Greed Produces Little Public Good

Forbes magazine, which promotes itself as a “capitalist tool,” and the austere Nobel Prize committee have just paid tribute to the practical and theoretical benefits of competitive markets.

Each autumn, as the World Series approaches, Forbes devotes a special issue to the 400 richest Americans. Among them are 26 billionaires, double the 1985 figure. The net worth of the 400 rose to $156 billion from 1985’s $134 billion. A mere $150 million placed you in 1985’s elite 400. This year’s number is $180 million, up a pleasing 20%.

I do not cite these numbers out of mere envy of the grossly rich or distress at not having met a single one of our financial masters. My point is more serious: An innocent devotee of the Chicago school of economics and the editorial page of the Wall Street Journal would read these statistics as clear evidence that 1986 has been a boom year. The record contradicts such an inference.

Growth has been sluggish, productivity performance disappointing, unemployment stuck at 7%, real wages barely keeping pace with inflation, savings shrinking, trade and budget deficits holding at dangerous levels and a tepid expansion maintained only by huge foreign investments.

If America is standing tall, as President Reagan frequently boasts, it is because Japanese and European investors have been propping us up. They are free to stop any time they choose.

We are again a net debtor nation. We import more food than we export. Still more alarming, we are now buying more high-tech machinery and manufactures from foreigners than they are buying from us. By comparison with Japan and Germany, we save and invest far less.

Rich Visibly Getting Richer

Well, if most of us have been just about holding our own, a minority doing slightly better than that and a larger minority slipping downward from middle-class financial status, why should the rich visibly get still richer?

For partisans of untrammeled competition, deregulation and minimum interference with mergers and acquisitions, Forbes supplies a disquieting answer. Just 10 mega-millionaires got rich from high tech, down from 1985’s dozen.

Fifty-eight are media magnates, including Australia’s most prominent export, Rupert Murdoch.

No fewer than 26 enriched themselves from New York real estate, 59 from financial operations and 22 from retailing, including head billionaire Samuel Moor Walton, whose $4.5 billion rewards him for operating 950 Wal-Mart discount stores.

An even more dependable route to riches is the old-fashioned one of choosing rich parents. According to Forbes, 168 of the 400 benefit mostly or entirely from inheritance.

Mainstream economists justify wide income and wealth inequality by the spur to incentives and the consequent social benefits of the quest for wealth. On Forbes’ evidence, we are not getting our money’s worth from the Reaganomics-inspired lower rates on large incomes and inheritances and other benefits to accumulation. Very few of the rich are doing anything to improve our competitiveness in world markets and to raise the living standards of ordinary wage slaves.

I come next to the Nobel Prize for “economic science.”

Since economics falls somewhere between meteorology and astrology in predictive accuracy, and laboratory experimentation is impossible, economists are free to make their own assumptions, mostly unverifiable, about human behavior. Making the best of the situation, the anonymous Nobel jurors have tended to alternately reward liberal and conservative practitioners.

In 1974, they split the award between Gunnar Myrdal, an architect of the Swedish welfare state, and Friedrich Hayek, a fervent antagonist of the welfare state in all places and at all times, much as though co-winners in the biological sciences were, respectively, an evolutionist and a scientific creationist.

Public Choice Doctrine

Last year, MIT’s liberal Keynesian Franco Modigliani collected the cash and glory. This year’s winner, James Buchanan, is a founder of public choice doctrine, an extension to politics of the Chicago school’s imperial application of economic calculation to marriage, divorce, crime and law.

Public choice doctrine holds that politicians try to maximize their own interest, like the rest of us. Higher taxes and smaller benefits irritate the electorate. Hence, politicians seeking election, reelection or advancement to higher office tend to act in ways that perpetually enlarge deficits unless they are subdued by devices like a balanced budget amendment or the Gramm-Rudman legislation.

Do the public choice folks have it right? Presumably in pursuit of his own self-interest, Ronald Reagan promised in 1980 a balanced budget by 1983. Six years later, the man has doubled the national debt, tripled the worst single deficit under the Carter Administration and won in 1984 a ringing endorsement from the voters.

In his many writings, Buchanan has excoriated John Maynard Keynes and his followers for straying from the goal of an annually balanced budget and legitimizing perpetual deficits.

If the Reagan years prove anything, it is that if you really admire deficits, the way to get them is to elect politicians who abhor Keynes, yearn for balanced budgets and endorse conservative economics.

It’s almost enough to make one wonder whether economists who reduce all human conduct to the maximization of self-interest haven’t missed something out there in the real world, such as spontaneous affection, uncalculated altruism, sheer playfulness and even occasional devotion to the public interest. Our experiment with untrammeled greed has failed.