September 17, 2019

The dirty secret of Capitalism: Capitalists have NO idea how Capitalism works

Comment on Nick Hanauer on ‘The dirty secret of capitalism ― and a new way forward’*

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Tom Hickey summarizes: “Nick Hanauer says the mainstream economists have been captured by the oligarchs. He says how the evidence shows that a pure free market suppresses wages and employment so much that the demand falls off and a viscous circle sets in ― a lack of demand means underperforming companies, which means companies employ less people and pay them less, which generally decreases the demand for goods and services, and so on. Everyone loses, except the 0.1%, the oligarchs.”

Nick Hanauer introduces himself as a successful Capitalist and asks: “How do we manage to grab an ever-increasing share of the economic pie every year?” and “So, what is society to do?” His answer is “We need a new economics” because it is painfully obvious that “The fundamental assumptions that undergird neoliberal economic theory are just objectively false.” The apex of neoliberal falsity is the behavioral assumption of homo oeconomicus. However, the key to a prosperous, complex, and sustainable economy is cooperative behavior. The selfish and greedy behavior of homo oeconomicus is not good but sociopathic.#1

This is, of course, commonsensically true except that it is NOT economics. Economics is NOT about human behavior but about the behavior of the economic system. Human Nature/motives/behavior/action is the subject matter of psychology, sociology, anthropology, biology/evolution etcetera. The lethal blunder of economics is that it defines itself for 200+ years as a social science.#2, #3, #4

The methodological fact of the matter is: NO way leads from the second-guessing of Human Nature/motives/behavior/action to the understanding of how the economic system works. Behavioral microfoundations are the ultimate reason why economics is to this day proto-scientific garbage.

Nick Hanauer asserts: “Unless the laws of physics, the laws of economics are a choice. If we want a new economics all we have to do is chose to have it.” This, of course, is plain scientific incompetence. Profit for the economy as a whole, for example, does NOT depend on whether the one-percenters are sociopathic exploiters or cooperative and emphatic leaders.#5

The macroeconomic 4-sector Profit Law is objectively given by Q≡Yd+(I−S)+(G−T)+(X−M). In the moselementary case of the production-consumption economy, this reduces to Q≡−S, i.e. the mirror image of household sector saving S is business sector loss (−Q). The mirror image of household sector dissaving (−S) is business sector profit (+Q). The point to grasp is that profit for the business sector as a whole depends on the deficit spending of the household sector and NOT on the behavior or achievements of Capitalists. With regard to the state, the Profit Law boils down to Q=(G−T), i.e. Public Deficit = Private Profit. And this explains why Capitalists were able “to grab an ever-increasing share of the economic pie every year.”

Public deficit-spending/money-creation is a free lunch program for the Oligarchy. The fact is that the so-called free-market economy is on the life support of the state, and Wall Street is on the life support of the Central Bank. Macroeconomic profit is in the main produced by public deficits. Financial wealth grows in lockstep with public debt. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the state’s legislative, executive, and judiciary institutions.

Nick Hanauer is NOT a scientist but an agenda pusher for the Oligarchy like the rest of self-styled New Economic Thinkers.#6 What he tells the TED audience is that Neoliberalism is dead and that he and other enlightened Capitalists are working for a better social and economic order. The fact is that he has NO idea what profit is and how the economy works.

Egmont Kakarot-Handtke


* TED
#1 Actually, this is rather old stuff “No science has been criticized by its own servants as openly and constantly as economics. The motives of dissatisfaction are many, but the most important pertains to the fiction of homo oeconomicus.” (Georgescu-Roegen, 1971)
#2 Economics is NOT about Human Nature but the economic system
#3 Overreach: Economists have their fingers in every pie except real economics
#4 The happy end of the social science delusion
#5 Capitalism, poverty, exploitation, and cross-over exploitation
#6 CORE: more lipstick on the dead economics pig


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