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The Economic Myths Supporting The Existence Of Billionaires

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This post contains links to other posts in this series.

I started this series by identifying the major causes of the problems we face with the MAGA movement spawned by Trump and glommed onto like leeches by fascists, Christian Dominionists, White Supremacists, anti-vaxxers, the grifters behind the manosphere and so many other creeps and perverts. In this post I offer a thought on dealing with the filthy rich.

My suggestion is to unlearn the stupid ideas about capitalism that dominate our education system and our political discourse. Replace them with something approximating reality.

Background

Since the beginning of this country, the filthy rich have hated democracy, arguing that the masses would use the power of government to seize their wealth and reduce their power. The filthy rich of the day hated FDR, and worked to destroy his legacy.

As part of that campaign, they linked capitalism to democracy, so that if you didn’t support their views of capitalism, if you even asked questions about it, you were a commie, an enemy of democracy. They became vocal advocates of the simple-minded economics we were all taught in high school and/or college, and spent massive sums to eradicate all alternatives. My first econ course was taught out of Samuelson on Economics, editions of which are still standard in colleges.

I’ve written extensively about this here at Emptywheel. Some of those posts don’t hold up well, but all of them raise substantial questions about the economic theories underlying neoliberal capitalism. Search the site for Jevons, for example. The ideas that underlie marginal utility spring from the utilitarian philosophy of Jeremy Bentham. I hope we’ve all outgrown that.

Of course, there may be some value in the simple models of Econ 101. But all of it is open to question, and all of it requires more justification than “Mankiw said so in his textbook”.

Examples

1. Trickle-down. Surely there is no one left who seriously believes that trickle-down theory has any merit other than as a laugh line. But versions of it are everywhere. Here’s a Bluesky post by Mark Cuban, one of the filthy rich.

Want to use rich people like me to your advantage? Incent us to help those who need it the most. Lower corp taxes for comps that pay a min of $25 per hour. Lower corp taxes if employees get stock at the same pct as the CEO. Bottom up incentives work. Dems never innovate. They bitch

This is a form of trickle-down. Give the filthy rich a tax cut, and the benefits will trickle down to someone. Only, of course, that’s not how things work. Corporations won’t do that unless the benefits outweigh the costs. The tax cuts have to be at least equal to the cost of raising wages. Companies that already pay close to $25 per hour will get a tax cut greater than the cost of raising wages. Companies that pay substantially less won’t raise wages, meaning the worst-paying jobs in the worst industries won’t benefit.

The Chicago Bears don’t like Soldier Field, and want the city to build them a new stadium. They tell us we Chicagoans will benefit from having a new stadium so we should pay for it to encourage them to build it. Well, the Bears owners benefit from being in our city, which is a much greater value. What do they think the TV market looks like in Omaha? The owners are rich. If they were capitalists, they’d build it themselves.

Wages

I wrote a post on the justification for allocation of the profits from business activities. Please read it. It’s a good example of the kind of nonsense smuggled into economic analysis using simple-minded models. The argument from the standard economics text begins by assuming we live in a competitive capitalist system. We don’t. The model fails at the outset.

But worse, it hides the reality that everything in the real world is set up by people who already have power and wealth. Why would such a system benefit anyone other than the people who set it up, except by accident? Consider the enclosure laws which drove people into “dark Satanic Mills”, as William Blake called them in his short 1810 poem Jerusalem.

The Econ 101 model hides the fact that the allocation of income is a political issue, and that workers can and should fight for a bigger share than the mingey allocation authorized by John Bates Clark and his Natural Laws.

Land

Capitalism is built on ownership of private property. Much of English history is bound up in the struggle of aristocrats to hold onto their property against the power of the monarch. Here’s John Locke in his Second Treatise on Government, Chapter V, § 32:

But the chief matter of property being now not the fruits of the earth, and the beasts that subsist on it, but the earth itself; as that which takes in and carries with it all the rest; I think it is plain, that property in that too is acquired as the former. As much land as a man tills, plants, improves, cultivates, and can use the product of, so much is his property. He by his labour does, as it were, inclose it from the common. Nor will it invalidate his right, to say every body else has an equal title to it; and therefore he cannot appropriate, he cannot inclose, without the consent of all his fellow-commoners, all mankind.

Is it that plain? I can see why the usufructs of the land collected by this guy should be his, whether he raised them himself or merely found them. But what is the source of his claim to the earth itself? And why does it survive him and go to his heirs? And why is he allowed to sell it and keep all the money? Locke doesn’t say.

And indeed, it seems plain to me that these questions are obscured by Locke’s assertions. Doubtless it was true of the monarch, because the monarch had armed troops to back him up. But why should it be true now? And whatever the justifications might be, are there no limits?

Here’s one perspective. Our ancestors drove the Native Americans off the land and claimed much of it for the government. The railroads wanted incentives to build out their systems (see trickle-down), so the government gave them a big chunk of the land. Then the railroads sold it. A public resource was turned into cash by the rich. How would Locke explain that? What would be today’s equivalent? Giving leases to oil companies to drill on our national forests? Is that cool?

Conclusion

These are three examples of the simple-minded capitalism that infests our minds. From this kind of tripe, we get ideas about intellectual property in gene sequences, and patents on computer code. Why though? We did it without thinking.

Now it’s time for those of us who can to start thinking about these foundational idea. They were given to us by people like Adam Smith or William Stanley Jevons, as are all our ideas. And mostly they no longer describe reality. When they’re gone, replaced by something better, how can the filthy rich justify their wealth and power?

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MMT and Mainstream Economics

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Posts in this series. This post begins with links to all posts in this series.

In The Deficit Myth Stephanie Kelton explains in lay terms the fundamental ideas of Modern Monetary Theory and shows that they can be used to organize a economy that works for everyone. Throughout this series I have occasionally pointed to ways that MMT differs from mainstream economics. In this post I will try to get those ideas organized.

1. Elements of Mainstream Economics.

Let’s start with this quote from the J.W. Mason review of the book:

But in my view it’s better—both more accurate and more productive—to see [MMT] as a body of arguments within an older Keynesian tradition of economics. Contrary to the sense you might get from both supporters and detractors, it’s not a crystalline logical structure where, if you remove one piece, the whole thing collapses. Rather, like most emerging bodies of thought, it’s a ramshackle assemblage of parts built at different times for different purposes, tied together with loose solder of association and inference rather than tight bonds of deduction.

The boldfaced part of this sounds to me like a fair description of mainstream economics. We can see some of the assumptions and axioms of mainstream economics in this list by Harvard economist and textbook author N. Gregory Mankiw of ten things economists agree about. The link is a good refresher course in introductory economics.

One crucial assumption is that rational people think at the margin. By “rational” Mankiw means “systematically and purposefully doing the best you can to achieve your objectives.” [1] This is a reference to marginal utility theory, invented by the mathematician William Stanley Jevons around 1870. Jevons’ book is premised on the utilitarianism of Jeremy Bentham. [2] Marginal thinking pervades mainstream economics. [3]

As an example, consider the notion of Pareto Optimality, invented by Vilfred Pareto, another early economist with a STEM background. The idea is that we add up all the individual utilities of all the members of a society at a point in time and get a total. If we change some policy, it will affect the individual utilities. If the new policy makes some people better off and doesn’t make anyone worse off, we approve the policy.

So, for example, suppose a corporation has excess cash. It could distribute the money to shareholders or it could give raises to all the workers who created the excess. Either way is fine under Pareto Optimality. In the real world, the money goes to the shareholders, and the workers are rightly hostile about their stagnant wages. If you don’t like this as a normative principle, you’ll really despise Kaldor-Hicks Optimality.

Other things that went into the early stages of economic theory are based on conditions at the time. That’s why we see the word “markets’ taking a central place. No one thinks that markets of today bear any resemblance to the markets known to Jevons or Adam Smith. It’s also why commodity money, like gold, has a central place, even though the US has only offered fiat money for decades. And it’s one reason we have this mystic reverence for capital and capital accumulation, which we have been taught was the engine of our current prosperity. This reading of history obscures the roles of slavery, government give-aways of land and mineral rights to the wealthy, and the misery of the recessions that unbridled capitalism created.

We have completely forgotten why we have these ideas. We don’t realize that we are centering the ideas of Jeremy Bentham. We never ask why we should prioritize maximizing utility for each individual, or ask ourselves what the balance is between the utility of the day, the decade, or the nation or our children might be. We forget the role of enslavement in the accumulation of capital, and deny the role of government. We ignore the damage capitalism has done to hundreds of millions of us over our history. We don’t question the need for more and more capital accumulation to push the economy where we want it to go. We don’t even ask what ends we want the economy to fulfill. We think and act like we are still on the gold standard.

I realize that many mainstream economists are more or less conscious of all this. But this is the thinking that dominates in our political discourse about the economy. All our politicians, most reporters and pundits (and all right-wing reporters and pundits), and most of us, think and act as if in essentials the “economy” is the same today as it was 150 years ago.

There is a strong tendency in mainstream economics to treat the status quo as if it were the result of the operations of natural laws. This tendency is illustrated in first part of this post.

2. MMT as an alternative.

MMT proceeds from a completely different place. It has no roots in philosophy. It seems to me that MMT is in the tradition of Pragmatism, the American philosophy of Charles Peirce, William James and John Dewey. [4] MMT starts with questions: what is money, and how does it work in our economy? There is no normative principle at work. MMT theorists proceed empirically, studying the way we use money throughout our economy. Money is a thing, and we need to understand its nature and its use. A big part of The Deficit Myth is devoted to examining these questions.

Separate and apart from this inquiry, we need to ask ourselves what we think makes for a good society. This inquiry isn’t about money or the economy, but about our goals. [5] In the US we make these decisions democratically. [6] We elect leaders by majority rule, and we lean on them to legislate and enforce our preferred policies. MMT shows that we can have legislative policies that support our overall desires. That claim, that we can have the things we want, is the real lesson of The Deficit Myth.

Of course, MMT doesn’t attempt to overthrow the entire edifice constructed by mainstream economics. Pragmatic theory says that we only change what we have to as our understanding improves. This means, for example, that ideas formed from an examination of data about other parts of the economy are not necessarily overturned by MMT. But even so, the ideas of MMT are a tool for examining the entire structure.

Conclusion.

Both political parties agree that our society can’t have what we want an need because there is no money, so we must suffer the status quo. Speaker Pelosi tells us she will impose PAY-GO. Joe Biden’s adviser Ted Kaufman says that we can’t do anything because “When we get in, the pantry is going to be bare.” In practice, this means we can only have whatever the richest people think is best for us. It’s not true. Speaking personally, it makes me angry when I see it in practice, long lines at food banks, people forced to risk their health to earn enough to eat, lead-ridden water systems in Flint and elsewhere, to name a few.

We need politicians who can read Kelton’s book. Those politicians need advisers who have studied the expanding literature of MMT. Mainstream economics is a dead end for our nation, and it will take the rich down with the rest of us as the planet catches fire and we suffer one horrible disaster after another.

Note: this is the last post in this series. Please feel free to use the comments to ask any questions or comment on any aspects of MMT.
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[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] I don’t qualify as rational under this definition. My objectives are rarely systematic, and often I’m not conscious of them. They change from time to time based on my understanding of possibilities and probabilities, as well as contacts with my fellow humans directly and through books. The closer people are to me, the more they have the ability to influence my objectives. Many of the systematic efforts I’ve made failed and others have to be realigned with new and different objectives. And it’s absurd to think that most of my everyday purchases are made with some objective in mind beyond passing fancies. I’m too lazy to change things unless I have to, so often I stay with one system when another would be cheaper and better. And so on.

[2] Jevons’ book, Principles of Economics (1871), is available to read online. It’s an effort to put Bentham’s theories of utilitarianism into the form of a calculus of pleasure and pain. This is from the Preface to the Second Edition:

As to Bentham’s ideas, they are adopted as the starting-point of the theory given in this work, and are quoted at the beginning of chapter ii.

[3] I look at these ideas in several posts, here among others.

[4] I give a short primer on Pragmatism in three posts, here, here, and here.

[5] This question is beyond this series, but I can offer something on the edge of philosophical as a starting place: The Needs Of The Soul, a short essay by Simone Weil. Or listen to a podcast by Partially Examined Life, episode 250.

[6] This is not the place to discuss the problems with our democracy, which I acknowledge are great.

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