You keep moving the goal posts. You keep defining what was a failure as what you see as a failure.
People have grumbled about the economy, Butt here was no mass starvation, extremely large unemployment (look at most of the world and 10% looks amazing), people could keep buying ipads and playstations, the credit markets stayed open.
The system worked by any real measure, nothing collapsed. What we had was a continuation of previous trends of stagnate wages and increasing social inequality. Nobody was convinced of doing any real 'liberal' things to fixed it because the liberal system set up in the 20th century like unemployment, ss, counter-cyclical spending kicked in and did what they were supposed to do.
I really want to push back against this notion that the "system" worked. If you define working as "not completely collapsing to the point where the very stability of our society is threatened like during the Great Depression", then yes, it "worked". That is an unacceptably low bar to clear, however. Prior to 2008-2008, at the very least the economic system (which I'd define as monetarism + military Kenysianism) was maintaining close to full employment (defined as 4-5% unemployment, which is assumed to be frictional) and providing people with basic necessities like housing and education.
As I said before, currently unemployment is above 6%, we are having a housing crisis in major American cities, and student debts along with lack of opportunity are preventing many young people from starting families at the same age their parents did, if at all. In addition, vital services are being cut in cities nationwide because of budget shortfalls related to the poor economy. An economy that fails to provide basically necessities like housing, education, and jobs is not a functioning one.
The whole thing might have been unsustainable, and all the things like rising inequality that you cite might have been happening, but at the very least the economy was functioning well enough to do the things I mentioned. All that ended the minute the Fed cut rates to zero and nothing happened. At that moment, the economic system in place since the 1980's stopped working.
Quite simply, even on its own terms, the system is broken. According to New Democrat/New Labor/Neo-Liberal/Compassionate Conservative ideology, a "free market" combined with government intervention in narrow areas of market failure, such as externalities caused by pollution, is the best way to ensure a prosperous society. Instability and suffering caused by the business cycle are supposed to be dealt with via Federal Reserve action and a publicly funded "safety net".
None of that works right now. In economic theory, by definition, unemployment is wasteful and evidence of economic dysfunction. Even worse, the "free market" is supposed to guarantee prosperity by ensuring an efficient allocation of goods due, in part, to mechanisms of creative destruction whereby wasteful or unneeded businesses are allowed to go bankrupt so that capital and labor is better allocated elsewhere. Because the Fed is basically supporting private banks, and through them, the entire housing market and really the entire economy, the natural corrective methods through which the free market is supposed to ensure an efficient (not to mention moral) distribution of resources is broken.
As I said previously, the Obama administration rescued a zombified version of the post-Reagan (really post Carter) American economic system. That system no longer gives society what it once did (flaws and all). Intellectually you can see of evidence of the system's collapse in the fractured opinions of the technocrats who were supposed to run it. To name two examples of the pre-2008 consensus, people used to call Allen Greenspan "the maestro" and I think it was Larry Summers who said something to the effect of "we are all monetarists now". That consensus is broken, to say the least. You won't really find many monetarists anymore. What you will find are, on the American left, "Kenysians" who generally advocate more aggressive fiscal policy, and on the right, what basically amount to Austrians/neo-mellonists who advocate jacking interest rates or abolishing the Fed. How can you have a working system that doesn't even have an agreed upon set of ideas on how to run it and that fails on its own terms?
Neo-liberal is extremely hard to define. Sometimes it feels like it's only lassie-faire with the exception of monetary policy, sometimes it feels like full Keynesian just with less regulation. I guess even Larry Summers was pushing for more demand side stimulus, and he's a big time neo-liberal, so in that case maybe I have no qualms with the neo-liberal ideas to fix the problem.
My main problem is that the neo-liberals did not see it coming, or try to prevent it from happening in the first place. They still don't really have a good explanation for why it happened or how we can avoid it in the first place. Classical lasse-faire economists can cite the housing incentives, and Post-Keynesian economists can cite people like Minsky who was warning of speculative bubbles arising from the financial sector with no regulation, but how can neo-liberals explain it? I have not seen anything suggesting some form of regulation caused the problem, and the problem was way too large for a night watchmen approach to really take care of it before it caused major pain.
As far as I'm concerned, neo-liberals deserve the bad rap they get until they can give a good answer as to how to change something to make it not happen again.
Personally, I'm hesitant to use terms like neo-liberal because right now it functions more as an insult than anything else. If you just look at the word, with "neo" before the word "liberal", it literally means "a new or revived form of liberalism". The liberalism to which the label refers is the classical liberalism of the 19th century that emphasized free trade and laissez-faire economics. The "new" part of the label was emphasized during the 1930's when fascism, communism, and socialism emerged as serious ideological contenders to 19th century liberalism in the face of the economic failures of laissez-faire economics and unregulated capitalism in general, so liberal thinkers added a strong regulatory and state component to liberal ideology to ensure that market outcomes benefited the majority of people. In the 1970's I think the "revived" part of the label was emphasized to refer to the return of classical liberalism in the form the Austrian and Chicago schools. It was also during that time that the term began to be used a pejorative......
I any case, I agree that whatever you want it to call it, the pre-2008 consensus has a lot to be called to account for.
Also, I apologize for the long post. It's just that this topic fascinates me, so it is easy to write about when I should be doing something else.........
