Beyond the standard explanation

Posted: 15 November 2015 in Uncategorized
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Robert Reich is right: the standard explanation of—along with the standard debate about—inequality misses the point.

The standard explanation for why average working people in advanced nations such as Britain and the United States have failed to gain much ground over the past several decades and are under increasing economic stress is that globalisation and technological change have made most people less competitive. The tasks we used to perform can now be done more cheaply by lower-paid workers abroad or by computer-driven machines.

The left’s standard solution has been an activist government that taxes the wealthy, invests the proceeds in excellent schools and in other means that people need to become more productive, and redistributes to those in need. These prescriptions have been opposed vigorously by those on the right, who believe the economy will function better for everyone if government is smaller, public debt is reduced and taxes and redistributions are curtailed.

Reich’s view is that the existing common sense, among both liberals and conservatives, “overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs.”

But what Reich, for his part, overlooks is that, during the postwar period he views nostalgically and to which he’d like to see us return, there was no shared prosperity. And there couldn’t be. Even though real wages were rising, it was still the case the members of the “corporate and financial elite” were allowed to keep control over the surplus. What that means is they had the interest and the means to rewrite the rules so that they could appropriate, capture, and do what they wanted with the surplus produced by workers in the United States and around the world.

It is clear, during the postwar period, the economic elite wanted both more surplus and the ability to keep in their own hands more of that surplus, which meant attempting to evade and eventually rewrite the “rules by which the economy runs”—the rules governing labor unions, intellectual property, bankruptcy, finance, and so on. And, given their control over the surplus, they had the means to do so.

There’s no doubt the capitalist class succeeded both in undoing many of the existing regulations and in making sure few new regulations were put in place. Or, to put it differently, that the only regulations that would be passed and enforced were ones that favored a growing gap between them and everyone else.

While I’m all in favor of campaign finance reform, in order to level the playing field when it comes to choosing and electing candidates, it is still the case that the fundamental “rules by which the economy runs” keep the surplus in the hands of a tiny group at the top that has the right to do with it what it wants.

An effort to change those rules is what the United States needs now more than ever.

  1. Magpie says:

    Prof. Ruccio,

    Sort of off topic, but hopefully you’ll find it appropriate.

    Peter Cooper, a talented Australian economist, is writing a series of posts about the relationship between MMT and Marxist economics.

    As I think you are interested on MMT, perhaps this, too, would be of your interest:

    Marx & MMT, Part 1 – Three Kinds of Macro Variables
    12 November 2015


  2. David F. Ruccio says:

    Thanks, Magpie. I’ll take a look at Peter Cooper’s post, as soon as I have time.

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