By Venture capitalist Nick Hanauer, an acknowledged “one percenter,” makes a spirited case in this week’s Wall Street Journal for a “new economics” to alleviate what he sees as the inherent societal dangers of wealth inequality. It’s a traditional Durantian concern: when the have-nots have had enough, they may well turn their pitchforks on the haves. Hanauer, for whom the pitchforks loom large, contends there is an easier way — some form of a new New Deal that purports to bridge the gap between the baser impulses of Democratic Socialists and Market Capitalists.
Credit Hanauer for trying. These hyper-polarized times are indeed troubling and we should welcome novel ideas outside our ideological tribal pale. I fear, however, that Hanauer and his Oxford economist colleague Eric Beinhocker don’t offer much that is genuinely innovative. Their “new economics” may serve as a useful marketing pitch for their new book, but pouring old wine into new bottles doesn’t qualify as great winemaking.
Hanauer and Beinhocker describe “Market Humanism” as a new paradigm “grounded in twenty-first century thinking.” What that means isn’t clear, but they argue that the “old paradigm” — economics as the study of how society manages its scarce resources — has “constrained economic thinking for the past 150 years.” They propose instead an economics centered on human flourishing, in which “markets are servants, not masters,” and argue that the real genius of markets lies less in their efficiency at allocating existing resources, but rather in their ability to generate innovation. Erm… paging Dr. Schumpeter to address the blindingly obvious. He wrote, way back in 1942, of the “perennial gale of creative destruction” that allows continuous innovation across the entire economy.
There is, moreover, an odd tension at play. Hanauer himself readily acknowledges that market capitalism has been astonishingly successful. “No social technology,” he writes, “has done more to create prosperity and raise living standards” than market capitalism. Human beings, he notes, are now leading substantially longer, healthier, more comfortable, more fulfilling lives than at any other time in history.
So what, exactly, is the old paradigm failing to explain?
Despite the window dressing, I suspect Hanauer’s answer is that it fails to justify the political case for greater taxation of the uber-rich. The simplest way to summarize Hanauer and Beinhocker’s “very different model,” then, might be “market capitalism with socialist characteristics.” And maybe they have a point — if the basic problem with traditional market capitalism is that it has been too successful, and that the risk of toppling our social edifice at the altar of envy is acute, then maybe we should take the argument seriously.
But with those stipulations, the issue isn’t really about economics, or paradigms, or “social technologies” — it’s about politics. The political urge to “discipline” the golden goose of free markets is an age-old temptation — and is particularly tantalizing when politicians can exploit existing grievances over perceived economic inequality.
Hanauer is clearly enamored of such a project, if for no other reason than providing a political smokescreen to protect market capitalism from the mob. He may be right: perhaps the politics of anti-market leftism has turned the tide, and Americans are ready to butcher the goose and portion it out, each according to his need.
But I’m not convinced. The Americans I know are indeed frustrated with crony capitalism, but still very attached to bedrock principles of free exchange. As such, it’s worth wondering aloud if Hanauer’s vast resources might be better spent engaging in the unglamorous work of promoting tried-and-true classical liberal principles instead of pretending to invent a new science. The title of his editorial was “America Made Me Very Rich. There’s a Pro-Market Way to Give Back.” Probably the most pro-market way to “give back” would be to literally give his money away — to whomever he wishes. Many billionaires are doing exactly that, including through new federal savings accounts.
The Market Humanist insistence that markets are human institutions (rather than the implied cold and callous “neoliberal” order) is of course not new. In fact, it has a decidedly Classical Liberal ring, resonating with Hayek’s broader message that when left alone, “a spontaneous order of human activities of much greater complexity will form itself than could ever be produced by deliberate arrangement.” Dynamically emerging social relations can be counted on more than the “guidance” of centralized human design.
Classical liberals have been singularly focused on individual freedom and human flourishing for a very long time, precisely because they recognized that the human collective is best served when individuals are free to choose how to allocate their own resources.
None of this makes Hanauer and Beinhocker wrong. In fact, their synthesis might gain traction if ideas that have circulated for generations within economics and adjacent disciplines are attractively packaged in a language that a broader public can understand. It also clearly doesn’t hurt that they apparently have billions to throw at the campaign. Hanauer, to his credit, is candid about this. In discussing Market Humanism, he acknowledges that there are “almost no original ideas” in the framework; he and Beinhocker’s contribution, he said, is to organize scholarship from economics, anthropology, psychology, sociology, physics, and other fields into a coherent narrative.
Fine, as far it goes. But a distinction over originality matters, particularly when the subject is social inequality. If we are serious about the political question of reducing inequality without destroying the extraordinary productive power of markets, we need more than new packaging. We need instead to ask which institutions actually broaden opportunity, which forms of redistribution improve or impair incentives, and which central interventions address genuine market failures — rather than merely rearranging political power.
Unfortunately, rearranging political power mostly seems to be what the Market Humanists are up to. When it comes to generating a stable social order, “neither socialism nor MAGA is the answer,” says Hanauer. “But neither,” he goes on, “is a retread of the neoliberal orthodoxy responsible for the largest upward redistribution of wealth and income in American history.” Here I must demur: a retread seems like a great idea.
Wealth inequality is nothing new, after all. A few pages later in the same Wall Street Journal edition, a historian noted that a ticket on the Hindenburg cost a cool, dollar-adjusted $10,400 (one-way, of course). The well-heeled elites who could pay that much lived over-the-top lavish lifestyles not unlike the ones that Hanauer describes today as nettling the jealousies of the rest of us.
The fact is that everyone, and especially the poor, do better by the “old paradigm,” and we’d be wise to embrace it. The distasteful excesses of the hyper-rich should not distract us from a system that has lifted billions from poverty. Hanauer’s apparent infatuation with FDR-style policies, which “combined new economic thinking with a broad and bold set of policies,” is misplaced. The Roosevelt administration wasn’t cute or creative in the way he makes it sound: many in his administration admired the command-economics they’d seen on visits to Stalin’s Russia. While people were starving, New Dealers ordered baby pigs butchered and destroyed to ‘help the farmers,’ and issued executive decrees for a 100 percent top income tax (up from an existing 90 percent).
These policies prolonged the Great Depression by years and cost the American public unfathomable wealth opportunities. If Market Humanism means Rooseveltian confiscatory taxation, we are in for some ugly re-learned lessons.
Perhaps Hanauer and Beinhocker are more nuanced in their fully published corpus. Maybe they offer a broader layout of data and logic than the Wall Street Journal can cram into a review. Maybe they walk us through elements of the Nordic model, for instance, that we Americans should properly take note. But before declaring a new paradigm, one must fully grasp the old ones. Smith, Mises, Hayek, Kirzner, and thousands more spent a great deal of time thinking about how decentralized markets discover information, generate innovation and coordinate human cooperation to promote individual prosperity and community flourishing. The wine of Market Humanism may indeed be worth drinking. But it is worth knowing how long it has been aging.