In Deconstructing the Enigma of American Plutocracy I argue that in its current form, capitalism is in dire need of an overhaul. This should be apparent to all but the most credulous among us, and as the political tides shift to the Left – as is apparently happening – there is a good chance that we will begin to see incremental changes in the coming years: acknowledgement of areas where capitalism works well, such as tech entrepreneurship, as well as areas where capitalism is a counterproductive failure for basic human well-being, such as healthcare and education, among many others. Policy revisions will follow, or we will face civilizational death.
Nevertheless, I worry about two things: whether incremental but significant policy change is politically possible given the stranglehold neoliberalism has on both political parties, and if it is, will it be too late the get the train back to the station? In other words, our economic system is so cravenly flawed, and because those flaws have been so magnified by the exponential acceleration of technology, that policy tinkering may be tantamount excising the kidney stones from someone who has stage 4 metastatic cancer.
The Main Problems in a Nutshell
Crunching the numbers provided by Credit Suisse, Oxfam’s most recent report concludes that 42 people now own the same wealth as the bottom 3.7 billion people, and 2017 saw the largest increase in billionaires in history. The staggering rate of the widening of the wealth gap takes us out of the light of academic debate and into the sunless sea of an impending, possibly civilization-ending crisis. One area where capitalism can be saved from itself is in the form of wealth redistribution; specifically, Universal Basic Income, or UBI. Without it, increasing automation, outsourcing and crowdsourcing will result in increasingly fewer jobs, increasingly higher corporate profits, and eventually the death of the consumer class, and with no one left to purchase corporate products and services, an economic crash never seen before in human history.
Yet the gas-lighters of the neoliberal jet set continue to gavage us with the bromides that we’re not really seeing what we’re seeing and not really experiencing what we’re experiencing. Their arguments, not surprisingly, don’t hold up to even minimal scrutiny. For example, the most popular argument against this almost self-evident outcome is that new jobs will be created from technological innovation. But where are they? The only new job created by technology in the last half century was computer programmer. We are continually seeing labor cost reductions, increasing efficiencies, and corporate consolidations resulting in de facto monopolies. One need only glance about to see this: How many internet search engines are competing in the free market? Computer operating systems? Jet engine manufacturers?
Another argument from the coterie of neoliberal cognoscenti is this: unemployment is at an historic low, and I’m simply playing the role of a hand-wringing Chicken Little. If that is so, why, with all of this wealth creation and full employment, is homelessness in the US on the rise? Sorry, but the sky really is falling. One must look at the entire storm and not an individual cloud.
First, the good jobs that were lost in the Great Recession have been replaced with poorly paid service industry jobs. In fact, the fastest growing sector is food service. Second, the Labor Department’s official unemployment rate doesn’t include the 1.6 million people who’ve simply given up looking for work, or the 4.9 million who can’t find full-time work and are working part time. Even more notably, it doesn’t include crowdsourced workers who perform tasks on a per-project basis. The most recent available data from 2015 indicates that a full 15.8 percent of workers are now freelancers, and from 2005 to 2015, 94 percent of all net jobs created were of this type. If this trend continues – and there’s no reason to think that is won’t – half of America’s workforce will consist of contingent workers within a decade. Welcome to the precariat: great for corporate bottom lines, but not so great for working families.
So, here we have two quite fundamental flaws of capitalism – the consolidation of wealth at the top leading to instability and eventual collapse, and increasing consolidation of market share, with the myriad of abuses that in itself entails. But there is a third problem as well. For capitalism to survive, it requires infinite growth, which is why economists focus so heavily on measuring current growth and predicting future growth, and why the marketing profession focuses so heavily on creating demand by seeding desire from so many products and services that nobody really needs. Yes, the resulting rampant consumerism is destroying our planet, but also consider the corollary effect: infinite growth on a planet with finite resources is impossible. The Pollyannaish Silicon Valley consiglieres to the cult of technology argue that technology will save us as it has in the past with improvements in agricultural practices and technologies, for example, but that is little more than blind faith. They also argue that we’ll mine asteroids and colonize other planets, but that is just pie in the sky futuristic musing at this point. And we have a perfectly serviceable planet now, with oxygen and water no less.
In short, policy corrections to ameliorate the worst of the imbalances in our neoliberal economic system are desperately needed, but alas, not enough for long term civilizational sustainability. We must ultimately – and urgently – develop a different economic system. Doing so will require that we first stop thinking like economists.
The Dismal Science
The above term is well deserved in describing the social science of economics. Economists perform various tasks. Among these are examining economic history, advising public leaders and private business interests on economic policy, and among other things, predicting future economic trends through modeling. They are, as history indubitably demonstrates, not very good at the latter. Like racehorse political pundits, their predictions are wrong as often as they are right.
The first thing that should give one pause is the economists are typically classified as “conservative” or “liberal” depending on whether they’re from the neoliberal supply-side academies of the Chicago school or the Keynesian school. This quite obviously suggests that there is much less science in economics than ideology. After all, we don’t have liberal or conservative mathematics or biology. But that is only the start.
The primary problem begins with Adam Smith, undoubtedly the most misunderstood philosopher and economic theorist in history, often intentionally so. Smith postulated that the “invisible hand” of the free market, which required individuals working toward their perceived individual and selfish best interests, was superior to governmental economic planning. Or did he? Many conservative economists think that he did, either because they haven’t read Smith’s thousand-page magnum opus The Wealth of Nations, or relied on secondary reviews of it, most of which are either misleading or obscurantist. The idea most attributed to Smith by neoliberal economists is that if business interests are left to themselves without governmental regulation or intervention, the invisible hand of the market will compel them to make the most profitable business decisions, requiring rational thinking in competing with other interests, resulting in better products or services at lower prices for consumers – a colorable Darwinian perspective. The strongest and most efficient would survive on the confidence of the consumer, and the weak, the shoddy, the dangerous, the corrupt, would perish. It’s an intuitively attractive theory, but it’s not what Smith thought. He never argued for the absence of government regulation in the marketplace, and as Paul Sagar notes, “According to Smith, the most pressing dangers came not from the state acting alone, but the state when captured by merchant elites.” In other words, Smith argued that the free hand of the market was being suppressed not by the government, but by monopolistic business interests who were controlling the market toward their own profitable ends – the exact system that we now have. Smith himself, as Sagar observes, described his own work as “a very violent attack…upon the whole commercial system of Great Britain.”
The entire edifice of neoliberal theology is built upon a foundation of sand. But for the purpose of argument, let us say that this isn’t true, and Smith really did hold the views attributed to him by conservative economists. It wouldn’t help us at all explain why economists are still so feckless in their predictions. The reason is threefold, and has little to do with mathematical models, algorithms, or data metrics, and everything to do with the complexities of human beings together with the societies which they inhabit. The problem of economic complexity was addressed in a paper by A.K. Sen et al. published in the Proceedings of the Royal Society of London back in 1986, and reviewed by Farah Mohammed on January 18, 2018 for JSTOR. In explaining why most economists’ predictions for 2017 were off by a long mark, Mohammed explains that
Economists try to make sense of quantitative phenomena which are inextricably linked to human behavior and desire—factors that can be notoriously unknowable, even to the individuals themselves. We might understand what actions will cause ripples in the market; we don’t know what causes people to make those ripples, when they’ll do it, or how forcefully.
But A.K. Sen et al. were only half right. There are two other factors that make economic forecasting inherently unknowable. One is human psychology. We’re filled with a myriad of cognitive biases, and in making what we think are rational decisions to serve our own best interests, we are often committing horrendous blunders. This is one of the reasons there have been an endless series of speculative economic bubbles – from the tulip mania who’s bubble burst in 1637, to the Great Depression, to the crash of 1987, to the most recent Great Recession, and hundreds of more in between. That fact is, we humans are not the product of reason, but rather of evolution by natural selection, and we carry our genetic baggage with us.
The third factor is complexity. Over 7 billion people on this planet are participating in economic transactions every day in every country, that have different political economies, different currencies, different folk-wisdoms and norms, different banking systems, different financial strategies, different philosophies, and above all, different ideologies. The world economy is thus mind-bogglingly complicated. In 1991 Bak and Chen noted that “The world economy is an interactive system of increasing complexity, and increasingly complex systems become increasingly unstable.”
Samuel Arbesman persuasively argues that the human mind is incapable of mastering the complexity of the world that we have created. In my view this is both a poignant and profound observation, and its implications with regard to the world’s political economy are both scary and staggering. Bak and Chen note that “[l]arge interactive systems naturally evolve toward a critical state in which a minor event can lead to a catastrophe.” Indeed, and yet Wall Street recursively advocates and lobbies for deregulation of all areas impinging of the economic sphere. Do we – as Hegel presciently noted – learn from history that we do not learn from history? Apparently so. The laissez faire free market ideal, the libertarian utopia, is a recipe for disaster. It fetishizes the moronic idea that absolute economic freedom will naturally result in universal prosperity, stability, and human fulfillment. Pure Bovine Scatology.
When I say that neoliberal economic dogma is built upon a pile of sand, I mean that both figuratively and literally. Bak and Chen observe that when perfectly clean sand is piled one grain at a time, creating mountains, the mountains inevitably collapse, but in completely unpredictable ways despite the precise placements of the grains. For all practical purposes sand piles are infinitely complex and therefore the precise manner of their inevitable collapse are impossible to calculate. So, too, are free market economies. Instead of reigning in economies with rules, with traffic lights, the conventional neoliberal economic wisdom is to encourage the wanton unregulated chaos of the market in the hope that it will self-stabilize. I remain at a loss to explain how otherwise intelligent people believe this.
At the very least, we are in dire need of an interdisciplinary approach to the study of political economies. Economists are stunted with blinders, or as Joseph Stiglitz says, they are like drunks looking for their keys under the lamppost because that is where the light is. Measuring things like GDP growth is an ass-backwards exercise in futility. Human well-being, though, is something worth measuring, and it can easily be decoupled from traditional economic metrics.
Adam Smith, as noted, famously postulated that the “invisible hand” of the free market, guided by human reason and self-interest, would wright the ship of equality. His friend and contemporary, David Hume, argued that human reason was an illusion. They, travelling down two different intellectual paths, apparently never discussed the incompatibility of these two postulations. This fact is, again, an argument for the broadening of economic theory – and an argument that economists should stop pretending to be scientists.
It is high time that we begin to seriously examine other economic models. I will be doing just that in future posts.