Reckoning With Competitive Capitalism

“There exists an obvious fact that seems utterly moral:
namely, that a man is always prey to his truths”

Albert Camus, The Myth of Sisyphus and Other Essays (1955)

I wrote a post about 2½ years ago (Aug. 31, 2017) with the same title as this one. It referred to University of Connecticut law professor James Kwak’s book Economism, which warns against “the pernicious influence of economism in contemporary society.” Prof. Kwak defines “economism” as “a distorted worldview based on a misleading caricature of economic knowledge,” and makes the case that free market ideology is guilty of it:

“The competitive market model can be a powerful tool, but it is only starting point in illuminating complex real-world issues, not the final word. In the real world, many other factors complicate the picture, sometimes beyond recognition.”

As we’ve seen, free market economic theory is based on the assumption of a “pure” capitalist state. Prof. Kwak calls for a new approach that meets the complex challenges of real life:

“Real change will not be achieved by mastering the details of marginal costs and marginal benefits, but by constructing a new, controlling narrative about how the world works.”

“Reckoning” means “a narrative account” and “a settling of accounts,” as in “Day of reckoning.”[1] A reckoning on economic policy therefore begins with an examination of  whether the prevailing ideology actually delivers what it theoretically promises. Honest reckoning is hard, because the neural circuits of our brains are predisposed to maintain status quo and resist change to both individual and cultural belief systems. The difficulty is amplified when fundamentalist ideology is at play, because  reckoning threatens historical cultural mythology, which is tantamount to sacrilege.

 “History is powerful. George Santayana’s warning that ‘those who cannot remember the past are condemned to repeat it’ rings true because the past influences the present.

“Unfortunately, history’s power does not depend on its accuracy:  A widely believed historical lie can have as much impact as a historical truth.

“President John F. Kennedy explained to Yale’s graduating class of 1962 that ‘the great enemy of the truth is very often not the lie — deliberate, contrived, and dishonest —  but the myth — persistent, persuasive, and unrealistic. Too often we hold fast to the clichés of our forebears…. We enjoy the comfort of opinion without the discomfort of thought.’”

The Founding Myth, by Andrew L. Seidel (2019)

Change that breaks with predominant ideologies and historical cultural myths requires more than individual changes of opinion:  it needs shifts in cultural belief and practice, and a willingness to learn from history. The odd are stacked against it, for reasons Pulitzer prize winning war correspondent Chris Hedges describes in War is a Force That Gives Us Meaning (2014):

“Every society, ethnic group or religion nurtures certain myths, often centered around the creation of the nation or the movement itself. These myths lie unseen beneath the surface, waiting for the moment to rise ascendant, to define and glorify followers or member in times of crisis. National myths are largely benign in times of peace…. They do not pose a major challenge to real historical study or a studied tolerance of others in peacetime.

“But national myths ignite a collective amnesia in war. They give past generations a nobility and greatness they never possessed…. They are stoked by the entertainment industry, in school lessons, stories, and quasi-historical ballads, preached in mosques, or championed in absurd historical dramas that are always wildly popular during war.

“Almost every group, and especially every nation, has such myths. These myths are the kindling nationalists use to light a conflict.

“Archeology, folklore, and the search for what is defined as authenticity are the tools used by nationalists to assail others and promote themselves. They dress it up as history, but it is myth.

“Real historical inquiry, in the process, is corrupted, assaulted, and often destroyed. Facts become interchangeable as opinions. Those facts that are inconvenient are discarded or denied. The obvious inconsistencies are ignored by those intoxicated with a newly found sense of national pride, and the exciting prospect of war.”

All of this makes the Business Roundtable’s Statement on the Purpose of a Corporation and the World Economic Forum’s Davos Manifesto (we looked at them last time) all the more remarkable, since they defy four decades of the prevailing economic myth that “The [sole] social responsibility of business is to increase its profits.”

On the other hand, a recent administrative order imposing work requirements on food stamps recipients offers an equally remarkable example of myth-driven policy-making. According to ABC News (Dec. 4, 2019), proponents say the move will “restore the dignity of work to a sizable segment of our population” — clearly a nod to the cultural myth that anybody with enough gumption (and enough education, funded by the newly nationalized student loan industry) can work their way out of poverty, and if they don’t, it’s their own fault. As we’ve seen, data to support this way of thinking has long been absent, but the myth prevails, and never mind that “all the rule change does is strip people from accessing the benefit,” that the food stamp program “is intended to address hunger and not compel people to work,” and that “those affected are impoverished, tend to live in rural areas, often face mental health issues and disabilities.”

Economism was published on January 10, 2017, just shy of three years ago as I write this. Today’s “Reckoning” post was inspired by a Time Magazine cover story last month:  How the Elites Lost Their Grip: in 2019, America’s 1% behaved badly and helped bring about a reckoning with capitalism, Time Magazine (Dec. 2-9, 2019). We’ll look at what it says about economic reckoning next time.

[1] Etymology Online.

Utopia

utopia-fox

“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”

John Maynard Keynes

We met law professor and economics visionary James Kwak a few months ago. In his book Economism: Bad Economics and the Rise of Inequality (2017), he tells this well-known story about John Maynard Keynes:

“In 1930, John Maynard Keynes argued that, thanks to technological progress, the ‘economic problem’ would be solved in about a century and people would only work fifteen hours per week — primarily to keep themselves occupied. When freed from the need to accumulate wealth, the human life would change profoundly.”

This passage is from Keynes’ 1930 essay:

“I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue–that avarice is a vice, that the exaction of usury is a misdemeanor, and the love of money is detestable, that those who walk most truly in the paths of virtue and sane wisdom are take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not neither do they spin.”

The timing of Keynes’ essay is fascinating:  he wrote it right after the original Black Friday and as the Great Depression was rolling out. Today, it seems as though his prediction was more than out of time, it was just plain wrong. Plus, it was undeniably utopian — which for most of us is usually a warning sign. Someone says “utopia,” and we automatically hear “dystopia,” which is where utopias usually end up after “reproduc[ing] many of the same tyrannies that people were trying to escape: egoism, power struggles, envy, mistrust and fear.” “Utopia, Inc.,” Aeon Magazine.

commune family

It’s just another day in paradise
As you stumble to your bed
You’d give anything to silence
Those voices ringing in your head
You thought you could find happiness
Just over that green hill
You thought you would be satisfied
But you never will-

The Eagles

To be fair, the post-WWII surge truly was a worldwide feast of economic utopia, served up mostly by the Mont Pelerin Society and other champions of neoliberal ideology. If they didn’t create the precise utopia Keynes envisioned, that’s because even the best ideas can grow out of time:  a growing international body of data, analysis, and commentary indicates that continued unexamined allegiance to neoliberalism is rapidly turning postwar economic utopia into its opposite.

But what if we actually could, if not create utopia, then at least root out some persistent strains of dystopia — things like poverty, lack of access to meaningful work, even a more even-handed and less unequal income distribution? Kwak isn’t alone in thinking we could do just that, but to get there from here will require more than a new ideology to bump neoliberalism aside. Instead, we need an entirely new economic narrative, based on a new understanding of how the world works:

“Almost a century [after Keynes made his prediction], we have the physical, financial, and human capital necessary for everyone in our country to enjoy a comfortable standard of living, and within a few generations the same should be true of the entire planet, And yet our social organization remains the same as it was in the Great Depression:  some people work very hard and make more money than they will ever need, while many others are unable to find work and live in poverty.

“Real change will not be achieved by mastering the details of marginal costs and marginal benefits, but by constructing a new, controlling narrative about how the world works.”

Rooting out the persistent strains of economic dystopia in our midst will require a whole new way of thinking — maybe even some utopia thinking. If we’re going to go there, we’ll need to keep our wits about us. More on that next time.

Economic Inequality Statistics

My research on economic inequality consistently turns up three key points:

  1. since the 80’s, there has been an ever-widening gap in incomes and capital ownership between the rich and poor,
  2. the gap has been growing at an accelerating rate, especially since the year 2000, and
  3. this phenomenon is worldwide.

So what?

As I’ve mentioned before, many U.S. economists and policy-makers greet those findings either with indifference or as a clarion call to defend endangered capitalism, while their international counterparts find them alarming. We’re talking about them here because it turns out that economic inequality has a lot to do with happiness and meaning at work. (Stay with me — we’ll get there, we’re just taking the scenic route.)

We all know that it’s easy to mold statistics to fit opinions — here’s a neurologist’s take on Why People Can’t Agree on Basic Facts. Any stats we look at here will have been pre-sorted, pre-analyzed, and pre-interpreted. My goal today is to provide a sampling of statistics from a variety of global sources — starting with a quote about how the new global super-rich are a bunch of economic data curve busters, which makes finding honest data even harder.

plutocrats“The skew toward the very top is so pronounced that you can’t understand overall economic growth figures without taking it into account. As in a school whose improved test scores are due largely to the stellar performance of a few students, the surging fortunes at the very top can mask stagnation lower down the income distribution.

“Consider America’s economic recovery in 2009-2010. Overall incomes in that period grew by 2.3 percent — tepid growth, to be sure, but a lot stronger than you might have guessed from the general gloom of the period. Look more closely at the data, though… and it turns out that average Americans were right to doubt the economic comeback. That’s because for 99 percent of Americans, incomes increased by 0.2 percent. Meanwhile, the incomes of the top I percent jumped by 11.6 percent.”

Plutocrats:  The Rise of the New Global Super Rich and the Fall of Everyone Else (2012), by Canadian journalist and politician Chrystia Freeland.

kwak“Across the developed world, vast fortunes are again ascendant. In the United States, the top 1 percent take home a larger share of total income than at any time except the late 1920’s. The total wealth of the world’s billionaires has quadrupled in the past two decades (even when the definition of “billionaire” is adjusted for inflation).

“In the 1950’s, a typical CEO of a large company took home as much money as twenty average employees; today he makes as much as two hundred workers.”

Economism (2017), by UConn law professor James Kwak.

the wealth of humans“In 2014, the inflation-adjusted income of the typical American household was just 7 per cent higher than it was in 1979. By contrast, the income of a household in the 95th percentile of the income distribution grew 45 per cent over that period.”

The Wealth of Humans:  Work, Power, and Status in the Twenty-First Century (2016), by Ryan Avent,  a thoroughly Anglicized American who works as a senior editor and economic columnist for The Economist.

the fourth industrial“[C]ompare Detroit in 1990… with Silicon Valley in 2014. In 1990, the three biggest companies in Detroit had a combined market capitalization of $36 billion, revenues of $250 billion, and 1.2 million employees. In 2014, the three biggest companies in Silicon Valley had a considerably higher market capitalization ($1.09 trillion), generated roughly the same revenues ($247 billion), but with about 10 times fewer employees (137,000).”

The Fourth Industrial Revolution (2016), by German engineer and economist Klaus Schwab, Founder and Chairman of the World Economic Forum.

Prior to the 2017 World Economic Forum annual meeting of world leaders, U.K.-based Oxfam International issued a report that offers a fascinating slant on Schwab’s comments. According to the report:

“Eight men now control as much wealth as the world’s poorest 3.6 billion people… The men — Bill Gates, Warren Buffett, Carlos Slim, Jeff Bezos, Mark Zuckerberg, Amancio Ortega, Larry Ellison and Michael Bloomberg — are collectively worth $426 billion.”

As reported by CNN.

“By contrast, half the planet’s population, some 3.6 billion people, have a combined wealth of $409 billion.”

As reported by The Mirror Online (the U.K.’s “intelligent tabloid”).

Not only are the Elite Eight collectively worth more than the lower half of the world’s entire population, each individual member of the group is worth more than the combined market capitalization of Detroit’s three largest companies 27 years ago. The Mirror also noted this about the study:

“The report found that between 1988 and 2011 the incomes of the poorest 10% increased by just $65, while the incomes of the richest 1% grew by $11,800 – 182 times as much.”

A couple years ago, Credit Suisse’s Global Wealth Report 2015 reported that half of the world’s assets were controlled by the top 1% of the global population, while the lower half owned less than 1%.

There’s plenty more where all of that came from. In fact, there’s such an abundance of global data and opinion on the topic that, if nothing else, it’s probably safe to conclude that economic inequality either really is a problem or, even if it’s not, a whole lot of people around the world sure seem to think it is.

We’ll continue our economic inquiries next time.

Reckoning

“What would you do if money were no object?”

Nonsense. Money is always an object. We always have to deal with it.

And now, more than ever, we need to deal with it from a fresh perspective, says University of Connecticut law professor James Kwak, whose book Economism warns kwakagainst “the pernicious influence of economism in contemporary society.” He defines “economism” as “a distorted worldview based on a misleading caricature of economic knowledge.” Most of us learned what we know about economics in Econ 101, he says, and haven’t moved on since then, while the world of economics has.

“The competitive market model can be a powerful tool, but it is only starting point in illuminating complex real-world issues, not the final word. In the real world, many other factors complicate the picture, sometimes beyond recognition.

“Still, the answer to econonism is not to reject economics altogether. Rather, the immediate antidote to economism’s simplistic model of reality is more and better economic analysis, which can help identify the fundamental drivers of social phenomena or select the most effective solutions to difficult problems.”

His fresh take on “more and better economic analysis” exposes the limitations of theoretical models, statistical analysis, empirical research, laments the academic turf wars fought over them, and acknowledges that the study of economics “does not provide a single, simple answer to all questions.” Still, he says, taking a fresh look at economics “ is a crucial step in throwing off the blinders of economism.”

We’ll hear more from Prof. Kwak in subsequent posts, but first we might consider where we stand on this perspective from Albert Camus:

“There exists an obvious fact that seems utterly moral:  namely, that a man is always prey to his truths. Once he has admitted them, he cannot free himself from them. One has to pay something.”

From The Myth of Sisyphus and Other Essays (1955)

Who am I to disagree with Albert Camus? But on this point I do:  I believe that exposing our truths is a critical first step to getting free from them. And I agree with James Kwak that it’s time we reckoned with the truths we hold about economics.

“Reckon” comes from Old English (ge)recenian — “to recount or relate” — and from Dutch rekenen and German rechnen, meaning “to count.” To reckon with our attitudes about money and work, happiness and meaning, means to bring our truths about those topics out into the open where we can evaluate whether they’re making us prey or setting us free. If we don’t do that, we’ll just keep mindlessly paying the price of holding them — wishing we could be Richard Cory, keeping ourselves in a state of meaningless malaise that sometimes — in the case of suicide — literally threatens our existence.

Lots more on economics coming up.

James Kwak is one of those guys:  before graduating from Yale law School, he earned a Ph.D. in Intellectual history from UC Berkeley and had a career as a management consultant and software entrepreneur. For a sense of his perspective, check out his article The Curse of Econ 101 from earlier this year.

alan watts cartoonAlan Watts bridged the East/West philosophical divide. Today, many of his quotes read like a treasure trove of pop psychology advice. The title of his book The Wisdom of Insecurity: A Message for an Age of Anxiety is certainly as relevant for our time as it was when first published it in 1951.