There are lots of things they got wrong.
In Sunday’s season finale of the Simpsons, former Secretary of Labor Robert Reich teamed up with Hugh Jackman to do a musical act about economics. The act focused on inequality and the demise of the middle class, and argued that “greedy rich men” are responsible for declining wages and lower standards of living.
A few days before, Reich tweeted out a preview of the act.
While many may find themselves agreeing with Reich, the truth of the matter is that this clip is full of economic fallacies. Let’s break them down one at a time.
Fallacy 1: High Profits Are the Result of Greed
The clip starts off with this line from Reich.
“The decline of unions, rampant corporate greed, Wall Street malfeasance, and the rise of short-sighted politics all contributed to increased economic inequality, widespread real unemployment, wage stagnation, and a lower standard of living for millions of Americans.”
When Reich says “rampant corporate greed,” a graph is shown depicting rising corporate profits. The implication seems to be that excessive greed is what causes high profits.
The reasoning typically goes as follows: greedy employers pay their employees less and charge their customers more in order to increase their margins. The problem with this reasoning is that it assumes managers have far more power to set wages and prices than they actually have.
The reality is, business owners are subject to the discipline of the market. If they try to pay their employees less than the going rate for their labor, the employees will simply go work for someone else. If they try to charge their customers more than the going rate for the product, their customers will buy from someone else.
So, a business owner may want to rip off their workers and customers as a means of increasing their margins, but the reality is that they can’t, at least not for long.
So if entrepreneurs can’t get ahead by being extra greedy, what sets apart the successful ones from the unsuccessful ones? In reality, it’s a combination of luck, good foresight of market conditions, good management skills, and, quite frankly, the extent to which you can convince the government to rig the market in your favor (this happens way more than most people realize).
Fallacy 2: Americans Are Experiencing Wage Stagnation and a Lower Standard of Living
In the second part of his opening line, Reich claims that there is “wage stagnation, and a lower standard of living for millions of Americans.” This is misleading at best. If we’re talking about nominal wages (the number on the paycheck), those have clearly gone up. But even looking at real wages (what your wages can buy), it’s hard to say those have stagnated. As Marian L. Tupy explains for Human Progress, even though average hourly earnings haven’t changed much when adjusted for inflation, that number ignores other important factors such as non-wage benefits (which have increased significantly) and improvements in the quality of goods.
The claim that standards of living are going down is also problematic. Consider a typical American household in the 1970s compared to today. Think about the change in access to appliances, phones, computers, TVs, cameras, and such. Intuition makes clear—and the data bear this out—that standards of living are indeed increasing across the board.
If you’re still not convinced, just ask yourself, would you rather live in the 1970s—a time before the internet, smartphones, and streaming services—or today?
Fallacy 3: The Economy Is a Fixed Pie
The musical act continues with the following line. “They chopped salaries to raise stock prices, cut up the pie and kept all the slices.”
The second part of that line is a reference to the idea that there’s only so much wealth to go around, and workers only get a small portion of that wealth, while most of it goes to the rich and powerful. The problem here is that Reich is assuming wealth is a fixed pie, which means the rich get richer by “keeping slices” for themselves instead of distributing them to others.
In reality, the pie is not fixed. It can get bigger. Under a fixed pie model, the only way to become better off is at the expense of someone else. One person has to lose in order for someone else to gain. But in the real economy, most of what happens is win-win transactions. When a business trades a product with a consumer, they are both better off. The pie has increased in size. No one is “keeping slices” from anyone else. Sure, some people might be more productive and end up with more money, but in a free market you make money by benefiting others, not by taking from them.
Fallacy 4: Trickle-down Economics Has Been Debunked
The next line of the act goes as follows. “Tax breaks went to CEOs, never trickling down to average Joes.”
This is a clear dig at “trickle-down economics,” which is essentially the idea that when the rich become even more rich, their extra money will “trickle-down” to the lower class, making the poor better off as well.
The left loves to use this term in debates. The moment anyone suggests cutting corporate taxes or taking it easy on the rich, they immediately get a grin on their face and say, “actually, trickle-down economics has been debunked.”
The problem with this line is quite simple: trickle-down economics isn’t even a thing. No serious economist claims that the money from the rich would somehow spill over to the lower classes if only they had more.
Briefly, the actual reason economists favor taking it easy on the rich is because, unlike the government, rich people tend to invest in businesses that grow the economy, leading to more abundance and higher standards of living for everyone. But that’s not trickle-down economics. That’s just economics. And you’ve got your work cut out for you if you want to debunk that.
What They Forgot to Mention
While the fallacies presented in the Simpsons clip are egregious enough, what really makes this clip inaccurate is what they didn’t say. They completely left out the harmful impact of government regulations on the economy. There was no mention of trade barriers, cronyism, or any of the other things the government does that make life hard for the poor.
Despite our rising standards of living, there are still real problems in the economy. But we won’t be able to solve them until we dispense with economic fallacies and take the time to learn what’s actually causing them.
This article was adapted from an issue of the FEE Daily email newsletter. Click here to sign up and get free-market news and analysis like this in your inbox every weekday.
AUTHOR
Patrick Carroll has a degree in Chemical Engineering from the University of Waterloo and is an Editorial Fellow at the Foundation for Economic Education.
EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.
