"Redistribution to poorer groups can increase growth.. the public debate about the economyand economic policy is dominated by the practical necessity logic. Desires, interests and goals of social groups play no role in the discussion of economic reforms.."
“MYTHS OF THE ECONOMY”
by Beigewum, www.beigewum.at
[This text from the recent book “Mythen der Okonomie” (2005) by the Austrian Council for Social-, Economic- and Environmental Alternatives (BEIGEWUM) published in: Arbeit und Wirtschaft 59/July-August 2005 is translated from the German on the World Wide Web,
http://www/arbeit-wirtschaft.at/art2_druck.htm.]
According to the myth “If the economy goes well, everything will go well for us” (1). “Whatever benefits business is in the public interest because businesses create prosperity benefiting the whole society. Claims for economic favors by businesses are legitimate. Businesses may not be overstrained by demands of society.”
With this argument, economic prosperity is declared the essential standard of well-being. We generally associate quality of life with a good education, all-round health, a proper relation of work and leisure time and life in a secure environment. Indicators like gross domestic product only give limited information. Although the population of the U.S. has a higher per capita income than the population of the European Union (EU), many indicators point to a higher quality of life in the EU. People in the EU work less, have longer vacations, universal health care is more widely accessible, child mortality is lower and the number of murders and prisoners is less. (2)
Survey results and theoretical models in so-called happiness research show that the growth of the economy is not (necessarily) reflected in increased subjective well-being of people. For example, the gross domestic product in industrial states has multiplied fourfold since 1959 while the subjective well-being of the population gleaned from public opinion polls has remained rather constant since 1959. (3)
For decades, it has been criticized that the gross domestic product is not convincing as the central measurement of economic prosperity. The follow-up costs of environmental pollution, health costs and material costs after accidents and other expenditures with dubious social benefits increase growth in this collective measurement of all economic activities. From this perspective, economic growth does not automatically mean greater prosperity and quality of life. Increased growth can also go along with deteriorated welfare. On the other hand, valuable economic activities that are not paid (for example, unpaid house work) are not calculated in the GDP.
INTEREST OPPOSITIONS AND DISTRIBUTION QUESTIONS FADED OUT
Capitalism has dominated since the beginnings of the conflict between capital and labor. In the course of its history, different social compromises and political regulations were negotiated to deal with this fundamental interest opposition. In the western industrial states of the postwar era, employees shared in economic growth through wage increases, social benefits and welfare state securities. The redistribution of part of the economic wealthy in favor of labor supported the total demand. Expansion of the market adjusted to development of productive forces.” (4) The conflict over the power of capital and labor was shifted from the sphere of production left to the command of corporations to the plane of distribution and consumption. Concessions were made to employees. What benefited the economy was also in their interest, at least to employees in large concerns.
In the last decades, businesses sought to postpone or cancel this compromise to their advantage. Higher profits at the expense of wages, deterioration of working conditions, terminations, resistance of businesses to taxation and welfare services make the claim that the economy’s interest is also the general interest increasingly implausible.
TAX CUTS MEAN SPENDING CUTS
What is true for the relation of capital and labor is also true for the assessment of state laws and political-economic measures. All population groups are not equally affected by economic events and political-economic measures. For example, a tax cut for businesses means that the state’s lost revenues must be raised from other groups (for example wage taxes) or that state spending benefiting others must be cut. If conditions and regulations for businesses are softened or annulled, those who long profited from these rules are injured: relaxation of termination protection relieves businesses but increases the pressure and uncertainty of wage-earners. To claim that reforms benefiting the economy are in the general interest fades out these distribution questions.
DUBIOUS BENEFITS
Against distribution questions, it is often objected that business-favoring measures have positive aggregate economic effects that are greater than the harm to negatively impacted individuals. In other words, putting up with this harm would pay off in the end for the society altogether. Relief for businesses leading to higher profits is good since profits are used for investments that create jobs. Thus even if the favors for businesses (tax cuts, reduced regulation, sponsorships) damage other groups of the population, positive job effects would more than compensate for this damage in a round-about way.
ARE BUSINESS PROFITS POSITIVE?
If this were true, high business profits would always have a positive effect. However this is not the case. Although the profits of businesses in industrial states were very high again in the last years after a decline in the 1970s, their investments are continuously low. High profits accumulate in the pockets of the owners instead of in investments.(5) The fact that the announcement of higher numbers of unemployed or dismissals often encourages rising prices on the stock market is an indication that contradictory particular interests prevail and do not recede to the background in favor of a supposed general interest.
There is no evidence for the frequent claim that too much redistribution harms the economic dynamic or that income inequalities have a positive effect as performance incentives. On the contrary, redistribution to poorer groups of the population can increase growth because these groups through their purchasing power benefit the economic cycle and lower the social costs from the criminality of an impoverished lower class.(7)
“Myths of the Economy” offers a collection of the 30 most important economic heresies or false doctrines. These myths are briefly described in the individual articles and refuted with economic arguments.
The public debate over the economy and economic policy is dominated by the practical necessity logic. Desires, interests and goals of social groups play no role in the discussion of economic reforms. Everything turns around the question what adaptation pressures follow from the latest developments: globalization, unemployment, economic slack periods and excessive tax burdens. An important role is ascribed to economic expertise in drafting reform measures. Economists, corporate associations and economic leaders have the aura of better knowledge and establish measures withy expert knowledge.
TWO REASONS FOR THE PROBLEMATIC SITUATION
1. Many connections and recommendations in economics are controversial. There isn’t one expertise but conflict even among experts about what is “economically reasonable.”
2. In the dominance of expert opinions, one-sided opinions are passed off as expertise without explaining all the pros and cons on every question. The essence of a democracy – a broad economic education of the population and their inclusion in economic debates and decisions – is blocked.
The authors offer a compact reference work and a collection of arguments for debates on critical economics suitable for nearly all situations: pubs, talk shows, Bundestag etc. Their themes extend from “Aging Makes the Welfare State Unaffordable” and “Stock Market Dominates the Economy” to “Private Pensions are Better”, “Governments Harm the Economy” and “Only Diligence and Efficiency Make a Country Rich.”
by Beigewum, www.beigewum.at
[This text from the recent book “Mythen der Okonomie” (2005) by the Austrian Council for Social-, Economic- and Environmental Alternatives (BEIGEWUM) published in: Arbeit und Wirtschaft 59/July-August 2005 is translated from the German on the World Wide Web,
http://www/arbeit-wirtschaft.at/art2_druck.htm.] According to the myth “If the economy goes well, everything will go well for us” (1). “Whatever benefits business is in the public interest because businesses create prosperity benefiting the whole society. Claims for economic favors by businesses are legitimate. Businesses may not be overstrained by demands of society.”
With this argument, economic prosperity is declared the essential standard of well-being. We generally associate quality of life with a good education, all-round health, a proper relation of work and leisure time and life in a secure environment. Indicators like gross domestic product only give limited information. Although the population of the U.S. has a higher per capita income than the population of the European Union (EU), many indicators point to a higher quality of life in the EU. People in the EU work less, have longer vacations, universal health care is more widely accessible, child mortality is lower and the number of murders and prisoners is less. (2)
Survey results and theoretical models in so-called happiness research show that the growth of the economy is not (necessarily) reflected in increased subjective well-being of people. For example, the gross domestic product in industrial states has multiplied fourfold since 1959 while the subjective well-being of the population gleaned from public opinion polls has remained rather constant since 1959. (3)
For decades, it has been criticized that the gross domestic product is not convincing as the central measurement of economic prosperity. The follow-up costs of environmental pollution, health costs and material costs after accidents and other expenditures with dubious social benefits increase growth in this collective measurement of all economic activities. From this perspective, economic growth does not automatically mean greater prosperity and quality of life. Increased growth can also go along with deteriorated welfare. On the other hand, valuable economic activities that are not paid (for example, unpaid house work) are not calculated in the GDP.
INTEREST OPPOSITIONS AND DISTRIBUTION QUESTIONS FADED OUT
Capitalism has dominated since the beginnings of the conflict between capital and labor. In the course of its history, different social compromises and political regulations were negotiated to deal with this fundamental interest opposition. In the western industrial states of the postwar era, employees shared in economic growth through wage increases, social benefits and welfare state securities. The redistribution of part of the economic wealthy in favor of labor supported the total demand. Expansion of the market adjusted to development of productive forces.” (4) The conflict over the power of capital and labor was shifted from the sphere of production left to the command of corporations to the plane of distribution and consumption. Concessions were made to employees. What benefited the economy was also in their interest, at least to employees in large concerns.
In the last decades, businesses sought to postpone or cancel this compromise to their advantage. Higher profits at the expense of wages, deterioration of working conditions, terminations, resistance of businesses to taxation and welfare services make the claim that the economy’s interest is also the general interest increasingly implausible.
TAX CUTS MEAN SPENDING CUTS
What is true for the relation of capital and labor is also true for the assessment of state laws and political-economic measures. All population groups are not equally affected by economic events and political-economic measures. For example, a tax cut for businesses means that the state’s lost revenues must be raised from other groups (for example wage taxes) or that state spending benefiting others must be cut. If conditions and regulations for businesses are softened or annulled, those who long profited from these rules are injured: relaxation of termination protection relieves businesses but increases the pressure and uncertainty of wage-earners. To claim that reforms benefiting the economy are in the general interest fades out these distribution questions.
DUBIOUS BENEFITS
Against distribution questions, it is often objected that business-favoring measures have positive aggregate economic effects that are greater than the harm to negatively impacted individuals. In other words, putting up with this harm would pay off in the end for the society altogether. Relief for businesses leading to higher profits is good since profits are used for investments that create jobs. Thus even if the favors for businesses (tax cuts, reduced regulation, sponsorships) damage other groups of the population, positive job effects would more than compensate for this damage in a round-about way.
ARE BUSINESS PROFITS POSITIVE?
If this were true, high business profits would always have a positive effect. However this is not the case. Although the profits of businesses in industrial states were very high again in the last years after a decline in the 1970s, their investments are continuously low. High profits accumulate in the pockets of the owners instead of in investments.(5) The fact that the announcement of higher numbers of unemployed or dismissals often encourages rising prices on the stock market is an indication that contradictory particular interests prevail and do not recede to the background in favor of a supposed general interest.
There is no evidence for the frequent claim that too much redistribution harms the economic dynamic or that income inequalities have a positive effect as performance incentives. On the contrary, redistribution to poorer groups of the population can increase growth because these groups through their purchasing power benefit the economic cycle and lower the social costs from the criminality of an impoverished lower class.(7)
“Myths of the Economy” offers a collection of the 30 most important economic heresies or false doctrines. These myths are briefly described in the individual articles and refuted with economic arguments.
The public debate over the economy and economic policy is dominated by the practical necessity logic. Desires, interests and goals of social groups play no role in the discussion of economic reforms. Everything turns around the question what adaptation pressures follow from the latest developments: globalization, unemployment, economic slack periods and excessive tax burdens. An important role is ascribed to economic expertise in drafting reform measures. Economists, corporate associations and economic leaders have the aura of better knowledge and establish measures withy expert knowledge.
TWO REASONS FOR THE PROBLEMATIC SITUATION
1. Many connections and recommendations in economics are controversial. There isn’t one expertise but conflict even among experts about what is “economically reasonable.”
2. In the dominance of expert opinions, one-sided opinions are passed off as expertise without explaining all the pros and cons on every question. The essence of a democracy – a broad economic education of the population and their inclusion in economic debates and decisions – is blocked.
The authors offer a compact reference work and a collection of arguments for debates on critical economics suitable for nearly all situations: pubs, talk shows, Bundestag etc. Their themes extend from “Aging Makes the Welfare State Unaffordable” and “Stock Market Dominates the Economy” to “Private Pensions are Better”, “Governments Harm the Economy” and “Only Diligence and Efficiency Make a Country Rich.”
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