Economists Are in the Wilderness. Can They Find a Way Back to Influence? – from the NYTimes

Ben Casselman wrote this piece in the 1.10.2025 NYTimes: “Economists Are in the Wilderness. Can They Find a Way Back to Influence?” The article cites the following as evidence of the decline of economists’ influence: Trump’s tariff plans, immigration, free trade, failure to foresee the global financial meltdown of 2008, deindustrialization, and a long-term slowdown in economic growth despite tax cuts.

I won’t indulge myself in reciting the many false assumptions underlying neo-classical economics.1 No mention here of homo economicus, the all-knowing utility-maximizing economic agent that operates in automatically self-equilibrating competitive markets.

Let’s mention a few economic facts that characterize the past 50 years of American life and are truly important to understanding the condition of the bottom 90% of the US population.  These are examples of why we should put this social science in the academic dustbin.

For example, the US economy has become monopolized, or in the terminology of economists, suffering from concentrated markets in almost every sphere of the economy.  This market concentration has multiple impacts – wages, supply chain effects, suppression of innovation, and competition, to name the most significant. You can jump back to a piece by  David Leonhardt from 2018 for an introduction to this phenomenon,  David Leonhardt, “Opinion | The Monopolization of America,” The New York Times, November 25, 2018.

 

In my view, competitive capitalism in the US is a fantasy at this point.

Take a look through the Cost of Thriving Index from AmericanCompass.org.2  This is a very concrete analysis of what has happened to the bottom 80% and more of the US population over the past 40 years and more. From that website:

The Index measures the number of weeks a typical worker would need to work in a given year to earn enough income to cover the major costs for a family of four in the American middle class in that year: Food, Housing, Health Care, Transportation, and Higher Education.

In 1985, COTI was 39.7 weeks. Costs totaled $17,586, while the weekly income for a man aged 25 or older working full-time was $443 per week ($23,036 per year).

In 2022, COTI was 62.1 weeks. Costs totaled $75,732, while the weekly income for a man aged 25 or older working full-time was $1,219 per week ($63,388 per year.)”3

So, to return to Casselman’s article, why is there no discussion by economists of the near flatlining of income for the vast bulk of the population over the last 50 years? You can return to David Leonhardt for “Our Broken Economy, in One Simple Chart” (https://www.nytimes.com/interactive/2017/08/07/opinion/leonhardt-income-inequality.html) for another introduction to this.

The Rand Corporation published an amazing piece of research on this topic in 2018. It asked this question: What would income trends have looked like between 1975 and 2018 if they had followed the trends of the period from the end of WWII to 1975??4 Carter C. Price and Kathryn A. Edwards, “Trends in Income From 1975 to 2018” 5 Here is a chart from that work (lightly edited for clarity by me):

Here is some explanation of this chart from a forthcoming book, Uncovering Capitalism – the actual workings:

In the chart above, you will find the actual average income6 between 1975 and 2018 (38-year span) for segments of the population: 25th percentile, median (50th percentile), 75th percentile, and so on. The “Actual%↑” column displays the percentage increase in this actual income between 1975 and 2018. Then, the “Projected Income” column displays what the 2018 income would have been if the income trends of the period from the end of WWII to 1975 had continued. Finally, the “Projected % ↑” column shows the percent increase (or decrease) in the income projected for 2018 compared to the actual income in 2018.7 As we explore this chart, keep in mind that, accounting for the growth in the US population over this period, GDP per capita grew from $27,310 in 1975 to $69,287 in 2018, a 154% growth.

Spend some real time examining this chart. The numbers are startling and demonstrate the actualities of the income re-distribution from the bottom 90% of the population to the top 10%, really most to the top 4%. 13.4 million people out of a total population of 335 million.

For example, in the second row (highlighted red), look at the people in the median, 50th percentile of the population (roughly the middle class). They started in 1975, earning $42,000 per year. By 2018, their actual income had grown to $50,000 per year, a 16% increase over 43 years. But, if their income had followed the trend line of growth for the 1948-1975 period, it is projected that they would have earned $92,000 per year in 2018. Their income would have grown by 84%!

People in the 99th percentile earned $761,000 in 2018, far exceeding the projected $560,000 if their income had followed the growth trend in the 1948-1975 period. Even people in the 95th percentile underachieved income growth at 93.5%. The real winners were in the highest 4% of the population. If you were in the 99th percentile, you outperformed the bottom 98% with a 166% income growth compared to what if the 1948-1975 trend had continued.

Looking at the projections in the aggregate, between 1975 and 2018 $47 trillion of income that would have been in the hands of the bottom 90% if the 1945-1975 income trends had continued was transferred to the top 10% of the population.8

A final topic that orthodox economists seem to ignore completely is the financialization of the economy over the past 50 years. I refer to this as a shift in management attention from the production of goods and services to the extraction of money. The finance sector has grown from a 3% share of GDP to 8% and, most disturbing, taking in 25% of corporate profits overall. The real economy, dominated by large corporations, has likewise shifted its attention to extracting as much money as possible in the shortest period of time. This can be demonstrated by the eruption of senior management compensation (> 350 times average worker wages today vs 25 times in the 1950s) and stock buybacks9

My favorite computer company, Apple, has spent over $750 billion in the past ten years on stock buybacks.  Why not invest a little in the future of the company or pay employees more?? “

“Lowe’s led the Low-Wage 100 share buyback charge. The company spent $42.6 billion on buying back its own shares, a sum large enough to have given each of the firm’s 285,000 global employees an annual $29,865 bonus for five years. In 2023, Lowe’s CEO Marvin Ellison enjoyed total compensation of $18.2 million. The retailer’s median annual worker pay: a mere $32,626.”10

I won’t go on. Other topics that a useful economics might address are wealth inequality, misapplication of markets in our healthcare system, external costs run amuck in industrial food, petrochemicals, exhaustion of the earth, wage differentials between men and women, wage differentials across race and ethnic groups, housing costs and the unhoused,and more.

 

Footnotes

  1. Neoclassical economics is the orthodox economics taught in virtually every higher education institution in the world today. It is filled with false assumptions about the world and presented in pseudo-scientific mathematics that intimidates those not well-versed in higher mathematics. It assumes no role for government or politics in setting the rules and regulations in which capitalism operates. In fact, the word capitalism almost never escapes an orthodox economist’s lips, let alone enter their minds. The word “capitalism” appears only once in the 690 pages of the textbook Krugman, Paul R, and Robin Wells. Macroeconomics. 4th revised edition. New York, NY: Worth Publishers, 2015. Even then, it is only in a quote from a NYTimes journalist. In another widely used text, Campbell McConnell, Stanley Brue, and Sean Flynn, Economics: Principles, Problems, and Policies, 18th ed. (McGraw-Hill Irwin, 2009) the word “capitalism” appears only six times in 917 pages.
  2. American Compass is a Washington think tank that self-describes itself as a home for conservative economics
  3.  https://americancompass.org/2023-cost-of-thriving-index/
  4. Between 1946 and 1978 productivity (output of goods and services per hour of labor) rose 2.5% per year while average wages rose 2.4% per year. A very equal sharing of gains to business with the workforce.
  5. (RAND Corporation, September 14, 2020), https://www.rand.org/pubs/working_papers/WRA516-1.html.
  6. Note that all of these dollars are in inflation-adjusted 2018 dollars. Constant buying-power dollars.
  7. Please note that the income distribution in 1975 was not ideal. There was significant inequality. From our current perspective, though, it seems idyllic compared to the transformations of the last 40 years.
  8. Price, Carter C., and Kathryn A. Edwards. “Trends in Income From 1975 to 2018.” (RAND Corporation, September 14, 2020). https://www.rand.org/pubs/working_papers/WRA516-1.html.
  9. A stock buyback occurs when a company uses company financial resources to buy its own shares on the market. The reduction in the number of shares outstanding in the market produces a rise in the price of the remaining shares. Buybacks were illegal until rules were changed in 1982 under President Reagan. Previously, they were considered stock price manipulation.
  10. https://ips-dc.org/wp-content/uploads/2024/08/executive_excess_2024_ips_report.pdf