In my last post I wrote how uncritical reliance on quantitative economic growth that ignores individual, social and natural vulnerabilities creates uneven and unsustainable living standards and leaves us unprepared to cope with crises, like the present pandemic. This perilous state of affairs is the product of an economic and social model that has taken hold over several decades. Despite the dislocations and damages this model has wrought to the economic and social fabric of America, it has proven to be resilient and politically viable.
Its currency, however, does not exist in a vacuum. It reflects underlying beliefs that drive the electorate’s choices. And in turn, these beliefs are propagated by well-heeled opinion shapers and find fertile ground in cultural conditions. No matter how wide-spread these beliefs are, they need not be true or still valid. They may reflect fallacies used to provide some moral or functional cover for the prevailing way of doing things. The list of fallacies I have identified is not necessarily exhaustive but it goes far enough in explaining our reluctance to change course.
The fallacy of meritocracy. Achievement often comes with merit. But merit is not the only thing that matters. Luck and circumstances also matter. More critically, merit is environment-dependent. The family and social background one is born into, what one inherits, and the bending of rules can make all the difference. If innate merit was the only determinant of future success, we would expect Americans from diverse demographic and socio-economic backgrounds to be equally represented in the upper echelons. And yet this is not what we observe. Meritocracy, however, is an appealing belief to Americans because of our individualistic culture. In this culture the individual and its own strengths take a central place in the stories of successful men and women.
The fallacy of justified inequality. This fallacy is born out of the previous fallacy. If you believe that merit is all that matters for success then income and wealth inequalities become easily acceptable. The role of inheritance, the influence of a nurturing family and social networks, and especially of preferential taxation and other legislated privileges is pushed aside.
The fallacy that inequality is just a statistic. The notion that inequality is just an economic metric without serious consequences flies in the face of evidence. Inequality does matter and matters in negative ways. The evidence shows that inequality reduces social capital, leads to voter apathy, makes people less healthy and fuels criminal behavior. Thus, reducing inequality is in the interest of making society better.
The fallacy of equal opportunities. This fallacy justifies inequality in outcomes (like income, health, etc.) on the ground that opportunities are equal. Well, except that opportunities are not equal. Born into poverty, or going through a subpar educational system, or living in neighborhoods with less material resources and healthy cultures but with more deprivation and crime does not afford one the same opportunities like those available to one born into the opposite kind of environment. A fact that undercuts both the meritocracy and the equal-opportunities arguments is the lower social mobility for recent generations of Americans compared to their parents and grandparents.
The fallacy of the “American dream.” This goes along with the fallacy of equal opportunities but with a twist. To the original version, it has tacked the alluring message “You need not be concerned with inequality because one day you can be rich.” In this message, the insanely wealthy top tier is presented as an aspirational, regardless how impossible, destination to those in the lower rungs of the ladder. Its true purpose is to keep people endorsing the system, because one day they could be part of that top tier. You may recall that book “What’s Wrong with Kansas?” that found that even low-income people align with policies that favor the wealthy because they themselves hope, one day, to be among the privileged few. It is not even close. While a vast majority of Americans of earlier generations earned more than their parents by age 30, far fewer members of recent generations achieve this. And fewer and fewer of today’s young Americans believe they will attain their parents’ standard of living.
The fallacy of the moral hazard. A frequently used argument against stronger social support programs (what we call the safety net) in the US is the concern that they weaken the incentive to work. Or differently put, social support programs potentially reduce the supply of labor and, thus, hurt the economy. But is there clear evidence for this? Observation and research (some of that done by last year’s winners of the Nobel prize in Economics Esther Duflo and Abhijit Banerjee) show that people spend no less effort when they are granted some leeway and relief. Even worse, the moral hazard concern, one can argue, is an insult to human nature, and often reflects racial biases. The overwhelming majority of people have an inner sense of pride and fairness as well as a need to maintain their dignity and improve their lot. All that works against the urge to live off the dole as a burden to others.
The fallacy of trickle-down economics. This is the jewel of the fallacies that nurture the present system. It preaches that economic growth is fueled by the supply of business activity whose promotion dictates low taxes, as little regulation as possible, and availability of labor at low cost and with little friction (read no labor union protection). Thus, the trickle-down theory elevates the importance of the so-called job-creators above that of working people. As an economic policy, it is responsible for the abuse of public fiscal resources. So even when economic inequities or a demand deficit require supporting middle and lower incomes, taxes and government aid are primarily designed to benefit businesses and capital holders. The $1.5 trillion tax law of 2017 and even parts of the coronavirus rescue plan are examples of trickle-down dogma. Almost invariably, trickle-down policies leave behind a legacy of red ink as budget deficits and public debt explode as a result of the tax relief and aid doled out to the job creators. Later it falls upon all of us to restore fiscal soundness.
Some of these fallacies have cultural antecedents related to an early reliance on individual effort and resourcefulness in the making of the country. Others have been promoted by special interests that have little regard for social cohesion and solidarity. And others are driven by narratives that are no-longer valid, and others by racial stereotypes. The sooner we convince the majority of people these fallacies are harmful, the sooner we will start moving toward socially responsible economic progress.
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