Neo-Liberal Economic Policy: Critical Essays, edited by Phillip Arestis and Malcolm Sawyer. Cheltenham, UK and Northampton, MA, USA: Edward Elgar. 2004. Cloth: ISBN 1 84376 794 5, $100.00. 241 pages.
This is another in the series of articles and books Arestis and Sawyer have written or edited since 2000, which explain and critique neo-liberalism and the "new consensus" regarding macroeconomic policy. Neo-liberalism begins with the assumption that the economy will automatically find optimal or at least satisfactory levels of employment, national income and growth. The only necessary role for state intervention is to prevent inflation with correct monetary policy. This represents a retreat from the post-War consensus that government needed to intervene with fiscal policy, income policy, industrial policy, and planning in order to ensure satisfactory economic performance and social harmony. The book consists of seven chapters, two coauthored by Arestis and Sawyer. Most of the chapters are case studies of specific countries' experiments with neo-liberal economic policy.
The theoretical foundation for the "new consensus" regarding policy is largely derived from New Keynesian macroeconomics. Arestis and Sawyer discuss some of the key shifts in policy in Chapter 1: (1) a retreat from fiscal policy toward reliance upon monetary policy, coupled with an emphasis upon the goals of low inflation and price stability at the expense of employment and growth; (2) the argument that unemployment is caused by labor market "inflexibility," so that reducing unemployment requires restructuring labor markets--code for reducing job tenure, abandoning minimum wages, reducing the generosity of unemployment benefit systems, doing away with regional and national wage setting institutions and long term labor contracts, and attacking the power of trade unions; (3) the liberalization and deregulation of markets, especially financial markets, and opening economies to both trade and capital flows; (4) connected with the reliance upon monetary policy is the argument that central banks must be made "independent" of governments and the electorate in order to ensure "time consistency" and "credibility" in the eyes of financial market participants; this is seen as instrumental to achieving price stability and low interest rates.
In Chapter 2, "The theory of credibility: confusions, limitations and dangers," James Forder considers the implications of the latter proposition...