Paul Rosenberg — The Rigged Economic System: Why No One Can End Reagan’s “Dead Wrong” Voodoo Economics

It’s not just Obama, in Hanauer’s view. “This is what progressives have done for generations, is that we ceded to the other side that the rich are job creators; we ceded to the other side that less regulation equals more growth; we ceded to the other side that if wages go up, then employment goal go down. And then we wonder and complain about the policies that flow naturally and logically from that set of baseline assumptions. That’s the problem,” he said—a failure to contest the basic framework of economic thought. Hanauer has challenged that framework, with what he calls “middle-out economics”, which was the subject of the summer 2013 issue of Democracy.

He made the same point again, about the failure to contest fundamentals, with a slightly different emphasis and explanation. “The problem with our politics is President Obama and the people who surround him, don’t represent an alternative to trickle down economics, they are trickle-down-lite,” Hanauer told me. “They’re sort of kinder-and-gentler trickle-down economics. They can talk a little bit about the importance of the middle class, but, in my opinion, they haven’t quite seen clearly that they’ve gotten cause-and-effect reversed. They still think that a thriving middle class is an effect of growth, a consequence of growth, and the truth is in a technological, modern economy, a thriving middle class is the cause of growth…. The middle class creates rich people, not the other way around.

This used to be well-understood by everyone. During America’s long post-World War II boom, the incomes of all levels growing approximately equally—though slightly slower at the very top. “That’s how you sustain virtuous cycle of increasing returns which capitalism can be. Capitalism can be constructed in a way so that everyone does better all the time. It’s a beautiful thing,” Hanauer said. “But if the power dynamics change in really extreme ways, as they have in the last 30 years, and all of the value of enterprise is sucked out by a few owners and the senior managers, then you basically killed the goose that layed the golden egg.”....

Hanauer took a moment to describe that logic: 

Neoclassical economics and the trickle down policy framework that we have derived from it argues that there is a trade-off between fairness and growth. The general idea of trickle down economics is that the richer the rich get and the less constrained they are, less burdened in regulations, the more jobs they create, the better off everyone will be. It’s the concentrated accumulation of capital which is the principal driver of market capitalism. 

So, rising economic inequality isn’t a bug, it’s a feature of the trickle down economics. It’s how you know things are getting better, right? Because the richer the rich get, the more jobs they create. This is a general principle of the thing.

There’s only one problem: It’s “dead wrong,” Hanauer said flatly....

Wrong model:

And it’s based on the wrong sort of mathematics—like using addition to try to multiply and divide. “The economy isn’t this linear equilibrium system, it’s a complex, nonlinear, nonequilibrium systems, and is best understood not mechanistic terms, but eco-systemically.” Nonlinear, nonequilibrium mathematics is a good deal more difficult and complex than the math used by neoclassical economists. But the qualitative picture it paints is not that hard to grasp, as Hanauer explained it:

Once you see it eco-systemically, what you can see quite clearly is that arguing, for instance, that if wages go up employment will go down would be like arguing that if plants grow animals will shrink, right? Literally, that’s silly.On the contrary, businesses essentially eat the wages of workers, right? 

They subsist on the wages of workers, and so obviously, to a reasonable degree, the more wages rise, the more businesses—again, pressing the metaphor—have to eat. And that’s why the fundamental law of capitalism is that if workers have more money businesses have more customers, and need more workers.

It's a people problem according to Hanauer:

The problem with Obama’s thinking is not so much Obama himself, but the whole entourage of policy people surrounding him. “Trust me, these guys all got PhD’s in economics in the same places, they all learn the same crappy neoclassical ideas, they are captured by them, and they can’t get out of their own way,” Hanauer said. “And I think that’s the big problem. They don’t know how to make this argument because they are so wedded to these old stale ideas. Even if they say they’re not. But they are!”....

His fix:

“Growth, in technological capitalist economies, is a consequence of the feedback loop between increasing amounts of innovation and increasing amounts of demand. And the mechanism that drives that feedback loop is inclusion. Inclusive economic policies are the thing that create growth. The more people who are included as innovators and entreprenuers, and the more people who are included as robust consumers, the better the thing goes.”... 

Much much more in the article. The last half finishes strong.

“You have to be able to define, in concrete terms, what your alternative theory of growth is. I submit to you – and I know this sounds self-aggrandizing – but no one on our side, can explain to you as succinctly and clearly where growth actually comes from than me and my gang. When I say growth in technological capitalist economies is a consequence of the feedback loop between increasing amounts of innovation and demand, that’s a theory of growth. So, you find me a Democratic leader whose said anything like that, find one, you’ll find lots of complaints, you’ll find lots of great attacks. So, our theory of the case is that until we can get people to recognize how these technological economies actually grow, and unite people around an alternative to the trickle-down economics idea, until you do that, you cannot build the machine. Once you do that, then the machine part’s easy.”

Very insightful but not quite in paradigm with respect to a monetary economy. Someone needs to slip him as copy of Warren's 7DIF.

AlterNet
The Rigged Economic System: Why No One Can End Reagan’s “Dead Wrong” Voodoo Economics

Paul Rosenberg

See also

Business Insider
PAUL TUDOR JONES: Income inequality will end in revolution, taxes, or war
Julia La Roche

ht' Roger Erickson