Is wealth and power in the hands of a few natural and inevitable?

Robert Reich, former Labor Secretary under President Bill Clinton, last December wrote an opinion piece for the The Guardian that opens by asking how could it be that a handful of billionaires have managed to “convince the vast majority of the public” that “wealth and power in the hands of a few [is] natural and inevitable”? But while Reich correctly identifies the belief system as “market fundamentalism,” he fails to answer his own question.

Besides not answering his own question, I am quite sure the public is not as snookered by this belief system as Reich would have us believe. Still, Reich has a point. Through their ownership of media and influence over other institutions, billionaires and their money no doubt contribute to linking accumulation of wealth to a natural and divine right. I would, however, broaden this to say that the capitalist class with their money and influence makes sure that it (the capitalist class) is viewed in the best possible light.

Coming back to not answering his opening question, meanwhile, Reich fails in this regard mainly because he completely omits mention of the role economists play in supplying the analytical cover for this belief system. Addressing this dimension would have been helpful. It is not clear why Reich has this blind spot. Since he fails to answer his own question, therefore, let me help him complete his inquiry — and explain how economics fits into the equation.

Let’s quote from Reich. First he cites history and the “divine right of kings”:

Centuries ago it was the so-called “divine right of kings”. King James I of England and France’s Louis XIV, among other monarchs, asserted that kings received their authority from God and were therefore not accountable to their earthly subjects. The doctrine ended with England’s Glorious Revolution of the 17th century and the American and French revolutions of the 18th.

Reich then links this monarchal belief system to its modern capitalist equivalent, or to “market fundamentalism” and the kings of today’s global capitalism.

Its modern equivalent might be termed “market fundamentalism”, a creed that has been promoted by today’s super rich with no less zeal than the old aristocracy advanced divine right. It holds that what you’re paid is simply a measure of what you’re worth in the market.

This “creed” also is known as neoliberalism (a term Reich does not mention, but its initial spread was initiated by the The Mont Perlirin Society and by its founder, the conservative economist Friedrich von Hayek). Politically, it took root under Reagan (and Thatcher in the UK) and continued with Clinton, Bush and Obama.

Reich then makes the important point that if you are poor, according to this same philosophy or belief system, it is your own fault. It is the result of making poor choices for which the market is now punishing you. Punishment could take the form of lower pay, or unstable employment. It is circular reasoning at its best (when it comes to deceiving), as is most conventional economics: If you are poor, it must be because of bad choices you made; because you made bad choices, you are poor or less well off.

Critics describe this as “pathologizing poverty”. Conventional economics textbooks enable this pathologizing with chapters on “human capital” formation, or lack thereof, which partly underpins the belief system of market fundamentalism. Textbooks also teach (a better word would be deceptively preach) that your pay is a function of the added value you bring to production of things. It is known as the marginal productivity of labor, a demonstrably defective artifact of mainstream economics. Taken at face value, the idea of a marginal productivity of labor analytically rules out the possibility of exploitation of workers at the level of production — workers are paid what value they add in production and the market determines that this is a “fair” value.

In short, you get what you deserve, and what you get is what you are worth. A fancy term for this anti-scientific reasoning is tautology — a statement that is true based on its logical shape, so it cannot be falsified based on the form of the logic. Reich explains how it manifests in the belief system of neoliberalism.

If you amass a billion dollars you must deserve it because the market has awarded you that much. If you barely scrape by you have only yourself to blame. If millions of people are unemployed or their paychecks are shrinking or they have to work two or three jobs and have no idea what they’ll be earning next month or even next week, that’s unfortunate but it’s the outcome of market forces.

Reich concludes by suggesting that an informed public is needed to “reverse” problems of inequality of income, wealth and political power:

Inequalities of income, wealth and political power continue to widen across all advanced economies. This doesn’t have to be the case. But to reverse them, we need an informed public capable of seeing through the mythologies that protect and preserve today’s super-rich no less than did the Divine Right of Kings centuries ago.

So how did we actually get here?

Reich is basically correct on all his main points. Yet he fails to answer his opening query about how the rich have convinced the public about this belief system, or how it is that the public has come to accept this. First of all, as I mentioned above, I don’t believe the public has completely bought into this belief system. So I would have to disagree with Reich on such a broad claim. Politicians, on the other hand, pander to it and have generally accepted it on both sides of the aisle. But things began to change when Senator Bernie Sanders of Vermont made opposition to the “billionaire class” into a rallying cry. And he has many followers, which suggests millions no longer buy into it.

Sanders also attacked the economics profession: “The American people are sick and tired of establishment politics and establishment economics.” The key point here is the public is sick and tired of establishment economics and its belief system (which is really at its core a slightly less extreme version of neoliberalism). Reich knows this, as there is a serious political pushback against neoliberalism (on the left and on the right). However, this brings me to my main concerns: How did this belief system gain traction to the extent it did, and how do we get a more informed public?

First and foremost, we need to change the way students study economics. This means making sure students know that, at the very least, they are being force-fed the basic ingredients of “market fundamentalism” through their textbooks, and, most importantly, how alternative schools of thought exist that challenge this belief system are systematically excluded from the classroom. Reich, however, avoids taking on the economics profession for its failure to provide students with a full rendering of economics.

Having an informed public requires having alternatives, such as competing belief systems that offer a reality check. This helps to frame a more critical thinking approach to neoliberalism, and economics in general. Just to make students aware of this belief system (neoliberalism) is a start. Doing informal surveys of economics majors I taught at the University of Vermont, I discovered that few had ever heard of neoliberalism. I made sure that this glaring problem was corrected, while pointing out how standard economics textbooks largely provide the premise for neoliberalism (perfect competition models suggest free markets produce optimal outcomes).

I describe textbooks as a less extreme version of market fundamentalism because textbooks do have some ad-hoc exceptions to the general rule of the markets-always-know-best belief system (e.g., imperfectionist approaches). But at the core of textbooks — mainly in its idealized notion of “perfect competition” — is a lurking market fundamentalism.

Some will dispute this claim, especially those who see their individual work with game theory or behavioral economics as exceptions to what I am saying about mainstream textbook economics. But they are wrong. Their approaches are “anchored” in a reductionist methodology. The core of the mainstream (neoclassical) economics game — including its more fringe players — is an often unquestioned philosophical premise known as methodological individualism which, when joined with an implicit subjective value theory, defines a one-way mapping of individuals to society, not the other way around.

This approach precludes a class perspective and related distribution of income linked to property relations and associated class power. As Christian Arnsperger and Yanis Varoufakis make clear (emphasis is my own):

While it is true that mainstream economists have, during the last few decades, acknowledged that the agent [individual] is a creature of her social context, and thus that social structure and individual agency are messily intertwined, their models retain the distinction and place the
burden of explanation on the individual
. Individual worker effort is nowadays often modelled as a function of sectoral unemployment (e.g. efficiency wage models), and the firms’ micro-strategies reflect the macroeconomic environment. Nevertheless, and despite these interesting linkages between the micro-agent and the macro phenomenon, the explanatory trajectory remains one that begins from the agent and maps, unidirectionally, onto the social structure.

Many economics teachers are not even aware of their own deep bias in this regard. Arnsberger and Faroufakis explain further the bias of nearly all neoclassical economists (emphasis is in the original):

Neoclassical theory retains its roots firmly within liberal individualist social science. The method is still unbendingly of the analytic-synthetic type: the socio-economic phenomenon under scrutiny is to be analyzed by focusing on the individuals whose actions brought it about; understanding fully their ‘workings’ at the individual level; and, finally, synthesizing the knowledge derived at the individual level in order to understand the complex social phenomenon at hand. In short, neoclassical theory follows the watchmaker’s method who, faced with a strange watch, studies its function by focusing on understanding, initially, the function of each of its cogs and wheels. To the neoclassical economist, the latter are the individual agents who are to be studied, like the watchmaker’ cogs and wheels, independently of the social whole their actions help bring about.

So, the first feature of the ‘body of theory’ we think of as neoclassical is its methodological individualism: the idea that socio-economic explanation must be sought at the level of the individual agent. Note two things: First, this was not the method of classical economists like Adam Smith and David Ricardo. Or, indeed, of Keynes. Or Hayek. Secondly, this proclivity is fully in tune with the mid-19th Century angloceltic liberal individualism…as it imposes axiomatically a strict separation of structure from agency, insisting that socioeconomic explanation, at any point in time, must move from agency to structure, with the latter being understood as the crystallization of agents’ past acts.

Unfortunately, post-secondary and increasingly high school level economics education push market fundamentalism (and methodological individualism with all its conservative implications) in a disguised way. By pushing, I don’t mean a conspiracy. But there has been a concerted effort by wealthy individuals to make economics into a celebration of free enterprise and the individual. This has been going on so long that many educators or administrators don’t even know the difference anymore. It is institutionally constructed as a result of a confluence of factors: self-interested careerist economists, a flood of dark money pouring into post-secondary educational institutions to promote free market economics ideology and to eliminate challengers, and a narrowing of the goals of higher education by administrators to the needs of the corporate marketplace.

Educators of economics, most of whom were schooled in the same environment of the standard textbooks, don’t even know there were debates between standard and alternative schools of thought decades ago that ended in defeat for the standard textbook theory. Sadly, textbooks parade along as if these analytical battles were never waged — battles that defenders of the analytics of free market models lost by their own admission. The obvious question then should really be why are the same dead-end theories still exclusively presented to students?

Reich wants to know how market fundamentalism achieved the status it has, but he does not examine how the idea has seeped into the social fabric, and into our minds. He should turn his focus to how students are primed by most economics departments. Like osmosis, once enough of these ideas are in the educational environment, they inevitably penetrate the consciousness of students. A few exceptions encountered along the way are usually forgotten and thus don’t challenge the mainstream narrative.

So the belief system Reich describes has been helped along the way by a one-sided (monoline) view of economics fed to students by naïve and worse sometimes ideologically conscious, conservative teachers. Meanwhile, the full story of the dismal science needed to inoculate students with critical thinking is excluded from the classroom.

Who then is responsible for the lop-sided and distorted picture found in textbooks and economics classrooms? The blame rests squarely on the shoulders of the mainstream economics profession in terms of delimiting thinking about the real alternatives. This bias enables a belief system that sees wealth and power of billionaires as natural and inevitable.

Hopefully, this helps to answer Reich’s intriguing question.