What Went Wrong: An Idiosyncratic Perspective on the Economy and Economics
Part 1: Background
This essay describes my analysis of crisis theory, while describing the rambling path that led me to my present position. What I know now should have been clearer much earlier. I grew up in the heart of the rust belt in western Pennsylvania in the midst of decaying factories, which would begin to disappear in my teenage years. I disliked school. My teachers were uniformly bad. I got sent away for my senior year of high school, but education there was not any better.
I expressed my contempt for education when applying for colleges, sending my ten applications to the highest rated football teams. Fortunately, the University of Michigan was having a good season and a friend went there. During my first years at Michigan, I was still a lackadaisical student.
After my sophomore year, I got a summer job with an organization that placed students in Europe. For the first part of the summer, I worked on a farm in Germany near the Swiss border and then rode my bike across Europe with a friend. Before this summer, I had never experienced anything particularly interesting, except for sports. As I rode, I was amazed to see how kind of the bread changed within a few miles. With this newfound appreciation of diversity, I suddenly began to become interested in the world around me.
By the time they reached Paris, I bought a book for the first time in my life. I don’t know why, but I picked up Anna Karenina. I probably heard somewhere that Tolstoy was an interesting writer. I didn’t find the book particularly interesting until I got to a scene in which scrawny men were working in the fields from early in the morning until they were joined in the afternoon by a group of very strong women who could easily outwork them. This description was identical to what I witnessed on the German farm. I never imagined that anyone else could ever understand my experience.
I returned to school enthusiastic for learning. I would have one good class where I would read everything the professor mentioned, but pay little attention to most of the other classes. This education was relatively broad but completely unsystematic.
Upon graduation, I had no idea of what I wanted to do, except that I knew I did not want to work in business. California was as far away as I could get from Western Pennsylvania without wetting my feet in the ocean. I went to Berkeley, California for a while and then fought forest fires in Southern California. After that, I went to Holland to stay with a Dutch friend from my time in Berkeley. By the time I arrived, my friend had been drafted into the Army. I rented a tiny room in an alley in The Hague, populated by prostitutes who had seen better days.
After a year, I decided to go back to Michigan to study comparative literature, unrealistically imagining a future as a novelist. On the streets in Ann Arbor, I would pass my favorite professor, Dan Fusfeld. At such moments, I felt ashamed, as if I had let Professor Fusfeld down. I knew that I was not following the right path, even though we never spoke or even acknowledged each other on the street.
Years before, Professor Fusfeld had accepted this not very promising student into a graduate class on the history of economic thought with only two other students, where he introduced me to Marx. Decades later, when Professor Fusfeld retired, he recommended me as his replacement.
I went back to San Francisco, where I took some boring jobs, while attending San Francisco State at night. I knew that I lacked a track record sufficient to qualify me for most good graduate programs, but one of my coworkers was a friend with a professor of agricultural economics at the University of California, Berkeley. Fortunately, I was accepted there in 1965; not because of the professor, but because very few people were interested in agricultural economics at the time. This disinterest meant that students were largely free to pursue subjects of interest to them, except for a few mandatory classes.
The excitement at Berkeley in the 1960s was palpable, both with the political turmoil and the exchange of new ideas. My initial dissertation topic was a study of the application of technology as an instrument of class warfare using control theory and differential games. My advisor, George Kuznets, often called Simon’s smarter brother, never bothered to look at anything I submitted to him. I assumed that Kuznets was signaling to me that I was getting in over my head.
I went to the library searching for the shortest dissertation that the department had ever approved, assuming that I could get by with something 90% as long. I found a boring subject ‑‑ the demand for tractors ‑‑ and a data series that the U.S. Department of Agriculture had recently been discontinued, thinking that nobody would be interested in pursuing the subject. The punch line was that the Dow Jones industrial average influenced demand for tractors, illustrating the irrationality of investment under capitalism. Nonetheless, this project was a finalist for outstanding dissertation in agricultural economics.
On the job market, the demand for Marxist agricultural economists was limited. I was up for an appointment at Utah State, where they had not noticed my Marxism. After I warned them, communication immediately ceased. My officemate was hired by a university with a reputation for openness to new ideas. I later told that the final choice was between the two of us, but the university thought I was “too dangerous.”
My application for the job at California State University, Chico initially languished, but in 1970 students participated in the hiring process. They brought my application to be attention of the faculty. The chair, who was very conservative, thought that a Marxist would bring high enrollments to the program.
Part 2: Research
I came to Chico in September 1971. My arrival coincided with the beginning of the decline in both higher education and the U.S. economy. A few months later, in 1972, real hourly wages peaked.
The political signs were also ominous. The month before I begin teaching, Lewis Powell, soon to become a member of the Supreme Court, penned a memo for the Chamber of Commerce, which served as both a manifesto and a blueprint for the neoliberal movement, which transformed the US and had enormous influence in the rest of the world. A large portion of the memo dealt with the project of deregulating the economy, but Powell also emphasized defunding higher education to promote tighter corporate influence.
Thirty five years later, in October 2007, just as the stock market was peaking, my book, The Confiscation of American Prosperity: From Right‑Wing Extremism and Economic Ideology to the Next Great Depression, appeared, explaining how this transformation of American society I had witnessed was setting the stage for another Great Depression.
Many observers are confident that the worst of the storm has already passed. This book does not provide grounds for such confidence. The economy may temporarily recover, but without serious changes, more destruction still awaits us.
The trajectory of my research explains the basis for that verdict. When I first came to Chico, I was concerned about environmental problems as well as world poverty. I published my first book in 1977, Farming for Profit in a Hungry World, after six years of work. The part of the book that won the most attention concerned agriculture’s enormous direct and indirect consumption of energy, but I regarded my warnings about the broader social and environmental costs of “modern” agriculture to be a more important contribution, especially because the Green Revolution was getting such good press at the time.
While teaching the history of economic thought, I became interested in early economists’ treatment of agriculture. This research culminated in Classical Political Economy, Primitive Accumulation, and the Social Division of Labor (1984). This book highlighted the classical political economists’ contradictory positions. While most of them were enthusiastic promoters of laissez faire in their theoretical works, in their private letters and in less theoretical works, they were sympathetic to the often‑violent measures used to force peasants from the land ‑‑ now called “Primitive Accumulation.” ‑‑ Thus the book’s title.
While working on that book, the economy was already showing signs of deep strains. Immediately following the Great Depression and the Second World War, the U.S. economy was strong. First, the Depression forced business to become efficient, then the war increased demand. Families accumulated significant savings during the war, when rationing prevented them from acquiring many goods. The economies of potential rivals lay in ruins. The sequence of the elimination of unproductive capacity followed by massive investment, together with the destruction of competition from foreign rivals, gave the U.S. economy a dominant productive force. In addition, demand was strong. The Depression had wiped out debts. The Depression and wartime rationing meant that people were willing and able to consume. Because of these ideal conditions, the postwar U.S. economy worked better than ever before ‑‑ so much so that economists refer to the period as the Golden Age.
By the end of the 1960s, the rate of profit was weakening and the economy began to wobble. The times suggested that I turn to Karl Marx, who never lived to complete Capital. Two of topics that Marx had left incomplete seemed particularly relevant. The first was the relationship between his value theory and the increasing capital intensity of modern industry. The second was the effects of fictitious value in the form of inflated asset prices, which have little or no relationship to the underlying value system. Both topics were closely connected.
The rapidly increasing importance of capital‑intensive production helped to spur the financial industry, which funneled the funds to pay for the expensive capital outlays. Yet, the mainstream economic literature did not pay adequate attention to either simultaneous increase of capital‑intensive production or the growing financialization of the economy. Marx recognized that both tendencies made economic in stability more likely.
Although growing capital intensity and financialization reinforced each other, their exchange values became increasingly disconnected, in the sense that the price of financial assets moved independently of physical capital’s underlying values. My study of this aspect of Marxian theory formed the basis of Karl Marx’s Crises Theory: Labor, Scarcity and Fictitious Capital (1987). This disconnect between the material and the financial side of the economy played out disastrously in the recent economic crisis.
Research for my Marx book drove me to look deeper into the role of durable capital in modern economic theory. During the Golden Age, the main economic theorist was John Maynard Keynes, whose theory was far deeper and more sophisticated than most Keynesians, especially American Keynesians, realized. In fact, after having breakfast with a group of American Keynesians, Keynes told a friend that he was the only non‑Keynesian in the group.
Writing in the midst of the Great Depression, Keynes emphasized the urgency of immediately increasing economic activity. For that reason, he identified investment as a key factor for stimulating the economy without bothering to distinguish between the purposes of investment: replacement of old capital goods to improve efficiency and investment to expand capacity.
In practice, this distinction is important. Competitive pressures increase companies’ drive to replace older capital, while the need to accommodate increased demand tends to create capacity expansion. As a result, depressions and recessions encourage improvement in technology, while the urgency for better methods of production lessens during booms, although the previous competitive pressures can make the newly installed productive methods more efficient.
Given the pressing economic conditions of the time, Keynes was correct to ignore this distinction, but the economists who followed him made a big mistake by not doing so. The ideal conditions of the Golden Age made later economics so confident that they also saw no need to explore such matters.
Besides, the continuing application of monetary and fiscal policy to prevent severe downturns, which promoted considerable capacity expansion, also reduced the competitive pressures that promote replacement of less productive capital. Consequently, the capital stock in the U.S. aged. In the meantime, competing economies, which were recovering from wartime devastation, were putting brand‑new capital in place. This situation put the U.S. economy at a competitive disadvantage and laid the groundwork for the subsequent deindustrialization.
This work also suggested a serious contradiction in mainstream economics, which teaches that competition is good, while depressions and recessions are bad; yet crises are, in effect, an intensification of competition. Keynes, Investment Theory and the Economic Slowdown: The Role of Replacement Investment and q‑Ratios (1989) explored how the application of Keynesian economic policy set the stage for massive deindustrialization. In the past, competitive pressures promoted economic modernization, in part, by way of replacement investment. With the rapid globalization of the time, the common response to competitive pressures was to move production offshore.
Most U.S. economists seemed unconcerned with the extensive disappearance of domestic manufacturing. The idea was that the economy could do better by shifting away from physical production, instead turning to the development of an information‑based economy. According to this logic, people in the U.S. would be so well educated that they could maintain a dominant position in the global information economy.
This optimism about the future prospects of an information economy turned out to be excessive. Other countries seem to be doing quite well in developing their own foundations for an information economy. In contrast, in the face of recent budgetary stringency in education, the prospect that the U.S. will be at the forefront of an information economy no longer seems credible.
The excessive optimism about an information economy set me to work on Information, Social Relations, and the Economics of High Technology, published in 1991. The book explored why markets are ill‑suited for managing information. The problem is that information differs from the traditional commodities. Unlike industrial goods, which wear out and become obsolete, information can become more valuable over time as more as people can use that information to find more applications. This logic explains Marx’s reference to intellectual work as universal labor.
In addition, markets are supposed to ration scarce goods, but information, once produced, is not scarce at all. Once known, people can reproduce information for almost no cost whatsoever. As a result, competition would mean bankruptcy for whomever invested in the production of information.
A competitive, market‑oriented information economy cannot work efficiently for another reason. The sale of information requires secrecy. If someone offers to sell you some information, you would first want to know what it is that she is offering. If the seller discloses enough about her information for you to realize its utility, you may already possess it without the need to make a purchase. Besides, information develops most effectively in a cooperative environment that encourages sharing of ideas, but sharing is impractical in a market economy. Instead, secrecy becomes a strategic weapon for producers of information.
Given these characteristics of information, a capitalist information economy requires the government to create scarcity by granting monopolies. Such monopolies, of course, violate market principles. In this sense, intellectual property rights are an implicit admission that markets and information are incompatible.
These monopolies create another problem. Markets are supposed capable of creating efficient incentives by rewarding people equitably for their work. With respect to the production of information, equity is impossible. Individuals rarely produce any information on their own. Instead, the creation of information builds upon earlier work. Identifying the marginal contribution of the many sources of any intellectual achievement is impossible. Even more at odds with a market economy, the maintenance of these monopolies requires a far more intrusive and coercive government to create and enforce intellectual property rights.
The next step was to apply my research on replacement investment to the U.S. economy. The result was The Pathology of the U.S. Economy: The Costs of a Low Wage System (1991). The book analyzed the disintegration of the Golden Age, with particular attention to the role of low wages, which fed into the previous work on the economics of replacement investment. One key idea was that a market economy could stimulate replacement without relying on depressions or steep recessions to create the appropriate pressures by increasing the price of labor or natural resources.
Squeezed by these increasing costs, business will need to become more efficient. Like everything else in the economy, a Goldilocks Principle is operative ‑‑ too much or too little is a bad thing. Of course, such policies might help to reduce the frequency or even the magnitude of crises, but, of course, they are incapable of eliminating the deeper contradictions of capitalism. For example, business could try to escape the wage pressures by moving production abroad.
On the other hand, low wages did not seem to help the economy. By the time this book appeared, real hourly wages had stagnated for almost two decades and the capital structure in the U.S. economy had continued to age. To get a deeper appreciation of what my analysis meant for the U.S. economy, I began to work on The End of Economics (1996), which used the economic history of the United States as evidence of the principles developed in my earlier works. This book also demonstrated how the U.S. economy had repeatedly swung between periods of regulation and periods of deregulation. Each of the deregulatory phases magnified the typical market pathologies, including increased inequality and mad bursts of speculation, which finally led to another crisis.
The economy eventually recovered from these crises, but these downturns could be long‑lasting unless something else intervened, such as World War II. The competitive pressures brought on by the economic crises encouraged the search for improved techniques, including replacement investment, which eventually helped to strengthen the economy. This process created enormous human costs, especially because recovery could take many years. Once the economy did recover, business would become increasingly confident again, pushing the economy into a renewed phase of deregulation.
In researching the late 19th century economy, when industry was first learning to effectively harness fossil fuels, I gained a more nuanced understanding of replacement investment. At the time, new technology was coming on line so quickly that industry was often unable to recoup its initial investment costs before competition made it obsolete. Although competitive pressures and the consequent replacement investment are important for developing productivity, when that force becomes excessive, as it did at the time, it can become destructive. Beginning in 1873, a depression began and lasted almost 20 years, until, not coincidentally, the United States began its first great imperial adventures in the Spanish American War.
Competitive pricing was at the root of what was then called the Great Depression, until the Great Depression of the 1930s took that title. With high fixed costs, competition was driving prices down toward the cost of producing an additional unit of output. In the case of capital‑intensive industries, this cost can be very small ‑‑ something similar to what occurs in information industry. Railroads, then the major U.S. industry, went bankrupt with regularity ‑‑ again because the cost a carrying a unit of freight was trivial relative to the money required to repay outstanding bonds. Similar pressures meant that industry after industry was bleeding money, even though productivity was soaring.
Even though replacement investment is important, this period showed how the prospect of premature obsolescence can become so threatening that investment can freeze up. This competitive pressure continued until J.P. Morgan began consolidating industries to eliminate competition. This massive merger wave swept up so many industries that the consolidations became known as Morganizations.
Many of the same economists who promoted laissez‑faire in their textbooks applauded Morgan for putting an end to what they described as destructive competition; however, these mergers also reduced the pressure for modernization, eventually sapping away the vitality of the economy.
This insight became crucial in the next book, Class Warfare in the Information Age, which appeared in 1998, just as the dot.com boom was emerging. The potential of the Information Age was obvious, but its application was unbalanced. The new technology was largely directed toward reducing wage costs, partially by increasing labor efficiency and partially by facilitating rapid off‑shoring. The result was lower wages for many vulnerable jobs, higher profits, and great speculative returns. At the time, relatively few investors understood the lesson of the 19th century railroad and manufacturing industries. Although the innovators of the dot.com era expected enormous profits, others easily duplicated their business models. The resulting competition weeded out most of them.
Ideally, the benefits of technological improvements should lead to capital accumulation, making the economy stronger. In a few sectors, massive investment occurred, which was directed toward fanciful visions of the direction of the future economy. The most outlandish example of misplaced investment was the wild scramble to lay fiber‑optic cable, which was occurring so fast that the Department of Commerce estimated that, at one point, the total capacity was doubling every 100 days. Even today, only a small share of the millions of miles of fiber‑optic cable is in use.
However, much information technology quickly becomes obsolete, requiring rapid replacement. Here was another complexity of replacement investment. The economy was not accumulating nearly as much productive capacity as would have been the case if the investment had taken the form of more durable capital goods.
The unproductive investment in the already‑saturated network of fiber‑optic cable was a stark reminder of the market’s inability to allocate resources efficiently. Nonetheless, much of the economics discipline was explaining how markets could direct investment into its most productive use.
This insight motivated by research for the next book, The Natural Instability of Markets: Expectations, Increasing Returns, and the Collapse of Markets (1999). This work compared the way evolution works in biological systems with the evolution of capital structures.
Biological evolution typically takes place in a relatively stable environment (at least, before rapid human intervention) in which small adaptations in a species gradually accumulate. Most mutations will not be successful, causing small numbers to fall by the wayside. These losses do not take much of a toll on the entire population. Instead, a few successful mutations will be passed on, eventually resulting in superior fitness for the species. In contrast, heavy investments in capital goods occur in a relatively unstable environment. New technology or changed economic conditions can quickly rearrange much of the economic landscape, often well before many investments can repay their initial outlay. Also, the capital‑intensive requirements of modern technology mean that bad guesses can be very costly.
As Keynes explained, because of the uncertain future, investors in capital goods tend to rely on either habitual decision‑making or they succumb to the influence of the general business climate. This latter option leads to irrational herd behavior, which can engulf an entire economy in excesses of optimism or pessimism. Consequently, stable outcomes are unlikely.
In the meantime, I had begun to rework my book on primitive accumulation, which appeared as The Invention of Capitalism: The Secret History of Primitive Accumulation (2000). After a decade and a half of reworking the subject, the book was completely redone and much improved.
That same year Transcending the Economy: On the Potential of Passionate Labor and the Wastes of the Market (2000) was published. This project took me on entirely different path. The expression, passionate labor, comes from the French utopian, Charles Fourier, who proposed that when people have the opportunity to do something they love, they can accomplish wonders.
A successful economy would help place people where they could perform passionate labor. Each semester, I tell my classes that everybody in the room has the potential to be the best in the world at something. The most important thing they can do in school is to find out what that something is.
Market wastes had been a recurrent theme in my earlier work. Here, I went into more detail, estimating that something like half of the labor force was engaged in activities that produce no real benefits in terms of maintaining or improving the standard of living. Most jobs in finance, advertising, marketing, and certain kinds of supervision would fall in this category. In addition, many people who are doing work that should be of social benefit are, in reality, supporting the superfluous activities. A full catalog of unproductive work would be far more inclusive.
Seeing the extent of unproductive labor and the growing financialization of the economy was especially important in being able to recognize symptoms of the increasing fragility of the U.S. economy. I pursued this research in The Pathology of the U.S. Economy Revisited: The Intractable Contradictions of Economic Policy (2001). My intention was to update the earlier book, The Pathology of the U.S. Economy, but new ideas and information led to a very different outcome. One idea that remained in place was the danger of a low‑wage economy, termed, “The Haitian Road to Development.” Seeing what was in store for the economy, I wanted to use the title, Down the Tubes, but the publisher refused that wish.
Although the economy was giving every sign of weakening, the false hope of an information economy remained strong. In response, I began work on Steal this Idea: Intellectual Property Rights and the Corporate Confiscation of Creativity (2002). This book emphasized the damage from the commercialization of research in science and technology rather than concerns about restrictions on the cultural side of intellectual property rights.
This new economy of intellectual property provided a rich ground for wasteful litigation. People would file patents willy‑nilly just to be able to find somebody to sue. Such efforts consumed considerable scientific, as well as legal and administrative personnel. In addition, much research was wasted in trying to find a way to work around existing intellectual property rights. Finally, the military was consuming an excessive amount of scientific energies. That work remained walled off from the rest of the scientific community.
Universities were an important part of the story. Basic research fuels long‑term economic development. Applied research can lead to useful applications, but not the sort of revolutionary changes that make a modern standard of living possible. Previously, along with the universities, the private labs of IBM and AT&T were major sources of path breaking scientific work. As the Golden Age evaporated, these private labs turned away from basic research, emphasizing short‑term applied technologies. University CEOs began to see their scientific facilities as a major profit center, serving corporate interests rather than contributing to basic science.
Two factors were important here. First, inspired by the Lewis Powell memo, political forces severely limited public support for higher education. Second, the corporatization of the university infected leaders with an acquisitive spirit, which would have made the most ruthless CEO proud. This environment also orphaned those parts of the university that that did not serve corporate interests. When you visit the well‑appointed biology library in Berkeley, you can compare it with the shabby public health library, which had not changed since I attended the school in the 1960s, at least until it moved into the dingy basement of an administration building. A similar contrast exists between the business and economics library and the anthropology library.
These distorted values do not make for a healthy intellectual or scientific environment; nor are they conducive to a strong economy or a healthy society. Increased tuition, which turns away talented students, only makes matters worse. The irony is that alongside the destruction of the educational system the prevailing rhetoric is that education will the foundation for a successful economic future.
My increasing recognition of the thoroughness of the economic rot that was underway inspired the next book, The Perverse Economy: The Impact of Markets on People and Nature, which appeared in 2003. The emphasis there was the perverted incentives in the economy. The book began with what I called “The Farm Worker Paradox,” in which the people who do the most vital work in society get paid the least, while the superfluous are among those who prosper the most.
The book also explored the mispricing of resources. According to economic theory, prices are supposed to reflect scarcity. I used the example of the passenger pigeon to question this notion. These pigeons flew in flocks so thick that they could block out the sun. Hunters would shovel their bounty into wagons headed for the market. Even as the bird became scarcer, the price remained virtually unchanged until the population was reduced to a single bird in a Cincinnati zoo.
Along with the continual deterioration of the underlying economy, virtually all forms of public support for ordinary people were deteriorating. The prevailing rhetoric of the so‑called “Ownership Society” was that people had to take responsibility for their own welfare. At the same time, corporate benefits were accelerating.
In effect, then, people were expected to all the economic risks, while business could count on government support in hard times. To explore this plutocratic arrangement, I published Manufacturing Discontent: The Trap of Individualism in a Corporate Society in 2005. This book explained how financial institutions were playing a game of hot potato with their risky assets, foisting the risk onto unsuspecting public agencies and pension funds. Sooner or later, the piper would have to be paid. Of course, the reckoning came sooner ‑‑ in 2007.
Part of that outcome was to be expected. A mania for tax cuts starved public agencies. Pension funds deprived of adequate financial support. To meet their responsibilities, they had little choice but to look for high yields, leaving them vulnerable to the machinations of unscrupulous money managers who hid the underlying risks of these investments.
The deteriorating economy created a need to revisit the material in The End of Economics, the result of which appeared as Railroading Economics: The Creation of the Free Market Mythology (2006). The book was a historical survey of the interplay between economists and the different phases of the economy. As the economy faltered, economists would, prior to the current crisis, express doubts about the way markets functioned, but, once the economy recovered, challenges to market fundamentalism would melt away. Of course, the widespread exclusion of dissident voices from academia played a role in this process.
By this time, the future crisis became obvious. The Confiscation of American Prosperity: From Right‑Wing Extremism and Economic Ideology to the Next Great Depression laid out the growing contradictions at the time. The publication of the book coincided with the high point of the stock market ‑‑ October 2007. The format resembles a crime story. The setting of the first part, covering the confiscation, began with the end of the Golden Age.
In the late 1960s, business was panicking because the faltering economy was delivering lower profits. Within a few decades, the U.S. experienced a massive redistribution of wealth and income, more extreme than either the Russian or Chinese revolutions. In the United States, all past radical redistributions have led to catastrophes. This one was to be no exception.
Next, the book turned to the plot in which these right‑wing extremists (as distinguished from traditional conservatives), following the lead of the Powell Memo, remade the country by cynically manipulating the fears and insecurities of the public in order to camouflage their plundering.
Ronald Reagan, for example, vowed that as governor, he would “clean up the mess at Berkeley,” the scene of “sexual orgies so vile I cannot describe them to you.” While Governor Reagan was running for reelection, Roger Freeman, his top education aide, was clearer about the candidate’s priorities, warning: “We are in danger of producing an educated proletariat. That’s dynamite! We have to be selective about who we allow to through higher education.”
This section explains how this revolution took advantage of the confusion its leaders created. The right‑wing extremists gained control over the media, academia, the political system, and the legal system. With the public kept in ignorance, nothing stood in the way of their plunder.
This process had begun earlier. Since Eisenhower, each successive Republican president has been more conservative than his predecessor, with the possible exception of the George H. W. Bush administration. Each elected president since Roosevelt has followed the same pattern, with the exception of Lyndon Johnson. However, this process accelerated with the end of the Golden Age. By today’s standards, Ronald Reagan looks mildly progressive.
The third part of the book explained why the perpetrators of this right‑wing revolution had good reason to expect an inevitable retribution for their crimes. The toxic combination of inequality, deindustrialization, deregulation, environmental degradation, along with excessive financialization, was a certain recipe for an economic collapse. The responsibility for this fiasco is bipartisan.
One might have expected that the miscreants would bear some of the costs of the collapse. Such was not the case. Their capture of both government and the economy was so complete that they were able to shift the costs onto the rest of society and, even worse, use the crisis to consolidate power. This victory will prove temporary because they are preventing any measures to make the economy stronger. The final section shows how economics, who should have been the cops of the beat, in the pockets of the perpetrators, used sophisticated mathematical techniques to obscure the growing economic malignancy.
The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers is now being published. This book goes into detail about how economists, beginning with Adam Smith, went to great lengths to distort their analysis by emphasizing transactions in the marketplace rather than the productive side of economics. This transactional approach precludes analysis of contradictions. As Abba Lerner observed, “An economic transaction is a solved political problem” (Lerner 1972, p. 259). Within this transactional perspective, whatever happens in the marketplace is good and that any regulatory interference is detrimental to a strong economy. In short, this kind of economics obscures the way an economy actually works.
A few times, leading economists did stray into the subject of work, workers, and working conditions, but the discipline soundly rebuked them. This lesson was not lost on generations of younger economists. Falsifications also played a role in promoting this neglect of work, workers, and working conditions, beginning with Adam Smith’s dishonest presentation of his famous story of the pin factory. His only conceivable purpose could be to turn his readers’ attention away from the question of work and working conditions.
Economists’ stubborn resistance to addressing work and working conditions helped to create an environment in which society‑at‑large, and business in particular, pays inadequate attention to nurturing of the creative potential of their workforce; instead, concentrating on squeezing as much as they can from their workers. Over and above the human cost of this approach, it severely restricts economic potential.
My most recent project is provisionally titled, Sex, Lies, and Economics: The Amazing Story of Economics and Economists Before Adam Smith. To offer a flavor of where this book is heading, here is the first sentence of the introduction:
Besides describing some of the brilliant accomplishments of the colorful founders of economics, this book will also discuss their dark side, including a few murders, over and above crimes more commonly associated with economists. At the same time, these economists’ lives and work will throw light on both contemporary economics and economies.”
Here is the first sentence of the first chapter:
Before discussing the work and life of William Petty (1623‑1687), it might be of interest to note that he has the unique distinction of being the only economist in history credited with having brought a person back from the dead. We will get back to that feat later.
I hope that this work will be useful in putting economic thinking into context.