Reimagining economic narratives: debunking myths

Dominant economics has become a set of justification narratives. Interest rates would be raised to protect us from inflation, the price of medicine is high because of research costs, the marketing invasion is to stimulate the economy, the patent and copyright mess is to reward creativity and so forth. A new generation of economists is bringing the discipline down to earth: instead of justifying rentierism, inequality and the environmental dramas, they are explaining how things really work, and designing alternatives.

(Ladislau Dowbor)

Jeremy Rudd of the US Federal Reserve writes scornfully in his latest book, A Practical Guide to Macroeconomics, that economists’ role today is to justify “what elite interests want to do anyway: deregulate, pay fewer taxes, keep wages as low as possible” ¹

Believe or not, Adam Smith is still here. Not his writings on moral sentiments, of course, but the baker’s tale: caring about just his own profit, the baker will make lots of bread, and with quality, or it will not sell, and at a reasonable price or another bakery will open in the neighborhood. Thus, everyone working to maximize his own profit, the result will be social economic comfort. Well, this certainly does not work for Nestlé, BlackRock, Visa or Koch industries. With global reach, connectivity, virtual money, tax havens and behavioral marketing, we are in another era. Even the French baguette is largely received in the Paris Boulangeries raw but prefabricated in huge amounts in the city outskirts, ready for the local microwave oven. Many restaurants have followed the trend.

Free market competition was supposed to bring order in a liberal environment, each company trying to bring better services. No public regulation, please, the invisible hand will make sure the free-for-all environment will work best. Ethical concerns? “The business of business is business,” claimed Milton Friedman, explaining in The Corporation documentary that a firm has walls, not ethics. Do walls have ethics? Wall Street loved his “greed is good” motto. The problem is not Milton Friedman, justification economics was always around, but with what ease the message has permeated minds, papers, universities, even churches, in the name of freedom. Libertas… Freedom in the context of inequality is a sham. Try free competition in the Big Pharma environment, or with health insurance corporations.

Although many conscious persons are convinced of the slow-motion catastrophe we are building on this planet, very few are aware of the accelerating pace of transformation. How many must drown in floods or flee from fires until a strong majority is convinced change is necessary, and enough political strength is generated to promote structural change? The giant world-scale corporations, communication platforms and asset management firms, free from moral and social responsibility, and with the power of new technologies, are leading us down the drain. Absentee owners, shareholder priorities, virtual money and prehistorical regulation systems dating from Bretton Woods have created a free-for-all environment, while the new generation of technologies has given corporations world-scale power.

Larry Fink, in BlackRock, manages 10 trillion dollars, Biden’s budget is 6 trillion. This is not just globalization, it is a global mess. Shareholder dividend maximization rules, whatever the consequences. And die-hard traditional and stern economists discuss whether the basic interest rate should be maintained or raised half a percent. Seen on TV, it carries an impression of seriousness, and of technical expertise. Give us a break. Michael Hudson is quite right in calling it Junk Economics. ²

An important issue is that private interests are very efficient in reaching their delimited goals, while general social and environmental interests are diffuse and so hard to defend. Corporations are fully aware, and all of them claim their adherence to ESGs, but punctual interests are so much more immediate and powerful, and they take advantage of it. We face this for example in Brazil, where a huge majority of the population wants to preserve the Amazon, but the giant soy, cattle and timber industry, with its concentrated interests, just creeps in. It is a system, and it works, in spite of the devastating impact. Any attempt at regulation leads to cries of endangered liberty. There is a deep fracture between how the system is supposed to work, and what it achieves. Just have a look at the SDG goals stagnation.

While economists have for a long time been discussing in a closed technical environment, this is changing, among others because as the dramas get deeper, more non-economists want to grasp the reasons of our incapacity to promote the necessary change. Thomas Piketty’s huge success with his Capital in the 21st Century is based in his powerful demonstration that the capital accumulation process, the heart of the system, has changed. Financialization has taken over, paying on the order or 7 to 9 percent a year, while effective production of goods and services, GDP, grows by 2.5% on the long run. When financial activities, through dividends for absentee owners and high interest rates, earn much more than investing in production, extractive capitalism takes over. Financialization is born. In this capitalism, you do not need to generate products and jobs to get rich. The billionaire population is exploding.

Oxfam is another source of down to earth economics, organizing and spreading basic facts: “Since 2020, the richest five men in the world have doubled their fortunes. During the same period, almost five billion people globally have become poorer. Hardship and hunger are a daily reality for many people worldwide. At current rates, it will take 230 years to end poverty, but we could have our first trillionaire in 10 years.” ³ Mariana Mazzucato calls it extractive capitalism, since it is basically a drain. With The Entrepreneurial State, she shows public policies are central if we want the economy to rescue its social function. Mission Economics brings a new approach, building a convergence of entrepreneurial capacity, public coordination and technological research centers around the key social issues: inequality, environment, critical human situations and the like. This is not about free market, but about building what we need: it is about rationally built synergy. Waiting for the invisible hand is at best childish ignorance, or just interested reasoning.

Joseph Stiglitz’s contribution has been critical for these “new winds” in economics, denouncing the present system as such: “The neoliberal experiment — lower taxes on the rich, deregulation of labor and product markets, financialization, and globalization — has been a spectacular failure. Growth is lower than it was in the quarter-century after World War II, and most of it has accrued to the very top of the income scale. After decades of stagnant or even falling incomes for those below them, neoliberalism must be pronounced dead and buried.” ⁴ Commenting on the Covid-19 disaster, he brings an obvious but essential idea: that political leaders in the developed must recognize “that no one is safe until everyone is safe and that a healthy world economy is not possible without recovery in its poorer parts.” ⁵ Here too, and in particular in his study on Rewriting the Rules of the American Economy (2015), we find a systemic approach, and the need for economists to bring effective diagnoses and proposals.

A similar approach can be found in the contribution of Felicia Wong, from the Roosevelt Institute: “The neoliberal ideal — that markets would create both economic and political freedom and that our economy and politics should therefore privilege individual private choice and profit-driven private-sector companies above all — has dominated our thinking in the U.S. and around the world for decades. The empirical results are clear though: Neoliberalism has failed, decimating economic growth and stability, driving racial and gender inequality, and hollowing out democracy itself.” ⁶

Andrew Osvald and Nicholas Stern bring the challenges of climate change for economists. Commenting on Why are economists letting down the world on climate change, they consider that “the investments of the next two decades are decisive for the planet and the future of our children and their children. These investments will be settled by decisions taken in the coming few years. Good economics can and should play a fundamental role in guiding the policy framework that will influence those decisions. That is why it is so important that our profession accelerates its work now.” ⁷

Jayati Ghosh has brought important contributions, and writes on How and why economics must change (2024): “Economics needs greater humility, a better sense of history, and more diversity. The need for drastic change in the economics discipline has never been so urgent. Humanity faces existential crises, with planetary health and environmental challenges becoming major concerns. The resulting sociopolitical tensions and geopolitical conflicts are creating societies that may soon be dysfunctional to the point of being unliveable. All this requires transformative economic strategies. Yet the discipline’s mainstream persists in doing business as usual, as if tinkering at the margins with minor changes could have any meaningful impact. There is a long-standing problem. Much of what is presented as received economic wisdom about how economies work and the implications of policies is at best misleading and at worst simply wrong." ⁸

Emmanuel Saez and Gabriel Zucman in How to Tax Our Way Back to Justice, consider “there is nothing inherent in modern technology or globalization that destroys our ability to institute a highly progressive tax system. The choice is ours. We can countenance a sprawling industry that helps the affluent dodge taxation, or we can choose to regulate it. We can let multinationals pick the country where they declare their profits, or we can pick for them. We can tolerate financial opacity and the countless possibilities for tax evasion that come with it, or we can choose to measure, record and tax wealth.” ⁹ Their book on The Triumph of Injustice (Norton, 2019), is a powerful call for action.

I am presenting just a few authors here, but the fact is that a new generation is bringing us down to earth and presenting the real challenges. It is a global shift in economics, with many clear alternatives. Thomas Piketty presents a set of measures in the line of “participatory socialism”, Joseph Stiglitz suggests “progressive capitalism”, Wolfgang Streeck “democratic capitalism”, Mariana Mazzucato “mission economics” as we have seen, Gerald Epstein suggests Busting the Bankers Club, while Robert Reich denounces “corporate capitalism”, Joel Kotkin “neofeudalism”, Zygmunt Bauman “parasite capitalism”, Shoshana Zuboff “surveillance capitalism”, Grzegorz Konat “realny kapitalizm”, Raymond Baker “our broken system”, Brett Christophers “rentier capitalism”, Marjorie Kelly “wealth supremacy”, Nicholas Shaxson “the finance curse”. Bernie Sanders asks, “Where do we go from here?”, Noam Chomsky “who rules the world?”, the Oxfam report at Davos-2024, titled Inequality-Inc, brings us the basic shocking figures.

In fact, too many structural changes have occurred, too many dark clouds are gathering, for us to go on as usual hoping things will take care of themselves. A new systemic approach is gaining weight. Economists have an important role to play, and it’s time our universities update their curricula. We are still teaching the invisible hand fairy tale.

What are we up against? According to David Boyd, special UN rapporteur, we are facing “a system that is absolutely based on the exploitation of people and nature. And unless we change that fundamental system, then we’re just re-shuffling deck chairs on the Titanic… It has driven me crazy in the past six years that governments are just oblivious to history. We know that the tobacco industry lied through their teeth for decades. The lead industry did the same. The asbestos industry did the same. The plastics industry has done the same. The pesticide industry has done the same… I can’t get people to bat an eyelash. It’s like there’s something wrong with our brains that we can’t understand just how grave this situation is.” We will need much more than conscious economists. ¹⁰