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  • Economics for the 99%: Mainstream economics on budget cuts: dumb and dumber

    John Weeks

    There is nothing so reactionary that most mainstream economists will not fervently advocate it. [cartoon from google images]

    If you read The New York Times - not that I recommend it - you might have encountered an article by Eduardo Porter in which he provides a quotation from a well-known Harvard economist, Gregory Mankiw,* justifying budget cuts (NYT, 22 May 2013):

    If the goal of government is to express the collective will of the citizenry, shouldn’t it follow the lead of those it represents by tightening its own belt?

    If we as individual citizens are feeling poorer and cutting back on our spending, why should our elected representatives in effect reverse these private decisions by increasing spending and going into debt on our behalf?

    In my forthcoming book I point out that there is no policy position so reactionary and anti-social that it will not be championed by a very large number of mainstream economists.**  I should have added, "or so dumb".  This quotation, presented as the Trump Card of austerians, plumbs the depths of economic illiteracy and stupidity.  Over a year ago a regular columnist of the usually progressive London newspaper, The Guardian, took a similar position, which shows the "special relationship" between Britain and the United States includes a shared economic ignorance.

    The term "collective will of the citizenry" is a singularly strange phrase for any right-wing economist to use, given their ultra-individualist ideology.  But, for sake of argument I accept the counter-factual that the US government might under some remote circumstance seek "to express the collective will", and proceed to inspect this straight-from-Harvard gibberish.

    First, the question posed in the quotation is nonsense.  It implies that "feeling poorer and cutting back on our spending" is a "private decision".  No, Professor Mankiw, "feeling poor" does not come from a "private decision".  "Feeling poor" in America today is the direct result of an increase in unemployment in the 2000s of over eight million workers and stagnant or falling real wages that result from the glut of unemployed labor.  No individual or household made the decision to kick millions off private payrolls.  This resulted from the corruption and irrationality of financial speculation which some of your colleagues seem to endorse (see the interview with another Harvardite, Glenn Hubbard, in the film "Inside Job").

    Second, if this self-styled pundit thinks that "our elected representatives" go "into debt on our behalf", he must also believe they do this by "spending more in our behalf".  When "individual citizens are feeling poorer and cutting back on spending", it seems sensible that our representatives should do what we cannot, increase overall demand to stimulate an economic recovery.  The answer is "yes", our elected representatives should go into debt on our behalf in order to spend on our behalf, thus creating more jobs on our behalf, so that we no longer are poorer.

    Third, it is not the "collective will of the citizenry" to "tighten belts" or any other item of clothing.  Far from tightening its belt, the avaricious 1% currently enjoys rising income and wealth, at the expense of the 99%.  I doubt whether a "collective will" over economic issues can arise in any capitalist system, but the suggestion is absurd in the United States at the beginning of the 21st century.  Almost all "our elected representatives" hold office thanks to the largess of the 1%, and the policies they pursue demonstrate their electoral base in the hyper-rich elite.

    To put the matter simply, the richest Americans caused the financial collapse of 2008 and they did not suffer.  The 99% took the hit, burgeoning unemployment, falling wages and mortgage foreclosures.  Were Mankiw interested in why the vast majority of American households "feel poorer", which I doubt he is, he might inspect a few easily available statistics.  I report the immediately relevant ones in the chart below, which shows how workers prevent "feeling poorer".  From the mid-1960s through the early 1970s, average weekly earnings of all employed people rose almost continuously.  This corresponded to an increasing number of strike days (with a bit of a time lag).  During those ten years, the share of employees in trade unions was almost constant at a bit over 20 percent.

    Then, the decline set in.  Earnings fell below their long term average from 1980 onwards, which coincided with a decline in union membership and falling strike action.  The collapse of strikes has been extraordinary, from 53 million strike days in 1970 to barely 300 thousand in 2010.  The apparent recovery of average earnings, which include the mega-salaries of managers, towards its long run average results from growing wage inequality, not improvement for the vast majority of workers.

    Union density, weekly private earnings and strike days, 1964-2010

    (percentage difference from the averages for the 47 years)

    Each line is the year's value minus the average for all years as a percentage of the average. For example, weekly earnings equaled their average for all years in 1980. Earnings are measured in prices of 1982-84. Economic Report of the President 2012 & Bureau of Labor Statistics, US Department of Labor.

    Professor Mankiw could have seen the chart in real time by looking out his office window in November 2011, when the university janitors went out on strike in reaction to the university's refusal to negotiate in good faith for a new contract.  I suspect that the professor was not among the students and staff that camped out in Harvard Yard in support of the strikers.

    ______________________

    *Among his lesser crimes against humanity Mankiw wrote a gawd-awful economics textbook, guaranteed to leave the student dumber at the end of the long slog through the tedious chapters.  He served as Chairman of the Council of Economic Advisors under George W Bush and advised Mitt Romney.

    **The Economics of the 1%: How mainstream economics serves the rich, obscures reality and distorts policy (Anthem Press, forthcoming this year).


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