Wealth Creators and the Philosophy of Social Science

Wealth creators need to be saluted; they are the Olympic champions, says Michael Fallon, newly-appointed minister for business in the UK. I thought the Olympic champions were the Olympic champions, but Michael Fallon says no, it’s Team Mammon who need our applause. This is good news for those of us with no athletic talent; I’ve always wanted some of that applause. So how do you get to be a wealth creator? Here are a few simple steps to get you started:

  1. Be born to rich parents.
  2. Borrow their money (this step was contributed by Mitt Romney).
  3. Start a company that buys financial assets.
  4. Overestimate your ratio of assets to liabilities, or get dodgy accountants to do it.
  5. Record high profits.
  6. Pay yourself colossal bonuses.
  7. Sell shares.
  8. When the assets go bad, let your owners sit on them and take off with your bonuses unscathed.
  9. Use your vast personal savings to start another company when times improve.
  10. Repeat the process until your comfortable death in a lavish private hospital, followed by a state funeral.

I’m not saying it’s easy to be a wealth creator. Many people struggle with step 1. Indeed there are further complications and they are all to do with tax. The whole point of this system is that you take more out of your company than its discounted future profits. If taxes start eating into your personal finances this upsets the balance. If you are to be a wealth creator you must not pay tax.

You can avoid tax by keeping your personal assets offshore. Start a company in an overseas tax haven, buy big things at home, and then get your overseas company to buy them again. This will siphon wealth straight out of your country’s economy and right into your belly (‘wealth creator’, by the way, means creator of your own wealth – we’re all clear on that, aren’t we?).

Better than avoiding tax is not getting taxed in the first place. The government are usually happy to help with this, but you need to help them help you. Tell them and the media as often as possible that you are right on the verge of taking your wealth elsewhere (in Australia even mining executives manage to threaten this – what’s wrong with that picture?) or ceasing to create it altogether. In this precarious condition, the very mention of taxation is likely to make your wealth-creating humours run dry. Like all Olympians, you are sensitive and highly-strung.

What if people raise the issue of fairness? It’s not fair, they whinge, for you to earn so much and not to contribute to the public good. Remembering the fifteen minutes of welfare economics you sat through in your overpriced business school, you reply that the beauty of the free market is that it distributes resources through free exchange, which means that your wealth is simply remuneration for the contribution you have already made to the satisfaction of others. A clever whinger replies: But here the remuneration is obviously disproportionate! You are earning money simply by owning things you neither manage nor work on! And the economy can’t work without remuneration that is perceived as genuinely fair.

But your contribution, you reply, is vital but hard to see. You participate in an efficient financial market, which, like all efficient markets, distributes its resources according to genuine need better than any other system could do. By buying and selling assets, you are using your financial expertise to direct investment into the areas of the economy where its returns are greatest. Nobody who isn’t a financial expert could hope to understand the value of your contribution. That is why you are an Olympic champion, and deserve Michael Fallon’s dewy-eyed salutes.

There is one thing you must strenuously oppose with all your might. Under no circumstances must you or any of your puppets in government tolerate talk of fiscal stimulus during a recession. Periods of stagnation are where you come into your own. Your magical power to create wealth is the only thing that can get an economy back into growth. This ceases to be true if a government manages to stimulate demand so that wealth is created by ordinary people doing actual work, rather than conjured out of thin air by your incantations and entrepreneurship, and spent by ordinary people within the economy, rather than sequestered into some untaxable vault. That sounds too good to be true, and so it should be. Growth comes in profits, not in wages – that’s the way it has been (in the US and the UK) since the 1980s, and time began in the 1980s…

…This is supposed to be about the philosophy of social science. But in a way it is. Economics, as a discipline, seems to have been too distorted by ideologically-driven research funding to be capable of highlighting the fallacies lurking inside the nonsense spouted by people like the new business minister, let alone the American Republicans who did not, contrary to their nauseating mantra, build their nation’s infrastructure (not, at least, as private firms and citizens). For every economist encouraging people to genuinely think about these issues, there seem to be ten encouraging people not to think, or to think absurdities.

The absurdities range widely, but at root they are philosophical in nature. Normative conclusions are wantonly read off mostly descriptive theories such as the two welfare theorems. Illegitimate assumptions are made about the nature of scientific knowledge, for example that since dynamic stochastic general equilibrium theory is more mathematical than behavioural macroeconomics it is therefore more scientific. Fairness, being a promiscuous concept, is open to all patent and perverse abuses. Philosophy of social science can help with some of this. Whether the benefits of addressing issues at this elite academic level will trickle down into the public debate only time will tell – unlike other trickle-down theorists, I’ll give up my theory if events refute it.

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2 thoughts on “Wealth Creators and the Philosophy of Social Science

  1. dca

    And yet, dear boy, Japan. Or is your notion that the peculiarities of the way in which the fiscal stimulus and QE have played out in that country are explained by that amorphous and capacious thing, ‘cultural issues’?

    Reply
    1. axdouglas Post author

      Well, Japan sustained constant moderate growth through its lost decade; compared with the recent performance of the US and the UK that’s looking much less like a failure of expansionary fiscal policy. And certainly nobody argues that fiscal policy is a substitute for a consistent and sensible monetary policy, which Japan didn’t seem to have. And there is the aging population to consider – demographics is presumably a less amorphous factor than culture. And anyway, just because the latter is hard to quantify surely it isn’t irrelevant. So I don’t think ‘Japan’ is a one-word refutation of Keynes. But I am a dear boy.

      Reply

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