The Myth of Cost
As we survey the decay that is the political world everywhere, many of us are struck by the seeming hopelessness of it all. Whereas it’s clear to critics on the left that we need a collective answer to the failings of capitalism, there’s great confusion over how that can possibly be accomplished short of total revolution. Be it vastly expanded infrastructure, guaranteed jobs and incomes, expanded services, increased freedom, or whatever, the fundamental problem always boils down to this: how do you pay for it? Only two orthodox answers exist – taxes and debt – and on these rocks all collective efforts within capitalism have sunk. But it’s critical for those on the left to realize there is a non-revolutionary means of paying for these things. It’s rooted in the works of early Keynesian Abba Lerner and reflected in the writings of some of the economists working today within what they call Modern Monetary Theory. Presented below is a personal variation on that theme.
The way to begin, in my view, is to question the very notion of payment itself; to actually attack one of the central myths in our society – that everything must have a cost. This holy Myth of Cost is a critical tool of the right that permits it to unendingly hold back public efforts. But we will find that it actually stands on amazingly weak foundations. If (or when) it fails, the right will lose its most effective rhetorical weapon as it becomes blatantly clear there is no real barrier to full prosperity.
Let’s look at this Myth of Cost. It’s a sober individualistic vision in which one gets and should only get exactly the value, no more or less, of what can be produced for sale in an open and free market. Everything has a cost and, for one to live, someone must be found who will bear it in the process of free exchange. The only exception, and we need not waste our time with it, is that rare and romantic self sufficient individual living off the land which he/she just happens to own.
The myth seems to have a bit of common sense to it but, like most myths, we find that it can only realistically apply to a long past world which in fact never truly even existed. The mythological notion of cost and exchange loses almost all sense when we set our sights on today’s actual world of massively high productivity and technology. The overwhelming economic reality today is that we have built up an enormous production machine that is the world economy and the well being of any person depends on his/her success in being fully included within it.
We seem to have it well within our productive capacity to satisfy the important material needs of everyone on our planet. We are almost certainly at this extraordinarily high level. If so, then the key problem isn’t one of how to expand production further – we know how to do this, the problem is solved. The problem isn’t production; it’s instead what we call employment: the desperate individual struggle to find a place within this incredibly efficient production machine. If a place isn’t found, a harsh life of poverty and early death is the inevitable outcome.
Why is it that this incredible production machine doesn’t easily yield widespread prosperity or even a level of infrastructure fully worthy of its technological capability? The common sense answer within the myth is that we simply can’t afford it. The cost is too great. Within this exchange based logic, those who lack “prosperity” need to find something to exchange in order to get “it”. Prosperity in this view has a cost and must somehow be purchased. It’s the same with infrastructure and other public efforts: there is always a cost.
But the world is awash with people desperate to find a decent role within the production machine. Given this and our tremendous technology, where exactly is the cost of, to take as an example, an infrastructure project? The workers who begin to enjoy a decent standard of living don’t encounter a cost; neither do the suppliers of materials and equipment nor the sellers of the consumption goods the workers can now afford. Everyone is actually quite pleased with the new activity and it would seem therefore that decent living standards can be brought online and valuable work performed without incurring any cost whatsoever – we get something for nothing and the Myth of Cost is broken.
This inherently seems to make sense in that in our world of high productivity, one person’s sustainable consumption (and whenever I refer to consumption I mean it as environmentally sustainable) doesn’t require a corresponding drop in another’s. In fact, within very broad limits, it’s exactly the opposite: a person’s very livelihood within the production machine completely relies on the consumption of others. This is a crucially important point: if one person’s consumption doesn’t require another’s to drop, if it’s not a zero sum game, then the usefulness of terms like cost and exchange are drastically weakened and the great potential of collective action becomes much clearer. Now it’s true that it’s conceivable there can be tradeoffs in a world of full employment, but we’re so far from that possibility it’s near ludicrous to hypothesize about it now.
Those blinded by the myth will object here and proclaim that our proposed infrastructure project does have a real cost and the taxpayer will be the one who’s forced to bear it. But as just argued, the increased consumption was a boon to everyone and no one incurred a cost; why then should the tax system enforce one? There’s absolutely no reason taxes should rise from the simple process of adding people into the production machine.
OK say our orthodox friends – if taxes won’t be raised, then government debt will go through the roof. The cost will eventually be borne by future generations or the bond holders themselves will incur it when the government defaults. But our answer must remain the same – there is no cost to adding people to the production machine. Why, we should ask, do you have this fixation on imposing a cost that simply doesn’t exist? Why does anyone need to incur a debt when no harm is done? The conclusion is firm: there is no need to incur debt just as there is no need to raise taxes.
But now we see our economist friends getting quite upset. They note that we’re recommending the direct government creation of purchasing power and crudely call it ‘printing money’. Well, what we’re actually proposing is two things: 1) bringing people into the production machine; and 2) assuring that our accounting system properly measures cost (or the lack thereof). The creation of money is simply a byproduct of the creation of the infrastructure project. Why, we ask, do our learned economists insist that we accompany this project with either reduced consumption in the form of taxes or impose a debt when there is no real world cost?
The predictable answer is inflation. Unless all government spending is offset by either taxes or borrowing, they say, ever rising inflation will be the inevitable result. Rephrased, their position is that we can’t collectively bring people into the production machine without inflicting sacrifice on others. Or, more simply, everything has a cost. This is a lazy cop out though since, as we’ve seen, the expansion of the production machine is costless. Now, there are certainly extremes that ultimately limit what we can do collectively – we can’t produce more than our productive capacity permits and there are only a finite number of people. Should we try to expand beyond these limits, it would clearly be inflationary. But considering our technology and the huge numbers of un/under employed people throughout the world, those limits appear light years away from us. And of course no one is proposing we try to exceed them.
Logically, it simply doesn’t make sense that full employment would be unstable. We either have or we don’t have the productive capacity to ensure global prosperity. I believe the overwhelming evidence is that we do, especially considering that the truly important human needs aren’t that great – quality food, good housing, decent clothes, secure medical care, clean environment, etc. Surely only a tiny fraction of global workers would be needed to achieve this level of prosperity.
If we examine inflation historically since the beginning of the 20th century, we find the only non-war related period of significant inflation in the US was in the 1970’s and it was clearly not due to full employment. In fact, the term ‘stagflation’ was invented then to describe the simultaneously high inflation and unemployment. One of our highest levels of employment, in contrast, was during the bubble in the second half of the 1990’s and that period corresponded with low inflation. The reality is that inflation and employment seem uncorrelated.
But that doesn’t mean inflationary pressures shouldn’t be monitored. We need to recognize that the system is an oligopoly and firms in every major industry have near monopoly pricing power. Even orthodox economic theory would lead us to conclude that such power needs public scrutiny in the same basic manner we regulate (however inadequately) the pricing of utility monopolies. There’s also a clear need to limit speculative attacks. Would there be initial bottlenecks? Of course, but there’s no reason to think it’s beyond human potential to identify and correct for them. Shouldn’t that be the key role of economists?
The Myth of Cost is a key ideological keystone in the effort to hold back widespread prosperity. It’s used to prevent public solutions to unemployment, enforces needless austerity, and is relentlessly driving us into a very dark place. A powerful minority benefits from this repression of living standards and that, of course, is how the myth is so well sustained.
Attacking the myth seems to me the best way to move forward as it’s certainly far easier than a more nebulous frontal assault on the entire system. But once it’s widely recognized the expansion of the production machine is essentially costless and there’s no real barrier to prosperity, the roots of capitalism itself must collapse.
One of the key hindrances is academia where we find all mainstream economists, even those claiming a Keynesian lineage, firmly planted within the myth. These “Keynesians” will tirelessly claim the problem is a lack of “demand” but then always proceed to solidify the myth by setting forth how they would “pay” for the “cost” of expanding it – always being some combination of taxes and debt. Not only does this glorify the false myth, it always fails on the short term politics as majorities are easily persuaded against the true costs of taxes and debt. Imposing real costs on society in order to accomplish goals that are costless is of course an absurd way to achieve progress.
The cost-like terms taxes and debt should be completely stricken from the vocabulary of the left whenever we speak of collective action for they reinforce the myth that there’s a cost when there almost never is. Taxes can be important, but for a completely different reason – they can be a straightforward way to reduce inequality and can perhaps also be used in the unlikely event that the economy expands too rapidly. But by divorcing the link between taxes / debt and collective action, we effectively tear down the crucial barrier used so successfully over the years by the right.
In summary, ‘cost’ is a very slippery concept that completely fails to accurately describe our real world of massive productivity and massive un/under employment. With so many struggling people throughout the world seeking work and with such great technological productivity, it’s ludicrous to assert that bringing them into the economy has a cost, at least in the way we normally use the term. There actually is a cost, but that cost would solely be borne by the tiny elite minority who would lose a great deal of their power over everyone else. But there is no properly understood cost to assuring a prosperous society. This, I think, must be the base of understanding from which we can move forward.