You’d be hard-pressed to find a discipline that shapes our world more than economics, and yet none has weaker foundations or more misguided evangelists. The rise of economic guru du jour Adam Davidson, the co-founder of NPR’s “Planet Money” and columnist for the New York Times Magazine, is perhaps one of the most disturbing illustrations of this unfortunate fact.
The Curious Field of Economics
Not too long ago, I asked Nobel Prize laureate Joseph Stiglitz how many economists he'd met who still adhered to the Chicago School free market approach, otherwise known as Neoliberal economics, that was proven to be severely flawed by the recent economic crash.
“About 60 percent,” said Stiglitz.
“Why is that?” I asked.
“For the most simple human reason of all,” Stiglitz told me. “People don’t like to admit that they’re wrong.”
True, that. Economists don’t like to acknowledge that the models they built their careers upon, taught students to believe, wrote papers in support of, published books in homage to -- in short, the models that have driven their careers -- are poppycock. When new information and advances in fields like mathematics or physics have occurred, practitioners have had to do reassessments. Newtonian physics had to be updated, for example, because realities asserted by Albert Einstein led to a reexamination of the science that produced a better, stronger field with greater capacity to predict and describe reality.
But economists are peculiarly slow to come to grips with reality. And what about economic journalists? There is Paul Krugman, the rare serious economist who writes for a broad audience, engaged in the Sisyphean task of pushing back on storm force economic nonsense day after day. Deserving of a Nobel Prize in patience to go along with the one he received in economics, Krugman argues, explains, provides facts, and demystifies mystifications.
And then there are writers like Adam Davidson, who purports to “demystify complicated economic issues” for the public. Mr. Davidson has helpfully gone on record saying that journalists are too reluctant to acknowledge their own ignorance. He has warned of the danger of people believing dangerous and stupid things. Unfortunately, nothing is more conducive to this outcome than Mr. Davidson’s own commentary.
Mr. Davidson possesses gifts as a storyteller -- gifts that make him very dangerous. As an economic observer, he commands an extremely powerful platform. Mr. Davidson wants to make us think that he’s one of us. You know, just a curious guy without formal training in economics who wants to know how things work. But in reality he is what we might call a “One Percent Whisperer”—a salesman for conservative economic philosophy who regurgitates ruinous myths that have led to policies that depress prosperity and chuck justice out the window. Take a quick look at the most recent example of his one percent apologia, “What Does Wall Street Really Do for You?” and you’ll get an idea of where he’s really coming from.
Financial blogger and author Yves Smith (whose Naked Capitalism website is a must-read for the financially-literate) noted that Mr. Davidson’s recent column, "The Other Reason Europe is Going Broke," “manages the impressive feat of making you stupider than before you read it.” She catalogues the misrepresented facts and appeals to American prejudices that form the hallmark of Mr. Davidson’s work. Other experts have similarly sounded the alarm: Economist Dean Baker, co-founder of the Center for Economic and Policy Research, has repeatedly called out Mr. Davidson’s technical distortions and failure to comprehend basic macroeconomic principles on his blog. (See: “Adam Davidson Gets Stimulus Wrong in the NYT”; “You Don’t Have to Save When Your House Does it For You”, etc.)
Back in the day when the boom was booming and business school students looked forward to making a mint on Wall Street or Silicon Valley and retiring by forty, economic journalists got in the habit of giving bogus economic theories the ring of truth by repeating them endlessly. Mr. Davidson got a BA at the University of Chicago, and started out writing about the Middle East for Marketplace before coming on as an economics correspondent for NPR in 2004, where he launched the career that has made him the darling of the mainstream press. As a journalist who cut his teeth in the pre-2008 bubble years, Davidson clings to a Neoliberal worldview without questioning its origin or legitimacy – just at a time when such a thing is precisely needed. His critical ideas and values are provided by the system that has dominated for three decades, and that system’s economic myths celebrate their happy resurrection in his writing.
Workers v. Capitalists
Take Mr. Davidson’s piece on Europe, which purports to demonstrate why certain European countries aren’t competitive because of worker coddling. He compares such countries (Ireland, Italy, Greece, etc) with other European countries (the Scandinavians, etc) and the US, which are presumably prosperous because workers rights have been trampled.
One of the great tragedies of American economic policy has been the idea that it is necessary to constrain workers’ wages and benefits in order for an economy to be “competitive.” For the last thirty years, this philosophy has been pushed by influential bankers, Neoliberal economists, politicians, and economic journalists. Crushing workers is the price we must pay for prosperity, they declare. Sorry, but you’ll just have to suck it up! Tighten your belts! In their world, workers are greedy and lazy and they demand too much from capitalism. The most crass assertions of this philosophy are rampant on Fox News. But a more subtle variety – all the more pernicious for their guise of ‘reasonability’ -- have taken over media that thinking people used to rely on for information, like National Public Radio and the New York Times Magazine.
The flagging performance of productivity and employment in Europe since the 1970s had been a controversial topic in the economic field and has caused thorny difficulties for scholars trying to identify relevant variables and construct models that accurately reflect reality. Through the use of highly questionable methods, Neoliberal economists have presented a view, also known as the “Washington Consensus,” that blames European job loss to product and labor market rigidities, high tax rates on labor, over-generous unemployment compensation and early retirement subsidies.
But researchers have made important advances in comparative economic history that clearly contradict the social-safety-net-hurts-economic-growth narrative and ought to give writers like Mr. Davidson pause. For example, economists Peter Lindert of the University of California, Davis, and Gayle Allard of the Instituto de Empresa of Madrid published a watershed paper, “Euro-Productivity and Euro-Jobs Since the 1960s: Which Institutions Really Mattered?”, in which they demonstrate that many institutions connected to the social safety net have not harmed European growth and jobs. “The welfare state’s tax-based social transfers have not harmed either employment or GDP,” they conclude. “Even unemployment benefits do not have robustly negative effects.” There are problems with the structure of benefits and wages, to be sure, and Lindert and Allard point to a pattern in which senior male workers in Europe have often been protected at the expense of women and youth. But this critique is far from the blanket assertion that high wages and benefits are always bad for economies – their research argues for a more just distribution of benefits, but certainly not a dismantling of the whole protection system. Lindert's prize winning book, "Growing Public: Social Spending and Economic Growth since the Eighteenth Century" (Cambridge, 2004), shows, for example, how high tax systems are very often growth enhancing, because of the beneficial effects of high public investment. One paper he wrote for the National Bureau of Economic Research elegantly summarized his thesis: "Why the welfare state looks like a free lunch."
Davidson’s potted history of European economics gives us a tale in which the US helpfully tossed workers under the bus in the mid-1990s with, as he puts it, “Europe (somewhat nobly) trying to show that an economy can be humane and competitive.” That he deems such a premise worthy of mockery is demonstrated in a little quiz that asks readers to match certain social safety net policies with the countries in which they are practiced:
Working students are still paid on exam days = Italy. (The nerve!)
Workers, 41, and up, get a week of severance for every year worked = Ireland. (Imagine!)
Notice period for layoffs: 0 days = Denmark. (Now we’re talking!)
Despite Mr. Davidson’s contention that high worker wages and benefits lead to decreased growth and productivity, economists who have not been bound by free market fundamentalism have shown repeatedly that regulation, social protections, public investment, and, yes, often, wage increases frequently lead to increased productivity and economic booms. But Mr. Davidson can’t admit this, because to do so would repudiate the Neoliberal worldview he has hopelessly bought into.
He would have to acknowledge that many countries have learned that if you invest in your workforce and social capital, you can do quite well. Take Japan, a country that arose from having nothing to attaining a high technology economy. Countries like Japan learned that by investing in education, for example, workers can become far more productive. To pay students taking exams, like Italy does, far from being a growth-depressing example of worker-coddling, is an investment that helps economies flourish.
Mr. Davidson’s deployment of the jargon of “flexibility” and “competitiveness” is a strong signal that we are dealing with someone with a one percent agenda to “put workers in their place.” His narrative is a first cousin to the GOP line that progressives want to “Europeanize” America and make us less “competitive.” What you will not find in Mr. Davidson’s analysis is the fact that much of Europe’s economic history boils down to a capitalist v. workers story with the political victories too often coming out in favor of…guess who? From the late seventies to 2008, the main causes of European stagnation have not been wages, but high interest rates, maintained by central banks to force the depression of wages and benefits that Mr. Davidson wants in the guise of fighting a non-existent "inflation." Unfortunately, this misguided and inhumane activity restricts demand for goods and services, so economies don't grow. Over time, as economist Karl Aiginger has pointed out, such austerity policies also force cutbacks in social investments and scientific progress, making everything worse.
Mr. Davidson can perform the cheap trick of cherry picking individual pieces of social protection policy and arguing against them in the abstract. But what he fails to admit is that the whole package increases productivity and economic prosperity, thereby creating a better human society. The slow economic growth Mr. Davidson deplores has all too often been the result of employers’ efforts to crush workers. In the 1970s, the US had the problem of stagnation, and companies decided that the best way to confront it was to throw workers overboard and invest abroad -- and use the state's investment to support businesses. Conservatives gained the upper-hand, and wages duly collapsed. The European capitalists wanted to follow their American counterparts, but their direct assault on the social safety net failed. Instead, the capitalists mounted an indirect assault on workers. (See: Joseph Halevi and Peter Kriesler, “Stagnation and Economic Conflict”). In Europe, the central bank held interest rates higher than they should have for long periods in order to increase unemployment, weaken trade unions, and force the rollback of the social safety network. But high interest rates lead to slow growth, which leads to lower tax revenues, more fiscal problems and more social conflicts. Meanwhile business invests outside the country, or doesn't invest at all. You end up with macroeconomic austerity, big fights over taxes and lower rates of public investment, which gradually ruin economies.
Mr. Davidson cites the Scandinavian countries as examples of how things ought to work. But he will not admit that the Social Democratic Scandinavian models are very old, dating back, in Sweden’s case, to the 1930s. Workers and unions have been much stronger in Scandinavia than in the rest of Europe or in the US, and because of their political history and climate, workers could trust the system not to screw them. Workers in the US and the rest of Europe, on the other hand, have often experienced horrible class warfare in which the balance of power tilted away from labor. The 99 percent grew to mistrust and outrageous behavior of one percent, for good reason.
You Can’t Fool Most of the People All of the Time
You could read through a number of academic papers and books to be able to see through Mr. Davidson’s distortions. But what if you don’t have the time or the technical expertise? How do you distinguish between good and bad economic thinking? True or false? Harmful or dangerous?
Pundits and professionals want to make economics look hopelessly difficult. But the truth is that ordinary citizens are fully capable of making appropriate economic critiques. It doesn’t take any special training to intuit that pushing workers to the brink of despair can’t be good for a prosperous and harmonious society. And yet that is what Mr. Davidson cheerfully asks us to believe.
Mr. Davidson betrays a consistent cultural and sociological orientation in which the 99 percent, for our own good, must be subjugated to the one percent. He is a symptom – the warning side that we are forgetting the value of our own culture and institutions. We are forgetting that any discussion of economics must serve our interest in creating a good society. And that is not a society by, for, and of the one percent. Mr. Davidson is on the wrong side of history, the wrong side of the economic debate, the wrong side of the 99/one percent divide, and, far too often, on the wrong side of the truth. But he may find that the rest of us just aren’t buying it anymore. We know both in our heads and in our hearts that his philosophy is truly alien to a just and prosperous society.
Crossposted from AlterNet.