We’ve established that trickle-down economics and neoliberalism are failed philosophies. But we haven’t yet explored whether economics should be moral – should it reflect our behaviors and preferences, or is it a science that lives separately from our societal norms and values? Heather McGhee joins Nick and Paul to argue that an inclusive economy is not only possible, but imperative to growth.

Heather McGhee was the President of Demos from 2014-2018, where she is now a Distinguished Senior Fellow. She’s finishing a major book about the personal, economic, and societal costs of racism to everyone in America—including white people. A recognized thought leader on the national stage, Heather serves as a contributor to NBC News and frequently appears on shows such as Meet the Press. Her opinions, writing, and research have appeared in numerous outlets, including The New York Times, The Nation, and The Hill.

Twitter: @hmcghee

Further reading: https://www.demos.org/issue/economy-opportunity

https://www.ineteconomics.org/perspectives/blog/the-moral-burden-on-economists

Nick: 00:02 An economy that systematically takes advantage of some people will eventually take advantage of everybody.

Heather: 00:08 I think that we have to tell a different story about race and the economy, one that recognizes that we can’t operate in a zero-sum paradigm of racial competition.

Paul: 00:20 Since morality is basically the most important thing to humans in human societies, any economic theory that doesn’t sort of intrinsically address those concerns has to be, sort of by definition, insufficient.

Announcer: 00:34 From the offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics, with Nick Hanauer, in honest conversation about how to make capitalism work for everyone.

Nick: 00:58 I’m Nick Hanauer, founder of Civic Ventures.

Paul: 01:00 I’m Paul Constant, and I’m a writer at Civic Ventures.

Nick: 01:07 In this show, we do a lot of talking about how neoliberalism and neoclassical economics have failed over the course of the last 40 years or so. We haven’t done a whole lot of talking about why they’ve failed, and that’s going to involve a word that you I don’t think have heard yet on this podcast, which is “moral,” morality, yeah.

Paul: 01:30 Yeah.

Nick: 01:31 All that messy stuff, yeah. Paul, you know, one of the ways, I think, that most defines and signifies the failure in particular of neoclassical economics is its assertion of sort of in the behavior model of homo economicus, that economics is both asocial … which means that social relations are all transactional … and that it’s amoral, in the sense that moral considerations are outside the bounds of economics.

Nick: 02:03 You know, basically what that means is that morality and economics have nothing to do with one another, and economics is a science like physics, and has nothing to do with people or our moral relations, our moral preferences, or our evolved nature as social creatures. Since morality is basically the most important thing to humans in human societies, how we relate to one another morally, any economic theory that doesn’t sort of intrinsically address those concerns has to be, sort of by definition, insufficient.

Nick: 02:37 You know, there’s been this ridiculous tradition in neoclassical economics in particular over the last 40 years which has just asserted that, you know, like, “We’re economists, and we don’t speak to moral issues and we don’t deal with them, and we’re just like white guys in lab coats and giving you the objective truth,” and all of that really is a smoke screen for what economics really is in human society, certainly how people experience economics, which is it’s a story that we tell ourselves which rationalizes who gets what and why. It’s a way … economic ideas and policies are a way of instantiating our social and moral preferences about status, privileges and power, so, you know, it’s really important to recognize that.

Paul: 03:31 For people like me who … you know, I was raised in the ’80s, and so when I hear the word “moral” I think of Jimmy Swaggart or some evangelical who’s like holding … using it as a stick to hold it over, so can you talk a little bit about what we mean when we’re talking about the morality of economics?

Nick: 03:48 Yeah. Well, I mean, all human societies, to one degree or another, have moral codes, and if you look at the evolutionary data or the anthropological data or cultural data, those moral codes always take very similar forms, although there are different flavors of course, and they basically have … they’re always some version of the Golden Rule, of reciprocity, do unto others as you would have them do unto you, and all moral codes are designed to encourage cooperation and altruism and to discourage selfishness and sociopathy. Why, because moral codes are evolved constructs designed to enable groups of people to cooperate with one another to compete against other groups of people, often who are trying to kill them and take all their stuff.

Nick: 04:44 Our moral foundations are always oriented somewhat in that way, and so that’s really what we’re talking about when we’re talking about morality. What’s crazy about neoclassical economics is that it doesn’t address any of that stuff, and that it treats humans as these amoral, asocial characters who don’t give a rip about anything but their own self-interest, when in fact that’s not who we are at all as a species, and that is not how we succeed as groups, obviously.

Paul: 05:17 If you think about what value is, what prosperity is in human societies, in the right way, it’s not output or GDP or price. It’s solutions to human problems that increase welfare. If you acknowledge that, then what has to also be true is that every economic act, every economic choice, is an explicitly moral choice, because you’re either solving people’s problems or you’re creating more problems than you solve. That’s the first way in which it’s really easy to see that economics and morality are one and the same, in a sense.

Paul: 05:54 The other thing that’s really super obvious is that, if you understand how prosperity is created in human societies, as it really is a solution to human problems, our prosperity and those complex solutions in a modern society can only be a consequence of cooperation. Well, that cooperation in turn is only possible if people trust one another, and that trust is always based on justice, that justice … including people, really, is what you do if you want to create justice … is the way in which you create prosperity and market economies and human societies.

Paul: 06:30 In that sense, both the output of the economy … solutions to human problems … have a moral dimension, and the process by which you create those solutions only works out if you’re being moral. Really it works … certainly the more moral we are, the better we treat one another, the more solutions we create and the more prosperous we all become.

Paul: 06:53 In that sense, morality and justice, fairness, these things are inextricably intertwined in creating human prosperity, and for that reason should be at the center of economic concerns, should be at the center of what economists study and try to optimize for. This, again, it’s so obvious why neoclassical economics fails in this respect, because it doesn’t address any of these issues, any of these central issues, at all.

Nick: 07:22 You know, I think one of the things that has surprised me is that we didn’t start thinking the Golden Rule applied to economics. I think I was in the room when you and Goldie sort of … it came to you that the economic Golden Rule, do unto others as you would have them do unto you, applied to economics, and it felt like a revelation.

Paul: 07:46 Yeah.

Nick: 07:50 It’s funny that something so basic to the building blocks of society, applying it to economics feels like a revelation. You know what I mean?

Paul: 07:56 Yes, and how deeply we all in our culture have been imprisoned by neoclassical economic ideas and neoliberalism, how deep that brainwashing goes, how we all got kind of conned by this idea that the more selfish we were, the more prosperity we created, that there was a direct tradeoff between economic justice and economic efficiency. All of these things just got kind of embedded in our heads.

Paul: 08:28 You know, when you sort of free yourself from these bad ideas, what you realize is that, you know, moral laws … the reason that all societies sort of end up with the same moral rules is that those are the rules that create prosperity in human societies. You know, “Thou shalt not steal” is not just a moral rule, it’s also how you create abundance in a society, because if everybody’s stealing from everybody, you can’t cooperate and can’t build anything.

Nick: 08:58 Right. Right.

Paul: 09:00 All of these things, actually, are the same thing, if you zoom out far enough, and it’s really super interesting.

Nick: 09:06 It’s quite remarkable. The basic rules of it are things that we all learn when we’re two, and then the economics profession came along and talked us all out of it. It’s like, “No, be assholes. It’ll be great.”

Nick: 09:27 Our guest today is our friend Heather McGhee. She’s done a ton of research on the stories behind the kind of capitalism that’s being lived out today. She also talks a lot about how we can and should tell stories about how the economy works, so that we can include everyone in it. Heather?

Heather: 09:46 Hi.

Nick: 09:47 It’s Nick.

Heather: 09:48 Hi, Nick. How are you?

Nick: 09:49 Good. We got the right number finally. I think we had …

Heather: 09:55 Good. Good, because I have a land line. I’m the only person in the world to have one, so let’s use it. My name is Heather McGhee. I’m the immediate past president and now a distinguished senior fellow at the think tank Demos, and its advocacy partner in Demos Action.

Heather: 10:11 I’m writing a book right now about a question that has really vexed me for my entire career, which is how can we talk about the way the economy is structured and also recognize how our society is structured racially, and particularly the way that so often the right wing tells the story that we’re all economic competitors here, and that people of color are taking jobs and opportunities away from white people. I think that we have to tell a different story about race and the economy, one that recognizes that we can’t operate in a zero-sum paradigm of racial competition. We can’t do that and be a functioning, thriving, multiracial society.

Heather: 11:05 What my book does is looks at all the different ways … the economic ways, the societal ways, but also even the personal ways … that a racially-inequitable society isn’t just bad for people of color, it’s also bad for white people and for our society as a whole. The biggest example that really was an aha moment for me in my career was when I was working for over a decade on the issue of financial market fairness.

Heather: 11:36 We started out at Demos working on regulation of financial markets when subprime mortgages were running roughshod over black and brown communities in the late 1990s and early 2000s. Honestly, those racially discriminatory loans that were stripping wealth from communities that had just gained a grasp on the American dream, they were allowed to flourish because the people who had the power to stop it were most likely not people of color and people from those communities.

Heather: 12:14 They turned a blind eye. They used racial stereotypes to say, “Well, there are all these foreclosures in this neighborhood, maybe because the people in this neighborhood shouldn’t have been able to afford those houses anyway, and they don’t have a track record of home ownership.”

Heather: 12:30 Then of course what ended up happening, that racism that was first targeted at black and brown communities ended up creating a monster that couldn’t be contained. Those subprime mortgages turned into interest-only adjustable-rate mortgages that went throughout the prime mortgage market, and were securitized into assets that went across the globe, and we had the Financial Crisis of 2008.

Heather: 12:59 The lesson I took from working on that issue and trying to stop what I could clearly see was coming was we can’t contain the poisons that are created in a society that doesn’t care about the value of some people, some families and some communities. Ultimately, our fates are linked.

Nick: 13:19 Yeah. That’s a super-interesting thesis, and I think that this other thing that you just said is really super interesting and I think there’s a lot of data to support it, which is that in a world that preys on some people, sort of an economy that systematically takes advantage of some people will eventually take advantage of everybody.

Heather: 13:41 No, you’re absolutely right. In this book which I’m working on now, I wanted to go back to it’s so obvious that if you include everyone, people will flourish, but at the same time it’s not obvious, because it’s not how arguably the greatest market economy in the world was structured at the beginning. At the beginning, our slave-based capitalism was absolutely structured on the concentration of wealth in relatively few plantation owners, and the broad exploitation of all African-Americans and the deprivation of white Americans in the South who didn’t enjoy any kind of public investments in their states, because you had a plantation feudal economy that didn’t need, in order to thrive, any kind of public investments to attract labor. The labor force was captive.

Heather: 14:39 There is a great book that was written in 1857 by an a vowed racist, segregationist, otherwise pro-slavery Southerner named Hinton Rowan Helper, and he went to count how many schools, libraries and other public constitutions had been set up in the North versus the South, where he was from. He found that in Pennsylvania there were 393 public libraries. In South Carolina in the entire state, there were just 26. That at the time was actually an antislavery, pro-white argument, which was this kind of feudal, aristocratic plantation economy is not actually working for white people.

Nick: 15:30 Did he think it was a good thing, or did he just …

Heather: 15:32 Oh, he thought it was a bad thing. He was a racist who nevertheless thought that slavery was distorting the society in the South, because the governing class had no interest in investing in the state and in the community and providing any kind of public investment, because they didn’t need it. They didn’t need to attract free labor. They didn’t need to create, you know, flourishing local markets, because they just had their plantations that had captive labor, and were selling it on a global exchange.

Nick: 16:08 Fully extractive.

Heather: 16:09 Exactly, fully extractive. When you look at that basic idea, right, where slavery thrived, a few people were enriched, many were oppressed and exploited, and public investments were cheated. The idea that the public is sort of the enemy of the kind of capitalism that was founded with our slave-based system in the United States, you see the strands of that still today.

Nick: 16:34 Yeah, absolutely.

Heather: 16:35 It’s sort of war between concentrated wealth and racial exploitation and a fully-invested, equitable society. I mean, there’s a reason why economics is called the dismal science. It is a social science that is really about behavior and not about natural forces, but that’s where there’s a really great parallel to race. Because right at the time in the 19th and 18th centuries, we had a dominant science of race that had created these categories.

Heather: 17:08 They were absolutely just, you know, white men in England, primarily, Germany and the United States, creating taxonomies and categories that justified their own social position. Things like the brains of African-Americans are smaller, things like there is simply no way for Chinese people to be, you know, citizens, to even understand what democracy is. These were self-justifying but absolutely scientific rationalization, and they exist today and they exist today in political terms.

Heather: 17:44 You know, this core ideological economic framework, as you mentioned, has become politicized into very simple, resonant, almost commonsense narratives. One of the most powerful ones that we are seeing the absolute fullest manifestation of is an effort by the very wealthy to alienate white Americans from people of color, from any kind of collective action, whether it’s labor unions or government itself, out of this ideology that people of color are undeserving at best and criminal at worst.

Heather: 18:31 The mechanism of joining together with people of color, whether it’s labor unions or government, is itself inherently suspect, and that is how we have seen the political realignment over the past three generations of white people to the Republican party on this antigovernment, racist, pro-quote/unquote free market ideology, and it’s where Democrats have really struggled because, you know, Democrats will say, “We’ve got the economic solutions. Why aren’t the majority of white voters, who sure may be better off than most families of color, but certainly aren’t where they were a generation ago or where they’d like to be, why aren’t they with us?”

Heather: 19:18 Over the past year, Ian Haney Lopez, a law professor at Berkeley, and Anat Shenker-Osorio, who’s a linguist and communications strategist, and my colleagues at Demos and Demos Action said, “We’ve got to sort of unwind this tangle,” and we did research to try to create a story that politicians and grassroots organizers could use, you know, on the doors, in their stumps, to talk about the way that certain politicians and their corporate backers are using racism as a way to divide people for their own economic interests.

Heather: 19:57 What we found was that kind of racially inflected populism, right, it’s talking about, you know, the 1% and corporate lobbyists who are, you know, rigging the rules for their own benefits, but it’s not being blind to race, right, because how can you be blind to race in this political arena, right, where the right wing and Trumpism has created an entirely racial and xenophobic narrative? If you’re sort of not even engaging, people don’t even … you know, they can’t find a hook for you to understand the world that we’re living in right now.

Heather: 20:35 What our research showed was that if you actually talk about race, but talk about it in a way where it includes everyone … you know, say something like, “No matter where we come from or what our color, most of us work hard for our families.” Just talk about that right up front, and then say, “Racial scapegoating is a weapon that’s economically harming us,” right? Say things like, “Certain politicians and their greedy lobbyists are hurting everyone by handing kickbacks to the rich and defunding our schools, and then they turn around and point the finger for our hard times at poor families, black people and new immigrants,” right?

Heather: 21:11 That’s the key. Everybody knows that that’s happening, but Democrats have been afraid to say it, or they’ll just say it to audiences of color and they don’t think that it’s something that they can say to white people, but what our research shows is that they can. Of course you’ve got to be hopeful. You’ve got to say, “We can join together with people from all walks of life, we can cross divides and join with people from other communities.” People actually of all races are really aspiring to have a more integrated life, but they feel like there are so many barriers to it. Then they need to connect it to government and say that we need to, you know, take government back and put it on the side of the people.

Heather: 21:54 I found this whole project, which is available on the Demos website and the Demos Action website, to be really hopeful, one piece of hope that we can actually be honest with the American people about the way that race is being used as a weapon, that we don’t have to choose between populism and identity politics, and that both white people and the Democratic base of people of color and young people are excited by this message and this idea, this sort of truthtelling around race and the way it connects to the concentration of wealth.

Nick: 22:23 Yeah. That’s interesting. You refer to race being used as a weapon, and that’s interesting to me because there is an intentionality behind it, but you’ve gone back and forth, and rightfully so, right? A metaphor is not a perfect descriptor of anything, but you’ve gone back and forth between an intentionality behind it and a systemic racism in American economics. When you’re trying out the messages, is there a difference between that? Is there a difference between saying, you know, the economy is a tool to enforce racism or is the American economy racist, and do those messages synchronize or is there a difference between them?

Heather: 23:09 That’s a really good question. We started out by trying to talk about structural racism, and you know, it’s sad to say the focus groups were pretty ugly. It was just really hard for people to grasp the idea of sort of victims without aggressors, or effects without causes, or effects without actors, and we know that that makes sense, right? That’s just not how the brain works. It’s not how our storytelling works, right? There has to be an actor who does something to someone.

Nick: 23:47 Yeah. It makes people feel powerless too, I think.

Heather: 23:50 Yeah. It’s called power, right? You know, in the messaging that ended up being the most resonant, it was absolutely “Certain politicians and the greedy lobbyists who back them,” right? There are people who are doing things. Similarly, in the story of the formation of slave-based capitalism, there were absolutely people who were doing things. In the story of the financial crisis, there were executives at Wells Fargo and mortgage brokers who were doing things.

Heather: 24:16 I actually don’t think that we can have a disembodied story about the way that power is structured in society. I think it has to be that these are decisions that powerful people are making every day, and that it’s a contest for power, to be able to make those decisions in ways that are more equitable.

Nick: 24:36 Yeah. I think that, you know, for our listeners, what we’re trying to reinforce is that often we think that a disagreement over economics is a disagreement over fact, when in fact it’s a disagreement over power or [crosstalk 00:24:50] or privileges. Let me just … we’re running short on time, but I do want to press on one more thing, which is, you know, you were saying that Democrats are confused about why, given that we have the economic solutions, that people are not with us, and that the Right has done a really great job of dividing people by race and so on and so forth.

Nick: 25:19 I both acknowledge that you are correct and feel strongly that one of the reasons that Democrats, Progressives, people on the right side of these issues, whatever you want to call them, have not connected with more voters, is because we have not been there for them in any reasonable material or consistent way for a very long time, right? Like just, you know, so reasonable people have been able to conclude, over the last 20 or 30 years, that Democrats are feckless corporate stooges too, and that has to be … I mean, yes, we are better, but being less shitty than the trickle-downers is not a terribly persuasive political platform or policy platform.

Nick: 26:09 I just think we have to … and I am hopeful that, as you know, and you must know a ton of these people personally … there’s a crop of new entrants into the Congress who are … who want to throw down, and hopefully their message will be clear.

Heather: 26:25 I couldn’t agree with you more, Nick. You know, I’ve been fighting to push the Democrats to be more populist and more democratic, with a small “d,” my whole career. The only distinction I would make from not only what you’re saying but from how this is often discussed is the … it’s again a zero-sum, right?

Heather: 26:46 You know, I was around for the fights about, you know, how to respond to the financial crisis, and I’ll tell you that the reason why there wasn’t, you know, a public option in the health care or a better response to the final crisis wasn’t because the Democrats were spending too much time addressing criminal justice reform and immigration reform and other things that people of color cared about, right? It was the money and the economic orthodoxy of Democratic Party, the donor class, not the people of color.

Heather: 27:21 That’s just something that, you know, it’s so often talked about as if Democrats are paying too much attention and giving too much great stuff to people of color, and that’s why they’re not, you know, looking out for the white working class.

Nick: 27:38 Yeah. When will your book be done?

Heather: 27:41 Good question.

Nick: 27:43 Don’t ask me when my book will be done.

Heather: 27:45 Exactly.

Nick: 27:45 Don’t put me on that spot.

Heather: 27:47 Author to author, you know not to say something like that. No. It will definitely be out around the end of next year, you know. Whether it gets done sometime soon and then the publishers work their magic, and it somehow needs to take six to nine months to turn it around into a book, but I hope to have it out right smack dab in the 2020 conversation.

Nick: 28:12 Thank you so much for spending the time with us, and best of luck on your book and your baby.

Heather: 28:19 Thank you. Thank you both.

Nick: 28:21 All right. Talk soon.

Heather: 28:22 All right. Take care.

Nick: 28:22 Okay. Bye.

Heather: 28:23 Bye.

Paul: 28:28 One of the things that I learned from that conversation with Heather was that orthodox economics doesn’t really have a place in it for race. It doesn’t take race into account, which is pretty huge. It means that the economists who sort of hew to the mainstream of economics believe that race doesn’t factor into all of the economic issues that affect all of us every day, and that is a tremendous gap. That kind of colorblindness is practically lethal to an economy. If you can’t take that into account, then what else are you not absorbing into your system? What else can’t orthodox economics understand?

Nick: 29:14 Our friend Richard Kirsch, who’s the director of Our Story Hub … The Hub for American Narratives, came in to offer his take on how to talk about inclusive economics.

Richard: 29:23 The biggest challenge we really have in telling the story about middle-class economics is to help people see that it’s not just that working families and the middle class drive the economy, but that means everyone. We need to be sure that everyone has good jobs. They can care for and support their families. Everyone can educate their kids, afford their health care, shop their neighborhoods. That triggers for some people the idea of, well, zero-sum, winners and losers, but this is a different idea.

Richard: 29:51 The way the economy works is we all do better when we all do better. That’s not just a statement of values. It’s actually a statement of how the economy works, because again, when I have better wages and you have better wages, we all do better. When I don’t, if someone’s not getting paid enough, if someone, because they’re discriminated against, doesn’t get a chance to get a good job, doesn’t get the education they need, then that actually slows the economy down. It’s not just unfair. As Nick likes to say, diversity isn’t just a matter of fairness, diversity supercharges growth, and that’s really how the economy works.

Richard: 30:31 It’s more like a team. We know that if you have a team, you don’t want just the starting players to be good. You want everybody on the bench to be good, because they may be needed, and when they come in, you want to be sure the team does well. Well, think about your family. If someone in your family is not doing so well, that’s going to affect the whole family. In a bigger sense, those kind of metaphors are how the country works.

Richard: 30:53 Now, one way to get people here as well as talking about that is to point out how powerful elites … some very wealthy people, some big corporations … try to divide us, and we find that if we tell a simple story that the powerful benefit by dividing the rest of it, by our race or where we come from or by our gender, well, they do that to rig the economic rules to benefit themselves, when people hear that, they go, “Oh, what’s going on here? Maybe we shouldn’t be fighting each other. Maybe we should understand that, again, the powerful are dividing us so they get richer, but in fact we’ll all do better when we all do better.”

Nick: 31:38 There’s this great scene in the movie “Wall Street” where the lead character, Michael Douglas, playing Gordon Gekko, makes the “Greed is Good” speech.

Michael: 31:50 An evolution in corporate America seems to be survival of the unfittest. Well, in my book, you either do it right or you get eliminated. In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of $12 billion. Thank you. I am not a destroyer of companies. I am a liberator of them.

Michael: 32:23 The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed, in all of its forms … greed for life, for money, for love, for knowledge … has marked the upward surge of mankind, and greed … you mark my words … will not only save Teldar Paper, but that other malfunctioning corporation called the USA. Thank you very much.

Nick: 33:06 It was remarkable. It was a great scene and a really remarkable sort of cultural phenomenon, because it reflected so much of what we believe about ourselves and what neoliberalism has taught us. It’s just interesting to remind ourselves that if we accept the idea that people are perfect selfish maximizers, and then we look around the world at all the prosperity in it, then we must conclude that in fact greed is good, that selfishness caused prosperity, and you know that’s the heart of the neoliberal lie.

Nick: 33:40 If on the other hand we understand human behavior for what it really is, that people are evolved to be other-regarding, reciprocal and fundamentally cooperative, and we look around the world at all the prosperity in it, then we must recognize that in fact greed is not good, that it was cooperation and reciprocity that created the prosperity around us, and it wasn’t billions of individual acts of selfishness that created this amazing economy. It was billions of collective acts of cooperation that did it. Yeah, greed is not good.

Nick: 34:21 In the next episode of Pitchfork Economics, why does the U.S. hate families?

Announcer: 34:36 Pitchfork Economics is produced by Civil Ventures. The magic happens in Seattle in partnership with Larj Media … that’s L-A-R-J Media … and the Young Turks Network. Find us on Twitter and Facebook at Civic Action, and follow our writing on Medium at Civic Skunk Works. You should also follow Nick Hanauer on Twitter @nickhanauer.

Announcer: 34:54 As always, a big thank-you to our guests, and thank you to our team at Civic Ventures, Nick Hanauer, Zack Silk, Jasmine Weaver, Justin Farrel, Stephanie Irvin, David Goldstein, Nick Casella, and Annie Favely. Thanks for listening.

Nick: 35:11 Every morning, I wake up, I look in the mirror, and I repeat this speech from the movie “Wall Street.”