The Political Economy of Neoliberal Narratives

Abstract

This paper develops a canonical approach to incorporating narratives into standard models of political competition. Politicians supply narratives to win elections, and voters demand narratives that suit their interests, based on motivated reasoning. We apply this framework to study the rise of neoliberal narratives that emphasise the trickle-down benefits of deregulation. We provide insights into why neoliberalism gained traction following the 1970s oil shocks, and how it evolved into a new consensus narrative, sometimes called the Third Way. Our framework shows how temporary economic shocks can lead to a narrative dynamic that permanently alters policy choices.