What is the “trick” in “trickle down” economics? It’s how wealthy elites and their neoliberal lackeys convince you that what’s good for them (tax cuts, deregulation, etc.) is good for you… and that policies like the minimum wage, overtime, and paid sick leave will ruin the economy. Economics is a story we tell ourselves to help explain who gets what, and why. In this episode we explore how to tell a better story.

Yuval Harari: Author of international bestsellers: Sapiens: A Brief History of Humankind, Homo Deus: A Brief History of Tomorrow, and 21 Lessons for the 21st Century. Professor in the Department of History at Hebrew University of Jerusalem. PhD from the University of Oxford.

Twitter: @yuvalharari
Facebook: @Prof.Yuval.Noah.Harari
Instagram: @yuval_noah_harari

Molly Crockett: Director of the Crockett Lab, Assistant Professor of Psychology at Yale University, and Distinguished Research Fellow at the Oxford Centre for Neuroethics. PhD in Experimental Psychology from the University of Cambridge.

Twitter: @mollycrockett

Further reading:
(1) https://democracyjournal.org/magazine/41/a-threat-not-a-theory/
(2) https://www.politico.com/magazine/story/2017/07/18/to-my-fellow-plutocrats-you-can-cure-trumpism-215347

Transcript:

Speaker 1: We’re so good at doing things that are very selfish, while at the same time convincing ourselves that we’re doing the most moral possible thing.

Speaker 2: We’ll trickle down a few crumbs from the masters table to get some of them through one or two Christmas shopping seasons, and let’s tell them that they can do their taxes on a postcard.

Donald Trump: Our massive tax cuts provide tremendous relief for the middle class and small business.

Speaker 4: What people [00:00:30] have to recognize is that these stories that are told, often are not told because they are true, they’re told because they’re the most effective way ever devised for elites to continue to gain advantage and keep other folks down.

Speaker 5: From the offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics, with Nick Hanauer, confessions of an American capitalist caught on tape.

David Goldstein: [00:01:00] I’m David Goldstein, Senior Fellow at Civic Venture.

Hey Nick. So last episode we learned that Econ 101 is a lie, but of course most people don’t actually take Econ 101, they get the sort of popularized version of it which is trickled down economics. So, so what is trickle down economics and what’s the trick?

Nick Hanauer: [00:01:30] Yeah, so trickle down economics is sort of the popular form or narrative of something even deeper, which is neoliberalism. And trickle down economics is a set of interconnected claims that have been advanced by first some economists and then some by some very rich people who harness their self interest to those claims and finally by political leaders. And trickle down economics, the most famous instantiation of [00:02:00] it is the idea that tax cuts for rich people create growth and the corollary, tax increases for rich people will kill growth. 

David Goldstein: That’s great for you. 

Nick Hanauer: Exactly.

And there’s another instantiation of trickle down economics, which is that raising wages for workers will kill jobs, and the corollary, if you lower wages for workers or for instance, eliminate the minimum wage, it will create jobs.

David Goldstein: Okay, so [00:02:30] lowering wages, that’s bad for me.

Nick Hanauer: And finally that regulation kills jobs and growth, that any way in which we constrain the activity of wealthy people or big corporations that will be bad for economic growth. 

And these are the stories that have been advanced by economic elites for the last 30 or 40 years, and they are what pass for solid economic thinking in our culture and in our politics. [00:03:00] And they frame up how most people think about economics and therefore they have had a massive influence on the policies that we have enacted as a country basically based on these ideas. 

David Goldstein: So then as I understand it, if we cut your taxes, Nick, and we lower my wages and we deregulate all of your companies-

Nick Hanauer: That would be good for you.

David Goldstein: It’s going to be good [00:03:30] for me. Right. That’s some trick.

Nick Hanauer: It is an amazing trick. And this trick has been used by economic elites as long as there has been capitalism. And the basic trick is what’s good for me is good for you, and what’s good for you is bad for you.

David Goldstein: Man, I can’t win.

Nick Hanauer: Exactly. And I can’t lose. And that’s the trick in trickle down economics.

David Goldstein: And that’s the last 40 years in a nutshell.

Nick Hanauer: Exactly. [00:04:00] And a lot of other epochs in human history. the trick in trickle down is getting the broad public to believe that anything that benefits elites is good for the society in general and for less fortunate people in particular, and anything that in any way constrains elites will damage the entire society.

David Goldstein: Just going to hurt the people we’re trying to help.

Nick Hanauer: Exactly.

David Goldstein: You break down trickle down into three categories. Tax cuts for the rich, [00:04:30] wage suppression for everybody else, and deregulation of powerful interests now. But I’d always understood trickle down as simply the tax cuts part. I got taxes and it’ll trickle down to me.

Nick Hanauer: That’s the most well understood form is tax cuts for rich people will trickle down to workers and wages. And you saw that claim used pervasively, extensively, criminally in the tax fight that we had when [00:05:00] the Republicans push through this giant, $1.5 trillion tax cut for rich people and sold it as a thing that will create more jobs and higher wages for poor people. 

Donald Trump: My administration is working every day to lift the burdens on our companies and on our workers so that you can thrive, compete, and grow. And at the very center of that plan is a giant, beautiful, [00:05:30] massive, the biggest ever in our country, tax cut. 

Nick Hanauer: Consider how interesting it is, how necessary those folks thought it was to make the argument that the point of the tax cuts was not to enrich the rich, right? That was not an argument they made. They did not say-

David Goldstein: No, no, no. I’m supposed to get a $4,000 raise.

Nick Hanauer: Exactly.

Donald Trump: Our Council of Economic Advisors estimates that this change [00:06:00] along with a lower business tax rate would likely give the typical American household around a $4,000 pay raise, and that’s money that’ll be spent in our economy. 

Nick Hanauer: It super important to them to make that the anchor or pitch of the tax cuts. So, trickle down economics always takes this same form and so on the issue of wages, it is expressed in that very way. The idea that raising the [00:06:30] minimum wage, for instance, will kill jobs and harm the very people it’s intended to help is just another way of expressing that very same idea that anything that benefits rich people is good for the broader society. Anything that harms rich people is bad for the broader society and the fight over wages is litigated in this way, this basic claim and again and again and again that anytime you raise wages, it will reduce jobs and therefore be harmful to the broader economy. And [00:07:00] it’s just not true. There’s no empirical evidence for it, but it is an incredibly effective intimidation tactic, which is how people should think about it and experience it.

David Goldstein: So we could really extend this trickle down ethos to just about any policy. Universal healthcare, it’s just going to hurt the people.

Nick Hanauer: Exactly.

David Goldstein: It’s supposed to help.

Nick Hanauer: It’ll kill the healthcare system.

David Goldstein: Yeah. A universal free public college.

Nick Hanauer: Yeah. That will be terrible for everybody. [00:07:30] Yeah. With the opponents of these policies never say is, “We don’t care about you and we don’t want to pay more taxes, and we don’t care if life is good for you or not.” They always say, “No, no, no, no, we could do that, but then it would be bad for you.” And again, that’s the trick and trickle down.

David Goldstein: So now you’ve described trickle down as both and narrative and a story, and you’re not using these words just in passing. This is really important to understanding how [00:08:00] trickle down works in.

Nick Hanauer: A big theme of our podcast is that economics is much less a science than people have been led on to believe, that in many ways economics is simply the story we tell ourselves, that instantiates are social and moral preferences about status, privileges, and power. That story in our society and pretty much in every society is a story usually made up [00:08:30] by elites. For those elites. It in fact protects and extends the advantages that elites enjoy in society. And trickle down economics is a perfect example of that.

And what people have to recognize is that these stories that are told often are not told because they’re true, they’re told because they’re the most effective way ever devised for elites to continue to gain advantage and to keep other folks down. [00:09:00] And nothing could be truer than that about trickle down economics. 

Speaker 8: The theory is that if we make the rich richer somehow, they will let a part of their prosperity trickle through to the rest of it. And the second theory, and I suppose the second theory goes back to the days of Noah, I won’t say to the days of Adam and Eve, because they had a less complicated situation they faced. But very, very [00:09:30] early in the history of mankind, there was that second theory that if we make the average our time comfortable, and make them secure in their existence, then their prosperity will rise upward through the ranks.

David Goldstein: When you tell a better story, you end up with better policies. And when you get better policies, you get a better economy.

Nick Hanauer: Right. Exactly. And so we’re really excited today to have an amazing thinker and writer, [00:10:00] the Israeli historian, Yuval Harari, who is the author of a couple of amazing books, first Sapiens: A Brief History of Humankind, and second, Homo Deus: A Brief History of Tomorrow. He hast a latest book just out, 21 Lessons From the 21st Century.

Dr. Harari, [00:10:30] how are you? 

Yuval Harari: I’m fine, thank you. 

Nick Hanauer: You have been very busy. 

Yuval Harari: Oh yeah. Too busy I think. 

Nick Hanauer: Dr. Harari, as you may know, we’re in the social change business and particularly around economic policy and economic ideas. And your first book Sapiens, had a huge impact on our thinking and in particular the way in which your historical perspective [00:11:00] informs both how human beings, why we are different from other creatures and how we have evolved using a culture created by shared stories, inter subjective realities, and imagined orders, has enormous explanatory power. And we would love for you to just talk about that a little bit. 

Yuval Harari: Yeah, I would be happy to. [00:11:30] Well, where do we start? Usually, when people try to understand the superiority of homo sapiens, of humans to other animals, they tend to think on the individual level as if there is something special about my body or my brain that is so superior to the brain of a chimpanzee or to the brain or a pig or at an elephant, but in fact on the individual level, we are not so special and we are not significantly better or [00:12:00] even at all better than other animals. 

What really makes us unique is the amazing ability to cooperate flexibly in very large numbers. We can cooperate in millions and billions, whereas no other social mammal can approach us. The social instincts can cooperate in thousands, but they lack flexibility. They can’t change the way their society functions. It takes millions of years of evolution to change the society, [00:12:30] whereas we just have a revolution and can change society within a few years. 

Now, what gives us this amazing ability to cooperate flexibly in large numbers is our ability to create and spread and believe in fictional stories. If you examine any large scale human cooperation, whether religion, a church, or a corporation or a trade network, you will always discover that it is founded, [00:13:00] it is based on fictional stories. Stories about entities that don’t exist anywhere except in the shared imagination of human beings. Entities like gods, nations, corporations, money. To take maybe the last example of money, money is not an objective reality. You can’t eat or drink or do anything useful with these dollar bills. The only reason [00:13:30] people value them is because they believe in the stories about the dollar, the stories told by the most important and most successful storytellers of all, which are the bankers and the chairperson of the Federal Reserve and so forth. And I’m not saying it’s bad, this is what enables billions of complete strangers to trade and cooperate effectively because they all believe in the same story about the dollar. 

[00:14:00] Chimpanzees can’t do it. A chimpanzee can trade, can barter. But, I give you a cocoa nut and you give me banana. This can work with chimpanzees, but it demands a lot of trust and an intimate knowledge of one another. If two strange chimpanzees meet, they cannot trade because they have no trust. They have nothing in common. 

But if now I go halfway around the world and meet a complete stranger because we both trust [00:14:30] in the story of the dollar, we can trade and we can cooperate. 

Nick Hanauer: It’s a remarkable thing. And one of the really amazing ways in which you explained this so effectively in your first book was just reminding us that we’ve always had these stories and the Code of Hammurabi being one of the best examples [00:15:00] from earlier human civilizations, and how that story was both fictional, but accepted as essentially objective reality by the people of that time and put place values in all the elements in society, in a pretty prescribed way. 

And we look back at that story and read it and think, “Well, these things are insane and ridiculous,” but it is insane and ridiculous [00:15:30] to value a woman’s life at 30 shekels or whatever it was. But we do exactly the same thing today. Our economy is constructed and in precisely the same way and saying that a person who works in a restaurant in the United States of America is simply worth $2.13 plus tips is no less arbitrary than calling a woman’s life worth 30 shekels. And that is, [00:16:00] for us, was for us a really remarkable and powerful realization. 

Yuval Harari: Yeah, of course. The underlying story today is that we didn’t decide that this person is worth $2. It’s market forces that decided it. And markets are objective and natural and they are not a fictional story. But the story of the free market is also just a story. In reality, there [00:16:30] is never such a thing as a completely free market. If you try to create the Utopian free markets and market, in which there are no regulations, in which everything can be bought and sold, and it’s market forces that determined the value of everything, then these markets a very quickly collapse because one of the things you can buy and sell on such a free market is the quotes. 

Why make an exception for the quotes? This is also [00:17:00] something, they don’t sort of commodity. So if I’m richer, I can pay the judge. If we have a disagreement about the contract, I can pay the judge and it’s a free market. Whoever pays the highest price and what is the price of ruling in my favor, wonderful. 

But very soon trust will collapse and you will not have any market at all. So unless the market is backed by some other institutions, it cannot function. So the idea that no, the markets [00:17:30] are completely objective, they determined in a natural way, irrespective of human belief, what is the value of everything? This is just another fiction.

Nick Hanauer: Yes. And again, one of the really profound insights for me anyway was, I think you called it the iron law of history, that these stories are always anchored by one of few claims. Either God says, or it’s a law of nature.

Yuval Harari: [00:18:00] Yes. Those are the two main options.

Nick Hanauer: Yeah.

Yuval Harari: Either God said it or this is how nature functions. And in most cases, if you find references to nature in a book of law and not of biology, most of the time it is not nature, it is cultural. It’s just people don’t want to admit that this is a cultural fabrication, so [00:18:30] they say no, it’s a natural law. 

Nick Hanauer: Yeah. And, that one graph in that one book explained for me the prior 10 years of frustration that I’ve had. So we have been litigating among other things the minimum wage and the thousands of emails, hate mail, tweets, Facebook postings that I’ve gotten from people who say things “Look, simply [00:19:00] don’t understand the law of supply and demand, that if wages go up, jobs will go down.” And recognizing why it was so important to those folks that it be essentially a natural law, that, that anchored essentially their entire inter subjective reality. And what’s the thing [00:19:30] that essentially enables the way in which we have organized status, privileges and power in our society.

Yuval Harari: It releases you from responsibility, from ethical and political responsibility. Hey, we didn’t decide it. It’s nature. This is how things are. What do you want?

Nick Hanauer: Yeah, these people are poor because it’s a law of nature. I had nothing to do with it. It’s super fascinating.

So here’s a question for you. There is not [00:20:00] a better example of an imagined order or an inter subjective reality than economic theory. It is a construct created mostly for and by elites to enforce status relationships that the society prefers. But there is part of economics which is truly scientific and I often struggle to distinguish between the part [00:20:30] of economics, which is an imagined order, essentially just a story we tell ourselves to enforce status constructs and the actual science part of economics, which I think is a much less important part, but a part nonetheless. Have you ever considered that distinction? 

Yuval Harari: Obviously there are many, many things which are true, which are [00:21:00] objectively true, and they are not some inter subjective construct. You just count how much wheat a particular field, a particular country produced last year, than there are objective facts there.

Nick Hanauer: Correct.

Yuval Harari: But as you move from the realm of counting wheat to the realm of explaining the laws of economics and how everything functions and where value [00:21:30] comes from, and so forth, then you gradually enter the inter subjective realm, in which the imagination and fiction plays a more and more important a part. I would emphasize however, that there is nothing wrong with fictions and stories and so forth. You can’t organize any large scale human system without it. You can’t play basketball unless you have 10 people agreeing on laws, which are completely [00:22:00] imaginary. They don’t come from physics or biology. We invented them. You can’t similarly have a trade network unless you agree on some rules and laws, and most of these rules and laws of course are invented by human beings. 

Nick Hanauer: Yes. One of the reasons we’re such huge fans is that your historical perspective on this gives somebody like me, the confidence that these fictions can and should be changed [00:22:30] over time, to improve the way in which they affect people’s lives. 

Yuval Harari: Yeah, and they have changed. If you look at essentially a century ago, two centuries ago, so you go to 19th century England, and you have all these arguments about again, nature, that people say it’s not good to have a 8-year-old kids working in coal mines. And people would come and say, “Well, this is the law of supply and demand. This is done by nature. You can’t change it. If you now have a regulation [00:23:00] that 8-year-old kids cannot work in coal mines than the French will do it and we will be left behind. So we must do it.”

And this was a very forceful argument. But eventually child labor was abolished. And everybody now looked back and say, “Hey, it was actually a great idea to send the kids to school and not to the coal mine. It actually encouraged economic growth because they started [00:23:30] inventing and doing all kinds of things. But they couldn’t if they just stayed in the coal mine.”

David Goldstein: Today, we can’t raise taxes on corporations where the rich because that would destroy growth and kill jobs, but if we tell a different story, a different shared mythology, we can change that imagined order, right? 

Yuval Harari: There is always a tension [00:24:00] between the stories people tell and what is actually happening. So you have the priest coming and saying, “Okay, if we dance this rain dance, there will be rain” and he manages to convince everybody and they dance the rain dance and there was no rain. So eventually, you do have to confront reality and not every story about the economy or the social system will actually work. But it is very important to realize that we are not dealing here with [00:24:30] natural laws. So we need to have a discussion about what economic system to have, whether to raise taxes on the rich for example. 

But this discussion should be based on the understanding that these are not natural laws. There is no law of nature which says you can’t attack the rich. All these things, they are human decisions. You can make very wrong decisions. We do have a lot of examples of people trying to do an economic revolution [00:25:00] and destroying the economy. If you look at, I don’t know if Venezuela recently, or what is now happening in Turkey, so it’s very dangerous just to think, “Okay, let’s just change the narrative and do what we want.” There is still reality out there. But we should also be aware of the opposite view that you cannot change anything because nature decreed that the way things are is natural, and any attempt to change even a little thing, will break the laws of nature and everything will collapse. 

David Goldstein: Well, [00:25:30] I think one of the most profound things that you explained to me in Sapiens was when you said that capitalism was based on faith in an imaginary future that is always bigger and more prosperous than the present. What happens when we stop believing? 

Yuval Harari: If we stop believing, we are not yet there, if we stop believing, everything will collapse. Even actually today, most of the money that exists [00:26:00] today in the world is credit. And credit is in effect is belief that the future will be better. If you don’t believe the future will be better than now, better in the sense that we produce more, we’ll be more wealthy, then the amount of credit in the system is zero. You can’t give credit. What you have now is what you have. You’ll never have more.

Now over the last few centuries in belief in the future, and this belief had good reasons behind it, it’s not arbitrary, [00:26:30] the economy did grow in an enormous way over the last few centuries mainly thanks to scientific progress, but the result is that now almost all the money in the world and all the wealth in the world is his credit. And if suddenly people stop believing that the future will be better, it’s not that we will stay where we are, but everything will collapse. Most of the money that you see in your bank account will evaporate. 

Nick Hanauer: [00:27:00] For some of us, that’s a terrifying idea. 

David Goldstein: Yeah. For those of you with the money.

Nick Hanauer: Yeah.

David Goldstein: This is why the Pitchforks are coming, Nick.

Yuval Harari: It’s terrifying for everybody. Look, if you don’t have anything in your bank account, you should also be terrified because in such a situation, all social order will also collapse. And usually when social order collapse, it’s the weakest member of the society that suffer the most, [00:27:30] so don’t wait for it with gleeful eyes because if this happens, it will be terrible. 

Nick Hanauer: Yeah. Dr. Harari, thank you so much for giving us so much of your time and thanks for doing all that great thinking. It’s been a very fun and inspirational to follow your work.

Yuval Harari: Thank you. Thank you for having me. 

Nick Hanauer: Hope to meet you some day. Take care.

Yuval Harari: Yeah. I hope so too. Take care.

Nick Hanauer: Okay, take care. Bye.

Yuval Harari: Bye-bye. 

David Goldstein: So what I learned from that Nick, [00:28:00] is that stories really are important. And when Dr. Harari says that if we stop believing in capitalism, it ceases to function, it all falls apart?

Nick Hanauer: Yes, yes indeed. And stories are everything, and whether it’s a belief in money, a belief in contracts, a belief in government, all of these beliefs are what knit societies together and make them go. And when belief collapses, societies collapse. It’s something to think about, carefully.

David Goldstein: [00:28:30] and to make a believable story, you’ve got to structure it in a certain way, right? Not every story is believable.

Nick Hanauer: That’s right. And because human beings are largely moral creatures, we live in society with norms and laws, those stories have to be ethical stories. They have to be moral stories. And so today, as I mentioned before, our guests will be Molly Crockett, one of the nation’s leading neuropsychologist [00:29:00] who will talk to us about human moral reasoning and why it’s so important for these stories to take this form, 

Molly Crockett: I’m Dr. Molly Crockett and I am an assistant professor of psychology and Yale University. I have a lab where we study human morality in the lab and also out in the wild and we’re interested in understanding [00:29:30] how we make decisions that affect ourself and other people, how we judge the behavior of others, and what kinds of stories we tell ourselves about why we do the things we do. 

David Goldstein: Great.

Nick Hanauer: So cool. So let’s start with the neoclassical idea of human behavior, which is this idea of homo economicus, that people are perfectly rational, calculating, and selfish, atomized individuals. So tell us about that. 

Molly Crockett: [00:30:00] Well, there’s been a lot of research over the past few decades trying to butt up against this idea of homo economicus. And the idea is of social preferences, which was pioneered by many economists, including my postdoc advisor, [inaudible 00:30:18], really emphasize the idea that value is more than just material value, that when people make decisions [00:30:30] and they’re trying to maximize utility or value for themselves, that includes not just for example, how much money they’re getting out of the transaction, but also what is the social context of that transaction. Is it fair or is it unfair? Who is the other person? 

And one of the classic experiments that started to chip away at the homo economicus model was the ultimatum game. The ultimatum game is very simple and you’ll probably recognize [00:31:00] a lot of everyday interactions in this model. So there are two players in the game, the proposer and the responder. The proposer has control over a resource, a pile of money and they make a proposal to the responder about how to divide up that money. The responder then has the option to accept the proposal, in which case both players are paid accordingly, or the responder can reject [00:31:30] the offer and that has the result of burning all the money. So neither player gets anything. 

So the homo economicus model would predict that the proposer should offer the lowest amount of money possible to the responder because the responder being rational will accept any non zero amount of money because something is better than nothing. Turns out that’s not what happens at all when you get actual humans to play the ultimatum game. What happens is that responders [00:32:00] will reject offers that are below 30 to 40% of the total pie. So what they think is unfair, they’ll reject, and proposers correctly into this, and they on average offer between 30 and 40%. 

And this pattern of behavior has been observed hundreds and hundreds of times in cultures all over the world with a range of amounts of money. So there were some experiments [00:32:30] done in developing countries were western researchers would fund the research and they would offer the players sums of the money that in local currencies where as much as a month’s wages, people would reject that if they thought it was unfair. 

So, this is a very, very robust human behavior. We found in some of our research as others have found as well, that when responders reject an unfair [00:33:00] offer, this activates reward circuitry in the brain. So despite the fact that they’re getting no money out of the transaction, it actually produces a brain signature that looks it feels good to burn the money rather than be on the losing end of unfair deal. 

Nick Hanauer: Yeah. So the actual brain chemistry takes over, almost.

Molly Crockett: Yeah.

Nick Hanauer: So that’s so fascinating. Molly, why do you think that we evolved to behave [00:33:30] in this way? 

Molly Crockett: Well, cooperation is one of the most adaptive and advantageous strategies that humans have developed. And humans as a species are far more cooperative than most other species. We cooperate on a scale that’s really quite rare in the animal world with the exception of of hyper social insects, like bee colonies in ant colonies. Still, human cooperation is really special and we [00:34:00] cooperate not just with our own family members, but with people that we’ve never met, will never meet again, Single transactions, economies are built on this, and so cooperation is thought to evolve because it really does confer benefits on individuals and groups and within groups. If you are an individual who gets a reputation for being a really good cooperator, well then that’s extra good for you and you attract social partners, [00:34:30] both friends and romantic partners, and then you’re going to be more likely to pass your genes into the next generation if you get this reputation as a super good cooperator. 

So and there are a lot of good evolutionary reasons why we evolved to have these social preferences, both preferences to be part of fair transaction. So if you’re the proposer, you don’t want to be too stingy in your offer. Even in a case where you’re deciding whether to [00:35:00] share resources with another person and they actually don’t have the power to burn the money, so this would be called the dictator game. Even in the dictator game, when it’s a totally unilateral transaction, people will share 20% of the pie when they totally don’t have to, but we think that people do because it’s distasteful to be unfair when it benefits yourself. It’s more distasteful to be on the losing end of an unfair deal, but humans have [00:35:30] both what we call advantageous inequality aversion and disadvantageous inequality aversion, are sort of fancy ways of saying we don’t like being on the unbalanced and of an unfair deal, whether it’s advantageous or disadvantageous. But if we had to choose, we would prefer to be on top than on on the bottom. 

Nick Hanauer: Wow. So let’s turn to some of the stories that we tell ourselves, the ways in which we [00:36:00] reason morally about the economy. And in this episode we wanted to untangle this thing we call trickle down economics, which is broadly speaking, a set of explanations about how the economy works. Tax cuts for rich people create growth and wage increases for poor people, or the converse being tax increases on rich people will [00:36:30] kill jobs for poor people. 

And what’s super interesting about these arguments is that they’ve been used for a super long time in a billion circumstances, whether you’re litigating slavery, which was well, slavery is actually good for the slaves or litigating women’s suffrage, which is well, it would actually harm the women if we gave them the right to vote. We would give them the right to vote that that would be terrible for wherever it is. 

So you and I have talked a little bit about how that works, [00:37:00] but talk to us about why those arguments always take the same form. 

Molly Crockett: I find this argument really fascinating and I do want to say that I’m not at a macro economist, so I can’t provide any perspective on trickle down economics as a policy. But I do think that the language and narratives around these policies, and as you cogently point out, [00:37:30] how they seem to be similar in structure to narratives about other kinds of policies in the past that we have now come to realize were morally wrong. It’s fascinating because I think it really speaks to just how important morality is to all of us, how important it is to all of us to see ourselves and to convince other people that we’re the good guys. 

And I think it all goes back [00:38:00] to value based decision making. And as we were just discussing, although it’s true that the brain systems that compute value in decision making reflect moral concepts like fairness, I wouldn’t call those hardwired because hardwired implies fixed. And in fact, the research suggests [00:38:30] that the way we put values on things is very, very flexible. And it’s this flexibility in the way we construe our actions and how moral they are or how fair they are, I think that’s in some sense the Achilles heel of humanity because we’re so good at doing things that are very selfish, while at the same time convincing ourselves that we’re doing the most moral possible [00:39:00] thing.

And through that self-deception, convincing than other people in a very persuasive way that actually this is for the good of everyone. There are a lot of different examples. Some of examples I can give, Some of my favorite work on this is studies by Roberta Weber and Emily Haisley where they had people playing a game where it was sort of a simulation of a CEO having [00:39:30] decide whether to lay off workers. 

And you can imagine if you’re a CEO and you’re trying to improve your profit margin and you realize that you could lay off some workers and that would increase your profit margins, but you feel a little bit bad about doing that. So you look for evidence that if you lay off these workers, they’ll actually find a job again really quickly and they’ll be fine. And in their experiment, which is a [00:40:00] stylized version of this, what they found was that people’s estimation of how badly off the laid off employees would be was heavily biased by the outcome they wanted to achieve. 

So in the case where you really want to lay off the workers, you overestimate the probability that they’ll be able to find another job in the future. I’m paraphrasing this study, but that’s the general concept that I take away from [00:40:30] this. And psychology is just full of examples of how selective people are at processing information. So you could imagine economists searching a vast body of evidence, data on economies is vast, and there’s a lot of complex information to integrate. And time and time again, psychological research has shown that humans tend to pick the evidence that’s most favorable [00:41:00] to the answer that they want to get. 

Nick Hanauer: So one of my life goals is to help people inoculate themselves against this moral gaming of the system. In the perfect world, when somebody hears a phrase like, “It will harm the very people [00:41:30] it’s intended to help.” Alarm bells should start going off in your head. You should be like, “Why would they say that?”

Well, there is, I suppose a corner case possibility where directly helping somebody will harm them. Is that possible? Is it possible to inoculate people against these claims, that if we teach people about how this moral reasoning works, that they will be more attuned to the way in which other people are trying to [00:42:00] manipulate their psychology? Or is it hopeless, are we just all dumb animals, we’re just were little rats in cages and there’s no hope?

David Goldstein: Are you asking, Nick, how do we tell a better story?

Nick Hanauer: Well, maybe. I don’t know. Do you think there’s hope, Molly?

Molly Crockett: Yeah, I think it’s an interesting idea and I do think there’s hope. I think teaching people to recognize the structure of these narratives is an important first step and I think there must be examples of this, and I’m [00:42:30] drawing a blank as to a recent example, but the phrase, “The oldest story in the book,” this is something that we have in our culture. So I have to wash my hair. I can’t go out with you because I have to wash my hair. It’s cliche, it’s recognizable and so now if you don’t want to go out with somebody who is asking you out, you can’t really use that as an excuse because it’s recognizable as this cliche, right?  It may very well be possible [00:43:00] to educate people about this structure and then it’s certainly worth trying to do.

And more, broadly and I think also because we know that people are just fundamentally really, really, really sensitive to unfairness, the counter narrative like, “Well, even if lowering the taxes will increase your wages by a little bit, look what the top 0.1% are going to get from this. Are you cool [00:43:30] with that?” 

Nick Hanauer: Right. It’s sort of the ultimatum game writ large. I get 99, you get one. 

Molly Crockett: Yeah. You’re broadening out the perspective from, “Don’t you want to get one more than nothing?” to “How about you get one and we get 99?” that is a fundamentally different structure. And I know there are studies with variances of ultimatum game where people are willing to accept small amounts of money when they don’t know the size of the [00:44:00] pie. So hiding the size of the overall pie is actually a really effective way to get responders to accept unfair offers in the ultimatum game, but if they know how much the pie is and how much they’re missing out on, then they won’t accept that offer. 

Nick Hanauer: Interesting.

David Goldstein: So it turns out, Nick, that the socialists have the rhetoric intuitively right when they go after the 1%. And they’re going after rich people like you. That’s an effective moral argument.

Nick Hanauer: Yeah, yeah, for sure. And the enemy is the necessary part of the narrative.

David Goldstein: And that’s [00:44:30] why the Pitchforks are coming for.

Nick Hanauer: That’s right, exactly.

This has been a super fascinating conversation and really useful to us and our listeners, and so we want to thank you.

Molly Crockett: Thank you.

Nick Hanauer: Yeah, it’s was so fun to talk to you, Molly. 

David Goldstein: So the stories that structure of our economy are actually based on neurological structures of our brain.

Nick Hanauer: Yeah, it’s amazing. It doesn’t just get invented out of thin air. [00:45:00] The stories that we tell and except we’re evolved. Basically they’re a product of evolution, and biological evolution to a certain extent and cultural evolution too, and so they’re not random. They’re not surprising. They take the same form and the same way and the same circumstances again and again and again. And that awareness should lead us to examine these stories in a more careful way when we hear them.

David Goldstein: Right. The trick in trickled down, it turns out, is that [00:45:30] it exploits our deeply evolved human behavior.

Nick Hanauer: That’s right. And our need to be moral to see ourselves in a moral context to believe that the people who surround us are moral, to give plausible deniability to the people who are trying to take advantage of us. All of these things are essential to how these things operate. 

David Goldstein: Right. And that’s kind of depressing. Though on the bright side, if we know their trick, then we can use it to build a better story. 

Nick Hanauer: [00:46:00] I hope so. 

David Goldstein: I hope so too. 

Nick Hanauer: Yeah.

David Goldstein: So speaking of the impact of bad stories, Nick, next episode, we’re going to be asking the question: Whatever happened to the American middle-class?

Speaker 5: That should be a good episode.

Pitchfork Economics is produced by Civic Ventures. The magic happens in Seattle in partnership with Larj Media, that’s L-A-R-J media and The Young Turks network. 

Find [00:46:30] us on Twitter and Facebook @civicaction and follow our writing on Medium at Civic Skunk Works. And you should also follow Nick Hanauer on Twitter @NickHanauer. 

It’s always a big thank you to our guests and thank you to our team at Civic Ventures: Nick Hanauer, Zack Silk, Jasmine Weaver, Jessin Feral, Stephanie Urban, David Goldstein, Paul Constant, Nick Casella, and Annie Fadley.

Thanks fellas.

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