Tag Archives: Nick Hanauer

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.

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The Economy And The Evidence

Nick Hanauer has long advocated for economic policies buttressed by something called “evidence.” I first encountered him when he was pointing out that putting disposable income into the hands of the working class via a higher minimum wage actually strengthens economic performance and supports job creation, because–duh–manufacturers don’t hire people to make widgets that few people have the means to buy.

Hanauer recently addressed “Bidenomics.”

When President Joe Biden first promised to “grow the economy from the bottom up and the middle out” through public investments, empowering workers, and promoting competition, critics scornfully derided his agenda as “Bidenomics.” And when the president defiantly embraced this epithet by making it the economic centerpiece of his reelection campaign, even some allies questioned the wisdom of stamping his name on an economic recovery that is as misunderstood as it is strong. Despite record-low unemployment, rising real wages, strong GDP growth, and a rapid fall in the inflation rate to below both global and historical averages, only 36 percent of Americans say they approve of Biden’s handling of the economy. Given such weak approval numbers, “Bidenomics” might at first appear to be an ill-advised slogan for a reelection campaign.

But to dismiss Bidenomics as mere sloganeering is to miss the point: The Biden Revolution is real, and running on Bidenomics is key, not just to winning reelection, but to winning the battle to establish a new consensus over how to manage and build our economy in the decades ahead.

As Hanauer explains, a large and thriving middle class is the primary engine of economic growth. That’s the core proposition of Bidenomics– that prosperity grows from the bottom up and the middle out. It challenges Reagan and the GOP’s belief in “trickle-down.”

All available evidence supports Hanauer and Biden.

A recent article in The Atlantic examined the reluctance to trust that evidence. The article asked why America abandoned the greatest economy in history, and the subhead suggested potential explanations: “Was the country’s turn toward free-market fundamentalism driven by race, class, or something else? Yes.”

From the 1940s through the ’70s, sometimes called the New Deal era, U.S. law and policy were engineered to ensure strong unions, high taxes on the rich, huge public investments, and an expanding social safety net. Inequality shrank as the economy boomed. But by the end of that period, the economy was faltering, and voters turned against the postwar consensus. Ronald Reagan took office promising to restore growth by paring back government, slashing taxes on the rich and corporations, and gutting business regulations and antitrust enforcement. The idea, famously, was that a rising tide would lift all boats. Instead, inequality soared while living standards stagnated and life expectancy fell behind that of peer countries. No other advanced economy pivoted quite as sharply to free-market economics as the United States, and none experienced as sharp a reversal in income, mobility, and public-health trends as America did. Today, a child born in Norway or the United Kingdom has a far better chance of outearning their parents than one born in the U.S.

The rest of the article considers three theories for why America abandoned New Deal economics: white backlash to civil-rights legislation, the Democratic Party’s “cultural elitism,” and/or global crises beyond any political party’s control. It concluded that all of them played a role.

Whatever the reason, Americans seem to have a very hard time accepting the fact that “Bidenomics”–which harks back to New Deal principles–has produced an economy better than anyone predicted.

Yet the economy is ending the year in a remarkably better position than almost anyone on Wall Street or in mainstream economics had predicted, having bested just about all expectations time and again. Inflation has dropped to 3.1 percent, from a peak of 9.1. The unemployment rate is at a hot 3.7 percent, and the economy grew at a healthy clip in the most recent quarter. The Fed is probably finished hiking interest rates and is eyeing cuts next year. Financial markets are at or near all-time highs, and the S&P 500 could hit a new record this week, too.

The GOP demanded reductions in government spending. The White House disagreed, arguing that funding programs on infrastructure, domestic semiconductor production and clean energy would help inflation by expanding the economy’s productive capacity. The White House was right.

I’m currently reading a book on Modern Monetary Theory, which makes a point that Biden clearly understands: national budgets are nothing like household budgets, and failure to understand the difference leads to bad policy.

More on that book–and that theory– later….

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I Plan To Buy This Book

I have previously quoted Nick Hanauer, a billionaire with a clear vision of economic reality and a refreshing respect for data and evidence.  I first encountered him when he was supporting Seattle’s “Fight for $15.” He pointed out that jobs are created when workers have sufficient disposable income to purchase the goods offered in the marketplace. (If no one is buying your widgets, you are very unlikely to hire additional people to manufacture them.)

In the absence of any empirical evidence,” Nick explained, business owners kept repeating the same false threats over and over: “It’ll be a job killer. It’ll harm the very people it’s intended to help.” Even though these warnings had no basis in economic research, local media repeated the lies uncritically.

Seattle did, in fact, raise its minimum wage, and despite the dire warnings from opponents of the measure, its economy survived. Nicely.

Hanauer was introduced to Donald Cohen, who had noticed a similar effort– businesses arguing that safety regulations kill jobs–and the two of them teamed up to collect other examples. There turned out to be a clear pattern: whenever a social benefit has been proposed, powerful voices have warned that the policy would only hurt the very people it’s intended to help.

They decided to write a book, and enlisted progressive author Joan Walsh. The three of them have produced a volume they’ve titled “Corporate Bullsh*t,” tracing decades of (surprisingly similar) arguments from America’s captains of industry—against abolition, against child labor laws, against women’s suffrage….

There’s a pattern.

According to a letter sent by a friend describing the book (no link available), the book uses a lot of humor to make its point. As Hanauer is quoted,

If you think that you are going to talk the Chamber of Commerce out of saying that raising wages kills jobs by showing them the economic evidence [to the contrary,] you are deeply, deeply naive,” Nick says, adding that ridicule plays “an essential role” in debunking these claims and changing the public conversation for good.

A review of the book from The New Press goes into more detail:

From praising the health benefits of cigarettes to moralizing on the character-building qualities of child labor, rich corporate overlords have gone to astonishing, often morally indefensible lengths to defend their profits. Since the dawn of capitalism, they’ve told the same lies over and over to explain why their bottom line is always more important than the greater good: You say you want to raise the federal minimum wage? Why, you’ll only make things worse for the very people you want to help! Should we hold polluters accountable for the toxins they’re dumping in our air and water? No, the free market will save us! Can we raise taxes on the rich to pay for universal healthcare? Of course not—that will kill jobs! Affordable childcare? Socialism! It’s always the same tired threats and finger-pointing, in a concentrated campaign to keep wealth and power in the hands of the wealthy and powerful.

Corporate Bullsh*t will help you identify this pernicious propaganda for the wealthiest 1 percent, and teach you how to fight back. Structured around some of the most egregious statements ever made by the rich and powerful, the book identifies six categories of falsehoods that repeatedly thwart progress on issues including civil rights, wealth inequality, climate change, voting rights, gun responsibility, and more. With amazing illustrations and a sharp sense of humor, Corporate Bullsh*t teaches readers how to never get conned, bamboozled, or ripped off ever again.

I haven’t read the book yet, so I am approaching it with my own prejudice: the importance of credible empirical evidence.

If X is damaging, how do we know? Has it been tried? Under what circumstances? With what results? Have those results been replicated?

It is perfectly possible for a well-meaning policy to be unworkable or damaging–but an assertion to that effect needs to be backed up with evidence, not rhetoric.

Americans have a bad habit of giving credence to arguments made by the wealthy and powerful simply because those making the arguments are wealthy and powerful. It reminds me of that lyric from “If I Were A Rich Man.”  “The most important men in town would come to call on me, asking questions that would cross a Rabbis eyes–and it won’t make one bit of difference if I answer right or wrong…When you’re rich they think you really know.”

Come to think of it, that goes a long way toward explaining why naive people listen to Trump…

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