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coverVOICES ON THE ECONOMY How Open-Minded Exploration of Rival Perspectives

Can Spark Solutions to Our Urgent Economic Problems

Amy S. Cramer, PhD Laura Markowitz

THE VOTE TEXTBOOK Volume I

VOICES ON THE ECONOMY How Open-Minded Exploration of Rival Perspectives

Can Spark Solutions to Our Urgent Economic Problems

THE VOTE TEXTBOOK Volume I

Amy S. Cramer, PhD Laura Markowitz

Tucson, Arizona

ISBN: 978-1-7339103-0-9

Cover design by David Scott Allen

Book design by Michael Leclair

Cover Photo © rclassenlayouts

Voices On The Economy (VOTE) Program

1 West Broadway Blvd., Suite 505

Tucson, AZ 85701

www.VoicesOnTheEconomy.org

This book is for the great economic thinkers of tomorrow.

We’re waiting for you.

Acknowledgments W hatever inspiration you take from these pages is the direct result of the efforts of many pas-sionate and committed people who believe in the mission and vision of the Voices On The Economy (VOTE) Program. This book would not exist if not for the generous support of our funders.

Foremost among them is the Thomas R. Brown Foundations. Special thanks to Barbara Gray, Sarah

Smallhouse, Mary Brown Bernal, Gerry Swanson, and the entire Board of Trustees for believing in the

VOTE Program and to Norma Roberts for her administrative support over the years. The VOTE Program

was incubated at Pima Community College in Tucson, Arizona. We are deeply grateful for its ongo-

ing institutional support. And thanks also to the Political Economy Research Institute at the University

of Massachusetts Amherst, and to other individual donors, who generously supported Volume I of

this textbook.

Years ago, a book called Economic Issues Today by Robert Carson, Wade Thomas, and Jason Hecht demonstrated how to present multiple perspectives on economic issues in a thoughtful, unbiased way.

The VOTE Program stands on their shoulders, and we are grateful to them for inspiring our work.

There are too many people on the VOTE team to thank by name, but the program has benefited from

the participation of hundreds of teachers, interns, research assistants, administrative support staff, and

students, all of whom gifted us with their ideas and enthusiasm. The VOTE Program curriculum was

shaped over the past decade by talented research assistants: Zachary Forman, Ryan Day, Sheri Pingry,

Irving Talavera, Angela Lucero, and Zachary Stout. We also relied on the careful reading and important

feedback of our beta readers: Maggie Chrisman, Veronika Gillis, Ali Godoy, Gene Gotwalt, Ilene Grabel,

Keoka Grayson, Travis Klein, Alan Lee, Ishrat Mahzabeen, Fiona Markowitz, Patrick Peatrowsky, Robert

Rubinovitz, Barbara Silverstein, and Dhun Silverstein. Our board members graciously contributed their

thoughtful critiques to this book: George DeMartino, Glenn Maller, and Amelia Craig Cramer. Finally,

this book would not exist in the form that you see here without the graphic design talents of Michael

Leclair and David Scott Allen and the keen eye of copyeditor Amanda Krause.

Writing a book takes a lot of time and focus. We are both deeply grateful to our close family mem-

bers. Laura thanks MK LeFevour for her love and support. Amy thanks Amelia and Margo Cramer for

being her anchors and guides in this long process of writing the VOTE textbook. She especially wants

to thank the many family members, friends, and colleagues who understand and support her drive to

realize the greater purpose of this project, which is to help repair the world.

Our hope is that the VOTE Program will empower people of all ages and backgrounds to find their

unique voices and join the conversations that shape our lives and our future. What that really means is that

all the effort that’s gone into creating the VOTE Program—and all the ideas in this book—are for you. We

are most grateful to you, our readers, for embarking on this adventure with an open mind and hopefully

sparking new solutions that the world desperately needs. We look forward to hearing your voice. Amy S. Cramer, PhD

Laura Markowitz

Tucson, Arizona, 2019

Contents

Acknowledgments

Part I—Background

Chapter 1 The World Needs Your Voice

Chapter 2 Thinking About Thinking

Chapter 3 The Great Economic Thinkers

Chapter 4 Conservatives and Liberals: Conventional Theory

Chapter 5 Radical Theory

Part II—First Issues

Chapter 6 Tools to Get Started

Chapter 7 Issue: Agriculture

Chapter 8 Issue: Product Safety

Chapter 9 Tools to Move Ahead

Chapter 10 Issue: Livelihood

Chapter 11 Issue: Housing

About Voices On The Economy (VOTE)

ch1

There’s a famous story about nineteenth-cen-tury English painter Dante Gabriel Rossetti. It may or may not be true, but it explains why the VOTE Program exists. Our version of the

story goes like this:

One day, an elderly man approached the well-

known artist and asked Rossetti if he would be so

kind as to take a look at a few recent sketches.

After glancing at the drawings, Rossetti said, “I

don’t want to hurt your feelings, but my honest

opinion is that these don’t show much talent or

artistic skill.”

The old man looked sad but

not surprised. He held out

another portfolio. “Please,

kind sir, would you take

one more minute and look

at these sketches by a young

art student?”

Rossetti started to give them

a cursory glance, but then his

eyes widened in surprise. He

studied them closely. “These are

astonishing!” he exclaimed. “I have

never seen anything like this. With

the right encouragement, education,

and support, this artist could go far.

This kind of talent could change the whole art

world. Tell me—who made these drawings?”

Tears rolled down the old man’s wrinkled cheeks.

“I did,” he confessed, “forty years ago. But I didn’t

have any encouragement, so I never believed in

myself. I became discouraged and gave up. Now I

see that I have lost whatever talent I might have had

because I didn’t develop it.”

The world needs your talents. It desperately

needs your unique skills and your unique voice to

bring us the brilliant new solutions that will solve

our urgent economic problems—poverty, lack of

health care, homelessness, the growing national

debt, and more. But there are people like the old

man in this story who were never

encouraged, or supported, or

educated to find their voices.

They check out of the con-

versations and tell them-

selves, “My ideas don’t mat-

ter.” They end up leaving it

to others to argue and debate

and have passionate opinions.

They squander their opportuni-

ties to speak up about issues that

have everything to do with their

own happiness and well-being.

1The WorldNeeds Your Voice

2 | Voices On The Economy

Finding Your Voice

The VOTE Program exists to prevent this tragedy

from happening to you or anyone else. VOTE stands

for Voices On The Economy. We are a nonprofit

organization whose mission is to inspire solutions

to our nation’s urgent economic problems by

building a culture of respectful listening, passionate

advocacy, and intelligent debate. We do this by

teaching you the liberal, radical, and conservative perspectives on economic issues—side by side, in

a completely unbiased way. Then we invite you to

try on those competing voices so you can become

fluent in each one. When all of us become fluent in

multiple perspectives, the result is transformative.

We realize that those who think differently from

us are not the enemy. We step outside our echo

chambers and our minds open to new ideas and

new possibilities for solutions. Our vision for the

VOTE Program is that people from all walks of life

will find their voices on the issues and become

educated voters; combative debate will become

solution-focused conversation; and our nation

will move forward in the best possible way. In a

democracy, diversity of ideas is a gift. We need one

another’s voices to change the conversation.

We believe the world will be a better place

because of your voice. We believe you have the capacity to make unique contributions that the

rest of us need. Your perspective could change

the whole world! You might see something that

no one else sees, which could lead to solutions

to our most challenging problems. This is no time

to tune out, fade out, or stay on the sidelines. It’s

time to get in the game. The VOTE Program will

educate, support, and encourage you, so that no

matter what you end up doing in life as a career,

you will know how to use your voice to contribute

in a meaningful and productive way to the conver-

sations about economic issues.

Why Economics?

Right now you might be thinking, “Economics?

That’s not relevant to me!” You wouldn’t be the

first to think that, but as an economics educator,

I (Amy) have to confess that I find that response

astounding and alarming. It’s like hearing a fish say

that water isn’t important. Please understand that

economics is not just about how to invest in the

stock market or how to balance your checkbook.

Did you eat today? Did you travel on a road to

get somewhere today? Are you wearing clothes?

Do you have a cell phone in your pocket? All

these things are influenced by economics. It has

everything to do with the quality of the drinking

water that comes out of your tap, whether your

seat belt works properly, what shoes you’re

wearing right now, the age at which you can

retire, your decision about whether or not to have

kids, if you can go to college, how safe you are

walking home at night, where you’re sitting right

now, where you live, your career opportunities,

and everything else you can think of. Everything

in the newspaper—from the sports section to

the TV listings—is about economics, as are the

feeds on your social media, the debates about

financial aid you hear in the hallways at school,

Chapter 1: The World Needs Your Voice | 3

and arguments at work about the minimum wage

and benefits. And those conversations you and

your family and friends have at the dinner table

about organic food versus nonorganic food, and

what new car to buy? Yes—economics. All the

choices available to you have been, are now, and

will be shaped by economics.

Economics is relevant to your life in every way.

If you’re not yet convinced, then please take a

look at the issues we’re going to explore in the

VOTE Program (the list on the right). There’s

nothing on this list that doesn’t affect you and your

future in every way possible.

But here’s the problem that usually comes up

when people want to learn about economics:

nearly all high school and college courses are

loaded with technical model building, which can

be intimidating. It’s like you have to climb a steep

trail up a mountain of information and try not to

twist an ankle on all the jargon before you reach

the top, where you will finally feel ready to have

a voice in the policy discussions. A lot of people

give up on understanding economics before they

even try. If you are like the majority of people who

don’t want to make the climb, the VOTE Program

offers a much more accessible path. And if you’re a

person who has fallen in love with economics and

relishes the challenge of mastering mountains of

economic models, then the focus on multiple per-

spectives offered in the VOTE Program will make

your journey into this field even richer and more

exciting. No matter which path you choose, you’ll

become conversant with diverse ways of under-

standing the world.

Although I did climb the mountain, and it was

rewarding to reach the top and earn my PhD, I

was aware all along the way that many people

are left out of the conversations altogether, and

it was clear to me that this holds us back as a

society. We need everyone’s educated input to

spark brilliant new ideas about how to solve our

urgent problems. We need to become a nation

of informed voters. Yet because economics seems

so complicated, too often people leave those

debates to the “experts.” They don’t understand

the jargon, or they’re scared off by the statistics,

charts, and graphs. So I started the VOTE Program

to make economics accessible to all—and to help

you to fall in love with the questions economists

ask about how to create well-being.

4 | Voices On The Economy

Multiple Perspectives on Economic Issues

I went off to college in the 1970s in the midst of

the gas shortage, the coal-worker strikes, children

getting brain damage from eating lead paint chips,

prices rising as people were losing their jobs,

soaring mortgage rates, warnings about the health

effects of worsening smog, and more. The popular

media referred to the different sides of the debates

on economic issues as “conservative,” “liberal,” and

“radical.” But as a young person, I had no idea

how to evaluate them. Which one was right? What

made the most sense to me? How could I be sure I

was voting for what I really believed in? “I’ll study

economics!” I thought to myself. “That’s where

I’ll learn what I need to know to understand the

debates going on in our nation so that I can join

the conversations.”

Unfortunately, my economics classes were a

disappointment. My professors taught as if there

were only one way to think about economics.

They didn’t even mention that other perspectives

existed, and they assigned readings and textbooks

that just echoed their personal favorites. So I looked

for answers outside the classroom. I went to rallies

and protests. I listened to the speakers, but I was

disappointed that people seemed to be talking to—

and listening to—only those who agreed with their

positions. So I turned to the media for answers, but

I found newspapers and television reporting to be

more of the same echo chamber (and it’s gotten

even worse over the decades).

In the midst of my deep frustration trying to

make sense of all the noise, I was thrilled to come

across a groundbreaking academic book by Rob-

ert B. Carson, Wade L. Thomas, and Jason Hecht

called Economic Issues Today. The authors line up

different perspectives side by side and compare

them in a fair, unbiased way. It was astonishing

when I could understand the differences between

how radicals, conservatives, and liberals see the

issues. It transformed my vision of the world from

black-and-white to glorious Technicolor. All the

arguments in Congress that I read about in the

morning paper—from international trade deals

to seat-belt laws—suddenly made sense. I recog-

nized the different economic perspectives when

they were lampooned on Saturday Night Live,

satirized in political cartoons, and argued over

during my family reunions.

Using Economic Issues Today as my inspira-

tion, I created a version of this way of teaching

multiple economic perspectives that is accessible

to people of all ages, walks of life, and academic

backgrounds. VOTE uses multimedia, group exer-

cises, and role playing to trace the roots of our

current economic debates back to the ideas of the

Chapter 1: The World Needs Your Voice | 5

great economic thinkers from the last three hun-

dred years. I launched the VOTE Program to help

you transform your world from black-and-white to

Technicolor. I created it for you—and, selfishly, for

me—because I want to share the world with peo-

ple who are respectful listeners, passionate advo-

cates, and intelligent debaters. You have opportu-

nities to vote all the time—not just at

the ballot box but also in conversa-

tions at work, at school, with family,

with friends, and with strangers. Your

voice influences the ways other peo-

ple see the world, so don’t you want

to make sure that what you’re saying

is what you actually believe? Imagine

you have a headache and need pain

medicine. You would want to know

the possible side effects of the dif-

ferent available choices. You would

read the labels first and then make

an informed decision about which

one is right for you. The VOTE Pro-

gram helps you “read the label” on

each economic approach.

Economics is a fascinating story

of the evolution of ideas. There have

been countless economic thinkers—

men and women from cultures and

nations around the world—but the

debates that largely shape our con-

versations today are credited to three

great economic thinkers who were

European men: Adam Smith, Karl

Marx, and John Maynard Keynes. In

chapter 3 you’ll learn more about

them and the ways in which their ideas still inform

the conservative, radical, and liberal views on the

most pressing problems we face as a nation. The

VOTE Program focuses on the thirteen most rele-

vant economic issues of our time, giving you the

information and tools to make up your own mind

about what you believe.

Maybe you’re thinking, “I don’t need the VOTE

Program, because I already know what I think. My

mind is made up, and I know I’m right. I know

how we should move our nation forward.” But

how well informed is your opinion? Do you truly

know what the other perspectives are saying? How

did you develop your opinion? We’re all influenced

by our families, our communities,

perhaps our religions, and more.

Consider that if you had grown up

in a different family, or a different

neighborhood, or a different reli-

gion, you might have a completely

different perspective right now. All

of our ideas about the world are

profoundly shaped by these and

other influences.

For instance, let’s say your family

members are all die-hard Cardinals

fans. On game days all the cousins

gather to watch the Cardinals play

on television and everyone wears

the team colors. When the Cardi-

nals score, everyone chants, “We

bleed Cardinal red!” When the Car-

dinals lose, everyone shouts at the

TV and accuses the other team of

cheating. (“Those umpires were

probably paid off to look the other

way, because the catcher definitely

tagged the runner at home!”) Every

holiday dinner conversation turns

into a heated debate about who

was the greatest Cardinals player of

all time. In this context, how likely

are you to become a Yankees fan?

How likely are you to decide you prefer soccer

over baseball? If your family has always been

staunchly Republican or Democrat or Democratic

Socialist, how likely are you to understand the

views of other perspectives, or to speak up for

a policy or candidate from another party? How

Adam Smith

Karl Marx

John Maynard Keynes

6 | Voices On The Economy

likely are you to be open

to alternate points of view?

I despair when people

argue for one economic

perspective without truly

understanding the other

perspectives. It’s danger-

ous to believe that you’re

right and everyone else

is wrong when you don’t

really understand the other

points of view because you

haven’t been exposed to

what others are saying in a

fair-minded way.

Many things can happen when you’re open-

minded and have access to this information. One

possibility is that you’ll learn the other perspectives

and change your point of view. Or your original

view will grow stronger. You’ll say to yourself, “I

understand what they’re saying, and I’m even more

sure I’m right!” You may hear the strengths and

weaknesses of each argument and become open

to finding middle ground. You’ll think to yourself,

“If we compromise, we could solve this!” Another

possibility is that by hearing how the people from

other perspectives think about the issues, you will

come up with a whole new way of thinking about

solutions to our urgent economic problems.

You might be wondering why I’m making a

big deal about the importance of learning multi-

ple economic perspectives in an unbiased way. It

turns out that my experience in college wasn’t the

exception; it’s the norm. Most economics courses

and books present only a single economic view-

point—and they present it as the “truth.” The few

that do include diverse viewpoints nearly always

conclude that one or another is the “right” or “best”

economic approach. I believe introductory eco-

nomics education should empower you to make

up your own mind, not convert you to a teach-

er’s (or textbook writer’s) way of thinking. You

need to judge for yourself

and find your own voice

on the issues—not mimic

mine or anyone else’s. It

doesn’t matter to me what

you decide; I only care

that you make an informed

decision. If you study the

statistics for all the base-

ball teams and end up

more convinced than ever

that the Cardinals really

are the best baseball team

in history, that’s great. Or

if you change your mind

about the Cardinals and become a die-hard Yan-

kees fan, that’s great. Or if you decide hockey is

a much better sport than baseball, that’s great. As

you read this book, please repeat this to yourself:

“The VOTE Program is not advocating for any of

the perspectives; it’s helping me make my own

educated and informed decisions about what

I believe.”

How We Identify the Perspectives

The VOTE Program uses the terms conservative,

radical, and liberal because these are the terms

most used by the popular media to describe the

dominant ways of understanding economic issues

in our society. However, we know these are not

perfect descriptors. We’re using them as catch-all

terms to describe the general ideas of each of the

perspectives. These three umbrella terms give you

a way in to the conversations about economic

issues by drawing bright lines between them so

you can compare and contrast their approaches

in the broadest way. Over time and with practice

you’ll become more fluent in their ideas and

develop a more nuanced understanding of each

one. You’ll come to realize that there is a lot more

complexity and diversity of thought within the

radical, liberal, and conservative camps. In fact,

By hearing how people

from the other

perspectives think about

the issues, you may come

up with a whole new

way of thinking about

solutions to our urgent

economic problems.

Chapter 1: The World Needs Your Voice | 7

they debate and argue among themselves as much

as they do with people from other perspectives.

Your Voice Is Your Vote

It’s no accident that the acronym for Voices

On The Economy spells out the word VOTE. In

a democracy we, the people, must decide what

our national priorities should be. That’s what all

the fights in politics are about. When we cast our

vote for the candidates who will represent our

views in the White House, in Congress, in the

statehouse, on the local city council, or on the

school board, for example, we’re really voting for

the economic perspective we believe will best

advance our personal interests and the interests

of our community and country. Voting is your

opportunity to say, “Here are what I believe to be

the highest priorities for our nation. Here is what

I want my future to look like. Here is the kind of

world I want to live in. This is the path forward that

I believe we should take to solve our problems.”

Even if you can’t vote at the ballot box, you can

speak up at the kitchen table, talk to your class-

mates and coworkers about issues, and use your

voice to influence the people around you. And

when you don’t vote, you let other people decide

for you what your future will look like. They—and

not you—will decide if the minimum wage should

go up, stay flat, or be eliminated. They—and not

you—will determine how much federal debt we

will have. They—and not you—will decide what

your retirement security will look like. If nothing

else, I hope reading this book convinces you to

exercise your privilege to vote whenever you get

the chance. Please remember the old man in the

story about the artist Dante Gabriel Rossetti. He

didn’t use his voice, and he missed out on his

chance to transform the world.

The VOTE Ballot

You may or may not already have opinions about

the issues we’re going to cover in this book. Either

way, let’s find out if and how your attitudes change

as you go through the VOTE Program. Below,

you’ll find the VOTE Ballot. It doesn’t matter if you

don’t know much or anything about the issues

listed there. Make your “1st Vote” by taking your

best guess. You will see that there are circles with L for liberal, R for radical, and C for conservative. If you’re a conservative on an issue, put a dot on the

outside edge of the circle that’s under the C. Same goes for if you’re a liberal (under the L) or a radical (under the R). But wait! If you’re between two of the positions—let’s say liberal and radical—then

put a dot in between the L and the R. If you lean a little more toward one perspective or the other,

move the dot in that direction.

Please don’t leave any issues blank. We’re going to vote again (“2nd Vote”) at the end of each of the

issues chapters. You’ll be able to track why you

took that position (the “Why?” column) after you

become more educated and informed about the

issues and the perspectives. Please vote right now

on issues 1 through 13 before you continue read-

ing. If you printed a copy, please save it in a con-

venient place. You’ll need it thirteen more times.

8 | Voices On The Economy

ISSUE 1st VOTE 2nd VOTE WHY?

C R

Agriculture

Product Safety

Livelihood

Housing

Income Distribution

Market Power

The Environment

Health Care

International Trade

Retirement Security

Economic Stability

The Federal Budget

Immigration

$ $

Name

VOTE Ballot

VOTING INSTRUCTIONS: • Decide which perspective you agree with on each issue. • Place a dot on the outside circle corresponding to that perspective (C, L, R). • If you lean toward another perspective as well, place the dot in that direction.

Chapter 1: The World Needs Your Voice | 9

The Three Questions of Economics

You’re ready to start your exciting voyage into

economics, but please don’t worry when I tell you

that we’re going to begin with a shipwreck. Imagine

you are stranded with others on a deserted island.

What’s the first thing you’re going to ask? “How

can I survive?” Humans throughout the ages have

been asking questions about how to survive. This

is what makes economics such an interesting social

science. Economists break down the question of

survival into three components. First, given the

resources we have, what should we make? This is

the consumption question. Should we use the

driftwood on this island to make a fire to keep

warm or to build a raft? Let’s say we decide to

build a raft. The second question, then, is how do

we make it? This is the production question. We

decide that you’ll collect the driftwood, vines, and

tree sap, and I’ll fashion a hammer from a stone and

a stick. We’ll then use these items and our labor to

build the raft. The third question is for whom do we make it? This is the distribution question. Who should have a place on the raft? Those other people

who also washed up on the beach—should they

build their own raft or use ours? The definition of

economics that we’ll use in this book is the study of the consumption, production, and distribution of goods and services—questions you would ask if you were stranded on a deserted island.

Because you were not the only one left stranded

after the shipwreck, you also would have had to

ask questions about how to manage social interac-

tions among the survivors. How would decisions

be made? How would conflicts be resolved? What

should the group’s priorities be (e.g., laws, gov-

erning structures, and policies)? That is the sphere

of politics. Politics is the study of governance— the systems that manage social interactions. Just

Three Questions of Economics

What to Produce? (The Consumption question)

How to Produce? (The Production question)

For Whom to Produce? (The Distribution question)

Economics The study of the Consumption,

Production, and Distribution of

good and services

10 | Voices On The Economy

like on the island, economics and politics are

always bound together, which is why the people

who started studying this phenomenon years ago

called it political economy. Later, to dive deeper into these topics, the fields of political science

and economics were divided into two separate

realms of inquiry. In the VOTE Program we bring

them back together because we not only explore

the economic ideas of each perspective, but we

also examine their policy ideas. Our nation has

a representative democracy or republic. We elect others to vote on our behalf to enact laws

and policies. Our laws are passed not by a major-

ity of people in the nation but by a majority of

elected representatives, whether it’s on the school

board, or in the statehouse, or in Congress. Our

representatives can’t just enact any law they want.

All our laws and policies must align with our Con-

stitution (we call this a constitutional democ- racy). While radicals, conservatives, and liberals all agree that peace and prosperity can best be

delivered in a political system of constitutional

democracy, they disagree on which economic

system can best bring us the material well-being

to thrive and which policies will move us forward

as a nation. Those disagreements are the subject

of the VOTE Program and this book.

The three questions we ask in economics are

subcategories of the bigger subject of prosperity,

also known as wealth creation. When we talk

about wealth or prosperity, we don’t just mean

big bank accounts. We mean having everything

we need to flourish and live full lives

so that we can achieve our

potential. This includes the ability to go to the

dentist and get your cavity filled, to sleep on a

mattress, to wear shoes, and so forth. In other

words, we’re not just talking about the ability to

afford designer shoes and sports cars. We’re not

talking about materialism—the belief that your possessions are the most important things in life.

We’re talking about the goods and services we

need to survive and thrive.

One of the things I’m most grateful for are my

glasses. When I put them on every morning, I’m

reminded of my favorite episode of The Twilight Zone, a TV show I watched in the 1960s. The epi- sode is about a man who just wants to be left alone

so he can read, but his demanding wife and his

demanding job as a bank teller keep interrupting

his reading time. So one day he slips into the bank

vault to steal a little peace and quiet with a good

book. That’s where he’s hiding when a nuclear

blast happens. He emerges from the vault and

discovers that he’s the sole survivor. At first he’s

devastated, but he quickly sees the bright side of

his situation: now he has all the time in the world

to read! As he reaches down to pick up a book,

he accidentally drops his glasses and—crunch!— he steps on them. The last man on Earth can’t

read without glasses, and there’s no one left to

make him new ones. This is an economics story.

We determine what to make—glasses.

Chapter 1: The World Needs Your Voice | 11

We determine how to make them—with specially

trained opticians working with glass or plastics.

And then we determine who will get them. There

are billions of people on the planet, and some

estimate that a billion or more of us need glasses

but don’t have them. Think of all the car acci-

dents that happen because of bad vision. Think

about the students who fail in school every year

because they can’t see the board. Think of the

people who fall and break bones because they

don’t have good depth perception. All this harm

and suffering could be prevented with glasses.

Who gets glasses and who doesn’t? Who gets to

live in a mansion, and who has to live on the

sidewalk? Who gets a car, and who takes the bus?

Who gets a refrigerator full of food, and who goes

hungry? These are the kinds of relevant questions

we grapple with in economics.

Important Economic Terms

There are a few terms you’ll need to know as

we get started. Inputs are what go into making a product. Inputs are also called factors of production or, more simply, resources. For example, on your deserted island, you have a

coconut tree. You collect the coconut fronds and

use them to build a shelter, so in this context

coconut fronds are inputs.

Resources include three types: land, labor, and capital. Land generally refers to anything that nat- urally comes from the Earth, like coconut fronds,

clams, ore, diamonds, and animals (except for

humans). Soil, minerals, animal and fish stocks, and

fresh-water lakes are all considered land resources.

Labor is human exertion—physical and mental

activity. When you climb the coconut tree to pick a

coconut, that’s labor. Capital, also sometimes called

the means of production, is any equipment you use to produce the final product, such as a sharp

rock you use to slice the coconut open. By the way,

you might have heard of a fourth resource called

the entrepreneur—the person who brings a spe-

cial talent to create new industries, new firms, and

new markets. Since not all the perspectives agree

that this is a special fourth resource, we don’t

include it on our list of resources. Some believe it’s

just another form of labor.

Inputs are what we use for production, which

simply means taking resources and turning them

into something useful or desirable. An input

might start out as one thing and become another,

as happened in the movie Cast Away. The char-

acter played by actor Tom Hanks is stranded on a

deserted island. He tries unsuccessfully to open a

coconut by banging it with a rock. Desperate and

frustrated, he flings the rock away and a piece

chips off. That chipped piece has a sharp edge,

and he’s able to use it to open the coconut. In

this example, he turned a rock into a tool. In eco-

nomic terms, we say that land (the rock) became

capital (a tool).

Everything we make is called an output, or

product. There are two kinds of products: goods

and services. Goods are tangible, meaning they

can be touched. They are physical things such as

coconut oil and computers. Services are intangible,

meaning they can’t be touched. You can’t touch a

concert, although you can touch the guitars that

the musicians play. The musicians themselves are

labor. In this context, the guitars used during the

12 | Voices On The Economy

concert are capital because they are equipment

used to make the final product (the concert).

There are just a few more terms to know. Micro- economics and macroeconomics are different ways economists analyze and understand the econ-

omy. Micro means small-scale (think microscope), and macro means large-scale. Imagine you’re play- ing the game Pictionary. You have to draw a picture

that allows your teammate to guess the word. Let’s

say your word is farm. If you’re looking through the lens of microeconomics, you start small and go

big, so first you draw a carrot. You add a leafy top,

squiggly lines for the roots, and a bunny nibbling on

it. From there you draw the garden growing around

the carrot, and then the barn in the distance, with a

herd of cows on the hillside. That’s how you get to

farm. If you’re looking through the lens of macro- economics, you start big and go small, so first you

draw the whole spread—barn, farmhouse, plowed

fields, cows on the hill. Then you sketch in the gar-

den, drawing the neat rows of vegetables. Last, you

draw the carrot in its row next to the lettuces and

cabbages, and the bunny nibbling on it. It doesn’t

matter whether you go from big picture to small

picture (macroeconomics), or from small picture to

big picture (microeconomics). They are simply two

approaches to economics.

Microeconomics is the study of markets. You go to super markets and malls, and you shop

online, so you know how it works. You want

coconut cupcakes (demand); the convenience

store has them (sup ply). Markets are places

where demanders and suppliers come together to

buy and sell. Macroeconomics looks at the whole

economy including Gross Domestic Product (GDP), which is the measurement of all goods and services produced by a nation; unemploy- ment, which is the measurement of the number of people who want jobs and don’t have them;

and inflation, which is the measurement of over- all price increases over time.

Another term that you’ve probably used before

is theory. For our purposes, a theory is an expla- nation of any question you want to think about.

Theories always start with a question: for exam-

ple, when you drop a piece of toast, why does

Exercise 1: Inputs and Outputs Let’s do a quick exercise to review inputs and outputs. We’ll use the example of dentistry. Let’s say

you go to the dentist. Write down whether each item in the list that follows is an input or output. If

it’s an input, indicate whether it’s land, labor, or capital; if it’s an output, indicate whether it’s a good

or a service. The Answer Key is at the end of the chapter.

1. Teeth cleaning ______________

2. Gold for fillings ______________

3. Dental technician ______________

4. Mouth guard ______________

5. Drill ______________

Chapter 1: The World Needs Your Voice | 13

it always land buttered side down? Why does a

dog wag her tail? What were television executives

thinking when they canceled your favorite show?

We come up with theories to answer questions we

have about the world around us. Economic the- ories are explanations related to questions about consumption, production, and distribution—what

to produce, how to produce, and for whom to

produce. A theory is an idea, while a system is a set of things that work together in the real world

to form a complex whole. An economic system is the actual consumption, production, and dis- tribution that takes place in the real world. One

chief difference among economic systems is who

owns and/or controls the resources (land, labor,

and capital).

Over the centuries, societies have operated

under a variety of economic systems. For exam-

ple, medieval Europe operated under the eco-

nomic system of feudalism, where only the noble classes owned the land and capital. They

controlled the labor by forcing the serfs (peas-

ants) to work for them to earn their food and

shelter. In colonial and antebellum America, we

had an economic system of slavery, in which the masters owned the labor of the slaves. In twenti-

eth-century Europe, the Soviet Union’s economic

system was called Soviet-style communism (state-owned capitalism), where the state con- trolled the labor and owned the land and capital.

As a nation, we have already rejected all three of

these economic systems, so in the VOTE Program

we’re not going to be talking about things that

we already generally agree are wrong or untrue.

We won’t be suggesting, for instance, that the

Soviet Union had a successful economic system,

or insisting feudalism is best, or advocating for

us to go back to slavery. We’ll be considering the

predominant economic perspectives that people

currently debate.

Choose Your Economic System

Let’s do a little experiment. Imagine there are

two countries, and you have to choose where you

want to live. In both Country A and Country B

there is private ownership of land and capital, and

individuals control their own labor, so owners hire

other people to work for them. Let’s say each country

has an identical firm that runs an entertainment

service, “Balance It!” The employees of “Balance

It!” stand up and balance their notebooks on their

heads while they do a classic dance you might

have heard of called the hokey pokey. (Trust me,

this is actually very entertaining.) When someone’s

notebook falls, that person sits down. Eventually,

there’s only one person left standing—the “Balance

It!” winner. The reward for the winner is candy,

which represents things people want and need,

from private helicopters and exotic vacations to

dental care and college tuition. Each of the winners

in both Country A and Country B receive a huge

pile of candy, and the runners-up receive a big

pile of candy. No one else who competed receives

any candy.

Here’s where you have to make a choice: In

Country A the winners of the candy keep it all.

They start businesses that create wealth for them-

selves and jobs for others, thereby stimulating the

economy. Some voluntarily redistribute a portion

of it through philanthropy to help others meet

their basic needs. In Country B the winners keep

a substantial portion of the candy. The govern-

ment redistributes the rest of the candy to fund

programs that create more opportunities for more

people to succeed, which grows the middle class.

With money in their pockets, they buy more so

firms expand and create more jobs. Which coun-

try would you want to live in—A or B?

Have you voted? Good. Now let’s say there’s a

third country—Country C—where, instead of pri-

vate ownership, workers cooperatively (together)

own the businesses where they work, and every-

one has a vote on how the company is run. The

14 | Voices On The Economy

worker-owners of “Balance It!” get up and do

the hokey pokey with notebooks on their heads,

and eventually one person is left standing. It is

assumed that the winner in this competition was

only the winner because everyone contributed to

“Balance It!,” so each person in Country C gets a

modest pile of candy, and a majority votes to give

the winner an extra bonus piece. Each worker

then gives a portion of their candy to a communal

fund that ensures that everyone’s basic needs are

met—housing, transportation, health care, higher

education, and so forth. This creates an incen-

tive for more cooperatively owned businesses to

form, thereby stimulating the economy.

Now that you have a third choice, please vote

again. Which country would you choose to live

in—Country A, Country B, or Country C?

Country A and Country B both represent the

economic system of capitalism, which happens to be the dominant economic system in the United

States. In capitalism, individuals privately own land

and capital, and people have the legal right to con-

trol their labor. Country A represents the conserva-

tive view of capitalism, and Country B represents

the liberal view of capitalism, but please note that

proponents of both the conservative and liberal

perspectives believe that capitalism is the best

possible economic system. Country C is the eco-

nomic system of democratic socialism, which represents the radical view. Proponents believe the

best economic system has a combination of public

ownership and worker ownership. We call propo-

nents of this system radicals.

Conservatives celebrate free-market capital- ism. By “free” they mean free from government interference. Conservatives believe free markets

create economic and social harmony, while gov-

ernment regulations and bureaucracies make

capitalism inefficient and coercive. Conservatives

believe we need to embrace a free-market system

to ensure liberty for all.

Liberals believe that businesses should be

guided by government through fair-market capi- talism. The partnership between private enterprise and the public sector creates equity, transparency,

accountability, and stability because, when it’s

left alone, capitalism can lead to unfair competi-

tion, market failures, and numerous other unequal

opportunities. Liberals believe we ought to guide

fair-market capitalism to ensure fairness for all.

Radicals believe capitalism is a system driven

by private profit and not by social need. They

view capitalism as a destructive system that steals

from workers and that needs to be replaced by

one that values people over profits. In the VOTE

Program we call that system democratic socialism

(but please be aware that not all radicals identify as

democratic socialists). Radicals believe that when

some resources are owned cooperatively by work-

ers and some resources are owned by the whole

society then we can build a just economic system

for all.

Chapter 1: The World Needs Your Voice | 15

Every time I do this activ-

ity in my classes, the stu-

dents are all over the map

when it comes to choosing

which country they want

to live in—which is really

a choice between ideas

about the best way to orga-

nize the economy. This is

not at all surprising; human

beings have been fighting

about this since the begin-

ning of civilization. Just

think about our nation’s

history. The Revolutionary

War was about stopping

taxation without represen-

tation. The Civil War was in

large part to end the system

of slavery and give all peo-

ple the right to control their

own labor. World War I and

World War II challenged imperialism (one coun-

try taking control of another country’s resources).

The Korean War, Vietnam War, and Cold War were

fought to stop the spread of communism (state

ownership of resources and

state control of labor). We

fought the Gulf War, some

say, to again stand against

imperialism. The War on

Terror is seen by some to

be a fight about the own-

ership of resources. Terror-

ist Osama bin Laden, who

masterminded the attacks

on the World Trade Center

on September 11, 2001, told

his followers, “[Y]ou should

liberate yourselves from

the deception, shackles

and attrition of the capital-

ist system. . . . The capital-

ist system seeks to turn the

entire world into a fiefdom

of the major corporations.”

The history of the world is

a history of conflict over

the ownership and control of resources, and this

is likely to continue to be the case as long as there

are human beings.

The problem isn’t that we

disagree. Looking at issues

from different points of

view can and should make

us stronger. This is a gift of

democracy. The problems

occur when we disagree

without respectfully

listening to the other sides,

and when we dismiss out

of hand the validity of their

points of view.

16 | Voices On The Economy

Change the Conversation

Up until now, we’ve been talking about liberal,

conservative, and radical economic ideas. You should

know that these ideas are often represented by

political parties in the United States. The Democratic

Party tends to follow the liberal economic idea of

government partnering with private enterprise. The

Republican Party tends to follow the conservative

economic idea that government should allow

capitalism to operate unfettered. The Democratic

Socialists of America tends to want

cooperative ownership of resources and

a participatory government. By the way,

you should know that the Democratic

Socialists are represented by a

handshake and a rose, the Republicans

are represented by an elephant, and the

Democrats are represented by a donkey.

Just as wars are fought over who

owns the resources, so too are bat-

tles waged within our nation to deter-

mine which economic perspective will

shape our nation’s policies, taxation,

trade deals, environmental standards,

and more. We have conflicts and pas-

sionate disagreements, and inevitably

some part of the population ends up

feeling disappointed with the direction

we take as a country. This is normal

in a democratic system. Sometimes

the liberal view has the majority vote;

other times the conservative approach

has the majority vote. And sometimes

(although far less often but with a definite voice

in the debate) the radical view influences national

policy. The problem isn’t that we disagree. Look-

ing at issues from different points of view can and

should make us stronger. This is a gift of democ-

racy. The problems occur when we disagree with-

out respectfully listening to the other sides, and

when we dismiss out of hand the validity of their

points of view. These are ideas that could poten-

tially move us forward as a nation. Studies have

shown that we tend to surround ourselves with

people who echo our own perspectives, which

means we don’t get enough practice listening to

other perspectives in a respectful way. Recent vot-

ing statistics show that Republicans and Democrats

are more polarized than ever, with increasing lev-

els of hostility. In decades past they regarded one

another as political opponents, but lately the rheto-

ric has become vicious—nasty memes and political

rants dominate the news and social

media. They now treat one another

as the enemy.

And where are the Democratic

Socialists in this fight? Since the Great

Recession of 2007, followed by the

Occupy Wall Street movement and

a surprisingly successful run for the

Democratic Party’s presidential nom-

ination by Senator Bernie Sanders

(an Independent from Vermont who

identified as a democratic socialist),

there has been growing interest in

the radical perspective. Socialism

was the most frequently searched

word on Merriam-Webster’s web-

site during Sanders’s 2016 presiden-

tial primary campaign. That year, a

survey by the Institute of Politics at

Harvard University revealed that half

of people ages eighteen to twen-

ty-nine didn’t support capitalism,

and a third of this group supported

socialism. The implications of this are quite signif-

icant. As Massachusetts Senator Ed Markey once

said, “Although children are only 24 percent of

the population, they’re 100 percent of our future.”

Because of the rising interest in democratic

socialism, more Democrats and Republicans have

become vigorous, vocal opponents of it.

We need to get better at understanding one anoth-

er’s points of view. Respectful listening and compro-

Republican

Democrat

Democratic Socialist

Chapter 1: The World Needs Your Voice | 17

mise are absolutely vital in a democracy and crucial

for sparking new solutions. This is the heart of what

we’re doing here in the VOTE Program. But why

haven’t people been doing it all along? Because it’s

not easy. Bitter feuds and different ways of thinking

about our nation have existed since before the Rev-

olutionary War. Leaders debated whether the fed-

eral government or local jurisdictions should have

more power. Who should own the resources? Who

should be allowed to vote? It has always been hard

to hear ideas that contradict our own, so please

don’t be surprised if you find the VOTE Program

challenging at times. For each issue in this book,

you will be asked to argue the position of each of

the economic perspectives—even the ones you

vehemently disagree with. Why would we ask you

to do this? Because we believe that you can’t really

learn how to swim if you’ve never been in water.

You might learn the motions of the crawl, but you

can’t know what it feels like to float, or to breathe

out bubbles through your nose, or to propel your-

self across the pool by kicking your legs. Speak-

ing aloud the words and phrases of each economic

perspective is like diving into the pool. It gets you

inside the ideas so you can really understand the

complexities and nuances. Once you do that, you’ll

be able to make up your own mind about what

you believe. You’ll come to that opinion with an

educated understanding of your choices. The VOTE

Program inoculates you against believing oversim-

plified sound bites meant to be provocative and

divisive—things like “Conservatives don’t care about

the environment!” or “Radicals are un-American!” or

“Liberals are antibusiness!”

The VOTE Program is all about helping you

become engaged with the larger issues in the world

around you. Only half of eligible voters actually

cast their ballots in recent years. This is alarming

if you care about the future of our country, which

has everything to do with your future well-being.

Even if you weren’t sure how to vote on the VOTE

Ballot, you will definitely start to form your own

opinions about the issues as we cover them in this

book. The first step to becoming civically engaged

is very simply this: you have to care.

18 | Voices On The Economy

The Next Great Economic Thinkers

The VOTE Program is going to teach you about

Adam Smith, Karl Marx, and John Maynard Keynes,

the great economic thinkers who laid out their

ideas regarding how we can best create wealth

and prosperity. We’ll trace their voices through

to today’s radical, liberal, and conservative

perspectives. My favorite daydream, which I hope

becomes reality very soon, is that not only you but

also your friends and family members will read

this book and participate in the VOTE Program.

I imagine you all seated around the dinner table.

The conversation turns to issues in the news.

Your friend says, “Okay, I get what you’re say-

ing about cracking down on companies that pol-

lute. This is what I think we should do about it,

and here’s why.”

Your sister reaches for the potatoes and says,

“Yeah, I see your point, but what if we compro-

mise and find a solution this way?”

Your neighbor passes her the salt and says, “What

you’re both saying only convinces me more that

what I believe is the best way to deal the problem

of pollution, and here’s why I think so.”

Then you leap up, so excited that you nearly

spill your soup. “I see the strengths of what you

all are saying, and I also see weaknesses in your

arguments. But listening to you just gave me an

amazing idea for a new way to think about the

environment—and about economics in general!”

We’re waiting for the next great economic

thinkers. We haven’t had a new way of thinking

about economics in nearly a century, and we’re

due for one. My dream is that you will be the

next great economic thinker. Our world desper-

ately needs you to help navigate us through the

uncertain waters ahead. We’re looking at chal-

lenges on every front: unsustainable debt, unaf-

fordable health care, food insecurity, the possi-

bility of drones and robots replacing the majority

of human workers in the years to come—not to

mention challenges we can’t yet even imagine.

We will always have disagreements. The goal

of the VOTE Program is not to unite us in agree-

ment. The point is that, through your civic engage-

ment and civil discourse, we can move forward

together and advance as a civilization. I have a

sense of urgency about this because I won’t be

here forever, and neither will you. None of us

will. I lost close family members at a young age,

so perhaps that’s why I’m so aware of mortality.

If you’re extremely lucky, you may get a hundred

years, but you don’t know when that second date

on your gravestone will arrive. No one does. So

instead let’s focus on the dash—that little line that

connects your birth date and your death date that

stands for all the days in between your arrival and

your departure. We’re all living in our dashes, as

people like to say, and it’s up to us to make the

most of this lifetime, however long it will be. It’s

up to us to use our voices to vote—to say what

we mean and add our unique, informed perspec-

tive to the conversation. Don’t let that dash go by

and then years later say with regret, “You know,

I did have an idea way back when, but I lost

it because I never really knew how to use my

voice.” My great hope for you is that on the day

you die you will look back on your life and know

that your voice made the world a better place.

Chapter 1: The World Needs Your Voice | 19

Chapter 1: Test Yourself!

Below are multiple-choice questions to help you review the material you just read in this chapter. You can find the answers below.

1. As new artificial intelligence inventions are used to take orders in fast food restaurants, more workers are losing their jobs. Which of the three questions of economics relate to this situation?

A. For whom to produce? B. What to produce? C. Why to produce? D. How to produce?

2. Juan is a 25-year-old quarterback for a professional football team. In terms of resources, Juan is _____, the goal posts are _____, and the grassy playing field is _____.

A. land; labor; capital B. labor; capital; land C. capital; land; labor D. labor; land; capital

3. While driving on a freeway, a rock from the truck in front of you hits your car window and cracks it. The next day, you hire a company to replace the front windshield. In this scenario, which of the following is true?

A. The window repair is an output, specifically a service. B. The window repair is an output, specifically capital. C. The window repair is an output, specifically a good. D. The window repair is an output, specifically land.

4. What is studied in microeconomics? Choose all that apply. A. The nursing shortage B. The number of layoffs in the construction industry during the previous decade C. The decrease in average prices in Japan during the 1990s D. The advertising campaigns used to sell sneakers to teens ages 13 to 16

5. Which of the following news article headlines would be of interest to a macroeconomist? A. The Unemployment Rate Fell By 0.4% in January B. Wage Growth Outpaced Inflation for the First Time in a Decade C. Mexico’s Gross Domestic Product Higher Than Expected D. Mergers and Acquisitions Leave Only a Few Players in the Gaming Industry

20 | Voices On The Economy

6. In the market for pens, writers and pen manufacturers meet. In this context, the writers are the __________ and pen makers are the __________.

A. producers; consumers B. demanders; suppliers C. sellers; buyers D. suppliers; demanders

7. What is the difference between an economic theory and an economic system? A. Theories are explanations about the economy, and systems are actual economies in the

real world.

B. There is no difference—a theory and a system are synonyms. C. Theories are studies of markets in general, while systems are studies of markets during

particular time periods.

D. Theories are actual economies in the real world, and systems are explanations about the economy.

8. Which of the following is an economic system? A. Feudalism B. Slavery C. Soviet-style communism D. All the given choices are correct

9. In capitalism, who owns the capital (the equipment used for production)? A. Government B. Groups of workers C. Private individuals D. Consumers

10. Match the economic theory (left column) to its preferred economic system (right column). A. Conservative i. Fair-Market Capitalism B. Liberal ii. Free-Market Capitalism C. Radical iii. State-Owned Capitalism D. None of the above iv. Democratic Socialism

Answers

1. D 2. B 3. A 4. A, B, & D 5. A, B, & C 6. B 7. A 8. D 9. C 10. A – ii, B – i, C – iv, D – iii

Chapter 1: The World Needs Your Voice | 21

Chapter 1: Key Terms

Capital Capitalism Constitutional democracy Consumption Democratic socialism Distribution Economic system Economic theory Economics Entrepreneur Factors of production Fair-market capitalism Feudalism

Free-market capitalism Goods Governance Gross Domestic Product (GDP) Inflation Input Labor Land Macroeconomics Market Materialism Means of production Microeconomics

Output Production Representative democracy Republic Resources Services Slavery Soviet-style communism State-owned capitalism System Theory Unemployment

Answer Key to Exercise 1

1. Teeth cleaning Output: Service

2. Gold for fillings Input: Land

3. Dental technician Input: Labor

4. Mouth guard Output: Good

5. Drill Input: Capital

ch2

T here’s a joke about the famous fictional detective Sherlock Holmes. It goes like this: Holmes and his crime-solving sidekick, Dr. Watson, are on a camping trip. It’s the middle

of the night, and Holmes suddenly shakes Wat-

son awake.

“Watson! Open your eyes!”

“Huh?” Watson says groggily.

“Wake up and tell me what you see!” Holmes

says urgently.

“Uh—I see thousands of stars in the sky?”

“Yes!” says Holmes, nodding encouragingly.

“And what does that tell you?” Watson yawns. “I suppose it tells me that the

universe is bigger and more complex than I can

comprehend, so my irritation that you woke me

up and my worry that I won’t be able to get back

to sleep are insignificant in the grand scheme

of things.”

“Yes, but what does it tell you?” Holmes asks again.

Watson considers the night sky. “From the posi-

tion of the constellations, it tells me it’s approx-

imately half past four. And the sky is clear, so

it tells me it’s unlikely we’ll need our umbrel-

las tomorrow.”

“Yes, Watson, but what does it tell you?”

“Oh for goodness’ sake, Holmes! Just tell me

what you think it should tell me, and let me get back to sleep!”

“It’s elementary, my dear Watson—it should tell

you that someone has stolen our tent!”

What does this story tell us? It tells us that we

each experience and interpret the world in our

own unique ways. It also tells us that more than

one thing can be true at the same time.

Here’s a little test. What do you see in figure

2.1? Do you see a vase? Do you see two faces in

silhouette? You may actually see both, depending

on how you look at it.

Figure 2.1

2Thinking About Thinking

24 | Voices On The Economy

Does the picture below (figure 2.2) look like

it’s moving to you? It isn’t, but your eyes may see

it that way. So what this should tell you is that

just because we’re positively certain we’re see-

ing something the right way while other people

are seeing it the wrong way, we may, in actuality,

all be right—or we may all be wrong, or maybe

we’re the only ones who have it wrong.

Figure 2.2

In some aspects of our lives we’re perfectly

comfortable with the fact that there’s more than

one way to understand something. For example, if

you were asked what the right kind of food is, you

would think the question was crazy because the

right food is the food you feel like eating. That’s

correct. It might be tacos; it might be salad. Right depends on the context. Likewise, if you were

asked what the right kind of music is, you would

roll your eyes and say, “That’s another trick ques-

tion. There’s no ‘right’ kind of music.” Of course

there isn’t! It’s a matter of opinion. But one type of

music might be more “right” in a certain context.

For instance, Beyoncé is more right than Beetho-

ven if you want to create a dance-club atmosphere

at your party. And Beethoven is more right than

Beyoncé when you perform at your classical piano

recital. So there are some issues that we agree can

have more than one correct answer. Many things

could be right.

On the other hand, there are some issues

about which we feel uncomfortable saying that

many answers could be right. Those become dif-

ficult conversations. For instance, what’s causing

global climate change? Was Christopher Colum-

bus a brave explorer or a ruthless invader? Was

life on Earth created by God in six days, or did it

evolve over millions and millions of years? There

are many issues about which we vehemently dis-

agree. You probably have strong views on these

and other controversial questions, and so does

the person sitting next to you. There are issues

about which each of us feels certain that we’re

right, and it can be very frustrating—and even

infuriating—when others are just as certain about

an opposite opinion. The beliefs that seem so

obviously certain and true have deep roots in our

families, cultures, religions, educations, national

identities, and more. Our beliefs don’t spring into

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Chapter 2: Thinking About Thinking | 25

our heads out of thin air; they are the products

of our experiences and the influences around us,

including our teachers and textbooks.

It takes profound courage to question—let alone

to go against—the beliefs of everyone around you.

That’s why sixteenth-century scientist and philos-

opher Galileo Galilei is one of my heroes. Talk

about courage! During Galileo’s lifetime, Europeans

believed the Earth was the center of the universe.

The Catholic Church considered this official doc-

trine based on the Holy Scriptures, which described

how God created the Earth and all things on it in six

days. But Galileo gathered scientific evidence that

led him to believe the Earth revolves around the

Sun. He stood up for what he believed even though

people thought he was crazy. The Church was very

powerful at that time and had little tolerance for

diverse viewpoints; it condemned ideas that con-

tradicted its doctrine. Imagine the guts it must have

taken for Galileo to tell the Pope and the inquisitors

that they were wrong. He paid a heavy price. The

Church sentenced him to life in prison for spread-

ing an idea they considered dangerous heresy. It

forced him to recant everything he ever said about

the Earth revolving around the Sun. It destroyed his

book and banned him from ever publishing any-

thing else for the rest of his life.

Eventually everyone realized Galileo was right.

The Church even apologized to him…359 years

later. Today it would be hard to find a person

who doesn’t believe the Earth revolves around

the Sun. But do we all believe this in the same

way? Imagine you’re in class and I ask, “Who

believes the Earth revolves around the Sun?” Your

hand shoots up, and so does everyone else’s. It’s

a no-brainer. We all saw that model of the solar

system in first grade, with the Sun in the middle

and the Earth, Mercury, Venus, and the rest of

the planets revolving around it. Now I ask, “Does

anyone here think that while the Earth probably

26 | Voices On The Economy

does revolve around the Sun, there’s a possibil-

ity that one day—maybe a hundred years from

now—we’ll have new instruments for measuring

and a totally different way of understanding the

universe, which could lead us to say that the Earth

does not revolve around the Sun?” Only some

people will raise their hands, and that’s because

we have different ways to think about truth, facts,

and new information.

Buckle up, because we’re going to get deep now.

There’s a branch of philosophy that specializes in

how we think about thinking. It’s called epistemol- ogy. Epistemology is a complicated area of study, but for our purposes we’re going to talk about ways

of thinking that open up conversations by consider-

ing new possibilities and ways of thinking that frus-

trate constructive conversations.

Essentialism, Non-essentialism, Relativism, and Absolutism

Let’s consider four ways people think about

thinking. Essentialists believe there is an essence to everything—an intrinsic and unchanging truth

that we can come to know through careful study.

They say that as we explore and learn, we can

know the truth. Therefore, our ideas about the

solar system, human life, and everything else can

be true. They say we can know a thing is true by

experiencing it through our senses (empirically) and by applying reason and knowledge

(rationally). For example, to an essentialist, it’s true that the Earth revolves around the Sun, and

it’s highly unlikely that new information, or new

instrumentation, or new perspectives will change

that understanding. Truths are more than just

opinion: they reflect reality. However, essentialists

change their beliefs when new knowledge is

discovered that convinces them there is a more

accurate way to understand reality. Staying open-

minded to new ideas makes sense to an essentialist

because those ideas could help bring them closer

to grasping the true essence of the thing.

Non-essentialists believe that there is no fixed “true” essence to reality. They say that as we study

and explore and our own minds open to new

ideas, and as time passes and the contexts of his-

tory, law, human development, and other things

change, so too do our understandings of what is

true. To a non-essentialist, the things we believe

to be true are only reflections of the knowledge

we have in this moment. For example, a non-es-

sentialist says we believe right now that the Earth

revolves around the Sun, but it’s possible that new

information, or new instrumentation, or new per-

spectives will one day change that understand-

ing. Non-essentialists point out that our thoughts

and perceptions are shaped by what we think we

know, what we expect to see, and what we haven’t

even thought to look at yet. They say that it matters

a lot what we think because it’s through ideas that

we make sense of the world. So while non-essen-

tialists reject the notion that there is a fixed essence

to all things, they embrace the view that ideas have

consequences. They say that’s why it’s important

to advocate for one idea over another while at

the same time staying open-minded to new ideas,

because they could lead to consequences that

we prefer.

Chapter 2: Thinking About Thinking | 27

We can leave it to the great philosophers to

debate whether or not there’s an essence to all

things—whether essentialists or non-essentialists

are correct. Both agree that knowledge keeps

evolving, which opens up conversations because

this mindset allows for new possibilities. Once

upon a time, people believed the Earth was flat;

even geniuses such as Leonardo da Vinci and

Isaac Newton couldn’t explain how babies were

conceived; and until fairly recently, people ridi-

culed the suggestion that doctors could prevent

infections by washing their hands. We are con-

stantly building on our knowledge from previous

discoveries. As Newton said, “If I have seen fur-

ther, it is by standing on the shoulders of giants.”

And sometimes building new knowledge requires

that we replace even deeply held beliefs, such as

the idea that the world is flat.

Let’s look at two ways of thinking that frustrate

constructive conversations. Relativists are some-

times confused with non-essentialists. Relativist

thinkers have sophisticated ways of understanding

the world as not having one fixed truth. But the

popularized version of relativism says, “Since we

can’t know what the truth actually is, you go ahead

and think what you think; I’ll go ahead and think

what I think; and in the end it doesn’t matter either

way.” No! It definitely matters because we are con-

stantly making choices and decisions based on what

we believe to be true. There are consequences to

ideas. For instance, because we believe the Sun and

not the Earth is at the center of our planetary sys-

tem, we’ve been able to launch satellites into space,

and we use a solar calendar to measure the pas-

sage of time. If you believe one idea is as good as

another, you won’t advocate for any particular one,

and there is therefore no opportunity for meaning-

ful dialogue. You might even end up not bother-

ing to vote because you think the policies we have

don’t make a difference one way or another. It’s as

if you shrug and say, “Yeah, whatever.”

Another way of thinking that frustrates con-

structive conversations is sometimes confused

with essentialism. Absolutists say, “My way is the

only right way because it is the absolute truth.”

No! This is close-minded thinking that rejects all

new ideas and leaves us stuck in the dark ages.

For instance, if we had rejected Galileo’s new way

28 | Voices On The Economy

of looking at the planetary system, we would not

have satellites, cell phones, or countless other

inventions today. Being open-minded and curi-

ous to explore new ideas is what moves humanity

forward. Absolutists reject any idea that doesn’t fit

with their preconceived notions about the world,

which blocks opportunities for meaningful dia-

logue that could expand understanding.

When it comes to the right music or food, rela-

tivism makes sense. And when it comes to oppos-

ing human trafficking, absolutism makes sense. But

when we debate economic perspectives, rejecting

relativism and absolutism in favor of intelligent

open-mindedness makes the most sense. It’s the

only way to have the kinds of constructive conver-

sations that can lead to real solutions that move our

nation forward and make everyone’s lives better.

Economics and Pluralism

Most of us were raised to believe that what we

learned in school was true. For instance, you weren’t

given a textbook called Chemistry: One Way to Look at It. You were taught from Chemistry: The Way It Is. But today the vast majority of economics classes are

taught from a single perspective (liberal, radical, or

conservative). The problem is that many students

don’t even realize they are learning a perspective.

It’s just taught to them as Economics: The Way It Is. In the meantime, economics educators are famous

for fervently disagreeing with one another about

which perspective is the “right” one. They can

be very certain that the others are dead wrong.

This absolutist way of thinking limits our potential

to see solutions. For instance, they might only

present research data that supports their views,

and if they even acknowledge that there are other

perspectives, they might quickly dismiss them as

Exercise 2: Different Ways of Thinking Let’s practice identifying the differences between essentialist, non-essentialist, relativist, and

absolutist statements. Which is which? The Answer Key is at the end of chapter 2.

1. “As a child I was taught that the atom was the smallest particle. When scientists discovered even

smaller ones, I changed my belief. New information brings us closer to the essential truth.”

2. “If I drop a shoe from a second-story window, I am completely certain it falls to the ground because

of gravity. This is an immutable fact that will never change, so it’s a waste of time to consider other

theories or explanations.”

3. “Juan thinks the forest should be cut down so the city can build a new shopping mall. Ashley

is passionate about saving the forest. I say neither one is right or wrong; it’s just a matter

of preference.”

4. “My doctor told me to lift weights to prevent high blood pressure. Then a study came out showing

that running was more effective for my age group. New knowledge and changing contexts continually

add to what we know so that we keep improving and making decisions that are better for us.”

Chapter 2: Thinking About Thinking | 29

illegitimate or irrelevant. And relativism—the flip

side of absolutism—is just as harmful. Believing

that it doesn’t matter what you believe also limits

our potential for finding inspiring new ideas, and it

brings us classrooms full of teachers and students

who don’t recognize that our ability to prosper and

flourish is at stake.

The VOTE Program promotes pluralism in

economics education. Pluralism means being

open to a diversity of viewpoints. It’s a commit-

ment to open-minded conversations, whether you

approach economics education as an essentialist

or a non-essentialist. It’s an opportunity to build on

existing knowledge and advance our understand-

ing by considering alternative ways to look at eco-

nomic relationships.

The Case for Pluralism in Economics

For the last fifty years or so, there’s been

a growing movement of educators calling for

economics to be taught from more than one

perspective. But while those teachers want to

include more pluralism in their classrooms, in

some cases the decision about what to teach

is out of their hands. For example, in 2010 the

Texas State Board of Education voted to change

the state’s social studies curriculum so that it only

represented the conservative economic point of

view. Social studies teachers were required by law to teach students that unregulated capitalism is

superior to all other economic systems and to

present Republican Party policies more favorably

than any other policies. Society loses out when

multiple perspectives are not allowed to be taught

to students. That’s why students around the world

are demanding to be taught economics from

multiple perspectives. The International Student

Initiative for Pluralism in Economics, for example,

hosts conferences and organizes students in

dozens of countries worldwide to advocate for

more pluralism in economics curricula. Economics

students and educators from all the perspectives—

radicals, conservatives, and liberals—are part of

this call for change.

30 | Voices On The Economy

When we embrace plu-

ralism, we’re respecting

other people’s right to

think differently from our-

selves. In our democracy,

the majority rules, but the

minority deserves respect

and appreciation because it

provides the majority with

a chance to learn and test

its ideas against thoughtful

critics. Democracy is a sys-

tem of compromise, which

means we won’t always

have things our way, but

neither will anyone else.

Using your voice is espe-

cially important when you consider other ideas to

be dangerous or offensive or completely wrong.

But—and this is the important part—please make

sure you’ve listened respectfully and understood

those other points of view before you offer your

critique and alternative ideas. The process of lis-

tening to others respectfully and then engaging in

civil discourse (not leaping up to interrupt with

rude comments, snorts of disbelief, or apoplectic

rage) is not always pleasant or comfortable, but

it guarantees that we will have a healthy democ-

racy and find the best solutions to move forward

together as a nation.

Pluralism doesn’t mean just mentioning another

perspective to metaphorically pat it on the head in

a patronizing way, or to use it as a contrast to make

the favored perspective look good. It means hav-

ing an unbiased discussion of multiple perspectives.

Some books and courses appear to present diverse

economic perspectives, yet they are rife with subtle

and overt biases. Others invite students to compare

different economic systems. But the problem is the

economic systems they compare to their favored

perspective are outdated and irrelevant, so there

really isn’t any true pluralism presented. The way

the systems are presented

skews the debate. In one

often-used high school text-

book, the authors basically

ask, “Readers, do you want

to go back to an economic

system that’s based on the

kind of trade we had back

in the premodern days,

when we were all hunters,

gatherers, and farmers? No?

Well, then you don’t want a

traditional economic system.

And how would you like to

live in a communist country

like the Soviet Union, where

the government owns every-

thing and tells you what to do? No? Then you don’t

want a command economic system. That leaves

only one solution: the market economy! So, you

see, capitalism clearly is the best economic system.”

The problem with this sort of comparison is that no

one is advocating for the United States to have a tra-

ditional economy, and no one wants us to become

the next Soviet Union. This sets up some thing that

isn’t a real option just to give the impression of plu-

rality. Yes, traditional and command economic sys-

tems are important things to study, but they should

be studied in history classes, not in modern-day

economics classes. In the VOTE Program we com-

pare the relevant, contemporary choices we face

regarding our economic system: radical (democratic

socialism), conservative (free-market capitalism),

and liberal (fair-market capitalism). These three eco-

nomic systems are debated in the mainstream in our

country today, and you need to know about them

in order to have an educated and informed voice in

the world.

The VOTE Program won’t pretend to compare

different perspectives while really trying to sell you

on a personal favorite. It’s about helping you dis-

cover what you believe by presenting each of the

The VOTE Program won’t

pretend to compare

different perspectives while

really trying to sell you on a

personal favorite. It’s about

helping you discover what

you believe by presenting

each of the economic

theories in a balanced way.

Chapter 2: Thinking About Thinking | 31

economic theories in a balanced way. Textbooks

and teachers have tremendous power. Students

implicitly trust their teachers; likewise, they trust

their textbooks to give them accurate and balanced

information—but that’s often not the case. This

textbook has been written very carefully so as not

to influence you in any direction when it comes

to the three perspectives. We respect you, and we

wholeheartedly support your right to make your

own decisions about what you believe.

Ethics and Economics

Let’s step back for a moment and consider

what economists are really arguing about. In

other words, what are these “perspectives” all

about? Each one is a different idea for how to

structure and run our economy so that we can

promote well-being by generating prosperity.

Proponents of the three perspectives we’re going

to be examining are all guided by their own sets

of ethics, which are the moral principles that govern behavior. Ethics underlie every economic

theory, practice, and policy. They guide our

decisions about what are the right things to do.

Sometimes the bitter fights among economists

include accusations and insinuations that the

opposing sides are unethical—that they lack

integrity, honor, or decency. That, of course, may

be true of individuals from every perspective,

but it’s not true that liberals, conservatives,

or radicals are, as a group, unethical. This is

important to remember. They all care about

integrity and morality.

If you believe that people who think differently

from you can’t also be honorable and decent

human beings, then you can’t listen to them with

respect. And if they hold that prejudice about you,

then there’s no way they will hear you respectfully.

When we believe strongly in an idea, we might

be tempted to become self-righteous and want

to claim the moral high ground. It’s just another

way to close down conversations. Imagine how

disrespected you would feel if someone made

negative assumptions about you just because you

disagreed with them on how to solve the health-

care problem or how to address the national debt.

Please remember that each one of us is passion-

ate when it comes to our opinions about how the

world ought to be. That’s normal and appropriate.

It’s good to care about the world around you. We

applaud you for being engaged with ideas in a

passionate way. But please don’t dehumanize or

demonize those who think differently from you

about economics. A politician once said about her

opponent during a close-fought election: “I can’t

agree with a thing he says, but I don’t let myself

32 | Voices On The Economy

think the worst of him as a human being.” A

reporter asked how she managed not to hate him

when he was attacking her ideas. She replied, “I

just remind myself that he’s a human being, his

mother probably loves him, and we both want the

world to be a better place, even if we don’t agree

on what that looks like or how to get there.”

It might go against the grain of everything that

you’ve ever learned in your life, but please be

open to the value of pluralism as you study eco-

nomics. Cultivating an open mind will help you

get the most out of the VOTE Program. Using

a pluralistic approach, we can concentrate our

energies on finding our best answers instead of

tearing down opposing positions.

How to Build “Theory-Plus”

You and I and everyone else have theories

about how the world works. A theory is a system

of ideas intended to explain something. Theories

always start with a question: Why is my brother so

annoying? Or why do we only see rainbows in the

afternoon? Or does the Earth revolve around the

Sun? Theories are shaped by our assumptions— the things we believe are “givens” and that are

most relevant to the question. To build our

theory, we create a model, which represents our assumptions, and then we draw conclusions from our model to answer our initial questions.

These three components make up a theory. In

the VOTE Program we use “theory-plus.” The plus

refers to a fourth component: policy. Policies are proposals for action that flow directly from our

conclusions. It’s policy that we fight about every

day in our nation—policies about what’s included

in your economics textbooks, policies about

wages, policies about hiring and firing at your

workplace. It’s because of policies that economic

theories are relevant to your life. They aren’t just

random or purely academic ideas; they have real

consequences in the world. Some people say that

academics (and economists) just sit around in their

ivory towers all day long, theorizing and gazing

at their navels, which implies that theorizing is

unimportant and maybe even a little bit useless.

No! The eminent economist Paul Samuelson, who

wrote the most widely used economics textbook

of the twentieth century, once said, “I don’t care

who writes a nation’s laws—or crafts its advanced

treaties—if I can write its economics textbooks.”

He understood that when you change people’s

minds, you change the world. When we can get

other people to believe our theory is correct and

to base policies on our theory, it changes the

entire landscape of everyone’s lives. This is true

whether the theory is about economics or houses

or astronomy or milk or anything else.

So just to review, the four components of theo-

ry-plus are assumptions, model, conclusions, and

policy. We use the term a milk chocolate piece to

remember them. Economic theories answer the

three questions economists always consider: what

to produce, how to produce, and for whom to pro-

duce. We’re going to talk about economic theories

in a minute (and spend the rest of the book talking

about them), but right now let’s use an example

that isn’t about economics to practice building a

theory. We’ll pretend we’re architects, and we’ll

start with the question, What type of house design

offers the best protection from wind and rain?

Step 1 is to establish our assumptions. Let’s say

our assumptions about houses are the following:

! A steep roof keeps rain from getting into

the house.

! Shingles are the optimal roofing material

because they lie flat on the roof, so a high wind

isn’t likely to tear them off.

! Stone is the sturdiest material for walls because

it can withstand high winds and driving rain.

Chapter 2: Thinking About Thinking | 33

Right away, you might be thinking, “But wait!

I don’t agree with those assumptions.” Please set

aside your disagreement for the moment. Later you

can decide if you still think this theory’s assump-

tions were flawed. But before you form an opin-

ion, you need to learn the theory—especially if it’s

a dominant theory that takes up a lot of air in our

public conversations. You don’t want to find your-

self having to say, “I disagree with you but I can’t

say why, because I didn’t like your assumptions so

I didn’t bother to learn your theory.”

Now that we’ve laid out the assumptions, step 2

is to build a model that represents those assump-

tions. The model could be physical, or narrative

(words), or mathematical, or graphical. Since our

theory is about houses and we’re pretending to

be architects, we’ll build a physical model. Let’s

say we construct a scale model of a stone house

with a forty-five-degree-angle shingle roof. This is

a representation of our assumptions.

Now we’re ready to test it against wind and rain

to draw our conclusions, which is step 3. We aim

a fan at our scale model house to simulate high

winds, and then we blast it with a power sprayer

to simulate hurricane conditions. How much water

got inside? How many roof shingles flew off? We

collect that data. Then we do comparisons on scale

models of houses that have different designs—for

example, an adobe house with a flat roof and a

wood-framed house with a tile roof. We pelt them

with the same simulated wind and rain conditions.

After we’ve tested our models, we use the data we

collected to draw our conclusions. That informa-

tion answers our initial question: what is the best

way to build a house to withstand wind and rain?

34 | Voices On The Economy

We conclude: “A stone house with a forty-five-de-

gree-angle shingle roof.” A conclusion is simply an

answer to the initial question we asked.

Policy is the practical result of a theory. Just

think about this house example. You might not

have any interest in building a stone house with

a 45-degree-angle shingle roof. But let’s say we

convince insurance companies that this is the best

house design in all circumstances. “This informa-

tion can save us a lot of money,” those companies

say. “We are going to have a new policy that we’ll

only insure stone houses with forty-five-degree-an-

gle shingle roofs because we’re convinced it will

reduce the number of claims people make.” You

really like your brick house and you don’t want to

move, but you will have to because you don’t want

to live in a house that has no insurance. So you can

start to see here how important policies are. Now

let’s say the government is also convinced by our

conclusions and creates a new policy that it will

only award contracts for stone-and-shingle-roof

houses. You’re a builder who specializes in wood-

frame homes. You will have to change your whole

business—switch suppliers, fire your carpenters,

and hire stone masons—so your firm will survive.

All the other builders will have to do it too. Soon

stone-and-shingle-roof houses are the only houses

being produced.

You may not have agreed with the assumptions

of the theory, but it won’t matter. Once policies

are created, you’re stuck—you have no choice. Do

you see the domino effect a theory can have from

assumptions, to models, to conclusions, to poli-

cies, to your life? Economic policies—tax reform,

health care, international trade agreements, immi-

gration legislation, and many, many more—have

power over every aspect of your life. Economic

policies in our country come from conservative,

radical (less frequently), and liberal theories. That’s

why we’re studying these perspectives. Don’t you

want to have a say in what’s being decided, which

will affect every aspect of your existence? We’ll be

building radical, liberal, and conservative theories

in each of the upcoming issues chapters. We’ll

describe them in a balanced way, side by side, so

you can compare their assumptions, models, and

conclusions, and form or confirm your own opin-

ions about their proposed policies.

Positive Economics and Normative Economics

Earlier in this chapter we described how

non-essentialists and essentialists both keep

their minds open to new information that could

change their ideas about issues. Where they

differ is that essentialists believe there is an

essential truth that we can aspire to understand.

Non-essentialists believe there isn’t an essential,

unchanging truth to be discovered because

everything is shaped by context; however,

what we believe about issues matters because

beliefs have consequences. Both essentialists

and non-essentialists are open to the study of

alternative perspectives.

As you can already guess, an essentialist econ-

omist believes that theory building is a science,

meaning theories can describe things that are true

(“what is”). They say these objective truths are

facts and therefore aren’t based on value judg-

ments. They call this fact-based approach positive economics. On the other hand, they say, policy analysis is not a science, which means policies are

up for debate. For example, what action is best to

solve hunger? The policy decisions that are made

are based on people’s opinions and value judg-

ments (their ideas about “what should be”). Essen-

tialist economists call this normative economics. It shouldn’t surprise you to learn that non-essen-

tialists reject the idea that economics is an objec-

tive science, as they believe that what we know is

shaped by context. They argue that assumptions,

models, and conclusions can’t describe “what is”

because facts change depending on who looks at

them, how they are looked at, and when they are

Chapter 2: Thinking About Thinking | 35

No matter how differently essentialists and non-essentialists think about facts and truth, they share the same agreement that policy is normative. This opens the door

to pluralism, making open-minded debates on economic issues possible.

Assumptions, Models, and Conclusions

Policies “Normative Economics“

looked at, among other factors. Take as an exam-

ple the extensive research that has gone into the

causes of obesity. Nutrition researchers concluded

that eating too many high-carb and high-calorie

foods causes obesity. Genetic researchers con-

cluded that obesity is caused by family history.

Psychologists concluded that people overeat and

become obese because of emotional traumas.

Non-essentialists say there’s no “right” answer, but

there are significant repercussions for policies that

are drawn from each of these conclusions. They

reject the idea of positive economics. They say all

the components of theory are normative.

As you can hear, these two very different ways

of looking at theory can be a source of a lot of

conflict. It may help you later to remember this

difference in ways of thinking when you won-

der why conversations about economic issues can

become frustrating. This whole chapter on epis-

temology has brought us to this point: no matter

how differently essentialists and non-essentialists

think about facts and truth, they share the same

agreement that policy is normative. That opens

the door to pluralism, making it possible for us

to engage in policy debates with an open mind

and embrace new ideas about how to move our

country forward.

But What Is True?!

Every time I teach the VOTE Program, students

come up to me after class and say, “Can’t you just

tell me which perspective is the right one? You

know more than I do; you’ve been thinking about

this for a long time. I’m just getting started. Please

help me out and tell me what to think!”

I know it would be a thousand times easier for

you if I just told you what to believe rather than

inviting you to figure it out for yourself. I’m grateful

to the instructors who changed my life with their

charisma and the eloquent persuasion that brought

me around to their points of view. I’ll admit I some-

times feel a twinge of guilt about not being that kind

of teacher. But I hope to be a teacher and textbook

writer who provides an even more valuable service

by not pushing you in the direction that I think is

best and true. You will be better off—and the world

will be the richer for it—if you develop your own

opinions and learn how to convey them to others

who may not agree with you. It’s time to find your

voice, and I can’t wait to hear you!

Essentialist Non-essentialist

“Normative Economics”

• Facts are objective science • Facts reflect “What Is”

• Fact are subjective • Facts reflect “What Should Be”

“Positive Economics”

36 | Voices On The Economy

Chapter 2: Test Yourself!

Below are multiple-choice questions to help you review the material you just read in this chapter. You can find the answers below.

1. A biologist studies life; an economist studies the production, consumption, and distribution of goods and services; a psychologist studies human experience. What does an epistemologist study?

A. Morality B. The origin of the universe C. The relationship between natural and social sciences D. Knowledge

2. Which of the following statements would make sense to an essentialist? A. “I know it is true because I saw it with my own eyes!” B. “Just because I can think through a problem logically doesn’t mean it is provable.” C. “I can collect data and see connections, but honestly I can report the results in a

multitude of ways.”

D. “I can win any argument because I have learned the art of shifting the focus so that the other person sees things my way.”

3. Which of the following statements would make sense to a non-essentialist? A. “Facts don’t change, even in different political, economic, cultural, and biological

contexts.”

B. “There is only one true way to interpret the economy.” C. “Alternative theories on the economy are equally valid and therefore people should not

support one theory over another.”

D. “Important consequences result from alternative perspectives on the economy and those consequences should be the basis of supporting one theory over another.”

4. Match the type of thinking about truth (left column) to its description (right column): A. Empiricist i. Theories can be proven through one’s senses B. Rationalist ii. Theories can be proven through logic and proofs C. Absolutist iii. Theories are alternative explanations, all equally valid D. Relativist iv. Theories are either right or wrong

5. Pluralism in economics education means an open-minded embrace of alternative theories in the classroom and in textbooks. Which of the following use open-minded inquiry that could be consistent with pluralism? Please choose all that apply.

A. Essentialism B. Non-essentialism C. Absolutism D. Relativism

Chapter 2: Thinking About Thinking | 37

6. Who of the following are committed to ethics (moral principles that govern behavior)? Please choose all that apply.

A. All individuals from every perspective B. Radicals as a group C. Conservatives as a group D. Liberals as a group

7. Every theory starts with certain givens (“assumptions”). A model is then developed to represent those assumptions. Which forms may a model take?

A. Essentialist, non-essentialist, absolutist, or relativist B. Production, consumption, or distribution C. Descriptive, physical, graphical, or mathematical D. All the above

8. All the following statements about conclusions are true EXCEPT: A. Conclusions are answers to the initial questions asked. B. Conclusions can be reached by collecting relevant data. C. Conclusions can be reached through deductive reasoning. D. Conclusions are actions taken to ensure a particular outcome.

9. Which one of the following is an example of a policy? A. Minimum wage legislation is abolished. B. Minimum wage legislation causes unemployment. C. Minimum wage legislation results in living wages. D. Minimum wage legislation doesn’t fix poverty.

10. Essentialists and non-essentialists differ on the subject of Positive Economics, but they agree that __________ are the purview of Normative Economics.

A. assumptions B. models C. conclusions D. policies

Answers

1. D 2. A 3. D 4. A – i, B – ii, C – iv, D – iii 5. A & B 6. B, C, & D 7. C 8. D 9. A 10. D

38 | Voices On The Economy

Chapter 2: Key Terms

Absolutist Assumptions Conclusions Empirically Epistemology

Essentialist Ethics Model Non-essentialist Normative Economics

Pluralism Policy Positive Economics Rationally Relativist

Answer Key to Exercise 2 1. Essentialist 2. Absolutist 3. Relativist 4. Non-essentialist

ch3

When I was still a PhD student in eco-nomics, I had to take a comprehensive exam that covered much of what I’d learned in the first year and a half of the program.

If I failed the first time, I’d have one more chance to

pass. If I failed a second time, I would be kicked out

of the program. As the exam drew closer, I stopped

sleeping so I could use those hours to study. Natu-

rally I was tired, so I started drinking caffeine, which

I never do. I drank as much Mountain Dew as

humanly possible to keep myself going. (This was

before energy drinks were invented.) If you’ve ever

tried to study for an exam when you haven’t slept

and you’re over-caffeinated, then you know where

this story is going. The night before the exam, shak-

ing from exhaustion, stress, and caffeine, all the

words on the page became jumbled and incoherent.

My brain felt scrambled, and all the ideas I thought

I’d learned during the past three semesters made

absolutely no sense. It was as if each idea was a

random jigsaw puzzle piece that didn’t fit with any

of the other random jigsaw puzzle pieces. My stress

and frustration blossomed into a full-blown panic

by one in the morning. I threw my notes in the air

and resigned myself to failing. Then I fell into bed

and slept for four hours.

Have you ever tried to put a jigsaw puzzle

together without looking at the picture on the

box? You have to scrutinize each little piece and

try to guess what the big picture looks like from

that little dash of blue next to a spot of red. Is

that an eye? Could it be a tennis racket? Unless

you’re a jigsaw puzzle expert, it’s very challeng-

ing. But doesn’t education often operate this way?

3The Great Economic Thinkers

42 | Voices On The Economy

The teacher gives you a lot of small bits of infor-

mation, and you have to figure out what the big

picture looks like—whether it’s dates of battles

and names of treaties or the periodic table of ele-

ments. You can get so busy memorizing those lit-

tle details that you never actually grasp the big

picture of what you’re supposed to be learning,

even while you’re getting good grades. To me,

this is a lost opportunity. The big picture is the

whole point of education!

The morning of my exam, something incred-

ible happened to me. I woke up and all those

jigsaw puzzle pieces suddenly made sense. They

fit together seamlessly, and I could see the big

picture. I went into the exam feeling confident.

I passed the test and went on to earn my PhD.

I became an economics educator, but I never

forgot how it felt to be lost in the details without

knowing the big picture. I vowed to myself that

if ever I had the honor and privilege of teaching

others, I would start my courses by making sure

my students could see the big picture.

History of Economic Thought

This chapter will give you the big picture of

the history of economic thought, and it’s from

this history that today’s liberal, radical, and

conservative perspectives took root. We’re going

to tell you about three great economic thinkers

and the theories they developed. Their names

are Adam Smith, Karl Marx, and John Maynard

Keynes. Once you finish reading this chapter,

you’ll see how their different ideas still play

into our economic policy debates like familiar

melodies. You’ll recognize their refrains when

you read a newspaper article, when you watch

stand-up comedy, and when you debate politics

over coffee with your friends and family.

Adam Smith The story of modern economics begins

in Scotland in the eighteenth century

with Adam Smith (1723–1790). He

never actually studied economics

because there was no formal study

of economics at the time. He was a

moral philosopher who pondered the

complicated question of why humans—

who had been living in societies for millennia— were still mostly miserably poor. After much

thought, he concluded that the problem traced

back to the economic systems that kept the masses

from accumulating wealth. In Smith’s time the

predominant economic system in Europe was

mercantilism, which was based on the idea that nations should trade goods with other nations in

order to get as much of the other country’s gold

and silver that they possibly could. Countries

Chapter 3: The Great Economic Thinkers | 43

competed to stockpile

the most of these

precious metals, leading

governments to impose

high taxes on imports to

prevent their own nation’s

gold and silver supply from

leaving the country. Under

mercantilism, governments

granted special rights and

privileges to certain people

to participate in trade,

concentrating wealth in

the hands of only the well

connected. In other words,

it made a few people very

rich, but mercantilism

never made society as a

whole wealthy. Smith also

noted that neither had the

economic system before

mercantilism (feudalism) nor had the agrarian (farming) economies that came before that.

Smith was excited about a newly emerging eco-

nomic system that seemed to have amazing poten-

tial. People who privately owned their land, labor,

and capital met in marketplaces, and prices were

determined for goods and services. Demanders

acquired the things they wanted, bringing them

levels of material comfort they’d never before expe-

rienced. Suppliers earned more profits than ever

before. And all of this happened without govern-

ment involvement. I’m sure you recognize this eco-

nomic system as capitalism. Smith described it in his

world-changing book, An Inquiry into the Nature and Causes of the Wealth of Nations. Commonly referred to as The Wealth of Nations, it was pub- lished in 1776—coincidentally, the same year that

the American Declaration of Independence was

signed. It popularized capitalism around the world.

Smith intrigued readers with his opening descrip-

tion about the potential to create wealth. He wrote

about a pin factory where

individual workers were

only able to produce a small

number of pins in a day.

But when owners—moti-

vated by profit—had work-

ers each complete one task

of production (specialize),

the number of pins work-

ers were able to produce

dramatically increased. This

was one of many exam-

ples he gave to show how

the motivation for profit in

the context of private own-

ership works. The Wealth of Nations became a clas- sic during Smith’s lifetime,

which is quite unusual

because an author is usu-

ally long dead before his or

her work is considered a classic. To this day, when

we talk about classical theory in economics, we start with Adam Smith and The Wealth of Nations.

Adam Smith is considered the father of modern

economics, as well as the person who popularized

the economic system of capitalism. He was a pro-

lific writer, and scholars who study his work like to

remind us that his thinking was actually much more

layered and nuanced than the legacy for which he’s

famous. We won’t be covering that level of detail

about him in this book, but you should know that

there are schools of economists who do nothing but

study and debate the complexity of his ideas. Please

keep in mind that we’re crediting to Smith the ideas

that are generally attributed to him and that have

influenced generations of economists that came after.

Smith wasn’t a scientist or a mathematician, so

The Wealth of Nations doesn’t include any graphs or mathematical equations to explain his the-

ory. This was not a problem until the mid-1880s,

when the scientific method became very popu-

Smith was excited about a

newly emerging economic

system that seemed to have

amazing potential. People

who privately owned their

land, labor, and capital

met in marketplaces, and

prices were determined for

goods and services. And all

of this happened without

government involvement.

44 | Voices On The Economy

lar. Some people wanted factual proof that what

Smith wrote about was scientifically true, so a

group of economists added math and graphs to

Smith’s work so that it would stand up to sci-

entific inquiry. This enhanced version of classical

theory is called neoclassical theory (neo means “new”). Today, it is the mainstream (conventional)

theory of capitalism.

You’ve known about capitalism your whole

life, so the idea is hardly going to be revolution-

ary or shocking to you. Yet think about the his-

tory of the world and try to imagine how many

times a minute humans have wanted something,

whether a necessity or a luxury, but couldn’t get

it—food, dental care, education, a wedding dress,

a home, transportation, warm clothes. Maybe they

prayed to God, or begged the king, or applied to

the government bureaucrats, or took out a loan.

Maybe the things they wanted existed, but peo-

ple couldn’t afford them; or maybe the things they

wanted weren’t available; or maybe there weren’t

enough of them to go around. Adam Smith’s prom-

ise in The Wealth of Nations is that the economic

system of capitalism can bring us all untold wealth

when there is private ownership of land, labor, and

capital. Firms will make us what we want; they

will make the maximum amount using the fewest

resources; and those who choose it can have it.

Many conservatives believe popularizing capital-

ism was a game changer for humanity. Suddenly

there was a way to get the things people wanted

and needed, in a system that was open not just to

the well connected but to every free person.

The economic system of capitalism has three

types of players: demanders, suppliers, and the

government. I’ll talk about Player 3, the govern-

ment, in a minute. Player 1, the demanders, own

their own labor. They trade it to acquire money

(in other words, they get paid for their work).

Player 2, the suppliers (we also say firms or busi-

nesses), own or hire land, labor, and capital,

which could take the form of a chocolate bar fac-

tory or a sheep farm or a computer repair shop.

Demanders and suppliers meet in markets, where

prices for goods and services are determined. The

prices signal to buyers what and how much to

buy and signal to firms what and how much to

make. Price signals give firms and individuals a reason to act. Just think of the multitude of deci-

sions being made all the time by countless people

about how to use resources. This invisible force

that directs every market at every moment is what

Smith termed the invisible hand. No one is in charge or pulling the strings. It all happens nat-

urally.

Let’s say there are advances in robotics and

now more people want to buy personal robot

assistants because the new models clean bath-

rooms, make dinner, and play basketball with

you. When more people demand them, the price

of personal robot assistants will go up. That sig-

nals firms to make more of them. Making more

of a popular item means firms can sell more and

make more profit, and profit is why firms are in

business. Price signals play a really important role

in capitalism, functioning as incentives, meaning they motivate people and firms to take action.

Smith further said that firms will not only make

us the kind of stuff we want and need, they’ll do

it without wasting resources. The robotics firm is

not going to hire more workers than it needs or

buy more copper wire than it needs because it

wants to make the most money possible. Firms

will produce the amount that generates the most

profit at the lowest possible cost. No law or gov-

ernment regulation directs them to do this; it sim-

ply makes sense to them because it serves their

profit interest to do it.

Let me ask you this: would you enlist to go to

war and put your life on the line to protect your

country if it produced tons of great stuff—none

of which you could afford to buy? Most likely you

wouldn’t. Those who believe capitalism is the best

economic system say that everyone who chooses

Chapter 3: The Great Economic Thinkers | 45

to do so can get the great stuff. How does it work?

Price signals ensure that personal robot assistants

will go to those who most want them. Let’s say

there’s an investment banker and me, a teacher,

and we both really want one. Who is going to get

one? The person who followed price signals and

became a well-paid investment banker, or the per-

son who makes a more modest living as a teacher?

In capitalism, when we follow price signals we can

make career choices that lead us to be able to pur-

chase the goods and services we want. For exam-

ple, I chose to be an educator because I wanted

to teach economics more than I wanted to have a

personal robot assistant or a yacht or a ski chalet

in the Alps. At the end of the day, the robot will go

to the investment banker because the investment

banker wanted it more than the teacher and chose

accordingly. And this is how it should be, accord-

ing to Smith. If I really wanted that personal robot

assistant, and if I wanted to be able to acquire it

more than I cared about other things, I would have

made a different career choice and could have

been able to afford one. In capitalism, firms make

products for those who most want them. Smith

said we don’t have to rely on divine intervention,

the noblesse of a king, or good luck to get what

we most want and need because capitalism will

make it available to us through the free market.

Remember in chapter 1 we described the three

questions of economics: what to produce, how to

produce, and for whom to produce? According

to this theory, firms will make the stuff we want

(called allocative efficiency). Firms will make the maximum amount of stuff we want at the

minimum cost (called productive efficiency). And the stuff will go to the people who want it

most (called distributive efficiency). These are the three outcomes of capitalism, as promised to

us by Adam Smith.

Did you notice what didn’t happen in this sce- nario about who gets a personal robot assistant?

Player 3 didn’t get involved at all. The government

didn’t tell people to buy personal robot assistants,

and it didn’t tell firms to produce them. Smith said

that in capitalism government shouldn’t interfere

with suppliers and demanders. It should leave the

system alone to be guided by the invisible hand

that arises from price signals. (Conservatives later

popularized the French term for “leave it alone”—

laissez-faire, literally “allowed to do.”) A market free from government involvement is called the

free market. But that doesn’t mean we don’t need

46 | Voices On The Economy

government in capitalism. You wouldn’t labor day

and night to make money to afford that personal

robot assistant if your neighbor could just grab it

from you without any consequences. Smith said

the government should maintain a criminal jus- tice system to protect private property rights. And it’s not reasonable to expect that every firm will

have to construct its own power plant, manage

its own sewage, pave its own roads, and such. So

the second role of government Smith identified is

to create infrastructure. And firms aren’t going to invest in building businesses if people from other

countries could simply march in and take over our

country, so the third role of government should

be to ensure our national security. Government should have no other roles, he said. “Little else is

requisite to carry a state to the highest degree of

opulence from the lowest barbarism, but peace,

easy taxes, and a tolerable administration of jus-

tice: all the rest being brought about by the natural

course of things.”

The “natural course of things” he’s referring to is

the invisible hand. Today, conservatives, who are

free market capitalists, follow this idea. They believe

that all our other needs can and should be met

through private solutions including corporate and

individual philanthropy. For instance, disaster relief

is provided by nonprofit organizations and religious

organizations. They believe education, health care,

retirement security, and more are best provided

through a private system that brings people the

products they want at the lowest possible prices.

Capitalism operates on the assumption that peo-

ple and firms act out of their own self-interest— whatever brings the most benefit to the person or

the business. Smith says that is precisely why it

works. He believed self-interest is a far more sus-

tainable motivation for caring about the common

good than a sense of altruism or social responsibil-

ity. Would drug companies risk billions investing

in research and development of new medications

if they weren’t going to make money on them? Not

likely, say proponents of capitalism. As Smith wrote

in The Wealth of Nations: “He intends only his own gain, and he is in this, as in many other cases,

led by an invisible hand to promote an end which

was no part of his intention. By pursuing his own

interest, he frequently promotes that of the society

more effectually than when he really intends to

promote it.” In other words, Smith believed that

we will demand things that lead to our own hap-

piness—such as personal robot assistants, sky-

Chapter 3: The Great Economic Thinkers | 47

scrapers, ballet lessons, medication, vacations, and

soup—out of self-interest. And out of their own

self-interest, firms will supply these things—not

because they’re trying to make our lives better but

because they’re trying to make money. Self-interest

is the engine that drives capitalism. Smith some-

times used the term enlightened self-interest to describe the phenomenon that the pursuit of

self-interest is automatically the pursuit of the best

possible outcome for all of society.

Capitalism sounded amazing to the people who

read Adam Smith’s book in the late 1700s, which

is why it so quickly became a classic. The Wealth of Nations explained that when the economy hits a bump in the road—maybe there’s news of an

impending attack by aliens from another planet,

so spending goes down because everyone is hid-

ing under their beds—it’s not a problem. Smith

reassured readers that the economy will inevita-

bly fix itself. Here’s how it works: When people

stop buying, prices will go down. When prices go

down, wages—the price of labor—will go down.

When wages go down, it’s cheaper for firms to

produce, so firms will start hiring workers. Now

that they have money in their pockets, work-

ers start buying again—not just personal robot

assistants but skateboards, tropical fish tanks,

houses, concert tickets, computers, and all sorts

of things—and the economy picks up again. The

government doesn’t have to do a thing to fix it

because capitalism is a self-correcting system and,

according to Smith, the best system for creating

economic growth and a better standard of living

for everyone. To free-market capitalists, the key

is for government to leave it alone—laissez-faire. Neoclassical theorists apply marginal anal-

ysis—marginal means additional—to show how firms and individuals make profitable decisions to

do something by comparing the additional ben-

efit of doing it to the additional cost of doing it.

You might know this as cost-benefit analysis. For example, if it costs a firm $10 to make a pizza,

and it can sell that pizza for $11, the firm would

decide to make it because the additional benefit

exceeds the additional cost. The firm would con-

tinue to make pizza until the marginal cost exceeds

the marginal benefit, and then it would stop. Deci-

sions are made on the margin, which means that

firms don’t decide they’re going to make one hun-

dred pizzas; they do a marginal analysis as they go

along to determine if they should make the one

hundredth pizza. Neoclassical theorists say optimal

decisions are made by comparing marginal cost

and marginal benefit. Should you work another

hour? If you do, you’ll earn $15, but you’ll miss

your bus and have to pay for a ride home, which

will cost you $12, and you’ll miss dinner, so you’ll

have to grab a bite to eat, which will cost you $5.

Working an extra hour will give you $15 and cost

you $17, so you will decide not to do it because

the marginal cost is greater than the marginal ben-

efit. Cost-benefit analysis is used for every kind of

decision, including whether to clean an additional

10 percent of pollutants out of the river, whether

a city should build a new line for its light-rail sys-

tem, or whether a town should open a new high

school, and so forth.

Smith’s ideas were further developed by two

influential thinkers in the twentieth century. F. A.

Hayek (1899–1992) was part of the Austrian

school of economics. Hayek ended up teaching

at the University of Chicago. Also at the Univer-

sity of Chicago was economist Milton Friedman

(1912–2006), who was part of what is known as

the Chicago school of economics. Friedman in

turn influenced President Ronald Reagan (1911–

2004), who championed supply-side econom- ics—lower taxes and fewer government regula-

tions. Friedman’s and Hayek’s ideas inform the

conservative conversation today in the Republican

Party (also called the Grand Old Party, or GOP for short), as well as in the Libertarian Party. Proponents are often called the Right (or right- wing), supply-side, and classical/neoclassical.

48 | Voices On The Economy

To sum up the conservative economic position

presented in the VOTE Program: In capitalism, when the economy is free from government inter- ference, the invisible hand of price signals leads markets to self-correct and adjust on their own so that all can prosper. This is why we embrace free-market capitalism through a laissez-faire approach. Conservatives believe we need liberty (from government interference) to flourish with

unfettered opportunities.

No one would disagree that Adam Smith’s ideas

changed the world. He founded a whole field of

study and transformed people’s lives across the

planet. By promoting capitalism, he created the

global economy that shapes every aspect of our

lives today. Yet, on the day he died—July 17,

1790—this great economic thinker said that he

wished he had accomplished more.

CONSERVATIVE WHO

Adam Smith The Wealth of Nations

WHEN

18th century

WHAT

Firms are privately owned and guided by price signals

(the invisible hand).

WHY

Because when the economy is free from interference, we have the right incentives to create prosperity.

HOW

Embrace Free-Market Capitalism

WHERE

In a nation with liberty so all can flourish with unfettered opportunities.

THESE IDEAS ARE BROADLY SHARED BY

Conservatives • Republicans Classical/Neoclassical Theorists

Republican Party • GOP • Tea Party Libertarians • Right • Far Right

Supply-Side • Austrian • Chicago School Right to Work Advocates • Deregulators

Chapter 3: The Great Economic Thinkers | 49

The Power of the Market

“Look at this lead pencil. There’s not a single person in the world who could make this pencil.

Remarkable statement? Not at all! The wood from which it’s made, for all I know, comes from a tree

that was cut down in the state of Washington. To cut down that tree, it took a saw. To make the saw,

it took steel. To make the steel, it took iron ore. This black center, we call it lead but it’s really . . .

compressed graphite. I think it comes from some mines in South America. . . . This red top up here,

the eraser a bit of rubber, probably comes from Malaya, where the rubber tree

isn’t even native. It was imported to South America

by some businessmen with the help of the British

government. This brass ferrule, I haven’t the slightest

idea where it came from, or the yellow paint, or the

paint that made the black lines, or the glue that holds it

together. Literally thousands of people cooperated to make

this pencil. People who don’t speak the same language,

who practice different religions, who might hate one another

if they ever met. When you go down to the store and buy this

pencil, you are in effect trading a few minutes of your time for a

few seconds of the time of all those thousands of people. What

brought them together and induced them to cooperate to make

this pencil? There was no commissar sending out orders from some

central office. It was the magic of the price system. The impersonal

operation of prices that brought them together and got them to

cooperate to make this pencil so that you can have it for a trifling sum.

That is why the operation of the free market is so essential not only to

promote productive efficiency, but even more to foster harmony and

peace among the peoples of the world.”

—Conservative economist Milton Friedman, from the PBS Series Free

to Choose, Part I, The Power of the Market

50 | Voices On The Economy

Karl Marx The next great economic thinker came

along in the nineteenth century. German-

born Karl Marx (1818–1883) was profoundly

influenced by The Wealth of Nations and

developed a critique of capitalism that became

the foundation of radical theory. Marx looked

around, and instead of seeing the prosperity

Adam Smith described, he witnessed masses

of people living in poverty. While agreeing with

Smith that previous economic systems such as

feudalism and mercantilism hadn’t worked to

create prosperity for the masses, he said capitalism

wasn’t working either. He published his most

influential critique in the first volume of his book

Capital (Das Kapital in German) in 1867. He wrote that the capitalist society “that has sprouted

from the ruins of feudal society has not done away

with class antagonisms. It has but established new

classes, new conditions of oppression, new forms

of struggle in place of the old ones.”

Marx must have wondered if there was some-

thing wrong with his eyesight because he wasn’t

seeing what Adam Smith promised in The Wealth of Nations. Instead he saw young children working twelve-hour days in factories and miserable living

conditions in slums coated in grit from the smoke

belching out of factory chimneys. Marx theorized

that there was a direct connection between cap-

italism and the suffering of the masses. He saw

capitalism as a system in which owners steal from

wage laborers, and everyone accepts this as a

normal fact of life, rather than regarding it as a

crime. He pointed to the heart of the problem:

capitalism’s relentless drive for profit. It creates

incentives for cap- italists (owners of capital) to engage

in inhumane prac-

tices such as dangerous

working conditions, low

pay, polluting the environ-

ment, and more. Yes, it deliv-

ers untold wealth, said Marx, but

capitalism also brings untold mis-

ery because it’s a system that values profits over

people. He said it enriches a small minority while

making the vast majority suffer.

Consider your first job. Do you think you were

paid what you actually contributed? When I ask

my students, friends, and family this question, I

hear again and again, “Of course not!” Marx argued

that people know they’re getting paid less than they’re contributing. My first job was selling hot

dogs on the streets of Hartford, Connecticut, and I

sold about $300 worth of hot dogs per hour. I was

paid $5.15 per hour. That was the minimum wage

back then. After the owner paid himself his wages

and then paid for all of his overhead—the hot

dogs, buns, mustard, cart, permit to sell food on

the street, and all the other costs—he kept every-

Chapter 3: The Great Economic Thinkers | 51

thing except the $5.15 he had to pay me for each

hour I sold his hot dogs. Marx would say that the

rest of the value I created through my labor—the

surplus—was stolen from me. The owner takes the surplus that the wage laborer produces. Marx said that capitalism has this built-in mechanism of

theft, which he called workplace exploitation. He said the only choices for wage laborers are to

stay and be exploited or quit and be unemployed.

According to Marx, most of us don’t see anything

wrong with workplace exploitation because we’re

taught to believe that this is normal, inevitable,

and the way it’s supposed to be. The first volume

of Capital gave people a radical new way to see the worker’s situation.

Like Smith, Marx was simply describing what he

saw going on in the world around him. He wrote

that capitalism is a story of bloody and violent

struggle, not a harmonious meeting of suppliers

and demanders. His biggest contribution was to

shine a light on what he saw as exploitation and the

capitalist system of theft, a system rigged in favor

of the owners of the machinery, who, because of

that ownership, control wages, benefits, working

conditions, profit distribution, and more.

In addition to workplace exploitation, Marx

identified something else he saw as a big problem.

He called it capitalist competition. While owners are not necessarily bad or greedy people, they are

stuck in a bad system, which leads them to make

harmful decisions. Here’s how it works: Let’s say an

owner of a coffee shop hires workers to sell lattes.

Her competitor—the big chain coffee shop across

the street—replaces wage laborers with machines

to cut costs. Now, if she doesn’t cut costs in the

same way, her competitor will be able to undercut

her prices and put her out of business. She may

not want to lay off workers, but to stay in business,

she will have to. Other competitors may also cut

costs by eliminating worker safety equipment, or

reducing everyone’s wages, or speeding up pro-

duction, or polluting the environment, or produc-

ing a lower-quality product, or moving their facto-

ries to countries where wages are lower. To stay

competitive and make sure her company doesn’t

go under, she will also do those things, even

though she may not want to. Radicals say we’re

all racing to the bottom, creating worse and worse

conditions for wage laborers, more and more diffi-

cult choices for owners, and less safe products for

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52 | Voices On The Economy

consumers. They say this is

business as usual in capi-

talism, where firms have to

compete to survive. Fueled

by the drive for profit, firms

will be forced to take steps

to increase their profits

even though it means mak-

ing society worse off.

Nowhere in Capital does Marx offer solutions to the

problems of capitalism.

He only set out to write

the critique. However, in

a small pamphlet called

The Communist Manifesto, published in 1848, co-authors Marx and Friedrich

Engels lay out a few ideas for what an alternative

economic system could look like. Their main idea

was to abolish private property and let workers

own the equipment, factories, farms, and other

capital they used to produce things. “[This new

system]…may be summed up in the single sen-

tence: Abolition of private property,” they wrote.

“…[I]t deprives no man of the ability to appro-

priate the fruits of his labour. The only thing it

deprives him of is the ability to enslave others by

means of such appropriations.” Marx and Engels

called this new economic system communism.

Their pamphlet, which offered some broad

notions, was no blueprint for a new economic

system, but it nevertheless became an inspira-

tion for the Russian Revolution of 1917. Russia’s

working class rose up and overthrew the czarist

(autocratic) system of government and the revo-

lutionaries seized all private property. But instead

of turning it over to the workers, the new govern-

ment became the new owner of the resources.

What the Russian Revolution ended up creating

was a system of state capitalism, where the state—not the workers—owned the means of pro-

duction. It was not the communism described in

The Communist Manifesto, but the word communism unfortunately became con-

flated with the state capi-

talism of the Soviet Union.

When the Berlin Wall

fell in 1989, and Soviet

communism came to an

end, some critics said that

meant Marx’s ideas had

failed and were therefore

irrelevant. But radicals say

Marx’s critique of capital-

ism is as relevant today as

it ever was because capi-

talism continues to be the

world’s dominant economic system, and radi-

cals believe the abuses of capitalism continue to

destroy the lives of individuals, the integrity of

communities, and the ecosystems of the planet.

Karl Marx believed capitalism creates problems

that can’t be fixed—not by the government inter-

vening and not by the government leaving the

system alone. The problem is the capitalist sys-

tem itself.

Marx influenced socialist economist and activ-

ist Rosa Luxemburg (1871–1919), who influenced

Eugene V. Debs (1885–1926), who ran for U.S.

president five times as a Socialist Party candidate.

Debs influenced U.S. economist Richard D. Wolff,

who founded the radical organization Democracy

at Work. Wolff influenced many modern-day dem-

ocratic socialists, whose ideas influenced Vermont

Senator Bernie Sanders. Supporters of Marx’s idea

to reject capitalism are referred to as radicals, the Far Left (or leftists), Marxists, democratic socialists, and socialists/communists.

If we didn’t have capitalism, what kind of eco-

nomic system would bring us the things we want

and need without exploiting workers and creat-

ing suffering—the poverty, slums, sickness, misery,

and alienation—that Marx describes? The radical

Karl Marx believed

capitalism creates problems

that can’t be fixed—not by

the government intervening

and not by the government

leaving the system alone.

The problem is the

capitalist system itself.

Chapter 3: The Great Economic Thinkers | 53

idea to replace capitalism that we talk about in

the VOTE Program is democratic socialism—an economic system of cooperative ownership. This

includes public ownership, community owner-

ship, nonprofit ownership, and worker ownership.

With public ownership, the democratically elected

government is in charge of certain resources so it

can ensure that everyone’s basic human needs are

met—health care, utilities, higher education, trans-

portation, and more. Community ownership could

be a local park or a stadium that the municipality

owns and operates. Nonprofit ownership could be

a land conservation group owning and operating

a bird sanctuary. Worker ownership means all the

workers in the firm own it together and decide

together how the business will be run.

Imagine you work in a coffee shop, but now

you and your fellow baristas are all co-owners.

You use a democratic process to decide how much

you each should be paid. You also decide collec-

tively how to produce and price the coffee drinks

you sell, and how to distribute the profit. Radicals

call this workplace justice. Radicals point out that while firms compete in markets, the worker-own-

ers live in the communities where they work and

therefore there is coordination among compet- itors to make decisions that benefit not just their bottom lines, but their own lives, the lives of their

neighbors, and the whole community.

In democratic socialism, a portion of the profit

from all cooperatively owned firms pay for things

that ensure the well-being of everyone in society,

such as health care, higher education, and trans-

portation. According to radicals, cooperatively

owned firms produce things that make people’s

lives better. The decaf coffee your firm sells will

be made without dangerous chemicals because

your family and friends are drinking it. Your

firm and other local worker-owned coffee shops

will switch from plastic lids to compostable lids

because it’s better for the landfill on the edge of

your town. And when you all go in together to

54 | Voices On The Economy

order the new lids in bulk, everyone saves money.

When a problem arises—say the new drive-thru

window is creating traffic jams on the roads—

your neighbors, your democratically elected gov-

ernment representatives, and the worker-own-

ers at your coffee shop come together to solve

the problem. Finally, in democratic socialism the

impact of production and consumption on other

communities around the world is factored in to

your decision-making. That’s why your coffee

shop sources its beans from a collective of local

indigenous growers in Costa Rica that uses nat-

ural pesticides. Radicals say this is business as

usual in democratic socialism, where competition

goes hand in hand with coordination. Fueled by

the drive for well-being, firms will put people and

the planet before profit.

To sum up the radical economic position pre-

sented in the VOTE Program: In capitalism, the drive for profit leads firms to exploit workers, which creates suffering, inequality, bloody and violent conflicts, and global crises. This is why we instead adopt democratic socialism. All can prosper when private ownership is replaced with cooperative ownership, and the well-being of all is valued over profits. Markets and competition will still exist, say radicals, but exploitation will be

eliminated. They believe we need freedom so all

can flourish with meaningful opportunities.

Karl Marx died in exile in London on March 14,

1883. Only eleven people attended his funeral.

Years later, a large memorial was erected on his

grave. It reads, “Workers of all lands, unite!” —the

final sentence in The Communist Manifesto.

RADICAL WHO

Karl Marx Capital, Volume 1

WHEN

19th century

WHAT

Firms are worker-owned and guided by the pressure for good

(the invisible synergy).

WHY

Because when the economy values people over profits, we act in everyone’s best

interest to create prosperity.

HOW

Embrace Democratic Socialism

WHERE

In a nation with freedom so all can flourish with meaningful opportunities.

THESE IDEAS ARE BROADLY SHARED BY

Radicals • Democratic Socialists Marxist Theorists

Green Party • Communist Party Socialists • Left • Far Left

Dependency/World-Systems Theorists Labor Rights Activists • Occupy Movement

Chapter 3: The Great Economic Thinkers | 55

The Community-Owned

Green Bay Packers

“The Green Bay Packers are a fan-owned

team. I’m asked sometimes who’s the

best owner in sports. I always say it’s the

112,000 owners of the Green Bay Packers.

This is a very unique arrangement. This

started in 1923, when fans, to keep the

team from folding in Green Bay, each

plunked down a couple of bucks to keep

the team afloat. This is a time when no

one had a sense that the NFL was going

to become the gargantuan business that

it is today. And then in 1960 when it really

did look like the league could take off, [the

NFL] wrote it into their constitution—into

their rules of incorporation—that said no

other team could be run by a nonprofit

entity. That was now not allowed. And

what’s so interesting about it is you go to

a Green Bay game, you go there knowing

that 60 percent of the concessions are

going to local charities. Even the beer

costs half as much as it does at a typical stadium. And you also know you’re not going to have an

owner who threatens to move the team to Los Angeles unless they’re given a billion-dollar enormo-

dome across town. It’s a very special relationship, and it’s one that I’ve argued a lot that should be

replicated, and then sports can be something that keeps our cities afloat instead of weighing them

down.”

– Dave Zirin, author of A People’s History of Sports in the United States,

appearing on The Laura Flanders Show

A llen Fredrickson / REU

TERS A dobestock.com

56 | Voices On The Economy

telephones and radios, in people’s homes. More

people drove cars and went to the movies. All this

was great for the economy. The nation’s overall

wealth doubled between 1920 and 1929. But the

stock market crash in 1929 set off a financial

panic. People lost their fortunes overnight,

banks went under, and firms went out of

business. This widespread financial ruin plunged

the nation into the Great Depression. It was a scene

of mass unemployment and abject poverty that had

never been seen before in the United States. In cities

across the country, one-time bankers and socialites

stood in line with unemployed factory workers and

farmers, all hoping to get a free bowl of soup and

bread from overburdened charity organizations.

Policymakers were tearing their hair out trying

to figure out what to do. They looked to the econ-

omists of the day for advice, and what they heard

from classical theorists was, “Don’t do anything.

Just leave the economy alone and let the invisible

hand and price signals guide the markets. If you do

nothing, the economy will get back on its feet all

by itself.” But people were angry, scared, and frus-

trated; they wanted something to be done to move

the country out of the Depression. Laissez-faire

didn’t sound like much of a solution. The Russian

Revolution had taken

place only twelve

years before, and

some people started to

wonder if maybe com-

munism would be a better

economic sys tem. But poli-

cymakers weren’t interested

in rejecting capitalism—that

seemed un-American to them. Just when our

nation’s leaders were desperate for an answer, the

next great economic thinker emerged.

John Maynard Keynes (1883–1946) was a Brit-

ish economist trained in the classical school. Like

his peers, he was taught to believe that laissez-faire

capitalism worked because firms respond to price

signals. But Keynes looked around at all the people

who were starving, homeless, and desperate for a

job, and he realized that even though wages had

never been lower, firms still weren’t hiring. He wrote

in his 1936 book The General Theory of Employ-

ment, Interest and Money (also known as The Gen-

eral Theory): “Our criticism of the accepted Classical

theory of economics has consisted not so much in

finding logical flaws in its analysis as in point ing

out that its tacit assumptions are seldom or never

John Maynard Keynes In the 1920s capitalism in the United States

seemed to be delivering on its promise of

prosperity. World War I was over, and people were

ready to enjoy life again. The Roaring Twenties

were famous for jazz music and for women finally

winning the right to vote. With more people

living in cities than ever before, there

were more electrical appliances, such as

Chapter 3: The Great Economic Thinkers | 57

satisfied, with the result that it cannot solve the eco-

nomic problems of the actual world.” The economy

was stuck. Without jobs, people had no money to

spend, and until they started demanding products,

firms had no reason to produce and therefore no

reason to create jobs. That meant people would

continue to have no money. It was a vicious cycle.

Shouldn’t low wages have signaled firms to start

hiring, as the classical theorists argued? To Keynes it

was clear that firms were ignoring the price signal

of lower wages. Even though owners knew, logi-

cally, that if they hired workers, then those work-

ers would have money in their pockets to buy

the firm’s products, they still didn’t create jobs.

Keynes said this happened because the owners

had negative expectations—what he called ani- mal spirits. While classical theorists were say- ing that leaving it alone would fix the problem,

Keynes was saying yes, it would—in the long

run—but “this long run is a misleading guide to

current affairs. In the long run we are all dead.

Economists set themselves too easy, too useless a

task, if in tempestuous seasons they can only tell

us that when the storm is long passed the ocean

is flat again.” He recommended that government

take an active role to get money into people’s

pockets to immediately grow the economy and

bring prosperity back.

This is how Keynes’s idea works: Imagine it’s

1931, and you own a factory that makes roller

skates. The country is in the Great Depression, and

prices and wages have plummeted. That’s your

signal to hire more workers. So do you start hir-

ing workers to make roller skates right now? You

don’t—because no matter how inexpensive it is

to make them, you don’t believe anyone will buy

roller skates when they have no money for food,

clothes, or anything else. (This is animal spirits—

your negative expectation.) Keynes said the way

to stimulate the economy is to get people to start

spending. He saw a new role for government in

capitalism: it could help put money back in peo-

ple’s pockets by creating job programs, social secu-

rity programs, unemployment benefits, and more.

When people once again had money to spend, they

would start demanding products, which would sig-

58 | Voices On The Economy

nal firms to start producing.

Growing demand would

lead to more production,

which would lead firms to

hire more workers. With

the return of jobs, the econ-

omy would be back on its

feet, and capitalism would

be up and running again,

bringing us untold wealth.

This new way of thinking

about the helpful hand of government to stimulate the economy is referred to

as the Keynesian revolu- tion. It is also referred to

as Keynesian economics

and liberal economics. The General Theory remains the most influential lib-

eral critique of free-market

capitalism. Remember that

Keynes didn’t disagree that

the economy, if left alone, will self-adjust in the

long run. He just said that it was wrong, economi-

cally and morally, to wait around for that to happen

while people suffer—not when the helpful hand

of government can guide capitalism to ensure eco-

nomic stability. Pro-market policies married to gov-

ernment involvement will bring us the widespread

economic well-being we want, according to Keynes.

He rejected Karl Marx’s idea that capitalism should

be replaced. Unlike radicals, liberals believe whole-

heartedly in the wealth-building potential of capital-

ism. Liberals, like conservatives, believe it’s the best

economic system ever invented.

Liberals today continue to see an important

role for the helpful hand of government in capi-

talism, not just to stimulate the economy and max-

imize the wealth-building potential of capitalism,

but also to regulate industry so that none has an

unfair advantage over another. Fair-market capi-

talism is guided by govern-

ment to ensure stability and equity. Stability in this context means an economy

that doesn’t seesaw wildly

up and down but that has

constant, steady growth.

Equity means we all are

treated fairly and have what

we need to succeed. This is

subtly different from equal- ity, which means treating everyone the same. Let’s

say I want to watch my

local Little League team’s

final game in the playoffs.

I arrive late, only to dis-

cover that the bleachers are

already full. I find a place

to watch from behind the

fence at third base. Unfor-

tunately, my sister is too

short to see over the fence.

My best friend can see just fine, but I forgot my

glasses, so even though I can see over the fence,

the game is a blur. Equity means that we’ll each

get what we need to see the game. That might

be a stool for my sister to stand on and glasses

for me. In contrast, equality means we would each

get exactly the same thing—a stool and a pair of

glasses—whether we needed those things or not.

Equity is important to liberals because they

believe that it’s not fair that some people have a

place at the starting line while others have to start

a few yards behind and even more start miles

away. The odds are obviously stacked against

everyone in the back. Relatively few of them can

overcome the unfair disadvantage and succeed.

The starting line is a metaphor for all the things

we need in order to have to compete in capital-

ism—for example, education, health care, trans-

portation, and job opportunities. Liberals look

Keynes didn’t disagree that

the economy, if left alone,

will self-adjust in the long

run. He just said that it

was wrong, economically

and morally, to wait

around for that to happen

while people suffer—not

when the helpful hand

of government could

guide capitalism to ensure

economic stability.

Chapter 3: The Great Economic Thinkers | 59

to government to help level the playing field so

more people can become wealthy under capital-

ism. Liberals are not, however, saying government

should ensure that everyone finishes the race or

finishes at the same time. The job of government

is to make sure we all have the same opportuni-

ties and advantages to compete. It’s up to individ-

uals to work hard, study hard, and apply them-

selves with the determination to succeed. Liberals

believe that when people take individual respon-

sibility and have the same opportunities, then cap-

italism will deliver on the promise of prosperity.

Liberals say the helpful hand of government

brings us things that we could never accomplish

on our own as individuals: Social Security, the min-

imum wage, public libraries, public transportation,

Medicare, public education, and so forth. Liberals

point out that we can thank the government for

bringing us the internet. They also say you can

thank government for protecting you from fraud-

ulent practices by firms and for protecting firms

from illegal practices by other firms. This happens

through mechanisms such as consumer protec-

tion laws, antitrust legislation, worker protections,

environmental laws, and trade protections because

government regulations ensure accountability and

transparency in capitalism. Accountability means

firms have a responsibility to society and are

answerable for their actions. Transparency means firms must disclose information so there can be

oversight to hold them accountable.

Keynes believed that when capitalism is guided

by government, it promotes peace between coun-

tries. His ideas influenced the creation of the

International Monetary Fund, the World Bank,

and the World Trade Organization. Some credit

Keynes’s ideas with influencing President Frank-

lin D. Roosevelt, who created the New Deal

during the Great Depression. Liberal economists

also credit Keynesian thinking with pulling the

United States out of the Great Recession that

started in 2007. They say in both cases, the gov-

ernment helped people to have money to spend,

so firms were perfectly willing to start up produc-

tion again and hire more workers, which put the

economy on the road to recovery. Famous pro-

ponents of Keynesian economics include Harvard

professor John Kenneth Galbraith (1908–2006),

who advised President John F. Kennedy, and con-

temporary liberal economist Paul Krugman. Their

ideas inform the liberal conversation today in the

Democratic Party. People who follow liberal the-

ory are called Keynesians, progressives, liberals, interventionists, and center left.

60 | Voices On The Economy

In the media, and in the popular minds of people

in the United States, liberal refers to the fair-market or Keynesian perspective. That’s why we use it this

way in the VOTE Program. But please be aware

that the word liberal outside the United States refers to the free-market perspective, which in this

country is the conservative perspective. And just to

be even more confusing, the term classical liberal is another name for conservatives.

To sum up the liberal economic position rep-

resented in the VOTE Program: Under capitalism, when the government intervenes in the economy, all can prosper because the private-public part- nership stabilizes markets and creates account- ability, transparency, and equal opportunities. This is why we guide fair-market capitalism with the helpful hand of government. Liberals believe we need fairness so all can flourish with

equal opportunities.

Keynes died from a heart attack at his home in

Sussex, England, on April 21, 1946, at the age of

sixty-three. He was survived by his wife and par-

ents. His obituary in the New York Times reported that he was “[e]xhausted by the strain of the Inter-

national Monetary Conference in Savannah, Ga.”

There is no grave for Keynes. His ashes were scat-

tered on the Downs. (Too bad, because he had

the perfect quote for his gravestone: “In the long

run, we’re all dead.”)

LIBERAL WHO

John Maynard Keynes The General Theory

WHEN

20th century

WHAT

Firms are privately owned and guided by price signals and government

(the helpful hand).

WHY

Because when the economy is stable and equitable, we have the ingenuity and

accountability to create prosperity.

HOW

Embrace Fair-Market Capitalism

WHERE

In a nation with fairness so all can flourish with equal opportunities.

THESE IDEAS ARE BROADLY SHARED BY

Liberals • Democrats Keynesian Theorists

Democratic Party Progressives • Center • Center Left

Institutionalist Theorists • Social Economists Labor Union Organizers and Members

Chapter 3: The Great Economic Thinkers | 61

Excerpt from the Second Inaugural

Address of President Barak Obama

“Together we discovered that a free market only thrives

when there are rules to ensure competition and fair play.

Together we resolve that a great nation must care for

the vulnerable and protect its people from life’s worst

hazards and misfortune. Through it all, we have never

relinquished our skepticism of central authority, nor have we

succumbed to the fiction that all societies’ ills can be cured

through government alone. Our celebration of initiative

and enterprise, our insistence on hard work and personal

responsibility—these are constants in our character.… For

we, the people, understand that our country cannot succeed

when a shrinking few do very well and a growing many

barely make it. We believe that America’s prosperity must

rest upon the broad shoulders of a rising middle class.…

We understand that outworn programs are inadequate

to the needs of our time. So we must harness new ideas

and technology to remake our government, revamp our

tax code, reform our schools, and empower our citizens

with the skills they need to work hard or learn more,

reach higher…. We, the people, still believe that every citizen deserves a basic measure of security

and dignity. We must make the hard choices to reduce the cost of health care and the size of our

deficit. But we reject the belief that America must choose between caring for the generation that

built this country and investing in the generation that will build its future…. The commitments we

make to each other through Medicare and Medicaid and Social Security—these things do not sap our

initiative. They strengthen us. They do not make us a nation of takers. They free us to take the risks

that make this country great.”

62 | Voices On The Economy

Exercise 3: “What’s My Perspective?” You can tune your ear to start to hear the perspective someone is coming from even if that person

doesn’t say it directly. Here’s an exercise that will help. Match the following quotes from well-known

individuals to one of the three perspectives. The Answer Key is at the end of the chapter.

Quote 1: “Capitalism does not permit an even flow of economic resources. With this system, a small

privileged few are rich beyond conscience, and almost all others are doomed to be poor at some

level. That’s the way the system works. And since we know that the system will not change the rules,

we are going to have to change the system.” –Martin Luther King Jr., Civil Rights Leader

Quote 2: “We have been ruled by men who live by illusions…the illusion that there is some other way

of creating wealth than hard work and satisfying your customers.” –Margaret Thatcher, Former British

Prime Minister

Quote 3: “You cannot separate the political structure from the economic structure. One has to be

an idiot to believe that the average working person who’s making $10,000 or $12,000 a year is equal

in political power to somebody who is the head of a large bank or corporation. So if you believe in

political democracy, if you believe in equality, you have to believe in economic democracy as well.”

–Bernie Sanders, U.S. Senator

Quote 4: “It was the labor movement that helped secure so much of what we take for granted

today. The forty-hour work week, the minimum wage, family leave, health insurance, Social Security,

Medicare, retirement plans. The cornerstones of middle-class security all bear the union label.”

–Barack Obama, Former U.S. President

Quote 5: “Capitalism demands the best of every man—his rationality—and rewards him accordingly.

It leaves every man free to choose the work he likes, to specialize in it, to trade his product for the

products of others, and to go as far on the road of achievement as his ability and ambition will carry

him.” –Ayn Rand, Philosopher

Quote 6: “Governments will always play a huge part in solving big problems. They set public policy

and are uniquely able to provide the resources to make sure solutions reach everyone who needs

them. They also fund basic research, which is a crucial component of the innovation that improves life

for everyone.” –Bill Gates, Entrepreneur

Chapter 3: The Great Economic Thinkers | 63

Three Perspectives on the Role of Government

As we discussed in chapter 1, our nation has

a representative democracy. The scope of the

government’s involvement in our lives differs

according to the visions of conservatives, liberals,

and radicals. For conservatives, government’s role

is limited to three areas: ensuring our national

security, protecting property through a criminal

justice system, and building the infrastructure

the nation needs, such as roads, bridges, and

utilities. Liberals agree with these three roles

of government and add three more: regulating

firms to ensure transparency and accountability,

stabilizing the economy, and ensuring equity to

create opportunities. Radicals agree with all six

of these roles of government and add three more:

facilitating community councils so that people can

participate fully in their own governance, some

collective ownership of resources and production,

and providing universal benefits such as health

care, higher education, and transportation.

Conservatives, Liberals, and Radicals National Security

Property Protection Infrastructure

Liberals and Radicals Transparency and Accountability

Stability Equity

Radicals Community Council Facilitators

Some Public Ownership Universal Benefits

Figure 3.1 The Role of Government from Three Perspectives

64 | Voices On The Economy

Figure 3.2 The Big Picture

Classical Theory Adam Smith:

Wealth of Nations 1776

Neoclassical Theory 1880s

Radical Theory Karl Marx:

Capital, Vol. 1 1867

Liberal Theory John M. Keynes: General Theory

1936

Present-day Conservatives

Present-day Liberals

Present-day Radicals

The debates among conventional economists

have been going on since the 1930s. But even

though they were diametrically opposed to one

another’s points of view, some of the leading

economists of the past were much more cordial

and polite about voicing their disagreements. It

was a far cry from the kind of negative rhetoric

we hear in our debates today. For instance, in 1951

liberal economist John Kenneth Galbraith wrote to

conservative Milton Friedman: “You know, in many

ways, how much we enjoyed your visit here last

week. This is just my way of adding a personal

word of thanks. I hope it won’t be too long before

we see you here again. So far as I can tell, also, the

students seemed to have suffered no permanent

damage. I hope your colleagues perceive no

disconcerting change in you. On second thought, I

hope they do.” Please note the playful and friendly

tone. They could disagree but still think well of

each other. We’ve lost this ability these days. The

VOTE Program will help get us back to a place

where we can acknowledge our differences and

use the ideas of our critics and opponents to

become better thinkers and better people because

of these debates. By the way, while we talk about

the big divide in our nation as being between the

The Big Picture

Remember at the very beginning of this chapter when I promised to give you the big picture of

economics so you wouldn’t have to try to put the jigsaw puzzle together without knowing what it looks

like? Here it is:

Chapter 3: The Great Economic Thinkers | 65

conservatives and the liberals, that’s not actually the

big divide in economics. The big divide is between

the people who reject capitalism (radicals) and

those who think America is, and ought to remain,

capitalist. Liberals and conservatives land on the

same side of that debate.

Now that you have the big picture of modern

economics, you’ll be able to understand the ori-

gins of the debates going on around you about

why we should get rid of the Environmental Pro-

tection Agency (Laissez-faire!); or why health- care workers should own the hospitals where

they work (Worker ownership!); or why govern- ment should require firms to install safety features

in cars (Transparency and accountability!). Every day, people are debating economics, and I hope

you’re already starting to tune in to these conver-

sations that are taking place around you. As we

start learning about the different issues and what

the different perspectives have to say about them,

this big picture will help you understand the

core differences and figure out where you stand and what you want to say. The VOTE Program is asking you to decide what country you want to

live in. What do you think is the best path for-

ward? Adam Smith, Karl Marx, and John Maynard

Keynes are not just three historical figures from

some dusty past. Their ideas still influence our

conversations today. The name Voices On The

Economy (VOTE) has a double meaning. You can

hear the voices of the great economic thinkers

who have come before you, and you can use their

voices to help you find your own. We look back

through history so we can find a path forward.

66 | Voices On The Economy

VOTE Perspectives

CONSERVATIVE

WHO

Adam Smith The Wealth of Nations

WHEN

18th century

WHAT

Firms are privately owned and guided by price signals

(the invisible hand).

WHY

Because when the economy is free from interference, we have the right

incentives to create prosperity.

HOW

Embrace Free-Market Capitalism

WHERE

In a nation with liberty so all can flourish with unfettered opportunities.

THESE IDEAS ARE BROADLY SHARED BY

Conservatives • Republicans Classical/Neoclassical Theorists

Republican Party • GOP • Tea Party Libertarians • Right • Far Right

Supply-Side • Austrian • Chicago School Right to Work Advocates • Deregulators

RADICAL

WHO

Karl Marx Capital, Volume 1

WHEN

19th century

WHAT

Firms are worker-owned and guided by the pressure for good

(the invisible synergy).

WHY

Because when the economy values people over profits, we act in everyone’s

best interest to create prosperity.

HOW

Embrace Democratic Socialism

WHERE

In a nation with freedom so all can flourish with meaningful opportunities.

THESE IDEAS ARE BROADLY SHARED BY

Radicals • Democratic Socialists Marxist Theorists

Green Party • Communist Party Socialists • Left • Far Left

Dependency/World-Systems Theorists Labor Rights Activists • Occupy Movement

LIBERAL

WHO

John Maynard Keynes The General Theory

WHEN

20th century

WHAT

Firms are privately owned and guided by price signals and government

(the helpful hand).

WHY

Because when the economy is stable and equitable, we have the ingenuity

and accountability to create prosperity.

HOW

Embrace Fair-Market Capitalism

WHERE

In a nation with fairness so all can flourish with equal opportunities.

THESE IDEAS ARE BROADLY SHARED BY

Liberals • Democrats Keynesian Theorists

Democratic Party Progressives • Center • Center Left

Institutionalist Theorists • Social Economists Labor Union Organizers and Members

Chapter 3: The Great Economic Thinkers | 67

Chapter 3: Test Yourself!

Below are multiple-choice questions to help you review the material you just read in this chapter. You can find the answers below.

1. Who is considered to be the “Father of Modern Economics,” and which of the following describes his area of inquiry?

A. John Maynard Keynes—How government intervention can turn a recession into an expansion.

B. Karl Marx—How private ownership of resources leads to exploitation of working people. C. Adam Smith—How nations become wealthy through private ownership of land, labor,

and capital.

D. Milton Friedman—How a decrease in taxes leads to an increase in economic growth.

2. A conservative would say that price signals are incentives for buyers and sellers to act. For example, when people demand more video games, the price goes up and firms start to produce more of them. The result is that in capitalism, firms make what people want. This is technically referred to as:

A. Productive Efficiency B. Allocative Efficiency C. Distributive Efficiency D. Economic Efficiency

3. The mathematical method used by neoclassical theory involves a type of marginal decision- making referred to as cost-benefit analysis. Please use this type of analysis to identify a correct decision below.

A. Eliana owns a food truck. She decides to close the truck from 2:00 p.m. – 3:00 p.m. every day because she makes $1,200 when she stays open during that hour, while it costs her $900 to stay open for that hour.

B. Jo Hsin pays $12 per hour for a daily swim class. Her employer gives her a wellness incentive of $10 that she can use for any exercise class. She decides to keep swimming because it’s more cost-effective than the only alternative available, which is an aerobics class for $8 an hour.

C. Dominic decides not to work the night shift as a waiter and instead studies for his economics exam. He would have made $150 in wages and tips, but if he gets an A on the final, he will qualify for a textbook scholarship for $200 next semester.

D. Grant is a DJ at a local club. He decides to hire an assistant for the night at $400, which means he can work two rooms instead of one and get paid an extra $350.

4. Match the significant date for radicals (left column) to its corresponding event (right column). A. 1867 i. Capital, Volume I published B. 1917 ii. Growing interest in democratic socialism C. Today iii. The Russian Revolution D. 1989 iv. Berlin Wall falls and Soviet communism ends

68 | Voices On The Economy

5. At a privately owned hair salon that employs three workers, the owner’s weekly costs are $1,500 in wages and $1,200 in capital and raw material (rent, shampoo, electricity, etc.). Every week, the hair salon makes $4,000. According to radical theorists, the surplus value of __________ is produced by and taken from the ________.

A. $1,200; capitalist B. $2,500; workers C. $6,700; owner D. $1,300; laborers

6. All of the following statements are true from a radical perspective. Which one expresses the idea of worker ownership?

A. Workers have rights to decent pay, safe working conditions, family leave, and overtime pay. B. Workers cooperatively own the businesses in which they work rather than laboring for

others in exchange for a wage.

C. Workers value people over profits and they can band together to ensure that firms where they work share this value.

D. Workers plan for community resources to be allocated fairly according to basic human rights and responsibilities.

7. Liberal theory as described by John Maynard Keynes can be identified by which of the following statements? Please choose all that apply.

A. Capitalism, along with the helpful hand of government, gives us the ideal mix of material comfort, opportunity, innovation, and growth.

B. The only important things to defend in our economy are profits, private property, and business interests.

C. The best way to meet the needs of the majority of people is to reject the private ownership of capitalism and replace it with the cooperative ownership of democratic socialism.

D. Allowing firms and consumers to respond to price signals no matter what the situation is the best way to bring about our collective economic well-being.

8. Match the liberal government roles (left column) to their definitions (right column): A. Transparency i. Firms are responsible for their actions B. Accountability ii. Firms disclose information so that oversight is possible C. Stability iii. Constant, steady growth in the economy D. Equity iv. Everyone has what they need to succeed

9. Please choose all options below that represent the liberal perspective: A. John Maynard Keynes, John Kenneth Galbraith, Franklin Delano Roosevelt B. Karl Marx, Milton Friedman, Ronald Reagan C. Progressives, Interventionists, Center Leftists, Democrats D. Libertarians, Socialists, Austrians, Republicans

Chapter 3: The Great Economic Thinkers | 69

Chapter 3: Key Terms

Accountability Agrarian Allocative efficiency Animal spirits Capitalist Capitalist competition Center Left Classical theory Communist Coordination among

competitors Cost-benefit analysis Democratic socialist Distributive efficiency Enlightened self-interest

Equality Equity Far left GOP Helpful hand of government Incentives Interventionists Invisible hand Keynesian Laissez-faire Leftists Libertarian Party Marginal analysis Marxist

Mercantilism Neoclassical theory Price signals Productive efficiency Progressives Right Right-wing Self-interest Stability Supply-side Surplus Transparency Wage laborer Workplace exploitation Workplace Justice

Answer Key to Exercise 3

Quote 1: Radical perspective • Quote 2: Conservative perspective • Quote 3: Radical perspective

Quote 4: Liberal perspective • Quote 5: Conservative perspective • Quote 6: Liberal perspective

10. Which of the following are functions of government shared by radicals, liberals, and conservatives?

A. National security, accountability, and equity B. Infrastructure, property protection, and national security C. Universal benefits, stability, and property protection D. Some public ownership, infrastructure, and equity

Answers

1. C 2. B 3. C 4. A – i, B – iii, C – ii, D – iv 5. D 6. B 7. A 8. A – ii, B – i, C – iii, D – iv 9. A & C 10. B

ch4

REUTERS / Mike Segar - stock.adobe.com

REUTERS / Mike Segar - stock.adobe.com

4Conservatives and Liberals: Conventional Theory Tatyana McFadden was born in the Soviet Union in 1989. She came into the world with a congenital condition called spina bifida, which left her without the use of her legs. “My

mother, like many people in Russia at that time,

couldn’t afford to care for me properly,” McFad-

den writes in her autobiography Ya Sama! The newborn was placed in a government hospi-

tal, where doctors expected her to die within a

few weeks. When it looked like she would sur-

vive, she was transferred to a state-run orphan-

age. There, McFadden lay in

a crib all day, in a room with

a dozen other children. She

described how she eventually

learned to climb out of her

crib and scoot around on her

hands, dragging her twisted

legs behind her. There were

no wheelchairs in the orphan-

age. She writes that living con-

ditions were harsh. Showers

were hose-downs with cold

water. Her clothes were ill-fit-

ting castoffs. Meals consisted

of porridge for breakfast and

thin soups with bits of boiled

vegetables for lunch and din-

ner. She never left the orphanage for field trips

or outings or to play in a park. “There were no

books to read,” writes McFadden, “no television

to watch, no Internet to explore. There was no

one to