Class Based Economics

from Peter Radford

Buried somewhere in the pile of stuff I have accumulated as I think about inequality are these statistics:

1. Of all the income generated between 2009 and 2011 in the US 121% went to the top 1% of income earners
2. The top 1% owns just over half of all investment assets including 64.4% of all bonds
3. And, the bottom 90% incurs 72.5% of all debt

Think through the consequences of these numbers.

Basically we have an economy where the top 1% reaps all the rewards; where less well off people constantly fall further behind; and where the top folk lend to the bottom folk so that the less well off can keep on consuming and thus boosting the profits of the businesses the top folk own. This is a nice game for the rich as long as it lasts. Here in the US that would be the past forty years or so.

This is really simple.

It explains why our economic policies focus on preserving creditors, bailing out lenders, and keeping the inflation alarms ringing even when there is no inflation. Those policies benefit the top 1%. Those policies are advocated for and set by the people who will benefit from them. That a healthy does of inflation would alleviate the debt burden on those down the income ladder is scoffed at by those in power. Inflation, not unemployment, is the true bogey man of central banks everywhere because it is the bogey man of the wealthy.

This is simple class economics.

It also helps explain why the economic theories that undergird such policies endure remarkably despite being thoroughly debunked both intellectually and empirically. That Robert Lucas can argue that the distribution of income is both inconsequential and harmful to study is more a statement about his total lack of scientific standing than it is about the economy. Inequality matters. It matters hugely. To those in the economy if not to economists. And, contrary to the mystical ravings and incantations of those who defend “free” markets, said free markets have no internal equilibrating mechanism to combat or offset the workings of capitalism.

Capitalism naturally begets inequality and thus needs to be repressed whenever inequality reaches an unacceptable level. The repressive force is known to us all as democracy, within which the much feared mob asserts itself and forces the redistribution of the gains made by capitalists. In the US this is known as “we the people” refusing to play along with the rigged games played by businesses everywhere and at every time.

Except, of course, we have been duped into just that. Playing along. Thus assuring the destruction of the once much admired American middle class.

It turns out that the aforementioned middle class was the creation, not of American “exceptionalism”, superior management, access to resources, basic freedoms, superior opportunity, or any other thing, but of a freaky coincidence: the raw power of the super-rich was undermined for a while by the epic struggles and costs associated with fighting lots of global wars. Once the wartime social improvements introduced to mollify returning veterans and to produce sufficient war material were eliminated by the resurgent wealthy, they could revert to the long term onward accumulation of wealth and power by the few. Those golden post-war decades were an aberration needing to be swept away so that the top folk could entrench themselves once more.

Or so to seems.

Is a modern day CEO really worth 354 times that of the average worker, whereas a 1980′s CEO was only worth 42 times? Of course not. Modern CEO’s are just much better at cheating and rigging the game. The economy hasn’t benefitted one bit from the spike in CEO incomes. So much for marginal productivity theory. It never was based much on reality, but it sure looked elegant, and sounded good. Especially if you wanted to defend inequality.

The more I think about it the more I come to realize that the entire corpus of post-war American economics was based on a misreading of history. The Kuznets curve was acceptable because it told the “right” narrative. It “proved” that capitalism could – no that it was – benign. And benign, moreover, within itself. It didn’t need lots of heavy handed government action to rein in its excesses. The Lucas Critique was nothing more than an attempt to prevent analysis that might endanger belief on the magic of markets. It was an ideological intrusion into the marketplace of ideas designed to stifle diversity and impose a single version of the truth. The awesome ignorance of the sweep of history and the equally stunning preference for isolation from power realities within much of modern economics is a disaster for all those who suffer the consequences of policy advice given out by professors of that economics.

Anybody born after about 1910 and reaching influence back in those golden decades had no real grasp of history relevant to the creation of economic theory. The entire neoclassical era was an intellectual misreading of the fundamental nature of markets. At the very least it was an attempt to justify a panglossian interpretation of the inner workings of real economies. Those rose-tinted explanations of markets turned economics into a mere belief system far from its more scientific origins. It was a belief system that could be deployed to support class based politics and a business driven policy agenda. It was a lie used to create the massively unequal society we now live in. It was culpable, as was anyone teaching it.

Capitalism is a nasty brute force that has useful side effects: it produces masses of stuff and thus the raw material to better society. But it doesn’t do the bettering. That’s the domain of the social, cultural, and political forces that are need to harass and suppress it. Any economics that ignores historical or political reality is thus entirely irrelevant. It ought to be ignored. It ought to be ridiculed. It is damn near unethical to continue to propagate it whilst arguing that you are theorizing about actual economies.

We must undermine anyone who does so theorize. They are purveyors of class based economics. They should be called such.