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Ernest Partridge, Ph.D
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Classical Guitar:
"The Other Profession
"

 

 

 

Conscience of a Progressive

Ernest Partridge


Chapter Nine

Remedial Economics for Regressives

 

In this chapter we take on some economists and also regressive politicians and pundits who distort and misapply economic concepts and principles to further their ideological objectives. However, I wish to be perfectly clear at this outset: my “target” is not the entire academic discipline of economics. Some of the most brilliant minds of our time are economists, whose contributions are significant and enduring. Furthermore, “some of my best friends are economists.” Take a course in economics, and you will acquire concepts and learn facts that are as solid as any in the behavioral and social sciences, and in fact we deal with three [??] of these concepts in the section that follows immediately.

That said, we must also recognize that among many of the aforementioned economic geniuses there are contrary and irreconcilable differences, and that these worthies are engaged in heated and seemingly endless debates: J. K. Galbraith vs. Milton Friedman, Kenneth Boulding and Herman Daly vs. Julian Simon, and so on. And when Republican administrations replace Democrats, and vice versa, in both cases there is no shortage of economists available for the Treasury, Labor and Commerce Departments, or the Council of Economic Advisors, or the Office of Management and Budget, who will eagerly propose, support and defend economic policies contrary to those of the previous administration.

Thus we must suspect that at both the advanced theoretical and practical levels, the discipline of economics is much less “solid” and “disciplined” than it is at its factual and conceptual foundations.

On a personal note, I must confess that my background in economics is unimpressive. I have taken very few courses in Economics, and in the first that I took as a sophomore, I earned one of the rare “C-s” on my college transcript. That anomaly was due to a visceral antipathy for the subject that I have never completely outgrown. Furthermore, I will readily admit that the requisite mathematical skills of an ordinary economist are far above my pay grade. However, as an outsider looking in, with a few acquired critical skills (“BS detectors”), and as a sometime teacher of political theory, for which some basic economic concepts are essential, I might have some useful observations. Moreover, along with any informed observers of economic policies – which are theories and concepts in action – I will surely be in a position to take notice of policy successes and failures, and thus may acquire some ideas as to the causes thereof.

So here is this philosopher’s take on economics, economists, and the uses and misuses thereof by politicians and the media. If I fall short, I am confident that there is an abundance of regressive economists more than willing to offer correction.


Flunking Econ. 101


Regressives insist, time and again, that their policies are based upon "sound economic principles." At least as interesting as those "principles" that they cite, are the fundamental economic concepts which, when politically convenient, the regressives choose to ignore – concepts familiar to any college freshman who has taken an introductory course in Economics. While there are many such concepts, I will examine with just three: "elasticity of demand," "the declining marginal utility of money," and "external costs."


"Elasticity of Demand" is simply the economist's fancy way of stating the obvious: we need ("demand") some goods and services much more than others. Things we can "do without" when the budget is tight, are items for which demand is "elastic." Luxury items and entertainment are typical examples. Demand for things we "can't do without" are said to be "inelastic." The paradigm example is insulin for the diabetic, without which he cannot survive. Commodities and services for which demand is elastic, are very sensitive to price fluctuations. Double the box office price at the cinema complex, and most folks will stay at home, whereupon the greedy proprietor will either quickly adjust the price back down or else go bust. In contrast, if the price of insulin is doubled, the unfortunate diabetic will drop the "elastically demanded" items from his budget, as he must if he is to stay alive.

Other examples of inelastically demanded commodities? Electricity comes immediately to the mind of this Californian. The supply of electricity not only runs our essential household appliances such as lights, refrigerators and stoves, it is also indispensable to the state economy: no power, then no industry, no retail business, etc. To be sure, there is a very thin edge of "elasticity" – we can turn off our lights when we leave the room, do our laundry at non-peak hours, and do without our hot tubs. But very soon we reach the bedrock of indispensability. Californians will, as they must, pay almost anything for the electricity required to keep their economy alive. The Enron Corporation was fully aware of this, and ruthlessly used the "inelastic demand" of Californians to the full advantage of Enron.

Presumably George Bush also knows about inelastic demand, though one cannot be sure of what he might have missed as he earned his "gentlemanly C-s" at Yale. But if Bush doesn't comprehend the concept of elasticity, then surely those business folks and economists that surround him are aware of this basic concept. And yet, during the 2001 energy crisis we were told by these Bush-league economists that the California energy market would, if unregulated, find a "natural price level."

Yea, sure!

In the year 2000, the California state tab for electricity was seven billion. In the following year, the state paid more than ten times as much. "Serves you right, California, for not building more power plants," said the critics. But power enough is available from outside the state. And just where did that extra seventy billion go – cash extracted from the citizens and shopkeepers throughout this state? Largely to Bush's and Cheney's Enron pals in Texas. As their late fellow Texan, LBJ, so indelicately put it, the energy barons had us firmly by the family jewels, and our cash (if not our hearts and minds) accordingly flowed to them, as they curtailed the flow of electricity to our beleaguered state.

When The Mafia behaves like this, it is called "extortion." But when dependable contributors to Republican coffers act similarly, "conservative" economists and commentators call it "the natural fluctuation of the free market."

Are there other essential commodities that might fall into private control, thus further placing the public at large under the extortionate control of the wealthy and privileged few? What could be more indispensable ("inelastic") than electricity?

How about water?

Just imagine having the control of your water supply turned over to a private corporation – and a foreign corporation at that. Could that corporation, if unregulated, charge you whatever it wished? You'd better believe it! And you would then be left with your "freedom to choose:" pay up or die!

There has, in fact, been a world-wide effort by private corporations, encouraged by the World Bank, to privatize municipal water supplies. Leading players in this effort have been Monsanto, Bechtel, and a firm called "Azurix," a wholly owned subsidiary of our old friends, the Enron Corporation.

The results? In Chochabamba, Bolivia, the price of water multiplied five-fold, until the people of the city threw out the water merchants, the Bechtel Corporation.1  In Argentina, Enron's "Azurex" allowed the purchased municipal system of Buenos Aires to deteriorate. Greg Palast reports,2  "[Azurex] fired all the workers, they let the system go to hell, the pipes cracked. The water's contaminated. It's a complete mess. The ownership of the assets disappeared into one of those soluble offshore accounts which went zip into dust. So what you have now is bad water, devastation, and assets gone."

The English faced similar consequences: "After the Thatcher administration privatized the United Kingdom's system in 1989, prices skyrocketed, water quality decreased, jobs were lost, and the number of households disconnected for nonpayment tripled."3

A century ago, good Republican presidents such as Theodore Roosevelt recognized that private monopoly owners of public utilities could not be allowed to set at will the prices of these essential ("inelastically demanded") commodities, and so they instituted a regulatory regime which has generally served us quite well. The "free market fundamentalists" (George Soros' felicitous phrase) will have none of it, as they blithely scrap the time-tested and proven regulatory system.

Unregulated private control of indispensable commodities such as electricity and water amounts to private control of the population. Time and again, experience has shown that private corporations can not be relied upon to safeguard the public interest. As railroad baron William Vanderbilt famously remarked, "the public be damned – I work for my stockholders." In legitimate democratic societies, there is an institution authorized to act in behalf of the public at large. It is called "government." And it is the proper function of government either to own or to stringently regulate public necessities. This subversive notion is promulgated by such left-wing radicals as those who wrote and signed the Declaration of Independence and the Preamble to the U. S. Constitution. "To secure these rights," wrote Thomas Jefferson, "governments are instituted among men."


"The Declining Marginal Utility of Money" is another high-fallutin' term for a phenomenon recognizable to all. The value to an individual of a constant sum of money (say $1,000) gained or lost is inversely proportional to that individual's wealth. Still too academic for you? It comes to this: because that one grand is about a month's salary to a single mother working at Wal-Mart at minimum wage, a loss to her of that thousand is a disaster. In contrast, when Microsoft zillionaires Bill Gates, Paul Allen and their wives enjoy a night on the town, it is a matter of complete indifference to either who picks up the thousand dollar tab.

In a single day on Wall Street, Bill Gates can lose (and presumably has lost) a billion dollars of his gross wealth. Such a loss would no doubt perturb Gates somewhat less than would the above-noted hypothetical loss of one thousand dollars to the Wal-Mart mom. This means that the marginal value of a thousand dollars to Gates is considerably less than a millionth of the marginal value of the same amount to an individual working at minimum wage. Ninety-nine plus percent of us are found within those extremes, though the marginal value of cash to the vast majority of us is much closer to that of the Wal-Mart mom.

You know this, I know this – and so too does Steve Forbes. Yet he mounted a credible Presidential campaign on essentially a single issue: "The flat tax." "Its only fair," he tells us, "that we all pay the same rate of income tax." The same rate, mind you, not the same amount. Even Forbes acknowledges that a dollar to him is not worth as much as it is to the rest of us. But neither is the same percentage: a tax liability of ten percent of Forbes' eight-figure income is far less painful to him than the same ten percent of the five figure income is to the rest of us.

Surely Steve Forbes, and his friends now in effective control of the White House and the Congress, are quite familiar with the concept of "the declining marginal utility of money;" it is, after all, the foundation of the traditional notion of "progressive taxation." However, these regressives would much prefer that we not be aware of this concept and this tradition.

Well we should be aware, as should the regressives. In fact, the concept of the declining marginal utility of money was clearly proclaimed by George Bush's "favorite philosopher," Jesus of Nazareth:

"And Jesus sat by the treasury, and watched how the people cast money into the treasury: and many that were rich cast in much. And there came a certain poor widow who threw in two mites....And he called his disciples, and said: 'Truthfully, I say to you, that this poor widow has cast in more than all they that cast into the treasury. For all they did cast in was from their abundance; but she cast in all that she had, even all her living." (Mark 12:41-44).

Those of us who have the temerity to mention "marginal utility" and to defend progressive taxation are condemned for fomenting "class warfare." (But that's another issue that we will examine in the final section of this chapter).



And finally, "External Costs." From the libertarians we often hear: "What business is it of the government, or anyone else, if I choose to buy and use an SUV?"

If your purchase and use of an SUV has no consequences to anyone other than you, your family and the auto dealer, then it is truly "no business of the government or anyone else" if you buy and use an SUV.

Unfortunately for this argument, that purchase bears serious consequences, now and into the remote future, to countless unconsenting "others." Included among those "others" are all those who happen to breath the common air. Included also are those who are fed by the grain and produce from the Great Plains, fated to become deserts, and those who live in coastal cities, fated to be flooded, if we (like almost everyone outside of the White House) share the scientists' concerns about global warming. Patriotic Americans should also be concerned about the consequent loss of national autonomy to foreign despots upon whom we depend to feed our gluttonous appetite for petroleum.

"External costs" (or "externalities") are costs paid by usually unconsenting individuals –called “stakeholders” in policy lingo -- in addition to and apart from the primary parties of a transaction: the buyer and seller. In industrial economies, the list of "external costs" is virtually endless. For example, water and air pollution, downstream and downwind of factories are "externalities." So too are the loss of song birds and "keystone" species, among other ecological "side effects" of pesticides, or the decreased property values of homes underneath approaches to air terminals.

After decades of failed attempts to sue the tobacco companies for loss of individual life and health, the "externality argument" prevailed, as state governments proved in court that among the "external costs" of the sale of tobacco products to private individuals were the increased costs of health care – costs that were borne by the taxpayers at large. The courts ordered the tobacco companies to "internalize the externalities" to the tune of hundreds of billions of dollars in payments to the states.

The "unconsenting others" forced to pay "external costs" play no part in free market transactions. If they are to be protected, it must be by laws and regulations enacted and enforced in behalf of the public at large. And once again, that means (gasp!)
Government.


To sum up: Regressives, it seems, use economic principles and concepts the same way the preacher uses his Bible: these principles and concepts are cited in order to shore up foregone conclusions, and they are ignored when they confound and contradict preferred policy. I can report that in all that I have heard and read from "official sources" about the California energy crisis and the Bush tax, energy and environmental policies, the concepts "inelastic demand," "marginal utility of cash," and "external costs" and their equivalents have been conspicuous in their absence.


Beautiful Theory vs. Baffling Reality.

Suppose the model for our public policy-making and the foundation of our dominant political philosophy were an admittedly imaginary creature inhabiting an admittedly mythical environment.

Unfortunately, this approximately describes the condition of regressive policy-making and politics in the United States. The imaginary creature is so-called "economic man," and the mythical environment is "the perfect market."

"Economic man" (homo economicus) is a rather weird critter. He is a complete egoist, motivated solely by the self-interested desire to maximize his "utility" – a concept variously described as "want-" or "preference satisfaction." This motivation is manifested and measured by "economic man's" willingness-to-pay for these "satisfactions" in a free market. (Given the disagreeable nature of homo economicus, feminists should take no offense at this gender-specific language). Clearly, this is not the sort of an individual that one would want as a next-door neighbor.

Homo Econ's bailiwick is a conceptual space called "the perfect market"-- a "conceptual space," since it need not be any particular physical "place" at all. Instead, "the perfect market" of formal economic theory is defined by the following conditions: the participants (all "economic men" of course) must be numerous and completely informed, and their transactions must be voluntary, mutually beneficial, open, without collusion, and their exchanges free of transaction costs and externalities (such as pollution of others' air and water). This model of social organization, the libertarian “market fundamentalists” tell us, is far superior to an established and familiar alternative arrangement; namely popular government. To the "free-market" enthusiasts, "Big Government" is anathema.

As a moment's reflection will tell us, "the perfect market" does not exist – not even remotely. Furthermore, history teaches us that "cowboy capitalists" do not really approve of free markets for themselves – only for their rivals. Driven, as economic beings, by "self-interested utility maximization," the capitalist much prefers monopoly – his monopoly. And since the "front runner" enjoys decisive advantages over the rest of the field, the natural result of "the free market" is monopoly. In a sort of inner logic that the German philosopher Hegel would admire, "the free market" contains within itself, the seeds of its own destruction. Evidence? Look again to history: then it was J. D. Rockefeller; now it is Bill Gates.

The remedy? Now, as before, the remedy is anti-trust legislation, which is to say "Big Government," of course! What else? The (approximately) free market is, in fact, a very fragile institution that can only survive if carefully monitored and managed.

"Neo-Classical economic theory," which has put the concepts of "economic man" and "the perfect market" into the center of public policy making and political debate, claims to be a "value-free" discipline. Yet the preferred terminology of this discipline is freighted with value connotations. For example, the behavior of "economic man" (i.e., self-interested utility maximization) is described as "rational."  By implication, then, the behavior of such saints and heroes as Gandhi, King, Sakharov and Mandela is "irrational." Furthermore, transactions that leave both parties "better off" are described as "efficient" and a society in which there can be no further transactions without someone being disadvantaged is described as "(Pareto) optimal." But notice: by this account, a slave society might be "optimal" (since one cannot free the slaves without making the slave-holder "worse off"). A system requiring the well-to-do to share their wealth with the less fortunate is, by definition, "inefficient." The question of the "just distribution" of a society's resources is simply not a part of "neo-classical" economics.

Clearly, "economic man" and "the perfect market" are severely truncated accounts of human nature and society, and thus very poor foundations for public policy-making, for practical politics, and for just provision for future generations. A note of caution: my brief sketch above of the make-believe "economic man" and "perfect market," along with my contention that this view of man and society is unduly influential in our political institutions, are drawn with very broad strokes and lack the benefit of elaboration, documentation and argument. Hopefully, those elaborations and justifications will appear as we continue in this book.

The neo-classical economist responds:

“‘Broad strokes’ scarcely begins to describe this caricature of our discipline. But let that pass. I’d like to focus on your dismissal of “Economic man” and “the perfect market.” You say these do not exist in reality? Of course they don’t! Nor do any of us neo-classicals pretend otherwise. Nonetheless, these concepts are essential to the abstract quantified modeling that characterizes modern economic theory. They are what scientists call “ideal types” – abstractions that identify and isolate basic functions that are the subject-matter of economics. But by using “ideal types,” we are no different from the physicist, whose discipline would be severely impoverished without the use of such quantifiable abstractions as “perfect vacuum,” “absolute zero temperature,” and “frictionless machine” – each describing conditions that do not exist in nature.”

So if the physicist uses his “ideal types” to advantage, why not the economist?

I reply that the difference between the disciplines is crucial: In physics, these "ideal types" are derived, "one at a time," from carefully conducted experiments and measurements, and they are "end points" of precisely measured empirical functions, calibrated from near-perfect laboratory conditions. Furthermore, in physics, unlike economics, these "ideal types, when employed in the "hypothetical-deductive" methodology of physical science, yield falsifiable predictions and thus experimental verifications. (See Chapter 21: The Eclipse of  Science and Reason).

None of this is true of the economists' "ideal types." They are not individually controlled variables of experiments, but rather are "bundled together" in theoretical constructs. Furthermore, they "posit" as irrelevant to their theory, conditions which are in fact inalienable to human motives and economic activity: such things as transaction costs, externalities, collusion, restricted access, imperfect information, distributive injustice, self-transcending (“other directed”) motivation and communal loyalty.

Falsifiability and prediction are, I submit, nemeses of economics – or at least of macro-economics. And this embarrassment becomes most acute when the economist’s political sentiments and motives muddies the waters.

Consider, for example, the prosperity of the Nineties – the longest sustained economic boom in our history. Who gets the credit? Why Bill Clinton, of course! “Not so fast,” says the Republican economist. “That prosperity was a time-lagged result of the policies of Bush I, aided by the wise legislation of the Republican Congress after the GOP took control in 1995.”

And what caused the stock market bust and recession early in the Bush II administration, and the tremungous deficits that followed? Clearly, those tax breaks to the rich failed to “trickle down” and stimulate economic growth as the GOP promised. “Wrong again,” says the GOP apologist. “The bust and the recession were “time-lag” effects of Clinton’s horrible economic policies. As for the stimulus from the tax breaks, be patient – just you wait.”

I trust that you can see where this is going. “Time lag”  – the gift to the regressive ideologue that keeps on giving -- is just one of several “explain-away” devices that economists fall back on, when their policies and predictions don’t quite turn out right.. It’s like “the inscrutable will of God” ploy that theologians run to when asked, for example, how a benevolent could God have permitted the Holocaust, the December 2004 Tsunami or the Katrina disaster that devastated the Gulf Coast.

Whenever “our” policies fail, or “their” policies succeed, there is always one or another of a myriad of macroeconomic imponderables to fall back on for an explanation. It’s no wonder that the disputes that ensue are never definitively resolved.

The problem is not that economic theorists explain too little – it's that they “explain” too much, so that whatever happens, they have an “explanation,” and likewise, their opponents have a contrary "explanation."  That’s just another way of saying that politically motivated economic projections and explanations are “non-falsifiable,” and non-falsifiability is the definitive mark of non-science.

Occasionally, economists make predictions that are so wildly wrong, that one must suppose that they must surely own up. For example, Senator Phil Gramm and Congressman Richard Armey warned that it was an “economic certainty” that Clinton’s tax hikes on the rich would bring about economic disaster, due to its chilling effects on investments. The aforementioned boom followed their warnings. But never mind that. Gramm and Armey assured us that the GOP Congress saved the day from Clinton’s “folly.”

By the way, both Gramm and Armey own Ph.Ds in economics, and both are former professors of economics (Texas A&M and North Texas University, respectively).

Physicists – as astronomers – can predict within seconds, eclipses hundreds of years into the future. If economists had a reliable 60% success rate in their macro-economic predictions, they could all retire at forty on their windfalls from the stock market. And as we all know, they don’t.

As we said: Beautiful theory, baffling reality.

So do I give economics the same credence as astrology and tarot cards? Of course not. Basic economic concepts and facts, such as elasticity of demand, the declining marginal utility of money, and external costs are based on rock-solid empirical data. Micro-economic models (which posit the aforementioned “economic man” and “perfect markets”) provide perspective and guidance, when combined with additional non-economic data, on how people and societies behave, and surely economics can provide ample warnings against ruinous government policies – as I have ventured to do myself in this book. And indeed, numerous economists today, including ten Nobel Laureates, are telling us that the Bush’s “fiscal irresponsibility threatens the long-term economic security and prosperity of our nation.”4

Returning to the hypothetical economist’s original complaint about my gross over-simplifications: point taken. So it is high time for me to tone down my rhetoric and offer up some qualifications.

To begin, I am not "anti-markets." The failed economic experiment in the Soviet Union proved conclusively that a centralized command economy is vastly inferior to a market-based system of pricing, distribution, innovation and quality control. Having "shopped" in both the Soviet Union and the United States, I know this from personal experience. Furthermore, because human beings in significant aspects of their lives, do, in fact, act upon economic motives, a scholarly examination of market behavior has valuable implications for numerous disciplines, including environmental studies and political science.

In short, I do not assert that a study of markets and economic theory should count for nothing. Instead, I protest that they should not count for everything. Homo economicus is an ingredient of our nature that we would be well advised to study. But our lives consist of much more than buying and selling. We also love and we sacrifice, and we have goals and concerns that transcend our self-interest. And we seek, both personally and collectively, truth, justice, and personal excellence -- none of which can appropriately be bought or sold in markets.  (The critique of "market fundamentalism" (George Soros' term) is a formidable project which deserves, and will receive, extended treatment in a later chapter).

With this conviction, I am joined by many esteemed economists, among whom are some of the severest critics of neoclassical economics. These include Herman Daly, Nicholas Georgescu-Roegen, Kenneth Boulding and Amartya Sen, all of whom possess a clear view of the limitations of their discipline. Indeed, my quarrel is less with economists than with politicians and policy-makers who have skimmed easy formulas and simplistic generalizations off the top of the neo-classical economic theory, and put them to work in behalf of their special political and economic interests.

Even so, the above-listed dissenting economists, whom I admire enormously, report that there is in fact a dominating "orthodoxy" of neo-classical thought in the discipline of theoretical economics, and that this orthodoxy has had enormous influence upon both public policy and politics.

I can validate their report with my own experience. Often, when I have mentioned the names of these mavericks to economist colleagues, I find that I have evoked stares of disbelief or even condescension, such as one might expect from Jerry Falwell upon hearing the name of Charles Darwin. I once asked Herman Daly why he is regarded as an “outsider” by the mainstream of his profession. He wryly replied that it was probably because he permits the elegance of formal economic theory to be contaminated by compelling facts of biology and physics. Meanwhile, the true believers read with admiration the pronouncements of economists such as Julian Simon, who confidently assert that the omnipotence of the free-market and the omniscience of future entrepreneurs can overcome trivial physical constraints such as the second law of thermodynamics.5  I once heard Paul Ehrlich remark to Johnny Carson that if an engineer proposed to design an aircraft for an exponentially expanding crew, he would rightly be regarded as mad. Yet when an economist proposes an economic model that posits perpetually expanding population and resource consumption, he is regarded as eligible for the Nobel Prize for economics.

So why is neo-classical economics so influential?

Not, I submit, because of supporting evidence, experimental validation, or clear and verifiable application to "the real world." The dominance of "neo-class," I believe, is due far more to "the sociology of belief."

First of all, to reiterate an earlier point, neo-classical economics is what Nietzsche called a "master morality." It is an ideology that is nurtured, sponsored, and in the service of, wealth and power. Thus the hostility to government regulation of business by many neo-classical economists, and by the regressive politicians who embrace it, is no mystery. Popular government, by enforcing "equal justice under law," is empowered to protect the weak from the strong. (Read your Constitution!) . Such solicitude toward the weak and the poor has no place in a "master morality."

To the contrary, wealth and power prefer to regard society as a market-place of "customers" with consumer preferences, rather than a polity of citizens with inalienable rights. The privileged believe it far better to apportion power to wealth (i.e., the willingness and ability to pay -- "let the market decide"), than to relinquish power to a principle of "one-person, one-vote."

With government off our backs, free-market “conservatism” leaves us "free to choose." But this is a "freedom" apportioned to wealth and power -- a "liberty" (for some) obtained at the price of lost liberty, equality and fraternity (for the rest of us).

Secondly, "neo-classical economics" proves, once again, the rule that "nothing succeeds like success." Senior professors, pundits, and "think-tank scholars," the High Priests of the reigning ideology, edit the scholarly journals, and determine appointments, promotions and tenure (on the basis, largely, of publications in the self-same journals). And how did these elites obtain their seniority? Return to the beginning of the paragraph -- da capo, perpetuo moto. As the careers of such courageous dissenters as Herman Daly will testify, the punishment meted out by the priesthood upon the heretics can be brutal.6

Finally, "neo-class" suggests a seductive simplicity, clarity and determinateness for politicians and policy-makers seeking answers and disinclined to ponder disquieting "philosophical" questions, or even, as we noted at the outset of this chapter, basic economic principles.

Looking back through history, we might wonder how it is possible that intelligent and educated people once accepted uncritically such notions as astrology, judicial trial-by-combat, the demon-possession theory of disease, and alchemy. Today, more and more sophisticated observers of society and politics are wondering how homo economicus, a creature bereft of sympathy, humanity, and noble aspiration, and "the perfect market," a "place" devoid of any social contacts more elevated than market transactions -- has come to be regarded by our political elites as the foundation of a just political order.

I suspect, and devoutly hope, that in the near-future neo-classical economic theory will be regarded as the "alchemy" of our century. And intelligent men and women will wonder how it was possible that anyone could ever have believed such nonsense.

 

The Myth of “The Deserving Rich”


A quarter century ago, one percent of the U. S. households owned about twenty percent of the national wealth, and a typical CEO of a large corporation earned forty times as much as the average worker.7 Today, that one percent owns over forty percent of the national wealth, and that same typical CEO is paid four hundred times as much as his worker. One individual, Microsoft's Bill Gates, is worth more than the combined GNPs of all of Central America, excluding Mexico.  The so-called "tax reforms" of George Bush are designed to further increase this income gap.

These facts compel us to ask: Do these fortunate individuals deserve this disproportionate share of the national wealth? Did these individuals alone, rather than their employees along with the rest of us, produce almost half of this wealth? Are these individuals entitled to this wealth because they are smarter, more industrious, or more virtuous?

Smarter? Gates' primary talent is the ability to incorporate the ideas of others. MS-DOS is derived from Gary Kildahl's CP/M program, and the Graphic User Interface (i.e. "Windows") along with the Mouse, came to Gates from the Xerox Corporation, via two bright kids from Silicon Gulch named Jobs and Wozniak (founders of Apple Corp.).

Industrious? Gates would have virtually nothing without the labor of thousands of "micro-serfs" working for Microsoft, many of them putting in longer hours than their boss.

Virtuous? Saints and heroes are not inordinately conspicuous among the wealthy. Quite the contrary, it would seem. Some would suggest that virtue can be a hindrance to the accumulation of wealth. And conversely, in direct repudiation of the religious right, Jesus taught that wealth is incompatible with righteousness: “Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal. ... For where you treasure is, there will your heart be also.” (Matt. 6: 19, 21)

Why, then, this enormous disparity of wealth? Why do the very few have such a disproportionate share of wealth, power, privilege, and political influence? Not, I submit, merely because they deserve it or have earned it all by themselves. They have all this, simply because they are able to have it – because the rest of us permit it. Wealth purchases media access, public opinion, and political power and influence which, in turn, facilitates still greater accumulation of wealth. And so, through this "positive feedback loop," the product of all our cooperative labor rises to "the top" and into the hands of the very few.

Conservative pundits such as Robert Novak would not hesitate to charge that this line of thinking is straight out of Das Kapital. Perhaps. But now I diverge sharply from Karl Marx. I would not advocate a strictly egalitarian distribution of wealth, nor would I deny that the private accumulation of wealth serves society at large as an incentive toward innovation and competition, and as a source of capital investment – both of which have been proven to be essential to flourishing modern economies. As I shall argue shortly, a disparity of income is not only permissible, it is necessary and even just in the economy of a well-ordered society. My complaint is not with the unequal distribution of wealth as such, it is with the scale of this inequality that we find today. Economic incentives and return on investments have served West European and Pacific Rim economies supremely well, but without the obscene disparities of income found in the United States and nowhere else in the industrialized world, with the noteworthy exception of post-communist Russia and some Middle-East monarchies (i.e., our "allies").

This inequality has not come about through the simple enterprise and hard work of the wealthy. On the contrary, wealth has bought political clout, and through this influence, a reduction of the progressive tax rates and of capital gains taxes, a weakening of the unions, an accelerations of mergers and acquisitions, and a curtailment of government regulation of commerce. In the meantime, middle-class incomes have stagnated and income of the poor has declined.

History, they say, is written by the victors. And at every stage of history, the privileged have adopted an ideology -- a "master morality" -- to justify their advantages. From ancient Rome well into the eighteenth century, there was the doctrine of "the divine right" of royalty. With the advent of the Enlightenment and the American and French revolutions, this would no longer do. So the Calvinists came up with the idea of "divine grace:" wealth and privilege was a sign of God's blessings upon the "elect." (And how did we know they were the "elect"? Because they were blessed with wealth and privilege, of course). Then, late in the nineteenth century, Charles Darwin posthumously came to the rescue of the privileged, as they concocted the theory of "Social Darwinism" – that wealth came to those who were most "fit" to survive the competition of the marketplace.

Today, justification of wealth and privilege comes from neo-classical economics, the reigning orthodoxy of mainstream economists and of the Republican Party and "New Democrats." According to this doctrine, wealth accrued "at the top" through minimally regulated free enterprise will encourage investment, stimulate economic growth and thus "trickle down" to the advantage of all. "The rising tide raises all boats." Moreover, the doctrine continues, personal greed and ambition are benign forces for social improvement, through the mechanism of Adam Smith’s “invisible hand.”

My primary complaint against the "trickle down" and "invisible hand" theories is not that they are false, but that they are half truths. "Trickle down theory" disregards converse advantages "percolating up" from the enterprise of a well compensated, educated and motivated labor force acknowledging a shared stake in the economy, and from the advantages of civic peace, a publicly shared conception of justice, and loyalty to a democratic political order under the rule of law. Likewise, as we have noted repeatedly (in Chapter Five), defenders of "the invisible hand theory" are inclined to overlook the fact that there is a "back of the invisible hand" – famously labeled by Garrett Hardin, "The Tragedy of the Commons"  – whereby the striving of each for advantage results in ruin for all.

A flourishing and just economy results from a cooperative arrangement among its components: the investors, the work force, the customers and the government. To the libertarian, any taxation for purposes other than the protection of his life, liberty and property, is "theft." He thus opposes government support of the arts, scientific research, public lands, or public education. To the Marxist, any appropriation by the capitalists of the "surplus value" produced by the worker is "theft." They are both profoundly mistaken. The libertarian forgets that government investment in public institutions (the arts and sciences, education, and public lands) promotes the civic peace and loyalty that secures and enhances one's personal life, liberty and property. (The libertarian, let us recall, does not believe in the "real" existence of society or of the public).  The well-ordered society is not a "free gift." "Taxes," as Justice Holmes remarked, "are the price we pay for civilization." On the other hand, the Marxist forgets that without the investment of the entrepreneur, including his willingness to accept risk, the worker would have no tools with which to produce the surplus wealth. Accordingly, this "surplus value" produced by the worker is justly shared by both the shareholder and the worker.

"Shared" – but in what proportion? With half to the wealthiest one percent, and the other half to all the rest – as presently extant in the United States?

I would not, however, advocate equal distribution of wealth and income, for it is possible that an unequal distribution of wealth may be to the advantage of all – including the poorest members of society.

This is the contention of John Rawls's "Difference Principle." Rawls argues that artistic, scientific and entrepreneurial talents are resources that yield benefits to a society at large, and as such should be encouraged by the incentive of extra compensation. This consideration applies also to professions such as medicine, the law, and teaching, which require the sacrifice of additional years of post-graduate training. And finally, extraordinary personal and financial risk in behalf of the common good deserves extraordinary compensation, which justifies additional compensation to some police and military personnel, and to investors. All these inequalities of distributive shares of national wealth, Rawls argues, may be justified if such distributions improve the prospects of the least advantaged.8

According to the Difference Principle, it is thus arguable that extra compensation may be justifiably given to the policeman and soldier, or the doctor, lawyer, engineer and scientist, or to the teacher, and yes, to the investor and successful entrepreneur. But 400 times the income of the worker? That kind of maldistribution is impossible to justify. And present trends indicate an increase of the disparity between rich and poor, to be accelerated by Bush's "tax reforms" – i.e., a "flattening" of income tax rates, a lowering of capital gains taxes, and an elimination of inheritance taxes (which will have the additional result of curtailing the flow of funds to private foundations and charities).

Is it tolerable for 1% of the population to own half of the wealth of the nation?

Not when one out of five households has zero or negative net worth, not when a fifth of the nation's children live in poverty, not when more than forty million of our fellow citizens are without health insurance, and not when the average worker's pay and the minimum wage (in constant dollars) are declining.9

Moreover, such a disparity of wealth is intolerable when urgently needed research in alternative energy sources and other environmentally benign technologies is neglected, as fellow species disappear and the warming world careens toward ecological disaster. In theory, this surplus wealth will be invested in the development of those new technologies. That’s the “theory.” But now look at the “practice” – at the reality. Instead, those investments are funding a resistance to alternative energy and the debunking of global warming, through such “junk science” organizations as the Global Climate Coalition.

The disparity of wealth is intolerable when this wealth leads to the conglomeration of the media and thence a stifling of the spectrum of opinion which Jefferson held to be the lifeblood of a free society. And finally, it is intolerable when this wealth finances the elections, and thus virtually selects and purchases the services of our political leaders.

To be sure, personal wealth, and the aspiration of wealth, can be the wellspring of great benefit to society as a whole. Personal wealth encourages capital investment, a tolerance of personal and financial risk, an expression of socially valuable talents, a willingness to endure additional years of specialized education, and the private support of education, the arts and sciences, and charitable institutions.

Clearly, an unequal distribution of wealth can be a good thing. But there can be too much of a good thing.

Half of a nation's wealth in the hands of one percent of the population is too much of a good thing

 

Symbionts and Parasites


For the greater part of American history, investors, managers, workers and government have worked together to the advantage of all, albeit this cooperative association has not been without strife from time to time. Without investment, the workers would not have the tools (the "capital") with which to produce goods or provide services. Conversely, without the anticipation of a return on investment - the production of goods and services by the workers - there would be no "tools" to produce the nation's wealth. In a flourishing private economy each class -- investor and worker -- is wholly dependent upon its partner-class. Each flourish together, unless one class cripples the other, in which case they fail together.

This is an elementary fact, taught in any Econ. 101 class. Yet the emergent class of American oligarchs that have taken control of our government, our media, and quite possibly the means of counting ballots as well, seem to believe that they can impoverish the producers of wealth and the next generations, and not suffer for it themselves. History has shown conclusively that they are wrong; but if this error is allowed to continue, history will repeat itself to the profound sorrow of all of us.

In the last two decades, the dominating investors and managers of our corporate economy have transformed themselves from economic symbionts to economic parasites. The concepts are adopted from biology.

Symbiosis is an association of two species (symbionts) for mutual advantage. The honeybee and the blossom is one example. Another is the association between sea otters and sea kelp. The otters feed on the kelp predators such as sea urchins, and the kelp provide the otters with protection from orcas, sharks and other predators.

In contrast, a parasite is an organism that takes its nourishment from another "host" organism, and by so doing weakens the host, and in extreme cases, kills it. When the parasite kills the host, it kills itself as well, but only after it has scattered its eggs to other unfortunate hosts. The canine heart worm is a case in point. The blood fluke of "snail fever" (schistosomiasis) is another.

With the rise of regressivism, the investing class has transformed itself from an economic symbiont - prospering conjointly with its producer-partner - into an economic parasite - impoverishing its "host," the workers, and thus, eventually, itself. Like the heart-worm devouring the source and sustenance of its very life, the oligarchs are squeezing the productivity and the disposable income from the workers, which is to say, the well-springs of the oligarch's wealth. And when the economy collapses, as it must if present trends continue (i.e., massive federal deficits, outsourcing, unemployment, income loss, impoverishment of education and research), the economic parasites will surely be crushed along with the rest of us.

As our national wealth flows from the poor and middle classes to the hyper-wealthy, as skilled work is shipped overseas, we are moving toward a new feudalism; a very small class of opulently wealthy families living off the labor of the impoverished masses.

Why can't a new feudalism, despite its manifest injustice, be sustainable? After all, it succeeded for centuries in medieval Europe, and into the nineteenth century in Russia.

It can not succeed for several reasons, including foremost the reason that it failed in Romanov Russia. Feudalism is incompatible with industrial society - especially with an "information economy."

In a modern economy, wealth issues out of cash-flow. The industrialist grows wealthy with both the production and the sale of his product. And the product will only sell if there are buyers. I repeat: a product will only sell if there are buyers. As the middle class and the poor lose their disposable income, there are fewer sales. And then what? To find out, read the history of the crash of 1929 and of the great depression that followed.

Economic indicators reveal that the median annual family income in the United States has dropped by $1,500. And that's not all. Insurance and medical costs are rising, along with gasoline prices, and the costs of higher education. The interest rates and thus mortgage costs are bound to follow. Aggregate national consumer debt will soon be "maxed out." The prospect of job loss looms. Throughout the realm, families are deciding that the new car purchase will have to be put off another year or two. The vacation will have to be cancelled. The auto, travel and entertainment industries decline and lay-off workers. The dominoes fall. Down, down, down, goes the spiral.

When Henry Ford raised the wages of his workers, his competitors asked what on earth he was thinking. "If I don't pay my workers more," he replied, "who will buy my cars?" Bushenomics amounts to "reverse Henry-Fordism:" keep wages low, suppress unions and collective bargaining, hire "temps" to avoid paying health and retirement benefits, cut back on employment and send jobs overseas, and watch the mean family income drop. Give the super-rich huge tax cuts, and give the CEO a salary and perks such that he earns in four hours what his median worker earns in a year.

Do all that, but then don't be surprised that when the cash flow from "below" dries up, there are no more markets for the corporate products. Then the corporate "parasites" will discover that when they starve the host, they starve themselves as well.

Another reason why parasitic neo-feudalism won't work: modern economies require an educated work force. The brain, not the muscle, drives modern technology which, like the shark, must constantly move forward to survive. Technology is science put to work (and we are well aware of what the Busheviks think of science). However, that necessarily educated public acquires an inclination to think independently and critically, and thus to demand a voice in government and a fair share of the national wealth that they are creating. Such a public is unwilling to be the "host" that feeds the oligarchic parasites.

Is it any wonder, then, that the Bush regime has little regard for education? Bush's "Leave No Child Behind" program is unfunded, thus leaving the children behind. Rising tuition costs (up 34% since Bush took office) are closing the college doors to middle-class children. No matter, says Karl Rove: "As people do better, they start voting like Republicans... unless they have too much education and vote Democratic, which proves there can be too much of a good thing."

Count on it: a nation that believes that there is such a thing as "too much education" is a nation in decline. Or as Alfred North Whitehead put it: "In the conditions of modern life, the rule is absolute: that nation that does not value trained intelligence is doomed."

When the classical education of the Romans was overtaken by the dogma and superstition of the conquering barbarians, the western world fell into several centuries of dark ages. Bush's "faith-based" denigration of science and trained intelligence will not cast the world into a new dark age - just the United States. Science and humanistic learning will flourish in Europe and the Pacific Rim, enhanced, no doubt, by a diaspora of expatriate American scientists and scholars. Then the United States will be "left behind."

Finally, parasitic neo-feudalism won't work, because a flourishing modern economy presupposes civil order, and a "consent of the governed" - a sense amongst the populace at large that the government is "their government," and that they are significant participants in the economy, the product of which is fairly distributed amongst the population.

The oligarchs who now control our government and our media have succeeded in large part by convincing the general public that "government is not the solution, government is the problem" (Ronald Reagan), and that the key to prosperity is liberate "free enterprise" from the "constraints" of government regulation. Too few of us appreciate that laws and regulations were put in place to protect the public from the abuses of concentrated corporate power and wealth. Thus we have established, through "our government," the Environmental Protection Agency, the Food and Drug Administration, the Securities and Exchange Commission - the latter designed to prevent a repeat of the "crash of 1929."

The oligarchs, through their wholly-owned subsidiary, the mainstream media, have sold the American public on the idea that government and regulation are "the problem." As they now begin to have their unregulated way, the rest of us are about to be reminded, through brutal practical experience, that when at one time government was truly of, by and for the people, it was a "solution," as it served to protect that people from the abuses of power, privilege and wealth.

If parasitic neo-feudalism continues and expands, it may devastate our economy, but it must eventually fail. For unlike the pre-revolutionary Russian serfs, who never knew a better life, the American people know what it is like to live in a free and prosperous country. There is a limit to how much more loss of freedom and declining standard of living our compatriots will tolerate. The oligarchs are bound to exceed that tolerance, and then they will be overthrown.

This is compellingly obvious: not only in theory, but also from the historical record. So why can't these oligarchs and their media toadies see this?

I answer with a familiar parable: A spinster finds an injured serpent, takes it home, and nurses it back to health, whereupon the serpent strikes with a fatal bite. In her final moment of consciousness, the woman asks: "how could you do this to me, after I saved your life?"

The serpent replied: "I am a serpent - this is what I do."

Surely a significant portion of the oligarchy and the media must be aware that they are devouring the "host" that feeds and sustains their wealth, and that they are leading our country, and surely themselves with it, to devastation and ruin.

So why do they persist? Because their lust for power and their greed is unconstrained - because, given the opportunity, "this is what they do."

The founders of our republic knew this full well, which is why they set up a structure of checks and balances, and a rule of law, to protect us from such abuses of wealth and power.

Heretofore, as our commonwealth moved dangerously from a regime of mutual advantage (symbiosis) toward a parasitism of wealth and privilege, these abuses were "pushed back" by the checks and balances of our tri-partite government, by the law and the courts, by a free and diverse press, and by the ballot box.

No more. The oligarchs now control it all.

And so they shall unless and until we the people take back our government and our country.

 


  NOTES AND REFERENCES

1. William Finnegan, "Leasing the Rain," The New Yorker, April 8, 2002.

2. Greg Palast, "Guerrilla of the Year: An Interview with Greg Palast," , Guerilla News Network.

3. Jennifer Hattam, "Who Owns Water?" Sierra, Sept.-Oct., 2001.

4. 10 Nobel economists endorse Kerry, MSNBC,com, August 25, 2005
 http://www.msnbc.msn.com/id/5818277/print/1/displaymode/1098/

See also: Dave Janoski: Expert: Bush is Disaster, The Times Leader, October 9, 2004
http://www.timesleader.com/mld/timesleader/business/9872596.htm

5. See my “Perilous Optimism,” www.igc.org/gadfly/papers/cornuc.htm  , published as “The Perils of Panglosism,” Global Dialog, 4:1, Winter, 2002.

6. Herman Daly's attempt to publish his book Beyond Growth: The Economics of Sustainable Development is illustrative: "Solicited by MIT, [the manuscript] was accepted by MIT Press. Five reviewers said publish it. But a distinguished economist on their advisory committee killed it, after a contract had been issued." (Newsletter of the International Society for Environmental Ethics, Spring, 1997. The book was subsequently published by Beacon Press of Boston).

7. Sarah Anderson, John Cavanagh, Scott Klinger, Liz Stanton: Executive Excess 2005: Defense Contractors Get More Bucks for the Bang, United for a Fair Economy, August 30, 2005. 
 www.faireconomy.org/press/2005/EE2005.pdf 

8. John Rawls, A Theory of Justice, Harvard, 1971, [find page citation].

9. Chuck Collins, Chris Hortman, Holly Sklar: Divided Decade: Economic Disparity at the Century's Turn, United for a Fair Economy, December 15, 1999.
www.faireconomy.org/press/archive/1999/Divided_Decade/DivDec.pdf

 


Dr. Ernest Partridge is a consultant, writer and lecturer in the field of Environmental Ethics and Public Policy. He has taught Philosophy at the University of California, and in Utah, Colorado and Wisconsin. He publishes the website, "The Online Gadfly" (www.igc.org/gadfly) and co-edits the progressive website, "The Crisis Papers" (www.crisispapers.org).  Dr. Partridge can be contacted at: gadfly@igc.org .