Elitist Values Disguised as Scholarship That Are Dividing America
“The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow’s hands”.
-Will Rogers, 1932
This is the third in a series on how economists who influence the government have contributed to economic inequality. The first in the series begins here.
America has shifted to the right because Democrat centrists have listened to the wrong economists.
We look again at the pattern of income inequality as shown in the graph below. The reforms by FDR started the economy on the path to a fairer sharing of the GDP to the point where an average family could afford a home, a car, vacation and save for a comfortable retirement. The last of these are the boomers today.
All that began to change in the 1970s as the graph shows. That high level of inequality reached in 2010 continues to the present day. Wages stagnated but capital values, which includes house prices, increased.
When Liberal Means Conservative
The economists who brought this change about belong to the ‘neoliberal school’.
The term is easily misunderstood, because ‘liberal’ usually means policies that have some concern for the less fortunate. Here it means the opposite. It may be best understood more as a set of values than a science. The underlying value is to let the already rich, through their banks and corporations, make much more money through as much deregulation as possible: “Government is the problem, not the solution.”
In Profit over People: Neoliberalism and Global Order (Pp 7–8), Noam Chomsky and Robert W McChesney define neoliberalism as “capitalism with the gloves off”.
Its policies are returning our society to the stratification of the 1900s: very few people were very rich, there was a small middle-class of doctors, lawyers, and accountants to serve the rich while the rest of us were servants of those rich, living happily in the basement of their mansions as portrayed in Downton Abbey.
In her book, Capitalism, Coronavirus and War: A Geopolitical Economy (p 6–8), Radhika Desai, Director of the Geopolitical Economy Research Group at the University of Manitoba, argues that the purpose of neoliberalism was to restore capitalism to the pre-eminence it once enjoyed.
What Are its Main Policies
Here are its relevant policies contrasted with FDR’s policies that neoliberalism found so offensive:
* Tax reduction for the Rich. The benefits will trickle down to the working class. At FDR’s time the tax rate for the highest earning group was 63%. In 2024 it was 37%.
* Deregulation. FDR separated the investment from the commercial banks and prohibited the commercial banks from any speculation in the markets, including derivatives such as the credit default swap (CDS) that produced the 2008 crisis.
* Cut government spending, especially any that would reduce economic inequality such as funding projects to create jobs- but not grants to corporations. FDR had initiated projects to create jobs, including in rural areas: the Tennessee Valley Authority (TVA) bringing electricity to rural Tennessee and surrounding states; the Works Progress Administration (WPA), jobs generating infrastructure; and the Civilian Conservation Corps (CCC), jobs preserving the environment.
* Globalization. Drop all trade barriers on imports so businesses could get the advantage of cheap labour in Mexico and China among other countries. That does provide cheaper goods, but what good is it to many people who have lost their jobs and cannot afford them.
When Was it Born?
According to Daniel Stedman Jones in his book, Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics, neo liberalism was started in the 1930s to counter FDR’s socialism which it called collectivism. FDR’s reforms set the course for increasing economic equality. They also gave a stable financial system until the 2008 meltdown caused by the neoliberal policy of deregulation of the banks.
But the neoliberal economists saw FDR’s approach as a danger. They set out to undo them. Their patience and perseverance lasting over decades have been successful.
After the second world war, the neo-liberal movement was reborn as the Mt Pelerin Society. One of the founders was Milton Friedman, president of the society at the significant dates 1970 -1972.
The turning point for increasing economic inequality was the 1970s.
Until the 1970s neoliberalism was a marginal theory. Economists had little role to play in FDR’s reforms. At present it’s unthinkable that anyone but an economist could have the answer to society’s economic woes.
Helped By a Fake Nobel Prize
There was, and is, no Nobel prize in economics.
In 1968 the Sveriges Riksbank (Sweden’s central bank) laid the groundwork for an increased respectability of economics. It established the “ Prize in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel Prize”.
Many of the Nobel descendants objected. In an article in Chicago Business, The Nobel Prize in Economics is Fake, journalist Ben Ogilvie quotes Nobel’s grandnephew, Peter Nobel who denounced it as a “PR coup by economists to improve their reputation” and a “cuckoo’s egg in the Nobel nest”.
In the Swedish paper, The Local, Peter explained that Nobel would never have agreed to an award for economics: “Nobel despised people who cared more about profits than society’s well-being.”
One of the early recipients of the prize, Frederick Hayek, a philosopher, said he was apprehensive about the harm the prize might cause in the future by giving groundless prestige to economics as it is not capable of using scientific methods like the double blind study. The concern in his words:
“It is that the Nobel Prize confers on an individual an authority which in economics no man ought to possess.
This does not matter in the natural sciences. Here [the natural sciences] the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence.
But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally.
There is no reason why a man who has made a distinctive contribution to economic science should be omnicompetent on all problems of society — as the press tends to treat him till in the end he may himself be persuaded to believe.”
There is a good example of the theories of the fake Nobel Prize winners in action. In 1997, the pretender prize was awarded to economists Myron Scholes and Robert Merton for their theory about a type of derivative. Within a year of the award, the hedge fund that they founded to implement their theory went bankrupt. In a prequel to the 2008 crisis, so many banks had invested in the “Nobel laureates” firm that its failure threatened the collapse of the financial system. The Federal Reserve Bank of New York coordinated a rescue plan.
However, even though the prize in economics is a fake Nobel prize, journalists continually honor its recipients, such as Milton Friedman, as Nobel laureates.
Members of the Mont Pelerin Society are on the selection committee for this prize. So it’s no surprise as authors Avner Offer and Gabriel Söderberg write in their book The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn (p 104–105) that many of the recipients are also members of that society.
Next: Surprisingly, the Democrats fully embraced the elitist, conservative neoliberal values.
Acknowledgements: Economic Inequality graph by Thomas Piketty, Presidents photos added by David Brethaur
Originally published at https://jandweir.substack.com.
