Our economy is a group project
An excerpt from 'How Are You Going to Pay for That?: Smart Answers to the Dumbest Question in Politics'
Advertisements often provide instructive lessons in economic conventional wisdom. Pay attention to ads on television, bus stops, or YouTube, and eventually you will see one for a savings scold business.
These are the banks, financial services companies, and lifestyle coaches that make their living advertising strategies to save more money, often by hectoring people for not saving enough. They come in various flavors — Suze Orman, who caters to middle-aged women (she has appeared on Oprah many times) promises that you can "be the master of your own financial destiny" with her financial advice products. Dave Ramsey, who is more for conservative Christians, offers a "Financial Peace University" that you can sample with a 14-day free trial. A man calling himself "Mr. Money Mustache," who is more crunchy and environmentalist in affect, promises early retirement through something called "badassity." In practical terms, this means saving about 50 percent of one's income.
Savings scolds promise people can improve their financial lot by being frugal and investing wisely. It is therefore an individualist creed that tends to implicitly blame people for financial misfortune. If you are poor, or in debt — well, you should have made better decisions!
The coronavirus pandemic provided an interesting test case of what would happen if the whole population actually followed the savings scold advice all at once. In early March 2020, gripped by fear, the American populace abruptly stopped going to restaurants, movie theaters, gyms, and other public locations — which were closed by most state governments quickly afterwards, anyhow. Professional sports seasons were canceled. Airline travel plummeted by 96 percent. All that meant the savings rate shot up to its highest rate ever recorded — from 7.6 percent in January 2020 to 33.7 percent in April.
What happened as a result? A nearly instantaneous economic depression. New unemployment claims jumped from 282,000 to 6.9 million in two weeks, and the unemployment rate jumped from 3.5 percent to 14.8 percent. The first quarter of 2020 saw gross domestic product (GDP) shrink by 1.7 percent in absolute terms, and declined further in the second quarter by a whopping 9.5 percent — probably the greatest single-quarter shrinkage in American history.
Why did this happen? Because income and savings do not exist in a vacuum — on the contrary, they depend on each other. When I spend money, I provide income for somebody else, and conversely my income must ultimately come from somebody else spending. If all people drastically cut back on our spending at the same time, the economy just grinds to a halt.
It was an object lesson in both the impossibility of the broad population actually following the advice of the savings scolds, and also the fact of economic interdependence. One person might be able to accumulate a vast hoard of assets and retire at 30 by living a life of extreme frugality (if he is lucky and has a good-paying job), but because about two-thirds of the economy consists of consumer spending, the people as a whole cannot.
Indeed, though the basic pitch of the scolds is about saving for retirement, none of the people mentioned above are actually retired themselves. Orman and Ramsey are running veritable advice empires, and while Mr. Mustache quit his job in software, according to a New Yorker profile, he makes $400,000 per year from affiliate links on his website.
It all illustrates that, contrary to the conventional wisdom that people's economic outcomes are the result of their own skill and effort, the whole American economic machine is a huge collective enterprise wholly dependent on government laws, regulation, and spending, as well as the daily activities of the entire American people and their prior economic history. Without the government, or without the broader population of people building, selling, working, and spending every day, there would be no money, no paychecks, and no economy.
Consider property rights, which are enforced by various levels of federal, state, and local government. Most understand that one role of the police and courts is to protect people from theft or trespass. But few take this to its clear logical conclusion — that access to the state's violent authority is what it means to own something.
People tend to think of property as a relationship between a person and an object: This is my house, my car, etc. But property really is a relationship between people. Property is a legal construct whereby if someone takes or accesses that property without the legal owner's permission, they can call the cops or sue to force that person to stop. You own something if the state says you do.
Even leaving aside the state, there are still further aspects of collective economics — even the purest market institutions are still inescapably collective, in a way that goes beyond moderate liberals' recognition of economic interdependence. For instance, during his 2012 re-election campaign, then-President Barack Obama referenced the fact that private businesses depend on public infrastructure like roads and bridges:
If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you've got a business — you didn't build that. Somebody else made that happen.
Republicans pulled the "you didn't build that" line out of context to make it seem as though Obama was referring solely to private businesses, as if entrepreneurs had literally nothing to do with the businesses they start. They made this ridiculous lie the central slogan of the 2012 Republican National Convention.
But while Obama wasn't saying this, it is actually true that even the market activities of private businesses are inescapably dependent on the rest of society. Even if we set aside the whole state firmament of laws, regulations, and so forth, entrepreneurs did not build most of what makes their businesses succeed.
First, every private business must have a population of potential customers with money in their pockets — and for any modern business of any size, that population must be large. A mass consumer base providing a market for mass-produced goods is what makes any developed economy function. Without a class of people with hundreds of dollars to spend on gadgets, there would be no Apple or Microsoft. (As we'll see below, of course governments have historically done a great deal to create middle classes, but we're just considering here the market function of their spending.)
Second, the overall productivity of the economy, and hence the income of the public and entrepreneurs, is almost entirely due to the historical legacy of past growth. It has taken well over two centuries of consistent advances in economic production to pile up the total of $65,223 per person per year (as of 2019). Each generation might advance the ball forward a bit, but almost all of why Americans enjoy their current level of income is due to the work of past generations.
In turn, that production, as well as the ongoing innovations in private firms, depend on a vast collection of knowledge — fundamental science and mathematics, manufacturing, management, advertising techniques, and so on — that was discovered at tremendous effort by people in the past, almost all of them dead. Consider physics: Without the brilliant work of people like Michael Faraday and James Clerk Maxwell there would be no electricity and no computer technology. Without people like Marie Curie and Niels Bohr there would be no nuclear energy. Without Albert Einstein's work there would be no GPS and no lasers.
Indeed, even by pointing out these famous geniuses I am presenting a somewhat skewed view of how scientific discovery happens. Science is also very much a collective enterprise, where students get their start by studying the theories and discoveries of people in the past (or "standing on the shoulders of giants," as the saying goes), and practicing researchers almost always work together in groups, some of them very large. Anyone who has ever tried to solve a tricky problem knows how helpful an informed collaborator can be — providing critiques of one's ideas, or suggestions for improvements, or different ideas altogether which one might then critique in turn.
The collective nature of science can be seen even with people who are working completely apart from one another. Historians of science have demonstrated that most pioneering scientific breakthroughs are "co-discovered" by different people or groups working independently. Charles Darwin and Alfred Russell Wallace developed the concept of evolution at about the same time. Issac Newton and Gottfried Leibniz did the same with calculus, as did Joseph Priestly and Carl Wilhelm Scheele with the discovery of oxygen. It appears achievement sort of pulses through the whole scientific community, and Nobel Prize-winning papers are more often the vectors by which collective discoveries break out than they are the product of heroic geniuses studying on their own.
Now, individual effort, talent, and initiative are of course very important in science, and pioneering discoveries are certainly worthy of the highest praise. But every sensible scientist knows that they are only a small part of a vast collaborative machine stretching back thousands of years.
What is true of pure science is even more true of entrepreneurs. Competition is the engine that makes the whole capitalist system go — businessmen are constantly watching their competitors and attempting to borrow, copy, or improve their products. The American steel industry, for instance, was kicked off by a man who licensed technology from British inventor Samuel Bessemer.
But if licensing ideas or patents is unfeasible or too expensive, entrepreneurs will often just take the ideas outright. In the early 18th century, a British entrepreneur named John Lombe learned how to build a silk spinner by getting a job in an Italian silk factory under a false pretext — thus providing some of the technical know-how that seeded British textile mass production in the Industrial Revolution. (German and American companies later stole the same information from the United Kingdom.)
Steve Jobs stole the idea of the graphical user interface (the method by which practically every computer today is operated) from a technical demonstration at Xerox. "I thought it was the best thing I had ever seen in my life," he later said in an interview. "The germ of the idea was there and they had done it very well."
Finally, workplaces themselves have an inherently collective nature. All depend on shared knowledge and relationships to work — anyone who has worked at a new job knows that it takes some time to understand the peculiarities of each business's systems and procedures, who to ask for help when things aren't working, and so on. Some of these procedures are designed by entrepreneurs, but they are equally often informally set up between workers on the ground.
So let me return to the state, which carries out dozens of important functions in addition to the bedrock of the legal system. Money itself is quite literally created by the U.S. government, and its value is managed by a government agency — the Federal Reserve (or Fed for short).
Corporations are also a state creation: They are chartered by state governments, and get special protections from legal liability. Stock and commodity markets are elaborately regulated by the government to prevent fraud and preserve the integrity of the market. Labor contracts are similarly enforced by government courts.
The state educates future workers, too — in the United States, some 90 percent of children go to public primary and secondary school (and in other countries it is 100 percent). About three-quarters of post-secondary American students go to public colleges or universities.
All modern states dedicate substantial resources to protecting the quality and purity of food and medicine, ensuring the safety of transportation, delivering mail and packages, building basic infrastructure like roads, bridges, trains, airports, public transit systems, and so on, along with dozens of other functions which are vital to the daily business of commerce.
In short, the whole economic edifice of business, profits, workers, and so on rests on the state's structural foundation. This means that the common neoliberal objective of "deregulation" is all but impossible. All such policies amount to redefining the state's role in the economy, not reducing it — indeed, the side effects of such policies often cause problems that require much more blatant and coercive state action. Financial deregulation in the late 90s and early 2000s, for instance, helped cause the 2008 banking crisis, which forced the state to take emergency measures to keep the banking system from collapsing — including straight-up nationalizing the world's largest insurance company, AIG.
All human beings who have ever lived were born into an inescapable network of dependency.
We live because our mothers construct our infant bodies inside themselves and give birth to us, at considerable personal risk, and then our parents nurture us for years afterwards. We learn to speak languages that evolved over centuries. We are educated by other members of the community, who almost never have developed the concepts they inculcate. Virtually all of us go to work at companies we did not create, and whose success is very largely due to background conditions nobody involved with the firm had anything to do with. Collective economics is simply a fact of human existence, and always has been.
All this leads to a general conclusion: Economic production is an inescapably collective activity.
As done in the United States today, it requires workers, businesses, the government, inventors and scientists, and especially a past history of economic growth and technological achievement. It is not possible to try to break down which share of output is created by each part of the system, because without any one of them there would be no production. Without natural resources there would could be no factories or businesses, but without workers the factories and services would not function. And without the state the whole thing could not even get off the ground in the first place.
There are innumerable ways in which the government can shape the economy: taxation, the welfare state, regulation of business behavior, monetary policy, industrial policy, and on and on. Sensible economic policy therefore starts with a moral ideology — a vision of a just society — and then arranges economic institutions that can achieve it. I am partial to the arguments of Amartya Sen and Martha Nussbaum, who has constructed an elaborate "capability approach" that values every person's well-being as defined by their capability to achieve what they have reason to value. By this view, economic and social institutions should be constructed such that all people have the resources and education to live a full, satisfying life.
Philosopher John Rawls has a similar system, imagining a social contract set up behind a "veil of ignorance." Roughly speaking, the idea is that if one had no idea where would land in an income distribution, one would logically construct a society which was as equal as possible, so long as that equality didn't interfere too much with the overall wealth of society.
However, one could equally well substitute the teachings of Jesus Christ, who said that those who care for the worst-off people in society (prisoners, the hungry, the poor, or immigrants) not only will be sent to heaven, but in doing so are caring for Christ himself: "Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me." Or one could follow the good old Declaration of Independence: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."
But you don't have to be a political philosopher or a theologian to work out a basic moral framework. Ultimately a rough-and-ready egalitarianism is sufficient for almost all political purposes.
A brief glance at American politics and institutions proves beyond any question that the current system is grossly unfair and dysfunctional. The current American elite do not deserve in any way to rule the people, and there is every reason to overhaul our society to make it drastically more equal, and to tackle the numerous problems besetting American society on all sides, above all climate change.
That is the principal political task of the 21st century.
Excerpted from How Are You Going to Pay for That?: Smart Answers to the Dumbest Question in Politics by Ryan Cooper. Copyright (c) 2021 by the author and reprinted by permission of St. Martin's Publishing Group.