Mainstream economic policy is full of misrepresentation of reality. Propositions like ‘business tax cuts create jobs’, ‘income inequality exists because workers are not productive’, ‘free trade benefits everyone’, ‘inflation is always due to too much money chasing too few goods’, ‘the subprime mortgage crash of 2007-08 was caused by a ‘global savings glut’, ‘the US federal reserve central bank is independent of private bankers and politicians’, ‘markets are always efficient’, ‘recessions are caused by external shocks to an otherwise stable (equilibrium) system’, and so on–propositions the function of which are to justify economic policies that redistribute income and wealth to the wealthiest 5% investor class and their business institutions (corporate and non-corporate). From such ideological policy propositions in turn are created even higher level theoretical concepts like ‘Phillips Curves’ and ‘Laffer Curves’ that encompass and integrate one or more of the policy propositions; the latter theories simplify the various combined propositions for the purpose of making them easier to ‘sell’ to the public and media.
The basic propositions, and the higher theoretical concepts derived from them, amount to what might be called ‘economic ideology’. Economic ideology is in contrast to economic science, which looks at empirical data and comes to conclusions that accurately reflects and represents that data to approximate reality. In contrast, Ideology is about mis-representation of data, facts and therefore reality.
Misrepresentation of the ‘real’–aka Ideology–is not simply about error of analyses. Errors of analysis occur in any science. But they are not intentional. Ideology as misrepresentation is conscious, intentional, and with a social purpose or objective.
Ideology in economic policy also occurs within an institutional framework, the task of which is to produce the misrepresentations, and in the interests of a particular class or group that ultimately funds the work and benefits from the conscious, intentional misrepresentation.
That institutional framework may be corporate think tanks, editorial pages of the major business and mainstream media, talking heads on cable TV networks, fake social media outlets created by those interests, academia that trains the future ideologists–to name just the most obvious players in the ideology apparatus. You know, those who have produced, and continue to produce and promote claims such as ‘tobacco doesn’t cause cancer’, ‘carbon from human activity doesn’t cause global warming’, ’emissions from industrial power plants don’t cause respiratory disease’, etc. Analogues to these ideological propositions, associated with climate and health, also abound in the world of economic analysis and policy as well.
Take just one example of recent ideology in economic policy: the Trump tax cuts (and all the major tax cutting legislation since Reagan–under both Republican and Democrat governments alike). The ideological proposition is that business tax cuts always create jobs.
Case #1: Business-Investor Tax Cuts Create Jobs
The recent $5 trillion given to investors, corporations, and non-corporation businesses by the Trump tax cuts were ‘sold’ to the public by the media (and the rest of the ideological apparatus) by claiming that business tax cutting creates jobs. In fact, every major tax cut legislation since Reagan has been entitled in part as a ‘jobs act’. Most recently, George W. Bush cut taxes by $3.7 trillion–80% of which accrued to the 1% and their institutions. Obama followed with more than $5 trillion in tax cuts for the wealthy from 2008 through 2013 (and the decade beyond) by extending the Bush tax cuts through 2012 and then adding still more after 2013 for another decade. Trump has now added another $5 trillion through 2028. (Which the media and apparatus reports as only $1.5 trillion, ignoring the the $2 trillion hike in middle class taxes and another $1.5 trillion offset to the $5 trillion based on absurd assumptions about 4% GDP growth for another ten years without a recession).
But there’s no causation evidence of jobs directly created as a result of the Bush-Obama $10 trillion tax cuts from 2001 to 2016, or the $5 trillion more Trump tax cuts that will take effect from 2018-28. There may be correlations, but one of the many tasks of Ideology in economic policy is to manipulate statistics, logic. and language with the intent to convince the public that correlations are causation. Jobs may be created during the period in which the particular tax cut is enacted, but that doesn’t mean the extra income for the 1% and corporations enabled by the tax cuts is directed into real investment that creates new jobs.
Just look at the Trump tax cuts thus far. Where has the money gone since January 2018 when the Trump cuts went into effect? The US Treasury, according to recent reports, has lost nearly $500 billion in corporate tax revenue alone thus far in 2018. So corporations alone got to keep $500 billion more in just the first half year or so of 2018. Where did it go? Have they been hoarding it? Apparently not. Corporate stock buybacks and dividend payouts to investors are on track in 2018 to reach more than $1.3 trillion this year–an amount which follows the last six years in a row during which more than $1 trillion was also distributed each year, every year, to shareholders in the form of buybacks and dividends. Thus the tax cuts have been flowing into stock markets (driving stocks ever higher) and to investors’ capital gains, rather than into job creating real investment in structures, equipment, or inventories. Jobs may have been created in 2018, but that does not mean created due to the tax cutting. Correlations are not causation–although a typical ‘language game’ and manipulation of ideas in economics is to argue that a correlation is causation. The advocates of ‘business tax cuts create jobs’ are guilty of just that ‘correlation is causation’ manipulation of language game.
They are also guilty of another language game: deleting reference to, or analysis of, the diversion of the hundreds of billions of tax cuts in 2018 so far to financial market investing–i.e. stocks, derivatives, foreign exchange speculation, etc.
The proposition that business tax cuts create jobs is not totally, 100% false. Some amount of the tax cuts no doubt translate into real investment (structures, equipment, inventories). But the evidence shows that perhaps no more than 20%-25% actual flows into real investment. The rest is either hoarded on corporate balance sheets, invested in financial asset markets (that don’t create jobs), or distributed to shareholders as capital gains from buybacks and dividends–which in turn is mostly either hoarded by investors or recommitted to stock and financial markets as well. Moreover, an important segment of even the 20%-25% that does go into real investment, actually reduces jobs not expands them. Investment in capital equipment as new machinery and technology often reduces jobs on net rather than increases them. Thus the ‘business tax cuts creates jobs’ is largely a fiction, created by the ideology apparatus, as cover to the real objective of increasing capital gains income for the wealthy 1% investor class and their corporations.
The business tax cuts create jobs proposition has its origins in neoclassical economics of the 19th century. The logical argument then was that if business costs were reduced, it would raise business disposable income, which in turn would be committed to business real investment and expansion. Business would not sit on the extra income or hoard it. It would invest it to become more productive and thus more competitive. And investing it would create jobs. But the hidden assumption was not only would reinvestment of the more disposable income occur, but there would be no delay in time. The time factor was conveniently left out in the logical (mis)assumption that tax cuts (aka more income) would result in more investment and more jobs. This proposition showed the oft-characteristic of ideology in which it is assumed the time element plays no role. A hallmark of ideological propositions is that they are often ‘timeless’. And that’s true today as well with the proposition that ‘business tax cuts create jobs’.
Thus, assuming correlations are causation, deleting reference to whom and where the tax cuts are being diverted, and ‘de-temporization’ are three of the various language games, and ideological manipulation, played by politicians and media—i.e. language games that are designed to create the mis-representation of reality embedded in the proposition that ‘business tax cuts create jobs’.
Case #2: BEA’s Savings Rate Change
Simultaneous with the ideological message that Trump tax cuts are creating jobs, the Government’s Bureau of Economic Analysis (BEA, a division of the Commerce Dept.) last week reported that US households have more retained income than thought in recent years. Overnight, the BEA changed US households’ savings rate from a 2017 low of 3.3% of their income to a 7.2% rate–that is a more than doubling of the savings rate overnight due to the change in calculation!
What is one to make of this abrupt, radical change? Are government statisticians redefining facts to suit politicians’ demands to make US households and the economy appear far better than they actually are before national elections in November? Have they gone off the deep end of ‘false facts’ now part of the American culture in the age of Trump? Is there a conspiracy by the BEA to falsify the facts? The answer is no to all the above. Ideological manipulation does not require blatant, outright lying. There’s no conspiracy. The BEA results and method change is hidden–although only evident if one reads the very small print in its methodology used. They don’t need to lie. Just cleverly adjust their methods of data gathering and how they transform real data into statistics. Just play fast and loose with the many assumptions they employ in order to obfuscate the real data–assumptions that often remain unstated and are easily lost to the general public in the process of statistical manipulation of the data. The truth is there even in ideological manipulation. It’s just hidden beneath a mountain of false assumptions and often questionable methodology.
Ideology is therefore often built around a kernel of truth, of the real. Ideological propositions may contain many truthful elements. Ideology is basically about manipulating those elements to produce a different meaning, sometimes a meaning fundamentally different. How this is accomplished, what techniques of language games are employed, is what distinguishes ideology in economics from science in economics.
The BEA changes that more than doubled the savings rate overnight radically changes the assumptions that have held in economics for some time about the relationship between savings, wage gains, and consumption.
Specifically, the changes reverse the long standing notion in economics–based on observation–that higher savings rates mean less consumer spending; and, conversely, that lower savings rates reflect consumers draining their savings in order to fund their consumption. By doubling the savings rate, the BEA changes suggest households haven’t been steadily draining their savings in order to maintain current consumption, as was previously concurred by most economic analysis. Therefore continuing gains in consumption spending by households must be due to wages rising. Therefore it follows that wages must actually be rising, instead of stagnating or declining. The high 7.2% savings rate thus supports the other media ideological message that rising US wages must be the factor supporting continuing US consumption.
If consumption were continuing to grow, as wages continued to stagnant or decline, that would mean households were dragging income from savings to finance consumption, and the 3.3% savings rate would make sense. But when it’s doubled to 7.2% it doesn’t make sense. So a health 7.2% savings rate must mean wages are rising if consumption is continuing.
As a result of the savings rate increase to 7.2%, US households are actually $615 billion richer, even if the $615 billion amounts to income “recovered from between the statistical couch cushions”, according to one Wall St. Journal report. The ideological conclusion is that workers must actually be getting richer since 2010, not struggling with stagnant wage gains as was thought the case. So we now have the ideological proposition that ‘a 7.2% savings rate means households consumption is rising’–a proposition that reverses the long standing empirical observation that consumption typically slows or falls as savings rates rise. Reversal of the causal relationship between variables is a typical ‘language game’ of Ideology.
That reversal language game is often associated with yet another: deletion of other key variables associated with savings and consumption. The vast majority of US households are now at record levels of more than $4 trillion in credit card, student loan, auto loan, and installment debt. $9 trillion more for mortgage debt. More than $13 trillion in total consumer debt, according to US Federal Reserve data. The very real possibility that it is this credit–and the debt it creates–that explains rising consumption amidst a higher savings rate and simultaneous wage stagnation–is ignored as an alternate explanation for continuing consumption amid stagnating wages.
Thus the doubling of the savings rate enables an ignoring (deleting) of the role of credit and debt in any explanation of the relationship between consumption and wage stagnation. If the savings rate is high, and debt is ignored, the remaining assumption is that continuing gains in consumption can be explained only due to rising wages.
In teh BEA savings rate change we thus see two language game techniques at play: the reversal of the causal relationship between savings and consumption, as well as the deletion of any reference to credit and debt as an explanation for continuing consumption (and despite stagnating wages).
If one digs deeper into the BEA savings rate report, some further interesting details appear that suggest ideological manipulation at work. According to a recent Wall St. Journal article (August 20, 2018, p. 2), the $615 billion in additional savings for the first three months of 2018 breaks down into $129 billion more for proprietors’ (non-corporate) business income, $73 billion in interest income, and $141 billion for dividend income. Employee compensation was increased by $100 billion.
How that $100 billion was distributed among the high salaried executives and CEOs and managers in the form of annual bonuses and other salary forms, and how much went to the remaining bottom 80% of hourly wage earner, was not clarified in the media reporting. Nor was whether the $100 billion in employee compensation included stock award cash outs by senior employee shareholders. Even more conspicuously missing in the business media reporting was where did the remaining $172 billion ($615 minus the above) savings increase go? While the BEA may provide an explanation for the missing numbers, the media, i.e. the ideological apparatus, conveniently leaves it out; that is, deletes it. Ideological mis-representation may thus take the form of omission of facts and relationships between variables, not just committing mis-representation on reported facts or relationships. One may distort the appearance of reality not only by adding totally new elements or facts to the idea, but by simply deleting long-standing elements or facts.
Ideological mis-representation functions not only by assuming correlations are causation, or by inserting new data into an original proposition, or reversing the logical relationships between variables, but by deleting or removing prior data by adopting a new statistical methodology or procedure with which to manipulate the raw data.
The ideological transformation of the savings function contained in the BEA’s adjustments involves the manipulation of the ‘time’ variable as well:
Since much of the $615 billion BEA savings rate adjustments for the first quarter 2018 are likely associated with the Trump tax cuts, one may conclude that the hike in the savings rate from 3.3% to 7.2% is a one time effect reflecting those tax cuts. First quarter 2018 US government tax revenues declined by more than $500 billion; much of that went in the short term to boosting savings of the wealthy. But no, the BEA assumes the Trump tax effect on households’ savings is not a temporary, one time effect. The BEA has made the effect retroactive to previous years as well, before the tax cuts boosted savings. The new upward revisions in savings totals for the first quarter of this year are assumed to be permanent. This making permanent of what may be temporary is an example of ideological manipulation of time, or what’s called the ‘de-temporization’ technique that was noted previously as well in the discussion of the tax cuts create jobs ideological proposition.
To sum up, in the case of the BEA savings rate change ideology at work is evident at various levels. Various language games are engaged: reversal of the relationships between key variables of savings and wage income and savings and consumption; deletion of important variables like credit and debt associated with both wage income and saving and wage income and consumption; and assuming as ‘timeless’ what in fact is a temporary factor of income and savings rate change due to Trump tax cuts’ effect on income and the savings rate.
For More Discussion
Ideology in economic policy employs a set of identifiable language games, or language manipulation techniques, whereby original and fundamental ideas in economics have their original meanings, based on empirical observation, nonetheless conveniently changed. For a further discussion of these language manipulation techniques, listen to my most recent August 17, 2017 Alternative Visions Radio Show, August 17, 2018. Or read my forthcoming article addressing contemporary jobs and wages themes as ideology, entitled ‘What’s Wrong With US Labor Statistics?’ (A still further, more in-depth analysis of the various ideological propositions at the core of Neoliberal policy will appear in my forthcoming book, ‘The Scourge of Neoliberalism: Economic Policy from Reagan to Trump’, Clarity Press, 2019, specifically in the chapter addressing the ideology of neoliberalism.)
Jack Rasmus is author of ‘Central Bankers at the End of Their Ropes’, Clarity Press, 2017, and ‘Systemic Fragility in the Global Economy’, Clarity Press, 2016, as well as the forthcoming ‘Alexander Hamilton and the Origins of the Fed’ (2018) and ‘The Scourge of Neoliberalism: Economic Policy from Reagan to Trump’, Clarity Press, 2019. He blogs at jackrasmus.com and hosts the ‘Alternative Visions’ radio show on the Progressive Radio Network.