A retrospective glance



“Bootylicious,” 7 September 2009: The economics of piracy

Debtmageddon vs. the robot utopia

It seems likely to me that almost everything prescribed by politicians as a remedy for America’s economic doldrums is wrong. I’m not an economist, so my opinion should probably be taken with a grain of salt. But since reading the news has begun to take on an Alice in Wonderland quality for me, I wanted to try to set down in words how my understanding diverges from theirs.

Just so you know where this is headed: I suspect that the flow of money in America has broken down because wealth is too highly concentrated, and that for at least a generation or so, the government ought to tax the rich heavily and spend on the poor and middle class just as heavily.

Why do all politicians and most pundits recommend the opposite? Flawed metaphors, I think. Most people make a natural comparison between a nation’s budget and a family’s. If a family is sliding into debt, the only remedies are to earn more and spend less. But a nation’s economy is not at all like a family’s. For one thing, within most families, communism prevails: the rule governing money is, From each according to his abilities, to each according to his needs. For better or worse, this doesn’t happen to be the rule governing money in America at large. Also, within most families, money is not exchanged for labor. In a pedagogical, largely symbolic way, Jimmy may be given $2 a week in exchange for taking out the garbage. But the person who cooks and cleans does not clock his hours; the children do not buy their dinners. The exchange of labor and goods within a family is for the most part unmeasured and invisible, and it makes more sense to understand a family as a group of people functioning a single economic agent. If the sort of thing that brings a family from debt to prosperity also helps a nation, it’s logical coincidence. Family and nation are so unlike each other that there’s no reason to expect it to.

The nation-family metaphor is nonetheless powerful. Even though most economists believe that reduced government spending will worsen the current recession, almost all politicians have caved into the “common-sense” idea that a nation in economic trouble ought to reduce its debt, leaving Paul Krugman to cry in the wilderness. The metaphor also drives, I suspect, another popular economic idea with almost no empirical support, namely, the notion that instead of taxing the wealthy, the government should reward them, in hopes that the wealth they accumulate will trickle down to others in the nation. The wealthy have proven that they know how to make a profit, this line of reasoning goes; get out of their way and let them make the economy grow.

The notion appeals, I suspect, because it, too, would make sense if a nation were like a family. In fact it’s excellent economic advice for a family. If Mother is a whizbang software engineer and Father’s just a freelance writer, it doesn’t make economic sense to tax them with household chores equally. Father should change more diapers and wash more dishes, freeing up Mother to devote more energy on coding the latest breakthrough app. (Whether this sort of inequity is good for the marriage bed, as well as for the pocketbook, is a different question. But it’s well understood that marriages are economically more than the sum of their parts only when spouses differentiate in their skills and tasks, rather than splitting all responsibilities identically.) If the richest people in a nation were analogous to the primary breadwinners in a family, and if income taxes were analogous to housekeeping chores, then it would make sense for the nation as a whole to indulge the rich in their profit-making and to believe in the existence of the trickle-down fairy. But neither analogy holds. Mother the software engineer, remember, deposits her paycheck every week in the family’s communal bank account; this bank account feeds her freeloading children, not to mention the dog; Mother may even let Father the freelance writer buy a new laptop that his personal earnings don’t yet justify. By contrast, when a corporate executive is given a break on his capital earnings tax, he is thereby exempted from, say, providing food for fellow Americans who can’t earn enough to feed themselves or investing in the future earning potential of a worker who’s not yet up to speed. Yes, he’s now able to make money faster, but the reason that other family members make sacrifices for Mother the software engineer is that they know she’s going to share her wealth—that her wealth is also theirs. The wealth of the little-taxed corporate executive is only his.

Proponents of trickle-downism will argue that the little-taxed corporate executive will in fact share his wealth by spending it, and that his purchase of goods and services will drive economic growth more efficaciously than mere giveaways would. But it turns out that the executive doesn’t spend more, or not enough more for his increased spending to be helpful to the economy—for the simple reason that he doesn’t need to. In the hands of rich people, money moves slowly. That’s what it means to be rich: you have more money than the cost of all the things you need or want. A poor person, by contrast, needs more than he can afford. The poor therefore spend money faster. If you want to boost a nation’s economic growth, it’s better to give to the poor, not the rich. A dollar given to a poor man multiplies faster, Keynes observed, than a dollar given to a rich man.

Economic inequity has been extremely high in the past decade, much as it was in the 1920s and 1930s. The popular understanding of the Great Depression is that it ended because World War II finally obliged American politicians to forget their prudence, and borrow and spend enormous sums. Supposedly this great deficit expenditure stimulated the American economy, like an adrenaline shot. Maybe. But what if the metaphor of stimulation is wrong too? What if it wasn’t the deficit spending of World War II that stimulated the American economy, but the war’s redistribution of wealth? The war obliged America to employ a literal army of people as soldiers and factory workers, and after the war, America felt obliged to continue to reward the working classes with expanded social services, including free higher education for veterans. The period from World War II to the 1970s turned out to be the greatest era of prosperity America has ever known. Is it a coincidence that it followed a massive, government-run redistribution of wealth, which happened to take the form of a war? When TARP and a fiscal stimulus bill were passed a couple of years ago, I remember thinking to myself, well, if the mainstream economists are right, and the problem with America can be remedied by an injection of deficit spending, then my gloom will be disproved. But if my suspicion is right that the underlying problem is economic inequity, then no stimulating injection, however large, will succeed. The economy will be lackluster until something happens that shifts wealth from the rich to the poor. Such a shift is unlikely in today’s political climate, of course. Political power naturally follows wealth, so the rich, owning as they do a disproportionate share of the nation’s wealth, now also control a disproportionate share of its political decisions. In a catch-22, the inequity undermining the economy makes impossible the political action needed to remedy it.

Why haven’t our current wars had the same effect that World War II did? I don’t know. Maybe we’re not paying our soldiers enough; maybe the military’s heavy investment in technology and equipment has muted war’s impact as a redistributor of wealth. (And maybe, of course, I’m wrong. I don’t have the statistical chops to back up this analysis.)



The robots are here. By now they automate even much of our social lives. You might compare the political challenge they represent to what’s known as the “resource curse”—the infamous difficulty that oil-rich nations have in preserving democracy while sharing the oil’s proceeds. Do we want to be Norway or Saudi Arabia? The choice seems to be between democratic socialism and tyranny. I know my understanding will strike many as implausible, if not unspeakable: I’m saying that the country is suffering economically because it doesn’t know what to do with all its surplus wealth.