Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards

261 Pages·2012·0.75 MB·English

by  Norbert Häring

Economists and the Powerful

Economists and the Powerful
Convenient Theories,
Distorted Facts, Ample Rewards
Norbert Häring and Niall Douglas
Anthem Press
An imprint of Wimbledon Publishing Company
www.anthempress.com
This edition fi rst published in UK and USA 2012
by ANTHEM PRESS
75-76 Blackfriars Road, London SE1 8HA, UK
or PO Box 9779, London SW19 7ZG, UK
and
244 Madison Ave. #116, New York, NY 10016, USA
Copyright © Norbert Häring and Niall Douglas 2012
The moral right of the authors has been asserted.
All rights reserved. Without limiting the rights under copyright reserved above,
no part of this publication may be reproduced, stored or introduced into
a retrieval system, or transmitted, in any form or by any means
(electronic, mechanical, photocopying, recording or otherwise),
without the prior written permission of both the copyright
owner and the above publisher of this book.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Häring, Norbert.
Economists and the powerful : convenient theories, distorted facts,
ample rewards / Norbert Häring and Niall Douglas.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-85728-546-1 (alk. paper) – ISBN 978-0-85728-459-4 (pbk. :
alk. paper)
1. Economics. 2. Power (Social sciences) 3. Executives. I.
Douglas, Niall. II. Title.
HB71.H395 2012
330–dc23
2012016685
ISBN-13: 978 0 85728 546 1 (Hbk)
ISBN-10: 0 85728 546 7 (Hbk)
ISBN-13: 978 0 85728 459 4 (Pbk)
ISBN-10: 0 85728 459 2 (Pbk)
This title is also available as an eBook.
CONTENTS
Introduction vii
Chapter 1 The Economics of the Powerful 1
Chapter 2 Money is Power 47
Chapter 3 The Power of the Corporate Elite 107
Chapter 4 Market Power 141
Chapter 5 Power at Work 163
Chapter 6 The Power to Set the Rules of the Game 207
Afterword 221
References 223
Index 241

INTRODUCTION
Whether you can observe a thing or not depends on the theory which
you use. It is the theory which decides what can be observed.
—Albert Einstein, 1926
Americans often feel exasperated with the economic intransigence
of their continental European cousins. To a typical American, the
typical non-English speaking European often seems obsessed with big
government, large welfare systems and making it hard to do business by
interfering with capitalism. In fact, despite much rhetoric to the contrary,
even Anglo-Saxon Britain is right in the middle of big-government,
large-welfare European countries. The scale to which Europeans have
directed economic resources toward this goal is staggering: between
2004–2009, Europe was a “lifestyle superpower” that expended
€2.6 trillion (US$3.42 trillion) per annum on social protection, equal to
58 percent of the global spend, which for the rich European countries
was around one-fi fth of each member country’s gross domestic product
(GDP) (Gill and Raiser 2012). As a comparator, in 2010 the US achieved
its military superpower status through 43 percent of the global military
spend, more than the next 15 largest spenders combined, but costing
“just” US$689 billion (Gill and Raiser 2012).
There is, of course, a rationale behind the European pattern of
expenditure. Nowhere else in the developed or developing world, apart
from Japan, are disability-adjusted life expectancies so high, income and
educational inequalities so low, old age provision so generous, fossil fuel
effi ciency so high, nor regional economic convergence so typical (Gill
and Raiser 2012). Despite the apparent emphasis on the equality of
outcome (rather than on opportunity), every known empirical measure
shows the equality of opportunity in continental Europe to be among
the best in the world – and much better than in the United States,
despite Americans’ enduring and irrational belief to the contrary.
There is ample empirical evidence suggesting that the European
viii ECONOMISTS AND THE POWERFUL
approach is much better economically than is typically thought by the
Anglo-Saxon economic discourse. By reading this book you will gain a
good introduction to this evidence from a European perspective. The
wide disparity in approach to social protection by European countries
is not frequently realized outside European discourse, despite the very
similar net expenditure levels as a percentage of national GDP. In truth,
rather than being as economically intransigent as they usually seem to
non-Europeans, European countries have in fact been experimenting for
50 years with a variety of different forms of capitalism.
Although Asians and Latin Americans admire US economic power,
as a result of the ever-increasing empirical evidence they rarely choose
to use their new wealth to copy the US social model. Almost always, they
choose as Europe has: tax personal income and consumption heavily
but personal investment and company income lightly. They ensure that
the well-to-do receive welfare entitlements just as the poor do. They
ameliorate the cost of government bureaucracy by automating and
streamlining it, rather than pretending to eliminate it in showy gestures
while actually building an even bigger state. Over the past 15 years,
European governments have been actively and successfully shrinking
themselves – unlike the US government which has grown in proportion
to the economy. They try to eliminate the “free rider” problem by
mandating participation in endeavors benefi cial to society, and they try
to diffuse professions such as doctors, lawyers and especially bankers
from using their power to extract unfair, outsized economic rents from
society. This is smart, evidence-based, practical government, rather than
large or small ideological government. Yet you will not hear about any
of this in the conventional US economic discourse. This is because of
the power of the vested interests who want to distract you from realizing
the extent to which they have captured government and economic
opportunity for themselves. They tax the middle class, destroy their job
security, steal from their pensions and divert those monies into capital
gains, tax breaks, perks and freebies for themselves. What is being done
to the American middle class is an exercise of power by a ruling elite just
as morally corrupt and tyrannical as the European monarchies of old.
Power. It is ubiquitous, yet mainstream economics – despite having been
made into a Cold War weapon by the US – is highly limited and one-sided
in how it models power relations. Monopolists and unions are always bad.
Consumption and competition are always good. Taxes are always bad. More
money is always good. Government is held to be coercive, so it is generally
bad. Markets are held to mean freedom, so they are generally good.
INTRODUCTION ix
As you will discover from reading this book, economics has been
molded typically to benefi t the wealthy and the interests of the elite
of the United States. Just as with the US political system, economics
has been captured by the powerful and they are not in the mood for
fairness. They are not even in the mood for discussion: you will not fi nd
academic articles about fairness in the top economics journals. Only
through having been caught so blatantly with their noses in the troughs
(e.g. the 2011 Academy Award–winning documentary Inside Job) has
the American Economic Association fi nally been forced to adopt an
ethical code, and that code is weak and incomplete compared with other
disciplines. Increasingly, and especially during the past ten years, there
is evidence that the US is beginning to doctor the numbers for measures
such as productivity and GDP to make itself look stronger and more
powerful than it actually is. In this it is copying its forebear, the British
Empire, which increasingly began to tell itself lies as it failed to arrest
its relative economic decline after the recession of 1873–79, until the
Second World War bankrupted and broke up its global hegemony.
Economics is supposed to be about revealing truth such that society
learns to become better than it was before. In this, it is supposed to be
like physics or medicine. It is not supposed to be another tool for the
powerful to enrich themselves at the expense of others. And it is most
certainly not supposed to be a weapon for achieving US hegemony at
the cost of everything else – including the long-term sustainability of
the United States itself.
This book is not about Europeans telling others to be more European.
There is plenty of evidence showing that the European policy mix is far
from ideal, what with its endemic youth underemployment and denial
of opportunity to anyone without political power (especially immigrants
and gypsies), or indeed ongoing euro currency breakup or country
bankruptcy problems. However, on the whole, during the decades since
the Second World War, European experimentation with capitalism has
been rather successful, which is why emerging economies are taking the
European and not US social model as inspiration (Gill and Raiser 2012).
There are plenty of empirically proven practical ideas for countries
to consider. All you need to do is to ignore economic orthodoxy and
especially those economists being paid to deceive you. Look instead at
what has been proved. Follow the evidence, not the paid-for rhetoric.
The global fi nancial crisis that started in 2007 made it obvious
to many that there is something amiss in mainstream neoclassical
economics as propagated by the leading Anglo-Saxon economists and