Economic Propaganda

I will be the first to admit that my knowledge of economics is incredibly superficial. (Perhaps I’m being defensive, but I suspect that “superficial”–or even “non-existent” also describes the technical economic expertise of most of my fellow Americans.)

As I previously explained, my recent reading about Modern Monetary Theory was prompted by the gift of a book on the subject; that book then triggered some additional research. (Calling my google searches “research” might be a misnomer…) At any rate, I found an essay from The American Prospect to be both interesting and “on point.”

The article was authored by Nick Hanauer, whose ability to explain matters in accessible and understandable terms has made him one of my favorite economic pundits.

If the basic foundation of Modern Monetary Theory (MMT) is that it is most closely based upon reality–upon the way that American monetary and fiscal systems actually work–the Prospect article provides additional evidence that far too many pundits and economists continue to assess policy using economic frameworks that are no longer accurate.

As the subhead says, “The alleged science doesn’t match up to the real world.”

The article focuses upon six myths that continue to muddy the waters of economic analysis.

Americans have been hammered for decades with an economic message that amounts to this: When wealthy people like me gain even more wealth through tax cuts, deregulation, and policies that keep wages low, that leads to economic growth and benefits for everyone else in the economy. And equally, that investing in you, raising your wages, forgiving your debt, or helping your family would be bad—for you! This is the trickle-down way of thinking about economic cause and effect, and there can be no doubt that it has substantially contributed to the greatest upward transfer of wealth in the history of the world.

You would think that trying to sell such a disastrous outcome for the broad mass of citizens would be incredibly unpopular. No politician would outright say they want to shrink the middle class, make it harder to get by, or reward hard work less. No politician would outright say that rich people should get richer, while everyone else struggles to make a decent life.

But this message has been hidden under the confusing, technical-sounding, and often impenetrable language of economics. Many academic economists do important work trying to understand and improve the world. But most citizens’ experience of economics comes from hearing a story—a narrative that rationalizes who gets what and why. The people who benefit from trickle-down policy the most have deployed economists to work their magic to tell this story, and explain why there is no alternative to its scientific certitude.

Hanauer points out that no economic model can fully reflect the “extraordinary complexity of human markets.” Models are intended to provide decision-makers with a sense–an overview– of the likely impacts of a particular policy proposal. But the assumptions upon which these models are based will determine their predictions. In other words, if the assumptions are wrong, the models will also be wrong.

And these models are deeply and consistently wrong…The problem is that few people take the time to explain what these faulty assumptions are, why they all promote the worldview of the rich and powerful, and why they shouldn’t be treated as science but as a trickle-down fantasyland.

Hanauer proceeds to explain–at length, and in language that non-experts can understand– what is wrong with six of those underlying assumptions:

  • public investments will “crowd out” private investment, and are by definition less productive than private investments.
  • workers’ wages are a direct reflection of their productivity.
  • higher taxes on corporations and high-income people reduce growth and investment.
  • investing in poor people reduces economic activity, and that immigrants are less productive than domestic American workers.
  • ten-year budget horizons are adequate for analysis.
  • performance is measured by looking at GDP and revenue– rather than overall well-being.

As Hanauer concludes:

Until we build models that reflect how the economy really grows, our leaders and the media should eye models from mainstream economists with skepticism. Models trying to convey the effects of policy should reflect the basic understanding that when more people have more money, that’s good for business. We need models that understand the basic principle that when the economy grows from the middle out, that’s good for everyone, and when more people participate in the economy, their consumer demand drives job creation and sparks innovation. In other words, our economic models must reflect the world as it really is—not as it was portrayed in the trickle-down Econ 101 classrooms of the 20th century.

All available evidence supports living in the world as it really is.


  1. Milton Friedman is surely spinning in his grave over this post. And, with any luck, he’s attached to a spit, and roasting evenly. 😉 I joke…

    The amazing thing about the six assumptions is just not that they are debatable, but rather that reality has shown each of them mostly to be exactly reversed from the optimal option. And, in truth, the opposite seems manifestly and obviously potent: putting more money in the hands of the poorer citizens increases the money that will flow through the economy from the ground up, with the added bonus that it increases the well-being of all those people. Which, in turn, bolsters the economy. And so on.

    It’s almost like there was an ulterior motive for suggesting the trickle-down assumptions… 🙂

  2. If anyone is interested in reviewing a case study of what happens when you _really_ believe in the trickle-down methodology including the basic idea that cutting taxes increases revenues beyond the cuts, like the Laffer curve suggests, there are many good videos out there analyzing Sam Brownback’s Kansas experiment, and its disastrous outcomes. (Spoiler: The _Republican_ state government repealed the tax cuts because the result was so horrible.) That was reality.

  3. Thank you, Sheila. Milton Friedman and his followers did us great harm. It’s taken us over 40 years of slow-moving disaster to find it out.
    I subscribed to the American Prospect for several years, so these ideas are not new to me. Robert Reich has been another valuable teacher.
    As I watch voters base their decisions on the misguided ideas you enumerate, it frustrates me no end.
    Yes, please continue your efforts to teach us some reality.

  4. One step forward in this regard is to relegate investment banking to a back-row seat so that they stop bombarding the public with the myth that Wall St Indices reflect the economy. They simply do not. No more than the sheets sold at race tracks handicapping horses do.

    The Federal Reserve Board and the Treasury Dept keep track of the enormously complex economy, and those of us not on it have to trust their expertise to do their job just like we trust the science of medicine to cure our cancers and the NASA engineers to put things into space or the people at CERN to advance the knowledge of how the universe actually works.

    When I was young (oh no, Grandpa, another of those stories?) There was a clearer line in what separated professionals from workers. That line was a license and a pledge to apply narrower and more specific knowledge that was beyond common knowledge to help clients without taking advantage of them.

    Drs and Lawyers (I don’t know about Indian Chiefs, but sort of, I guess), Engineers, Education Professionals, and Feduciares, among others, were regulated professionals. Welders and crane operators were certified. So were people trusted to drive cars and trucks.

    It was all a service provided by the government to make sure that people could be trusted with their out-of-the-ordinary knowledge and skills to do what was right.

  5. “Hell hath no fury like a vested interest masquerading as a moral principle.” Barber Conable

  6. I can remember when, during the 1980 GOP presidential primaries, George H.W. Bush called Reagan’s trickle-down supply side nonsense “voodoo economics.” He was dead right. But, of course, we all know what happened after that.

  7. Agree with you 100%. There are some direct consequences of these assumptions that need to be stated. Balancing the budget typically results in a recession because taxes are raised on people with the least money. The national debt represents money in our pocket. Our grandchildren are not burdened with this debt.
    The 10 million people Trump promises to deport are, in my opinion, those who pick crops, build buildings, clean hotel rooms, etc. almost like during lockdown. Cutting Social Security, Snap etc takes money from the people who spend it to buy basic goods and services. These things may lead to serious economic and social consequences. In my opinion, providing for the common good is not socialism but following the command to care for the poor. In short, Christianity in action. MMT provides a policy framework where these things can be done. Time for my blood pressure pill.

  8. Confusing economics “language” is part of the ruse of Supply-side Economics. The ‘baffle them with bullshit” operating theory works for Republicans because their voters swallow it whole. How on earth any self-respecting working class person can buy this crap is what is really baffling.

    Lest we forget the Gingrich initiative to overturn the Glass-Steagall Act of 1934, we will see that this attack on regulated capitalism has been going on since the day Lincoln was shot.

    I wrote a book on this very subject in 2014 titled, “Racing to the Brink: The End Game for Race and Capitalism”. It’s still available on Amazon. Sadly, the information in that book is NOT outdated. The Republican party keeps doubling down on their down-escalator to disaster.

  9. Thank you, Dan, for the NYT opinion editorial. There is a paragraph that aptly describes the current impact on monetary policy: “ HANK also gives more accurate results for monetary policy. In a pure representative agent model, debt isn’t really a thing: Some people borrow, others lend, but it ends up a wash. HANK shows that an interest-rate increase benefits lenders while hurting borrowers. And since borrowers are living more hand-to-mouth, they decrease their spending by more than lenders raise it.”

  10. All very interesting…intellectually. Problem is that the average voter has a sixth grade education, knows zero about critical thinking and thinks that grocery store prices are “the economy”. When you set out to slowly destroy real public education….it works!

  11. I finally figured out that what Reagan promised would happen if the wealthy & corporations had lower taxes was actually happening when personal marginal rates were high, corporations had higher taxes and stricter regulations. No point in paying out money that was mostly taxed away so it was actually invested in the business and employees. Stock buy backs were illegal so tax savings wasn’t spent there, and anti-trust laws were enforced so some competition was helping keep prices low. Companies still benefited and he rich did well but the middle class grew and the poor had opportunities to move up, especially as civil rights protections made it harder to discriminate based on race or gender. It will be hard to go back to that model but Bidenomics has taken baby steps in that direction and our economy is growing while world wide inflation eases. No wonder democrat president have almost twice as much economic growth, on average, as do republican.

  12. Supply side/Laffer curve have been a joke since the late 1980s, and any honest economist will tell you that. Actual modern economic theory has little to do with any political ideology, anyway, be it Marxism or Reaganism. Laffer and his ilk were always total frauds, not experts.

    The Puritans were ignorant, superstitious fools, as are the “chickens voting for Col. Sanders” base of the GOP today, and ignorant fools share a tendency to give everything they own to whomever will justify their prejudices. Those prejudices have not changed a great deal.

  13. My experience is that poor people are among the most generous. However, at some level of survival instinct, stealing from strangers becomes ok for “normal”people, sociopaths, and believers in entitlement.

  14. For years I have been saddened by the Reagan Trickle Down Disease. As a story it made sense, as a story. Thanks for the clarity and pointing towards Nick Hanauer and his article. It is next on my read. I wanted to express my gratitude for your insight and “research”. Google is simple an electronic library. I wish we could go back to sitting in a quiet room with books but speed has overcome us.

  15. I recommend reading The American Prospect for fresh looks at economic models. Thus the so-called Chicago School and Uncle Miltie represented the wrong model unless, of course, one wants the rich to get richer and the poor poorer to be policy for all. About the only winners under the banner of “tax reform” (aka giveaway to the rich) are those who build yachts and palaces in the Hamptons – none others need apply – but as we shall see, such “model” is illusory.

    The Keynesian model posits that aggregate demand is the arbiter of economic growth, the state of being all economists claim to be the result of the model(s) they have chosen. Such claims are demonstrably false, and while all models are at the mercy of change, I believe the Keynesian model today to be the one best suited to best serve the interests of all within a given economy. Thus taxing of the rich and reduction of taxes for the poor and middle class, for instance, enhances demand since it relieves the tax load on consumers who can then contribute more heavily to the aggregate demand side of the equation and thus contribute to the holy grail of economic growth. Reduction in the ability of the rich to consume is offset by the jump in consumption of their widgets by the poor and middle class, and thus all prosper. The same logic applies to a raise in wages, which increases consumption of corporate widgets and thus offsets bumps in corporate labor costs.

    Note that wages have made a major stride upward while corporations are simultaneously making historic profits, all as a result of Bidenomics and a purely Keynesian outcome, one which the Chicago School and the Chamber of Commerce said couldn’t happen. Someone should tell these people what is obvious, i.e., that when the wealth is shared more wealth is created, aggregate demand and economic growth zoom, and all of us have a fairer society and better opportunities within which to pursue our goals in life.

  16. Robert Reich today:

    “Most Americans don’t pay a great deal of attention to national economic indicators showing how fast the economy is growing, how many new jobs are being created, and the declining rate of inflation.

    Instead, they look at their own efforts to create a better life for themselves and their children. And those efforts no longer seem to pay off.

    An October 19-24 Wall Street Journal/NORC poll found that only 36% of voters said the American dream — “that if you work hard you’ll get ahead” — still holds true.

    This was down from 53% and 48% in similar polls in 2012 and 2016, respectively.

    An NBC News poll conducted November 10-14 found that a record-low 19% of voters said they feel confident life for their children’s generation will be better than for their own generation, while 75% were not confident their children will be better off.

    As the American dream fades — and as inequalities of income and wealth soar — many Americans feel increasingly angry and frustrated.”

  17. Naomi Klein’s “Shock Doctrine” does a brilliant job of exposing the insidious evil associated with Friedman, his “Chicago Boys” and the Republican imperative.

  18. I don’t believe for one minute that my kids won’t be better off than we were when we started on our adult lives. We made sure they got educational opportunities no matter the cost to us. We lived very modestly, paid as we went, kept our debts to a minimum (house and car). There were no luxuries until the basics had been paid for in full.
    We did have the advantage of starting our family in our early twenties, family grown and out by mid 40s. We never had a chance to save for retirement until in our 50s.
    We have certainly done better than our parents who had much bigger families than we did.
    Here are the take-aways from our experiences:
    1) We started younger with little or no debt because our parents were working poor.
    2) We worked and/or were on scholarship in college so finished with almost no debt.
    3) We had much smaller families than was common in the previous generation.
    4) We never have owned a new car.
    5) We traveled as often as we could afford and paid for the trips by camping and staying in modest facilities with few luxury amenities. We still had great experiences.
    6) We always enjoyed hobbies and entertainment that we could afford and never went into debt to do so. If it was too expensive we found a workaround or did something else.
    7) We never had access to pensions or retirement accounts until late in our work lives. When we did get access, we used it so that we would never be a financial burden on our kids.
    8) We were white and had what that privilege gave us, most often without recognizing it.
    In other words, we lived within our means, saved when we could, gave our kids support and encouragement but never handouts without responsibility.
    Some would say we were poor. Maybe we were in the consumer/debt culture we currently have. Our lives have been richer than our parents in financial terms but we had no way to compare whether our interior lives were richer than theirs or not.
    I guess it is all in perspective.

  19. Shock Doctrine in my opinion is a must read. If reading is a challenge for you you can get a good understanding of the book by searching the web. There are many free resources in which you can learn from. I have concentration issues and now have a difficult time trying to sit still and read a book.

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