01/08/2013 02:52 pm ET Updated Mar 10, 2013

Why Does Medieval Economic Thought Still Prevail?

The recent 'fiscal cliff' crisis and upcoming sequester/debt ceiling debate tells us that medieval economic thinking still prevails among some in Washington. And it is such thinking that continues to endanger our economic recovery. In fact, little seemed to have changed since Medieval times, when wealth was divinely protected.

Nobel laureate Paul Krugman's most recent op-ed plea for common sense thinking in solving the ongoing economic crisis is a plea that he has repeated at least since his 2004 book, The Great Unraveling, when he first exposed conservatives' repeated attempts to roll back Roosevelt's New Deal:

"It's tempting to argue that the economic failures of recent years prove that economists don't have the answers. But the truth is actually worse: in reality, standard economics offered good answers, but political leaders -- and all too many economists -- chose to forget or ignore what they should have known."

What does he mean? In earliest historical times, monarchies wore the mantle of God's representative on earth, and since all property belonged to them, it was divinely protected. Its people also belonged to these rulers, who were in effect their serfs.

But with the industrial revolution and growth of democracies, the wealthiest families formed oligarchies, where a small number of the wealthiest property holders controlled their governments. And Adam Smith, the Scottish philosophy professor, became the protector of their wealth with his theories of free enterprise.

This did little to protect its citizens who became workers in their factories. That is, these owners of industry adopted his philosophy of little government, lower taxes and regulations. The problem, however, was Adam Smith thought an 'invisible hand' of enlightened self-interest would replace governments in insuring that a certain amount of their wealth would benefit workers.

And modern Republicans seem not to have evolved any further than Adam Smith. They and their supporting economists -- so-called laissez faire, free market economists -- continue to maintain that the self-interested behavior of these Oligarchs should continue to rule. That is, with little or no government regulating their behavior, an 'invisible hand' should protect their wealth, as in earlier times. The rights of private property owners would trump those of publicly-owned property and interests, in other words.

It wasn't until the New Deal put curbs on big business interests that our post WWII economy boomed, by spreading the wealth generated more equitably. That is until the 1970s, when Big Business began its comeback by organizing into more powerful monopolies, and using their power to roll back workers' collective bargaining power. The result was the creation of a modern American oligarchy, made up of the 1-2 percent of income earners who have garnered most of the wealth created since then.

As Krugman said, most economists should know this. Economic theories have evolved far beyond Adam Smith's day. Such ancient ideas of 'trickle down' wealth ownership are holding back modern economic growth, so much so that they now literally endanger our economic well-being. The five recessions since 1980 -- all during Republican administrations that attempted to weaken government's legitimacy -- are historical proof that a more equitable wealth distribution is the only way to the greater economic prosperity of any country.

For instance, we have known at least since the Great Depression that there is no robust economy unless household incomes are growing. But that hasn't happened for the majority of Americans since the 1970s, except for a small period in the late 1990s. Hence the slowing of economic growth since then.

And Republicans continue to impede a more equitable distribution of wealth, by blocking a return to the more progressive taxation that prevailed after World War II, as well as needed government protections of public services and the environment used by all Americans. That is why we can no longer afford to allow self-interest to be the only motivator of wealth creation; if for no other reason than wealth creation is a communal effort based on laws and regulations that apply to all. Enshrining self-interest as the sole generator of wealth has enabled the wealthiest to keep 'their' wealth, via the divine protection of an 'invisible hand.'