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The time has come to Occupy Economics.
Professor N. Gregory Mankiw is the Harvard economics professor out of whose class about 70 students streamed on November 2, 2011 in protest against the content of his course and gave a powerful boost to the Occupy Movement. He has now made an elegant presentation of the reasons why the economics profession must, as he says in the very title of his latest paper, be “Defending the One Percent.”
The paper has been published in one of the flagship journals of the American Economic Association, the current issue of the Journal of Economic Perspectives (Summer 2013, pp. 21-34).
As if to make sure that the reader is not confused, this issue of JEP starts with another paper titled “The Top 1 Percent in International and Historical Perspective.” This paper makes it clear that the economics profession has a unified world-wide view on the economics of inequality.
Let us make this issue of JEP, not a finger in the eye of the Occupy Movement, but a foot in the grave for mainstream economics.
The Error of the Profession
Where does the profession go wrong? Oh, let me count the ways. But let me be on point. The economics profession, aided and abetted by the entire “Social Justice” movement, looks at the issue of inequality a moment too late, when the play is over and the curtain is drawn down. The kibitzers fill the halls of nearby restaurants (academic cafeterias, perhaps?) and their words spill over into print today and videos the day after—eventually to become economics papers and textbooks.
What do they talk about? What does Professor Mankiw talk about? Faced with the insurmountable power of economic inequality, the profession explains why attempts to redistribute wealth are, to say the least, inefficient—a recurring lament.
Even Karl Marx made the same mistake! [explain how?]
Taken within their context, we have to agree that the kibitzers are right. Their reasoning is correct and painstakingly complete, but misplaced. The issue of inequality in mainstream economics is studied a moment too late—when the act of inequality has already been accomplished. One can talk about inequality until the cows come home. Talk is cheap. Facts are stubborn. The monumental inequality of this age remains unaffected by the talk.
The Key Strategic Mistake
The key strategic mistake is to focus on issues of redistribution of wealth. This focus hides a subtle admission that we are ready to accept defeat as unavoidable. The inordinate inequality is conceived as a fact of nature, rather than a consequence of man’s decisions.
This defeatist attitude can be altered only by changing the focus of our attention.
The central issue of economics is not one of redistribution of wealth, wealth created in the past, but the distribution of wealth that is being created right now and will continue to be created in the future.
Economics has to change its focus, and to accomplish this feat, it has to start with this simple realization: As there are four factors of production, so there are four mechanisms of wealth accumulation.
Four Mechanisms of Accumulation of Wealth
In a modern economy, the factors of production are four: capital is split into physical capital and financial capital. Let us update economics accordingly. And let us put the study of the factors of production on the solid rock of morality, rather than the shifting sands of economic theory.
The starting point for our discussion has to be the acceptance of a simple universally acknowledged injunction: Do not steal. Even economists will agree with this starting point. Economics without ethics is an empty mental exercise. There are reams of economic studies now proving the injurious effects of corruption as well as outright theft.
What are the economic behaviors that aggravate inequality? As I wrote in the pages of the real-world economics review, a journal of the World Economics Association, in the context of its first online conference on “ethics in economics” (http://rwer.wordpress.com/2011/12/12/rwer-issue-58-peter-radford/#comments),
“If you do not pay taxes on land and natural resources that are under your exclusive command, you steal from members of your community who will have to pay correspondingly higher taxes.
If you enjoy exclusive use of access to national credit, a common good, you steal from others in your community who will [have] to pay you interest for their loans.
If you pay wages [only], you steal from your workers the fruits of capital appreciation.
If you agglomerate wealth into your hands using unethically acquired financial resources, you steal future capital appreciation from existing owners.”
These are the four mechanisms for the accumulation of inordinate amounts of wealth into the hands of the few. Since it occurs unobserved, the process is legal. Do not blame the one percenters for using it.
Rather than leaving us impotent, this realization empowers us. Our task is not an impossible dream. We only have to make that process legal and available to everyone.
How? We need to affirm four universal inalienable economic rights: 1, The right of access to natural resources; 2. The right of access to national credit; 3. The right to the fruits of our labor; and, 4. The right to the enjoyment of our property.
The one percenters need not worry. These rights will not be denied to anyone! We only have to learn how to exercise these rights ourselves, the ninety nine percenters.
Carmine Gorga is president of The Somist Institute. He is the author of The Economic Process (2002, 2010). He blogs at http://www.a-new-economic-atlas.com and http://www.modern-moral-meditations.blogspot.com.