The Middle-Class Squeeze Isn’t Made Up

My Comments: Are you a middle-class American? I used to be and may still be, but those like me are a dying breed. The economic devastation now engulfing a huge portion of Texas is going to reverbrate across the nation. Apart from the humanitarian crisis, it will add to the unseen crisis affecting middle class America.

Economic inequality led to the downfall of the Democratic Party last November. It’s manifest by the lower economic expectations of those who live in rural America, by those whose education is no longer enough to get ahead, and still pervasive social discrimination against those not white enough. To Trumps credit, he saw the problem and built a movement, even if he is likely to waste the opportunity.

Like many ‘economic’ essays, this may be hard for you to get through. But to the extent you want to preserve the underlying goodness of this nation, and protect yourself along the way, you would benefit from a better understanding of the problem.

By Barry Ritholtz / Feb 15, 2017

Benjamin Disraeli is reputed to have said “There are three type of lies: lies, damn lies and statistics.”

Today let’s address the third component of Disraeli’s formulation in the context of a recent National Review article with the headline, “The Myth of the Stagnating Middle Class.” The article observes that “more Americans have easier lives today than in years past.”

To regular readers, this is a variant of the assertion that “common folk live better today than royalty did in earlier times,” a claim we debunked two years ago. The current argument is more nuanced in that it: a) relies on a few statistical twists; b) contains statements that are true but don’t support the main claim; and c) is an argument against Donald Trump’s populism from the political right. It all has the general appearance of plausibility until you start digging.

This is where we come in.

Let’s begin with the claim that more Americans have easier lives today than in years past. This is true and almost always has been. Progress is humanity’s default setting ever since our ancestors climbed down from the trees and began walking upright on the African savanna.

Thus, it should come as no surprise that the standard of living for all Americans has been rising for many years, mainly because of technological advances. However, the main issue under discussion is actually about how the economic benefits of the U.S. economy get apportioned across the populace.

In other words, how the wealth is distributed. The National Review engages in a statistical sleight of hand that distracts from this.

For further insight I spoke with Salil Mehta, who teaches at Columbia and Georgetown, and is perhaps best known for his role as the top numbers-cruncher in the federal government’s $700 billion TARP bank bailout plan in the financial crisis.

Mehta made short work of the article:
The article is a peculiar mixture of motivating facts and fantasy logic, which is what makes cherry-picking statistics unsafe for policy conversation. The main issue with the piece is that that it continuously mixes and matches data to fit a fated narrative.

Mehta further observed that the National Review argument included in some cases various classes of Americans (such as minorities and immigrants), while excluding them at other times in statistics. This kind of data cherry-picking is always a red flag.

Consider for a moment how the Pew Research Center did its big research report, “The American Middle Class Is Losing Ground”: The report, which actually figures in the National Review article, analyzed the Current Population Survey from 1971 to 2015. It used data drawn from the Bureau of Labor Statistics, which has well-established standards for managing data and making empirical comparisons.

Maybe it’s best to make the point with two of the more telling charts in the report. Here’s the first one, showing that income growth for the middle class has trailed that of the upper class:

The second chart (below) shows that the wealth gap between the upper and middle classes also widened significantly (even after the losses from the financial crisis):

Best practice in these circumstances is to go to the original data source, cite it and analyze it in a way that is consistent, regardless of whether the outcome supports your conclusion.

As I’ve said before, there are many reasons to dislike this economic recovery: it has been lumpy and unevenly distributed by geography, by industry and by level of educational attainment. Much of that has harmed people who were once considered middle class. Add to this the decades-long impact of automation, globalization and the decline in labor’s bargaining power, and it adds up to economic stagnation for the middle class.

But wage and wealth stagnation alone don’t account for the full measure of middle-class angst. Inflation and its components also play a part. Prices for things we want have been deflating, while the cost of things we need have been going up. Mobile phones, computers and flat-panel TV are better and dollar-for-dollar cheaper than ever. The same is true for cars, which in a few years will likely be self-driving.

But those are mostly wants. When it comes to needs, it’s a different story. Housing, even after the 2008-09 crack-up, is expensive. Rentals have gone straight up as home ownership has fallen. The costs of education have skyrocketed and show no signs of slowing. Medical and health-insurance costs are among the fastest-rising of all consumer expenses.

The National Review article concludes by saying, “Government can’t fix that problem, because that problem doesn’t really exist.”

Wishing that a problem doesn’t exist doesn’t make it vanish. But it does offer some insight into why the Republican Party was blindsided by the rise of Donald Trump and his populist appeal. It isn’t that the party elite was myopic, but that it actively fabricated a bubble into which no contrary information was allowed entry. The troubling thing is that the GOP is still at it.

Middle-class anxiety has been building for more than a decade and it mixed in the last election with a general sense of frustration with America’s leadership class. No wonder the middle class feels squeezed — because it is.

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U.S. Stock Valuations haven’t been this Extreme since 1929 and 2000

My Comments: I wasn’t here in 1929 but I was here in 2000. If there is such a thing as handwriting on the wall, you should be able to see it. We’d had a great run up and the year 2000 was just around the corner. Everyone was worried that our computers would crash because years were constructed around the last two digits and all of a sudden, both would be ZERO.

As it happened, nothing happened, except the run up suddenly stopped and everyone had to take a deep breath. And quit buying new stuff with all the money we didn’t have anymore since we’d spent it already. And the market crashed.

Aug 22, 2017 by John Coumarianos

“The stock market is now 35% passive and 65% terrified,” says financial adviser and blogger Josh Brown, a.k.a. “The Reformed Broker.” In other words, more investors nowadays are indexing their money and active managers fear for their futures.

Which begs the question, did Brown get it backwards? Should the 35% of stock investments that’s indexed actually be the terrified money? Yes, James Montier and Matt Kadnar of Boston-based asset manager Grantham, Mayo, van Oterloo (GMO) assert in a new paper called “The S&P 500: Just Say No.” The S&P 500 SPX, +0.17% is so expensive, they say, any money tracking the benchmark U.S. stock market index at this point is more speculation than investment.

Here’s how the authors put it: “A decision to allocate to a passive S&P 500 index is to say that you are ignoring what we believe is the most important determinant of long-term returns: valuation. At this point, you are no longer entitled to refer to yourself as an investor. You may call yourself a speculator, but not an investor.

“Going passive eliminates the ability of an active investor to underweight the most egregiously overpriced securities in the index (we obviously prefer a valuation-based approach for stock selection as well). When faced with the third most expensive US equity market of all time, maintaining a normal weight in a passive index seems to us to be a decision that will likely be very costly. Yet despite this, it remains a popular path, with around 30% of all assets in the U.S. equity market in the hands of passive indexers.”

Montier and Kadnar divide stock prices into four components. Since 1970, dividends, earnings growth, profit margins, and P/E multiple changes have contributed 3.4%, 2.3%, 0.50%, and 0.10%, respectively, to the S&P 500’s 6.3% annualized return after inflation.

By contrast, those same inputs have contributed 2.8%, 3.1%, 3.2%, and 3.8% to the index’s stunning 13.6% annualized real returns over the past seven years. In other words, the current rally is being carried by unusually high and persistent profit margins and multiple expansion, or the amount investors are willing to pay for earnings.

For recent returns to persist, profit margins and P/E multiples must continue to expand. That’s unlikely since both of these components are near all-time highs. GMO uses these four components to try to peer into the future by analyzing the historical cycle of profits, and the firm’s forecasts often resemble the signals of Robert Shiller’s “cyclically adjusted PE ratio” or CAPE, which compares current stock prices to the past decade’s worth of real earnings.

Basically, GMO thinks that U.S. stocks over the coming seven years will lose 6% due to P/E multiple contraction, and another 2.8% from margin contraction. While dividend yield and profit gains will contribute 5% to stock returns,, that still amounts to a real total return of -3.9% for the period.

Even assuming the current P/E ratio and profit margins are normal doesn’t allow for the computation of continued robust returns since P/E and margin expansion account for such a large part of recent gains. Basically, this is the third-most expensive U.S. market ever. The only times stock prices have been higher and prospective returns lower were in 1929 and 2000. A different cyclical adjustment that fund manager John Hussman uses shows the current market as the second-most expensive one.

Next, Montier and Kadnar examine stocks from a more bottom-up perspective, using the median stock’s Shiller PE and Price/Sales ratio. It turns out that the median stock’s Price/Sales ratio has never been more expensive since 1970. The median Shiller PE of stocks in the index is not quite as extreme, but still among the highest readings since 1970.

Finally, Montier and Kadnar run a Benjamin Graham-style stock screen based on four criteria: Earnings yield twice the AAA bond yield; dividend yield two-thirds of the AAA bond yield; total debt less than two-thirds of tangible book value, and Shiller PE of less than 16x. They find no U.S. stocks currently meeting those criteria. The authors quote Graham: “When such opportunities have virtually disappeared, past experience indicates that investors should have taken themselves out of the stock market and plunged up to their necks in U.S. Treasury bills.”

Even allowing for the fact that large U.S businesses are exhibiting monopolistic tendencies, and profit margin cycles appear different lately than in the past, Montier and Kadnar argue that stocks still aren’t cheap.
The upshot is that investors should have as little exposure to U.S. stocks as possible. Foreign stocks don’t offer compelling returns either, but they are priced to deliver at least somewhat higher returns than U.S. stocks. That’s especially true for emerging markets stocks.

While investors who seek relative value must venture abroad, those investing on more absolute terms should hold some cash. “When there is nothing to do, do nothing,” advise the authors. Both relative and absolute value investors should remember economist John Maynard Keynes’s remark that they will necessarily seem “eccentric, unconventional, and rash in the eyes of average opinion.”

U.S. stock valuations haven’t been this extreme since 1929 and 2000

My Comments: I wasn’t here in 1929 but I was here in 2000. If there is such a thing as handwriting on the wall, you should be able to see it. We’d had a great run up and the year 2000 was just around the corner. Everyone was worried that our computers would crash because years were constructed around the last two digits and all of a sudden, both would be ZERO.

As it happened, nothing happened, except the run up suddenly stopped and everyone had to take a deep breath. And quit buying new stuff with all the money we didn’t have anymore since we’d spent it already. And the market crashed.

Aug 22, 2017 by John Coumarianos

“The stock market is now 35% passive and 65% terrified,” says financial adviser and blogger Josh Brown, a.k.a. “The Reformed Broker.” In other words, more investors nowadays are indexing their money and active managers fear for their futures.

Which begs the question, did Brown get it backwards? Should the 35% of stock investments that’s indexed actually be the terrified money? Yes, James Montier and Matt Kadnar of Boston-based asset manager Grantham, Mayo, van Oterloo (GMO) assert in a new paper called “The S&P 500: Just Say No.” The S&P 500 SPX, +0.17% is so expensive, they say, any money tracking the benchmark U.S. stock market index at this point is more speculation than investment.

Here’s how the authors put it: “A decision to allocate to a passive S&P 500 index is to say that you are ignoring what we believe is the most important determinant of long-term returns: valuation. At this point, you are no longer entitled to refer to yourself as an investor. You may call yourself a speculator, but not an investor.

“Going passive eliminates the ability of an active investor to underweight the most egregiously overpriced securities in the index (we obviously prefer a valuation-based approach for stock selection as well). When faced with the third most expensive US equity market of all time, maintaining a normal weight in a passive index seems to us to be a decision that will likely be very costly. Yet despite this, it remains a popular path, with around 30% of all assets in the U.S. equity market in the hands of passive indexers.”

Montier and Kadnar divide stock prices into four components. Since 1970, dividends, earnings growth, profit margins, and P/E multiple changes have contributed 3.4%, 2.3%, 0.50%, and 0.10%, respectively, to the S&P 500’s 6.3% annualized return after inflation.

By contrast, those same inputs have contributed 2.8%, 3.1%, 3.2%, and 3.8% to the index’s stunning 13.6% annualized real returns over the past seven years. In other words, the current rally is being carried by unusually high and persistent profit margins and multiple expansion, or the amount investors are willing to pay for earnings.

For recent returns to persist, profit margins and P/E multiples must continue to expand. That’s unlikely since both of these components are near all-time highs. GMO uses these four components to try to peer into the future by analyzing the historical cycle of profits, and the firm’s forecasts often resemble the signals of Robert Shiller’s “cyclically adjusted PE ratio” or CAPE, which compares current stock prices to the past decade’s worth of real earnings.

Basically, GMO thinks that U.S. stocks over the coming seven years will lose 6% due to P/E multiple contraction, and another 2.8% from margin contraction. While dividend yield and profit gains will contribute 5% to stock returns,, that still amounts to a real total return of -3.9% for the period.

Even assuming the current P/E ratio and profit margins are normal doesn’t allow for the computation of continued robust returns since P/E and margin expansion account for such a large part of recent gains. Basically, this is the third-most expensive U.S. market ever. The only times stock prices have been higher and prospective returns lower were in 1929 and 2000. A different cyclical adjustment that fund manager John Hussman uses shows the current market as the second-most expensive one.

Next, Montier and Kadnar examine stocks from a more bottom-up perspective, using the median stock’s Shiller PE and Price/Sales ratio. It turns out that the median stock’s Price/Sales ratio has never been more expensive since 1970. The median Shiller PE of stocks in the index is not quite as extreme, but still among the highest readings since 1970.

Finally, Montier and Kadnar run a Benjamin Graham-style stock screen based on four criteria: Earnings yield twice the AAA bond yield; dividend yield two-thirds of the AAA bond yield; total debt less than two-thirds of tangible book value, and Shiller PE of less than 16x. They find no U.S. stocks currently meeting those criteria. The authors quote Graham: “When such opportunities have virtually disappeared, past experience indicates that investors should have taken themselves out of the stock market and plunged up to their necks in U.S. Treasury bills.”

Even allowing for the fact that large U.S businesses are exhibiting monopolistic tendencies, and profit margin cycles appear different lately than in the past, Montier and Kadnar argue that stocks still aren’t cheap.
The upshot is that investors should have as little exposure to U.S. stocks as possible. Foreign stocks don’t offer compelling returns either, but they are priced to deliver at least somewhat higher returns than U.S. stocks. That’s especially true for emerging markets stocks.

While investors who seek relative value must venture abroad, those investing on more absolute terms should hold some cash. “When there is nothing to do, do nothing,” advise the authors. Both relative and absolute value investors should remember economist John Maynard Keynes’s remark that they will necessarily seem “eccentric, unconventional, and rash in the eyes of average opinion.”

Another Poll !

I’m now working on the graphics for my internet course about Retirement Planning.

Please mark the one you like best, or NONE of them.

Many thanks. Tony

The New World Order Is Leaving the U.S. Behind

Friday = Random Thoughts

Some of my Facebook friends may not realize I too want Donald Trump to be successful as President. Yes, I disagree with many of his positions on issues, but that alone isn’t enough for me to oppose him at every turn.

For many years I played golf regularly with a group of perhaps 15 like minded men. We came from all kinds of backgrounds, and enjoyed the company of others, regardless of our relative skill levels at golf. If a new club member asked to join us one Saturday, we would willingly accept his presence among us. If, however, after playing 18 holes it became apparent this person was bellicose, grandstanding, loud, presumptuous and not a team player, he would not be invited back.

My reasons for opposition to his politics are not that I simply don’t like him, as suggested by a friend. Like it or not, he is the President, but I would be opposed because I find him unfit for the office. The skill set necessary to be the CEO of the world’s dominant democracy is beyond the skill set required for a reality TV show, or even building a global real estate empire on the backs of little people.

My reasons for opposition are his lack of intellectual curiosity, his lack of discipline, his disregard for what I think of as normal social norms, be they respect for women, respect for those who are physically handicapped, respect for anyone whose values do not exactly match his own.

Increasingly, his apparent inability to discipline himself and project a coherent message in support of what are presumably his core values, leaves us with a measure of uncertainty. Uncertainty over time carries with it the very real potential to cause us irreparable harm. Nature abhors a vacuum, and he is creating one that will be filled. When that happens, the outcome could be disastrous. So far he doesn’t seem to care as he insists on digging the hole ever deeper.

He lacks the skill set necessary to effectively lead ALL of us. That’s why I don’t like him.

James Gibney / Aug 11, 2017

American allies have decided Trump is simply not someone they can do business with.

Of all the global consequences of President Donald Trump’s first half-year, surely one of the most surprising is the rise in multilateral diplomacy.

After all, this is the guy who came into office pledging to put America First. He downgraded the security guarantees of the North Atlantic Treaty Organization to a definite maybe — and only if its members ponied up more defense dollars. The Iran nuclear pact was “the worst deal ever,” and the Paris accord on climate change wasn’t much better. The Trans-Pacific Partnership was dead on arrival. Japan and South Korea’s free-riding days were over. The North American Free Trade Agreement was toast. The U.S. would ignore the rules of the World Trade Organization. And from its proposed cuts in foreign aid and United Nations peacekeeping to the empty offices and embassies of the State Department, the Trump administration has made clear how little it thinks of soft power and diplomacy.

But a funny thing happened on the way to the disintegration of the international liberal order. It’s started to reconstitute itself — only not with the U.S. at its center.

Unfortunately, that has less to do with a realization among our allies and partners that the burden must be more equitably shared than with the increasing recognition that Trump is not, as some U.S. diplomats liked to say about third world dictators during the Cold War, “someone we can do business with.”

That sentiment found its most trenchant expression in German Chancellor Angela Merkel’s declaration, following Trump’s May trip to Europe, that the continent “must really take our fate into our own hands.” The net result of the Trump administration’s antipathy to free trade and cooperation on climate change and refugee resettlement was a united front against the U.S. at both the Group of Seven and Group of 20 meetings.

Jilted by the U.S., the other 11 members of the Trans-Pacific Partnership are moving ahead on their own. Canada and Mexico are working together more closely than ever to save Nafta. Asian nations are hedging their bets between the U.S. and China. Trump’s tough talk on Mexico has prompted it to reach out to its hemispheric rival Brazil on defense cooperation.

Serious differences among allies are nothing new. During the Ronald Reagan administration, for instance, hardline U.S. attitudes toward a planned gas pipeline from the Soviet Union to Europe caused a transatlantic breach that strained even the “special relationship” with the U.K. And the call for fairer burden-sharing by American treaty allies — a.k.a. the free riders — is also as old as the alliances themselves, even if Trump turned the volume up to 11.

Yet as destabilizing as Trump’s transactional mindset — we’ll protect you if you pay us — has been, his temperament has been even more destructive. In Latin America, his brash bullying plays to the worst caricature of Yanqui behavior. No wonder the foreign ministers of 12 nations in the Americas who pledged this week in Peru not to recognize Venezuela’s new constituent assembly — a remarkable regional diplomatic achievement — chose to keep the U.S. mostly out of it.

Then there is Trump’s uncoordinated impulsiveness. His “fire and fury” outburst toward North Korea upended earlier efforts by Secretary of State Rex Tillerson and Secretary of Defense James Mattis to reassure South Korea and Japan that the U.S. was not about to put them in danger. Tillerson has seen Trump repeatedly sandbag his efforts to broker a rapprochement among the U.S.’s fractious Gulf allies. And transcripts of Trump’s phone conversations with Australia’s Malcolm Turnbull and Mexico’s Enrique Pena Nieto suggest that both men could be forgiven for thinking they were dealing with Homer Simpson, not the Leader of the Free World.

Every hegemon has a sell-by date, and the U.S. is no exception. Even during the halcyon days of the 1990s — remember when the U.S. was being called a “hyperpower”? — President Bill Clinton’s administration was focused on creating institutions and a rules-based international order that it hoped would constrain China’s economic and strategic rise and extend the half-life of U.S. supremacy. For a variety of reasons, that didn’t work out so well (see: “deplorables”).

In that and other respects, the willingness of other democracies to step up on the world’s non-zero-sum challenges is welcome. Moreover, whether in matters of security or trade, Trump’s strong preference for bilateral deals that allow the U.S. to make the most of its leverage could yield clear benefits. If he and Chinese President Xi Jinping achieve a compact that balances their respective interests, so much the better. That approach could apply to U.S. relations with Japan, the U.K., and other U.S. allies and partners. Strong bilateral agreements, after all, can provide a basis for stronger multilateral ones in years to come.

But even bilateral agreements require a degree of discipline and coordination that Trump has yet to display. For now, Trump’s reflexive trashing of President Barack Obama’s policy choices without offering any coherent alternatives has left the U.S. on awkward ground. It’s one thing for other countries to fill a diplomatic vacuum created by a gradual U.S. withdrawal; it’s another for them to do so in the wake of a scorched-earth retreat. If and when the U.S. recovers its strategic senses, it might find itself reduced to occupying a much less attractive seat at the multilateral table.

This is how much fees are hurting your retirement

Thursday = Retirement Issues

My Comments: Value is in the eye of the beholder. When we need something, and for whatever reason, choose not to do it by ourselves, we spend money. If you are selling advice, or pork chops, or cars, people are going to spend money when they have to.

As a self-styled expert on retirement planning, what you pay for financial advice can run into several percentage points every year. What is your frame of reference that determines if you are getting value in exchange for what you are paying?

Aug 17, 2017 Craig L. Israelsen

This article is reprinted by permission (?) from NextAvenue.org.

The importance of keeping your investment portfolio costs low should be self-evident. They come directly out of your pocket. But you may be surprised to see how much it matters to stick with low-fee mutual funds and Exchange-Traded Funds (ETFs). I’ve run the numbers.

The two primary portfolio costs consist of what’s known as the “expense ratio” of the funds or ETFs (the annual fee charged as a percentage of assets) and the “advisory fee “(if there is a financial adviser involved).

The average expense ratio among all mutual funds is roughly 100 basis points or 1.0% (one basis point is one hundredth of 1%). Assuming an annual advisory fee of 100 basis points, or 1%, the total portfolio cost is 2% (or 200 basis points). At that level, for a diversified fund portfolio with a starting balance of $1 million, the average annual withdrawal for a retiree between age 70 and 95 is about $126,426 (assuming the retiree makes the government’s Required Minimum Distribution or RMD). Remember: this is an average withdrawal figure over a 25-year period; the actual RMD will vary each year based on your portfolio’s performance during the prior year and each year’s RMD percentage.

If the cost of funds in the portfolio is cut in half by using mutual funds or ETFs with lower expense ratios, the overall portfolio cost can be reduced from 2% to 1.5%. By doing so, the average annual withdrawal then increases to $136,218, meaning the retiree will have roughly $10,000 more income each year. That works out to a “raise” of about $830 a month during retirement.

$32,000 more a year in retirement

But you can do even better. It is now possible, by using low-cost ETFs, to build a diversified retirement portfolio for as low as .10% (or 10 basis points). If the advisory fee were reduced by a mere 10% down to .90% (or 90 basis points), the overall portfolio cost could be lowered to 1.0%. At that level, the retiree can withdraw an average of $146,853 each year — or an additional $10,000 annually.

Finally, if the adviser lowered his or her fee to .40% and the fund expenses amounted to .10%, the total portfolio cost would be just .50%. At that level, $158,407 would be the average amount withdrawn each year.

All together, by slashing fund expense ratios from 1.0% to .10% and the advisory fee from 1% to .40%, the retiree could receive $32,000 additional annual retirement income — or roughly $2,600 more each month between the ages of 70 and 95. Clearly, the impact of portfolio costs is huge.

A modern diversified portfolio

Here’s how to put together a low-cost, diversified portfolio that I call the 7Twelve® portfolio. If you use low-cost, actively managed funds from various fund families, the overall fund expense can be as low as .54%. If you use ETFs from various fund families, the cost can drop to .16%. And if you use just Vanguard ETFs, the overall fund expense ratio can be as low as .10% (I have no affiliation with Vanguard; they’re just an investment company specializing in keeping costs low).

The idea of building a diversified portfolio for as little as .10% is not theoretical. It is a reality and can and should be considered.



Craig L. Israelsen, Ph.D., teaches in the personal financial planning program at Utah Valley University in Orem, Utah. He is the author of “7Twelve: A Diversified Investment Portfolio With a Plan” and his website is 7TwelvePortfolio.com.

Neoliberalism: the idea that swallowed the world

Wednesday = Global Economics

If you are anything like me, you’re uncomfortable with the forces at work across society that are creating tension, fear and animosity everywhere you look. When you add the ever present slurs and crude expletives, the message often gets lost. My definition of civility is way out of date. Instead of trying to understand what’s being said, I get caught up in the way the message is told, and ignore the message itself. Everything becomes a pain in the ass.

Do you know what the term ‘neoliberalism’ means? Before I read these comments by Stephen Metcalf, I thought it might be a good thing. Mindful that I’m essentially a liberal, left of center person, he says the term describes a right-wing wish list.

Metcalf suggests that for neoliberals, the the only legitimate organizing principal for humanity is competition. If mom delivers triplets, one baby is going to ultimately get pushed aside. There can only be winners and losers. By extension, if you were born in poverty, or your skin was the wrong color, or your parents were assholes, that’s too bad. If you turned out to be tall and athletic, you might make it to the NBA. It’s everyman for himself and if you come out with the short stick along the way, that’s too f***ing bad. Think Haiti, as an example.

While I personally acknowledge the presence of competition in the grand scheme of things, it’s never a guiding principal behind every outcome. This is a long article, so if you want all of it, you’ll have to click on the ‘read it here’ image.

By Stephen Metcalf August 18, 2017

Last summer, researchers at the International Monetary Fund settled a long and bitter debate over “neoliberalism”: they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism. In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a “neoliberal agenda” for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics. In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left’s traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality.

Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it’s a meaningless insult: they’re the ones most meaningfully insulted by it.) But “neoliberalism” is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses.

Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But “neoliberalism” indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

Still peering through the lens, you see how, no less than the welfare state, the free market is a human invention. You see how pervasively we are now urged to think of ourselves as proprietors of our own talents and initiative, how glibly we are told to compete and adapt. You see the extent to which a language formerly confined to chalkboard simplifications describing commodity markets (competition, perfect information, rational behaviour) has been applied to all of society, until it has invaded the grit of our personal lives, and how the attitude of the salesman has become enmeshed in all modes of self-expression.

In short, “neoliberalism” is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.

No sooner had neoliberalism been certified as real, and no sooner had it made clear the universal hypocrisy of the market, than the populists and authoritarians came to power. In the US, Hillary Clinton, the neoliberal arch-villain, lost – and to a man who knew just enough to pretend he hated free trade. So are the eyeglasses now useless? Can they do anything to help us understand what is broken about British and American politics? Against the forces of global integration, national identity is being reasserted, and in the crudest possible terms. What could the militant parochialism of Brexit Britain and Trumpist America have to do with neoliberal rationality? What possible connection is there between the president – a freewheeling boob – and the bloodless paragon of efficiency known as the free market?

It isn’t only that the free market produces a tiny cadre of winners and an enormous army of losers – and the losers, looking for revenge, have turned to Brexit and Trump. There was, from the beginning, an inevitable relationship between the utopian ideal of the free market and the dystopian present in which we find ourselves; between the market as unique discloser of value and guardian of liberty, and our current descent into post-truth and illiberalism.

Moving the stale debate about neoliberalism forward begins, I think, with taking seriously the measure of its cumulative effect on all of us, regardless of affiliation. And this requires returning to its origins, which have nothing to do with Bill or Hillary Clinton. There once was a group of people who did call themselves neoliberals, and did so proudly, and their ambition was a total revolution in thought. The most prominent among them, Friedrich Hayek, did not think he was staking out a position on the political spectrum, or making excuses for the fatuous rich, or tinkering along the edges of microeconomics.

He thought he was solving the problem of modernity: the problem of objective knowledge. For Hayek, the market didn’t just facilitate trade in goods and services; it revealed truth. How did his ambition collapse into its opposite – the mind-bending possibility that, thanks to our thoughtless veneration of the free market, truth might be driven from public life altogether?