Updated: Nov 16, 2019
In the 1980s, Ronald Reagan’s regulatory “reforms,” which reduced the ability of government to curb the excesses of the market, were sold as great energizers of the economy. But just the opposite happened: Growth slowed, and weirder still, this happened in the innovation capital of the world…. sugar rush produced…. in the 2017 tax law didn’t deal with any of these long-run problems, and is already fading. Growth is expected to be a little under 2 percent next year (Stiglitz, 2019a).
Stiglitz (2019) makes the claim that Capitalism can give a better set of outcomes by being Progressive. If so, most if not all of the current concerns as revealed in tribalism, populism, social and public health issues… the latter arising mainly (as Payne, 2017, makes clear) out of extreme inequality… would be greatly reduced if not eliminated entirely. So, just what is a Progressive Capitalism? Metaeconomics Framing and Dual Interest Theory can be helpful in making sense of this “oxymoron.” We highlight main points (in italics) from Stiglitz (2019a) below; also see Stiglitz (2019b):
1. Standards of living began to improve in the late 18th century for two reasons: the development of science (we learned how to learn about nature and used that knowledge to increase productivity and longevity) and developments in social organization… Key to both were systems of assessing and verifying the truth.
Finding, assessing and verifying the facts… an empirical based reality… is also a foundation idea in Metaeconomics. Building a Good Capitalism (a real possibility with Metaeconomic Framing and Theory) means dealing with economic reality, not ideology, contention… rather, an economy is built on the basis of what really works. It is clear we are not doing so at the current time.
2. … forgot that the true source of the wealth of a nation is the creativity and innovation of its people. One can get rich either by adding to the nation’s economic pie or by grabbing a larger share of the pie by exploiting others — abusing, for instance, market power or informational advantages. We confused the hard work of wealth creation with wealth-grabbing (or, as economists call it, rent-seeking), and too many of our talented young people followed the siren call of getting rich quickly.
Metaeconomics distinguishes the Making from the Taking (exploitation, rent-seeking) and Keeping of Wealth, the latter a problem if it is not reinvested to help in more Making. Intriguingly, as Metaeconomics clarifies, there is substantive rent-seeking at both ends of the income and wealth ladder, with too many on the lower rungs Taking advantage (e.g. in fraudulent disability claims) as well too many on the upper rungs engaging in cronyism. The latter involves the wealthy buying political influence, often through not only buying politicians but in extensive lobbying efforts, while the political gain power. Metaeconomics points to how those in the middle end up paying, in terms of both higher taxes and lost influence, and lost sharing in the outcomes.
3. Beginning with the Reagan era, economic policy played a key role in this dystopia: Just as forces of globalization and technological change were contributing to growing inequality, we adopted policies that worsened societal inequities. Even as economic theories like information economics (dealing with the ever-present situation where information is imperfect), behavioral economics and game theory arose to explain why markets on their own are often not efficient, fair, stable or seemingly rational, we relied more on markets and scaled back social protections.
Metaeconomics, based as it is in Behavioral Economics, shifts the Frame (and provides a productive Dual Interest Theory to help) to searching for the best amount of inequality, the optimal inequality. This Frame and Theory sees the key role of the shared Other-interest… represented in Good Community and a Good Government… in the outcomes from the largely Self-interest only driven Market. Social protections reflect the Empathy based Other-interest, such that the Ego based Self-interest is Tempered and Bounded, as in a kind of Bounded Rationality. Markets by themselves, due the primal drive to excess, as in Excessive Greed, tend to Fail. Government by itself, due to the same forces, also tends to Fail. As Metaeconomics posits, it is only in a Good Balance in Market&Government that we can stay away from dystopia. And, yes, the Metaconomics, based as it is in empirical reality, would likely confirm that the Balance shifted too far toward the unfettered Market starting in the early-1980s (the Reagan, and Thatcher in UK, and in other places on this Spaceship Earth).
4. Politics has played a big role in the increase in corporate rent-seeking and the accompanying inequality. Markets don’t exist in a vacuum; they have to be structured by rules and regulations, and those rules and regulations must be enforced. Deregulation of the financial sector allowed bankers to engage in both excessively risky activities and more exploitive ones.
Metaeconomics makes it clear that Markets representing Self-interest are given context by Community and Government representing the Other-interest. And, yes, deregulation can lead to an unfettered, not-Tempered pursuit of Self-interest which virtually always leads to a Tragedy of some kind, as it did in 2008 with the collapse of the financial sector. It also leads to the proverbial Tragedy of the Commons as regards Spaceship Earth System collapse, now on the horizon due to not dealing with the limited capacify of the atmosphere and ecosystem on this Spaceship to hold and process greenhouse gases, especially the carbon dioxide building due to excessive burning of carbon fuels. Markets exist in the context of the shared Other-interest, the latter represented in Community, and, in the laws, rules and regulations of a Good Government.
5. Many economists understood that trade with developing countries would drive down American wages, especially for those with limited skills, and destroy jobs. We could and should have provided more assistance to affected workers (just as we should provide assistance to workers who lose their jobs as a result of technological change), but corporate interests opposed it. A weaker labor market conveniently meant lower labor costs at home to complement the cheap labor businesses employed abroad.
Again, Ego based Self-interest only will just naturally… it is in our genes, evolutionarily speaking… lead to those with the Capital (the key notion in Capitalism) finding the least cost way, which gives the potential for the maximum Profit. This often means the lowest possible pay, the lowest possible share going to the Labor, and, the Natural Spaceship Earth system, that helped produce it… in fact, was key to producing what the entrepreneurial Capitalist developed to Make wealth. Metaeconomics clarifies, as noted earlier, that the Community and the Government, if both are Good, can work to ensure the Capitalist not only Makes wealth, but also works out ways to Make it shared among all who contributed to Making it.
6. The prescription follows from the diagnosis: It begins by recognizing the vital role that the state plays in making markets serve society. We need regulations that ensure strong competition without abusive exploitation, realigning the relationship between corporations and the workers they employ and the customers they are supposed to serve. We must be as resolute in combating market power as the corporate sector is in increasing it.
As Metaeconomics clarifies, the shared Other-interest represented in Community and Government plays the vital role in ensuring the Market produces Good Outcomes. Also, Metaeconomics clarifies these Good Outcomes can come from gentle Nudges (walk softly and carry a big stick), and Regulation is only essential (use the big stick) when Nudging fails. Also, Nudging can come from within, as using Self-discipline, Self-control to only Take a reasonable share of what has been Made.
7. Markets on their own won’t provide insurance against some of the most important risks we face, such as unemployment and disability. They won’t efficiently provide pensions with low administrative costs and insurance against inflation. And they won’t provide an adequate infrastructure or a decent education for everyone or engage in sufficient basic research.
Metaeconomics clarifies that due to the primal nature of Ego based Self-interest, attention needs to be shifted to encouraging the Empathy based Other-interest. This Other-interest is also a core feature of Human nature, but it tends to be more in the background, and has to be stirred into action. This also highlights the problem of Self-control in that the Other-interest will be brought to bear on the Self-interest only with a sufficient amount of it. It is only through the shared Other-interest, brought forward with Self-control leading to a bit of sacrifice in Self-interest that such things as a decent education for everyone, and in funding basic research to benefit everyone, that these kinds of outcomes will arise.
8. The neoliberal fantasy that unfettered markets will deliver prosperity to everyone should be put to rest. It is as fatally flawed as the notion after the fall of the Iron Curtain that we were seeing “the end of history” and that we would all soon be liberal democracies with capitalist economies.
The “end of history” (after Fukyama, 2006) is fundamentally flawed, yet also insightful. That is, going to extremes as in Pure Socialism (and even more “pure”, as in Pure Communism) as been clearly demonstrated… in empirical terms… not to work. Unfortunately, the pendulum then swung, especially starting in the early-1980s, toward Pure Capitalism. In Metaeconomic Framing and Theory, too much emphasis on the shared Other-interest is just as unproductive as is too much emphasis on Self-interest. What is needed is a bit of sacrifice in both domains of Self-interest and Other-interest in order to maximize the Own-interest, which means Good Balance in Self&Other-interest. A liberal democracy based capitalism can only be a Good Capitalism with said balance.
9. Most important, our exploitive capitalism has shaped who we are as individuals and as a society. The rampant dishonesty we’ve seen from Wells Fargo and Volkswagen or from members of the Sackler family as they promoted drugs they knew were addictive — this is what is to be expected in a society that lauds the pursuit of profits as leading, to quote Adam Smith, “as if by an invisible hand,” to the well-being of society, with no regard to whether those profits derive from exploitation or wealth creation.
As Metaeconomics clarifies, Adam Smith saw the essential need to Temper and Bound the Self-interest with the Sentiments, the latter being the Other-interest notion in Metaeconomics. So, the Metaeconomic idea of balance in Ego&Empathy, Self&Other-interest, Market&Government is very much a representation of what would make for a Good Capitalism as in jointness and balance of Smith(1776/1790)&Smith(1759/1789). Also, the Invisible Hand represented in the Other-interest is there only because we are not currently Mindful of the Visible Hand we used to develop it. Also, then, irritation and outrage leads to the Visible Hand working to build and Other-interest that can once again relegate to the Invisible Hand, until something stops working. As Stiglitz (2019) clarifies, and a Metaeconomics based empirical analysis will likely confirm, we now are at a time when need to very much rethink and reorient the path. Metaeconomics suggests we need to consciously, Visibly recognize the Bad Capitalism we are now experiencing, and start Progress toward a path to a Good Capitalism with balance in Market&Government, seeing both essential to the other.
So, it seems that a Progressive Capitalism does hold the potential to help build a fact based, Good Capitalism. It sees the need for balance, and, in the simplest of terms, sees that the “Me needs a We to Be, but without a Me there is no We”, which leads to the empirical contention that the “Market needs a Government to Be, but without a Market there is no Government.” This is the only way to both a GoodMarket&GoodGovernment, and, once we accomplish it, we could then see the “End of History” from here, with all Travelers on this Spaceship Earth as Happy Travelers.
As a Mike Marks, Cape Cod, said it on April 21 (a Times Pick), in commenting on Stiglitz (2019a): China became fabulously rich in less than a generation by giving up 5 year plans and embracing free market capitalism. Free market capitalism is the greatest engine of wealth creation yet devised. But of course it needs regulations to prevent abuses and to provide a safety net for all. When progressives rail against capitalism they are essentially advocating that we shoot the horses that pull the economy forward. That's foolish. Talk should be focused on how we harness the horses, the style of bit we put in their mouths, the blinders for their eyes and the roads we build for them to run on. We should all be able to agree that healthy horses are good thing. From that starting premise we can vigorously debate how we should control them.
Metaeconomics builds on the metaphor from Plato about the Black Horse of Ego needing to be Tempered and Bounded by the White Horse of Empathy, with the Chariot Driver bringing the Self-control, keeping the Ego&Empathy Horses jointly pulling on the best path. This is Progressive Capitalism.
Fukuyama, F. The End of History and the Last Man. New York, Free Press, 2006.
Payne, Keith. The Broken Ladder: How Inequality Affects the Way We Think, Live, and Die. New York: Penguin Books, 2017.
Smith, A. The Theory of Moral Sentiments. D. D. a. A. L. M. Raphael. Indianapolis, Indiana, Liberty Fund, Inc., 1759/1790.
Smith, A. An Inquiry into the Nature and Causes of the Wealth of Nations
E. Cannan. New York, Random House, 1776/1789/1937.
Stiglitz, J. E. Progressive Capitalism is Not an Oxymoron. New York Times. Digital Issue. April 19, 2019a.
Stiglitz, J. E. People, Power and Profits: Progressive Capitalism for an Age of Discontent. New York, W. W. Norton and Company, 2019b.