Home > Uncategorized > Economists — people being paid for telling stories justifying inequality

Economists — people being paid for telling stories justifying inequality

from Lars Syll

If economics was an honest profession, economists would focus their efforts on documenting the waste associated with protectionist barriers for professionals. They devoted endless research studies to estimating the cost to consumers of tariffs on products like shoes and tires. It speaks to the incredible corruption of the economics profession that there are not hundreds of studies showing the loss to consumers from the barriers to trade in physicians’ services. If trade could bring down the wages of physicians in the United States just to European levels, it would save consumers close to $100 billion a year.

But economists are not rewarded for studying the economy. That is why almost everyone in the profession missed the $8 trillion housing bubble, the collapse of which stands to cost the country more than $7 trillion in lost output according to the Congressional Budget Office (that comes to around $60,000 per household).

Few if any economists lost their 6-figure paychecks for this disastrous mistake. But most economists are not paid for knowing about the economy. They are paid for telling stories that justify giving more money to rich people. Hence we can look forward to many more people telling us that all the money going to the rich was just the natural workings of the economy. When it comes to all the government rules and regulations that shifted income upward, they just don’t know what you’re talking about.

Dean Baker

In case you’re in doubt, you might better have a look at e. g. what Harvard economist and George Bush advisor Greg Mankiw writes on the rising inequality we have seen for the last 30 years in both the US and elsewhere in Western societies:

Even if the income gains are in the top 1 percent, why does that imply that the right story is not about education?

I then realized that Paul [Krugman] is making an implicit assumption–that the return to education is deterministic. If indeed a year of schooling guaranteed you precisely a 10 percent increase in earnings, then there is no way increasing education by a few years could move you from the middle class to the top 1 percent.

But it may be better to think of the return to education as stochastic. Education not only increases the average income a person will earn, but it also changes the entire distribution of possible life outcomes. It does not guarantee that a person will end up in the top 1 percent, but it increases the likelihood. I have not seen any data on this, but I am willing to bet that the top 1 percent are more educated than the average American; while their education did not ensure their economic success, it played a role.

To me, this is nothing but really one big evasive story-telling attempt at trying to explain away a very disturbing structural shift that has taken place in our societies. And change that has very little to do with stochastic returns to education. Those were in place also 30 or 40 years ago. At that time they meant that a CEO earned 10-12 times what “ordinary” people earn. Today it means that they earn 100-200 times what “ordinary” people earn.

A question of education? No way! It is a question of income and wealth increasingly being concentrated in the hands of a small privileged elite, greed and a lost sense of a common project of building a society for everyone and not only for the chosen few.

  1. patrick newman
    August 19, 2017 at 12:48 pm

    Let’s not forget the dynastic possibilities for the 1% or even the 5% in ensuring perpetual unequal opportunities. Yes economists by and large knowingly or unwittingly enforce and endorse the economic status quo. Then there are the organised economic apparatchiks like in the UK the Institute of Economic Affairs and the Adam Smith Institute regularly called upon by the media to tell the prols queuing at food banks or appealing against withdrawal of benefits that the free market, private enterprise, laissez faire system benefits us all!

  2. rjw
    August 19, 2017 at 1:23 pm

    Mankiw written some shockingly trite stuff. The extract above is pretty awful. I have no doubt at all that the average education level of the top one percent is higher than the average, but so what? That correlation would also be perfectly consistent (hypothetically) with a model of the labour market where returns to specific jobs are (largely) structurally determined but jobs are allocated on the basis of relative education levels.

  3. August 20, 2017 at 12:30 am

    The biggest lie of all is the idea that a little monetary inflation is a good thing for the economy. It is a transfer from the have nots to the haves as the haves are protected from inflation.

    • August 20, 2017 at 3:59 am

      “The biggest lie of all is the idea that a little monetary inflation is a good thing for the economy.”

      Not really. A bigger lie is the suggestion that giving more dollars to billionaires will cause the price of milk to go up. Investments have been marching steadily toward 0 ROI since Reagan passed his tax cuts on the rich in the 1980s.

    • August 21, 2017 at 6:14 pm

      The biggest lie of all is the idea that a little monetary inflation is a good thing for the economy. It is a transfer from the have nots to the haves as the haves are protected from inflation..”

      This comment reflects a fundamental misunderstanding of the phenomenon of Inflation.

      Contrary to myth perpetrated by in most economics textbooks, price inflation is not a mysterious “effect” which spreads out evenly like a mist over the entire economy, causing all prices to increase by about the same percentage.

      The actual fact is that different income groups experience different rates of inflation. Indeed, the historical record shows us that it is entirely possible for one income group to experience robust, double-digit levels of inflation at the same time that another income group is experiencing disinflation, or even deflation.

      That is precisely what has happened in recent decades as ALL rich people in America have experienced price inflation at a significantly higher rate than “average folks.” This, because the disposable incomes of ALL rich people were increased by the same percentages via tax cuts, thus creating the incomes-inflation that is actually necessary in order for true price inflation to occur.

      All of the inflation that rich people have been experiencing in recent decades has shown up, of course, in the luxury and asset markets. It has been THE propellant that has fed all of the asset bubbles that we have witnessed over recent decades.

      The truth is, rich people don’t mind inflation when it is their own incomes that are being inflated; they just don’t like it when it is occurring in the working classes, since their incomes are generally a cost to them.

      So what you think is a big lie is actually nothing of the kind…

      • August 21, 2017 at 10:30 pm

        Inflation is a change in the measure of value. Allowing money to change value is the same as allowing the temperature to change value over time. 102 degrees this year means the same as 100 degrees last year. Allowing money to change value is very expensive as we have to keep adjusting everything measured with money. We have made the money system so that the measure of value can change.

        We can remove this cost by making our money system so there is no inflation by making the value of money tokens zero. Money still has the value of the asset or the promise to repay it represents but the tokens themselves can have zero value. It turns out that it is easy to do if we only allow the government to create new money and the government only creates money to use for wealth building infrastructure that benefits many. The current system of banks creating most of the money means that the new money goes to those who already have money as collateral.

        One way to start the change would be to use quantitative easing to give money to students to replace their current loans with zero interest loans. That would give the economy a quick boost without being inflationary and would be popular with the younger generation.

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