It has become acceptable in the political mainstream to allow that neoliberalism has run its course and no longer serves people well. Even Paul Keating has said it was at a dead end. Now the point is invoked often to explain why the Liberal Party vote has collapsed and voters have turned first to the community independents and now to One Nation.

Of course there are other factors accounting for people’s dwindling support for the old parties, such as government secrecy with the public’s business and governments’ failure to moderate extreme inequality. But inequality is a product of neoliberalism, as is the off-shoring of jobs, the destruction of the union movement and consequent low wage growth and a severe loss of job security.

But it is still not well appreciated that neoliberalism was never going to work, and its failure was evident from the beginning.

An early action of the Hawke-Keating government was deregulation of banks. Banks make most of their profit from making ‘loans’ – though they are not really loans because the money comes from conjuring new money in the banks’ computer accounts with a few key strokes, rather than being from others’ hard-earned savings.

Anyway, after deregulation commercial banks competed to throw money at ‘entrepreneurs’ like Alan Bond and Christopher Skase. There was a big run-up of business debt that fuelled an economic boom through the later 1980s. Excessive debt then triggered a cascade of defaults that ushered in a deep recession. Mortgage interest rates reached as high as 17% and unemployment rose to over 11%. It was, and remains, Australia’s worst recession since the Great Depression.

Keating called it ‘the recession we had to have’, but we didn’t. It was directly caused by the reckless removal of bank regulations. It was the Paul Keating recession.

Apologists since then have claimed neoliberal policies led to an unprecedented thirty-year run of prosperity. By this they mean there was no recession, until the pandemic in 2020. However GDP growth became increasingly anaemic over that period, and a recession during the Global Financial Crisis of 2008 was avoided by the Rudd-Swan government temporarily abandoning neoliberal policy and pumping a lot of government spending into the economy.

Likewise the 2020 Covid recession would have been a lot worse had the Morrison government not also spent big to keep the economy from collapsing.

The economic record of the neoliberal period in Australia, from 1983, is poor. The social effects have been a disaster, as I have written elsewhere.

These results should not be a surprise if you understand anything about the neoliberal ideology. Its economic core is the neoclassical theory of free markets. That is the theory that claims free markets will produce an optimal result, meaning the maximum benefit from minimum input. But real markets don’t work that way.

In real markets, firms strive to maximise profits by any means, and one of the most obvious means is to cut costs. It is the application of this imperative that yielded disastrous results in the aged-care system and put children at risk in the child-care system, the former documented by a Royal Commission. The imperative to cut costs was diametrically opposed to the intention to provide care.

The neoclassical theory is an abstract fantasy based on absurd assumptions, such as that we can all predict probabilities of future events, there are no economies of scale, social factors do not influence markets, and others. Change any one of these assumptions and you lose the optimality result, and the foundation of the neoliberal ideology collapses. Many economists have pointed this out over a very long period, but they have always been marginalised and their voices drowned out by what James Galbraith calls a politburo for correct economic thinking.

Neoliberalism was never going to work because it is based on a radically false conception of the world, and the evidence is clear that it has not worked as claimed.

There is no basis in theory or practice for the claim that free markets will produce an optimal result, let alone a desirable result. Apparently this is a deeply dissonant and disturbing claim because the message just bounces off and never gains traction, such has been the saturation of our culture with the message that free markets are best. Though the arguments and evidence are straightforward, the conclusion has been suppressed and the false neoliberal doctrine has retained its stranglehold on mainstream politics.

That may be starting to change, after more than four decades of misgovernment.