The Shrinking Pie

I must say that I have lost interest in the DT food fights that are so popular these days. The man won, the Democrats and other left groups keep losing and my meatspace friends are still barking up the wrong tree. But they are all good people deep down, so instead, I have been concentrating on explaining why so many people might have been desperate enough to take a chance on Trump. Most of them seem to get it, and hopefully this will lead to better outcomes going forward.

This essay contains the argument I've been using with some success, and I think in part that is because it uses pie as the central metaphor. We all love pie, so that make the approach less threatening. It is also very visual and you can use your hands.

Comparing the economy to a pie is, of course, not original to me, but here is our pie:

Pie

(I will be making a pumpkin pie right after this, so that is the flavour I chose. Feel free to work with your audience on this.)

Unlike a real pie, the economic pie usually grows as the population increases and we all get more productive. The annual rate at which the pie grows is called g by economists such as Thomas Picketty in his book Capital in the Twenty First Century. After a typical year, the pie will be bigger and now looks like this:

Pie G

These days, g is running around 2%. Note that my pies are designed for readability, not numerical accuracy, but they are still visually correct if you wait longer than a year.

One might think from reading neoliberal new outlets like the New York Times that this is all we need for everyone to enjoy increasing material prosperity, but it leaves out the other important rate: The rate of return on investments, called r. These days, r is about 4%, which is twice as large as the growth of the economy as a whole. This means that if one is not in the class of people who own things (called the 1% around here, although it is larger than that and I will refer to them as the creditor class), the economic pie actually looks like this:

Pie R

In other words, if you are not in the creditor class, the pie is actually shrinking. These effects accumulate over time, so you don't have to understand the math behind this to experience it as a soul-sucking reality. The majority of the people in this country (and - as Picketty documents - in most of the western world) are debtors, and this is their lived experience.

People naturally try to avoid pain, so they search around for explanations, but if they can't find any because the press is at best incompetent and ignorant (and at worst complicit) they start lashing out at convenient targets. Because we live in a democracy, these people can vote.

What is not well appreciated among the "educated" professional class is that the policy proposals of the Democratic party feed directly into this pain. Imagine that you have a slice of the shrinking pie:

Pie Shared

Many proposals from the Democrats consist of policy changes that will slice the shrinking pie differently. Reparations, increased wages for women and paths to citizenship, while laudable goals, only have the practical effect of re-slicing the shrinking pie:

Pie Policy

A woman in the rust belt might like a raise, but if it comes at the expense of her husband's salary, she hasn't really gained anything for her family. If the only way to fund TBCU's is to take money from state universities where her children can barely afford to go, then she will not support that either. This is not racism; this is not lack of feminist solidarity - It is trying to grab a chair before the music stops. The people who exploit these fears are the real enemy.

The only way to avoid this is to stop the effective shrinking of the pie by making r smaller than g:

Pie Bernie

If we do this, we can just make some people's slice grow a bit more slowly while we grow other slices to compensate for historical injustices. The old liberal way to do this is through progressive income taxes. Unlike in Trump's mythical past, that was how we used to control this problem - with some success.

Moreover, I have been using a single pie here, but there are really two pies. The pie above is the income pie, but there is also a very similar wealth pie, which consists of all the surplus income that the creditor class have been accumulating over decades (and sometimes centuries). We can repurpose some of this capital through estate taxation to make the slice shrinkage even smaller for the 99%.

These policies are not new. It is no surprise that they have been opposed by the GOP for decades, but the Third Way Democrats have acquiesced to gutting these policies in order to placate their donors - who are disproportionately drawn from the 1%. The candidate who ran on a platform based on the logic behind these pie charts was... Bernie Sanders.

Sanders billed himself as a Democratic Socialist, but other ways around the problem of economic power distribution have been proposed, ranging from Syndicalism to Communism. But history teaches us that unless something is done, the outlook is quite dire. Richard Feynman famously observed that "mother nature cannot be fooled." Well, neither can mathematics.

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dervish's picture

In a similar vein, just 8 people own as much wealth as the bottom 50% of the whole world's population.

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"Obama promised transparency, but Assange is the one who brought it."

It is a very simple way to explain what is going on. It is why Bernie's platform was such a winfall. Free college, health care and prescription drug relief, infrastructure jobs and a new deal on trade. The pie for the debtor class would grow by leaps and bounds.

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"Religion is what keeps the poor from murdering the rich."--Napoleon

Hawkfish's picture

@dervish Which is nice and all, but the world is still at the mercy of their charity, no matter how well intentioned. It would be more just to allocate those resources democratically.

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

PriceRip's picture

          If we spend money into existence like funding an infrastructure project. Those funds circulate thorough (at least the local) economy creating economic activity several times the "value" of the funding amount. Even if all that money is taxed out of existence at the end of a fiscal cycle, the effects still remain. That is, economic activity is not driven by the amount of money as much as it is driven by the flow-through rate of money.

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"I know you believe you understand what you think I said, but I am not sure you realize that what you heard is not what I meant."
Robert J. McCloskey, U.S. State Department spokesman. From a press briefing during the Vietnam war.

Hawkfish's picture

@PriceRip I have greatly (perhaps excessively) simplified the book. He does some very detailed analyses of public spending and wealth, including the (rather disturbing) finding that net public wealth in the west is effectively zero (infrastructure worth balances national debt).

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

karl pearson's picture

I was interested in the link represented by the word "dire", but I can't get it to work. The other link works.

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Wink's picture

But if I'm anywhere near mathematically correct I would simply explain it as the Upper 5% own about 90% of this joint and are hungry for the other 10%. Where, 47%er, does that leave you?

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the little things you can do are more valuable than the giant things you can't! - @thanatokephaloides. On Twitter @wink1radio. (-2.1) All about building progressive media.

Hawkfish's picture

@Wink Imagine the entire accumulated wealth of the country is a savings account. r is just the interest rate on that account.

You are right about the current state of ownership, but the pies explain why it is getting worse - and why the democrats have no viable solution.

Also, some people are more visual, and verbal descriptions may be harder to grasp.

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

Hawkfish's picture

@karl pearson Thanks for the catch!

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

It's called "velocity of money". It's why food stamps, and all the programs Republicans hate work so well. One person can only buy so much stuff. Spread that money around and many businesses benefit.

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"Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." - Groucho

riverlover's picture

and as far as I know circulates only at lower economic levels. Thus I pay banks for cc debt monthly and property taxes and "income" taxes. And today, a plumber to break down walls in my house. SS recipient only as a widow.

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Hey! my dear friends or soon-to-be's, JtC could use the donations to keep this site functioning for those of us who can still see the life preserver or flotsam in the water.

the more hands with money, the faster it is. An uber-rich man can only eat,drink, smoke, consume, etc.... so much as one person. Welfare is for the entrepenuers , not the poor. The gov't could care less about the poor. They just want them spending money to prop up the business owners.

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"Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." - Groucho

Cassiodorus's picture

Work is what created "the pie," and the society of money wants us to believe that our paltry wages are just compensation for our having created "the pie." That's what one calls "pie in the sky."

So to get anything out of the process we will have to create something other than the society of money, to get back what we ourselves created.

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"I was Zuckerberging people before Zuckerberg's balls dropped." -- the Devil, on "Rick and Morty"

Hawkfish's picture

@Cassiodorus In order to add up accumulated economic resources we need a common measure. It could be hours of Labour, kilos of wheat or grams of gold.

Whether we can keep growing is of course an excellent point, but what I think everyone here is really saying is that economic production should be restricted to renewable consumables. Which is fine.

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

Hawkfish's picture

Dupe

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

Strife Delivery's picture

But isn't one of the concerns regarding economic systems, particularly capitalist systems is the idea of infinite growth. The idea that we will always see economic growth, no matter what.

The problem though is well we don't have infinite resources to use. As our populations increase while our resources dwindle, aren't we looking into an old model while the world presses onward?

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earthling1's picture

Labor is the basic measure of value. IMHO. It is a tangible product of the human body. The value of one hour of human labor is a negotiable part of the free market system.
The Amish lifestyle is an alternative to money as the basic form of value.

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However, r is historically small right now. I submit that instead of making r smaller than g, we need to make g greater than r. Bernie Sander's proposals would have done that. But you are right, r greater than g squeezes the overwhelming majority of us. Our manufacturing base has been shipped to Asia. That is why g is so small.

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Sanders-Gabbard 2020 !

Thanks for the reference to the Walter Scheidel book. I have to read the book to fully understand how violence up-ends the economic order. It seems off-hand to be correct, as unequal systems of wealth were created and maintained by violence at various levels and sorts. For example, the banksters use the courts and police to enforce foreclosures under penalty of state/police violence against the victims. The Code of Hammurabi had quite violent penalties for offenses against the ruling classes but not the same if the offense was done by members of the ruling classes.

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Hawkfish's picture

@MrWebster Or one of the Sumerian kings. I think the point was to prevent the creditor class from controlling the state. The fact that the state was an aristocracy merely shows that creditors threaten all types of power bases, not just democratic ones.

I'm looking forward to the book as well (ordered but not out yet).

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

Cassiodorus's picture

@Cassiodorus In order to add up accumulated economic resources we need a common measure.

The point of accumulating economic resources under capitalism, however, is not to add them up -- nobody really cares that much about arithmetic for its own sake -- but to make rich people richer. Money, in this regard, is not merely a "measure," but rather a mechanism for unequal exchange -- specifically, the exchange of my (alienated) labor for a wage, in a system designed to accumulate profits for an owning class.

In a system based upon satisfying the needs of human beings, however, the only "measure" of interest would be the specific utility of each created instrument to the person using it. This is the idea of "use-value" as opposed to "exchange-value." The "use-value" of a hammer, for instance, is what it does to help me pound nails into boards, whereas its "exchange-value" is what I can get by selling it to someone else. From these elemental ideas of "use-value" and "exchange-value" we can imagine an alternate society based on use-values, a society organized as a union of free producers, as opposed to the current society, which is based on the accumulation of exchange-values in a utopia of money.

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"I was Zuckerberging people before Zuckerberg's balls dropped." -- the Devil, on "Rick and Morty"

Hawkfish's picture

@Cassiodorus All i meant was that in order to talk about the economy in aggregate we need to be able to add up values somehow. Money is merely a convenient existing measure, but as you point out such aggregation can serve other ends. The trouble with use-value is not that it is inferior or not worth discussing, but just that it is harder to measure without reference to an individual value system.

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg