The Economy No Longer Works for Average People. Here’s Why.

The Economy No Longer Works for Average People. Here’s Why. September 1, 2017

money.001The Economy no longer works for average people. I’ll give you three guesses as to why, but you’re only going to need one: The rich are stealing all the money.

Before you think I’ve lost it, allow me to introduce you to a podcast called The Weeds, and the reporting of Ezra Klein. The Weeds is not everybody’s cup of tea. It’s a detailed policy discussion led by the latest research.

Government agencies and the academy are constantly putting out these policy studies and directives that are sometimes called white papers. These are authoritative, research based guides to complicated issues of public policy (basically the polar opposite of a blog post). Once a week or so, the nerds from The Weeds emerge from their nerdery and explain a white paper to us mortals.

On August 23rd they reviewed two interesting white papers. Here are the highlights of what the data show:

Paper #1

The bottom 50% of all income earners (by distribution) in our society have been completely shut off from economic growth since the 1980s.

That means that if you are in the bottom half of the economy, when adjusted for inflation, you basically haven’t seen a bump in earned income since the 1980s. However, if you are in the top 1%, your income went up by 205% (not a typo… 205 percent). If you are in the top .oo1 % it went up 630%.

Now, when you look at adjusted income and factor in things like tax credits and government assistance, the story is a little better. The lower half has grown around 20%, but much less than the national average (60%). Most of that gain is not cash. It’s medicaid and medicare assistance. So it’s not money you can buy your kids some sneakers with. It’s just government assistance to get access to healthcare, or food, or medical help.

By comparison, in a place like France the bottom rate grew by 30%, essentially the same as the national average. (Plus the average person basically gets 2 months off per year in France… so there’s that).

What does that mean? It means that our economy is set up to transfer all of the gains to the top 1%, and even more so to the top .001%.

Let me give it to you another way. For every dollar made in America the bottom 20% used to get 20 cents. In 2014 they got 12.5 cents and falling. The top 1 percent used to get 10.2 cents, now they get over 20 cents.

Translation: Our economy is growing, even growing faster than other countries. But, that growth is being entirely co-opted by the rich. The rich have rigged the system so that they get all the gains. They are stealing all the money.

Paper #2

This one is a study of market concentration and market power. It finds that companies across a wide swath of the U.S. economy are charging more for goods, even though the price to produce those goods has basically stayed the same. That means higher profits, which should be good for the average person. But all of those profits are not finding their way to you and me. They are finding their way into the pockets of the top .oo1%.

Klein explains what this means:

“What we are seeing painted here is a picture of an economy that, on the one hand, all of the income gains are being pulled in by the rich, and the rich are able to increase their markup between what they produce and how much money they get for it. On the business side, the power is being held by big corporations and they are able to increase the amount that they take home. In both cases it does not seem to be doing the economy much good.”

Translation: Corporations have way more power over labor than they did in the 1980s. They have found a way to rig the system so that any of the substantial gains in the economy go to themselves, and not to their employees. The rich are stealing all the money and the average person is powerless to change the system.

This is not an isolated study

  • CEO pay has grown 90 times faster than typical worker pay since 1980.
  • The world’s 8 richest men hold more wealth than half the world’s population put together.
  • In America the top 1 out of 1000 households holds about 90% of the wealth.
  • 70% of the households in 25 advanced economies saw their earnings drop in the past decade… not the top .001%.

The reason the economy no longer works for average people is that the rules of the market economy favor the rich. The free-market v. big government argument is a big scam! The richest .001% are playing us. They are stealing all the money and trying to act like nothing’s going on. The politicians are on the dole (See Citizen’s United).

What did the average person decide to do about this problem? We elected a billionaire president. What is that billionaire president’s solution? Tax cuts for the top .001% and for corporations.

Raise your hand if you think that’s going to help the average person.

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  • Scott


  • sgillesp

    1. tell your friends, 2. don’t elect anyone who thinks tax reform means giving more tax cuts to the richest among us, 3. elect people who want to reinvigorate the labor movement, 4. raise minimum wage.

  • jekylldoc

    I think these facts are not familiar enough to the average person. Economists understand that things are not going the way they are “supposed to” go, and are working hard and thinking hard to find answers.

    On the other hand, I note that these interpretations of the facts are yours, not the consensus among economists, and are only one side of the story, and the most divisive one at that. Corporations have never wanted to give up any money they could keep their hands on. What has changed has not been corporate power. Oh, we can show some increase in corporate monopoly power, but the industries with the most impact on the lives of American workers, (especially the workers with no college degree,) have been the ones losing power and losing monopoly power.

    The demand for working-class labor has fallen more due to technological change than to trade (but not as much more as many economic studies have concluded: their methodology is inadequate.) The part due to trade has heavily cut into labor bargaining power, and corporations were very aware of that at the time NAFTA, the WTO and Chinese accession were agreed on. But it’s also true that 40 percent of humanity has been raised out of desperate poverty by the growth that these trade agreements brought (more than double the living standard for 2.5 to 3 billion people). That never happened in 15 years before and probably never will again. And did the WTO bring the rule of law to China? Maybe not as much as we would like, but far more than even the optimists were willing to forecast. So while no one thinks it is right to sacrifice the living standard of the least skilled in the rich nations in order to solve much of the world’s starvation, child mortality, and unfreedom, well, let’s just say it wasn’t all loss.

    But what is supposed to happen when production technology improves has not happened to anywhere near the extent it should have, going by historical precedent. We are used to tech improvements putting some people out of work – – we used to unload ships by hand with cargo carried on human backs, and now far less than 1 percent of the labor is needed to unload bigger ships, I remember depositing my weekly paycheck by standing in line in a bank, and so on and so on. But since it also saves money, we are also used to seeing the savings turn into spending on other goods, thus putting others to work. That is not happening.

    By all means let us put the money of the rich to work incubating labor-intensive service jobs in value-intensive industries. Bain and KKR have made far too much money by breaking labor contracts and shutting down production in product lines that were not quite profitable enough for their vision. But simply labeling the likes of them as thieves who are stealing the economy is the kind of oversimplification that brings us to destructive, not constructive, measures. Let’s make the changes in Citizens United that the SCOTUS will approve, like an end to secret donations of millions by foreigners, and hold the representatives’ feet to the fire who are on the take and refuse to co-operate. Let’s form consumer groups who will eat local food, bank locally, party locally, help each other learn locally, and publicize pollution locally. Let’s just stop feeding the beast of high-tech glam, and start feeding each other information on what corporations get away with that they shouldn’t. Let’s mutually pledge our lives, our fortunes and our sacred honor to ending the fossil fuel disaster. But none of that requires demonizing corporations or undoing the legal framework of globalization. We are going to live with a more unequal economy, but the world economy is more equal. That’s what globalization was forecast to do and it has done it.

    • Are you familiar with the term ‘thought terminating cliche’ or ‘thought stopping cliche’?
      I remember reading this post a few days ago. You have expanded upon it revealing how easy it is to paint with a broad brush in black and white and call it a day. I know you have said you are an economist. I am very ignorant about such things. Thank you for expanding my awareness of this domain as you have revealed a more colorful and robust picture of things economic.

      • jekylldoc

        In this case I am more concerned about “dialogue stopping” than “thought stopping.” The OP was not wrong, but it didn’t get into what to do about the changes or even the full range of where they come from. I trust the author to back whatever solutions look promising – but at this point what we need are more solutions to back. And that takes reflection from a variety of perspectives, so it takes dialogue.

        • Dialogue stomping. See what my auto-correct did there!? Dialogue stopping. Maybe what stops the conversation is When there’s nothing left to say because one isn’t sufficiently informed about the topic enough to form a sentence that will move the conversation along. I’ve been studying a bit lately about Hannah Arendt. She posits that :
          // “the banality of evil” was the inability to hear another voice, the inability to have a dialogue either with oneself or the world, the moral world.//
          Hannah Arendt asked another question:
          “How, in modern times, is evil organized?”
          can we identify the source of evil, stop evil from influencing our choices about the future of the human race? Can we talk about how evil is organized? sometimes I think people who won’t or can’t engage with one feel like they are Outsiders and Spectators in their world and maybe especially in the world of finance and economics. I feel that in order to think and speak one needs to be in a culture which allows & endorses that process of thinking and speaking.
          Hannah Arendt suggests that we begin to look into what prepares individuals and societies for totalitarian domination. the question on my mind is how does one imagine and implement a response to the fact that there are forces working on us all the time to engineer and commodify our Humanity? In my humble opinion The beginning of change happens in the way we think and the way we change the way we think if we perceive that we’ve been brainwashed. Hannah Arendt’s sense of what it meant to be a thinking person wasn’t about mastery nor was it about thinking about stuff in order to control it or rationalize it. Thinking was a way of being. It seems to me that this sort of thinking, when partnered by the Holy Spirit, can move the dialogue along because one is willing to take risks. when one is willing to be a Mystic and inspired to take on the tasks of breaking new ground one has to endure submitting to ridicule by those Gatekeepers who have vested interest in maintaining the status quo. If no one is partnered with you along that path you alone are sharing the holy spirit’s company who is a very present help in time of loneliness, trouble and despair. Arendt says this kind of thinking is not the same as discernment but it creates the right conditions for discernment. people who can do that can then move on to having conversations with other people and then discern and reflect with other people who have taken up the task of finding new Solutions and thus become a kind of Vanguard.

          Regarding the inability to hear another voice, inability to have a dialogue either with oneself or access to one’s imagination, and the disconnection with one’s conscience Arendt coined the phrase “the banality of evil” in her 1963 book about the Jerusalem trial of Holocaust architect Adolf Eichmann. instead of thinking one’s own thoughts and finding one’s own moral compass one becomes part of the system, and One follows the rules, One implements the rules of bureaucracy, which in our age is becoming corporatist and globalized in all domains where Finance, labor, political power, hegemonic control and natural resources are concerned.
          For instance: How do we organize and administer for human life? one is not helping child refugees because it might encourage more child refugees to come? Really?
          Is this a moral position?”
          No, it’s an administrative position.
          “I was just doing my job according to the way the rules are set up.”
          what was exposed by the refugee crisis of the last century was how so-called human rights were actually political and national rights. One only had as many rights as were guarded by the country in which you happened to be born. once that country decided that you were no longer a citizen, it had no more responsibilities towards you, you were rightless. human rights that are contingent on If the state or nation we are born into will honor it’s commitment to extending to us it’s protection of our human rights then we are all vulnerable because if one fails to satisfy the regulators expectation our rights disconnect & that is a terrifying thing.

          Here’s the quote by Arendt that I like because it gives me hope that I might be part of the solution:
          “what we need are vibrant communities that can change without risk, a community that is OK with promising and a culture of forgiveness.”
          we’ve had rapid change. The world has become unpredictable in new ways. the pace of technological change has outstripped man’s ability to adapt to change. How would anything like a political community help? Arendt says a mature political community needs the capacity for forgiveness to accept that things go wrong. “culture of forgiveness” to me feels very important to put out there. It feels also very countercultural right now. If we want to change we will be open to extending neighborly love, which is neither expecting Perfection or feeling entitled to commodify something else or someone else. It’s just the love that says, “I want you to be.”
          Rogue politics is where it’s become a caricature of the opposite of that in my humble opinion.

          totalitarianism makes us all lie & That’s what creates conditions of loneliness and despair.

          “Not telling the truth is the quickest way to turn yourself into a stranger.”
          -Mark W. Perrett

          Hannah Arendt suggests:
          If you want a culture that’s going to resist taking on fake news, and the political lie…
          you need more storytelling.
          you need more discourse.
          you need more imagination.
          you need more creation in that way, and you need more of a sense of what it is that ties us to those words and ties us to those stories.
          We need three dimensional stories and facts and conversations between people and
          all of that working together.

          • jekylldoc

            Some really good observations here.

            I don’t know if you knew that Arendt at one point had an affair with her teacher, Heidegger, who later, for a while, supported Naziism. As a Jew herself, that must have really hurt. But despite Heidegger’s difficulties sorting out reality, he was a really deep thinker, and Arendt’s insistence on thinking together could not be more timely.
            “what we need are vibrant communities that can change without risk, a
            community that is OK with promising and a culture of forgiveness.”
            That seems so difficult now. I pray and hope that as we work our way out of our current messes, we will regain the sense of balance that allows a nation to handle change and respond to challenges and forgive when necessary.

            You mention needing to start thinking when we realize we’ve been brainwashed. I had a similar feeling because of the last election.

            The storyline in my head went something like, “there has been a gradual increase in human rights and respect for human rights, and so bigotry and hatred have gradually fallen by the wayside. If we are just patient, we will have a culture of mutual respect and general tolerance.” But I also knew that the economic problems of a long recession can sweep away such progress, as they did in the 30s, and I had not realized how much economic devastation had hit in the Midwest. So it isn’t so much brainwashing that I am trying to wake up from as overconfidence.

            And of course the Right has some waking up to do. Hurricane Harvey has already dented the confidence of the “government is the problem” crowd. Maybe they will actually pull their heads out of the tar sands as a result. I know, I know, I am not expecting that much.

          • //So it isn’t so much brainwashing that I am trying to wake up from as overconfidence.//
            Brainwashing and overconfidence!! The one encourages the other to accept magical thinking in my humble opinion.

            //Maybe they will actually pull their heads out of the tar sands…//
            *does spit take!!* schadenfreude call!


    • billwald

      Maybe economists are like politicians. Honest politician: Buy him and he stays bought.

      • jekylldoc

        Economists all have at least two hands. On the one hand, there are the benefits, and on the other hand, there are the costs. And they do not usually accept being on the “side” of anyone in particular. Too much experience with economists who take sides and, as a result, won’t listen to evidence.

  • You said, “What did the average person decide to do about this problem? We elected a billionaire president.”

    The problem stems from lack of economic growth over the last eight years due to the policies of the democrat administration.
    President Trump is already growing the economy both in jobs and in GDP.

    • jekylldoc

      Bob Shiloh – you could not be more wrong about the reasons for the lack of economic growth in the last eight years. First, the Democrats stopped the slide with a stimulus package. Remember the end of General Motors? Well, you would if the Democrats had not stepped in to save it.

      On the other hand, the Republican sweep in 2010 has been very bad for the economy. It was based on specious claims about Obamacare which have now been shown to be false and their opposition shown to have nothing to offer in its place except going back to “cross your fingers and hope you don’t get a pre-existing condition.” It dragged out the recession to twice as long as it should have taken to restore full employment, by starving aggregate demand when it was demonstrably needed. Their policy of “allow no successes for the Obama administration” was startlingly successful, but the cost was on the backs of American workers. The Party of No became the Party of No Jobs. And now, entering office with the lowest unemployment rate in 15 years, Trump is going to claim he created the growth? If the American people believe that, they deserve the result.

      • Everyone knows Obamacare has failed.
        Republicans did nothing to stop Obamacare in 8- years.
        But because the Republicans are divided over repeal and replace you will get to see the full blown failure.
        Trumps success will speak for itself.

        • jekylldoc

          Trump’s lack of success is already speaking for itself, loud and clear.

          Obamacare has not failed, and even if the Republicans continue with their strategy of undermining and sabotaging it, it is likely to remain the law of the land. Why? Because more than 20 million people now have health insurance who were relying on emergency rooms and the charity of hospitals before. It slowed the growth of health care spending in the U.S. and the lessons learned by its encouragement of innovation are spreading to other areas and widening the savings. Most importantly, it removed the insurance companies’ ability to deny insurance for pre-existing conditions. Not likely we are going to see a majority of Americans back repealing that.

          • Failure. Roiled the healthcare system. Premiums have skyrocketed. Democrats agree it needs help, Free healthcare just a ruse to buy democrat votes for the future. Democrats do not care about people just power. Progressive democrats have destroyed the democrat party. Obama is the lead in that regard. Make America great again!

          • jekylldoc

            If you go from insurance that excludes pre-existing conditions to insurance that covers them, there will be a higher premium. That only makes sense. Premiums have risen less than forecast by the CBO at the time of passage.

            Personally I don’t think a political program in which America seems great only to those who don’t get sick is a very good program. I think we should be insured against it, like people in other wealthy countries.

  • CroneEver

    To put it simply, for the last 20, 30, perhaps 40 years, corporations – including sports franchises – have been privatizing profits and socializing losses. They don’t build factories or sports arenas in cities without getting tax breaks and/or tax amnesties for at least 10 years. Not only do they promise more jobs than they actually provide, but a recent tactic is to make sure that jobs are less than full-time (32 hours is popular), so that they don’t have to pay any health insurance benefits. Since the employees can’t afford private insurance, they have to either go on Medicaid or use emergency rooms for standard care – in either case, the taxpayer pays for the benefits the corporations no longer offer. When there’s a disaster, corporations demand tax-payer assistance to bail them out. When there’s a windfall of profits, the corporations sit on them, rather than increase wages or hours or benefits.

  • billwald

    The title IS the problem e.g a misunderstanding of the word, “average.” In the wage distribution curve, the average (mean) person always has a wage than the median person.
    The most (modal) workers earn less than the middle class which is defined as median wage +/- 20 percentile. That’s the way the math works.

    100 years ago the working social class knew they were supervised by the social middle class. The social middle class knew they were almost invisible to the social rich class. This situation is conveniently illustrated by “Downton Abbey.” After WW 2, the working were taught to think they were were the social middle class. Isn’t that why 80% of Americans think they are smarter and work harder than “average?”

    If it wasn’t planned then the America capitalists got lucky. People who are smarter and work harder than “average” don’t need labor unions, right? In this century, it is the East Asians who are working harder, smarter, and longer than WASPs and leaving us in their wakes. Me, I always have known that I was lazier than average.

  • billwald

    “Stealing all the money?” Republicans need to move into 21st century economics and learn that the world “money” system is 100% (rounded off) electronic transfer 100% fiat money that has NO intrinsic value. The US dollar is only valuable because it is the world reserve currency and is required to pay US government(s) taxes. “Money” is NOT a “store of value” and functions as a government-approved IOU for goods and services.

    The rich are accumulating hard assets (land, businesses, infrastructure, housing . . . ). Ask yourself, “Why do supermarkets let you “counterfeit” their store coupons?’ Because they have no intrinsic value.

    Why doesn’t the US government let us counterfeit the US dollar? Because it would cause consumer price inflation. None of the new trillions of dollars have cause consumer price inflation because none of it was spent into the consumer economy. I was counterfeiting US dollars, I would be buying every acre of good land that I could get my hands on. Read someplace that Bill Gates has bought a million acres of good farm land with his fiat paper profit dollars.

    • jekylldoc

      Supermarkets use the coupons as a means of price discrimination. People who are willing to go to the trouble to collect and bring in coupons are more price-sensitive, which means that maximization of profits requires lowering the price to them while raising it for those who are not price sensitive. As a result, if you “counterfeit” their coupons, you are doing their work for them – sorting consumers into the price-sensitive and the non-price-sensitive.

  • jekylldoc

    Alonzo – You are quite confused about the nature of Keynesian economics. It is not at all about envy. And at the moment it is the only macroeconomic framework left standing, as all the others have proved completely incompetent, even irrelevant, during the Great Recession.

    Suttle overstated the extent of theft but Frank and others have demonstrated that the power to accumulate within the top few positions in an economy has gone up dramatically since 1980. Policy changes, including lax anti-trust, lower top marginal tax rates, and retrenchment of labor law, have been a large part of this. A columnist for the Guardian got hold of James Buchanan’s correspondence at George Mason and found that he was, in fact, part of a conspiracy with the Uber-rich to undermine governmental and labor interference with the profits of capitalists.

    A rather successful conspiracy, as it turns out. Among other things, they got Scalia on the court, who believed in originalism except when it interfered with his conservative priorities.

    Among other changes in the 80s to 00s was a huge increase in rewards to top executives of major corporations. Every study looking at the effectiveness of those salary increases has shown that they were more likely to hurt the company than help it, but corporate boards understand class dynamics better than anyone.

    We now have private equity investors scouting around for pharmaceutical patents which are not getting the full amount of monopoly profit available. No big surprise – those investors turn out to be devoid of ethics, like the Wall Street investment bankers who brought us the crash of 2008. And our current crop of “leaders” wants to reduce the regulation holding them back.

  • JA Myer

    the problem is capitalism in order for it to work there must be lots of poor people feeding the rich.

  • PedasiPaul

    We can nitpick all we want, but does anyone deny that average wages have been stagnant or declining when adjusted for inflation since the 80s? Or that economic inequality has been widening? Or that class mobility has been declining? Some may not find any of these things problematic, but people who suffer from a declining standard of living have reason to disagree.

  • jekylldoc

    Robert Frank is the author of The Winner Take All Society. His recent work is discussed here:

    He showed that there has been a significant increase in the returns going to “winner take all” industries, such as law, in which a small edge in quality translates to a huge differential in income. Frank’s was the most comprehensive look at positionality in our economy, but his results have held up to further scrutiny.

    Other important findings include Piketty’s demonstration that concentrated rises in real estate prices have been responsible for much of the increase in wealth inequality in Europe and America in the last 30 years. This will come as no surprise to, e.g. teachers and fire fighters who cannot afford housing in the “hot” areas like SF Bay, Boston, Seattle or New York.

    The effect of lower tax rates on the rich is obvious, and has played out exactly as forecast at the time when they were lowered: there has been no demonstrable increase in productive activity, but the rich have been much more able to keep the money they can get their hands on.
    An increase in monopoly power in the American economy has been found by repeated studies.
    Bruce A. Blonigen & Justin R. Pierce, Evidence for the Effects of Mergers on Market Power and Efficiency (NBER Working Paper No. 22750, 2016).

    The rules began to be relaxed during the Reagan Administration. The excuse was that there was increased potential competition from foreign firms, but the truth is that Richard Posner and his followers simply shifted the presumption to a much greater faith in industries to compete rather than colluding. The result in beer, for example, was a 6 percent increase in price, which probably at least doubles net profit.

    The Clinton Administration stopped the slide but did nothing to reverse it. Bush I and II both gave the nod to serious decreases in competition in a number of large industries, including Bush II dropping the suit against Microsoft which had already demonstrated egregious anti-competitive behavior, including blatant disregard for the consent decree negotiated after its first anti-trust violations.

    The shift in administration of labor law has been less dramatic but fairly relentless, as shown by a recent Cornell study.
    One example was given by the Trump administration’s January rollback of DOL regulations applying overtime rules (who is entitled to overtime pay) to salaried workers up to 47,000 per year income instead of the old, inflation-unadjusted 23,000 per year standard. So it is back to overtime requirements not applying to salaried workers even though they are working at poverty income levels..

    The evil behavior by Big Pharma and the Private Equity industry was symbolized by this year’s case of Martin Shkreli.
    But it happened, as the LA Times documented, in a variety of cases. Firms that had been doing fine without gouging the people dependent on them decided to take full advantage of lack of competition.

    If you have any doubt that Wall Street investment bankers brought the crisis of 2008, you have been holed up with propaganda too long. The whole system of mortgage-backed securities was corrupt, leading to the collapse of Bear Stearns, Merrill Lynch and Lehman Brothers. The abuse of Credit Default Swaps was a deliberate effort to pass off the risk to institutions such as AIG or Deutsche Bank which either did not understand the market or irrationally focused only on short-term profits. We know from direct evidence that Goldman Sachs was gaming the ratings agencies, reselling securities they knew to be high risk because they also knew that overworked ratings agencies, under pressure from Wall Street lenders, were giving securities based on subprime mortgages far better risk ratings than they deserved.

    The American Enterprise Institute has made an effort to rewrite the history by claiming that government programs to help low income borrowers get into housing were responsible for the crisis. It is true that those programs were ripe for abuse, and subject to quite a bit of it. In hindsight, the program would have been very differently structured, just as in hindsight Alan Greenspan wishes he had paid closer attention to the bubble and gotten involved in supervising derivatives markets (whose supervision the Bush II administration quite literally dismantled.) But the AEI, not least because they are dependable hacks who shill for big business every chance they get, have not convinced any significant part of the economics profession. Sure, the lending program played a role. But businesses were not required to make bad loans (contrary to your “forced lending” claim), and Wall Street was certainly not required to play deceptive games with the risk estimates.

    You seem to have a little trouble figuring out which recession we are referring to. Since I was an economics teacher at the time, I followed both recessions, 1991 and 2007-2008, as they unfolded, and have read extensively on them since. Don’t put your trust in paid shills. Their purpose is precisely to pull the wool over your eyes. The work on Buchanan’s career and the founding of the Cato Institute by the Koch brothers traces out that purpose with astonishing clarity.

  • jekylldoc

    Alonzo – You have been led down the path of ignorance to a position of complete misunderstanding. If this was just due to random misunderstanding of economics, it would simply be sad. But instead it is due to people who put forward completely specious claims to economic insight (all economists of the Austrian school are examples – on the rare occasion when they make a falsifiable claim, it is always wrong) in order to give unsophisticated readers the impression that government is a terrible danger to them and out to take away their money. Unless your real name is Charles Koch (in which case you are paying these charlatans) it is simply not true.

    Roosevelt’s deficits came mainly when WWII started. Up until then he was not nearly Keynesian enough. Look at a graph of U.S. debt – the “hockey stick” comes in 1939 and 1940. The Great Depression ended only when the U.S: began to run massive deficits, as Keynes had advised all Western governments to do 10 years earlier. Quite simply, if business is not borrowing, to build factories, then government needs to borrow and spend. It is not even close to being true that Keynesian policies have never led to sustained growth. They were overdone in the late 70s by the UK and the US, to the regret of economists who see the damage that did to their reputation, but the next time there was a significant period of extended unemployment, namely 2008 to 2012, no other theoretical framework has even come close to the performance of Keynesian models in predicting the effects of policy. The conclusion is simple: don’t use Keynesian ideas when inflation is significant, but do use them when the problem is unemployment.

  • jekylldoc

    Alonzo – I am not making up any of my “claims.” When you challenged me to back them up, I did. I don’t normally make personal attacks, but in your case it is important that you realize just how far off base you have been led.

    Tell me one important principle that the Austrian school has contributed to general economics – one idea or measurement that other economists have taken on board because it helps to understand the world. The sad fact is that Von Mises and Hayek were notable only for their unusual political views, and the balance which they sometimes gave to political debates by emphasizing freedom. I respect them for that, and a few useful questions have emerged from it, but as economists they were just deluded. I have read quite a few things they wrote. None because it would help to understand the workings of an economy.

    Falsifiability is simply a standard for clarity and definiteness. The opposite is the fallacy of moving the goalposts – if no evidence can ever dissuade a thinker because they simply change their formulation to keep it from being falsified as evidence is gathered, then their theory is just ideology and not an effort to understand. Mostly the Austrians make no falsifiable predictions. When they have, for instance on the subject of money, they have been so far wrong that they should hang their heads in shame. But they have no shame – only a program of promoting the interests of the rich.

  • jekylldoc

    I see you edited your post with “except to say…” It is not true that economists don’t make moral judgements, but we do separate such conclusions about what should happen from the process of assessing evidence. The very thing that the Austrian school has been a failure at.

    While it is true that there is no basis in economic analysis for concluding that a person who buys a patent for a life-saving medicine and then raises the price by a factor of 50 is evil, there is an obvious basis in moral reasoning. And it is also true that Shkreli, who did this, has been convicted on securities fraud, which pretty well tells us what we might not have already realized about his character.

    Would you like to hear about Ivan Boesky? How about Jeffrey Skilling? Or we could get into less clearcut cases and discuss KKR and Bain Capital. I think I can make “evil” stick. Shall we give it a go?

  • jekylldoc

    Oh, please feel free to block me.

    Say and Bastiat are in no wise Austrians. Bohm-Bawerk I actually have a lot of respect for, though his contributions were pretty vague. He certainly was not the first to conclude that the interest rate is largely determined by the profitability of business investment, but it has been known since his time that equity returns (i.e the normal rate of business profit) is higher than the equilibrium rate of interest.

    Menger’s part in contributing to Marginal Utility theory counts as a real contribution of the Austrian School, but we are talking about the late 19th century when John Stuart Mill was what was read by economists and the argument was with Hegelian and Marxist historians about what value meant. By the time it became what we now call Austrian Economics, that was a distant memory.

    The time value of money goes back to the 1500s, and von Mises’ main “contribution” to it was to deny any importance to liquidity preference in this theory, which would lead to serious distortions if anyone took it seriously. I will give you the regression analysis based on the Fisher-von Mises distribution, which I actually saw in Mathematical Statistics, but it is not used in economics.

    You missed the only one that is generally cited, which is the notion of information aggregation in prices. While an interesting idea, none of its supposed implications has amounted to anything, and Oskar Lange in particular showed that, contrary to the claims of von Mises and Hayek, a socialist, centrally planned economy can reap the informational benefits just as well as a capitalist economy. The conclusion by von Mises that private (rather than public) information is a positive benefit has, as a practical implication, the notion that insider trading should be allowed, which is, shall we say, not taken seriously even by business people.

  • Alonzo

    Good response

  • Anthrotheist

    “By raising taxes on the producers, you incentivize them to invest their money where they get to keep more of it…”

    So my question then is, “How much of their return on investment do they deserve to keep?” If the answer is, “All of it”, then there’s going to be cries of social responsibility, social contract, practical questions of funding public works, etc. If the answer is, “As much of it as they can find a way to”, it seems to me it is only encouraging the investors to do their best to find a place where they can use the first answer, or as close as possible.

    I suppose my point, if I really have one, is “Why should Americans – or American organizations (such as corporations) – be permitted to do business outside of the US in ways that conflict with the laws (and values behind those laws) that exist within the US?” If they had to pay US tax rates no matter where they do business (and comply with minimum wage, FMLA, and similar requirements on business practices), doesn’t that protect “those who don’t own the means of production” without undue burden to the company or investor? (since they aren’t facing greater costs than they would have at home)

    • Lumpy Rutherford

      I believe you are taxed on foreign income. At least individuals are.

      No doubt there are corporate loopholes and they should sure be closed, if so.