Daniel Brockman: The Fairy Tale of Capitalism: Workers, GDP and Economists

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The Fairy Tale of Capitalism, or FTC, is a mythology, a collection of villains, heroes, morals, all of which participate from time to time.

Once upon a time, the Composers of Tales were known as Economists, but most people thought the Economists were unintelligible. Sometimes the Professors created tales, and sometimes other members of Society created tales, but Economists originated most of the Tales. The ancient economists, to whom all turned for their original and enduring wisdom, were called the Old Ones, but that’s another story.

Workers were the people who got most of their income from their personal Labor. Sometimes the Economists simply called them Labor. The 90 Percent included almost all Workers. Of the Workers, none were Aristocrats, or if there was an Aristocrat among them, it was most often a scion sent to work in a factory for a summer, or an Aristocrat in disguise, like a monarch or a president of a Federal Reserve Bank who wanted to learn about the life of a Worker.

The Economists often told of GDP Gross Domestic Product as the fundamental measure of social well being. GDP in the United States was mainly National Income plus depreciation of Capital. Depreciation of Capital was a relatively small and predictable amount compared with National Income. A few relatively minor adjustments wrapped up the calculation. So GDP was pretty much the same as National Income. Changes in the GDP level would reflect significant change in National Income.

Almost nobody understood the Economists. The Professors studied the Economists carefully, and sang songs of the Tales. Many people could understand the songs. They repeated some of the catchier songs to their friends. That was how most of the people learned of the Tales. “Growth of GDP” was perhaps the Professors’ favorite hymn. They sang it again and again.

For a few years following the great wars of the 20th century, many Economists believed that Aristocrats, Nine Percent and Ninety Percent shared, more or less evenly, the growth of GDP. But in the 21st century, Piketty and a few other Economists told of GDP01, the Aristocrats’ share of GDP, of GDP09, the share collected by the Nine Percent, and GDP90, everyone else’s share. According to their Tale, from 1977 to 2007, growth of GDP10 (=GDP01+GDP09) was three-fourths of the growth of GDP. Even when GDP grew nicely, GDP90 grew very little from year to year. At the same time, GDP09 grew fast, and GDP01 grew very fast indeed. GDP growth wasn’t distributed evenly at all. The Ten Percent got most of GDP growth.

The Workers knew their incomes weren’t growing much. They didn’t understand GDP numbers. They knew GDP growth was a good thing, because they heard the songs. The Workers had faith that disciplined work and a little bit of luck would make them rich as Aristocrats. They didn’t know.

They would have known had they remembered the songs sung by some of their grandfathers a hundred years earlier. One of the Old Ones had written some Tales that inspired Workers, and there were songs. But that’s another story.

I’m grateful to my friends who reviewed a prepublication draft and offered helpful comments.

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