Home > Uncategorized > The fundamental truth about American economic growth

The fundamental truth about American economic growth

from David Ruccio

1percent grand compromise

Ray Fisman and Daniel Markovits suggest that we’re seeing right now, with the insurgent campaigns of Donald Trump and Bernie Sanders and elite hopes that they will just fade away, are “early skirmishes in a coming class war.”

Why? Because their research (along with coauthors Pamela Jakiela and Shachar Kariv, just published in Science) revealed stark differences between attitudes toward economic justice between ordinary Americans and those at the top. Basically, the elites (both intermediate and extreme) are much more likely to be selfish as their compatriots in general. What’s more, elite Americans show a far greater commitment to efficiency over equality than ordinary Americans. 

Our results thus shine a revealing light on American politics and policy. They suggest that the policy response to rising economic inequality lags so far behind the preferences of ordinary Americans for the simple reason that the elites who make policy—regardless of political party—just don’t care much about equality. Hemingway’s illusory but widely shared view that the only thing that separates the rich from the rest is their money thus disguises a central pathology of American public life. When American government undemocratically underdelivers economic equality, the cause is less party than caste.

So, even though the United States has exhibited growing and increasingly grotesque economic disparities between a small group at the top and everyone else for almost five decades, little has been done to address the problem of economic inequality. The tendency, as I have argued, has been to pathologize the poor.

What Fisman et al. do is to turn their attention to the pathologies of the rich and the fact that “elite Americans are not just middle-class people with more money.”

They display distinctive attitudes on basic moral and political questions concerning economic justice. Simply put, the rich place a much lower value on equality than the rest. What’s more, this lack of concern about inequality among the elite is not a partisan matter. Even when they self-identify as progressive Democrats, elite Americans value equality less highly than their middle-class compatriots.

The question going forward is who will control public policy: the small elite who aren’t much concerned with issues of inequality or the majority of the population who place a much higher value on equality.

The fact is, one side in the class war has been winning since the mid-1970s. Now is the time to turn it around, so that ordinary Americans will get the policies they want and deserve.

  1. Nat Uerlich
    September 22, 2015 at 3:22 am

    Moreover, is there persuasive evidence that efficiency and equality are actually at odds? (See the linked article by Fisman and Markovits.) Or, rather, that belief in such a conflict serves to benefit the few?

  2. September 22, 2015 at 4:36 am

    The ticking time bomb is our young people, excluded from work and income and increasingly alienated, ready to be turned into weapons of mass destruction by manipulators.

    The best thing I can say about our so called “elite” is that they are bloody stupid!

  3. originalsandwichman
    September 22, 2015 at 6:35 am

    Welcome to the roaring 1920s:

    “From the entire structure of business thought during the 1920’s half-a-dozen interrelated dogmas may be said to emerge with particular clarity. Problems dependent upon a view of the nature of man are approached in terms of the doctrine of the elite and a material standard of values; problems of a societal nature in terms of the preeminence of economic interests and the necessity of social stability; problems related to the theory of government in terms of the fear of popular control and the importance of individualism. Other significant assumptions could be noted, of course, but elitism, materialism, economic preeminence, social stability, anti-populism, and individualism appear to be the root postulates, the basic beliefs which govern the business approach to every type of specific problem. Each serves to reaffirm and support the others, so that when one is raised to the articulate level the others tend to be implicit. In one combination or another, these themes color the business theory throughout and identify it as a theory of rigorous conservatism.” James Prothro, “Business Ideas and the American Tradition.”

  4. Macrocompassion
    September 22, 2015 at 10:13 am

    A miser is a poor man with too much money.

  5. September 22, 2015 at 11:38 am

    PsySoc — the scourge of economics
    Comment on ‘The fundamental truth about American economic growth’

    You quote a recent Science article: “… that we’re seeing right now, with the insurgent campaigns of Donald Trump and Bernie Sanders and elite hopes that they will just fade away, are ‘early skirmishes in a coming class war’.” (See intro)

    It is not the prediction of a coming class war in the U.S. that is false but the explanation within the framework of economics.

    The crucial point is that economics deals — in the first place — not with individual human behavior or society at large. This is the realm of psychology, sociology, anthropology, history, political science, etcetera. Insofar as economics deals with behavioral assumptions like utility maximization, greed, power grabbing, etcetera, it is a dilettantish variant of Psycho-Sociology or PsySoc.

    The authors of the Science article argue that it is wrong to explain the problems of the U.S. economy by ‘pathologizing the poor’ and that it is necessary to turn ‘attention to the pathologies of the rich.’ (See intro)

    It should be pretty obvious that economic problems cannot be explained or solved by psychology. It is known since the ancient Greeks that psychologism is the way stupid people explain the world, i.e. lightnings fly from the sky because Zeus is angry. The pathology explanation is on the same scientific level as the Zeus explanation, that is, it is exactly at intellectual ground zero.

    There is some irony in the fact that the most famous predictor of imminent class war had been very explicit about the vacuousness of psychologism “To prevent possible misunderstanding, a word. I paint the capitalist and the landlord in no sense couleur de rose. But here individuals are dealt with only in so far as they are the personifications of economic categories, embodiments of particular class-relations and class-interests. My stand-point, from which the evolution of the economic formation of society is viewed as a process of natural history, can less than any other make the individual responsible for relations whose creature he socially remains, however much he may subjectively raise himself above them.” (Marx, 1906, M.9)

    On closer inspection, however, Marx only replaced subjective psychologism with objective sociologism. Instead of pathological individuals we now have ‘embodyments of economic categories.’ This is somewhat better but still not good enough. What, then, is the real subject matter of economics?

    As a first approximation, one can agree on the general characteristic that the economy is a complex system.

    However, with the term system one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system the market economy should be characterized more precisely as a complex hybrid human/system entity or SysHum.

    The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons the analysis has to start with the objective system-component. The economic system has its own logic which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

    The history of the U.S. economy since around the 1920s could be retold quite realistically as a tumbling from crisis to crisis with idiots, criminals, sociopaths, swindlers, fakers, etc. grabbing for power and money.

    To do so, however, is the not the proper task of theoretical economics. Economics has to explain how the actual economic system works and this implies to explain economic crises or an eventual breakdown by structural defects and NOT by psychological or social pathologies (2015; 2014). In other words, the pain comes from the broken leg and not from evil spirits.

    This said, is not to deny that Donald Trump could be the harbinger of the economic and intellectual breakdown of the U.S. To be quite clear, this is a serious problem of political science but by no stretch of the imagination of theoretical economics, which is a science in marked contrast to political economics, which is — and that is the fundamental truth — rubbish folk psychology and brainless gossip.

    Egmont Kakarot-Handtke

    Kakarot-Handtke, E. (2014). Mathematical Proof of the Breakdown of Capitalism. SSRN Working Paper Series, 2375578: 1–21. URL
    Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
    Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. URL

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