to reconcile the insistence of older neoclassical economics upon the irreducible rationality of the self with the newer neoliberal imperative to optimize the self on a daily basis.

Existing neuroenhancers, from the prescription serotonin selective reuptake inhibitors (Prozac) to the off-label uses of drugs such as Ritalin, Adderall, modafinil, or Provigil, are widely used as neuroenhancers by those with access to compliant physicians, to give the lagging brain that extra kick. “Daddy’s Little Helpers” have found a wide market as cognitive enhancements, when mere “human capital” can’t do the trick.

In the ethics community, there has been much hand-wringing over the idea that, as genetic testing and manipulation improve, one can anticipate that customers will combine their flexible gestational activities described above with detailed genetic engineering of human children, leading to a world of designer offspring. All the palaver about healing disease and human suffering is a sideshow compared with the real objective of commercialized science, which is to empower the affluent to play God in defining their own pedigree to accommodate their individual tastes. But the beauty of twenty-first-century neoliberalism is that it thinks not one, but three moves ahead in the game of custom-made selves. As has been recently pointed out, designer children are only an imperfect way station on the path to a perfectly flexible self. Why lock those children into a corporeal cage that they may themselves not like, or themselves seek to transform according to good neoliberal entrepreneurial imperatives? The ultimate goal of genetics is therefore a DNA upgrade: the ability to freely alter yourself at will at the ribonucleic level.

This is the true terminus of the neoliberal self: to supplant your own mother and father; to shrug off the surly bond ratings of earth; to transform yourself at the drop of a hat or the swallow of a pill; to be beholden to no other body but only to the incorporeal market. It doesn’t matter if the procedure actually lies within the bounds of contemporary scientific possibility, because it is the apocalypse and the Rapture of the neoliberal scriptures.

Not many people can be bothered to actually read Hayek or Buchanan or Milton Friedman or (even) Ayn Rand; but a whole lot more people drink fair trade coffee from time to time, watch Big Brother or Jerry Springer; have a Facebook page they desultorily update; contemplate whether to buy insurance; find themselves short until payday; are worried enough to check their FICO score; spring for a lottery ticket at the checkout; feel conflicted at the sight of a scruffy panhandler; worry about the foreclosure sale down the street; commiserate with friends over what to think about the British summer of riots in 2011; take medication to lose weight; or anguish over whether to visit a fertility clinic. In these thousand and one little encounters spread over a lifetime, the average person begins to absorb a set of images, causal scenarios, and precepts that begin to add up to something approaching a worldview.

What is significant about these brushes with neoliberalism on a granular scale is that one need not be affluent, nor have a college degree or be an autodidact, to become infused with a vision of the self that is besotted with the narcissism of a thoroughly unmoored personality, unhinged aspirations oblivious to layers of social determination. Indeed, the modern conception of agency bequeathed by the Neoliberal Thought Collective has become so intently self-centered that it has a tenuous grasp upon the very existence of something called “the economy,” which assumes the divine attribute of being simultaneously everywhere yet, in practice, nowhere. We are encouraged to believe we are so “free” that no one can really control our lives, and yet the terminus of this freedom is a peculiar sort of solipsism.

Clearly, the role of all the stories is to keep your attention acutely focused upon yourself. The worse things get, you must not engage in rage, remonstration, or “stoicism,” much less communal support; instead, the space spanned by your consciousness becomes the perimeter of the “economy,” which is no longer about what you may make, but consists exclusively of the stories you tell about yourself. Your vigilance must never waver from its focus upon the center of your own little universe. If you encounter some difficulty in comfortably inhabiting your own little cubbyhole, there is always someone else who will tell you how to succeed at it, for a modest fee. Conjure the confidence fairy! The contemporary financial crisis collapses to a temporary aberration between your ears. Let them buy cake! If only you, the consumer, would rouse yourself to spend more!

In the aftermath to the worst economic crisis of capitalism since the Great Depression, many people understandably have grown weary of accounts concerning recent forms of suffering visited upon various categories of the populace. Some disgruntlement can be attributed to the influence of the neoliberal theater of cruelty described in the last chapter, though one cannot altogether discount garden-variety disaster fatigue. More than four years out, what seems really to have captured the imagination of the general public are instead ripping sagas of those intrepid souls who managed to come through the crisis unscathed, impervious to the damage done all around them. One nice example is Michael Lewis's The Big Short, which Amazon at one time listed as one of the top best-selling books on the crisis: therein he relates the stories of a bunch of misfits and contrarians who managed to make substantial fortunes by betting against the securities derivatives that everyone else had found so seductive in the run-up to 2007. If Lewis's plucky Boys Behaving Badly could have bucked the headwinds so handily, then why not the rest of us?

The 2011 Bank of Sweden Prize bestowed upon Thomas Sargent and Christopher Sims was exemplary of this particular culture of effrontery, this hegira from all reckoning, a big middle finger brandished at anyone who dares disparage orthodox macroeconomics. This looks like the sort of invincibility that makes for really popular comic book heroes, or embattled dictators who pronounce from the parapet that “there is no alternative.”

Neoclassical economists, having worked hard to convince the world that everything was hunky-dory circa 2005, and concurrently having invented the rationales and the theories behind the financial time bombs that went off across the landscape, don’t seem to have suffered one whit for the subsequent sequence of events, a slow-motion train wreck that one might reasonably have expected would have rubbished the credibility of lesser mortals. Individually and collectively, they have only become more dominant in academia and in government. No one among their number was fired for incompetence; no one was forced to endure status degradation ceremonies. Economists were not drummed out of their government posts. No departments of economics were closed as cost-saving measures.

But wait: escaping scot-free is not equivalent to having evaded all controversy and condescension along the way. The task in the next few chapters is to explore this tepidly tempestuous phenomenon within the contemporary economics profession: professing a fairly narrow set of doctrines with zero tolerance for heterodoxy before the crash, and then appearing clueless during the crash, they set upon one another with a barely restrained nastiness in the immediate aftermath. Once that grew old, instead of calling a truce and opening up their intellectual horizons by entertaining alternative accounts in reaction to events, they hastily reinstated the status quo ante and closed ranks after an interregnum, only to emerge with their positions and authority relatively unscathed.

I have been informed of a (tenured) professor of economics at my own school, the University of Notre Dame, who, while teaching advanced macroeconomics in spring 2009, was importuned by some of his students to discuss the crisis that was then breaking out all around. After all, if you can’t examine and debate a current economic crisis in a macro class, then wherever should you expect to learn about it in a modern university? Yet the students were curtly informed that it wasn’t on the syllabus, and there was nothing about it in the assigned textbook, and the instructor therefore did not wish to diverge from the set lesson plan. And he didn’t.

In one high-profile case, the Queen of England felt impelled to query the economists at the LSE in November 2008 as to why no one in the profession had warned of the crisis. After a fluster of indecision, the economists at the British Academy wrote back to the monarch suggesting she was mistaken: they had been on top of events all along, although there may have been a wee failure of imagination.

Now, contrast this with our predicament in 2012. All around, from the most rabid Hayekian on the right to the polemical Joseph Stiglitz on the “legitimate left,” almost every economist enjoying a modest public profile now proclaims that the crisis clearly demonstrated that his own favorite economic theory was right after all, and consequently, there is no need to call for any thoroughgoing revisions to economics.

Clearly, all these gems of conventional wisdom cannot all be simultaneously correct. Neoclassical economics cannot have been both oblivious to system degradation before the fact, and yet spot-on concerning the crisis all along. Perhaps we should have anticipated this reaction from a profession renowned for predicting fourteen of the last six downturns.

General-interest magazines, from Business Week to The Economist to the New York Times, which had hitherto volunteered as cheerleaders for the economics profession without encouragement, turned openly hostile in 2008, hectoring whole schools of thought for their failures, grasping randomly for “new paradigms,” rooting around for sixth-round draft picks and telegenic wicked rebels to replace their prior stable of catallactic pundits. … There was even an online ballot for receipt of the Ignoble (or “Dynamite”) Prize, to be awarded to three economists deemed to have contributed the most to the global financial collapse. (The winners were Alan Greenspan, Milton Friedman, and Larry Summers.)

When Greece and Italy needed faceless technocratic Gray Men to head up their floundering governments in the euro crisis, they short-circuited elections and opted for economists (trained at MIT, no less; and former Goldman employees).

Of course, there existed no equivalent of the Justice Department or the Securities and Exchange Commission to actually police the economists, just as there was no phalanx of gumshoes and DAs to do the hard investigative work; and thus it dawned upon some that (unlike medicine, and even sociology) there was not even a professional code of ethics to which bona fide economists were enjoined to subscribe. … Furthermore, some of the self-appointed cops (and not a few of the political protagonists) turned out to be card-carrying economists themselves. Quis custodiet ipsos custodes?

Surprisingly, the financial crisis did not receive much attention at the conference. Many of the sessions on macroeconomics and finance didn't mention it at all, and when it was finally discussed, the reasons cited for the financial meltdown were all over the map. It was the banks, the Fed, too much regulation, too little regulation, Fannie and Freddie, moral hazard from too-big-to-fail banks, bad and intentionally misleading accounting, irrational exuberance, faulty models, and the ratings agencies. In addition, factors I view as important contributors to the crisis, such as the conditions that allowed troublesome runs on the shadow banking system after regulators let Lehman fail, were hardly mentioned.

Paul Krugman had kicked things up a notch with his September 2009 magazine article "How Did Economists Get It So Wrong?" which pointed out the "profession's blindness to the very possibility of catastrophic failures in a market economy," but then attributed it to the bizarre notion that "economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth."

Economists were not of a temperament to suffer what they deemed the New Disrespect lying down. Anyhow, it was proving galling to turn the other cheek when reputable news outlets were sneering "What Good Are Economists, Anyway?" (Coy) and "What Went Wrong with Economics?" (Economist), and books from reputable publishers were quick off the mark trumpeting "The Myth of the Rational Market" (Fox) and "A Failure of Capitalism" (Posner). "Is it fair to attack the economics profession? To a large degree, yes." People were of course always welcome to mock at economists in private, which was nothing new, but this seemed to be a different sort of animal. Remonstrants flocked to the talk shows, the newspapers, magazines, and op-ed pages; but beyond that, they also entered the blogosphere in a big way for perhaps the first time. Not only did a range of hallowed Big Names begin posting regular blogs, but so did some previously unsung economics faculty, and more significantly, tyro students of the subject.

Yet the strangest thing of all about this fracas was that much of it was forgotten almost as soon as the pixels faded. It was as if economists and their critics were no different from the protagonist of the Christopher Nolan film Memento: beset with massive memory loss, they forgot what they had just inscribed on their skin last week or last month, condemned to surprise themselves over and over. The contempt of neoclassical economists for the history of economic thought was notorious; but here it was, deployed in real time. One of the ten commandments of neoclassical theory is that bygones are bygones; neoclassical economists trusted that the attention spans of their patrons were so short and flighty that this principle would extend to anything they might have said about the crisis, and one another. And with hindsight, who's to say they were wrong?

The fact that such an extreme outsider and ersatz economist could have risen to such a pinnacle of prominence was itself testimony to the hold of neoliberals on power, a fact that could never quite sink in for the American news media.

But there were two considerations that render the folderol of current interest: one, the effectiveness of neoliberals in stiffening resistance to any and all initiatives to reform the economics profession; and two, the fact evident in retrospect of neoclassical economics sailing through the crisis essentially unscathed in the face of such unseemly behavior. To take but two counterexamples, Freudian psychology and social studies of science have in the recent past been internally roiled and intellectually altered by attacks far less evocative in the way of public embarrassment. Yet here was economics, by contrast, the prodigal profession, rapidly welcomed back to the media and the halls of power with alacrity, patted on the head, and all was forgiven.

Maybe we might extract a few lessons from the fiasco, if only to preserve some small part of the historical record before it is expunged from the collective memory of the profession (a purge that is already under way). Apologists are already hyperventilating that nothing untoward has happened.

The excuse tendered to repress this demand was that the students needed still more mathematics preparation, more statistics, and more tutelage in “theory,” which meant in practice a boot camp regimen consisting of endless working of problem sets, problem sets, and more problem sets, until the poor tyros were so dizzy they didn’t have the spunk left to interrogate the masses of journal articles they had struggled to absorb. How this encouraged students to become acquainted with the economy was a bit of a mystery—or maybe it telegraphed the neoclassical lesson that you didn’t need to attend to the specifics of actual existing economies. It was brainwashing, pure and simple, carried out under the banner of rigor.

Then, by the 1990s, by construction there was no longer any call for offering courses in philosophy or history of doctrine, since there were no economists left with sufficient training (not to mention interest) in order to staff the courses. Economists would periodically be sounding off in the most illiterate registers concerning Karl Marx, Vilfredo Pareto, Hyman Minsky, Adam Smith, or even John Maynard Keynes, because they were confident no one would ever call them to task on their shallow pretenses.

Top-ranked journals such as the American Economic Review, Quarterly Journal of Economics, and the Journal of Political Economy (the Chicago house organ) declared they would cease publication of any articles whatsoever in the area, after a long history of acceptance. Once this policy was put in place, then derivative journal rankings were used to deny hiring and promotion at the commanding heights of economics to those with methodological leanings. Consequently, the graybeards summarily expelled both philosophy and history from the graduate economics curriculum; and then they chased it out of the undergraduate curriculum as well.

It takes some thick skin not to cringe at the performance of four famous economists at the January 2010 meetings of the American Economics Association in Atlanta, in a session expressly titled, “How Should the Financial Crisis Change How We Teach Economics?” Three out of the four could not even be bothered to actually address the posited question, so concerned were they to foster the impression that they personally had not been caught with their pants down by the crisis. The fourth thought that simply augmenting his existing textbook with another chapter defining collateralized debt obligations and some simple orthodox finance theory would do the trick. Things got even worse in the subsequent year, with figures such as Alan Blinder and John B. Taylor touting new editions of their undergraduate macrotheory textbooks by reassuring instructors that the crisis did not require them to change anything they had been teaching for years.

For the ragged remnants of economic methodologists, it was a sorry sight to watch a few older economists rummaging around in the vague recesses of memories of undergraduate courses criticizing Milton Friedman’s little 1953 benediction for believing whatever you pleased as long as it was neoclassical, and coming up with nothing better than badly garbled versions of Popper and Kuhn. Of course, quite a few had premonitions that something had gone very wrong, but the sad truth was that they were clueless when it came to analytical deployment of abstract philosophical argument in isolating just where the flaws in professional practice could be traced, and assessing the extent that they were susceptible to methodological remedies. Mired in banality, the best they could manage to prescribe was more of the same. No wonder almost every economist instead took their philosophical perplexity as an opportune occasion to settle internecine scores within the narrow confines of the orthodox neoclassical profession: MIT vs. Chicago, Walras vs. Marshall, mindless econometrics vs. mindless axiomatics, New Keynesians vs. New Classicals, Pareto sub-optima vs. rational bubbles, efficient markets vs. informationally challenged markets . . . In May 2010, Dominique Strauss-Kahn, still chief at that point of the IMF, insisted that “the crisis is an opportunity”; perhaps even he didn’t quite grasp back then that the main opportunity was for revenge (both personal and intellectual).

Exhibit #1 demonstrating that the economics profession was caught unawares by the meltdown in 2008 was the fact that it rapidly lost any control over how the crisis was discussed in public that year. From the failure of Bear Stearns forward, journalists scrambled to understand how it could be that problems in one sector would ramify and amplify into other sectors, such that the entire financial system seemed poised on the brink of utter failure. There had been bankruptcies and dodgy financial deals before: What was so different this time around? Reporters started out by interviewing the usual suspects (Alan Greenspan, and Ben Bernanke—himself prophet of the Great Moderation), and overwhelmingly, neoliberal economists from gold-plated schools (Martin Feldstein, Gregory Mankiw, Matthew Slaughter, Robert Barro, Glenn Hubbard, Larry Summers, Allan Meltzer, Ken Rogoff), but you could tell that all the tendering of lame reassurances was not holding up against the tsunami of bad news. Of course, the keening public just wanted simple answers and quick fixes, but the economists didn’t seem to provide any answers whatsoever. So the journalists, with a little help from the chattering classes, came up with the metaphors which ultimately rose to dominate initial discussions of the crisis in 2008–9.

Upon reflection, it was perhaps not unexpected that the concepts which came to dominate “explanation” in the generalist press were a mélange of biological and religious metaphors: Nature and God usually trump the market in America. Although the actual array of metaphors bandied about back then pose all sorts of interesting questions from a rhetorical point of view (and someday should attract its very own Derrida), the main lesson we shall draw here from our superficial survey is that none of them had anything whatsoever to do with economic theory. They were the flimsiest of jerry-built constructs, improvised on the fly to make someone disoriented by panic believe we could make some instant sense of the crisis.

But more to the point, the metaphor had no basis whatsoever in the orthodox theory of finance, such as it existed in 2008. In that theory, efficient markets are arbitrage-free, and any contingent claim can be reduced to any other contingent claim through some stochastic wizardry (chapter 5 goes into some greater detail on these issues). Hence risk itself can always be commodified and traded away—that is the service the financial sector performs for the rest of the economy. That’s just Intro Finance 101, from CAPM to Black-Scholes. In academic doctrine, the system as a whole simply cannot fail to price and allocate risks; hence there is no such thing as virulently “toxic” assets. Crappy assets, junk bonds, dogs with fleas, yes; but inherently “toxic,” never.

The other dominant metaphor was the biblical “Day of Reckoning.” Americans love a good apocalypse, and journalists found some figures who were willing to deliver it, from Naseem Taleb and his “Black Swan” to Nouriel Roubini as Dr. Doom. The evil will be punished, the last shall be made first, the moneychangers will be ejected from the temple, and the righteous shall triumph. I hope I need not expound upon the fact that there is nowhere to be found such Old Testament reckoning in orthodox economic theory: the market correctly evaluates everything in real time, and no one is really punished, but rather experiences depreciation of their human capital (or something like that). This metaphor lacked staying power, however, once it started to become clear that the putative sinners, the investment bankers, never had to face the music at all. Instead, they were bailed out by the taxpayers, and went on to enjoy their most profitable year in history in 2009. Notoriously, bankers raked in record bonuses. Indeed, profits per employee in all privately held U.S. companies more than recovered by 2011, as revealed in Table 4.1 and Figure 4.1, while employment itself languished. Apparently all boats were not raised by the profit gusher. Socialism for the rich seems blatantly antithetical to the Great Reckoning, so we just stopped hearing about that by roughly mid-2009.

Conveniently, this recapture of crisis discourse turned out also to be the opening salvo of the neoliberal offensive that all attention concerning crisis debilities should be refocused away from the private sector and toward the debt obligations of the state.

This blasé line emanating from Harvard and the National Bureau of Economic Research committed the ultimate historical solecism by lumping together two centuries of credit crises as somehow "the same," attempting to reduce them all to a few implausible quantitative indicators of sovereign debt to GNP and a "capital mobility index." Thus was this particular journalists' trope tamed and recaptured by the economics profession, indirectly revealing neoclassical economists' contempt for history. Conveniently, this recapture of crisis discourse turned out also to be the opening salvo of the neoliberal offensive that all attention concerning crisis debilities should be refocused away from the private sector and toward the debt obligations of the state. … But economists could not bring themselves to begin to discuss the major structural difference between 1929 and 2008: this time around, professional economists had played a much larger role in producing the conditions leading to systemic breakdown, from theorizing the financial innovations and staffing the financial institutions to justifying the deconstruction of regulatory structures held over from the last Great Depression.

It is thus not such a stretch that, for instance, Paul Krugman became an economist because he had fallen in love with science fiction as a child. So, if anything, economics has suffered a surfeit of saviors (and their theories) transported from the natural sciences: the real question should be, why should we expect things to work out any better this time around?

Everyone since the eighteenth century has sought to leverage their credibility in the history of economics with “science,” most frequently through appropriation of mathematical models and/or methods; alas, never has it turned out to be the Philosopher’s Stone.

Actually, it is known among the cognoscenti that physicists have again been tumbling head over heels into economics since the 1980s, as their own field experienced severe contraction at the cessation of the Cold War. And where did most of them end up? Why, in the banks, of course, inventing all those ultracomplex models for estimating and parceling out risk. Some of these Exiles on Wall Street bothered to attain some formal degree in economics, while others felt it superfluous to their career paths. In any event, the exodus of natural scientists into economics was one of the (minor) determinants of the crisis itself—without “rocket scientists” and “quants,” it would have been a whole lot harder for banks and hedge funds to bamboozle all those gullible investors, not to mention turning privatized trading into a robot operation (Patterson, Dark Pools).

In retrospect, appeals to science will be seen to have proven a bit of a red herring in coming to terms with the current crisis. Physical complexity theory or neuromysticism or dark matter won't save us now. In the heat of battle, economists purported to be defending "science'"when, in fact, they were only defending themselves and their minions.

The completeness of the [orthodox] victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, [with] the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted the support of the dominant social authority.

The New Statesman had the brilliant idea of reconnecting with the twenty U.K. economists who had signed an open letter in February 14, 2010, supporting Chancellor George Osborne's strategy of producing growth through fiscal austerity and budget cuts. Since then, Britain had promptly entered further contraction, and the Treasury ended up far exceeding its borrowing limits: so much for deficit reduction. The respondents were astoundingly mealy-mouthed, avoiding comment on their clear error (John Vickers, Kenneth Rogoff) or vaguely distancing themselves from Tory cuts by mumbling about “investments” (Roger Bootle, Danny Quah, David Newbery, Hashem Pesaran, Tim Besley); only two opted for full-throated repudiations of Keynesian stimulus (Christopher Pissarides, Albert Marcet). No mea culpas from that quarter—they thought you ditsy folks had long forgotten that inconvenient letter!

How could 132 economists sign a public petition in November 2011 stating that fiscal austerity by the government will provide more jobs than fiscal stimulus in both the short and long term? Does the experience of Greece and Spain mean nothing? To a first approximation, one may subdivide the question in two: what psychological equipment permits people like Cochrane to persist so doggedly in their error; and second, what permits the various gatekeepers of the media and academic journals to continue to promote figures like Cochrane, Michael Boskin, Casey Mulligan and Douglas Holtz-Eakin as people worth reading and listening to? Our brief excursion into historical amnesia and social psychology in chapter 2 proffers a short answer to the first question: it is human nature not to relinquish deeply held beliefs in the face of contradictory evidence, especially if one never knew anything different. Lesson 1 informs us that the modern economist comes equipped with a trained incapacity for historical and philosophical reflection. However, the answer to the second question turns out to be far more complicated, and will connect us up with our primary concerns regarding the Neoliberal Thought Collective. It is insufficient to baldly assert, “Neoclassical economics has won, not because it describes reality accurately, but because it describes a reality which dominant interests want.” What sustains their stubbornness? What injects the steel in their steely confidence? That is the topic of the rest of this chapter.

I want to insist that, contrary to urban legend, almost no orthodox economists warned how pervasive the crisis would be or the extent of its devastating character beforehand. The reason was simple: the orthodox models taught at the finest universities at their most advanced levels of macroeconomics had no room for fiscal policy or involuntary unemployment or financial crises or system-wide breakdown. Far from an oversight, this was a matter of common knowledge within the profession.

The consensus macroeconomic model, called the “dynamic stochastic general equilibrium model,” could serve no useful function once the crisis hit, because it essentially denied that any such debacle could have materialized. (We document this in chapter 5.) And yet, respected figures within the economics profession could not be embarrassed into acknowledging the deep disconnect between textbook and reality. For instance, Olivier Blanchard, then chief economist at the IMF, pronounced in 2008, “The state of macro is good,” and the profession was enjoying “a broad convergence of vision.” Even that was not sufficiently ill-timed and imprudent to get him booted from the IMF.

Cochrane answered, "I think everything. Why not? Seriously now, these are not ideas so superficial that you can reject them just by reading the newspaper." When Cassidy began hinting at a certain zombie-like uniformity along the Midway, Cochrane retorted: "This is not an ideology factory . . . The Chicago of today is a place where all ideas are represented, thought out, argued. It is not an ideological place." Of course, it is easy to cover the notional waterfront if everything else is banished.

Eugene Fama, how the theory had fared in the crisis, Fama replied, "I think it did quite well in this episode." When challenged by Cassidy, he responded, "We don't know what causes recessions . . . We've never known." When queried about the seemingly refuted Modigliani-Miller theorem, Fama responded: "The experiment we never ran is, suppose the government stepped aside and let these institutions fail? How long would it have taken to unscramble everything and figure everything out? My guess is we are talking a week or two" . . . Cassidy: So you would have just let them . . . Fama: "Let them all fail. (Laughs)."

Perhaps Cassidy would have been better prepared if he had first perused a paper Rajan had written back in 1994 suggesting that the Glass-Steagall Act had constituted unnecessary regulation back in the 1930s, because commingling of investment and commercial banking had not ratcheted up the riskiness of the entire system, and in any event, “We find no evidence that commercial banks systematically fooled the public securities markets.” Rajan was True Blue Chicago, so of course he defended the home team to Cassidy: “Forget the public utterances: the research done at this place was, essentially, right on the ball.”

Actually, I need to credit Rajan with a bit more ingenuity than he claims for himself in these interviews. His book Fault Lines has managed to amalgamate what had by then become the neoliberals’ favorite stories about the crisis into one neat and tidy package. In caricature, it combines: fingering the Asian economies for seeking to accumulate dollar reserves after the Asian crisis of 1997, and therefore creating a world “savings glut”; luxuriant financial innovation (a phenomenon that was “natural”), which lulled bankers and others into taking on “excessive risk”; and technological innovation, which lowered wages and worsened income distribution in the United States, which in turn lured the government to ineptly try to counter it by screwing around with the household mortgage market. The financial sector got frisky, investors bought it, and the government foolishly sought to lean against the wind. The beauty of this narrative is that it mentions some of the major bugaboos of the left, but deftly subordinates them to the time-honored litany that the markets worked as they should, and it was all, in the final analysis, the fault of the government. This ingenious commingling of complaints about worsening income distribution and rapacious bankers with what is at bottom a unilateral denial that economists got anything wrong has been so effective that it often has inserted Rajan into critical leftish campaigns where the audience was oblivious to the true character of the analysis.

Far from being the conventional generic blanket disparagement of “freshwater economics” (such as that spread by Paul Krugman, Brad DeLong, George Akerlof, and others), this points to the fact that Chicago was the prime initial incubator for modern finance theory, which has indeed provided direct intellectual inspiration and justification for most of the so-called innovation in financial derivatives and automated equity trading of the last three decades. There is also the Chicago inspiration for the theory of “public choice” and Stigler’s theory of regulation, so central in the modern development of government (anti)regulation. In other words, Chicago was the intellectual godfather of modern “securitization” and privatized regulation, among other activities.

Economists didn’t simply come up with some speculative ideas; they helped run many of the institutions, both public and private, that ended up being central to the inception and playing out of the crisis. Indeed, just like the notorious revolving door between Wall Street and the U.S. Government, there has been a twirling door between the economics profession and the large firms and banks that run the economy.

Benjamin Bernanke was appointed to the Federal Reserve Bank Board in 2002, and named chairman of the Fed by George Bush in 2005. Bush was persuaded that this avowed follower of Milton Friedman would make a suitable replacement for the previous chair, Alan Greenspan. Following his nomination as Fed chairman, Bernanke told the press that, if confirmed, his plan was “to maintain continuity with the policies and policy strategies established during the Greenspan years.” Although many are convinced they detect a repudiation of his predecessor in his subsequent activities, a case can be made that Bernanke was faithful to his original pledge. Much has been made in the interim that one of Bernanke’s academic specialties in his previous life had been the economic history of the Great Depression of the 1930s; but (tedious nag that I am), yet again, few have bothered to actually read his writings and speeches. As late as July 20, 2006, Bernanke was testifying before Congress thus: “The best way to achieve good oversight of hedge funds is through market discipline . . . I think that market discipline has shown its capability of keeping hedge funds well disciplined.” The record discloses Bernanke channeling Greenspan with a tonier Ivy League pedigree.

One of the most striking features of the economic landscape over the last twenty years or so has been a substantial decline in macro­economic volatility . . . Three types of explanations have been suggested . . . structural change, macroeconomic policies, and good luck . . . My view is that improvements in monetary policy, though certainly not the only factor, have probably been an important source of the Great Moderation . . . the policy explanation for the Great Moderation deserves more credit than it has received in the literature.

His repeated assertion of this thesis in the intervening years went some distance in explaining why Bernanke's Fed did essentially nothing to curb the worst financial abuses that led up to the crisis of 2007–8; Bernanke had been insisting throughout that the mortgage market was sound, hedge funds were “disciplined,” and the banks solid right up to the onset of the failure of Lehman Brothers. This self-congratulation persisted even though a few inside figures such as the Fed governor Ned Gramlich (who was forced to resign in 2005) and the Atlanta Fed president, Jack Guynn, had been sounding the alarm since 2005. It is difficult to convey in any short space just how much the orthodox economics profession loved this trope of the Great Moderation and its ballyhooed prophet; so much so that it spawned a huge academic literature in its own right. Not only did highly ranked economics journals continue to publish articles discussing the Great Moderation long after the crash rendered the very idea ludicrous, but (having no shame) some tone-deaf economists even argued that the crisis had in no way impugned the existence of a Great Moderation.

One of the great success stories of the NTC has been its ability to keep close tabs on fellow travelers situated among the heathen, so when and if the crunch comes, they might end up controlling “both sides” of any momentous debate. As described in chapter 6, neoliberal politics is generally (at least) a full-spectrum procedure, wherein a neoliberal-inspired “amelioration policy” is frequently paired with a harder-right “market solution.” Think, for instance, of the American “insurance mandate” paired with full privatization of Medicare. Indeed, what greater guarantee of control of the parameters of intellectual possibility could follow an Ayn Rand acolyte than a good old fashioned Friedmanite monetarist?

While Fed officials trot out the highly misleading assertion that almost all of the government loans were subsequently repaid and there have been no losses to the public purse, closer scrutiny of the details suggest taxpayers paid a price far beyond the publicly provided numbers (such as the TARP), as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger. The Fed has bestowed upon the banks seemingly permanent options to reward executives and shareholders by capping the downside while permitting an unlimited upside. Over the course of the crisis the Fed made loans of over $7 trillion to financial institutions at negligible rates of interest, with no quid pro quo.

But few have acknowledged that this was precisely the Depression remedy promoted by Milton Friedman: keep the rich from suffering writedowns or defaulting on their debts so the so-called money supply does not contract inordinately, and everything else will just work itself out fine.

Even more damning details of the so-called rescue by the Fed were buried in a little-read GAO report. During the crisis, the Fed was printing conflict-of-interest waivers almost as fast as it printed money, precisely because many of the identities of the rescued and the saviors were essentially identical. For instance, the New York Fed president William Dudley was issued waivers to keep his AIG and GE investments all the while he was bailing out those firms. But beyond such garden-variety double-dealing, the Fed followed good neoliberal precepts by outsourcing most of its emergency lending programs to private contractors such as JP Morgan Chase, Morgan Stanley, and Wells Fargo in the form of no-bid contracts. These favored firms then turned around and were lavishly supported by the Fed with near-zero interest rate loans.

Bernanke’s Fed has not suffered from what can only be judged an intellectual imbroglio of epic proportions; this has been one of the most glaring instances of economists getting away with murder. Bernanke assiduously deployed the Fed’s prodigious public relations arm and lobbying bench to proclaim that he had taken the extreme but necessary steps in order to keep the Great Recession from turning into another Great Depression; and yet there was very little that was “principled” about this gusher of federal loans and subsidies directed to bail out insolvent organizations headed by people with the right political connections. How was this so very different from the so-called Greenspan put, which had operated the same way with the lesser financial crises during his reign? Yet the orthodox economics profession (including nominally leftist critics, such as Paul Krugman and Joseph Stiglitz) fell right into line, praising the deft perspicuity of the Fed chairman in transforming the Fed into a beacon of financial rectitude and disaster deliverance. Greenspan had made for a convenient pariah once he famously conceded his “error” in congressional testimony of October 23, 2008, but mostly, it served only to divert attention from the even worse behavior of Bernanke.

Incredibly, in the face of the mayhem that ensued, Bernanke’s Fed has evaded suffering any consequences for its intellectual incompetence; it still does pretty much whatever it pleases, including continued deregulation of the shadow banking sector and frustrating Elizabeth Warren’s crusade to set up a fully independent consumer finance protection bureau; and yet, even that Great Bank Amnesty was not enough for Ben Bernanke. He decided he had to get the orthodox neoclassical economists off the hook for any conceptual error, as well.

Ben Bernanke is one major character study in the syndrome of denial that has gripped the orthodox economics profession. All that flimflam about the “Great Moderation” has been blessedly forgotten by the Fed chair, though never actually repudiated. Bernanke insists upon the prodigious intellectual capacity of the Fed to regulate the postcrisis financial sector and the shadow banking sphere, even though he and his former lieutenant at the New York Fed Timothy Geithner had been asleep at the wheel in the run-up to the crisis, and then outsourced much of the bailout. Bernanke has stood in the way of most attempts to restructure the U.S. financial sector, from opposing the Volcker Rule to blocking attempts to break up “too big to fail” firms. Bernanke resisted most attempts to financially penalize banks or hedge funds, with the excuse that they were too fragile to face the music. The Fed’s ability to even anticipate contractions had been persistently addled, dating from the onset of the crisis, as demonstrated in Figure 4.5. His grasp on reality has been tenuous: Bernanke himself had insisted that the subprime mortgage crisis was “contained” as late as March 2007.

[The financial crisis] has not been kind to the reputation of economics and economists, and understandably so. Almost universally, economists failed to predict the nature, timing, and severity of the crisis; and those who issued early warnings generally identified only isolated weaknesses in the system . . . As a result of these developments, some observers have suggested the need for an overhaul of the system as a discipline, arguing that much of the research in macroeconomics and finance in recent decades has been of little value or even counterproductive. Although economists have much to learn from this crisis, I think that calls for a radical reworking of the field go too far. . . .

As it was put by my former colleague, Markus Brunnermeier . . . "We do not have many convincing models that explain when and why bubbles start." I would add that we also don't know very much about how bubbles stop, either.

I have had some economists warn me that of course Bernanke had to say stuff like this: for the sake of political stability, he must hew to the party line in public. It is just the Fed Chair Pantomime. I find this implausible, for one major reason: every bit of documentary evidence points to the conclusion that Bernanke subscribes to one of the two major neoliberal catechisms on money. One, the one Bernanke rejects, associated with Hayek and the so-called libertarians like Ron Paul, is that the Fed is the devil, and that it should be replaced with free banking and pure market control. It would be a little hard to become chairman of the Fed while toeing that line, so Bernanke endorses the Friedmanite alternate: the central bank should be “independent” of all democratic control, preferably run by like-minded neoliberals, but only the market can recognize a bubble, so don’t try to rein in the speculators, but simply clean up afterward by lending freely to the rich people who created the problem in the first place. It is the old neoliberal two-step all over again: Rick Perry and Ron Paul can offer the groundlings red meat by threatening to beat up on Bernanke, and keep the base rabidly opposed to anything that looks suspiciously like the guv’mint; but the major players understand that they need Bernanke (or someone like him) on the inside to support their remunerative activities and ward off anything that smacks of nationalization. You can remain a neoliberal in good standing quite comfortably without subscribing to the free banking fringe, because you are useful. And it is the economics profession that makes the straddle work on a daily basis.

Here we encounter one of the major pieces of evidence that the Federal Reserve Bank is an avowedly neoliberal institution, and one that relies upon its major symbiotic relationship with the American economics profession to skew its membership in a neoliberal direction. I have just demonstrated that the last two chairmen of the Federal Reserve System were card-carrying neoliberals; but moreover, the entire governance structure of the Federal Reserve has evolved to guarantee responsiveness to its main constituency, the pinnacle of finance. As Dean Baker has written, few realize that “The Fed has been deliberately designed to insulate it from democratic control and leave it instead a tool of the financial industry.” The member private banks “own” stock in the regional Feds, and indeed, are paid dividends on their stock. The twelve regional Feds are governed by nine-member boards, six elected by member banks, and the remaining three by the Board of Governors. Each of the twelve regional Federal Reserve Banks is a separately incorporated not-for-profit that is privately owned by the member banks in its district. Further, the entire Fed system is self-funded from its operations, freeing it from the rigors of an external budgetary control or any serious accountability.

The only wild cards that might potentially mitigate this built-in regulatory capture are the residual academic members of the boards, primarily economists. Yet most observers then miss how the Fed system facilitates repeated indelicate liaisons between financial executives and the economics profession, and brings about "cognitive capture" of the discipline. One way this happens is that large financial firms are induced to hire prominent academics, even to the extent of incorporating them onto their own boards, as we shall see below. It thus remains opaque exactly the constituency any given economist actually "represents" while nominally propounding the general welfare. Another significant way this occurs takes place by the Fed itself either hiring or providing contract funding for a substantial proportion of the economics profession concerned with macroeconomics and monetary economics.

In 1992, testimony provided directly by the Fed listed at least 493 economists employed as "officers, economists and statisticians" and an additional 237 as "support staff." Since about 1,700 members of the American Economics Association listed "monetary and financial theory" as their primary or secondary fields in that year, the Fed was currently employing something like 43 percent of the field. White estimates that there are about 390 economists specializing in money, macro, or banking in the "top 50" graduate departments in the United States; so the Fed could easily have employed that totality, or engaged them in some consulting relationship over the course of their careers. White also reports that over a five-year horizon 80 percent of the papers in the Journal of Monetary Economics had at least one co-author with a Fed affiliation (not all disclosed in the article, however), whereas in the Journal of Money, Credit and Banking it was 75 percent.

The Fed is constructed to evade democratic accountability, and as such, short of a Supreme Court order, it abstains from documentation of its web of support of the modern economics profession. For instance, the Fed declined to report more recent totals of actual employment. Related agencies loom equally large. Depending on how one regards the International Monetary Fund in the financial constellation, that would add roughly another 1,100 economists employed in Washington, D.C., alone. The World Bank refuses to report any breakdown of employment statistics out of its aggregate 10,000 employees worldwide whatsoever. But that was not all. The Fed board plus the twelve regional Feds awarded 305 contracts to other external economists to the tune of $3 million—although some individual economists enjoyed multiple contracts. In 2009, contracts issued for external economic research totaled $433 million. Some high-profile economists are kept on paid retainer, without even having to produce actual reports. Printing your own money means you can afford to cover all relevant bases. It is safe to say that there are few orthodox American macroeconomists who have not enjoyed a subvention from the Fed (or the international agencies) at some time during their career.

Grim reports that every single member of the editorial board in 2009 of the Journal of Monetary Economics was or had been affiliated with the Fed, and 54 percent were on the payroll. Of the editorial boards of eight top-ranked economics journals, 84 out of 190 had been affiliated with the Fed at some point in their careers. Indeed, sometimes the connection is even more intimate, with the bulk of the offices of the economics department at the University of Minnesota essentially located to a large degree at the Minnesota Fed. Much of the early and intermediate stages of the "rational expectations revolution" were funded and promoted out of the Minnesota Fed, in a period when it was not yet conventional wisdom, or entirely welcome in some "saltwater" departments. A major pillar of support for the DSGE model (described in the next chapter) originally came from research staffs and contracts of the regional Feds. Moreover, the money, once bestowed, comes with strings. Employees and contractors must sign nondisclosure agreements, and published articles are often vetted by Fed bureaucrats. In the interests of needing to speak with one voice in monetary policy, the Fed regularly imposes the trappings of intellectual uniformity.

Since the 1980s, when Ronald Reagan was able to appoint all the Fed governors, the Fed has become an unapologetic openly neoliberal institution; and this has constituted one of the major channels through which the economics profession was shepherded in a more neoliberal direction. One Russian doll mated with another.

It is an open secret that junior Fed positions are considered consolation prizes within the economics discipline: what you get for a first job if you graduate with a PhD from a top-ranked department in the areas of macro/money, but fail to land an academic post at another top-tier department. The movers and shakers are, rather, given the plum consulting contracts, appointed visiting positions, and other perks. Both are entryways into subsequent work for the financial sector. Hence the Fed manages to curry favor with a number of strata of the profession simultaneously with forging links to the financial sector, building a deep bench for support of the kinds of positions exemplified by Bernanke in this chapter. The net result is an interlocking directorate of the self-defined "orthodoxy," which has been able to recruit, sustain, and promote its members almost on a par with the neoliberal Russian doll itself.

The slavish genuflection to the financial sector within modern economics is therefore quite easily understood once a little effort has been devoted to exploring the sociology of the profession. The cognitive capture of the profession by the bankster-regulator industrial complex helped set up the profession for its fall, and is indispensable for understanding the rituals of denial that ensued.

After the fact, some economists at the Boston Fed decided that, because one would encounter a range of opinions on that issue before the crisis, there is no justification in blaming the profession for missing the disaster. They wrote: "Economic theory provides little guidance as to what should be the 'correct' level of asset prices—including housing prices . . . While optimistic forecasts held by many market participants in 2005 turned out to be inaccurate" those projections were not "unreasonable" given what was understood about the economy and housing market dynamics in the years before housing prices crashed. "The pessimistic case was a distinctly minority view, especially among professional economists . . . The small number of economists who argued forcefully for a bubble often did so years before the housing market peak, and thus lost a fair amount of credibility" in the process. Others spotted a bubble with "arguments fundamentally at odds with the data" that became available after the fact. "Academic research available in 2006 was basically inconclusive and could not convincingly support or refute any hypothesis about the future path of asset prices."

If one takes the simplest possible proposition—say, that the raising of the debt ceiling by an August 2011 deadline would serve to stave off a disastrous financial crisis and employment contraction pursuant to a technical default of the U.S. Treasury on part of its debt—then it was a snap to get 162 economists, including two Nobel winners, to sign a statement denying that proposition. Or take that larger and more contentious issue, the question of whether there was a bubble in housing prices by 2006, and why so few economists were willing to sound the alarm. There is retrospective evidence that a few prominent economists had warned the New York Fed of a housing bubble as early as 2004; in response to one such presentation, Timothy Geithner removed Robert Shiller from the Fed advisory board.

The "dog ate my homework" level of self-exculpation here is quite extraordinary, especially coming as it did from within the Fed. It went: First off, you can't blame us just because the neoclassical orthodoxy we actively help enforce is pathetically empty in its ability to discriminate such matters. Moreover, we assert those who were adamant in sounding the alarm were cranky Cassandras and perennial moaners, which means mostly pariahs exiled outside the orthodoxy, so we, the Fed, were fully justified in ignoring them. When in doubt, always err on the side of Pollyanna optimism. Finally, the supposed consensus enforced at the Fed was clearly not based on any demonstrable intellectual discernment, so much as herding behavior and the chairman's visible iron hand, but not to worry, because it is eminently "rational" to stick with the herd. People whine about the parade of economists being unable to come to a conclusion, but soothing their anxieties concerning dissention and disputation is the main reason we were right to persist in our stubborn errors. We simply channel the cultural zeitgeist.

Panglossian exercises of this nature were ill-suited to reassure the keening populace, so the more proactive journalists went about seeking to construct a provisionary consensus. The Economist decided to ask roughly fifty handpicked economists to identify which economist had been most influential over the past decade, and which had proposed the most important ideas for a postcrisis world. The “most influential” list they compiled was Ben Bernanke, John Maynard Keynes, Jeffrey Sachs, Hyman Minsky, and Paul Krugman; the “most important ideas” roster was Raghuram Rajan, Robert Shiller, Kenneth Rogoff, Barry Eichengreen, and Nouriel Roubini.

That list counts at least three open neoliberals, Bernanke, Rajan, and Rogoff, and one maverick neoliberal, Shiller. Three are rather conventional defenders of the veracity of orthodox neoclassical economics: Sachs, Krugman, and Eichengreen. We have already mentioned the unbearable lightness of the Keynesian rehabilitation within the economics profession. Minsky is nowhere taught in any ranked economics department. Roubini is the odd man out, largely ignored by the profession because of his propensity to cry wolf. The angst comes with the utter void of anything that could charitably be designated “new ideas” in the second list, and the sheer deliquescence of influence of the middle three of the former list for the economics profession. But worse, other than fealty to the home team, there is nothing here which acknowledges that the individual candidates tend to contradict one another in the main. If this be consensus, then sound and fury may be our fate.

Of course, greater capital requirements for banks amount to no binding constraint if there is continued enhanced freedom to identify as “capital” almost anything you want (debasing its “quality”), if there is no serious confrontation with the shadow banking sector and especially the plague of repo financing, and nothing whatsoever addresses the virtues of the possibility of separation of banking functions into different insulated institutions, such as the so-called Volcker Rule.

If there was a consensus inscribed in the Squam Lake documents, it was less representative of the full economics profession than it was more intently slanted toward codification of the minimum that the banking sector could get away with in the tense political aftermath of the debacle of the crisis, rather than any serious attempt to rethink the financial sector from the ground up.

Perhaps more distressing, a month later, the government investigators and financial economists were no more the wiser as to the real causes of the whipsaw movement. What was more disconcerting was that a brawl subsequently broke out among economists over which of the myriad “innovations” in trading may have been the culprit: high-frequency automated trading, the dispersal of trades among numerous for-profit exchanges, robo-trading in general, the practice of “stub quotes,” the role of exchange-traded funds, and so forth. Other, smaller flash crashes have occurred in financial markets since then, among which may be counted the BATS IPO fiasco and the Knight Capital spasm. Distressingly, no consensus interpretation of the flash crashes has taken hold among economists.

Some individual share prices dropped to mere pennies in price, forcing the various exchanges to impose “broken” or canceled trades on something like 27 percent of all transactions. Then many prices immediately recovered, although not all the way to previous levels. Incredulity toward the validity of registered prices struck at the heart of the economists’ pretences to expertise. Such behavior belied all bedrock neoliberal claims of the efficacy of the marketplace in converting information into valid prices.

Disturbing phenomena such as the low-grade fever of flash crashes in asset markets, which continues intermittently down to the present, should have been taken as a warning that the crisis was slowly undermining neoclassical microeconomics as well; and yet nothing of the sort has transpired. Instead, most economists kept pretending that, should any disconfirmatory experience of the crisis exist, it had remained localized somewhere in the neighborhood of “macroeconomics” alone. One of the strangest aspects of this crisis has been the utter failure of repeated attempts to insist that the orthodox economics profession in the face of crisis hews closely to a solid consensus, anchored to Walrasian general equilibrium theory, combined with the neurotic insistence that the damage has been contained to some relatively small subset of orthodox economic thought. It is astounding that neoclassical economists seem predisposed to accuse everyone other than themselves of something they called “irrationality” in the crisis, when a good working definition of irrational action is the repetition of the same old behaviors in hope of a different outcome.

And yet the profession has not really suffered any dire consequences from the litany of embarrassments enumerated above. Economists are still invited to talk shows, profiled in The New Yorker and PBS Newshour and BBC Newsnight and the Wall Street Journal, respectfully solicited for their opinions without being ridiculed openly (even on the recurrent occasions when any pair of them sequentially asserts A and not-A with a straight face). Orthodox economists propound a neoclassical orthodoxy awash in waves of willingly submissive students, are paid salaries frequently second only to the research MDs at their universities, and allowed to preach the self-congratulatory proposition that they remain in firm possession of a self-confident science. Under the influence of the brief uprising known as the Occupy movement in 2011, when a group of students noisily walked out of Gregory Mankiw’s introductory economics lecture at Harvard, it was treated as some passing undergrad hijinks by the press: Who were they kidding? Economists have been treated with relative impunity even on The Colbert Report. They are continually importuned to prophesy: Is the crisis over yet? Will things get better? Where should I park my pitiful 401(k) account? Economists, it appears, have unexpectedly displaced the clergy as the untouchable Delphic oracles in modern society.

The other tactic is to engage in serious sociological examination of the profession and its foibles, as we do here. The economics profession can seem to have escaped scot-free from the crisis only because certain fundamental intellectual trends and supportive institutions conspired to maintain its standing in the face of screaming headwinds. Intellectual orthodoxies never persevere out of pure inertia, not over the long haul; it takes more than a village to keep them on life support.

I have spent inordinate time on the Federal Reserve in this chapter for one very salient reason: If it was indeed the case that the orthodox economics profession was heavily integrated with the formal financial sector, which means both the banking and allied spheres and the major governmental institutions tasked with their regulation, then in the eventuality that both spheres will have managed to come through the crisis intact, then the economics profession would also be sheltered from the storm. The evasion of consequences from the crisis by the banking sphere, however achieved, translates directly into evasion of contumely by orthodox economists. In a counterfactual world, had the reaction been instead the breaking up of the big banks and cleaning up the shadow banking sector, say by some new resolution authority, not to mention the sweeping purge of the Augean stables at the Fed and (say) the SEC and CFTC and even the IMF, then the economics profession would have acutely discovered a badly exposed and vulnerable flank. Once heads started to roll, the press would have been more inclined to discover economists' craniums skittering hither and yon, and then it would have proven far more difficult to maintain the pretense of serving as detached spectators, guarantors of the public weal.

The most famous instance was that of Larry Summers, erstwhile president of Harvard University, and head of the National Economic Council during the first two years of the Obama presidency. Indeed, it was precisely that high-profile government position that forced him to disclose his numerous ties to and payments from the financial sector. When he filed his “Executive Branch Financial Disclosure Report” on January 20, 2009, listing a net worth of $17–$39 million, he prompted a flurry of newspaper and blog accounts of his outsized speaker fees and favors done for the financial sector from the late 1990s onward. Summers has enjoyed an extremely checkered career in many respects, dating from his controversial tenure as chief economist at the World Bank in 1990, but had nonetheless risen to political prominence due to the long-term patronage of Robert Rubin, formerly co-chair of Goldman Sachs, secretary of the Treasury, and later gray eminence at Citigroup and other Wall Street institutions. During the Clinton administration, Rubin and Summers played a now-infamous role in quashing Brooksley Born at the CFTC in 1998 when she proposed reining in the proliferating markets in credit default swaps. Indeed, many of the most significant neoliberal bank deregulations that led up to the crisis happened during the joint watch of Rubin, Summers, and Greenspan. When Rubin left the Treasury in 1999 for Citigroup, he persuaded Clinton to name Summers as his replacement. Rubin lobbied for Summers to be appointed president of Harvard, a term that ended rather inauspiciously in 2006 with accusations of economics faculty fraud from the federal government. Summers did not suffer from these contretemps, however; he was taken on board at Taconic Capital Advisors, a Goldman alumni hedge fund, and began earning $5 million a year working one day a week at the hedge fund D. E. Shaw, and earning really substantial speaking fees from all the main players in the crisis: $135,000 from Goldman Sachs, $67,000 from JP Morgan, $67,500 from Lehman Brothers, and $45,000 from Merrill Lynch eight days after Obama’s election. … Much of his wealth appears to have been racked up during this run-up to the crisis. Obama then appointed Summers his top economics advisor, as someone who would serve Solomon-like in helping decide who would be rescued, and who cast into oblivion.

Summers has been contemptuous of the few journalists who have had the temerity to suggest that this revolving door has had any conditioning effect on his behavior in the Obama administration. Although Summers has long been associated with the Democratic Party, he has been an unapologetic neoliberal for most of his career.

If Keynes was the most influential economist of the first half of the 20th century, then Milton Friedman was the most influential economist of the second half . . . Any honest Democrat will admit that we are now all Friedmanites . . . I grew up in a family of progressive economists, and Milton Friedman was a devil figure. But over time, as I studied economics myself and as the world evolved, I came to have grudging respect and then great admiration for him and his ideas . . . Today we take it as given that free financial markets shape finance . . . At the time Mr. Friedman first proposed flexible exchange rates and open financial markets, it was thought that they would be inherently destabilizing.

The second element is that people see economic issues through moral frames and people think there’s an extent to which recessions are punishment for sins—mainly sins of excess—and you don’t expiate sins by binges. So there’s a kind of moral counterintuitiveness that has made it difficult for the public and for political figures to accept stimulus.

Whatever else one might say about Summers, and many have taken their turn, it seems safe to observe that if the banks and hedge funds had been quasi-nationalized or otherwise wound down when they were on the brink of failure, and the financiers consequently demoted to modest roles in the Democratic Party, then economists such as Summers would not have been positioned among the serious candidates to occupy the political stage from 2009 onward; further, his neoliberal credentials might have come in for far more scathing criticism, rendering him persona non grata.

Take another illustrious Harvard economist, Martin Feldstein. Among other ties to the key crisis institutions, he had been on the board of AIG for twenty-two years, only to conveniently resign from his duties on June 30, 2009. He had also been chair of its finance committee and risk management, and therefore was formally directly responsible for the disastrous AIG Financial Products division, whose credit default swaps and other unsustainable derivatives brought down the company. For his services there he accrued more than $6 million, and has apparently never suffered any ostracism for saddling the Treasury with a shell of a remnant of an insurance behemoth that is still hemorrhaging money. Indeed, none of this seemed an obstacle to President Obama appointing him to his Presidential Economic Recovery Advisory Board in 2009, and his Tax Policy task force thereafter.

The AIG stint was only the most high-profile corporate directorship held by Feldstein, disclosed in part because the news media speculated that the reason he was not appointed Federal Reserve chair by George Bush back in 2005 was this politically problematic connection. He has also served as a director of Morgan Guarantee Trust, and in his dual capacity as a health care economist, previously was on the board of HCA Inc., and has been on the board of directors of Eli Lilly since 2002. His annual compensation for the Lilly position alone is $300,000 per year. Feldstein has been a staunch neoliberal his whole life, starting out with a critique of the British National Health Service, and has been credited with transforming the Harvard undergraduate economics curriculum from its prior breadth to a narrow orthodox boot camp with strong neoliberal inclinations. Feldstein served as chair of the Council of Economic Advisors under Ronald Reagan, and took with him as staffers Larry Summers, Gregory Mankiw, and Paul Krugman. His protégés are salted throughout the East Coast economic establishment. He is a master of navigating the interlocking directorates of finance and academia, arranging, for instance, to have the Starr Foundation (controlled by the former AIG CEO Hank Greenberg) to make numerous grants to Harvard and the NBER when he was head of that latter institution.

None of this is mentioned at Feldstein’s official Harvard website. He has explicitly denied on record that the financial industry has had any influence on the economics profession.

Sticking for the moment with AIG, a third Teflon financial action figure is manifest as the Yale economist Gary Gorton. Feldstein may have been formally responsible for the AIG fiasco in his role on the board, but Gorton was substantively responsible. Gorton joined AIG Financial Products as a consultant in 1996, for remuneration that climbed from $200,000 per year at the beginning to more than $1 million per year toward the end. Gorton is reported to have told an AIG shareholders’ meeting in 2007, “no transaction is approved by the chief of AIG’s financial products unit if it’s not based on a model that we built.” Gorton provided the intellectual justification (and some of the code) behind AIG’s disastrous credit default swaps from 1998 onward that by all accounts caused the company to fail in September 2008.

So, did Gorton suffer any of the consequences of detonating one of the biggest IEDs in the biggest financial crisis since the Great Depression? Apparently not. First off, in May 2008, just as AIG was reporting a massive quarterly loss of $7.8 billion, the Yale School of Management thought it an auspicious occasion to hire Mr. Gorton away from the Wharton School. … This unrepentant practice of mendacity through circumspection is precisely how the economics profession manages to purport to speak for “the public” while functioning as public relations arm for the financial sector.

In a subsequent interview he stated: “The term shadow banking has acquired a pejorative connotation, and I’m not sure that’s really deserved . . . Banking evolves, and it evolves because the economy changes. There’s innovation and growth, and shadow banking is only the latest natural development of banking.”

Seemingly perched outside the process, his own interventions obscured, Gorton can paint the current situation as the product of purely “natural” evolution, without once mentioning the role of economists such as himself in juking and splicing the DNA of the evolving entities. If, in some alternative universe, AIG had been wound down in a more rigorous and systematic fashion, with something approaching retrospective full disclosure, would anyone still be listening to Mr. Gorton outside of a Yale classroom?

The only private affiliation listed on his personal website is as founder and chief scientist at the hedge fund AlphaSimplex, but on its website we learn, “Andrew has 24 years of industry experience. Prior to starting AlphaSimplex, Andrew developed investment strategies and trading technologies as a consultant to a number of prominent Wall Street firms.” Professor Lo never lists any of these consultancies on his public papers and appearances, nor does he mention his position at the New York Fed or FINRA, an organization dedicated to the private self-regulation of the securities industry, along the lines of a “Better Business Bureau.” But we are getting used to this pattern of strategic silences. Despite all these rather specific commitments, Professor Lo presents himself as an open-minded, impartial arbiter of all things having to do with the crisis, all the while promoting a very specific political set of positions.

In his most recent survey, Lo tends to favor neoliberal books on the crisis, such as Rajan’s Fault Lines and Rogoff and Reinhart’s This Time Is Different, while disparaging books such as Stiglitz’s Freefall. Economists on the center left are chided for getting a little testy, whereas books by neoliberals are treated as par for the course. There he also innovates a few more rather contrarian positions on the crisis: that the efficient-markets hypothesis (more on this in the next chapter) did not lead investors astray; that Wall Street compensation packages did not distort incentives and behavior; and finally, that the big investment banks did not become especially highly leveraged in the boom.

It seems pretty clear that Duffie allows the Stanford trademark to mask his role as paid apologist: … Why should we take such work seriously—or any more seriously than other paid consulting work, for example, by a law firm or someone else working for the industry? … The answer presumably is that Stanford University is very prestigious. As an institution, it has done great things. And its faculty is one of the best in the world. When a professor writes a paper on behalf of an industry group, the industry benefits from—and is, in a sense, renting—the university’s name and reputation. Naturally, the banker at the CFTC roundtable stressed “Stanford” when he cited the paper.

The shadow banking sector has performed a minor séance, and conjured a shadow economist sector. We now have a better idea just who the Americans are who currently inhabit this shadow economist finance sector. Charles Ferguson, in his book Predator Nation, describes many of the key players by name: he covers Glenn Hubbard, Larry Summers, Fredric Mishkin, Richard Portes, Laura Tyson, Martin Feldstein, Hal Scott, and John Campbell. The University of Massachusetts economist Gerry Epstein has taken a different tack, with a somewhat different roster. Epstein and his collaborators have collated two data sets linked to economists regularly summoned to pronounce upon financial regulation during the crisis, comparing the positions taken in their academic work and their “outside” positions and consultancies (derived entirely from public sources). Since it would be a daunting task to subject the entire profession to audit, he chose to pursue the prosopography of the manageable subset of financial economists who had presented themselves as “faceless” representatives of the orthodox economics discipline, either through the Squam Lake group (covered above) or the Pew Economic Policy Group Financial Reform Project. By keeping the target group limited to nineteen prominent economists, his team was able to explore the nature of ties to financial firms in somewhat greater depth than one encounters in the news media. However, working only from open sources, the report depends entirely upon some manifestation of self-disclosure turning up in some public context; therefore, it necessarily underrepresents the true nature of financial connections. … We find that 15 of 19 economists had private financial affiliations over 2005–09. The norm for economists was to not identify their private financial affiliations, establishing the need for a code of ethics prescribing disclosure guidelines.

Well before the census of these ranks was even partially populated, I expect my audience would have thrown in the towel. Charles Ferguson’s Inside Job has just scratched the surface of paid-but-not-quite-disclosed behavior by prominent economists; what is now needed is some comprehension of the aggregate systemic character of what has become a conventional career path. If you are lucky enough to write a few macrofinance papers that attract the attention of people that matter, and then garnish a plum political job such as under-assistant-subsecretary of the Treasury/Council of Advisors, touching the right political bases, then it just follows that you will in the fullness of time become absorbed into the corporate/financial sector in some reasonably lucrative capacity, and even perhaps later on become a regional Fed governor, all the while speaking out as an “independent” academic voice for the public commonweal. This career trajectory has been a conveyor belt for some time now, at least back to 1970, when Paul Samuelson helped found the hedge fund Commodities Corporation. The issue is not possible compromise of personal virtue of this or that individual in the face of tempting blandishments; it is rather that the proud pretense of “independent expertise” has become thoroughly undermined within the current economics profession. This has been the bane of academic economics, but also, after the crisis, the vessel of its deliverance.

However, we would be remiss if we neglected to point out that hidden ties to other private firms on the part of those who purport to speak for “the public good” are in fact ubiquitous, wherever neoliberal doctrine has inspired initiatives to reengineer markets with the help of state power. For instance, neoclassical “experts” on global warming who promote emissions trading as the solution to environmental degradation have been demonstrated to have extensive ties to private for-profit firms benefiting from permit trading, which they rarely acknowledge. Indeed, one can understand the co-optation of climate activism by pollution permits as the engulfment of science by the financial sector, ever in search of new fields to securitize. Much the same has happened in health economics. It is not just macroeconomists who have succumbed to the siren song of paid advocacy: it is the entire economics profession.

To recap: the academic-governmental-financial complex has had profound intellectual consequences. Because the banks, hedge funds, and ratings agencies all dodged the bullet in the crisis, this enabled and empowered the economics profession to do likewise.

It was not just the turbocharged finance sector that provided cover for economists. Another major factor in the maintenance of the untouchable reputation of the orthodox economics profession has been the progressive commercialization of the totality of university research since the 1980s. This is a very large topic, and I have dealt with it in detail elsewhere. The central observation for our present purposes is to realize that, if one wholeheartedly subscribes to the neoliberal doctrine of the market as über–information processor, then “reform” of the university prescribes the monetization of knowledge in all its forms. Since the 1980s, the most prominent academic prophets of this reform have been members of the economics profession. Indeed, so zealous were the boards of trustees and state governments to bring about this change that neoclassical economists were frequently installed as presidents of many major universities: Summers at Harvard, Hugo Sonnenschein at Chicago, Harold Shapiro at Princeton, Richard Levin at Yale, and more at lesser schools. Summers, in particular, was brought on board at Harvard to induce what was perceived as a relatively recalcitrant bunch of pampered faculty to become more responsive to market signals. These captains of erudition then set out to shrink the footprint of the humanities and expand the natural sciences at their institutions, since that was where the money was purportedly to be found.

Curiously enough, there are no good aggregate time series of proportions of distinct disciplines’ representations within any national university system. There have been a few stabs at performing a retrospective census at a few key junctures for limited geographical areas. For instance, one paper documents the recent incursion into law schools: Of the 1,338 faculty members at the top twenty-six American law schools, beyond the J.D., 27 percent had PhDs, with economics the most common concentration at 7 percent. Another 13 percent had PhDs in some social science other than economics, while 7 percent had PhDs in a non-social-science discipline. This is a substantial increase from merely a generation ago. Another work attempts to break down faculty representation across a sample of British Commonwealth universities in a few selected years over a century concludes: “Although it is good to understand why university economics prospered more than psychology over the 20th century, it would also be good to know why at the end of the century economists were ten times more common on average in the world’s universities than psychologists.” Marion Fourcade estimates that economics grew from roughly 1 percent of all university faculty in 1900 to about 4 percent by 2000. While all of these gauges are impressionistic to varying degrees, they do point to an important trend in academe, which is the expanding proportional representation of PhD economists in universities, especially over the last three decades.

Economists have theorized and promoted the benefits of the commercialization of knowledge; and in turn, universities have hired more economists for their expertise to both preach and effectuate this commercialization outside the standard compartmentalization of departmental organization.

Hence any academic status degradation of the economics profession on its home ground would entail an implicit repudiation of the trajectory of university restructuring, which had three decades of impetus behind it. In other words, absent the world being turned upside down, or another great wave of university restructuring, the economics profession would continue to enjoy shelter from the impecunious storm within the modern university.

Essentially, the indictment by Inside Job and many commentators was that the crisis had revealed that the economics profession was rife with intense conflicts of interest, and this, in turn, had so corrupted the actual orthodox doctrines of the profession that its analyses of the crisis had become untrustworthy. What was missing from these screeds was an appreciation for a major escape hatch: that immersion in neoclassical training produced adherents who lived by the motto that the very notion of conflict of interest was unprepossessing, and that corruption of market-based research was essentially impossible. Rephrasing the insight, economists were fortified to dodge the bullet because they denied the bullet had ever taken flight.

Much of it has been centered upon the sphere of biomedical research, for the reason that biomedicine was one of the earliest research fields to become thoroughly commercialized in the modern university, and consequently a plethora of debacles in the arenas of lethal drugs, abused human subjects, botched pharmaceuticals, and outlandish expenses have drawn the attention of many to search for the explanation of such corruption of the research enterprise in the midst of largesse. Within the perimeter of university research, "financial conflict of interest" has come to be defined as the actual conduct of research in an environment where relevant financial interests of the researcher and/or his institution might conceivably influence the outcome, embedded in a larger societal context where impartiality is expected or presumed. Interestingly, sophisticated observers realize that even this definition is conditional upon a presumed list of goals of the research enterprise: in biomedicine, should the objective be simply to increase the stock of human knowledge, or is it the promotion of human health and welfare, or is it much more narrowly just to make money?

The empirical literature reveals that instances of such conflicts are pervasive in biomedicine, and, not surprisingly, "Strong and consistent evidence shows that industry sponsored research tends to draw pro-industry conclusions." Perhaps because of its ubiquity in the modern commercialized university, bureaucratic approaches to conflicts of interest in biomedical research tend to congregate in the area of risk management—that is, formal protection of the university from the lethal fallout from conflicted research—rather than proactive attempts to control bias and corruption in the research itself. If one detects certain affinities with the concepts of risk in the banking sector, one would not be too far off.

Another major reason the economics profession has managed to dodge the bullet of the crisis is that its default stance toward conflicts of interest is much closer to that of the financial industry than academic biomedicine in the grand continuum of professional governance. Orthodox economists tend to see nothing wrong with conflicts of interest, since they have generally subscribed to the precept that market arrangements are capable in principle of monitoring, restricting, and resolving any such conflicts in the course of normal operation. Readers of this volume will recognize this as a corollary of the basic neoliberal precept that the market is a superior information processor to any other human or institutional intermediary when it comes to the revelation of knowledge. This has the curious implication that, whenever the economic orthodoxy has written about the “problem of corruption,” it parsed the problem as besetting only those individuals working in the public sector. Since everyone else employed in the private marketplace is known to be motivated by private gain, and the market turns that into public welfare, then by definition, there are no conflicts of interest in the private sector, only lax imposition of contractual protections. As usual, MPS economist Gary Becker boiled this down to a pithy epigram in his Business Week column: “if we abolish the state, we abolish corruption.”

The blogger Yves Smith has wonderfully parodied this, by slightly amending the language of public-choice theory of the neoliberal Virginia School to address the code of the economist: … What would you identify as the central insights of Academic Choice theory? … The theory begins by identifying three principal ways in which economists try to maximize their utility. First, they receive salaries from universities, which can be increased if their course enrollment increases. Course enrollment is primarily driven by students with future careers in business and the financial sector, so an economist has an incentive to propound theories that CEOs and financial institutions find attractive. Even if adoption of these theories leads to substantial public costs, these costs will not be shouldered by the economist personally. Second, by developing such theories an economist can open the door to future wealth as a lobbyist or consultant. Third, the support of economists is critical to creating and maintaining special privileges for the financial services industry and for top corporate officers. By threatening to withdraw this support, economists can engage in rent-seeking. I call this last practice academic entrepreneurship.

It should now become apparent that the way in which these deep conceptual commitments get translated into public advocacy helps ward off brickbats hurled by those offended by the role of economists in the crisis. Economists, the prophets of incentives, quite logically respond to their own incentives to service their various constituencies, and as they never cease to insist, life is nothing but a sequence of trade-offs. Whenever they make reference to the "public good" or "general welfare" in the course of their endeavors, they frequently mean nothing more than the brute fact of caveat emptor. Thus, when some rude outsider—say, Charles Ferguson in Inside Job—gets all steamed up about "conflicts of interest" while uncovering their prognostications, they react in a way resembling the Harvard economist John Campbell in the film; insiders are nonplussed, really at a loss to see what all the fuss is about. (There is also the barely disguised sneer: stop your cheap rabble-rousing and riling up the groundlings. We are Harvard.) There will be no perfervid eleventh-hour conversions, no dark nights of repentance, no rending of garments and gnashing of teeth for the economics profession. And this, in turn, fortifies their inclinations to mount a united front to mollify the greater public already familiar with Freakonomic insouciance, no matter what their personal politics might be. There has materialized no better way to face up to the rebuke of the crash.

Until "Inside Job," the most serious ethical debate that I know of within the profession was over advising Chile's Pinochet regime. One view was that providing advice to any regime that abused human rights was wrong. Another view was that providing economic advice was ethical, because it would improve the lives of the people living under the regime.

Universities have the resources to develop ethical guidelines and the power to enforce them. They are the employers of academic economists, and ethical lapses damage them, too. They are the natural institutional guardians of their employees' professional behavior. … And, conveniently, universities also have been the staunch natural defenders of the Divine Right of economists to do whatever they please.

A year later, the AEA predictably declined to produce a code of ethics for its membership. It did issue a new disclosure policy for conflict-of-interest-reports for papers submitted to the AEA-sponsored economics journals—which are only a small subset of the universe of ranked economics journals. Since the same body had earlier promulgated a code of provision of all econometric data sets for all submitted articles to AEA journals, which it then promptly proceeded to neglect and ignore, the prospects for any major changes of behavior are slim at best.

My primary thesis here, and in the rest of this volume, is that the crisis has revealed a severe epistemological contradiction that festers at the heart of the modern economics profession; this has dovetailed with a new set of practices and institutions that have developed since 1980 to paper over the contradiction. It began when the economics profession tended to grow more neoliberal over the past few decades. We will take that proposition as given here, because we aim to explore one of its most important implications: namely, that it sets up a treacherous dynamic interplay between the economics profession and the general public, awkwardly brought closer to the surface by the crisis. In a word, neoliberal theory in the context of economic crisis creates problems for economists' self-image as public intellectuals.

The orthodox economist cannot help but try to get his audience to simultaneously trust markets and trust economists. As we have seen, he is also inextricably woven into the financial sector. Older notions of the role of the “public intellectual” referred to someone who served to both personify and clarify positions of great import in public debate; but one of the signal contemporary postmodern developments has been the genesis and nurture of intellectuals poised and primed to muddy up the public mind and consequently foil and postpone most political action, and hence to preserve the status quo ante. This has been one of the objectives of the financial sector since the crisis, and economists are in the front lines of the disinformation project.

The scientific debate remains open. Voters believe that there is no consensus about global warming. Should the public come to believe that the scientific issues are settled, their views about global warming will change accordingly. Therefore, you need to continue to make the lack of scientific certainty a primary issue in the debates.

The signal characteristic of agnotology is that it makes use of these journalistic inclinations to venture beyond simple difference of opinion in order to promulgate artificial “authorities” and calculated deception, not just to sway public opinion, but to foster the widespread attitude that there is so much unfocused controversy rattling around in the rarified world of intellectuals that the poor average citizen might as well believe whatever he pleases. It is the predicament of the hapless consumer of modern news: one study tells me red wine is good for my health, and another insists it is unhealthy! John Cochrane says the crisis is all the fault of the government, while Joe Stiglitz blames it all on the banks! By a simple jujitsu move, the mechanical journalist’s appeal to objective presentation of “both sides” is turned into an imprimatur for the public to believe whatever their guts tell them is correct, at least until the marketplace of ideas delivers its final verdict. The aim of agnotology is not so much to convince the undecided, but to fog the minds of anyone lacking the patience to delve into the arguments in detail (which is pretty much everyone).

If we define agnotology to be the analysis of this phenomenon of the intentional production and promotion of ignorance, then it has been the Fourth Horseman of the Absolution from Apocalypse for economists. Whether it be in the context of global warming, oil depletion, “fracking” for natural gas, denial of Darwinism, disparagement of vaccination, or derangement of the conceptual content of Keynesianism, one unprecedented outcome of the Great Recession has been the redoubled efforts to pump massive amounts of noise into the mass media in order to discombobulate an already angry and restive populace. Much of this emanates from the outer think-tank shells of the neoliberal Russian doll, as I have already argued.

"It is less well known, but tobacco companies also spent large amounts subsidising good quality biomedical research in fields such as virology, genetics and immunology. They funded the work of several Nobel prize winners," Proctor says. "But they only encouraged this research to serve as a distraction. The idea was to build up a corpus of work on possible causes of diseases which could not be attributed to cigarette-smoking. In court cases involving the industry, its lawyers always highlighted viral risks, the pre-disposition of certain families and so on to play down tobacco-related risks."

It might seem that agnotological interventions in an academic discipline could be greeted as an unwelcome source of meddling; for instance, many a climate scientist might ruefully wish that he had never drawn the attentions of the NTC. But in this, as in so many other respects, economics has been the outlier, because one might argue that the corporate body of orthodox economists has actually benefited enormously from the escalation of cacophony, rendering it relatively more immune to the wrath of a disillusioned populace. Precisely because of the material and intellectual conditions identified above, economists generally are not so very offended by the gush of tainted money and dubious activity pouring into the various extremities of the professional citadel of economics since the crisis. In short, the promotion of doubt over "what orthodox economists really believe" has proven a convenient smokescreen behind which the profession can evade the pitchfork-wielding populace, all the while pursuing its conventional practice of telling its patrons what they want to hear.

The intense sequence of events that transpired during the government takeover of Freddie Mac and Fannie Mae, the failure of Lehman Brothers, and the passage of the widely disparaged “bailout” or TARP legislation on October 3, 2008, has been related in fair detail in a number of books and articles; but one overlooked aspect has been the curious role of economists during its initial phases. Because it was largely conceived in haste in the crisis-consumed Treasury Department of Hank Paulson, the initial draft of a plan to purchase mortgage-backed securities, or, as we now know, the “toxic assets” of journalist parlance, the Treasury needed congressional approval to purchase up to $700 billion of these securities in the Paulson plan, so Paulson and Ben Bernanke sought to frighten the congressional leadership into hastily granting them this authority just before September 19, presenting them with a bald three-page proposal and Hobson’s choice: this, or the collapse of Western Civilization.

One informant suggests that in the first hours of confusion, a couple of economists with close congressional connections were called in to canvass possible grounds for opposition to the plan: for instance, Jamie Galbraith was summoned by some Democrats led by Congressman Brad Sherman; the Skeptics’ Caucus on the Republican side conscripted Bill Isaacs, former Reagan head of the FDIC. Issacs suggested that no expenditure was necessary, and that the crisis could be averted merely by changing a few rules. Staffers started making cold calls to economists down the list on Sunday, September 28, and another conscript was David Levy of George Mason University and the Mercatus Institute. Levy was not an expert on finance, so could not provide an alternate plan, but did talk to some staffers about the role of the ratings agencies. But Mercatus and George Mason were destined to play a more significant role in the weeks to come.

We need to wait for the verdict of future historians to get some sort of standard narrative, but it seems that the first vote on TARP was conducted in the face of sketchy and incomplete economic notions. My point in this section is to suggest that economists did not help clarify the situation, but instead swooped in to pump more doubt into an already baffling predicament—and that is the essence of agnotology. Clearly, most orthodox economists were flummoxed by the mere onset of the crisis, but a few neoliberal economists at the University of Chicago had the presence of mind to gear up the think-tank network of the thought collective in order to sign a petition calling for a flat-out rejection of the rescue package, and counseling pure delay on taking any action whatsoever. (Delay and stasis was a major agnotological objective in disputes over CFCs, tobacco smoke, and global warming.) The petition, arranged by the Chicago economists John Cochrane and Luigi Zingales, essentially preached delay, due to the precept that, as the text stated, “Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.” The capacity of the Russian doll to mobilize the thought collective was demonstrated by the ability of the organizers to deliver the petition with the signatures of more than one hundred economists to the media on September 24.

Senator Richard Shelby then went before the cameras on September 25, waving the petition and claiming that most prestigious economists at our leading universities were united in opposition to the bailout. As per usual, this was a bit misleading. Most (but not all) of the signatories were denizens of the financial–think tank nexus we have been describing in this chapter, and some were MPS members. It was not so clear that they so uniformly opposed a bailout, so much as they felt the need to head off the political dangers of government takeover of the financial sector. One might speculate that the banking sector wanted something like TARP that week, so there is no sense that the signatories were directly responding to any immediate bidding or specific objectives of the banks. The real practical effect of the petition was twofold: (1) to provide a list of whom in the economics profession might be available to be mobilized by Republicans in Congress, in the eventuality they might need to gin up opposition; and (2) to provide retrospective justification for the vilification of TARP, which is what happened once the Republicans suffered their rout. I doubt anyone had the foresight to imagine that this in turn would provide a basis for the reversal of the Democratic tide in 2010, so that the banks could get their cake and eat it, too. Rather, mostly it was the unceremonious jockeying for position in a highly fluid and confusing situation, with the neoliberals opting for the default position of cunctation and dissimulation. But of course, that is precisely when sharply drawn contraries can potentially have their greatest impact.

What is noteworthy about subsequent events is the way in which agnotological activity rushed in to fill the apparent intellectual vacuum around the bailout bill, both prior to passage and for long thereafter. One node of activity became centered upon John Cochrane and his Chicago colleagues Luigi Zingales, Gary Becker, and Raghuram Rajan. Cochrane was explicitly identified by National Public Radio as the ringleader of economists in opposition to the Paulson plan, while the quartet were ubiquitous in sympathetic outlets like the Wall Street Journal, The Economist, and even PBS. However, in those contexts he was almost never publicly linked to his affiliation with the Cato Institute, one of the hardest-core shells of the Russian doll.

Cochrane changed his tune in minor ways in subsequent months as it became increasingly apparent that the financial sector would be left more or less intact. He even was caught in an unguarded moment admitting one of the principal tenets of agnotology in an interview: “The business of advice remains what it was . . . You have to be willing to become a sort of media person. You have to tailor your advice to what people want to hear, and then shade it in the direction of common sense.”

The precursor to Mercatus at George Mason dates back to the early 1980s, when Richard Fink was on the economics faculty at GMU. Fink was also highly connected to the many firms and foundations associated with Charles and David Koch, the infamous billionaire funders at the center of many neoliberal organizations, including Cato. Koch funded Fink's Center for Market Processes at GMU, which was transformed into the Mercatus Center by the later 1990s, after Fink became vice-president of Koch Industries. Although GMU was nominally a state university, Mercatus was targeted by the Russian doll to become the premier one-stop shop for hard neoliberal economics in the nation's capital. For instance, in 2001, the Charles G. Koch Charitable Foundation gave GMU $3 million to hire the neoliberal Nobel economist and MPS member Vernon Smith; although that did not work out as planned, Koch gave another $2.5 million to Mercatus in 2009. Public sources suggest Mercatus has benefited to the tune of $30 million from Koch over the last two decades. Its general director is Tyler Cowen, another neoliberal we have already encountered.

The House Financial Services Committee and Senate Banking Committee heard from academic economists linked to the Mercatus Center about a dozen times during the financial regulatory reform debate. That is roughly the same number of testimonies by academics hailing from both Harvard's business and law schools. According to a 2009 ranking of 31 economics programs at US universities by US News and World Report, Harvard ranked No.1. George Mason didn't place.

Political expediency dictated the need for speed and cohesion in response to the numerous calls to understand what had happened in the crisis hard on the heels of 2008. The hubbub over the TARP revealed a field in discombobulation and disarray. Not least was there confusion over what it was supposed to accomplish, the topic of the next chapter. There was no luxury of waiting a generation for a synoptic account to emerge. The Koch brothers (and a rogues' gallery of others) have redoubled their attempts to skew the economics profession in a more neoliberal direction, precisely in order to broadcast in a timely fashion the notion that neoliberals bore no responsibility for the crisis, and indeed, come fully equipped with everything that is needed to remedy it.

I don't recall politics being so openly for sale before 1980; but maybe I am being naïve. After all, the Volker Fund paid for Friedrich Hayek's chair at the University of Chicago in 1950.

Here we aim at something different. Given our ultimate objective is to understand the unreasonable resilience of the neoliberal Weltanschauung, and the role of the economists in fortifying it, I propose to concentrate on aspects of economics that have confused or otherwise obscured specific components of economic knowledge in the heat of the crisis and thereafter. In this, we further explore the phenomenon of “agnotology” raised in the previous chapter, growing out of the fundamental internal contradiction between trusting the economists to point the way out of the crisis, and trusting the markets to right themselves.

In that spirit, we might divide the reactions of the economics profession to the crisis into three broad categories: one, the orthodoxy was right all along and nothing that has transpired in recent events impugns the fundamental soundness of basic theory; two, the orthodox have made some unfortunate conceptual choices in the recent past, but the crisis has sobered us up, and we are working hard to rectify them, while maintaining fealty to all that was legitimate, timeless and dependable in neoclassical economics; and three, the best response would be to renounce neoclassical economics altogether, and start anew with some other tradition of economic thought.

The reason this may be significant for a larger audience outside of the cognoscenti of the economics profession is that, after the crash, very few economists have been willing to seriously entertain and evaluate the prospect that the dominant macroeconomic theory helped cause the crisis, by masking the buildup of instabilities before the crisis, and frustrating repair activity afterward. This underappreciated phenomenon has been then further confounded when journalists have been prompted to repeat a fair number of fallacies about the current state of economics, under the tutelage of a select coterie of informants.

Although there exist an infinite number of potential ways to revise and repair neoclassical economics (since there are an uncountable infinity of flaws), what has been striking about the crisis is the relatively small number of such revisions that have dominated the discourse concerning “what is to be done” about economics (outside of stubborn denial). Furthermore, one might imagine that, as the profession responded, the roster of proposed conceptual revisions to orthodoxy would have broadened and expanded with the passage of time; but this has not happened. Hence, there is something intriguing and very significant about the “version two” option that itself needs explanation: Why has the movement to “repair” orthodox economics been so ineffectual since the crash?

The hypothesis I propose is to pursue a possibility raised in the previous chapter, that there have surfaced in the crisis some relatively systematic attempts to pump doubt and confusion into public discourse; in other words, some “explanations” of manifestations of the crisis and its aftermath have been launched as trial balloons not so much for purposes of further test and elaboration by sanctioned professional economists, but rather as calculated interventions in public discourse in order to buy time and frustrate any shared impressions of clearly delineated positions on a contentious issue. In other words, I am suggesting that the economics profession adopted a page from the neoliberal playbook, widely promoting the notion that intrepid economists were busy gestating all sorts of “new economic theory” to explain the crisis, when in fact they had mostly dug themselves into a defensive crouch where nothing about the orthodoxy was being sloughed off, and no errors would be freely conceded.

The creation of such alternate realities has by now become quite familiar in areas such as Iraqi “weapons of mass destruction” and in global-warming denialism. As the climate crisis worsens, the general populace appears to recoil from the worsening news, fleeing the facts, preferring to disdain the science rather than confront the crisis. In one instance, the Harris polling organization claimed that in 2007, 71 percent of Americans said they believed that continued combustion of fossil fuels resulted in climate change, whereas by June 2011 it had dropped to 41 percent. Further, Gordon Gauchat has demonstrated that the only group to express severely diminished trust in science in surveys from 1974 to 2010 were self-identified conservatives, with university-educated conservatives displaying the steeper decline. Gauchat points out, “the emergence of ‘neoliberal science’ as an alternative to regulatory regimes has coincided with increasing distrust of science among conservatives.”

The stance adopted in this chapter is that if agnotological procedures can be found regularly deployed in politics and biology, then we should not think it beyond the pale that they can be found in economics as well. Indeed, given the neoliberal drift in the profession in the last three decades, it would be more surprising if the agnotological manufacture of doubt had somehow bypassed economists altogether. In particular, the elaborate staged debate between the true believers in good old neoclassical theory and the advocates of judicious macroeconomic revision provides us with yet another paradigm example of pointless dissention and manufactured doubt, which only serves the purpose of maintaining the larger populace in a state of suspended animation: the audience only grows further skeptical of the economics profession if it becomes apparent that (as they see it) the neoclassical orthodoxy does not speak with one voice concerning the crisis, and consequently, no particular reform policy can gain much in the way of activist traction. Economists fiddle with their models, Rome (and Athens) burns, and the Neoliberal Thought Collective just grows stronger.

I am not the first to suspect this. Even a few respected orthodox economists have sometimes entertained notions that “there is the possibility that moneyed interests could manufacture controversy through think tanks, as has happened with aspects of climate change debate.” Unfortunately, they then underestimate the extent to which the economics profession has become beholden to neoliberal institutions, and indeed, the possibility that garden-variety disagreement, which might happen under any other circumstances, gets amplified and phase-shifted to produce its real objective, the paralysis of serious reform of the economy. The beauty is that the economics profession as a corporate entity need not consciously will the resulting manufacture of doubt. Just add the reflex conservatism which kicks in with cognitive dissonance, and we have a perfect prescription for agnogenesis.

Agnotological fomentation of ignorance occurs on many different scales: incidents at the individual level are much easier to document and understand than those that happen at the scale of (let us say) the bulkier subset of the profession devoted to macroeconomic theory. For instance, take the individual case of Joseph Stiglitz having to undergo a bit of targeted agnotology. Big money cascaded into financial economics in order to defend the sector from threats of regulation of derivatives in 2010–11. Many think tanks and public relations firms produced “position papers” arguing that any attempt to reign in derivatives would be disastrous. One such contract research house issuing papers was Keybridge Associates. Their report drew attention because of some very high-profile names attached to the document as “advisors”: Prof. Stiglitz for one, David Laibson of Harvard for another. The only problem was that, when the report was brought to the attention of those worthies, they felt impelled to go on record as repudiating the report. What Keybridge had done was pay them a prior retainer for some other purposes, and then gone ahead and attached their names to documents that they would not normally endorse, without notifying them of its activities. Now, was Keybridge attempting to influence the positions of Joseph Stiglitz? No; rather, it was pursuing the standard agnotological procedure of the manufacture of ignorance and confusion over what Stiglitz stood for in the minds of the public. The fact that this was just one element of a full-service agnotological offensive is demonstrated by another concurrent parallel activity, the manufacture of an astroturfed letter campaign to the CFTC opposing rule changes to bank control of derivatives markets, which emanated from similar entities. These are all standard practices from the agnotological playbook, orchestrated by firms located somewhere “outside” the academic sphere but “inside” the Beltway. And, when it came to the regulation of derivatives, money talked, and never shut up.

As Thomas Pynchon wrote in that great twentieth-century classic Gravity's Rainbow, "If you have them asking the wrong questions, you don't have to worry about the right answers." Just as in advertising, the media are full to the brim trumpeting the shock of the new, when all that really happens is that you are being sold the same old jalopy under a new brand name. Thus the economics profession and the Neoliberal Thought Collective have attained coadjuvancy in a mutually beneficial symbiosis, whose product is the maintenance of an economic system and a financial sector essentially unaltered by the greatest global breakdown since the 1930s.

To be fair, economists can't be expected to predict the future with any kind of exactitude. The world is simply too complicated for that. But collectively, they should be able to warn of dangers ahead. And when disaster strikes, they ought to know what to do. Indeed, people pay attention to economists at times like this precisely because of their bold claim that they know how to prevent the economy from sliding into a repeat of the Great Depression. But seven decades after the Depression, economists still haven't reached consensus on its lessons.

Fewer than a dozen prominent economists saw this economic train wreck coming — and the Federal Reserve chairman, Ben Bernanke, an economist famous for his academic research on the Great Depression, was notably not among them. Alas, for the real world, the few who did warn us about the train wreck got no more respect from the rest of their colleagues or from decision-makers in business and government than prophets usually do.

Again, if this track record was widely known already to have been so very poor, then missing the onset of the crisis should not have caused such consternation on its own. … Rather, the crisis brought to consciousness for the lay public the portent that there was a specific bias in the orientation of the profession, a bias that ruled out of bounds predictions of the sorts of global system-wide breakdowns that had galvanized those living through 2008–11. Hence what the clientele thought they were buying—a sort of neutral reconnaissance of the near future, a species of early-warning insurance—did not correspond very well with what the economists had been proffering.

There had always been pockets of resistance to this audacious theoretical move, but the crisis brought the qualms out into the open by suggesting that agents should not rely so heavily on the clones of the “rational” economists to ground their expectations. It wasn’t intentional, but the hue and cry over failed prediction tore the scabs off a number of repressed and forgotten wounds in the philosophy of the “rational economic agent.” This may explain why the journalists were so keen to indict the leaders of the “rational expectations” movement hard on the heels of the financial collapse.

The best evidence that the accusations of failed prediction were so rebarbative that they provoked a triumph of indignation over complacency can be found in the wildly bipolar reactions of economists to the indictment: one coterie insisted that economists were vindicated by the successful predictions of the few and the canny; whereas another insisted instead that good economists never claimed to be able to predict the economy in the first place. Viewed as a totality, this exemplified a larger tendency for the profession as a whole to simultaneously assert A and not-A in response to calumny.

The gambit to search for “successful predictors” among the economists seemed to have originated with journalists. Economists sat up and took more notice of the rebukes published in The Economist than the other news magazines, if only because those articles softened the condemnation with various potential excuses that the complaints found elsewhere had gone “too far,” and that the allegations only had partial validity. With regard to the accusation that “most economists failed to see the crisis coming,” The Economist averred that some had indeed issued warnings, and explicitly named Robert Shiller, Nouriel Roubini, and the “team at the Bank for International Settlements.” This set off the starting gun for a veritable silly season of all manner of economists being proposed as vindicated prophets and unappreciated soothsayers, as though the prescience of the few would redeem the dimwittedness of the many. This race to populate the Nostradamus Codex continued for more than a year, encompassing even an online ballot to vote for the best crisis prognosticator. A motley cavalcade of economists then jostled in an unseemly fashion to put themselves forward as having somehow anticipated the crisis, across not just from the orthodoxy, but spanning the political gamut from paleo-libertarians to left post-Keynesians. But worse, the scrum began to dissipate the definition of the moving object that stood as the appropriate target for prediction. In the rush to judgment, anyone who said or wrote anything about some kind of bubble or imbalance or financial instability sometime in the 2000s suddenly sought to be credited as rivaling the Oracle at Delphi, engaging in the most exquisite augury. Some Nobel winners in particular pushed this ploy well beyond the breaking point, eliding prediction proper, and instead suggesting that anyone who had ever produced a mathematical model mentioning bank runs or financial fraud or irrational expectations or debt deflation or (fill in the blank) was proof positive that the economics profession had not been caught unawares. It helped if the interlocutor stopped paying attention to what had been taught in the macroeconomics classes across the most highly ranked economics departments. It got so bad after a while that any mention of market failure or departure from equilibrium was supposed to function as a “get out of jail free” card in 2009.

I don’t accept the criticism that economic theory failed to provide a framework for understanding this crisis. Indeed, the papers we’re discussing today show pretty clearly why the crisis occurred and what we can do about it. The sort of economics that deserves attack is Alan Greenspan’s idealized world, in which financial markets work perfectly well on their own and don’t require government action. There are, of course, still economists—probably fewer than before—who believe in that world. But it is an extreme position and not one likely to be held by those who understand the papers we’re talking about.

Lest the reader get the impression that this was the only retort to the accusation that economists had failed in predicting the crisis, they should be apprized that there was also a counterreformation movement. … Most mainstream macroeconomic theoretical innovations since the 1970s (associated with such names as Robert E. Lucas Jr., Edward Prescott, Thomas Sargent, Robert Barro, etc., and the New Keynesian theorizing of Michael Woodford and many others) have turned out to be self-referential, inward-looking distractions at best. Research tended to be motivated by internal logic, intellectual sunk capital and aesthetic puzzles of established research programmes rather than by a powerful desire to understand how the economy works . . . the manifest failure of the EMH in many key asset markets was obvious to virtually all those whose cognitive abilities had not been warped by a modern Anglo-American Ph.D. education.

Eugene Fama: I think it did quite well in this episode. Stock prices typically decline prior to and in a state of recession. This was a particularly severe recession. Prices started to decline in advance of when people recognized that it was a recession and then continued to decline. There was nothing unusual about that. That was exactly what you would expect if markets were efficient.

I don't even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don't know what a credit bubble means. I don't even know what a bubble means. These words have become popular. I don't think they have any meaning. . . .

People say that. I don't know what the basis of it is. If they know, they should be rich men. What better way to make money than to know exactly about the absolute level of prices.

The two biggest ideas associated with Chicago economics over the past thirty years are the efficient markets hypothesis and the rational expectations hypothesis. At this stage, what’s left of those two? … John Cochrane: I think everything. Why not? Seriously, now, these are not ideas so superficial that you can reject them just by reading the newspaper. Rational expectations and efficient markets theories are both consistent with big price crashes. If you want to talk about this, we need to talk about specific evidence and how it does or doesn’t match up with specific theories.

If one imagines the faint echoes of the Seekers after they were left stranded by the flying saucers, then perhaps you begin to comprehend how complaints that economists didn’t predict or foresee the crisis are not going to change anyone’s mind in economics.

In fact, only three tended to get puffed up into full-blown paladins of deliverance: naming them in decreasing order of ambition, they were (1) behavioral economics; (2) repudiation of the efficient-markets hypothesis; and (3) fixing the DSGE macro model. All three were extensively discussed in the blogosphere and in generalist books, newspapers, and magazines; yet incongruously, all three were hopelessly ineffectual when it came to understanding the crisis. It is their power to mesmerize combined with their impotence that warrants their discussion in this chapter. Returning once more to our insistence on the importance of agnotology, it takes some diligence and not a little digging to come to understand why the populace was being led up the garden path; those seeking enlightenment were lured to waste their time in dalliance with ideas that did little more than divert attention from the deeper structural causes of the crisis.

This purported "enrichment" of simpler concepts of rationality had even established a beachhead in the study of financial economics prior to the crisis; its most prominent advocate in the prelapsarian era was Lawrence Summers, which might begin to signal that its revolutionary potential may not have been all that transformative. Mostly, in finance it fostered models predicated upon the posited existence of a two-class world consisting of (a) stupid people, sometimes more charitably known as "noise traders," who performed certain functions in financial markets (liquidity, smoothing of reactions to shocks) so that the (b) neoclassically "rational" agents could more readily find the "true" or "fundamental" values dictated by the prior orthodox theory. Nothing here substantially impugned the basic orthodox model.

Some economists who had been strong advocates of behavioral approaches prior to the crash, such as Robert Shiller and Robert Frank, leaped in with op-eds essentially blaming the entire crisis on native cognitive weaknesses of market participants. This line became entrenched with the appearance of George Akerlof and Robert Shiller's Animal Spirits: displaying an utter contempt for the history of economic thought, they "reduced" the message of Keynes's General Theory to the proposition that people get a little irrational from time to time, and thus push the system away from full neoclassical general equilibrium.

Nevertheless, in the few instances when journalists actually read the book, the first thing they noticed is that it said very little that was substantive about the current crisis, for much of it had been written well before 2008. Brought up short, they began to doubt its pertinence. The second thing they noticed was it was full of overweening claims, but contained very little in the way of causal mechanisms. “Animal spirits” boiled down to such timeworn neoclassical expedients as changing the utility function over time and calling it “confidence” (while Chicago called it “time-varying rates of discount”), appealing to sticky wages and prices while attributing them to “money illusion” and concerns over fairness (which the neoliberals modeled as “envy”), and suggestions that corruption would grow over the course of a long expansion (the Chicago theorist Gary Becker theorized this as the “rational choice approach to crime”). Far from some brave venturesome foray into the unexplored thickets of real psychology by open-minded economists unencumbered by entrenched dogmas, this was just more of the same old trick of tinkering with the “normal” utility function to get out the results you had wanted beforehand—something falling well short of the trumpeted dramatic divergence from standard economic theory.

This portmanteau utility function raised an objection that had long been a subject of discussion in the methodology literature: Wasn’t “irrationality” in the neoclassical lexicon an oxymoron, since the moment one formalized it in the utility function, didn’t it effectively get subsumed under some perverse version of meta-rationality? Richard Posner, an especially perceptive critic from the right, pushed this point home in a review of Animal Spirits.

The problem with behavioral economists going gaga over "irrationality" was that they conflated that incredibly complex and tortured phenomenon with minor divergences from their own overly rigid construct of pure deterministic maximization of an independent invariant "well-behaved" utility function. Akerlof and Shiller could only condone an incongruously rationalist framing of their irrational exuberance. Two decades of such behavioral research certainly has not resulted in any consensus systematic revisions of microeconomics, much less macroeconomics. Perhaps even more damning, the conventional sadomasochistic excuse that individuals would learn under pain of loss to behave like neoliberal agents was also unavailing: "almost no empirical evidence exists documenting that individuals who deviate from economic axioms of internal consistency (e.g., transitive preferences, expected utility axioms, and Bayesian beliefs) actually suffer any economic losses."

Posner makes the interesting point that most behavioral economists—who study the application of psychology to economics—did not predict the economic crisis either. We would put this somewhat differently: There were very few behavioral economists who made forceful public statements that a crisis may be imminent. That is because there are very few behavioral economists who even specialized in macroeconomics, and so virtually none was willing to take the risk of making any definitive forecast.

Note well that for Romer it was not private financial sector "corruption" that produced instability, but rather government snafus in regulation, the standard public-choice account. His grasp of economic history was not very profound, either.

Hence, when some economists speculated that the orthodoxy would give way to a “more realistic” behavioral economics in reaction to the crisis, it was primarily a symptom of the general unwillingness to entertain any serious departure from conventional arguments. If anyone had bothered to actually read any of the leaders of the behavioral “movement,” they would have quickly realized that those economists went out of their way to renounce any ambitions to displace the orthodoxy. In one spectacularly badly timed compromise, in 2005 Andrew Lo had sought to reconcile the findings of behavioral finance with the efficient-markets hypothesis. And most behavioral economists couldn’t care less about the layered complexity of the human soul.

If you asked behavioral economists what all this tinkering with conventional neoclassical utility functions was supposed to portend, they would tell you in no uncertain terms that so-called behavioral economics “is based not on a proposed paradigm shift in the basic approach of our field, but rather is a natural broadening of the field of economics . . . [it is] built on the premise that not only mainstream methods are great, but so too are mainstream economic assumptions.”

So wherever did the vast bulk of lay commentators derive the unfounded impression that behavioral economics was poised to deliver us from the previous errors of orthodoxy when it came to the economic crisis? Partly, it was the fault of a few high-profile economists such as Shiller, Akerlof, Krugman, and Lo, whose “behavioral” credentials within the community were, shall we say, less than robust. Partly it was due to some political appointees in the Obama administration such as Cass Sunstein who claimed (falsely, as it turned out) that behavioral economics could be used to “nudge” people into behaving more like neoclassical agents. Partly, it was the fault of a few bona fide behavioral finance economists (like Andrei Shleifer), who quickly whipped up a couple of toy models after the crisis, purportedly demonstrating that all agents are beset with a peculiar character flaw that causes them to ignore unlikely disastrous events, causing them to whipsaw around the true fundamental determinants of asset prices as defined by the orthodox rational-expectations model, in the face of securitization and tranching.

It seems that every week a new book or major newspaper article appears showing that irrational decision-making helped cause the housing bubble . . . It’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address . . . Behavioral economics should complement, not substitute for, more substantive economic interventions [of] traditional economics.

Ultimately, the more perceptive journalists acknowledged this: “While behaviorists and other critics poked a lot of holes in the edifice of rational market finance, they haven’t been willing to abandon that edifice.” It’s not even clear they have been all that willing to bring themselves to look out the window. The primary benefit of behavioral economics was conjuration of the warm glow that came from feeling like you had changed your economic stripes without having to change your mind, or even your models.

For those riding the roller coaster of 2008, and retrospectively searching for previous wrong turns, it seemed obvious to focus on the sector wherefrom disasters cascaded one after another like clowns piling out of an auto: namely, Wall Street. Not only had finance become the four-hundred-pound gorilla of the U.S. economy, accounting for 41 percent of all corporate profits in 2007, but it was also the arena where economic theory had seemed to matter to a greater degree than elsewhere, given recourse to formal models to “justify” all manner of activities, from securitization and options pricing to risk management. Thus it was fairly predictable that some economists would look to finance theory as the prime locus of error, and rapidly settled upon a single doctrine to scapegoat, the one dubbed the efficient-markets hypothesis (EMH).

By 1970 or so, however, the study of financial markets seemed to have been taken over by Voltaire’s Dr. Pangloss, who insisted we live in the best of all possible worlds. Discussion of investor irrationality, of bubbles, of destructive speculation had virtually disappeared from academic discourse. The field was dominated by the “efficient markets hypothesis” . . . which claims that financial markets price assets precisely at their intrinsic worth given all publicly available information . . . And by the 1980s, finance economists, notably Michael Jensen of the Harvard Business School, were arguing that because financial markets always get prices right, the best thing corporate chieftains can do, not just for themselves but for the sake of the economy, is to maximize their stock prices. In other words, finance economists believed that we should put the capital development of the nation in the hands of what Keynes had called “a casino.”

There is an old joke, widely told among economists, about an economist strolling down the street with a companion when they come upon a $100 bill lying on the ground. As the companion reaches down to pick it up, the economist says, “Don’t bother—if it were a real $100 bill, someone would have already picked it up.” This humorous example of economic logic gone awry strikes dangerously close to home for students of the Efficient Markets Hypothesis, one of the most important controversial and well-studied propositions in all the social sciences. It is disarmingly simple to state, has far-reaching consequences for academic pursuits and business practice, and yet is surprisingly resilient to empirical proof or refutation. Even after three decades of research and literally thousands of journal articles, economists have not yet reached a consensus about whether markets—particularly financial markets—are efficient or not.

Amazingly, there is still no consensus among financial economists. Despite the many advances in the statistical analysis, databases, and theoretical models surrounding the Efficient Markets Hypothesis, the main effect that the large number of empirical studies have had on this debate is to harden the resolve of the proponents on each side [my italics]. One of the reasons for this state of affairs is the fact that the Efficient Markets Hypothesis, by itself, is not a well-defined and empirically refutable hypothesis. To make it operational, one must specify additional structure, e.g., investors’ preferences, information structure, business conditions, etc. But then a test of the Efficient Markets Hypothesis becomes a test of several auxiliary hypotheses as well, and a rejection of such a joint hypothesis tells us little about which aspect of the joint hypothesis is inconsistent with the data. Are stock prices too volatile because markets are inefficient, or is it due to risk aversion, or dividend smoothing? All three inferences are consistent with the data.

This imperviousness of an isolated hypothesis to definitive empirical rejection, and the crucial role of auxiliary hypotheses in serving as a protective barrier, is familiar in the philosophy of science literature as Duhem's Thesis. The mere fact of deflecting disconfirmation onto harmless auxiliary hypotheses is not prima facie an illegitimate ploy; it occurs in all the natural sciences. The issue was not that immunizing stratagems had been resorted to in this instance; rather, it was that the EMH had proven so rabidly tenacious within orthodox economics and in business schools, occupying pride of place for decades within both macroeconomics and finance, that economists had begun to ignore most modern attempts to disprove it. The lesson for crisis watchers that we shall entertain is that the EMH cannot be killed easily, and maybe not at all within the neoclassical parameters of the current economics profession.

Once one recognizes this distinct trend, then the appearance of the EMH in 1965 in Samuelson and Fama, and its rapid exfoliation throughout finance theory and macroeconomics, becomes something more than just a fluke. Indeed, the EMH served as the first bedrock theoretical tenet of the nascent field of “financial economics” in the late 1960s. Almost every trademark model, from CAPM to the Black-Scholes model of option pricing, has it built in. Most academic financial engineers treat it as an inviolate premise. The notion that all relevant information is adequately embodied in price data was one incarnation of what was fast becoming one of the core commitments of the neoclassical approach to markets, not to mention the First Commandment of models of financial assets. It has subsequently been built into the models that inform and conduct trading on all the world’s major exchanges. Of course, the fact that numerous ineffectual attempts were made along the way to refute the doctrine in specific instances (variance bounds violations, the end-of-the month effect, January effect, small-cap effects, mean reversion, and a host of others) did not impugn the EMH so much as quibble over just how far the horizon would be extended. The EMH spawned reams of econometric empiricism, but surprisingly little alteration in the base proposition. The massive number of papers published on the EMH merely testified to the Protean character of the idol of “market efficiency,” which grew to the status of obsession within the American profession.

Stiglitz has been known to make very insightful comments about how to judge crisis narratives, such as the observation that the crisis was not the consequence of "shocks" impinging on the system, but rather was man-made; the stretch comes in understanding how one was supposed to know this from the standard neoclassical model.

This is what Krugman has called “flaws-and-frictions” economics, and it propounds the bromide that “we already had models that told us the crisis was coming.” It follows that outsiders should ask: So why weren’t these models well represented in macro or micro textbooks and graduate pedagogy? Stiglitz is fully aware there exists a tradition of oxymoronic “New Keynesianism” that reprised a boring old pre-Keynesian story of sticky wages and prices in a neoclassical equilibrium, but he suggests there exists something else on offer more compelling. In Stiglitz’s case, there is a special caveat: the models he has in mind are found mostly in his own previous publications. While there could be no academic prohibition against tooting your own horn, there is something less than compelling about claiming a grand generality for some idiosyncratic models where the novelty quotient is distinctly low. While Stiglitz has certainly earned his Nobel, he has not effectively staunched the intellectual trend of treating markets as prodigious information processors; nor has he provided a knock-down refutation of the EMH. This has led to the distressing spectacle of Stiglitz, the great hope of the “legitimate left,” openly defending the neoclassical approach to the crisis, while not really changing it all that much. … Stiglitz has admitted that his mission all along was to undermine free-market fundamentalism from within: … [I]t seemed to me the most effective way of attacking the paradigm was to keep within the standard framework as much as possible . . .While there is a single way in which information is perfect, there are an infinite number of ways that information can be imperfect. One of the keys to success was formulating simple models in which the set of relevant information could be fully specified . . . the use of highly simplified models to help clarify thinking about quite complicated matters. … The way he sought to do this is to produce little stripped-down models that maximize standard utility or production functions, with a glitch or two inserted up front in the setup. He has been especially partial to portraying “information” as a concrete thing to be purchased, and “risk” as standard density function with known parameters. There is no canonical Stiglitz “general model,” but rather a number of specialized dedicated exercises, one for each flaw and/or friction explored. Macroeconomics then simply becomes microeconomics with the subscripts dropped.

When there is no noise, prices convey all information, and there is no incentive to purchase information. But if everybody is uninformed, it clearly pays some individual to become informed. Thus, there does not exist a competitive equilibrium.

Perhaps the most distressing aspect of Stiglitz’s designated models that he believes starkly refuted neoliberalism has been that, when you really take the trouble to understand them, they end up having nothing cogent to say about the current crisis whatsoever. Start with Grossman and Stiglitz. The problems with the financial system in 2007 had nothing to do with participants lacking correct incentives to purchase enough “information” that would have revealed the dodgy nature of the CDOs and other baroque assets which clogged the balance sheets of the financial sector. Rather, the reams of information they did purchase, from ratings agency evaluations to accounting audits to investment advice, was all deeply corrupted by being consciously skewed to mislead hapless clients and evade the letter of the law. Perhaps the “information” was corrupted by the mere fact of being bought and sold. Since Stiglitz never comes within hailing distance of confronting epistemology in any of his models—he disdains philosophy as much as the next neoclassical economist—he never really deals with matters of truth and falsehood. Agents are just machines buying unproblematic lumps of information (or not).

Stiglitz repeatedly pronounces last rites over the EMH, but has little sway on the profession because he cannot see what is sauce for the goose is sauce for the gander. “The Chicago School and its disciples wanted to believe that the market for information was like any other market.” Yet, that is the fundamental initial premise of his own models. “The widespread belief in the EMH played a role in the Federal Reserve’s failure. If that hypothesis were true, then there were no such thing as bubbles.” But this just displays a deficiency of hermeneutic attention. Both the Fed and the profession can accept that the EMH, properly understood, and bubbles are entirely compatible—you just won’t know you are in one till it bursts. And paraphrasing Bill Clinton, it all depends what you mean by “bubble.”

A third reaction to the crisis is to refrain from indictment of the global orthodoxy, and instead suggest that since the crisis was eminently a “macroeconomic” event, the onus for failure must be narrowly restricted to that subset of the profession tasked with study of the macroeconomy; and furthermore, the correct response is to simply jettison the paradigmatic model found in contemporary macroeconomic textbooks, the so-called Dynamic Stochastic General Equilibrium (DSGE) model. The crisis, for this cadre, does not portend anything remotely like the “death of economics,” but just a garden-variety “model failure”: so replace the model. … But this option does even more directly call into question the commonplace notion that economists can learn from their mistakes.

This is exemplified by an event in 2010 that was literally unprecedented in the history of economic thought in America. Congressional testimony is regularly convened on all manner of issues of applied economics, and economists are regularly enjoined to testify. But never before, to my knowledge, has an entire session been convened to hold public hearings on criticism of a mathematical model produced by economic theory, not on its purported applications. Yet, on July 20, 2010, a kind of Star Chamber was convened to pillory the DSGE model.

The dominant macro model has for some time been the Dynamic Stochastic General Equilibrium model, or DSGE, whose name points to some of its outstanding characteristics. “General” indicates that the model includes all markets in the economy. “Equilibrium” points to the assumptions that supply and demand balance out rapidly and unfailingly, and that competition reigns in markets that are undisturbed by shortages, surpluses, or involuntary unemployment. “Dynamic” means that the model looks at the economy over time rather than at an isolated moment. “Stochastic” corresponds to a specific type of manageable randomness built into the model that allows for unexpected events, such as oil shocks or technological changes, but assumes that the model’s agents can assign a correct mathematical probability to such events, thereby making them insurable. Events to which one cannot assign a probability, and that are thus truly uncertain, are ruled out.

A good DSGE joke current on the blogs is: “Based on all available information, I rationally expect DSGE models to suck for an infinite number of future periods; and because I am a representative agent, everybody agrees with me.”

But perhaps it better illustrates the fact that the DSGE model was an attempt to be all things to all sides, a détente imposed from above, emitted from a very few "top-ranked" economics departments rather than a voluntary truce taking hold organically. This had something to do with its clueless setup for its vertiginous fall.

So maybe economist jokes are not all that funny, but there are a few philosophical points to be extracted from the imbroglio. The first is that, within the profession, seeking out the Golden Mean does not guarantee intellectual credibility. The DSGE model was the product of a long series of compromises resulting in what was conceived as best-practice consensus, following a period in which participants had endured what they felt was three decades of bickering, discord, and wrangling over the correct way to theorize in macroeconomics. In the middle of the noughties, embrace of the Great Moderation was coupled with declaration of the Great Macro Accord, and the DSGE model was its offspring. Complacency in the world of ideas replicated complacency in the world of policy.

Consensus is often mistaken for groupthink within the DSGE model, and this tends to mirror a sociological characteristic of the economics profession. Both the “agent” in the DSGE model and in the American profession could not imagine an effective search for truth emerging out of substantial persistent disagreement over fundamentals. Agents in orthodox models are enjoined from “agreeing to disagree”; and economists in good standing must knuckle under as well. The utter revulsion for anything smacking of real heterodoxy, combined with a fear of appearing “unscientific” to outsiders, eventually led to a donnybrook far more drastic than any embarrassment or compromised legitimacy that might have otherwise previously arisen from strident disagreement in the court of public opinion. Indeed, the effect of the crisis has been to bring those repressed disputes out into the open.

Once the presumption of omniscience broke down, then the consequences of the banishment of methodological self-scrutiny began to be felt. Both the criticisms and defenses of DSGE, at the congressional hearings and elsewhere after the crisis onset, were distressingly unsophisticated, as one might expect as fallout from the ostracism of methodological thought. Robert Solow testified in Congress that DSGE models “didn’t pass the smell test,” introducing a novel olfactory standard for scientific model choice.

There was this young economist, I think he was at UCLA, who wrote to me when I published this paper called “Whom or What Does the Representative Agent Represent?” (Kirman, 1992). He said: Dear professor, I really agree with what you said. I think it is intellectually absolutely right. Unfortunately, I am a young macroeconomist who is an assistant professor. I build models based on a representative agent. I know how to do that, and I know how to publish that. And I need to get tenure. Once I have got tenure, maybe I will then be able to turn around and start to think about the sorts of models that do not use the representative agent, but unfortunately, what I think will happen is that by then I will have got into the habit of doing it. I will publish my articles, get a decent reputation, I will get a promotion, and I will probably never think about this again. But anyway, thank you very much for the insight!

What has been odd given the waves of incredulous disbelief cascading over the economics profession is just how scarce serious rationalizations of steadfast fealty to the DSGE model have been, emitted by orthodox macroeconomists after 2008. One of the very few instances came in a long review of John Quiggin’s Zombie Economics by the monetarist economist Stephen Williamson. Although he grumbles that complaints about the uselessness of DSGE models are a “cheap shot,” he nonetheless grudgingly deigns to explain to the madding crowd why macroeconomists circle their wagons around the DSGE. With touching candor, he begins his defense by appealing to “efficiency,” by which he means “It would be silly for macroeconomists to turn down the gifts [neoclassical] theorists have given us.”

While he sneers at everyone else’s epistemic criteria and explanatory demands, it is significant that Williamson never once feels impelled to make explicit his own nonnegotiable litmus test for legitimate purposes in construction of models. Yet, looking back over his defense, it becomes clear: it is political, in the sense that if a particular model helps reify the neoliberal worldview, than it passes muster a fortiori. Williamson is subconsciously aware of this, since he turns swiftly to indict Quiggin for believing that proponents of DSGE, and zombie economics more generally, are “complicit in the conspiracy to make the rich richer by robbing the poor.”

This even happens with key critics like Joseph Stiglitz. In a long meditation on the flaws of macroeconomics, he suggests the DSGE was the wrong place to start to formalize macroeconomics, and that even when well-meaning Keynesians tinker with it to address the chorus of complaints, “the improved macro-performance is accompanied by an increased arbitrariness in at least certain specifications . . . the DSGE models have made the wrong trade-offs, focusing on some complexities which are of less importance than those they ignore”; and yet, in the very same paper, he reveals his own ambivalence, writing, “no one can object to models that approximately model the general equilibrium properties of dynamic economies facing endogenous and exogenous shocks, so on one level DSGE is unobjectionable.” No one, that is, except those who trace the disease to the neoclassical model itself.

But of course there were alternatives studded throughout the literature, ones that had been proposed repeatedly by those seeking to exit the “big tent” of orthodox macroeconomics. The immediate task is instead to ask, Why are so many economists so loathe to let go of the DSGE? All the usual considerations of inertia and sunk costs of intellectual commitment come into play; but there is something else, as well. One way to understand such intransigence is to explore the possibility that excision of the DSGE cannot staunch the bleeding of the American economics profession; for these economists, renunciation of the DSGE is a slippery slope to the dissolution of the entire economic orthodoxy. Après DSGE, la déluge.

Instead of drawing the conclusion that the marriage of micro and macro was doomed, and the DSGE a stillbirth, the profession had chosen to pledge its troth to an outré mutant case and call it the whole world. It would be as though a religious fanatic arranged to live in a hermetic world composed only of Christian Scientist cyborgs, so that he need never encounter anyone who might call his faith in natural healing into question. As Kirman wrote, “both the development of the DSGE model and the efficient markets hypothesis share a common feature—despite the empirical evidence and despite their theoretical weaknesses, their development proceeded as if the criticism did not exist.” But isn’t that the very definition of a self-confident orthodoxy?

If there had been a sophisticated outside observer, they might have insisted that all the brouhaha about jettisoning the DSGE model was a weary sideshow, since the gnawing problem the economic orthodoxy was intent on avoiding was gauging to what extent the crisis had voided the legitimacy of neoclassical microeconomics. Legions of macroeconomists were mobilized into action by the crisis not to address its dire consequences, but instead to obscure this threatening conclusion through smoke, mirrors, and legerdemain. No one who wanted to maintain their position in academia would countenance the possibility that amputation of the DSGE would result in the patient bleeding to death. So instead they promoted endless expensive consultations over the health of the DSGE—and even Congress was snookered into the pointless game.

All these current fragmentary amendments to render the DSGE model more “realistic,” or perhaps more politically acceptable to the New Keynesians, turn out to be self-contradictory, since they attempt to mitigate or “undo” the microfoundations that had been imposed from the outset. It ends up being yet one more instance of economists blithely asserting both A and not-A simultaneously. By thrusting the rabbit into the hat, then pulling it back out with a different hand, the economist merely creates a model more awkward, arbitrary, and unprepossessing than if he had just started out explicitly to model confused heterogeneous agents, dodgy banks, consciously duplicitous CDOs, informationally challenged markets, and all the rest of the usual suspects for the crisis, minus the neoclassical window dressing and professions of fealty to “equilibrium.” If you allowed freedom of amendment to the DSGE in this manner, you would end up with models that violated the Lucas critique in a more egregious fashion than the earlier Keynesian models these macroeconomists love to hate.

Sometimes this was bruited about as a “return to Keynes,” although a historian might aver that the American profession was never all that enamored of the actual Keynes and his writings. Nevertheless, this latter group was extrapolating from the heady days of late 2008, when all thoughts of DSGE were nowhere to be found. As the economic historian Greg Clark put it, “The debate about the bank bailout, and the stimulus package, has all revolved around issues that are entirely at the level of Econ I. What is the multiplier from government spending? Does government spending crowd out private spending? . . . If you got an A in college Econ I, you are an expert in this debate: fully an equal of Summers and Geithner.”

One of the places where the 2010 congressional hearing missed an opportunity at gaining an understanding of the true character of the path to dominance of the DSGE was in not inviting a historian/methodologist to provide metacommentary upon the curious testimony offered by the invited participants. Not only would the missing ghost witness have provided some context for the seemingly orthogonal positions voiced by Solow, Chari, Page, and Winter, and pointed out it was no accident that no substantial alternative to neoclassical theory had a place at the table; but she might have also suggested that the Congress (or its delegated agencies) itself deserved its own fair share of the blame for the rise to intellectual monopoly of the DSGE.

It is ironic and sad that whoever came up with these cuts does not even recognize that most of the recent “conservative” ideas in economics—the importance of “rational expectations” and the impotency of conventional macroeconomic policy, the disincentive effects of various income-support programs, the magnitude of the regulatory burden, and the arguments for deregulation—all originated in, or were provided with quantitative backing by NSF supported studies.

Griliches was merely stating the obvious: “legitimate” economists produce the sorts of knowledge that their patrons desire, within the trajectory of their accumulated intellectual heritage; that list of patrons includes neoliberal elements within the government, with their allies in selected ranked economics departments and think tanks. Congressmen today should not act as though the DSGE model and its precursors were somehow foisted upon unsuspecting regulators and an innocent public by imperious economists. Mostly, Americans just got what they paid for.

So perhaps all those attempts to “fix” orthodox neoclassical theory that were trumpeted by journalists after the crisis really didn’t actually amount to much. Whether or not it was intentional, its effect was to foster the mistaken impression in the general populace that neoclassical economists were dutifully atoning for their sins by rethinking their past premises, even though no such thing was happening. Given the very notion that Nobel winners in economics were especially or ideally primed to fundamentally transform economic thinking once they had been anointed by the glittering prize bordered on delusional, and since those very same Nobel winners loomed large in journalists’ accounts for reasons already discussed, this abortive outcome was more or less a foreordained conclusion. Behavioral economics, divestment of the EMH, and tinkering with the DSGE have all been abysmal failures. Yet something agnotological was achieved: the blogosphere was set all a-twitter on irrelevant pointless topics, while journalists were set off on wild goose chases.

One must concede it is at least more likely that any revitalization of the neoclassical tradition would come from below, a younger and less lionized cohort, if it were to happen at all. Journalists have been misled, barking up the wrong cedar. This, I believe, is also the current attitude of the effective leaders of the orthodox profession. Hence the dance card both lengthens and becomes a bit more obscure, with numerous potential candidates for the title of Prophet of the Reformation put forth from different corners. Indeed, there are already starting to appear dedicated surveys in the form of laundry lists that simply array any “cause” someone, somewhere managed to publish; and more pertinent to current concerns, surveys of all the different ways casts of hundreds have sought to stuff finance and “failure” into orthodox macroeconomic models.

What you will quickly learn from the experience is that when these Princes of Theory were forced to summarize in ten minutes their take on the causes of the crisis, all the subtle models and technical details were soon left behind, and those economists reverted to fairly simple explanations already found in the more popular press. Nobel winners generally come off comparably worse than people who actually have had some relevant experience. There are moments of clarity, when someone realizes that generalizations turn out to be much less valid and more rare than theorists often presume. Furthermore, in the period of give-and-take, one august economist bemoaned that “we” really do not know the true causes of the crisis, and another counseled humility, since five participants there were seen to proffer eight or more different causes.

In his view the mortgage bubble was only half the story; the rise of shadow banking provides the necessary other half. Geanakoplos believes this permits him to reconcile the ahistorical laws of Walras with the historical specificities of the last few decades.

Geanakoplos likes to phrase his commentary in terms of “cycles,” but in fact, general equilibrium forces him to posit separate and unconnected sequential states of equilibrium, driven in a Rube Goldberg fashion by the arbitrarily sequenced arrival of asset issuance→“news”→valuation. Each state along the way is in “equilibrium,” as defined by constrained optimization and market clearing. Because everything is always already in equilibrium, the only reason anything changes is the deus ex machina imposed from outside by the model builder.

In this next model presentation, I cheat a little bit by returning to Paul Krugman via his younger collaborators. For the most part, my previous characterization of Krugman as someone who wishes to return to 1969 as if nothing else had happened in macro in the interim is basically correct, with the minor proviso that he has intermittently seemed to begrudgingly reach out to some strains of heterodox thought, under the guideline that the enemy of my enemy should be treated as a friend (although maybe in the way “friend” is treated as a verb in Facebook).

Paraphrasing, Krugman there aired his opinion that what had been done in macroeconomics over the past thirty years had been “spectacularly useless at best, positively harmful at worst.” However, many journalists had been pointing to Minsky’s work as an alternative, and Krugman conceded his core insight had been spectacularly right, concerning the dynamic of progressively increased leverage setting the stage for crisis. Nevertheless, Krugman raised what he saw as a definitive objection: Minsky had rejected neoclassical micro theory, and Krugman highlighted his rejection of marginal productivity theories of distribution as particularly unforgivable. Then he began to pine for a day when his favorite Men in White Hats, the behavioral economists, would ride into town and do what Minsky did, but in a more acceptable idiom.

Perhaps Krugman realized something similar, because in the subsequent year he teamed up with Gauti Eggertsson to author what he advertised as a “Fisher-Minsky-Koo” model. The problem Krugman hoped to address was to convince the reader that in the throes of a deleveraging crisis, when financial failures induced everyone to try to shed debt, there was room for the government to improve the situation by taking on substantial volumes of new debt. In his books, this supposed “Keynesian” solution had to map into the old-fashioned IS-LM model of a “liquidity trap,” something he had long trumpeted as the paradigm for “depression economics,” which he interpreted to mean that the supply and demand for loanable funds could be equilibrated only at a negative interest rate. Eggertsson and he sought to render these ideas more acceptable to the orthodoxy through resort to a standard New Keynesian model with the wrinkle that there were posited two different agents, and the “impatient agent borrows from the patient agent, but is subject to a debt limit. If this debt limit is, for some reason, suddenly reduced, the impatient agent is forced to cut spending; if the deleveraging required is large enough, the result can easily be to push the economy up against the zero lower bound . . . [This is appended to] a sticky-price model in which the deleveraging shock affects output instead of, or as well as, prices.” Recall, “New Keynesians” get unemployment out of their neoclassical models by throwing a little sand in the gears—something Keynes himself rejected.

Of course, if the profession expels anyone who takes Minsky seriously, and never publishes them in any ranked journal, soon there will be no one left who can credibly challenge TINA, or perturb the complacency of Krugman's self-congratulatory stance on his catholic tastes. The citadel is impregnable.

I have just frog-marched the reader through some turgid conceptual critique of the last few years of orthodox neoclassical models of the crisis. It has not been pretty. Perhaps you have come to suspect that much of the sound and fury over the intellectual response of the economics profession to the crisis has been bootless and counterproductive. Even if you think that the history of economic thought should pertain to an assessment of the crisis, you might be inclined to wonder: Why bother with this mainstream stuff ? Possibly you recognize that I have consciously chosen as candidates for consideration those vanguard deviations among the orthodox that have been most widely taken up by journalists and the blogosphere in the aftermath of the crisis; these, therefore, are the Potemkin controversies that have sucked up most of the intellectual oxygen in the public agora. However, what may have been felt missing from this tale of woe is evidence of the causal story proffered at the beginning of the chapter, namely, that the ensuing confusion serves the purposes of the Neoliberal Thought Collective in fostering doubt and confusion in pursuit of its political objectives.

Yet the reason we need to invoke agnotology here is that even some figures in the mainstream media have come around to openly speculate that economic analyses of the crisis have been manipulated for dark motives for quite some while now.

Basically, Joe is arriving where I've been since 2000: what's going on in the discussion of economic affairs (and other matters, like justifications for war) isn't just a case where different people look at the same facts but reach different conclusions. Instead, we're looking at a situation in which one side of the debate just isn't interested in the truth, in which alleged scholarship is actually just propaganda.

It is distressing that these writers, frequently champions of hard-nosed, tough-minded “analysis of reality,” fall short when it comes to serious analysis of the multipronged efforts to steer public discourse in certain targeted directions, the incongruous swerves that so vex their sensibilities. Perhaps worse, it seems evident someone like Krugman might be more than a little disconcerted to be told that he is as much a cog in this larger machine as John Cochrane, or any other bête noire.

It is therefore my contention that there is method to the madness, goal orientation behind the gallimaufry laid out in this chapter. I would suggest that much of the brouhaha documented above ends up being subservient to the first movement of the agnotological playbook. Whatever the individual motivations, the plangent exculpations of the orthodox economists serve mostly to ratchet up the levels of doubt and skepticism in the public mind, and lure unsuspecting bloggers into ineffectual disputes that lead nowhere fast. The folderol over the DSGE model or rationality or the EMH just prepares the ground for the implantation of one or more clear and simple neoliberal alternatives, covered in the remainder of this chapter. … The only thing that would give them pause is the genesis of a serious antineoliberal doctrine that began to draw the allegiance of significant numbers of economists, posing a real challenge to the neoliberal ascendancy. So far, nothing of the sort has happened.

Agnotological precepts suggest that the orthodox economics profession has been useful for neoliberal projects because it fills the sphere of public discourse concerning the crisis with excess noise and doubt. As long as it promulgates ineffectual "revisions" to core doctrine and keeps people distracted, looking for novelty (that will assuage their fears) where none is to be found, confusing even insiders about whether the crisis warrants changing the orientation of economics, then the NTC is getting value for money. The only thing that would give them pause is the genesis of a serious antineoliberal doctrine that began to draw the allegiance of significant numbers of economists, posing a real challenge to the neoliberal ascendancy. So far, nothing of the sort has happened.

The most plausible answer lies instead in the passive recruitment of the profession for agnotological purposes. Whether they realize it or not, the kabuki of ineffectual disputations over irrelevant models is one of the more effective interventions in the public sphere, because it distracts attention from far more threatening prospective explanations. These include: the possibility that the financial sector has evolved to the point of cannibalization of the rest of the economy; or that the economics profession played an enabling role in inventing and justifying the most Rube Goldberg of securitizations and alterations of regulations; that neoliberal agnotology has filtered down to the very statistics everyone consults in order to make sense of economic events; that there is no such thing as the market, but only an array of different markets of varying capacities; that this ecology of markets bears inherent tendencies toward niche collapse that undermine system operation; and that "free trade" is the cover story for the policies of a class of the cosmopolitan rich who believe they can evade all local consequences of system breakdown.

Thus the injection of surplus noise into public discourse concerning the crisis is Phase One of the agnotological project, and its performance is a substantial justification for the otherwise unaccountable contemporary bounty of the bulk of the orthodox economics profession. But that is only half the story. The other half is amenable to being documented much more precisely. … Phase Two materializes when economists openly struggle with the contradiction between beseeching the public to place their Trust in the Market and insisting the public Trust the Economists. It was made starkly manifest in at least two incidents during the crisis: the public justification of the TARP bailout, and the subsequent whitewash of the Federal Crisis Inquiry Commission. … In both instances it involved the fabrication and promulgation of an alternative narrative concerning the crisis; nicely honed and simplified so it can fit on a placard, or a stump speech teleprompter; one that has the fingerprints of the NTC all over it. … Of course, it was all the government's fault.

While speaking as public intellectuals, in retrospect they were persistently misrepresenting the nature of the problems involved, primarily due to strategic considerations of their own private profit. The net result turned out to be an infusion of surplus public confusion in an already chaotic situation. This is what agnotology in the crisis looks like.

Ausubel and Cramton responded by creatively interpreting "competitive market prices" to mean prices that were "reasonably close to value," by which they meant basically the same thing as Bernanke's "hold-to-maturity" prices. The plan purported to allow for the Treasury to manipulate its demand for securities, thereby manipulating the price paid, while preserving the ability to claim that the prices paid were still "market" prices, at least in some sense, an intention that has been subsequently acknowledged: A concern of many at the Treasury was that the reverse auctions would indicate prices for MBSs so low as to appear to make other companies appear to be insolvent if their balance sheets were revalued to the auction results.

The plan purported to allow for the Treasury to manipulate its demand for securities, thereby manipulating the price paid, while preserving the ability to claim that the prices paid were still “market” prices, at least in some sense … A concern of many at the Treasury was that the reverse auctions would indicate prices for MBSs so low as to appear to make other companies appear to be insolvent if their balance sheets were revalued to the auction results. This could easily be handled within the reverse auction framework, however . . . we could experiment with the share of each security to bid on; the more we purchased, the higher, presumably, would be the price that resulted.

Market designers claimed the problem stemmed from an absence of liquidity, not—crucially— pervasive insolvency. In their frame, banks possessed a variety of assets, some worthless but most others pretty valuable, and it was the inability to distinguish between the two that caused the crisis. By purchasing these assets, the government would reestablish liquidity, not merely by removing toxic assets from the banks’ balance sheets, but by releasing information that would establish the assets’ true values.

The basis for this claim was that the assets to be purchased were “common,” or objectively, valued. According to conventional theory, one should expect in such cases that purchasers of such assets should find themselves misjudging this objective value, resulting in a kind of undesirable behavior called the “winner’s curse.” Market designers believed they could mitigate such problems by designing markets that efficiently aggregate information, and thereby assist market participants to discover the true value of items being sold. … In circumstances like these, with the largest financial firms in the nation perched on the precipice of default, the stakes were dangerously high, making their participation all the more crucial.

There were an enormous number of distinct heterogeneous securities (more than 23,000 types), but apparently there was no reliable price information from either markets (which had ground to a halt) or standard simulation methods (which had proved unreliable). Therefore, there was no reason for any market participant to generalize from information released by getting the price “right” for one security to the thousands of others available. The market designers placed in charge of implementing the auction acknowledged, “the relevant issues could not be addressed directly with economic theory.” So much for the bracing clarification of microeconomics.

However, in practice, the auction design process would encounter serious difficulties. The Treasury had initially selected as a baseline auction a design that “although undoubtedly sub-optimal in the formal mechanism design sense, it was deemed simple, transparent, and robust enough to be implemented rapidly and effectively.” In a crisis, especially important was the speed of deployment, since from the perspective of the “Break the Glass” memo, the Treasury had already lost a week due to the House’s rejection of the first version of TARP. Unfortunately, the market designers responded to the Treasury’s call for assistance by submitting widely incompatible designs for the auctions, necessitating the Treasury to decide between the rival analyses. By itself, the presence of rival proposals was not an insuperable obstacle, but complicating matters was that from the perspective of the Treasury one could not tell on paper what the best auction form was. For example, one dispute broke out over whether to run an “open” or “sealed bid” auction. This had historically been one of the most basic issues that market designers grapple with, and, yet, one proposal called for an “open” auction, yet another for a “closed” auction. Which one was to be preferred was supposed to turn on which mechanism did the best job of aggregating information, but theory provided neither guidance about which form was better, nor guidance about whether either form would bring new bits of useful information into the market.

The dispute over auction forms raised a second, more serious problem: there was no good reason to believe that the auctions would do what the market designers had said they would: namely, summon a chain of events that would eventually bring the economy out of crisis by, in the first place, aggregating dispersed information. After all, no work had been done previously by market designers on how to fix a collapsing economy.

Some of the Treasury staff became increasingly nervous about performance, regarding the auction design process as a "science experiment" run amok: market designers had always insisted that the performance of the auctions was sensitive to even seemingly minor changes in rules, and yet they could not even agree about how rule changes would affect performance. They wanted to implement both of the alternative auction forms and use the first set of auctions as trial runs, a prospect that surely failed to inspire confidence. And this in the midst of a collapsing world economy.

By the end of October, Paulson canceled the auctions and instructed his staff to concentrate on capital injections instead. When markets judged the prospective market-based program to be faulty, the Treasury heeded the markets, not the economists.

To the Treasury, it ultimately didn't much matter whether it resorted to boutique auctions or capital injections: to be sure, Paulson and his staff might lose face through their reversal, but Paulson had been considering such action well before the TARP passed. What mattered was political efficacy, not austere academic notions of “efficiency.” The main policy objective was to stop the market free fall without succumbing to bank “nationalization,” and the capital injection program basically accomplished that. But to the economist market designers, it made all the difference in the world.

Once that happened, things turned ugly: the market designers for hire themselves became some of the most fierce critics of the TARP, denouncing Cash for Trash. In an interview for NPR, Ausubel complained, “Instead of conducting transparent auctions, the Treasury is going to instead distribute suitcases of cash”; for Cramton, “It really is moving down the path to crony capitalism, in my mind, where the government is picking winners and losers in a nontransparent way.” This turnabout, however turncoat, was easy to pull off because both the market designers and the anti-TARP petitioners now claimed to have shared very similar assumptions about the economic role of government.

In hopes of getting auctions back on the agenda for the incoming Obama administration, they publicly promoted what appeared to be a scientific demonstration that the Paulson Treasury had taken the wrong approach. Cramton claimed that his study had demonstrated "the auction was a success. The banks traded their toxic assets for solid capital, and the taxpayers got a fair deal." The fact that these "banks," "taxpayers" and "assets" were only sketchy constructs in a laboratory did not necessarily detract from the lesson, and might even have served to highlight the difference between the naked politics governing Paulson's Treasury and the calm impartial science of the market designers. One can institute real markets in laboratories, removed from the noise of the real world, and these real markets deemed the market designers to have been correct.

But what did getting a "fair deal" have to do with the market designers' theory of the crisis? At most it seemed only to address the issue of whether one could consider the price generated to be a legitimate "market" price—a matter that really could not be settled by an experiment, anyhow. This was a far different claim than the one they had originally made to the Treasury: in their initial submission, Ausubel and Cramton argued not for the aggregation ability of markets in general, but instead for a very specific kind of "clock auction."

A frequent motivation for the use of dynamic auctions is reducing common-value uncertainty. In this setting there is a strong common-value element. A security's value is closely related to its "hold to maturity value," which is roughly the same for each bidder. Each bidder has an estimate of this value, but the true value is unknown. The dynamic auction, by revealing market supply as the price declines, lets the bidders condition their bids on the aggregate market information. As a result, common-value uncertainty is reduced and bidders will be comfortable bidding more aggressively without falling prey to the winner's curse—the tendency in a procurement setting of naïve sellers to sell at prices below true value . . . A principal benefit of the clock auction is the inherent price-discovery feedback mechanism that is absent in any sealed-bid auction format. Specifically, as the auction progresses, participants learn how the aggregate demand changes with price, which allows bidders to update their own strategies and avoid the winner's curse . . . Efficiency in the clock auction always exceeded 97%.

But what is most notable about this passage is that it advocates a very specific type of auction—a clock auction—and does so on the basis of its ability to avoid the "winner's curse," as evident by its demonstrably superior "efficiency." The reason this claim is so notable is because it is incoherent on its own terms: it only makes sense to attribute "97 percent efficiency" in the case of private valued auctions. If toxic assets are common valued, then all distributions are efficient by definition, and therefore the efficiency criterion is useless, or at best, irrelevant. While the criterion does make sense in the case of private valued auctions, one can never suffer from the winner's curse in such cases, again by definition, and therefore the argument to prefer the clock auction on the grounds of information aggregation is nonsense. Since the market designers' claim that one could avert the crisis by increasing information about the value of assets implied that the assets must be common valued (or else the link between auction performance and crisis aversion is severed), the "efficiency" evidence was especially misleading.

[Ausubel and Cramton] hope to convince officials that not only does a reverse auction work, but, in the event the Treasury conducts one, to run it off their patented software platform . . . Ausubel and Cramton own two auction-services companies, Power Auctions and Market Design, each of which handle the back end of auctions for companies and foreign governments. They've already helped the French government sell electricity off its grid and Dutch energy companies auction off natural gas.

In fact, Power Auctions and Market Design, Inc., held the patents for the stipulated clock auction. But the presentation delivered by Ausubel and Cramton for the Treasury listed several additional “Typical Auction Related Activities” (product design; definition of detailed auction rules; auction software specification, development and testing; bidder training; establishment of an auction “war room”; operation of auction; post-auction reports on success of auction and possible improvements for future auctions) for which Power Auctions and Market Design, Inc., could provide assistance. Of course one can’t know the exact provisions that would have been contracted between the parties, since the Treasury scrapped the plan, but given the previous record of market designers, it is entirely reasonable to believe that they shaped their claims with an eye on landing lucrative contracts. For years, market designers had made all sorts of fantastic claims for newfangled markets—They can reverse global warming! Improve access to health care! Redress racial and gender discrimination, without committing “reverse discrimination!” Even achieve “free lunch redistribution!”—so long as you hire their firms to build them to your exacting specifications (after all: “details matter”). They have almost always directed the pitch at cash-strapped governments, urging them in particular to sell off public assets to private oligopolistic concerns; in the case of toxic asset auctions one need only invert the logic. … Unfortunately, no one could much be bothered to scrutinize the claims of market designers. After all, there was a crisis a-brewing. Only a relatively small coterie of market designers ever got invited to participate in market design exercises, and most were partners in a small set of firms with interlocking directorates. In the case of the toxic asset auctions, the job of judging the proposals was assigned to Jeremy Bulow and Paul Milgrom, both partners with Ausubel and Cramton in Market Design, Inc. So much for Chinese Walls and plausible deniability. It doesn’t verge on the wildly conspiratorial to suggest that such arrangements create some perverse incentives when it comes to reining in some of the more fantastical claims (gaining popular acceptance for them improves the firm’s prospects), a fact that has seemed only to encourage ever more extravagant claims: … The crisis was caused by mispricing: investment bankers were able to sell poor securities for full value based on misleading ratings. This mispricing was supported by the absence of a transparent secondary market for these mortgage-related securities. If we had transparent prices, a lot of the bad things that happened would not have happened. In particular the housing bubble would have been much less, and the investment bankers would not have been able to make such clever use of the rating agencies and create tens-of-thousands of senseless securities obfuscating prices. Even a tiny bit of good market design would have averted the financial crisis by preventing its root cause: the sale of subprime mortgages as near-riskless securities.

The crisis was caused by mispricing: investment bankers were able to sell poor securities for full value based on misleading ratings. This mispricing was supported by the absence of a transparent secondary market for these mortgage-related securities. If we had transparent prices, a lot of the bad things that happened would not have happened. In particular the housing bubble would have been much less, and the investment bankers would not have been able to make such clever use of the rating agencies and create tens-of-thousands of senseless securities obfuscating prices. Even a tiny bit of good market design would have averted the financial crisis by preventing its root cause: the sale of subprime mortgages as near-riskless securities.

If the public was tracking the record of the economists (which it wasn't—there was a crisis on), they would be justified in wondering: Did these market designers have any clear idea of what might have caused the crisis in the first place? Did they even have any expertise regarding the financial sector? What made this about-face so confusing is that the phantom public could not trace it to any major shift in the Treasury's position: the market designers had registered no dissent about the Treasury's plan to inject capital into the banks, at least so long as it was poised to use their auctions to do so. But once they were out of the running for any auction contracts, and kicked out into the cold, market designers merely flipped and adopted the rhetoric of the TARP opponents. So how much of their analytical stance can be traced to the icy slopes of logic, and how much to the fickle fiduciary considerations of their patrons?

To understand what elevates the public activities of market designers from the realm of mere puffery and self-promotion to the level of agnotology it is necessary to review how their public statements changed over the course of the crisis. Initially, market designers provided public defense of the Treasury plan in both its particulars (the decision to use reverse auctions) and its generalities (they signed a petition to congress in support of the proposition that government could act beneficially to correct for market failures). Especially important was the seeming independence of the academic support—as Swagel rightly noted, Wall Street economists were cheerleaders for the TARP as well, but no one would pay attention to them. Inevitably, market designers had to walk a tightrope in order to participate, at times stressing their ability to deliver competitive (low) market prices, at others, higher than fire-sale prices. But in the short term, the academics gave the Treasury the arguments it wanted for instrumental ends—to get the TARP passed. Market designers then persisted with their advocacy for auctions even after the Treasury insiders had themselves dismissed the plan as unrealistic; once the Treasury changed its plans, the market designers now devolved into free agents, turned on a dime, and attacked the Treasury. Their complaints, rendered loudly and often in the public sphere, resembled nothing so much as those being made by the opponents of the TARP.

One of the main arguments for the ultimate irrelevance of the market designers was that it was not so much “the market” that mattered when it came to the actual valuation of the wonky assets—it was rather a concerted political push to change the accounting rules, so that banks could proceed to assert that the values of the assets were whatever they wanted them to be. Under pressure from the White House, the Treasury, and the banking lobbyists, the Financial Accounting Standards Board was induced to change rule FASB 157-e in April 2009, against the explicit disapproval of the American Institute of Certified Public Accountants and the Center for Audit Quality. Mortgage-backed assets could now be listed as enjoying elevated values in bank and SIV balance sheets, without all that muss and fuss of the excessive complexity of boutique auctions.

You have to give them credit: it didn’t take too many all-nighters for the Neoliberal Thought Collective to come up with what would become the single most popular story on the right in America, wrapping the entire crisis up in a neat tidy package. In this meme, the crisis was first and foremost a housing bubble, which, when it burst, had some other unpleasant side effects; loans were extended to a bunch of deadbeats who should never been given a shot at home ownership in the first place; the reason that happened was the ill-conceived Community Reinvestment Act passed by the Democrats in 1977; and then the mortgage loans to the deadbeats were enabled by the Government Sponsored Entities (GSEs) Fannie Mae (actually: Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Hence, on both the demand and supply sides, the government had polluted the mortgage market, first causing the housing bubble, and then the subsequent collapse. It was all the fault of the government. Full stop.

Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S&L fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble. Partly that’s because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Freddie and Fannie that curtailed their lending just as housing prices were really taking off. Also, they didn’t do any subprime lending, because they can’t.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie’s chief credit officer. Pinto claims that as of June 2008, 27 million “risky” mortgages had been issued—“and a lion’s share was on Fannie and Freddie’s books,” as Wallison wrote recently. Never mind that his definition of “risky” is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street.

A crisis story that could fit on a three-by-five card, yet revealed multiple layers of slippery ramification just below the surface, was the holy grail for the Neoliberal Thought Collective. Yet, in the end, their three-by-five slogan was a ruse.

With regard to the CRA, the largest players in the subprime market were private-sector firms that were not subject to CRA stipulated rules and regulations. Therefore, for the story to work, the bulk of the subprime action had to happen in the GSEs, but as we shall see, it did not. Furthermore, in institutions subject to the CRA, not all loans fell under the CRA guidelines; so the proportion of loans affected were quite small. Then the timing seems a little off, since the CRA came into effect in 1977, but the housing boom dates from much later. It has become commonplace to point out that housing bubbles happened in many countries in the first decade of the millennium; but none of those other countries had any legislation similar to the CRA.

Combined with stunning increases in concentration in the mortgage origination market, such that the top 25 mortgage originators controlled 90 percent of the market in 2007, the consensus interpretation of events was that the mortgage boom was an adjunct to bigger changes in the private financial sector, and not prompted by some outbreak of rabid mendacity amongst the newly conniving population of home purchasers.

This trend dovetailed with another trend in the big banks, a transition from deriving much of their profit from loans to deriving it from fees for packaging mortgages (and other loans, such as credit card, auto loan, and student debt) into asset backed securities (ABS), selling ABSs and MBSs, creating dummy Structured Investment Vehicles (SIVs) to further reprocess MBSs into CDOs, and so forth. One estimate suggests that income from fee-related activities at commercial banks increased from 24 percent of total revenue in 1980 to 31 percent in 1990 to 48 percent in 2003.

The GSEs had been getting prodded by members of Congress to purchase more subprime; but mostly, the “advice” came too close to the pricking of the housing bubble. There has been substantial dispute over just how much subprime and Alt-A loans Fannie and Freddie hoovered up in this narrow window; but a major riposte to the neoliberal story “The Democrats Made Them Do It” is that neither GSE touted a change in policy, but if anything, tended to underreport these activities. This is one primary reason most outside analysts trace the housing bubble to the private sector, and in particular, specialized subprime originators such as Countrywide and Ameriquest and the banking firms that repackaged them into baroque securities; it even corrupted profitable subsidiaries of “industrial firms” such as GMAC and GE Capital; consequently, “the biggest factor contributing to the subprime boom was securitization.” Another argument against the neoliberal story is that there was in parallel a bubble in commercial real estate, which had nothing whatsoever to do with the GSEs.

What one would derive from reading the document was the concurrent posit of A and not-A as causes of the crisis. The six-person endorsed body of the report pinned the crisis on “failure to effectively rein in excesses in the mortgage and financial markets,” which then got parsed as a laundry list of usual suspects: credit-rating agencies, failures of regulators, OTC derivatives, crappy mortgages repackaged as sweets, Greenspan, executive compensation, Bernanke, shadow banking, etc. However, the majority went out of their way to reject one cause: “we examined the role of the GSEs . . . We conclude these two entities contributed to the crisis, but were not a primary cause . . . The GSEs participated in the expansion of subprime and other risky mortgages, but they followed rather than led Wall Street.” In other words, it went out of the way to insist everything contained in the Wallison appendix was false. The other minority appendix endorsed the Wallison line in passing, but seemed more concerned to absolve Wall Street of any culpability, proclaiming, “derivatives did not in any meaningful way cause or contribute to the crisis,” and denying that “shadow banking” was even a coherent concept. Consequently, it was exceedingly vague about what did cause the crisis, although it did coquette with the notion that it was all China’s fault. The first Republican dissent did not even bother with much in the way of evidence.

Jeffrey Miron of Harvard muddied the waters further by introducing the Rogoff Reinhart neoliberal line: "In asking whether the recent financial crisis could have been avoided, the crucial fact is that crises of various flavors have occurred for centuries in countries around the world. Thus, any explanation based mainly on recent factors—subprime lending, derivatives trading, or financial deregulation—cannot be the whole story. A full account must identify factors that have been present widely, and for centuries." How the Dutch Tulip craze would help illuminate the structural deficiencies of a CDO-squared was left for someone else to figure out.

Having watched some of the hearings online, I can attest that witnesses were tossed one whiffle ball after another. Yves Smith reported the disgust of one of the FCIC staff, who complained, "I am still getting the stink out of my clothes." He understood that both the majority line that it was all the fault of wicked deregulation, and the Wallison line of "Fannie/Freddie did it," were equally unavailing. Both versions conspired to help perpetuate a myth that Wall Street financial firms were as much the victim of the crisis as everyone else, and existed to keep the proceedings from tripping up the sausage machine that eventually became the Dodd-Frank act.

The Democrat electoral debacle of November 2010 only exacerbated the tensions underlying the jousting agnotologies within the FCIC, as Rep. Darryl Issa subsequently convened an investigation into the mismanagement of the Inquiry to settle scores in Spring 2011. His subpoenas then unintentionally delivered another lesson in agnotology: it seems Peter Wallison had broken a number of confidentiality rules while serving on the FCIC, leaking secret Fed data to the AEI, while co-chair Bill Thomas secretly prepped many of the representatives of the banks on the level of questions they might expect. The purpose overtly had never been to find new things out, so much as it was to make the preset narrative look good in public.

What is it that the opponents of neoliberalism believe that markets are capable of “knowing,” and conversely, what is it that humans can know that falls outside the precinct of markets and their supposed omniscience and information-processing capacities? How much of any forward-looking political program can be premised upon a set of faculties and competences with regard to the economy that are not reducible to simple profit-seeking?

For someone who has just spent a few hundred pages arguing that the economics profession has been proven hopelessly corrupt by virtue of its behavior during the crisis, and that the Neoliberal Thought Collective has managed to weather the crisis by expanding to fill the entire space of political discourse left void by the dereliction of the economists, I am now going to do something a little counterintuitive: I am going to start by agreeing (in a limited way) with one famous Mont Pèlerin member, Hernando de Soto. In a retrospective on the crisis, he insisted, “the recession wasn’t about bubbles but about the organization of knowledge.”

This book preaches a simple message: Know Your Enemy before you start daydreaming of a better world. In this one particular respect, Carl Schmitt was right.

Heartfelt exhortations of “End This Depression Now!” have become sure signs of chicanery, the half-disguised theurgy of an often shadowy clique of economists. The neoliberals have triumphed in the face of this cacophony, at least in part, because their nominal opponents and their nostrums have proven so clueless. The resistance to the neoliberal tide has repeatedly looked to orthodox economics for succor, and it has betrayed them time and again. Beyond orthodoxy, even the intellectual case for a return to Keynes, or Marx, or Minsky as a panacea for the crisis has proven thin and insubstantial. Not only does the left lack a clear agenda for their own political objectives, but they have repeatedly mistaken or misunderstood the nature of the neoliberal political project, and consequently found themselves co-opted into it, or worse.

To take but one telling example, if the hundreds of lobbyists and millions of dollars of campaign contributions were not sufficient to neuter all attempts at financial reform in the United States, such as the so-called Volcker Rule, then the banksters were not subtle in summoning their second line of defense, insisting that any such rule would violate NAFTA and other international “free trade agreements” instituted under prior transnational neoliberal regimes.

The current problem of left political movements, whatever that benighted term might encompass nowadays, is that they have fallen into the trap where discussions of the crisis end up being hopelessly backward-looking: perhaps preaching “restoration” of proper “regulation,” reenergizing mid-twentieth-century configurations of state power, or returning to a more “fair and equal” income distribution, or redeeming and making debtors whole through debt forgiveness, refurbishing an economy less beholden to and less composed of financialized corporate entities, resembling that which reigned during the immediate postwar period. Some have waxed openly nostalgic about the New Deal; others idealize the 1960s. Yet this ignores a basic truism learned by conservatives long ago: “To preserve the regime, the conservative must reconstruct the regime.” The superior insight of the neoliberals, in particular, is that you can never go home again, largely because they have sought to build intentional irreversibilities into their previous political interventions.

Although it seems impolite to mention it, the collapse of the “Occupy” movement over 2011–12 was largely due to the long-discredited notion that political action could be sustained and effective in the absence of any sort of theoretical guidance and hierarchical organization of shortto longer-term goals. … Besotted by the millenarian idea of starting anew, and lacking any sense of the history of protest and political organization, both neoliberals and neoclassical economists rapidly addled whatever political curiosity and radical inclinations that the well-intentioned protestors might have had. Rebels railed against corporate power, but apparently had no idea how it actually worked. The result was predictably utter failure.

While brave activists had proven willing to invent new forms of civil disobedience, much of their tweeting and blogging tended to reveal a reversion to themes already promulgated by the usual suspects covered in this volume. When not openly appealing to a lost world, like the “Take Back the American Dream” motif, they would propose “reforms” dating back to the 1980s, such as the Tobin tax on financial transactions, or a “fairness doctrine” for political ads, or an ineffectual public financing scheme for election campaigns. Mostly in the heat of Occupy, disputations over the crisis and financial sector were dominated by backward-looking ambitions and nostalgia for a happier and more prosperous time. Slogans like “We are the 99%” seemed to be calculated so as to be overly inclusive, confusing expansiveness with democracy, and therefore ineffectual.

Indeed, I would suggest that the palpable failure of the Occupy movement demonstrates the relevance of the thesis of chapter 3: the neoliberal worldview has become embedded in contemporary culture to such an extent that when well-meaning activists sought to call attention to the slow-motion trainwreck of the world economic system, they came to their encampments with no solid conception of what they might need to know to make their indictments stick; nor did they have any clear perspective on what their opponents knew or believed about markets and politics, not to mention what the markets themselves knew about their attempts at resistance. With the generous assistance of economists, libertarians, and a raft of pundits, all their incipient neoliberal tendencies were amplified and encouraged, while their nascent attempts at political organization that might effectively challenge the NTC were quashed.

The Tea Party is one of the prime examples of the metamorphosis of protest movements through the revamping of politics in a commercial privatized direction. Not only was the movement largely professionally astroturfed by a few large shadow private organizations, such as Americans for Prosperity, American Majority, the Tea Party Express, and FreedomWorks, but it derived much of its energy on the ground through open encouragement of small-bore entrepreneurs to make money in whatever ways they might imagine off the cascading sequence of rallies, bus tours, self-publication of pamphlets, conferences, disruption of town meetings, and other public gatherings. In a sort of chain-letter Ponzi scheme, or better yet, an Amway franchise, the disgruntled were first financed and regimented through large quasi-corporations, made to feel empowered by encouragement to do the same on a smaller scale with their own venture-capital start-ups, then themselves motivated to recruit others to join the movement. For instance, 41 percent of the booths at the Tea Party convention in Phoenix in February 2011 were manned by for-profit groups; an additional 35 percent were large business interests such as Philip Morris and Exxon Mobil. The top-down direction was thoroughly obscured by the groundswell of profit-making activities.

When the Occupy movement sat down in Zuccoti Park, they set out to wrest the title for Purity of Populist Expression away from the Tea Party, but almost instantaneously revealed a dearth of appreciation of what might materialize that could render them different. Indeed, many of the obsessions and even some of the language disturbingly mirrored those of their purported opponents. True, they did not immediately set about selling T-shirts, cocked hats, and placards, but the attempt to convince the masses that they should reinterpret their victimhood as a form of empowerment was an agenda without a narrative. In their quest for a more pure democracy, they renounced the existing structures of government, and consequently, abandoned the rafts of state and local unionized workers who were right then being shed by cash-strapped states and municipalities. The disparagement of government was one script practically plagiarized from the Tea Party. The gutting of government employment was an active political battleground (in places such as Ohio and Wisconsin resisting union-stripping and decertification) contemporaneous with OWS, but because it concerned unions, the Occupiers tended to act like it didn't exist. But more to the point, the Tea Party was consciously organized to give its recruits things to do and upbeat political identities to inhabit, all revolving around the commercialization of protest. All OWS offered were endless feints toward an oxymoron of an anarchist powwow, complete with tents. It was a murketing ploy, only bereft of anything to sell. OWS did not sufficiently appreciate the topography and extent of its opponent's political organization coupled with its cultural scripts, and for that reason made no coherent attempts to craft and supply an alternative. Or, to phrase it more cruelly, Occupy believed in the bedtime stories of the power of spontaneous order welling up from below, but was in the dark about the realpolitik of the modern privatization of protest. … Without meditating upon the sheer improbability of the Fed actually rebuking the heads of the banks that own and control it, we will focus here instead on the pedestrian mechanics of this attempt at the promotion of the simplest form of political protest. Johnson couldn't organize the petition himself, so he outsourced it to a new-media website, change.org. The qualms begin when one learns that this is a private for-profit corporation, or as it states, "Change.org is a social action platform that empowers anyone, anywhere to start, join, and win campaigns to change the world. We're proud to be a certified B Corp, using the power of business for social good."

Qualms turn to disquiet when the fine print informs anyone who uses the site that their personal information may be passed on to the person/organization initiating the petition; further, it may also be shared with third parties, may be disclosed to authorities or other legal petitioners, and may even be sold under certain circumstances. In other words, perhaps unwittingly, Simon Johnson is exposing those who sign on to his petition to all the usual dangers of data aggregation, surveillance, and analysis familiar from the long history of high-volume for-profit direct mail operations. Johnson’s "protest" orchestrates the harvesting of information for private profit and political machinations, precipitating an asymmetry, weakening the movement in the name of symbolic action. Furthermore, although Jamie Dimon will never ever be ousted by any such petition, or similar symbolic political activity, thousands of people will enter their names into a database archiving the expressed hostility to the banksters, and someone, somewhere, is making a profit.

In the topsy-turvy world of neoliberalism, you may think that you are busily expressing your innate right to protest the cruel and distorted state of the world; but in most cases, you are echoing scripts and pursuing an identity that has already been mapped out and optimized beforehand to permit the market to evaluate and process knowledge about you, and convey it to the users with deepest pockets. Protest has been murketed. You get to express yourself; they get to make money.

The left, clinging to an obsolescent vision of pragmatism and committed to rational compromise, has seen rings run around its meager attempts to come up with remedies for the crisis.

Since any analytical statements that delve into neoliberal practice have to avoid the Scylla of conspiracy theories as well as the Charybdis of endorsement of their trademark notions of spontaneous order, it will be necessary to insist that their contemporary full-spectrum approach to politics has not been comprehensively described anywhere by any of the major neoliberal thinkers. The approach instead grows directly out of their hallmark organization of the thought collective, in conjunction with their specific theoretical commitments concerning the role of knowledge in markets. In other words, the Russian doll organization of Mont Pèlerin, affiliated think tanks, dedicated funding agencies, academic units, and astroturf operations is nicely suited to promote seemingly alternative policies emanating from different compass points within the hierarchy of the NTC; what melds this policy entrepreneurship into a monolithic agenda is precisely the sociology of knowledge that grows out of their core epistemological commitments.

Contrary to the raft of writers who insist that modern neoliberalism is far too variegated, contingent, flexible, and local to constitute any sort of unified political movement, I shall insist that there indeed has been a standard-issue Neoliberal Playbook in responding to big political challenges; and furthermore, its scripts constitute the major reason that the NTC has come through the economic crisis unscathed. The full-spectrum mobilization strategy can then retrospectively begin to clarify some of the incidents recounted in previous chapters. What at the micro level might appear chaotic and wavering turns out to have been a canny stratagem from an altitude of 10,000 feet.

Hayek defines the radical freedom of the market by its indifference to all external limits and transcendental laws . . . The laws of the market rest on no pre-existent foundation: their very resilience serves as proof of concept, in the same way that the law of natural selection constantly proves or disproves the viability of chance mutations in nature.

As a bonus from the neoliberal vantage point, perhaps some segments of the left, operating under the quaint impression they can effectively oppose one or more of these options they find anathema by advocating another—say, aiming to defeat science denialism or geoengineering by taking up advocacy of carbon trading—end up being recruited as unwitting foot soldiers for the neoliberal long march.

I think most people on the left don’t fully realize that the phenomena of “science denialism,” “carbon permit trading,” and the nascent science of “geoengineering” are not three unrelated or rival panaceas, but together constitute the full-spectrum neoliberal response to the challenge of global warming. The reason this array qualifies as neoliberal is twofold: initially, they were all proposals originating from within the array of think tanks and academic units affiliated with the Neoliberal Thought Collective; and then, if and when they come to be deployed in tandem, the net consequence is to leave the entire problem to be solved, ultimately not by the state, but rather by the market. The promotion of denialism buys time for the other two options; the financialization of carbon credits gets all the attention in the medium term, while appeals to geoengineering incubate in the wings as a techno-utopian deus ex machina to swoop down when the other options fail. At each step along the way, the neoliberals guarantee their core tenet remains in force: the market will arbitrate any and all responses to biosphere degradation, because it knows more than any of us about nature and society.

Furthermore, human science will never fully comprehend nature in real time. Neoliberals have assumed the equivalent stance hostile to intellectuals dating back to Hayek's attack in 1949, and no one gets more aggrieved about the lack of deference shown by the intelligentsia than your median neoliberal. Bashing pointy-headed elites lends them a certain populist caché; and it plays to an incipient fondness among the uneducated for the fuzzy conviction that wishing can make anything so.

Neoliberal doctrine maintains that anyone should be free to propound any wonky falsehood they may wish, because the final arbiter of truth is the market, and not some clutch of experts who represent sanctioned science. If it just so happens to resonate with the commercial propaganda interests of the oil companies, well, so much the better.

Each component of the neoliberal response is firmly grounded in neoliberal economic doctrine, and as such, has its own special function to perform. As we have already learned from historians of the tobacco strategy such as Richard Proctor and historians of climate denialism such as Naomi Oreskes, the purpose of science denialism has been to quash all immediate impulses to respond to the perceived biosphere crisis, and to buy time for commercial interests to construct some other eventual market solutions to global warming. Denying the very existence of global warming is cheap and easy to propagate, can be fostered quickly, and tends to draw attention away from issues of appropriate responses to crisis. The neoliberal think tanks behind the denial of climate change don't seriously believe they are going to win the war of ideas within academic science in the long run, just as the tobacco strategy never envisioned disproving the smoking-cancer link. Yet, nevertheless, even the existing denial of the science displays its neoliberal bona fides. The first response to a political challenge should always be epistemological, in the sense that the marketplace of ideas has to be seeded with doubt and confusion. This is the core of the agnotological project.

Furthermore, professional economists are brought in to shill for this strategy, largely because they enjoy conflicts of interest in this area of a magnitude commensurate with those they have nurtured with the financial sector in general. The neoliberal genealogy of this approach is conventionally traced back to the MPS member Ronald Coase, who first proposed that pollution could be optimized by submitting it to a market calculus.

The project to institute markets in pollution permits is a neoliberal mid-range strategy, better attuned to appeal to neoliberal governments, NGOs, and the more educated segments of the populace, not to mention the all-important FIRE sector of the economy. In effect, this strategy is an elaborate bait-and-switch, where political actors originally bent upon using state power to curb emissions are instead diverted into the endless technicalities of the institution and maintenance of novel markets for carbon permits, with the not unintended consequence that the level of emissions continues to grow apace in the interim.

The final neoliberal fallback is geoengineering, which derives from the core neoliberal doctrine that entrepreneurs, unleashed to exploit acts of creative destruction, will eventually innovate market solutions to address dire economic problems. This is the whiz-bang futuristic science fiction side of neoliberalism, which appeals to male adolescents and Silicon Valley entrepreneurs almost as much as do the novels of Ayn Rand. Geoengineering is a portmanteau term covering a range of intentional large-scale manipulations of the earth's climate, often proposed to counteract existing man-made climate change, such as global warming. It proudly flaunts the neoliberal precept that if the economy screws up, just double down on the same sorts of things you have been doing already.

Like most neoliberal prescriptions, the most important fact concerning this tortured marriage of science and corporate commodification is that it often doesn't work to ameliorate its stated target problem, although it does permit further amplification of the larger neoliberal political project. Permit me to relate one recent incident that illustrates this fact. For some inexplicable reason, the British Royal Society has been one of the biggest "insider" boosters of geoengineering. Partly for that reason, one of the earliest consortia of scientists seeking to mount a pilot program for injecting particles into the stratosphere has been the British Stratospheric Particle Injection for Climate Engineering project, or SPICE, headquartered at Bristol and Cambridge universities. SPICE announced in 2011 that it would use a weather balloon to lift a one-kilometer-high hose to spray an aerosol, as proof of concept.

This provoked a great hue and cry in Britain, with more than fifty scientific organizations opposing even this limited test project. In the current neoliberal circumstances, mere political opposition resorting to reasoned arguments that this sort of “experimentation” was dangerous and ill-conceived was nowhere sufficient to stop a well-funded scientific cadre with some ceremonial credibility and political clout. No, what got the experiment canceled before it was finally carried out was a dispute among the team over intellectual property: two members of SPICE, Hugh Hunt and Peter Davidson, had filed for a patent for an “apparatus for transporting and dispersing solid particles into the Earth’s stratosphere by balloon, dirigible or airship” without informing the other members of the team. Other participants, learning of this, called the experiment to a halt. Just like in so many other areas of modern science, faculty here occupied dual roles as academic researchers and CEOs of their own startup firms: not just Hunt and Davidson, but the other participants as well. This speaks louder than any public relations claims about the nominal public-spirited character of the project: geoengineering is not really about saving the planet; it is instead mostly about laying claim to privatization of the global troposphere.

Once the relevant corporations and scientists get all their legal property claims in a row, and unless environmentalists can mount some further serious obstacles, I have no doubt something like SPICE will go forward. But in the meantime, temporary failure of this or that particular geoengineering project is entirely consistent with the success of the neoliberal political project. For the ultimate objective of the exercise is to rely upon the market, the only dependable source of knowledge concerning the roiling chaos of evolving nature, in the face of similar complexity of its interaction with society.

Note well that each neoliberal component of the full-spectrum strategy does not by itself actually ameliorate global warming. Denialism postpones the issue; carbon permit trading does not actually reduce CO2 emissions in actual practice; and geoengineering just treats the symptoms of global warming without curtailing emissions. What might at first seem to be a serious defect of the neoliberal strategy is, in fact, the crux of its ultimate rationale. If nature and society evolve in complex and impenetrable ways, then humanity should be prevented from joining together to impose unilateral policies to deal with the perceived root problem. For which humans can actually understand where the market is taking us? Better to defer all political action to the market, which will come to some eventual accommodation to the transformation of nature in good time. But this would never happen under pure passive laissez-faire. Instead, neoliberals must mobilize to capture the state and impose the spectrum of interim “solutions” so that people can come to believe that something is being done to stem the crisis, even if, strictly speaking, no such thing has occurred.

But, of course, when it looks to all the world like the global economy is collapsing, the public wants action, and wants it now, not passive acquiescence. Fools rush in, say the neoliberals, and therefore a full-spectrum response is needed to counter the palliatives of their opponents. And, with benefit of hindsight, that is precisely what happened in the five years following the crash. Conveniently, the spectrum of policies can be arrayed more or less in parallel with the spectrum of responses to global warming outlined above, because the rough structure of short-, middle-, and long-term responses are essentially the same. Indeed, pointing out the similarities suggests that the neoliberal political project has by now attained a kind of efficient stability and coherence, rolling out many of the same time-tested responses in widely varying contexts. In the case of the global economic crisis, they comprise denialism, market-based rescue of banks, and financial innovation. This full-spectrum neoliberal response can serve to organize and clarify many of the ideas and incidents related in previous chapters into a single narrative that ultimately answers the question: How did the neoliberals emerge from the crisis stronger than when it began?

The purpose of denialism in both cases has been not actually to influence the relevant science over the long run—recall that most neoliberals of a Hayekian persuasion have never been terribly enamored of neoclassical economic theory—but rather to sow doubt and confusion in the general public concerning the causes and significance of the crisis in question. The mantra here, from Ezra Klein to Andrew Haldane to Gary Gorton, is that it is just all too complex to understand. If tense issues are presented in a nominally “fair and balanced” manner as rife with uncertainty, then most of the tyro public will just tune out. The deployment of agnotology is a major hallmark of the neoliberal collective, as we have repeatedly argued throughout this volume.

The newspapers bayed for economists’ blood; and economists spat back all manner of excuses. With enough fog emitted, almost anything becomes possible. Glenn Hubbard, subjected to scathing ridicule in the movie Inside Job, could be rehabilitated as a major economic advisor to the Mitt Romney campaign in 2012. Gary Gorton, inventor of the CDS instruments that sank AIG, could be rehabilitated as one of the primary experts in the economics literature concerning the causes of the crisis. Ben Bernanke, booster of the Great Moderation, could be rehabilitated as the Savior of the American Economy.

From this perspective, the crisis is, in the first instance, an epistemological phenomenon. The beauty of the manufacture of ignorance is that it has proven an ideal short-term response to unanticipated surprises: when disaster hits, and reformers propose to strike while the iron is hot with their nostrums and antidotes, the Neoliberal Thought Collective can stymie them and can buy time by filling the public sphere with fog.

The promotion of denialism may have bought time, but only subordinate to the bringing into play of the replacement middle-term policy response of the market-based rescue of the banks covered in chapter 5. In the case of global warming, the medium-term instrumentality was to have the state construct new markets for emissions permits. Interestingly, as described in above, during the crisis a very close analogue was also floated to create new markets to sell off the so-called toxic assets that the government would “temporarily” take off the balance sheets of the faltering banks. Market designers were initially brought in to help concoct boutique auctions to somehow actualize and validate the ramshackle expedient of the TARP.

“Shadow” or hidden bailouts were also pursued through the Federal Home Loan Bank system, stepping up Fannie and Freddie purchases, and unconventional expansion of the Fed balance sheet. In effect, the government acted to directly or indirectly provide a price floor for selected investors for all manner of financial assets, no matter how dubious or damaged. In a pinch, the central banks were brought in to do much the same thing under the euphemism of “quantitative easing.”

Nevertheless, the obvious prescription of the government taking over the failing banks and forcing their restructuring, deleveraging, and downsizing was ruled permanently out of bounds; but instead, under the proliferation of program acronyms (post-Lehmann), no major stakeholder in the FIRE sector was forced to suffer a write-down of assets or even change of personnel. … In the few instances when the government was forced to take an equity stake as well, it did so with the proviso that it would not actually “nationalize” the companies in question, and would endeavor to sell off the stake as soon as feasible.

The template of “market-maker of last resort” began with the Paulson-Geithner improvisation of having the New York Fed assume $30 billion of the worst assets from Bear-Stearns before selling the firm cheaply to JP Morgan, and then hiring Black Rock to supervise and manage the scheme. … This set the pattern for what became the “market based rescue,” or what might be deemed a newfangled privatization of government rescue of the financial sector. Indeed, many of the programs were not only outsourced, but even designed by private firms such as Black Rock and Trust Company of the West.

It is important to perceive that this middle-term response was the locus of the Schmittian moment of the neoliberal program. In normal times, none of these governmental entities would ever have had the authority or sovereignty to farm out massive government subsidies and waivers to other third-party private firms at the stroke of a pen: in a sense, the “privatization” of a financial rescue was more or less unthinkable. Indeed, Treasury Secretary Paulson and Fed Chairman Bernanke had been known to repeatedly deny that they had the statutory authority to do any number of things during the crisis. Yet, precisely here, in the midst of the collapse, these neoliberal leaders took upon themselves the right to arrogate the power of defining the “exception,” to anoint themselves as the true political sovereigns in time of emergency; and right at that juncture, they imposed the neoliberal prescription that creating more and different “markets” would serve to rescue the economy. Here lay the deep neoliberal provenance of the seeming potpourri of bailouts, rule suspensions, windfalls, forced mergers, and all the rest.

One way to describe this unprecedented array of practices was to gloss it as the prevention of rolling bankruptcy through the instrumentality of the central government and the central banks taking much of the risks and bad paper onto their own balance sheets, either directly or virtually through loans and guarantees to private interests. Rather than create a new market in “carbon-style permits,” the government and central banks jury-rigged a novel market in quasi-public, quasi-private debt. As has often been bemoaned, in practice profits remained privatized while all the downside risk was nationalized. It has been less frequently noticed that most of these activities didn’t actually “solve” the financial crisis in any lasting or definitive way; all they did was shift it onto the balance sheets of governments, who then subsequently found their own public debt ballooning and their central banks becoming market-makers of last resort. This ramshackle contraption of the government backstopping corporate failure through disguised asset “purchases” on a grand scale has morphed into a mutant form of capitalism, one that sports its origins in the neoliberal precept that the solution to supposed market failures is more markets.

This mechanism of “market-maker of last resort” as a neoliberal analogue of the carbon-trading schemes has had a felicitous political effect from the perspective of the neoliberals, of shifting attention away from the original insolvency of the banks and firms who securitized the impossible and proliferated the debt in the first place, and displacing it onto the sovereign federal governments, who found their public debt growing perilously out of control. One might regard this innovation as co-opting the very idea of nationalization of business firms from the history of the left, but turning it on its head, lumbering the state with only the failed assets off the crippled private balance sheets, while leaving the remainder of the firm in private hands, to enjoy revived profitability. As the Manchester CRESC group observed, “Leverage was the driving force behind the privatization of gains and the socialization of losses.”

The beauty of the dynamic is that other segments of the NTC could then exercise their hostility toward both the federal government and the Federal Reserve with seeming justification, thus filling up most of the political space churning around reactions to the crisis. For instance, the Tea Party could not have existed without this “market-based” practice of shifting the onus of business-induced leverage onto the state, then having private interests run the bailout, and then, as a consequence, precipitating a crisis of state legitimacy. Once set in motion, it has been a juggernaut that moves of its own accord. In parallel with carbon trading, the medium-term failure of the policy turns into long-term political success for the neoliberals.

Alternatively, one might discern in its vaulting ambition the financial logic of the Structured Investment Vehicle used to hide crushing liabilities, only now being imposed on the state itself. In the meantime, as bond vigilantes conduct their attacks and government insolvency looms, states are forced by neoliberal parties and international agencies to engage in myriad forms of “austerity,” which include fire sales of viable legacy state assets and crude attempts to lower wages and renege on social insurance schemes. Indeed, this narrative that the crisis is all the fault of the government conforms so faithfully to the standard neoliberal script, trumpeted relentlessly from the think-tank shell of the Russian doll since early in the crisis, that it is hard to imagine that the tactical political economy of market-maker of last resort was not engineered to conjure this outcome.

Just as cap-and-trade in permits exists primarily to thwart serious reduction of carbon emissions, contemporary "last resort" market policies that set up the state as dumping ground for financial detritus, only then to have it managed behind the scenes by private interests, mostly exist to thwart any serious intervention-cum-nationalization and subsequent writedown of insolvent firms in a crash. … Although there is no reliable gauge of the world trading volume of over-the-counter credit default swaps, the industry trade group provides data suggesting that gross exposure of such derivatives topped $5 trillion in December 2008, and was around $3 trillion in 2011.

The prospect of the government serving as market-maker of last resort presumably cannot be extended indefinitely, which brings us to the final long-game component of the full-spectrum brace of policies: the crisis analogue of geoengineering for neoliberals is the equally science-fiction prospect of financial innovation as the mode of ultimate deliverance from economic stagnation. Just as with geoengineering, the policy consists more of insubstantial promise than in demonstrated capabilities; but it plays an important pivotal political role nonetheless. The prophets of financial innovation are at pains to portray the invention of new pecuniary instruments, practices, and products as on a par with the science-based innovation of new physical technologies; in other words, it is the very apotheosis of the market coming to terms with an evolving nature. Indeed, one of the first people to promote the notion of financial innovation as a phenomenon commensurate with technological change was the Chicago neoliberal economist Merton Miller, again demonstrating direct affiliations with the thought collective. Miller himself admitted that much of the motive for this innovation was to avoid or circumvent prior regulations; but later discussions tended instead to stress purported improvements in general welfare, on the same footing as welfare gains from enhanced solar cells or combustion engines.

The conflation of options pricing with the ophthalmoscope made great semiotic play with the connotations of technological “improvements,” which somehow enhanced efficiency and efficacy; and soon thereafter one began to hear of dedicated “financial engineers” (aka “quants”) tinkering and fine-tuning the machinery of Wall Street and London. One conflation soon spawned another: denizens of “science studies,” accustomed as they were to description of technological artifacts, conceived of the notion that they could just as readily apply their expertise to these financial phenomena, since, after all, they were just another species of technological innovation. Thus appeared a whole series of monographs on the “social studies of finance,” most of which tended to recapitulate the accounts of finance already current among the orthodox economists and practitioners in the area; perhaps inadvertently, they tended to reinforce the cultural Geist that the banking sector sported a teleology of internal scientific logic of development. It then comes as no surprise that it was a sociologist of science who came up with a thoroughly internalist and technical account of the causes of the crisis, devoid of all political economy.

It should be noted that another neoliberal phenomenon came into play to reinforce the equation of physical technology and finance. As described in detail in ScienceMart, the expansion of the patent system to encompass all sorts of previously unpatentable phenomena occurred in the 1980s. One of the major classes of newly minted intellectual property was precisely "business methods," particularly those which were inscribed within computer programs. Almost immediately, a wave of financial algorithms were newly patented; and this, in turn, rendered financial manipulations conceptually more on a par with technologies that had been previously subject to being reduced to intellectual property. What was posited as a newly valid classification ended up as real in its consequences.

It was one thing to reduce the tortured history of finance to a science-fiction narrative of the technological sublime; it has been quite another to turn it into the ne plus ultra of the full-spectrum neoliberal response to the crisis. As in the case of geoengineering, it has been necessary to recruit scientists who concede that they will never rectify the underlying crisis debility, so they must turn their efforts instead to fashioning Band-Aids to treat the symptoms. As the economist Paul Romer is reported to have said, "Every decade or so, any finite system of financial regulation will lead to a systemic financial crisis." Never mind the history of the agent practices or the neoliberal capture of politics (or economic history, for that matter); the market will always periodically experience indigestion. Options, CDOs-squared, credit default swaps, high-frequency trading, dark pools, repo, rehypothecation, shadow banking, SIVs: you can't hold back the ocean. Financial complexification is as inevitable as the tides. If nature will never be thoroughly tamed, then it behooves us to at least develop instrumentalities to ride its chaotic complexity. And it follows that the response to apparent market glitches is to double down with even more markets.

The appeals to nature are rather unself-conscious and aboveboard in the writings of the contemporary proponents of financial engineering, such as Robert Litan, Barry Eichengreen, and Robert Shiller. Because Shiller had become anointed by the media as the exemplar of an economist who had presciently warned of the housing bubble before it burst, the public has imbibed a seriously mistaken impression of him as some sort of economic maverick of the left. While he diffidently renounces the Efficient Markets Hypothesis, in all other matters Shiller is about as orthodox an economist as one can find nowadays. Shiller has been insisting upon the literal interpretation of finance as a technology for some time now; and given the opportunity, he reaches for the physical equivalent in order to render his utopian vision more tangible.

So how will more financial engineering help us out of the hole left by the global crisis? Some say the working-class “democratization” was just feedstock so that Wall Street and the City could securitize ever-expanding volumes of debt (while getting it graded AAA and foisting it off onto gullible money-market funds) as inadequate compensation for the dismantling of the welfare state; but people like Shiller say that the poverty and inequality could actually be mitigated by further financial engineering.

But, just as with geoengineering, the nitty-gritty specifics are secondary: what really matters is that we learn to outsource our biggest social problems to entrepreneurs, who are the only people capable of using the market to discover really big solutions. In this respect, the promotion of financial engineering is a willfully ideological project.

Having trouble with those student loans? Just incorporate yourself, and get some venture capitalist to stake your latest bright idea (should you have one), and maybe you can finance your very own way out of the bind. Certainly that’s what Shiller did, by monetizing his ideas as chief economist of MacroMarkets LLC!

Far from withdrawing from the intellectual agonistic field, after brief disarray they redoubled their efforts to influence and capture the economics profession, which has also benefitted economists in weathering the crisis.

The preemption of the breaking up of the financial sector in reaction to its insolvency in almost every country has been the single most important event that has bolstered both the transnational orthodox economist profession and the Neoliberal Thought Collective. Absent the maintenance of the previous leisure class and the further subsidy of the wealthy, the politics of the situation would potentially have been strikingly different. The relationship between the immunity of finance and the imperviousness of change in economic ideas has been direct.

Since economists were caught off-guard during the onset of the crisis, both journalists and the general public had initially to fall back on vernacular understandings of the disaster, as well as cultural conceptions of the economy then prevalent. Hence the prior decades of “everyday neoliberalism” that had taken root in the culture provided a bulwark until the active mobilization of the Neoliberal Thought Collective could mount further responses.

The neoliberals have developed a relatively novel way to co-opt protest movements, through a combination of top-down hierarchical takeover plus a bottom-up commercialization and privatization of protest activities and recruitment. This is the extension of the practice of “murketing” to political action itself. Pop fascination with the role of social media in protest movements only strengthens this development.

Many of the components of the full-spectrum response can only be imposed in those special moments of “emergency” by a strong state, when all standard rule-governed activity is suspended. The neoliberals may preach the rule of law, and sneer in public about the ineptitude of government, but they win by taking advantage of “the exception” to introduce components of their program unencumbered by judicial or democratic accountability. We observe this happened during the global economic crisis, and fully expect to see it again upon onset of further climate catastrophe. It is here that it is most obvious that they take their Schmittian heritage to heart. They know what it means to never let a serious crisis go to waste.

The dominant neoliberal narrative of the crisis, which had stabilized by 2010, blaming it entirely on government policies, is described below in chapter 5.

Yves Smith at nakedcapitalism.com immediately responded to this attack on the movie with a riposte that will be expanded upon in this book: "This is worse than useless, since Klein incorrectly throws up his hands and effectively says no one can understand what happened and therefore there's no answer. One of the reasons the crisis has been so 'difficult to understand' is that the government and banking elites have been taking extraordinary efforts to obscure the truth. The AIG bailout, the GSE bailouts, the alphabet soup of Fed facilities, the con game of the 'stress tests,' the refusal to release information, the ridiculous government programs to 'restart' the market, the efforts to deny the mortgage crisis, HAMP, the ongoing efforts to prop up the banks even though they are insolvent, they are all massive efforts at obscuring what really happened and what is still going on. This is not a coincidence; it is a deliberate effort orchestrated by the banks, the Fed, and the Treasury."

In a review of Simon Johnson and James Kwak's 13 Bankers, the economist Guillermo Calvo ("Yes, the Rich Will Drive Recovery") neatly summarized the neoliberal case: "The authors detail at prolix length the oscillation between Team Greed and Team Regulation, each of which perpetually insists it has brought systemic problems to heel, and each of which is inevitably embarrassed. . . . The authors seem, in that instant, on the verge of realizing that the problem is the dynamic itself—that the choice between greed and regulation is a false one, that the dance of bankers and regulators is exactly what ends in a tangle on the floor, with the markets a shambles."

This is one place where I must demur from the otherwise perceptive Jamie Peck ("Zombie Neoliberalism and the Ambidextrous State"). Surely neoliberalism is beset with internal contradictions; but it is also important to have some appreciation for the lack of identity between the neoliberal program and the statecraft that can often fail in its implementation.

The economist's refrain of "this time is never different" (Rogoff and Reinhart, This Time Is Different) is taken to an extreme by Kean Birch, "Have We Ever Been Neoliberal?": "If financial crises have happened before—and they have, repeatedly [see Roubini and Mihm, Crisis Economics]—then this would suggest that neoliberalism has and does not necessarily play a consequential role in the current crisis."

Even historians sympathetic to neoliberalism have concluded that Hayek's approach to knowledge preclude a direct genealogy rooted in Hume (Kukathas, Hayek and Modern Liberalism; Petsoulas, Hayek's Liberalism and Its Origins). That Smith would never have accepted neoliberal politics is a hallowed theme in the history of economic thought.

To avoid testing the reader's patience, I will not deal here with more recent academic works that pursue obfuscation to ever greater degrees, such as Bockman, Markets in the Name of Socialism, which argues that the origins of neoliberalism should be traced to Eastern European socialist intellectuals. Worse is Zingales, A Capitalism for the People, which attempts to argue that neoliberalism is pro-capitalism, but hostile to the elite rich and their political power. This latter work is an exemplar of the neoliberal practice of the manufacture of ignorance, discussed later in this chapter.

See the letter from Smedley to Anthony Fisher dated June 25, 1956, quoted in Cockett, Thinking the Unthinkable, p. 131: "[I]t is imperative we should give no indication in our literature that we are working to educate the Public along certain lines which might be interpreted as having political bias . . . it might enable our enemies to question the charitableness of our motives."

Some important examples: the Heritage Foundation (USA), the Manhattan Institute (USA), the Mercatus Center (USA), the Fraser Institute (Canada), Stiftung Marktwirtschaft (Germany), Center for a New Europe (Brussels). There are even specialized neoliberal think tanks devoted to science policy, such as the George Marshall Institute, the Annapolis Center, the Heartland Institute, and the Ethics and Public Policy Center—note the anodyne names, hiding the political orientation.

In the Ordo-liberal scheme, the market does not amount to a natural economic reality, with intrinsic laws that the art of government must bear in mind; instead, the market can be constituted and kept alive only by dint of political interventions" (Lemke, "The Birth of Biopolitics," p.

It was an early clear signal of the unwillingness of the Obama administration to clean up the financial sector that he appointed Mary Schapiro as his new chair of the Securities and Exchange Commission, previously the chair and CEO of FINRA in 2009, long an advocate of the position that the financial sector had suffered overregulation.

87 In this regard, the nominally left-liberal tradition of “social-choice theory” (Kenneth Arrow, Amartya Sen, John Rawls) by this criterion is virtually as neoliberal as the right-wing tradition of the “public-choice theory” of Buchanan and Tullock and the Virginia School. See Amadae, Rationalizing Capitalist Democracy; Arnsperger, Critical Political Economy.

92 “Neoliberalism figures interest as both a psychology that drives rational choices, and as the good achieved by those choices. Subjective and objective interests are thus rendered neatly compatible: questions of false consciousness on the one hand, or of a ‘real interest’ that exceeds what people can realize by means of price-taking choices on the other, are not so much answered as they are rendered unintelligible” (Mathiowetz, Appeals to Interest).

96 See Kristol, “Socialism, Capitalism, Nihilism,” LAMP, Montreux meeting, 1972: “And what if the ‘self’ that is ‘realized’ under the conditions of liberal capitalism is a self that despises liberal capitalism, and uses its liberty to subvert and abolish a free society? To this question, Hayek—like Friedman—has no answer.”

97 There are exceptions to this generalization. For instance, the MPS member Gary Becker has proposed to solve illegal immigration by “selling” the rights to citizenship. This reduces state services to the ultimate commodity. It is significant that few other neoliberals have endorsed this complete dissolution of nationalist identity, although one could argue it follows logically from the other tenets of the program. What can nationality mean for a person without a stable identity?

Hayek tipped his hand on his own approach to a general philosophy of neoliberalism when he said in the discussion of the MPS session on April 4: “Does liberalism presuppose some set of values which are commonly accepted as faith and in themselves not capable of rational demonstration?” (MPS archives, 1947 meeting). It seems clear from his later writings that he believed this was true about belief in the superiority of market organization itself.

This question has some bearing upon the attempt by George Soros to profess Popperian principles in his new organization INET and its response to the crisis.

The position of James Buchanan (Ideas, Persons and Events, pp. 210–20) was only a slightly different variant, suggesting that the populace had to be tutored in the “elementary principles of [economic] science” to embrace the neoliberal position.

“I have often challenged audiences to name a significant program of government intervention intended to distribute income from high to low incomes, which succeeds in so doing.”

"The large mass of the public does not find it economically worthwhile to become well acquainted with the effects of policies which have small harmful effects upon each non-beneficiary." (George Stigler, unpublished paper "Schools in Science," quoted in Nik-Khah, "George Stigler, the Graduate School of Business, and the Pillars of the Chicago School," p. 140) 138 Some evidence supports Stigler's position: in a number of countries, it was explicitly socialist parties that introduced some of the most critical neoliberal reforms.

Some evidence supports Stigler’s position: in a number of countries, it was explicitly socialist parties that introduced some of the most critical neoliberal reforms.

This explains why neoliberals tend to diverge from their predecessors: “most nineteenth century liberals were guided by a naïve overconfidence in what mere communication of knowledge could achieve” (p. 377).

Hayek reveled in the tough-minded stance of the scholar who disparaged any recourse to the Third Way, most notoriously in his denunciation of the welfare state as just the slippery “Road to Serfdom.” This sets him apart from his contemporary figures like Walter Lippmann, or Keynes, or their modern epigones like Cass Sunstein or Joseph Stiglitz.

Hayek entertained the possibility of blaming “the engineers” for the frustration of the neoliberal project in his Counterrevolution of Science (1952), but subsequently came around to the position that it was politically unwise to demonize such a powerful constituency in the twentieth-century economy. See Mirowski, “Naturalizing the Market.”

Interestingly, here is where Hayek rejected the maximization of utility as the standard equilibrium concept in neoclassical economic theory. Markets don’t maximize happiness, rather, “the use of the market mechanism brings more of the dispersed knowledge of society into play than by any other [method]” (Studies in Philosophy, Politics and Economics, p. 174).

One indication that it is short-sighted to restrict neoliberal movements strictly to the sphere of the “governmental” is the historical fact that “privatization” movements preceded the birthdate of neoliberalism: the Italian Fascist government instituted a broad program of large-scale privatization in 1922–25 (Bel, “The First Privatisation”).

“Economics is an atheistic discipline; economics is a discipline without God; economics is a discipline without totality; economics is a discipline that begins to demonstrate the pointlessness, but also the impossibility of a sovereign point of view” (Foucault, The Birth of Biopolitics, p. 282).

One example of an author “more Foucauldian than Foucault” would be Bernard Harcourt (“Radical Thought from Marx, Nietzsche and Freud through Foucault, to the Present”), who argues that the idea of a small limited government hemmed in vis-à-vis the market is itself a spurious construct, “‘false,’ but not because its opposite is ‘true’” (ibid., p. 15). In this reading, Foucault himself was a cog in the neoliberal regime of truth, promulgating the notion that “government” was in fact being limited by neoliberal interventions, when in fact it was expanding in both size and power.

Jacques Donzelot has admitted this in a backhanded fashion: “In Anglo-Saxon countries where Neoliberalism was imposed from the start of the 80s, Foucault studies provide the means of a sophisticated critique, albeit one which is visibly lacking a capacity to propose alternatives. Does this political ambivalence in the notion of governmentality not condemn it to serving an ideological function?”

There are a fair number of books written by MPS members denying any salience to class. For instance, Lord Peter Bauer wrote a pamphlet, Class on the Brain: The Cost of a British Obsession (1997), which asserted, "for about eight centuries Britain has not been a closed society, much less a caste society," that there have been few class barriers to wealth in Britain, and that to the extent that Britain became less open and flexible in the postwar years, "it needed the reforms of Mrs. Thatcher's governments to re-open the road of opportunity."

"The only problem is that, in all likelihood, such a world would be one where banks only get more sophisticated, powerful, and centralized. And herein lies the main philosophical shadow lurking over the bureau. By setting out to match the analytical prowess of the financial industry, the CFPB is implicitly giving its assent to a world where finance is governed by complicated models, big data, and the statistical masters of the universe who command them—as opposed to an older world where finance was governed by the personal relationship between a borrower and a lender."

One must acknowledge that there have been various "epicycles" proposed to the neoclassical model to supposedly cover these phenomena, from "search costs" to '"asymmetric information" to "lemon models" and beyond; but two observations render them moot. First, they really are epicycles, and have never been incorporated into the core microeconomic model. One reason may be that there is no consensus technique to correctly incorporate "information" into the model of the economic agent (Mirowski, "Why There Is (as Yet) No Such Thing as an Economics of Knowledge"). But second, it has proven almost impossible to maintain a neoclassical model where someone is "bamboozled" into belief in an untruth, and justified in acting upon it. This has something to do with the colonization of neoclassical theory by neoliberal doctrine (Mirowski, ScienceMart, chapter 7). Both considerations bear consequences for orthodox accounts of the crisis.

Arrow is regarded within the profession as progenitor of the Arrow-Debreu model, an inventor of neoclassical "health economics" and someone as far removed from neoliberal beliefs as it is possible for a respected orthodox economist to be; which just goes to illustrate the assertion in chapter 1 that the profession has become unself-consciously neoliberal, and also thoroughly compromised in its ability to conceptualize the main problems of the current era.

As someone who has spent an inordinate amount of his life with the tsunami of crisis books over the past three years, I have to once again report that the marketplace of ideas seems an unreliable tutor, since these books are, in my estimation, some of the least informative sources on the causes and consequences of the crisis.

James Galbraith, “Who Are These Economists, Anyway?” p. 95. I should note that this passage had been written long before the crisis, in 2000. It is indicative that no one had stepped forward to reprimand any of the bad behavior documented in the last footnote, but as soon as Galbraith actually outed the general intolerance within the orthodox economics profession, then he himself was immediately reprimanded. See Hedoin, “Towards a Paradigm Shift in Economics?” This audacious evasion of accountability in the economics profession is the Great Unmentionable in any gathering of the faithful.

Some of the better quasi-anonymous independent blogs turned out to be more informative in general, such as Yves Smith's nakedcapitalism.com, and the blog of my colleague David Ruccio at http://anticap.wordpress.com/. Some of the greater disappointments have been figures like Mark Thoma, who has written critical things from time to time on his blog, but turned more orthodox than the Pope when pressed: see http://thebrowser.

But even there, Very Serious Economists sprang to his defense: "'The notion that Greenspan could have generated a totally different outcome is naïve,' said Robert E. Hall, an economist at the conservative Hoover Institution, a research group at Stanford."

One would begin with Joan Robinson, then proceed up through Axel Leijonhufvud and Robert Clower, and then to the French Regulationist school. Robert Lucas more or less agrees with this point: "I think that in writing the General Theory, Keynes was viewing himself as a spokesman for a discredited profession. . . . He was writing in a situation where people are ready to throw in the towel on capitalism and liberal democracy and go with fascism or corporatism, protectionism, socialist planning. . . . [Keynes] was a political activist from beginning to end. What he was concerned about when he wrote the General Theory was convincing people there was a way to deal with the Depression that was forceful and effective but didn't involve scrapping the capitalist system" ("My Keynesian Education," p.

This petition provides a quick roster of the hard-right membership of the Neoliberal Thought Collective: www.speaker.gov/UploadedFiles/Economists-11-8-11.pdf. A few notables: Michael Boskin (Stanford), Charles Calomiris (Columbia), Eugene Fama (Chicago), Douglas Holtz-Eakin, Jeffrey Miron (Harvard), and Barry Keating (Notre Dame).

We have seen the triumph of sensible ideas and reaped the rewards in terms of macroeconomic performance. The costly wrong turn in ideas and macropolicy of the 1960s/70s has been righted, and the future of stabilization looks bright" (Romer, 2007, quoted in DeMartino, The Economist's Oath, p.

Although one might want to insist upon the doctrinal differences between Randian libertarians and the Chicago School for some conceptual purposes, it is noteworthy that Milton Friedman was a vocal supporter of the Greenspan record in the press (Auerbach, Deception and Abuse at the Fed, p. 246n54).

The prestigious staff roles relate to the central banking functions: economic research, macro modeling, and of course, monetary policy. PhD monetary economists rule the roost. And there is considerable group think. The organization is very vertical, with little lateral hiring except at the very top levels. The result is intellectual inbreeding. I'm told the public rejection of perspectives that ruffled the Fed's world view, such as Robert Shiller being pushed off the New York Fed's economic advisory board after he suggested that there was a housing bubble pre crisis and the dressing down of Raghuram Rajan at Jackson Hole in 2005 is consistent with an internal posture of ignoring people who don't fall in with the party line.

The ability to act subservient to the banking sector while posing as a regulator has been a major factor in the trajectory of the current crisis. For instance, the Fed dictated to AIG that it must keep all details of the bailout secret, even from the SEC (Walsh, “Fed Advice to AIG Scrutinized”). This was done to hide what was arguably one of the most corrupt aspects of Fed behavior in the early phases of the crisis, namely, pretending the system of credit default swaps had any integrity whatsoever. Moreover, the Fed has persistently used underhanded tactics, like having the private banking lobby block most scrutiny of Fed actions, to consolidate its lack of political accountability (Auerbach, 2008, pp. 5, 157–59). It fought the Freedom of Information Act request of Bloomberg to disclose its actions during the crisis retrospectively all the way to the Supreme Court through surrogates from the banking industry.

Adams, “Who Directs the Fed?” Duchin and Sosyura (“The Politics of Government Investments”) find that banks with Fed directorships were more likely to receive TARP funds during the crisis. Someone needs to do a similar study with the Bloomberg release of Fed data on previously secret loans. Westbrook, Out of the Crisis, p. 134.

82 The Squam Lake papers are archived on the Greenberg website, www.cfr.org/thinktank/cgs/index.html. Of course, where the money for the exercise really came from remains unreported. However, the financial backgrounds of the individual Squam Lake members is covered in Epstein and Carrick-Hagenbarth, “Financial Economists, Financial Interests and the Dark Corners of the Meltdown,” and below. The Council on Foreign Relations is chaired by Robert Rubin, which further cements the behind-the-scenes Wall Street influence, not to mention the Rubin effect on the Democratic Party administrations (Suskind, Confidence Men).

'Inside Job had essentially all its facts wrong,' replies Summers, unbelievably, resorting to an argument based on timing: because he didn't work in financial services before he was Treasury secretary, and because he waited a few years before taking that job at DE Shaw, Summers says it's 'absurd' to blame the revolving door for any of his actions. It's weird that Summers, who loves debate, generally refuses to sit down in some public forum and answer serious, informed questions about the legacy of his tenure at Treasury; it might well be that this single interview is the closest we'll ever get. And on the basis of this interview, it's clear that, far from apologizing for his actions, Summers is going Full Bluster, denying any culpability, and choosing instead to violently reject and belittle any suggestion that he holds any responsibility for the crisis at all.

Out of the nineteen academic economists chosen, thirteen had identifiable ties to some private financial firm, while eight served on boards of directors, and two were co-founders. When writing for the public (with the interesting partial exception of business advice proffered on Bloomberg), very rarely did any of these figures self-report their financial affiliations; rather, they did identify their affiliation with the NBER or the Fed. In academic papers published from January 2005 through October 2009, with one exception, the financial affiliations were never mentioned. They also noted “the stronger the economists’ alliance with the private sector the weaker would be their calls for regulation.”

127 Of course, many of these particular economists have subsequently been succeeded by noneconomist presidents. But having just concluded numerous interviews with technology transfer officers recently, it seems clear to me that economists have successfully seeded their vision of the purpose of the university throughout its administrative structures.

144 Proctor and Scheibinger, Agnotology. It should be sharply distinguished from agnoiology, "the doctrine of things of which we are necessarily ignorant" (p. 27).

6 I have sought to make this case in greater detail in ScienceMart. Both that previous and this current book exist to contravene the conventional wisdom within the profession that, "although some economists within the Mont Pèlerin Society became very influential within economics, changes in the academic arena were driven by other forces" (Backhouse, The Puzzle of Modern Economics, p. 143).

19 "It's not just that they missed it, they positively denied that it would happen" (Knowledge@Wharton, "Why Economists Failed to Predict the Financial Crisis"). Compare this with an unfounded apologetic version of events: "It is impossible to predict a stock market collapse . . . [yet] there were many economists who did see that something was seriously wrong: they anticipated that a crash was virtually inevitable" (Backhouse, The Puzzle of Modern Economics, p. 94). Backhouse, a historian, declines to name any of those prescient souls.

31 "[T]his inability to predict does not concern me much. It is almost tautological that severe crises are essentially unpredictable" (Caballero, "Macroeconomics After the Crisis," p. 85).

“What’s probably going to happen now—in fact, it’s already happening—is that flaws-and-frictions economics will move from the periphery of economic analysis to its center. There’s a fairly well developed example of the kind of economics I have in mind: the school of thought known as behavioral finance” (Krugman, “How Did Economics”).

The dividing line between the postwar generation of neoclassical economists and the post-1980 cohort is that the former believed they could abjure all dependence on academic psychology, whereas the latter believed they could pick and choose among psychological doctrines to elevate those that seemingly reinforced the neoclassical orthodoxy.

Of course, since this is an orthodox model, fluctuations are relative to a rational-expectations equilibrium, and not of employment, income, and output. This is compounded by the fact that rational-expectations forecasts of identical agents are replaced by identical inaccurate forecasts. Whoever doubted neoclassical equilibrium would fail in a world populated by identical wonky forecasters?

I always stress that there are two components to the theory. One, the market price is always right. Two, there is no free lunch: you can't beat the market without taking on more risk. The no-free-lunch component is still sturdy, and it was in no way shaken by recent events: in fact, it may have been strengthened" ("Rational Irrationality").

Since the notion that the market is uniquely better at information processing than any human mind is a core tenet of neoliberalism, as explained in chapter 2, this trend is another bit of evidence for the claim that the economic orthodoxy has become more neoliberal, and hence more conservative, over time.

From an unpublished address of Paul Krugman to the European Association for Evolutionary Political Economy, November 1996, at www.mit.edu/~krugman/evolute.html. He rather touchingly concedes there: “As you probably know, I am not exactly an evolutionary economist.”

Fannie was shrewd enough to understand that in order to push their agenda on Capitol Hill they needed to be supported by economists as well and so they started a series of papers where they would hire notable Conservative economists like Glenn Hubbard or progressive economists like Joe Stiglitz and Peter Orszag to justify various aspects of Fannie and Freddie's mission, or dispel concerns about their safety and soundness, and really used those as lobbying points on Capitol Hill," said Rosner.

Promoting confusion about what markets are supposed to be has become standard operating procedure among market designers. To wit: “In addition to markets, there is also the market, an abstraction as in ‘the market economy’ or ‘the free market’ or ‘the market system.’ The abstract market arises from the interaction of many actual markets” (McMillan, Reinventing the Bazaar, p. 6).

The fact they were academic economists was significant. Swagel noted that Wall Street economists were also in favor of the TARP, but acknowledged that people would be suspicious of their judgments.

While one can readily endorse Corey Robin's insistence that the historical common denominator of conservatism has been that "the conservative favored liberty for the higher orders and constraint for the lower orders" (The Reactionary Mind, p. 8), there is indeed something more that sets the neoliberals apart, and helps explain their successes in the face of economic circumstances that should have shredded their credibility.

24 This occurred, for instance, in the cap and trade bill which passed the U.S. House in 2009, before it was killed in the Senate. The bill as passed gave away 83 percent of permits for free, with an excess subsidy to the worst polluters of $134 billion (Goodell, "As the World Burns").

26 According to UBS Investment Research, the ETS system has cost $287 billion till 2011 with "almost zero impact" on overall emissions in the European Union, and the money could have resulted in over 40 percent reduction if used in a targeted way, e.g., to upgrade power plants (Maher, "Europe's $287 Billion Carbon Waste").

35 Perry Mehrling (The New Lombard Street) has been one of the few to highlight these recent alterations in functions, only to praise them as an obvious extension of Bagehot’s principle of central banks acting as lenders of last resort. He might be less pleased to regard them as one integral component of the neoliberal policy response.

42 I refer here to a paper by Donald MacKenzie (“The Credit Crisis as a Problem in the Sociology of Knowledge”), who argues that a shift in cultures of evaluation within the ratings agencies, from older corporate collateralized debt obligations to the newer CDOs composed of mortgage-backed securities, accounted for a number of “slips” when it came to evaluation of the dangers posed by the latter. Of course, MacKenzie realized that the narrative of “technological error” seems on its face implausible (pp. 1830–32); but by focusing so intently upon the narrowly confined world of the low-level analysts and traders, he misses most of the action surveyed in this volume.

The fact that Shiller has a conflict of interest in promoting the Case-Shiller index and his other financial contraptions is revealed by the mission statement of his company, at www.macromarkets.com/index.shtml. He also is part-owner of Case Shiller Weiss, Inc. Some may object that Shiller is not a card-carrying member of the Neoliberal Thought Collective. While true, many other comparable proponents of financial innovation are, such as Robert Litan, research director of the Kauffmann Foundation, and co-author of Litan and Wallison, Competitive Equity. I use Shiller's quotes in the text because he has been such a high-profile commentator on the crisis.