Tuesday, July 18, 2017

Invisible Hands of Conservative Wealthy are Guiding Economic Policy

 Vijay K. Mathur

Before Adam Smith wrote his most well-read book, The Wealth of Nations, he wrote The Theory of Moral Sentiments in 1759.  In the latter book he argued that man (referring to a person) has the ability to make moral judgments even though he is naturally guided by self-interest. In their economic history book, Professors Robert Ekelund, Jr. and Robert Herbert argue that according to Adam Smith,  “…moral judgments are typically made by holding self-interest in abeyance and putting oneself in the position of a third person.” 

Adam Smith was an ardent advocate of property rights, division of labor and invisible hand of competitive market forces.  For him these institutional arrangements, guided by self-interest, would create self-regulating forces to bring about robust economic growth and improved wellbeing of the society.  Smith’s invisible hand proposition did not support the doctrine of merchant capitalists from 16th to 18th century Europe, called Mecantilists who, in alliance with the monarchy, were primarily interested in the accumulation of their wealth. Smith also promoted free trade and saw it as a vehicle for expanding markets.  Ekelund and Herbert state that Smith was concerned about accumulation of wealth and its influence in a civil society.

The Trump administration has not learned from Adam Smith’s critique of Mercantilist thought.  As Jane Mayer argues in her book, Dark Money, a selected group of ultra-conservative billionaires, headed by David and Charles Koch and their paid support network and surrogates, have been planning for decades to change the government to support their agenda; it consists of lower taxes for the rich and wealthy, lower expenditure for entitlement programs for the low income and poor, while maintaining business subsidies (akin to welfare payments for the wealthy) and less regulations of businesses. In order to support their wealth accumulation agenda, they have methodically followed a plan to change the political makeup of Congress and government institutions, including the Presidency. 

Jane Mayer shows that the efforts of these ultra-conservative billionaires are backed by tax-deductible donations used to create an interlocking network of charitable foundations, think tanks and academic institutes at universities, so that sources of donated money are hard to trace. That is the reason why Jane Mayer calls it Dark Money. 

This tax-deductible network of charitable foundations with ancillaries and surrogates works like invisible hands of the wealthy as automatic instruments to change the political and economic system that meet their agenda.

So far this wealthy group has succeeded in changing the political make-up of Congress, the Administration and many state governments friendly to their cause.  Economic policy is also in the process of change, as for example the health care bill AHCA, passed in the House of Representatives, which would primarily hurt lower income people and poor, and benefit the rich and wealthy.  In addition, the Administration’s tax reform proposal and regulatory changes, as in environment, and banking and finance, disproportionately enrich the wealthy and asset rich businesses and impoverish most other Americans.

The decision to withdraw the US from the trade pact TPP that would have opened US and Pacific Rim countries to more trade, and the threat to scuttle the trade pact NAFTA with Mexico and Canada is contrary to the free market doctrine and supports Mercantilist thought.  Free trade promotes more competition and innovation, and hence benefits consumers, workers and businesses in the long run.  Adam Smith’s invisible hand proposition works in a competitive market, therefore he abhorred monopoly power. The Administration’s nationalistic bent is contrary to the conservative stand on the virtues of free market and is supportive of monopoly power that is increasingly emerging in many sectors of the US economy.

We are also witnessing changes in K-12 public education, as envisaged by this select group of ultra-conservative wealthy billionaires that includes Betsy DeVos (Secretary of Education) and family.   In many states charter schools are emerging and more are planned. They are run by private businesses but are supported by tax dollars.  Secretary DeVos is a great supporter of tax dollar supported private schools. 

She would like a voucher program supported by tax dollars where students could go to any school, including any private school of their choice.  Such a program dismantles the main conceptual idea behind public education and the system of public schools that has successfully produced an educated citizenry and prepared the workforce for generations. Even Adam Smith recognized the usefulness of public educational institutions. 

Faulty accounting only counts the current cost but not the human capital benefits of public education that occur over a period of time. In addition, proposed budget cuts of $9.2 billion from K-12 through higher education and $1.1 billion from job-training programs are not only unproductive as they adversely affect human capital formation, but they especially deprive lower income and poor Americans of educational opportunities.

The sinister part of the strategy of the select group of ultra- conservative billionaires is to use tax dollars to create the perception among a significant number of Americans that their efforts to change economic policies are for the benefit of less wealthy and poor Americans.  It is hoped that soon their invisible hands and their hidden agenda see the light of day.     

Mathur is former chair and professor of economics, now professor emeritus, Department of Economics, Cleveland Sate University, Cleveland, Ohio.  He resides in Ogden, Utah.

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