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.
“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
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
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
"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
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."
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
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
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
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
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
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
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
"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
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
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
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
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,
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
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
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
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
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
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
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
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
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)
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
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
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,
August 25, 2005
See also: Dave Janoski: Expert: Bush is Disaster, The Times Leader,
October 9, 2004
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.
8. John Rawls, A Theory of Justice, Harvard, 1971,
[find page citation].
9. Chuck Collins, Chris Hortman, Holly Sklar:
Decade: Economic Disparity at the Century's Turn, United for a Fair
Economy, December 15, 1999.