How fundamentally wrong or right are the economic theories we use to design much of our social and governmental policy? According to Nick Hanauer, the Seattle-based entrepreneur, venture capitalist, and advocate for fighting inequality, and Eric Beinhocker, an economist at the Blavatnik School of Government and executive director of the Institute for New Economic Thinking at the University of Oxford, they are, in fact, all the way wrong.
According to the pair, the past century or so of scholarship in many different fields has proven just how wrong early economic thinkers were in their basic assumptions about how people think, how they interact with each other, and how societies grow and address human needs—and that should make us question the basics of almost all economic thinking. We should throw it all out, they say, and replace it with a new set of ideas they call market humanism. To do so would upend the neoliberal assumptions that have driven federal policymaking on both the right and the left for the past 50 years, and place human well-being and advancement at the center of our government’s economic policy.
I spoke with Hanauer about his work, the book he and Beinhocker are currently writing, why they think our concepts of economics should be replaced by something new, and how this “comically ambitious” project can be achieved.
[This interview has been edited for length and clarity.]
Who did you all write this for? Who are you hoping reads this, and what do you hope that they do with it? Is it policymakers, is it lawmakers, is it candidates?
Eric Beinhocker and I are writing a book on all this stuff. We have a manuscript, but it’s 500 pages long, and it’s not done, and the world is on fire. We think we have something important and novel to say, so we scrambled to put together—we call it a booklet—aimed at the kinds of people who care deeply and think deeply about these issues, and that is policymakers, political candidates, policy professionals, journalists, people who take this stuff quite seriously.
Part of your thinking is that the failures of neoliberalism have led to this rise of right-wing authoritarianism, but that’s not the only thing they led to. There has been a renewed interest in socialism and democratic socialism. I’m wondering if those are part of what you’re talking about, or if you see those as insufficient responses.
Oh, definitely insufficient responses. I think we need to rip economics down to the studs. Economics is the operating system of the world, and it affects us in ways that we can both describe, and sometimes in ways that we are unaware of. It affects our culture, it affects our norms, it affects our sensitivities, it affects … the information that is around us, and how we see it, and how we process it. We have lived under, in my view, a paradigm that has produced a lot of toxic consequences because it was both based on a bunch of assumptions about how the world works that were never true, and it was weaponized to advance the interests of a very small group of people. Neoliberalism creates a permission structure for the worst kind of people doing the worst kind of things.
When you say rip economics down to the studs, I’m thinking about how it’s been a really long time since I’ve read The Wealth of Nations, but you know, Adam Smith conceived his theories partly because he thought that it would make the world better for more people. We had an economic system before neoliberalism. I’m wondering why we can’t just go back to that?
Because we’ve learned so much. I mean, there are elements of Keynesianism embedded in market humanism, for example, the commonsense notion that if nobody has any money, who will buy the stuff, correct? But Keynes, for example, didn’t have a twenty-first-century way of understanding what innovation was and where it came from. And he didn’t understand markets as complex adaptive systems, and didn’t have an alternative to GDP as a measure of welfare—and had not disentangled what Homo economicus was and implied relative to Homo sapiens, and what those differences imply with respect to policy. Keynes was more right than Milton Friedman, but both relied on an eighteenth- and nineteenth-century understanding of the dynamics of human social systems, and I just think that the scholarship around this stuff has come a long way. We can now harness that scholarship and organize it into a coherent, internally consistent framework, which pretty accurately describes economic cause and effect in a twenty-first-century way.
So you’re not getting rid of a lot of the useful components of economic theory, which is money and markets themselves?
No, no, no, no. I mean, we are getting rid of some economic concepts which are not useful, but of course, money is an important social technology to enable markets to work, and markets, I would argue, are one of the most important social technologies human societies have ever created—but not for the reasons that the neoliberals tell you, which is that they are efficient allocators of scarce resources. That is not true. It’s just factually incorrect. What markets are, they are evolutionary systems in which effective businesses, which you can think of as organisms, compete to fill niches against organisms that are also trying to compete to fill those niches. What they enable is groups of people, people who are unrelated to one another, to cooperate at scale to solve complex problems.
Solving human problems is what prosperity truly is. If you redefine prosperity as solutions—effectively the accumulation of solutions to human problems—then you can quite easily see that markets are evolutionary systems designed to solve problems, or should be. If they are well managed, they are designed to solve problems.
The reason I think socialism is inadequate is: first, a political reason, which is, if you poll socialism outside of New York City or Berkeley, it’s a dead loser, and I want to win. And if you take the word seriously, it doesn’t mean what people think it means. It means state ownership of the means of production. While socialism answers one economic question—which is, “How should we distribute our prosperity?”—it has nothing to say about how we generate future prosperity, and that’s why I believe that Bernie Sanders is not a socialist, he is a market humanist. He just doesn’t know it, right?
I can see how this would remake how people think about policy decisions and remake how they think about longer-term decisions about how to set things up in a lot of different fields and markets. But I’m wondering if you have ideas on how to translate this into retail politics? Is this something that candidates can use to pitch a whole different idea of economics to voters?
Well, we’re in dialogue with a lot of candidates who are loving it.… So take Graham Platner, obviously, [he] is having a few issues right now, but if you focus on [his] narrative message, which I friggin love, all of it comes from this place of: “You have been screwed. This is unfair. We can have it better.” But the economic context that he is working within codes every single thing he wants to do as bad for the economy. If you look at the empirical evidence, everything he wants to do is actually good for the economy. I mean, there is a reason why GDP growth rates went from 4, 4.5 percent to 2 percent a year as soon as the neoliberals took over. Their policy agenda wasn’t good for growth, it was bad for growth—other than the bank accounts of the very rich.
Here is a fact that animates a lot of our work. By a margin of about two-to-one, Americans believe that the purpose of economic policy is to grow the pie, not to cut it up differently. What that means is that if you do not have, as a political party, a compelling theory of growth, then you cannot durably lead. The Democratic Party hasn’t had a theory of growth in 50 years. For 50 years, Republicans have been saying, “We can grow the economy,” and Democrats have been saying, “We can make the economy fairer.” And the consequence of that extraordinarily stupid strategic decision was two things: The first is that you lost the debate two-to-one every time you did it, but worse, you ratified their theory of growth. And that’s why Republicans consistently outpoll Democrats on the economy. If the economy is the most important thing to most people by a long margin, that is not a great strategy. You have to own growth. And here’s the good news: All of the empirical evidence says we do, you just have to not believe the neoliberals. Now you get to make an argument that not only will we have a fairer economy that more fully includes everyone in it, but it will also grow faster for everyone.
When you think about neoliberalism and Friedman-ism, it’s had a 50-year head start. And so, is this kind of a long project about explaining something new to people, and do we have time for it? Because you said the world is on fire right now.
You know, Monica, I have been writing about this for 15 or 20 years. I can only do what I can do. I do not believe it is possible to build an economy that reasonably includes the majority of citizens in it, and can address other challenges like climate change, without getting rid of neoliberalism. The three challenges of our age are inequality, climate, and democracy, and neoliberalism is terrible for all three of those things. If we want to have a world that I think all of us would like to live in, you better change the operating system that defines how that world works, by ripping economics down to the studs. You may be right, this may all be for naught. We may be too late.
I don’t know if we’re too late. It’s a big task, I think.
Just to be clear, I am aware of the fact that this is comically ambitious. Comically ambitious. But you know, you have to start somewhere, right? Somebody has to throw down and say the emperor has no clothes. There is a better way.
