A revealing fact about class in the contemporary picture and example of the striking contradictions of dominant economic theory and policy comes from an excellent piece in today’s Truthout. In a piece titled Arrogance and Authority, Financial policy expert Simon Johnson writes that the five most highly paid executives in the financial industry from 2000-2008 specialized in producing massive economic failure, earning a combined $2 billion for running each of their companies into the ground — or, in the case of the executive of Goldman Sachs, for leading the financial industry in general into the ground and then orchestrating a government lifeline to rescue and advantage his own former firm. Johnson emphasizes that the worst of this failure of course was the extent to which its harmful effects were largely multiplied and externalized to those who have far, far less in terms of economic resources, academic prestige and political power.
This snapshot of economic policy also underscores the head-spinning reasoning of prevailing law and economics, which teaches us to weigh the value of “efficiency” or market-based “welfare maximization,” based on aggregated market preferences, against concerns about equity or fairness based on subjective or government-imposed moral principles. As leading economist Greg Mankiw sums it up: “from each as they choose, to each as they are chosen,” in contrast to the socialist credo “from each according to ability, to each according to need.”
But, lo and behold, the “market” reveals a systematic choice to reward staggering economic failure above all else — so that, paradoxically, “welfare maximization” or the “aggregate economic growth” of market efficiency appears to look more than anything else like “welfare minimization” and austerity. Of course, this contradiction is readily resolved by the standard tautologies: either what looks like overwhelming failure is really success (at least in some vague long run), because the “market” is what defines true success (regardless of real human suffering), OR the seeming market (long defended as self-correcting by prevailing economics) is really (surprise!) government intervention which by definition risks overall economic failure. In that latter theory, those top-paid executives of Lehman, Countrywide, Bear Stearns, AIG, and Citigroup really had no power to resist throwing away other peoples’ money under the misguided liberal iron hands of Fannie Mae and Freddie Mac and the Community Reinvestment Act, or out of trust in future government bailouts. Still, if corporate executives are so passive and ignorant in the face of that supposed government intervention, then it is all the more puzzling how their compensation reach such grand heights. Does the market reward anti-market behavior and supposed capitulation to government failure more than market success? Earnest corporate law discussions of tweaking executive compensation incentives seem absurd in the face of such staggering mismatch between pay and outcomes — again, unless we accept the Orwellian conclusion that, indeed, producing massive economic failure through lavish personal gain represents the pinnacle of successful pursuit of overall welfare rather than narrow “redistribution.”