The Persistence of Dumb Narrative

As we enter this election year, and countless political slogans and buzzwords prepare to bombard our psyches, it’s important to examine the power of narrative in framing our national political conversation. Narrative is what makes “wealth re-distribution” a political virtue in some political cultures and a cardinal sin in others; it is what determines whether the top 1% of wealth holders are seen as “job producers” or greedy “fat-cats”; it is what imbues meaning to phrases like “Climate change,” “social justice,” and “entitlements.”

As an opening salvo in this year’s political verbiage battle, US News & World Report issued a doctrinaire reassertion of the free market, limited government narrative. Responding to President Obama’s income-inequality-centric Osawatomie speech, author Stephanie Slade concedes that wealth and political power is unfairly concentrated in the hands of the few, but argues that Big Government is the culprit.

“What people often fail to recognize is that the state is itself the tool by which the haves keep the have-nots without…It is only by intervening to choose winners and losers—by trying to substitute the judgment of the few in positions of power for the judgment of the many in an open marketplace—that a government cedes influence to those with the most to spend.”

This is the rallying cry of the Free Marketeer narrative; well intentioned yet naive progressives want to reduce inequality through forced redistribution, but  aggravate the problem by creating more opportunities for the powerful to exert their influence. For the sake of argument, let’s assume this narrative is correct about the naiveté and quixotism of liberal socioeconomic philosophy, but do Free Marketeers offer a more pragmatic story, one based on fact instead of fancy, highfalutin’ theories?

In the Free Marketeer narrative, productivity and wealth go together like bagels and lox.

“Within a free market, inequality comes almost exclusively from one place: unique individuals’ differing levels of productive ability…The more productive you are, the more wealth you can accrue, and the less productive you are, the less wealthy you’re likely to be.”

But can one honestly argue that investment bankers are so much more productive than teachers or firefighters as to justify their vastly different incomes? Free Marketeers seem to forget that the market often works whimsically, rewarding great wealth to some and a piddling to others based not on their productivity, but on mere happenstance.

John Cassidy of the New Yorker offers a stark rebuttal to the Free Marketeer narrative, arguing that Wall Street is essentially the story of obscenely wealthy institutions engaging in activities with no productive value:

“In effect, many of the big banks have turned themselves from businesses whose profits rose and fell with the capital-raising needs of their clients into immense trading houses whose fortunes depend on their ability to exploit day-to-day movements in the markets…Some recent innovations, such as tradable pollution rights and catastrophe bonds, have provided a public benefit. But it’s easy to point to other innovations that serve little purpose or that blew up and caused a lot of collateral damage, such as auction-rate securities and collateralized debt obligations. Testifying earlier this year before the Financial Crisis Inquiry Commission, Ben Bernanke, the chairman of the Federal Reserve, said that financial innovation “isn’t always a good thing,” adding that some innovations amplify risk and others are used primarily “to take unfair advantage rather than create a more efficient market.”

The persistence of this narrative lies not only in its conception of productivity as an infallible mechanism of resource allocation, but also in the allure of its holy grail­–the perfectly competitive market.

“If the economy were allowed to function organically, there would be little reason for people to waste resources on ‘high-priced lobbyists and unlimited campaign contributions…wealth would cease to give an unfair political advantage to those who possess it, and inequality would once again be a function of work ethic and ability alone.”

In our political discourse, there are very few utter illusions masquerading as facts more preposterous than this. Even introductory economics textbooks allow that a perfectly competitive market exists only in theory. And as for the assertion that without any regulatory interference “wealth would cease to give an unfair political advantage to those who possess it, and inequality would once again be a function of work ethic and ability alone?” I can think if no more quixotic or highfalutin’ theory.

The reality is that holders of wealth and capital have virtually unlimited power to design the rules of the game. The regulatory authority of the state is the only effective counterbalance to the confluence of wealth and power. Factors like imperfect information, monopoly, barriers to entry, collusion and fraud are intractable parasites in the body economic, allowing wealth to perpetuate itself, and divesting the average citizen of equal leverage.

The reason the Free Marketeer narrative maintains its persuasive power is due to our proclivity for historical amnesia. Never having lived in such a reality, people are free to romanticize and aggrandize, elevating an ideology untested in their lifetime to an almost divinely ordained status.  But as we enter a politically divisive year, fraught with challenges to the progressive vision of America, let us not forget the historical reasons behind the creation of the social safety net and the poverty of blind narrative.