ET1% — Economic Theory of the top 1%
This is a comment that Asad Zaman left on Lars Syll’s post Mainstream economics — a pointless waste of time, but it deserves a post of its own.
My view is that economics does perfectly what it is designed to do. It is a MISTAKE to think that conventional economic theory is WRONG. In order to make progress, it is essential to understand the function of economic theories.
1. Every economic policy hurts some groups and helps others
2. No group has sufficient POWER to ENFORCE policies favorable to them.
3. Groups with power MUST somehow create consent among a majority to enact policies favorable to them. If they do not do so, then policies against their interests will be enacted in a democracy.
4. People judge policies according to their THEORETICAL IMPACT, since no one can actually foresee the future. This means that policies are not evaluated as good or bad according to reality, but according to how widely accepted theories predict their impact (for a vivid example, consider BREXIT)
5. Thus the elite, the top 1%, are faced with the necessity of creating theories which show that policies which favor their interests are actually benefical for all, or for a majority. Let us a label a theory to be ET1% — an Economic Theory of the top 1% — if it shows a policy to be favorable for the majority, when in fact the policy actually favors the top 1%.
7. Now if we consider conventional economic theory, it is easy to show that nearly all of it is ET1% — it is DESIGNED to prove that policies which favor the top 1% are beneficial for all.
NOW LET US consider dominant economic theories and models in the light of this analysis.
A: Consider the DSGE model, which has only ONE actor. By aggregating over all agents, we ensure that policies which favor the top 1% will appear to favor the whole nation.
B: Consider the use of GNP per capita. It has exactly this feature — a policy which creates more wealth for the wealthy will appear as beneficial for the whole nation.
C: Consider the principle of methodological individualism. By methodologically failing to consider the group of wealth owners, laborers, and other social groups, we make it impossible to discover what is happening to the economy.
D: Consider the QTM quantity theory of money. By declaring money to be a veil, we make it impossible to think about the power of money creation, and how it enriches the wealthy, at the expense of the rest.
E. Consider the Solow Growth model. It says that the best route to highest growth is by REDUCING consumption and increasing capital. What will happen as a result? Laborers will be starved and surplus will be chanelled into the hands fo the capitalists. All this is done in the name of HELPING THE POOR, since high growth will result in enough product to enable the feeding of the poor — of course this always remains a distant goal to be achieved in the future.
MANY MANY MORE examples can be given. It is clear that ET1% does extremely well what it is designed to do: to deceive the majority into agreeing with, accepting, and voting for policies which actually harm their own interests, and help the top 1% get even richer. My earlier post on the The Keynesian Revolution and the Monetarist Counter-Revolutionclarifies this perspective on economic theories in the historical context of the 20th century.