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← The dirty secret of capitalism -- and a new way forward

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Showing Revision 12 created 09/13/2019 by Oliver Friedman.

  1. I am a capitalist,
  2. and after a 30-year career in capitalism
  3. spanning three dozen companies,
  4. generating tens of billions
    of dollars in market value,
  5. I'm not just in the top one percent,
    I'm in the top .01 percent of all earners.
  6. Today, I have come
    to share the secrets of our success,
  7. because rich capitalists like me
    have never been richer.
  8. So the question is, how do we do it?
  9. How do we manage to grab
  10. an ever-increasing share
    of the economic pie every year?
  11. Is it that rich people are smarter
    than we were 30 years ago?
  12. Is it that we're working harder
    than we once did?
  13. Are we taller, better looking?
  14. Sadly, no.

  15. It all comes down to just one thing:
  16. economics.
  17. Because, here's the dirty secret.
  18. There was a time
    in which the economics profession
  19. worked in the public interest,
  20. but in the neoliberal era,
  21. today,
  22. they work only for big corporations
  23. and billionaires,
  24. and that is creating
    a little bit of a problem.
  25. We could choose to enact economic policies
  26. that raise taxes on the rich,
  27. regulate powerful corporations
    or raise wages for workers.
  28. We have done it before.
  29. But neoliberal economists would warn
  30. that all of these policies
    would be a terrible mistake,
  31. because raising taxes
    always kills economic growth,
  32. and any form of government regulation
  33. is inefficient,
  34. and raising wages always kills jobs.
  35. Well, as a consequence of that thinking,
  36. over the last 30 years, in the USA alone,
  37. the top one percent has grown
    21 trillion dollars richer
  38. while the bottom 50 percent
    have grown 900 billion dollars poorer,
  39. a pattern of widening inequality
    that has largely repeated itself
  40. across the world.
  41. And yet, as middle class families
    struggle to get by
  42. on wages that have not budged
    in about 40 years,
  43. neoliberal economists continue to warn
    that the only reasonable response
  44. to the painful dislocations
    of austerity and globalization
  45. is even more austerity and globalization.
  46. So, what is a society to do?

  47. Well, it's super clear to me
    what we need to do.
  48. We need a new economics.
  49. So, economics has been described
    as the dismal science,
  50. and for good reason,
    because as much as it is taught today,
  51. it isn't a science at all,
  52. in spite of all
    of the dazzling mathematics.
  53. In fact, a growing number
    of academics and practitioners
  54. have concluded that neoliberal
    economic theory is dangerously wrong
  55. and that today's growing crises
    of rising inequality
  56. and growing political instability
  57. are the direct result
    of decades of bad economic theory.
  58. What we now know is that the economics
    that made me so rich isn't just wrong,
  59. it's backwards,
  60. because it turns out
  61. it isn't capital
    that creates economic growth,
  62. it's people;
  63. and it isn't self-interest
    that promotes the public good,
  64. it's reciprocity;
  65. and it isn't competition
    that produces our prosperity,
  66. it's cooperation.
  67. What we can now see is that an economics
    that is neither just nor inclusive
  68. can never sustain the high levels
    of social cooperation
  69. necessary to enable
    a modern society to thrive.
  70. So where did we go wrong?

  71. Well, it turns out
    that it's become painfully obvious
  72. that the fundamental assumptions
    that undergird neoliberal economic theory
  73. are just objectively false,
  74. and so today first I want to take you
    through some of those mistaken assumptions
  75. and then after describe where the science
    suggests prosperity actually comes from.
  76. So, neoliberal economic
    assumption number one is

  77. that the market is
    an efficient equilibrium system,
  78. which basically means that if one thing
    in the economy, like wages, goes up,
  79. another thing in the economy,
    like jobs, must go down.
  80. So for example, in Seattle, where I live,
  81. when in 2014 we passed
    our nation's first 15 dollar minimum wage,
  82. the neoliberals freaked out
    over their precious equilibrium.
  83. "If you raise the price
    of labor," they warned,
  84. "businesses will purchase less of it.
  85. Thousands of low-wage workers
    will lose their jobs.
  86. The restaurants will close."
  87. Except ...
  88. they didn't.
  89. The unemployment rate fell dramatically.
  90. The restaurant business in Seattle boomed.
  91. Why?
  92. Because there is no equilibrium.
  93. Because raising wages
    doesn't kill jobs, it creates them;
  94. because, for instance,
  95. when restaurant owners are suddenly
    required to pay restaurant workers enough
  96. so that now even they
    can afford to eat in restaurants,
  97. it doesn't shrink the restaurant business,
  98. it grows it, obviously.
  99. (Applause)

  100. Thank you.

  101. The second assumption is

  102. that the price of something
    is always equal to its value,
  103. which basically means
    that if you earn 50,000 dollars a year
  104. and I earn 50 million dollars a year,
  105. that's because I produce
    a thousand times as much value as you.
  106. Now,
  107. it will not surprise you to learn
  108. that this is a very comforting assumption
  109. if you're a CEO paying yourself
    50 million dollars a year
  110. but paying your workers poverty wages.
  111. But please, take it from somebody
    who has run dozens of businesses:
  112. this is nonsense.
  113. People are not paid what they are worth.
  114. They are paid what they have
    the power to negotiate,
  115. and wages' falling share of GDP
  116. is not because workers
    have become less productive
  117. but because employers
    have become more powerful.
  118. And --
  119. (Applause)

  120. And by pretending that the giant imbalance
    in power between capital and labor

  121. doesn't exist,
  122. neoliberal economic theory
    became essentially
  123. a protection racket for the rich.
  124. The third assumption,
    and by far the most pernicious,

  125. is a behavioral model
  126. that describes human beings
    as something called "homo economicus,"
  127. which basically means
    that we are all perfectly selfish,
  128. perfectly rational
    and relentlessly self-maximizing.
  129. But just ask yourselves,
  130. is it plausible that every single time
    for your entire life,
  131. when you did something
    nice for somebody else,
  132. all you were doing
    was maximizing your own utility?
  133. Is it plausible that when a soldier jumps
    on a grenade to defend fellow soldiers,
  134. they're just promoting
    their narrow self-interest?
  135. If you think that's nuts,
  136. contrary to any reasonable
    moral intuition,
  137. that's because it is
  138. and, according to the latest science,
  139. not true.
  140. But it is this behavioral model
  141. which is at the cold, cruel heart
    of neoliberal economics,
  142. and it is as morally corrosive
  143. as it is scientifically wrong
  144. because, if we accept at face value
  145. that humans are fundamentally selfish,
  146. and then we look around the world
  147. at all of the unambiguous
    prosperity in it,
  148. then it follows logically,
  149. then it must be true by definition,
  150. that billions of individual
    acts of selfishness
  151. magically transubstantiate
    into prosperity and the common good.
  152. If we humans are merely
    selfish maximizers,
  153. then selfishness
    is the cause of our prosperity.
  154. Under this economic logic,
  155. greed is good,
  156. widening inequality is efficient,
  157. and the only purpose of the corporation
  158. can be to enrich shareholders,
  159. because to do otherwise
    would be to slow economic growth
  160. and harm the economy overall.
  161. And it is this gospel of selfishness
  162. which forms the ideological cornerstone
    of neoliberal economics,
  163. a way of thinking
    which has produced economic policies
  164. which have enabled me and my rich buddies
    in the top one percent
  165. to grab virtually all of the benefits
    of growth over the last 40 years.
  166. But,

  167. if instead
  168. we accept the latest empirical research,
  169. real science, which correctly
    describes human beings
  170. as highly cooperative,
  171. reciprocal
  172. and intuitively moral creatures,
  173. then it follows logically
  174. that it must be cooperation
  175. and not selfishness
  176. that is the cause of our prosperity,
  177. and it isn't our self-interest
  178. but rather our inherent reciprocity
  179. that is humanity's economic superpower.
  180. So at the heart of this new economics

  181. is a story about ourselves that grants us
    permission to be our best selves,
  182. and, unlike the old economics,
  183. this is a story that is virtuous
  184. and also has the virtue of being true.
  185. Now,

  186. I want to emphasize
    that this new economics
  187. is not something I have personally
    imagined or invented.
  188. Its theories and models
    are being developed and refined
  189. in universities around the world
  190. building on some of the best
    new research in economics,
  191. complexity theory, evolutionary theory,
  192. psychology, anthropology
    and other disciplines.
  193. And although this new economics
    does not yet have its own textbook
  194. or even a commonly agreed upon name,
  195. in broad strokes
  196. its explanation of where prosperity
    comes from goes something like this.
  197. So, market capitalism
    is an evolutionary system

  198. in which prosperity emerges
  199. through a positive feedback loop
  200. between increasing amounts of innovation
    and increasing amounts of consumer demand.
  201. Innovation is the process
    by which we solve human problems,
  202. consumer demand is the mechanism
    through which the market selects
  203. for useful innovations,
  204. and as we solve more problems,
    we become more prosperous.
  205. But as we become more prosperous,
  206. our problems and solutions
  207. become more complex,
  208. and this increasing technical complexity
  209. requires ever higher levels
    of social and economic cooperation
  210. in order to produce
    the more highly specialized products
  211. that define a modern economy.
  212. Now, the old economics
    is correct, of course,

  213. that competition plays a crucial role
    in how markets work,
  214. but what it fails to see
  215. is that it is largely a competition
    between highly cooperative groups --
  216. competition between firms,
    competition between networks of firms,
  217. competition between nations --
  218. and anyone who has ever run
    a successful business knows
  219. that building a cooperative team
    by including the talents of everyone
  220. is almost always a better strategy
    than just a bunch of selfish jerks.
  221. So how do we leave neoliberalism behind

  222. and build a more sustainable,
    more prosperous
  223. and more equitable society?
  224. The new economics suggests
    just five rules of thumb.
  225. First is that successful economies
    are not jungles, they're gardens,

  226. which is to say that markets,
  227. like gardens, must be tended,
  228. that the market is the greatest
    social technology ever invented
  229. for solving human problems,
  230. but unconstrained by social norms
    or democratic regulation,
  231. markets inevitably create
    more problems than they solve.
  232. Climate change,
  233. the great financial crisis of 2008
  234. are two easy examples.
  235. The second rule is

  236. that inclusion creates economic growth.
  237. So the neoliberal idea
  238. that inclusion is this fancy luxury
  239. to be afforded if and when we have growth
    is both wrong and backwards.
  240. The economy is people.
  241. Including more people in more ways
  242. is what causes economic growth
    in market economies.
  243. The third principle

  244. is the purpose of the corporation
    is not merely to enrich shareholders.
  245. The greatest grift
    in contemporary economic life
  246. is the neoliberal idea that
    the only purpose of the corporation
  247. and the only responsibility of executives
  248. is to enrich themselves and shareholders.
  249. The new economics must and can insist
  250. that the purpose of the corporation
  251. is to improve the welfare
    of all stakeholders:
  252. customers, workers,
  253. community and shareholders alike.
  254. Rule four:

  255. greed is not good.
  256. Being rapacious
    doesn't make you a capitalist,
  257. it makes you a sociopath.
  258. (Laughter)

  259. (Applause)

  260. And in an economy as dependent
    upon cooperation at scale as ours,

  261. sociopathy is as bad for business
    as it is for society.
  262. And fifth and finally,

  263. unlike the laws of physics,
  264. the laws of economics are a choice.
  265. Now, neoliberal economic theory
  266. has sold itself to you
    as unchangeable natural law,
  267. when in fact it's social norms
    and constructed narratives
  268. based on pseudoscience.
  269. If we truly want a more equitable,
  270. more prosperous
    and more sustainable economy,
  271. if we want high-functioning democracies
  272. and civil society,
  273. we must have a new economics.
  274. And here's the good news:

  275. if we want a new economics,
  276. all we have to do is choose to have it.
  277. Thank you.

  278. (Applause)

  279. Moderator: So Nick,
    I'm sure you get this question a lot.

  280. If you're so unhappy
    with the economic system,
  281. why not just give all your money away
    and join the 99 percent?
  282. Nick Hanauer: Yeah, no, yes, right.

  283. You get that a lot. You get that a lot.
  284. "If you care so much about taxes,
    why don't you pay more,
  285. and if you care so much about wages,
    why don't you pay more?"
  286. And I could do that.
  287. The problem is,
  288. it doesn't make that much difference,
  289. and I have discovered a strategy
  290. that works literally
    a hundred thousand times better --
  291. Moderator: OK.

  292. NH: which is to use my money
    to build narratives and to pass laws

  293. that will require
    all the other rich people
  294. to pay taxes and pay their workers better.
  295. (Applause)

  296. And so, for example,

  297. the 15-dollar minimum wage
    that we cooked up
  298. has now affected 30 million workers.
  299. So that works better.
  300. Moderator: That's great.

  301. If you change your mind,
    we'll find some takers for you.
  302. NH: OK. Thank you.
    Moderator: Thank you very much.