BONUS: Econ terms and definitions explained by Nick and Goldy

Summary

Podcast Summary: Pitchfork Economics with Nick Hanauer

Episode: BONUS: Econ terms and definitions explained by Nick and Goldy
Date: March 8, 2019
Hosts: Nick Hanauer and David “Goldy” Goldstein (Civic Ventures)

---

Episode Overview

In this bonus episode, Nick Hanauer and Goldy take a step back to demystify some of the key economic terms they use frequently on the show. Aimed at making economics more accessible, the discussion blends clear, witty explanations with pointed critiques of mainstream economic thought. The hosts define and contextualize terms like neoclassical economics, neoliberalism, trickle-down economics, heterodoxy, monopsony, and stock buybacks, all while maintaining their trademark irreverence.

---

Key Discussion Points & Insights

The Importance of Defining Terms

• [00:04] Goldy points out that economic jargon can be alienating:

  “So, Nick, one of the problems with you knowing so much about economics is that you toss out these big words that we know really well... but not everybody is as tuned in as we are.”

• Nick references Bertrand Russell:

  “I think it was Bertrand Russell. If you want to discuss with me, define your terms.” (00:29 - Nick)

---

1. Neoclassical Economics

Definition and Critique

• [00:39 - 03:42]

  • Described as the “orthodox economic theory” taught in Econ 101, based on several main assumptions:
    • Humans are rational, self-maximizing, and selfish.
    • Value is equated with price: what you earn equals your worth.
    • The economy is an equilibrium system (Pareto optimal) where improvements for some necessarily hurt others.
  • Hanauer is critical, arguing these concepts were “made up” to fit mathematical models that don’t reflect reality.
  • Critiques trickle-down conclusions:

    “We have drawn a bunch of conclusions from neoclassical economics, like raising wages kills jobs and tax cuts for rich people create growth, which are just objectively false.” (03:35 - Nick)

• Notable Quote:

  “If you're an orthodox thinker... you have essentially crossed the beams and violated a law of nature. And you are therefore paying somebody more than they're worth. And therefore you've harmed the economy and harmed welfare and eventually killed jobs.” (01:55 - Nick)

---

2. Neoliberalism

Origins and Ideological Evolution

• [03:59 - 06:43]

  • Initially a response (in the 1930s-40s) to statism and collectivism amid fears of authoritarianism and communism.
  • Legitimate faith that market economies outperform non-market ones.
  • Over time, morphed into a rigid ideology rooted in neoclassical economics:
    • Freedom from constraint as the sole freedom.
    • Markets and competition as the only legitimate organizing principles.
    • Capital (especially concentrated capital) as the engine of growth.
    • Shareholder value maximization as the only corporate goal.
  • Goldy underscores its prevalence:

    “That sounds like mainstream economic and political ideology for the past 40 years.” (06:15 - Goldy)

• Hanauer doesn’t mince words:

  “All of that's bullshit.” (06:41 - Nick)

• Clarifies the difference:

  “Neoclassical economics, that is a school of economic theory and neoliberalism, is a political and economic ideology... built on top of that.” (06:43 - Goldy)

---

3. Trickle-Down Economics

Policy & Rhetorical Tool

• [07:09 - 07:45]
  • Defined as a set of memes and rationalizations, not a scientific theory.
  • Core claims:
    • Tax cuts for the rich create growth.
    • Deregulation benefits all.
    • Raising wages kills jobs.
  • Dominant in US policy since around 1980 (Reagan era).
  • Blunt summary:

    “Again, all of which is bullshit.” (07:43 - Nick)

---

4. Heterodoxy

Alternative Economic Thinking

• [07:45 - 09:17]
  • “Heterodox” = non-orthodox; challenges core neoclassical ideas.
  • Emphasizes human reciprocity, not just self-interest.
  • Redefines value as solutions and welfare, not price.
  • Sees economies as complex, non-equilibrium ecologies.
  • Goldy highlights interdisciplinarity:

    “It is actually a synthesis of the latest science in a broad number of disciplines. Physics, biology, evolutionary theory, psychology, sociology, anthropology, information theory, network theory.” (08:43 - 09:06 - Goldy/Nick)

---

5. Monopsony

Market Power from the Buyer Side

• [09:20 - 11:10]
  • “Monopoly’s evil twin.” Monopsony is where one (or a few) buyers control a market, depressing prices and dictating terms.
  • Example: Chicken farmers dependent on single agribusiness buyers (Tyson, Purdue).

    “As a chicken farmer, you're not really an independent business anymore. They make you buy the chicks from them, they give you standards on how to raise them, and they set the price per pound... they've really been impoverished over the last couple decades.” (10:24 - Goldy)

  • Hanauer stresses lost value:

    “All of the value... has been sucked out... and is aggregated into the earnings, bonuses and stock price of these big companies.” (10:44 - Nick)

---

6. Stock Buybacks

Corporate Practice and Its Consequences

• [11:12 - 13:06]

  • Definition: When a company uses its own cash to buy back its own stock, reducing share count, boosting price and earnings per share (EPS).
  • Hanauer and Goldy critique the practice as “pernicious,” benefiting the wealthy while doing nothing for the overall economy.
  • Scale highlighted:

    “Stock buybacks now represent about 5% of GDP. About a trillion dollars a year.” (12:40 - Nick)
    “A trillion dollars that does nothing in the economy but make a few rich people richer is a remarkable source of money for all those things.” (13:02 - Nick)

• Notable quip by Goldy:

  “That's like magic. You don't even actually be good at your job.” (12:14 - Goldy)

---

Memorable Quotes

• “All of that's bullshit.” (06:41 - Nick Hanauer)
• “We have drawn a bunch of conclusions from neoclassical economics, like raising wages kills jobs and tax cuts for rich people create growth, which are just objectively false.” (03:35 - Nick Hanauer)
• “Again, all of which is bullshit.” (07:43 - Nick Hanauer)
• “Monopsony is when you have dominant control of a market from the perspective of the buyer, you can control the cost of things.” (09:29 - Goldy)
• “That's like magic. You don't even actually be good at your job.” (12:14 - Goldy)

---

Timestamps for Key Segments

• [00:39] Neoclassical Economics - definition and critique
• [03:59] Neoliberalism - evolution from economic theory to ideology
• [07:09] Trickle-Down Economics - policy memes and myths
• [07:45] Heterodoxy - alternative economic thinking
• [09:20] Monopsony - market power from buyers, chicken farmers example
• [11:12] Stock Buybacks - definition and economic consequences

---

Conclusion

This episode serves as a rapid-fire glossary for frequently used economic terms, framed through the lens of the show’s critical, irreverent style. Hanauer and Goldy make a concerted effort to puncture the myths of mainstream economics, opting for plain language and real-world examples. They invite listeners to submit other confusing terms for future explanation, emphasizing the ongoing need for clarity and accessibility in economic discussions.

Transcript

[A]

So, Nick, one of the problems with you knowing so much about economics is that you toss out these big words that we know really well. Yes, but not everybody is as tuned in as we are. Correct. So what I thought we'd do, as a little bonus, is go through some of the terms we use a lot and try to explain our $10 words. And maybe seven or eight dollars.

[B]

Yeah, exactly. I think it was Bertrand Russell. If you want to discuss with me, define your terms.

[A]

Okay.

[B]

And we need to define our damn terms.

[A]

Let's start with one of the classics. Well, actually one of the neoclassics, Neoclassical economics.

[B]

Yeah. And before we get to the actual definition, let's just be clear that we use these words in a very particular way. And there are people who would contest.

[A]

Our view of this term, but screw them, because this isn't their podcast.

[B]

Yeah, exactly. Screw them. So neoclassical economics is basically orthodox economic theory, dating more or less to now from the middle part of the last century. And it is made up of a bunch of assumptions about human behavior, about the dynamics of human social systems. It includes a theory of value and identifies how the economy works to create growth and prosperity. And basically, neoclassical economics holds that human beings are rational self maximizers, that we are perfectly selfish and perfectly rational. It holds that value equals price, that the price of something in a society represents its true value.

[A]

So if you pay me $7.20, that is what you are worth. That's all I'm worth. And then when we pass a $15.

[B]

Minimum, somehow magically you're 15 now. Yeah. And if you're an orthodox thinker, like another podcaster, Russ Roberts, by so doing, you have defied the laws of economics where the market defines what you're worth, and you have essentially crossed the beams and violated a law of nature. And you are therefore paying somebody more than they're worth. And therefore you've harmed the economy and harmed welfare and eventually killed jobs. Again, nothing could be further from the truth. And neoclassical economics also holds that the economies are equilibrium systems, which basically means if one thing goes up, another thing goes down. That those systems therefore, are something called Pareto optimal, which means that they come to an equilibrium where if you push one thing down to get a, for instance, more increasing justice, you will harm welfare. Another place that basically the system is imbalanced.

[A]

In this way, you can't improve somebody else's lot without hurting somebody else.

[B]

Correct. And basically our view, and the purpose of this podcast is to show people the ways in which all of those assumptions about economic behavior and life and Systems, those things are just not true. They were mostly just made up. There's a bunch of stuff in addition to that that was made up that's even more technical. And most of it was made up to make the math work so that you could mathematize the system and build models that you could use to represent the world. The sad part, of course, is none of the models work. They don't represent the world very well. They don't predict anything. And we have drawn a bunch of conclusions from neoclassical economics, like raising wages kills jobs and tax cuts for rich people create growth, which are just objectively false.

[A]

So neoclassical economics, this is what you are taught in Econ 101, correct. And what we talk about here on our podcast, this is what you will be taught in econ 101 in about 15, 20 years.

[B]

Yes, hopefully. Hopefully.

[A]

So let's move on to one of the more contentious terms we use, and that is neoliberal. It's used a lot as a pejorative from the left. What is a neoliberal and what do we mean when we say neoliberal?

[B]

So neoliberalism was a thing created by a bunch of, well, guys. Cabal, cabal of guys. And it legitimately and in a well meaning way, in response to communism and authoritarianism around the world. And these folks in the 30s and 40s legitimately believed that there were some very bad things happening in the world, that statism and collectivism were going to destroy freedom and destroy economies and destroy society. And so neoliberalism was a reaction against that and a commitment to free markets and freedom and a bunch of other things. And a lot of that is totally legitimate. They were absolutely correct to believe that market economies did and will always outperform non market economies. But neoliberalism, as it evolved, got hijacked by a bunch of folks and became essentially an ideological framework that grew out of neoclassical economics. And it means a bunch of things to us. Specifically, it entails a particular definition of freedom, which is that freedom from constraint is the only kind of freedom that matters. It asserts that the only legitimate organizing principle for an economy is competition and markets. It asserts that the source of growth in an economy is always capital and concentrated capital in particular, that what you are paid defines your worth and contribution to a society. And, you know, among other things, the only legitimate purpose of the corporation is to maximize value to shareholders. And there's a bunch of other beliefs, but those kind of roundly summarize what was extracted from neoclassical economics. That makes up a bunch of the culture of economics that we live with today. And that's what neoliberalism is doing.

[A]

That sounds like mainstream economic and political ideology for the past 40 years.

[B]

It is. That's exactly what it is. And it's what most people accept, like gravity, that this is just how it is and that's nothing you can do about it.

[A]

And if it means that I make 7.25 an hour and you make a.

[B]

Billion, then that must be what we're worth respectively.

[A]

There's nothing we can do about it because it's a natural law.

[B]

That's right. And all of that's bullshit.

[A]

So to be clear then, to build on this conversation, neoclassical economics, that is a school of economic theory and neoliberalism, is a political and economic ideology and.

[B]

Narrative built on top of that, built.

[A]

On top of that, which is used to kind of define the set of policies that are available to us.

[B]

What sits on top of that is another term of art that we use a lot, which is trickle down economics. And trickle down economics is really a set of memes and political rationalizations for what you want to do. And we call trickle down economics. Tax cuts for rich people creates growth. Deregulation for powerful people creates growth, and raising wages kills jobs. Those are the anchor claims of trickle down economics, and they are what has framed economic policy and politics in the United States for.

[A]

Well, since like 1980. Yeah, since Reagan for the most part.

[B]

Again, all of which is bullshit.

[A]

Okay, so then let's move on to another term which we don't use as much, but people talking about the stuff we talk about use, and that is heterodoxy.

[B]

Yeah, so this is an emerging term of art, but basically heterodox economic thinking is non orthodox economic thinking. It's economic, not neoclassical and not neoclassical. And it means in economic thinking which challenges these behavior, value growth and systems ideas. We are heterodox economic thinkers. We assert that humans aren't rational and selfish, we are reciprocal and heuristic. That value isn't price, it's actually solutions and welfare. That growth is basically the evolution of fitness rather than factors of production. And that the systems aren't equilibrium systems, they're at basically non equilibrium ecologies.

[A]

And one of the reasons why it's referred to as heterodoxy is rather than just drawing from economics, it is actually a synthesis of the latest science in a broad number of disciplines.

[B]

Exactly. Physics, biology, evolutionary theory, psychology, sociology, anthropology.

[A]

You know, a huge information theory, network theory, all of that coming together, converging and being mixed into this new way of viewing the economy.

[B]

Correct. What's our next term?

[A]

Well, let's go for our favorite word recently, which is monopsony.

[B]

Yeah. Monopoly's evil twin. What is it, Goldie?

[A]

Well, it's actually, it's very much like monopoly. Everybody knows a monopoly, strictly monopoly, is when you have 100% control of a market, but really in reality, it's when you have a dominant share of a market. Often it's like duopolies. A monopoly is when you have dominant control of the market so that you can set the price of things. Monopsony is when you have dominant control of a market from the perspective of the buyer, you can control the cost of things. So I think one of the best examples of monopsony, Nick, is the plight of chicken farmers in America, where essentially in most parts of the country, there's only one or two, usually one customer who's buying their product.

[B]

Yeah. One huge agribusiness Tyson or Purdue. Purdue.

[A]

And they set all the terms. As a chicken farmer, you're not really an independent business anymore. They make you buy the chicks from them, they give you standards on how to raise them, and they set the price per pound. So chicken farmers in America, same with a lot of pork farmers, they've really been impoverished over the last couple decades.

[B]

And all of the value of that supply chain has been sucked out of it by those giant agribusinesses from ordinary farmers and workers and essentially is aggregated into the earnings, bonuses and stock price of these big companies.

[A]

Right. So the next time you get your chicken nuggets on the dollar menu, remember, it's not just the chickens who are suffering, it's the chicken farmers.

[B]

That's exactly right.

[A]

Finally, let's close on one of our little pet issues. What's a stock buyback?

[B]

What? A stock buyback is when a public company uses its cash or cash flow to buy its own shares of stock. Why would you do that?

[A]

Why would you explain it?

[B]

Idiotic. So why would you do that? Well, when you do it, you reduce the number of shares outstanding, and two things happen. Often the price of the stock will go up because there's fewer available, and you're putting buying pressure on it. If you're an owner of the stock, that's very, very good. And also, the earnings that the company makes are divided by the number of shares outstanding.

[A]

EPS earnings per share.

[B]

Right. And as the number goes down, the EPS goes up, which means that the.

[A]

Stock price will go up because Wall street loves eps.

[B]

And so this is a way to make the stock price of a company go up without the pesky burden of having to make better products and services.

[A]

Wow. That's like magic. You don't even actually be good at your job.

[B]

You don't. You can make shit products and all you do is, you know, at least in the near term, you buy more shares and stock price goes up. And it's a very pernicious practice. And it is one of our pet peeves because it is so huge. Because stock buybacks now represent about 5% of GDP. About a trillion dollars a year.

[A]

A trillion dollars a year.

[B]

And as we think through all the things that we need to do to get the economy back on track. Pay people more, invest in education, secure people's retirement, pay for health care, all of those things address climate change. Yeah. A trillion dollars that does nothing in the economy but make a few rich people richer is a remarkable source of money for all those things.

[A]

Okay, so there you have it. A quick refresher on a lot of.

[B]

The terms defining our damn terms.

[A]

Right? Defining our terms. A lot of the words we toss around here on Pitchfork Economics. If you're listening, and there are any more terms that you think we missed that you'd like us to explain a little more in depth, please send an email to pitchitchitchfork economics.com and let us know.

[B]

Awesome.

[C]

Pitchfork Economics is produced by Civic Ventures. The magic happens in Seattle in partnership with Large Media, that's Larj Media and the Young Turks Network. Find us on Twitter and Facebook at Civic Action and follow our writing on Medium at CivicScorks. And you should also follow Nick Hanauer on Twitter at nickhanauer. Thanks for listening.