The Future of Democracy Newsletter: May 2017

The focus of our May 15 discussion was Economics and Democracy. We considered the influence of economics on democracy through the ages, with a special emphasis on Milton Friedman of the (University of) Chicago School, versus the modern progressive economics of Robert Reich and others.
 
The cover of our packet had a quote from The Future of Democracy:

Economics, once called “the dismal science,” affects each of our lives every day. Everything we purchase to put on our bodies and in our homes, what we drive and where we live, and our optimism or pessimism for our future all are affected by the economic policies of our own countries and their interactions with other nations.

​We usually think of economics as being about money. But there was trade long before there was money. Trading events also were social events. People met with their neighbors regularly to exchange goods or services, and then this was expanded over gradually greater distances. Markets originally were democratic; the value of items was determined by bartering. Money eventually was used to facilitate trade and store value for the next time. Thus economics ultimately is not about money, but about the circulation of goods and services.

Our packet included quotes from The Wealth of Nations by Adam Smith. Despite being known today as a champion of the free market, Smith was concerned about the plight of the common man. He promoted equal justice for those of all economic levels at a time before the establishment of modern democracy:

The second duty of the sovereign … [is] … protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it … establishing an exact administration of justice.

Milton Friedman, probably the most famous economist that came out of the Chicago School, has been a champion of “conservative” politicians from his day up to the present. He was an advisor to Ronald Reagan and Margaret Thatcher. The history of the Chicago School goes back to its 1892 founding by John D. Rockefeller, who ran Standard Oil, and who was the wealthiest man in US history. He promoted laissez-faire (non-interference) economics via organizations he supported.

Friedman’s 1962 book, Capitalism and Freedom, still is echoed by modern conservatives such as Paul Ryan. He was one of the original promoters of monetarism, under which the government pumps money into the economy (via banks) as needed to maintain a fluid economy. His theories can be summed up in the following quote from his book:

Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion … the other is voluntary cooperation of individuals — the technique of the marketplace. (Page 13)

In other words, maintaining individual freedom is based on limiting regulation and allowing the market to establish a fair economic playing field. According to Friedman, government must be limited to its absolute minimum function to allow the natural competitive nature of capitalism to take place, which ultimately produces the best and fairest results.
 
Robert Reich, on the other hand, in Saving Capitalism for the Many, Not the Few, tells us that capitalism needs government regulation to survive. Government sets the rules that protect the interests of those at all levels of society. The problem is that those who have most access to the politicians who set the rules are those who support their campaigns and allow them to stay in office. They are, of course, those with the most money. Those who run large financial firms such as Goldman Sachs are the same people who supply funds for those who run for office and who end up in the cabinets of US Presidents of both parties.

The coming challenge is not to technology or economics. It is a challenge to democracy. The critical debate for the future is not about the size of government; it is about whom government is for. The central choice is not between a "free market" and government: it is between a market organized for broadly based prosperity and one designed to deliver almost all the gains to a few at the top. (Page 219)

We also briefly reviewed a few other books including On Ethics and Economics, by Amartya Sen, the Nobel Prize winning Harvard economist, who states: “I would argue that the nature of modern economics has been substantially impoverished by the distance that has grown between economics and ethics.” In The Moral Consequences of Economic Growth, by Benjamin Friedman, the essential premise is that investing in improving the skills of those at the bottom level of society ultimately saves money by creating productive citizens, and that having great financial divisions actually creates a drag on the entire economy.
 
In Economics and Democracy II, we will work toward conclusions on how economics can contribute to a more equitable society that benefits those at all levels.

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