Via Economic Policy Journal

Emmanuel Saez and Gabriel Zucman 

By Robert Wenzel

Cal Berkeley economists Gabriel Zucman and Emmanuel Saez hate capitalism, free markets and the accumulation of wealth.

They are Elizabeth Warren’s two top economic advisers.

Listen to the below clip to spot the obvious problems with their concerns.

First, as the clip reveals, they have this fetish about inequality of wealth and income. It is true that some inequality is the result of Federal Reserve Board manipulations of the money supply and other crony deals that should be stopped. But this in no way represents what is behind most wealth and income creation.

Zucman and Saez are blind to this. They just hate all inequality.

I explain the problem with their view here:

The second problem is they mention Gilded Age as an example of the dangers of monopoly but this is largely a socialist myth.

First, they fail to mention that mostly the cartels that did exist were in the railroad sector and the result of powerful railroad owners who were close to the seat of government power and who were able to get legislation passed that protected them against competition.

Murray Rothbard explained:

Railroads were the first Big Business, the first large-scale industry, in America. It is therefore not surprising that railroads were the first industry to receive massive government subsidies, the first to try to form substantial cartels to restrict competition, and the first to be regulated by government…

In every industry that has ever attempted the cartel device, the story has been the same…In the case of the railroads, the plot repeats itself, except that the cartels were called “pools,” production was freight shipments, prices were freight rates, and price-cutting took the form of secretly increasing rebates to shippers…

The trunk lines struggled to another agreement in late 1885, but it was again to collapse the following year. And the railroad associations in other regions of the country were doing no better. Alfred Chandler’s conclusion is apt: “By 1884 nearly all the railroad managers and most investors agreed that even the most carefully devised cartels were unable to control competition.”

Zucman and Saez apparently hold a very shallow understanding of the period that has very little to do with reality.

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The spectacular growth in the automobile industry came much later. It is a big stretch to call it part of the Gilded Age. Henry Ford’s Model T was not introduced until October1,1908. lists the Gilded Age as the period between 1878-1889.

In addition to the natural tendency for cartels to collapse, we see the natural advance of technology putting additional pressure on the cartels. It was the mass production of automobiles and, later, plane flight that put a further major dent in the railroad sector.

In other words, Zucman and Saez completely ignore the fact that besides the general tendency for the collapse of government-created cartels, technology in the form of automobiles, trucks and, later, airplanes completely made railroads a second rate form of transportation.

They don’t understand the fundamental nature of wealth, they don’t understand the inherent instability of cartels and they fail to recognize that even if cartels could somehow remain intact that technology eventually sneaks up to maul protected industries.

They are really concerned about problems that don’t really exist and offer central planning solutions that will do nothing but suffocate the economy which has an inherent natural tendency to advance the general standard of living.

Zucman, Saez and Warren are the real problems, not any threats they imagine in the private sector.