Economics for Everyone: A Short Guide to the Economics of Capitalism, 2nd edition by Jim Stanford, PlutoPress, 2015.
Economics for Everyone (E4E) is book whose title can be read two ways: it is both an introduction for everyone to economics, but also a commentary on how the economy can serve everyone.
As an introductory treatise, the book starts out with the basics – work, tools and profit – and from there builds out a comprehensive picture of the modern, capitalist economic system as it is and has been since the advent of neoliberalism in the Thatcher / Reagan era. This is done in a systematic and structured approach, and explains jargon in way that is clear without being condescending. Unfortunately, as someone who’s studied the subject, I found myself wishing there was a Concise E4E written for those who would rather focus on the critique than the economics.
A central premise of the critique is that much of what is taught as economics is, in fact, not economics in general, but the economics of neoliberal capitalism. Non-capitalist economics such as Marxist and socialist economics are barely even discussed in academia, and a great deal of economics discussion takes for granted that there are things such as, for example, a natural rate of unemployment, when this is in fact a political decision. The reason that myth is perpetuated, Stanford argues, is that companies have owners, that paying staff is a major expense, and that having a population that is frightened of losing jobs means that the staff are less likely to demand better wages. To put it the other way around, it would be economically possible to have full employment, but if the employees are not frightened of losing their jobs, the employers will have to pay higher wages, reducing profits.
Another neoliberal myth is that government deficits are inherently bad. This myth has been used time and again, often to ensure that banks in wealthy countries continue to get interest payments from people in poor countries by ramming through austerity policies that result in widespread misery. To the contrary, Stanford argues, deficits can be used to turbo-charge growth by investing in education, healthcare and infrastructure, and those social benefits generate more than enough economic growth to cover the interest payments – as happened in China in the two decades at the end of the last century (and, although E4E doesn’t mention it, Britain in the late 1700s, when it had issued consuls – government debt – that amounted to more than 250% of GDP: the highest in recorded history.)
These points and others like them are well made, and important to raise. And, as Stanford says, and as many other have commented, the crash of 2008 was a signal that neoliberal capitalism was out of control; that economics was no longer serving the common good but rather protecting the fortunes of those who were already immensely wealthy; that the time was ripe for an alternative. Yet no alternative was available. There was no new narrative, no novel system. The 2008 crisis could have shifted the balance back to the common man but, because there was no alternative, failed to.
If anything, E4E shows why that moment was lost. The book concludes with two shopping lists. The first is a series of tweaks that could nudge, say, the USA to a system more like those of the Nordic countries, which have much more even distributions of wealth. The second list presents non-capitalist ownership structures: state owned enterprises, cooperatives and the like, that seek to maximise social outcomes other than private wealth creation (or “profit”).
The problem with the first list is that the developed democracies have each charted their own courses. It’s all very well saying “the Americans should…”, but if a population makes an informed and free choice to elect successive governments that do not offer non-private ownership structures, that is their choice. The fact that one American government after another has elected gloves-off capitalist governments, and that one Swedish government after another has elected socially democratic governments, does not indicate a malaise in the American system, but a legitimate democratic preference.[*]
The problem with the second list is that socialism has been tried and it simply did not work. Socialist Russia may have put a man in space before capitalist America, but Russians were queuing four hours for bread while Americans picked it up at the supermarket. While individual Russians in the socialist era made enormous contributions to areas such as theoretical physics, Americans invented microcomputers. When I first visited China in the mid-1980s, everyone received the same wage – and the same shitty service. There was no incentive to do better.
As to non-centralised ownership structures such as cooperatives, as E4E says, most legal systems effectively limit the purposes of corporate bodies to be profit-seeking or charitable. Shared ownership structures are indeed a difficult beast. But what Stanford fails to consider is that, of the 85% of people he estimates are in wage labour, a very large proportion are okay with top-down ownership. Not everyone wants to be an entrepreneur; not everyone wants the burden of responsibility that comes with ownership, even partial ownership.[†] Given how precarious life used to be, how many people died of famine, drought or disease, let alone the human-inflicted miseries of war and oppression, perhaps we are pre-programmed to be risk-averse.
The collective bargaining Stanford advocates also seems rooted in the past. Coal mines and factories – workplaces where thousands of workers were doing essentially identical jobs – are the places collective bargaining began. In the developed world, those jobs have been taken over by robots. The rest of the world does not lack labour laws, but rather enforcement.
This is not say that the current global system allocates wages in a fair way. Far from it: our global trading system fosters brutal exploitation – see Naomi Klein’s classic No Logo for more. But tweaking the system isn’t going to change anything.
What I’d propose is a different angle. First amongst neoliberalism’s failure is its reversal of social mobility. This has led to a gradual diminishing of well-being. To find out why this may be, let me look at the neoliberal proposition:
Well-being is maximised by wealth generation.
Wealth generation is maximised by individual profit-seeking.
Individual profit-seeking is hampered by regulations.
Well-being is maximised by minimising regulations.
This formulation offers many points of attack, not least of which that social mobility doesn’t warrant a mention – it isn’t even part of the promise. That aside, I’m going to focus on the first one, the basic premise of neoliberalism, that well-being is maximised by wealth generation.
Let’s start at the bottom of the economic heap. It is obvious that there is a certain level of poverty below which people are incapable of well-being. If you can’t put food in your own belly and that of your family, if you live in constant fear of drought and famine, the issue is not well-being but survival. And I think we can all agree that no human being should live on the edge of survival; that every child who is born should have nutritious food, running water, decent health care and education.
These are normally spoken of as “basic needs,” and basic needs are increasingly spoken of as a human right. But the thing is, there are many people who don’t live in poverty – whose basic needs are met – yet who still live unfulfilled lives because they live hand to mouth and because they have no way out of that trap. And the reason there is no way out is because the trap is that all of their income goes to servicing their basic needs.
People in that position do not have the choices that I took for granted as a middle-class kid: holidays, hobbies and parties; studying more or less what I chose and pursuing more or less the career that I wanted. A prerequisite to having choices is not basic needs, but what I will call “basic affluence,” and a working definition of that term is that, after meeting her basic needs, a person or family has money left over to spend as she will: she can blow some on a party, some on a horse, some on a holiday; she can save to buy a new home, a university degree or start a business. In other words, enough money that she has choices in life. And the problem with neoliberalism is that, especially in terms of wages, ever larger numbers of people are not basically affluent; they are living hand-to-mouth. And this is borne out by one source after another – not least E4E – which shows the stagnation in real wages since the Thatcher-Reagan era.
As neoliberalism has undoubtedly achieved a huge increase in global wealth, but not a corresponding increase in well-being, the first premise of the neoliberal argument is, therefore, false: well-being is not maximised by wealth generation.
Why would that be? The premise is based on a truism that collapses the economic status of a person into two levels: poverty and well-being. If I am right that basic affluence is a pre-condition for well-being, there are more than two levels: poverty, hand-to-mouth living, basic affluence and wealth. Neoliberalism, by putting wage levels largely in the hands of capitalists, exacerbates the problem: there may be fewer people in the world living in absolute poverty, but many are trapped in hand-to-mouth living, and fewer are basically affluent. The wealthy themselves, of course, are a different species.
This is not a conclusion I expected to reach, but the most glaringly obvious fix for this has already been mooted: a minimum income for everybody. This is not a minimum wage; it simply means that what the wage doesn’t provide, the government will.[‡]
But I don’t think that a minimum income on its own will be sufficient. And that is because of another point that I haven’t found mentioned – although E4E touches upon one of its symptoms – and that is the vast amount of money that is sitting around doing absolutely nothing useful. E4E cites estimates that over 95% of global financial cash flows are purely speculative and, as Stanford says, not productive. They only thing those cash flows produce is more money, and the occasional crash.
Stanford thinks that this cash should be deployed in some productive manner. But I believe the reason for these huge financial flows is that the money simply has nothing else to do, nowhere else to go. The world does not have enough sexy toys to buy, enough glowing projects to invest in, enough latest fads to go wild for.[§] The money is dead. Or, not so much dead, as zombie money. It inhabits a world of its own, unrelated to human needs or even human activities, and is used for no other purpose than keeping a few investment bankers in jobs while contributing absolutely squit to human well-being.
Now, while I have no doubt that putting some of this zombie money to use could improve the human condition, I suspect it’s mostly an easy political target. Rather, I think zombie money wanders around the world’s financial systems in the same way that cockroaches wander the sewers – distasteful and ugly, but not actually harmful.[**] The problem, I think, is not zombie money, but rather zombie property. At the same time that nearly every country in our crowded planet has a housing crisis, so too nearly every country has a stock of palaces and mansions that sit empty most of the time, and a stock of private land set aside for the rich to kill animals with guns for a month or two of each year.
This is far more insidious that mere zombie money because it isn’t only the super-wealthy, but also the basically affluent who rely upon it. Most of us fear dying in poverty, without even a roof over our head, and owning your own house solves at least half of that problem.
But the consequence of this is a vast global middle-class who are not merely complicit, but who actively support the system of property ownership. And it isn’t just about a roof over our head. At a personal level, I well know the pride of having a house of my own. Owning provides more than a roof over my head; it adds the joy of making a house into a home.
So what if, in addition to a minimum income, each government simply gave a house to each citizen upon coming of age? Rather than demeaning citizens with low-rental housing, which normally degenerate into crime-ridden ghettoes for the poor, simply grant each and every person a plot of land and some money, or, in cities, a pre-built unit of their own? And, on their death, take it back.
Let’s put this a different way. In business, we often talk of capital and operational expenditures. Capital expenditure means buying things – things such as houses or factories – and operational expenditure means spending money on things – mostly wages and food (food for factories being electricity, raw materials, and so on) – that keep the wheels turning. If basic affluence is to be more than an empty phrase, then it needs both aspects: a minimum income, one that is large enough to permit meaningful choice without extravagance, and a minimum asset base – the starting point being a house.
That would put power back in the hands of the people.[††]
And this brings me to the fundamental conceit of neoliberalism. Human well-being is measured on more than one axis. One does not have to be a Buddhist hermit to be-well without being rich, but without the basic affluence to make the choices involved in being-well, a large part of humanity is consigned to be-badly. Basic affluence would require a fundamental reordering of society – no question about it – and it would be no panacea, but it may offer a foothold to create an alternative to neoliberalism.
[*] It has been argued that populations are the targets of systematic and insidious campaigns that reinforce value systems that make people vote against their best interests. But there is an element of intellectual snobbery about that line of thought that repels me: either a person knows what’s in his best interests, or he doesn’t. If he does, or is at least willing to find out, and his assessment doesn’t agree with yours, tough luck. Reasonable people can, almost by definition, disagree. The he’s-being-fooled-but-doesn’t-know-it-line is not a disagreement between reasonable people, but the intellectual snob’s argument that I know better than he what’s good for him – which blends into the classic autocrat’s argument that the people are too stupid to know what’s good for them.
[†] A friend of mine was once offered a temporary role as CEO. He declined. His words were, more or less: “You know all those dumb arguments that start between A and B and go to A’s boss and B’s boss and spin out of control. All that shit ends on your desk.”
[‡] Capitalists will hate the idea as workers will no longer be constrained by the choice of working or starving. Wage costs will go up. But capitalists are throwing stones in glass houses. Gone are the days of Henry T. Ford paying enough that the workers can purchase the products Ford made. Gone, too, in large part, are the days when capitalists reinvested their profits to create new wealth. Capitalists – and especially their scions – horde their billions. They are making themselves a very appealing political target.
[§] Yes, that list excluded people. The rich don’t think that way.
[**] It is commonly held that most of that zombie money is in the hands of a few hundred immensely wealthy families. While it is true that wealthy families own part of that money, it is also true that governments sit on top of untold trillions. In the past two decades, a new kind of entity has come into being, the “Sovereign Wealth Fund,” which invests governments’ money. The governments in question are often of an authoritarian bent – not the types of government to return money to citizens in the form of lower taxes: Singapore’s and Hong Kong’s wealth funds are massive (both boast about low taxes, but levy huge regressive taxes in the form of massive land prices instead).
[††] There are some, of course, who will say that basic affluence – a house and a minimum income – will engender parasitic behaviour, that people not merely should but must work. Setting aside the Calvinist overtones, this view is elitist. There are many sportsmen, actors and politicians who are paid large amounts of money to do exactly what they would do if they had none. Nature does not bestow its gifts evenly; basic affluence would give those who are not so endowed a chance to be-well, and make them economic actors rather than parasites.