Myths That Built Trickle-Down Economics: Austerity Politics (with Clara Mattei)

Summary

Pitchfork Economics with Nick Hanauer
Episode Title: Myths That Built Trickle-Down Economics: Austerity Politics (with Clara Mattei)
Release Date: July 14, 2026

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Episode Overview

This episode dives deep into the myth of "austerity" as responsible economic management. Host Nick Hanauer and co-host David Goldstein (“Goldie”) speak with Professor Clara Mattei, author of The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism. Together, they explore the historical origins, ongoing impacts, and ideological justifications behind austerity policies—demonstrating that austerity serves not as a neutral budgetary tool, but as a deliberate mechanism to shift resources and power away from the working class to protect capital and suppress democratic alternatives.

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Key Discussion Points and Insights

What is Austerity? (05:02–10:07)

• Broad Definition:
  Clara Mattei defines austerity not simply as cutting public spending, but as a comprehensive strategy involving fiscal, monetary, and industrial policies that intentionally make life more precarious for working people, increasing their dependence on markets.
• Three Pillars of Austerity:
  • Fiscal: Shifting government spending from social services (housing, education, healthcare) to subsidizing private industry and war efforts. Not merely about shrinking budgets, but about who benefits.

    “It’s not about whether the state spends or not, it’s where the state spends.” (07:36, Mattei)

  • Taxation: Raising regressive taxes (on consumption), while reducing taxes on wealth and capital—effectively shifting the burden onto those least able to pay.
  • Monetary: Raising interest rates to intentionally slow the economy, increasing unemployment to discipline labor and suppress wage growth.
  • Industrial: Privatization, deregulation, and direct policies that reduce workers' bargaining power.
• Broader Aim:
  Austerity is about maintaining “wage relations”—the social structure where workers must sell their labor for less than its value, ensuring continued capital accumulation at their expense.

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Historical Roots: Austerity as a Weapon Against Democracy (10:07–14:52)

• Post-WWI Case Studies:
  Mattei details how, after WWI, both UK and Italy faced surges in working-class demands for democratic control over production. Austerity policies were strategically deployed to crush these movements—sometimes through explicit authoritarianism (e.g., Mussolini’s Italy) and sometimes through institutional reforms (like independent central banks in Britain).

  "Austerity acts as a very powerful weapon, especially in moments when there is demand...for social and economic transformation." (10:38, Mattei)

• Economic Orthodoxy as Class Power:
  The rise of neoclassical economics disguised these class interests as neutral expertise, aiming to demobilize public imagination for systemic alternatives.

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Is Austerity Self-Defeating for Capitalism? (14:52–19:53)

• Short-Term Priorities vs. Long-Term Viability:
  While austerity stabilizes wage relations and short-term profitability, it ultimately undermines the long-term social and ecological foundations necessary for capitalism’s survival.

  "Austerity is not a bug in capitalism. It's quite structural to it." (18:59, Mattei)

• Golden Age Exception:
  The post-WWII social welfare state reflected a temporary truce, designed to stave off threats like communism—but did not disprove austerity’s centrality in capitalist management.

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The Ideological Rationale for Austerity (21:29–34:00)

• Economic Justifications:
  Austerity is always justified in technical, apolitical terms—as “fixing the economy,” fighting inflation, or demanding “sacrifice” for fiscal discipline.

  “Austerity capitalism...emphasizes how our economic system is primarily based on compulsion.” (21:29, Mattei)

• Compulsion and Loss of Agency:
  Mattei distinguishes the basic human need to work from the unique capitalist compulsion to sell one’s labor without control over its product, undermining true democracy.

  "Under capitalism we are compelled to go sell our capacity to work, and then we are not in control." (24:45, Mattei)

• Economic Models as Political Tools:
  The discipline of economics—through claims of neutrality and rationality—serves to foreclose other possibilities and legitimize existing power structures.

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Living Examples and Policy Impacts (19:53–21:29; 34:00–39:44)

• Pandemic as Case in Point:
  Hanauer recounts the Civic Ventures team’s advocacy during COVID-19: by rejecting old austerity habits in Washington state and investing in people, the economy performed better than expected (ref. [00:00]–[01:23]).
• Historical and Global Relevance:
  Even supposed “social democracies” like Sweden have succumbed to austerity since the 1990s, and IMF-imposed austerity continues to wreak havoc in the Global South.

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Evidence for and Against Austerity’s Claims (34:53–39:44)

• No Empirical Support:
  Co-hosts and Mattei agree: there is scant historical evidence that austerity leads to widespread prosperity. Instead, it is systematically used to defend capital’s interests.

  “There’s always this crazy upside down view of what’s important and how the economy works.” (40:23, Hanauer)

• Do Economists Really Believe This?
  Mattei argues most austerity proponents truly believe their models, making them more dangerous:

  “What is much more fascinating...is the point that the experts that tell you we have to increase interest rates, they truly believe in the power of their models.” (35:37, Mattei)

• Inflation as a Political Struggle:
  Inflation is managed not for price stability, but to break labor power—often ignoring root causes like profiteering by large corporations.

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Key Quotes and Memorable Moments

• Austerity as Social Engineering:

  “Fiscal and monetary issues...really hit us deeply, primarily as workers. And it also hits our capacity to imagine alternative societies...” (09:36, Mattei)

• Popular vs. Academic Labels:

  “What you call austerity, we...call trickle down economics, because it’s just sort of the popular instantiation of it.” (10:07, Hanauer)

• On Capitalism’s Limits:

  “Capitalism as it exists has to go...it no longer is up to the challenge.” (44:17, Hanauer)

• Agency and Democratic Possibility:

  “The type of economics that we think is neutral...we need to rethink, and history helps us reveal that actually it is a profoundly classist project to take away power from people.” (32:49, Mattei)

• On Academic Motivation:

  “I do this work because I really believe that there’s so much more space for democratic participation...people really, really feel strong and feel motivated to participate in changing our world.” (42:05, Mattei)

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Timestamps for Major Segments

• [05:02] Clara Mattei defines austerity's broad meaning and three-part structure
• [10:38] Historical origins: post-WWI austerity in Italy and Britain
• [14:52] Is austerity self-defeating for capitalism?
• [21:29] Economic justifications and compulsion
• [24:01] Distinction between historical necessity to work and capitalist compulsion
• [34:53] Does austerity ever “work?” Are proponents sincere?
• [40:56] If Mattei were the benevolent dictator: homes, food, and peace
• [42:05] Mattei’s motivation for her work

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Final Reflections (43:39–47:42)

• The hosts reflect on their alignment with Mattei’s critique, observing that their own definition of trickle-down economics aligns remarkably with her definition of austerity—across fiscal, monetary, and industrial domains.
• Both critique how mainstream economic thinking presents market capitalism as inevitable, thereby suppressing democratic alternatives and reinforcing the power imbalance in society.

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Conclusion

This episode robustly debunks the myth of austerity as neutral, responsible policy—exposing it instead as a powerful instrument of class control. The hosts and Clara Mattei encourage listeners to question received wisdom, examine the political roots of economic policy, and dare to imagine—and fight for—democratic, people-centered alternatives.

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Transcript

[A]

Hi there, Pitchfork listener. I'm Greg, a producer here at Pitchfork Economics. This week we're continuing myths that built trickle down economics with the myth that austerity is responsible economic management. Austerity means cutting public spending and support systems in the name of fiscal responsibility. But it's never just about budgets. It's about power. Who gets protected, who gets squeezed, and who is forced to absorb the pain when the economy turns downward. And it's not theoretical. The Trump administration and Doge cut federal agencies, pushed out public servants, and treated public infrastructure like waste. And some of these are systems that we rely on the most during a crisis. The pandemic showed us the opposite lesson. When the federal government acted quickly and at scale to invest in people, the US posted the fastest recovery in the G7 and its strongest annual growth since 1984. Because the economy is people. And you don't rebuild it by making people poorer, more precarious, and less secure. In this episode, Nick and Goldie talk with Professor Clara Matei about the book the Capital How Economists Invented Austerity and Paved the Way to Fascism. They'll touch on how austerity became one of the most powerful myths of modern capitalism, how economists helped sell it as common sense, and why it's always been about more than budgets.

[B]

The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.

[C]

The last five decades of trickle down economics haven't worked. But what's the alternative?

[B]

Middle out economics is the answer because

[C]

the middle class is the source of growth, not its consequence.

[B]

That's right.

[A]

This is Pitchfork Economics with Nick Hanauer,

[D]

a podcast about how to build the

[A]

economy from the middle out.

[D]

Welcome to the show.

[B]

I'm Nick Hanauer, founder of Civic Ventures.

[C]

I'm David Goldstein, senior fellow at Civic Ventures. You know, Nick, I've been having to get up really early to do these podcasts recently because the past couple months you've been in London, which is eight hours ahead. So as an employee, as a wage earner, you have compelled me to get up early and do my work.

[B]

You've had to get up at 8:30 in the morning. Just. Well, it's so exploitive.

[C]

I agree.

[B]

I just, it's just so horrible.

[C]

You're exploiting, you're, you're exploiting me to. Because, you know, I need this. I need this job so I can pay for my dog's kibble and.

[B]

Well, the economist that we're going to interview today, Clara Matei, who's an associate professor of economics at the New School for Social Research is going to be very, very sympathetic to your whining because she's got this great new book out called Capital How Economists Invented Austerity and Paved the Way to Fascism. And a central part of her argument is that austerity is a strategy for making working people such as yourself precarious so that you cannot, you don't have the power to advocate for a better set of circumstances. And she uses a really interesting political analysis to, you know, to sort of explore this. It will be really interesting to talk to her because I think in a lot of ways when we are talking about trickle down economics, she's talking about austerity. I guess we'll get into that. But in any case, why don't we chat with Clara?

[D]

My name is Clara Matei. I'm associate professor in the economics department at the New School for Social Research. I've published the book called the Capital Order How Economists Invented Austerity and Paved the Way to Fascism. It is quite a radical book, but it speaks to the time we're in in which there is space for alternative readings of history. Given that I did win the price of the American Historical association, it was one of the books of the year on the Financial Times and it's getting translated in over 12 languages. So I'm very happy.

[B]

That's great. Super cool.

[C]

Yeah, you hit a sweet spot for me, Clara, because I love that intersection of economics and history. Economics, economic history. That's my sweet spot.

[B]

Before we get to the book, can you define austerity for us? Because you have a pretty broad definition that's really worth unpacking.

[D]

Thank you. Yes. The project is to look at history in order to get a better grasp what is happening around us. And a key word to understand what is happening around us is indeed austerity, which is a concept that not many people use. And when they do use it, they use it, usually use it in a very limited and quite apolitical way. But what I want to show is how austerity really shapes our lives fundamentally and daily, and how we need to understand it much more broadly as the tool the governments use to manage the economy and especially to shift resources away from working people in favor of savers, investors, so that for the majority, life becomes more precarious. And this means that we become more market dependent and thus we are more vulnerable in having to accept worse working condition, which is ultimately the basis of how our capitalist economy works. So in the book I see how austerity operates as a trinity of policies. There is fiscal austerity. Fiscal austerity is normally understood as cuts in the budget and increases in taxes. I show how this definition, which is the favorite definition of economists normally and the one that is used in the. If one looks at the dictionary, is very limited because it looks at the whole and tells you nothing about the winners and the losers of austerity. So rather than look at budget cuts in general, what one has to focus on is cuts in social expenditures. So cuts in public housing, in schooling, in health care, in transport, all of those services that normal people use to go about their daily lives in favor of the state spending towards, for example, subsidizing private industry, towards paying for the war effort, towards de risking asset managers who run the economy. So what we see here is not about whether the state spends or not, it's where the state spends. And this is why we can figure out that also in the United States today, we can see that austerity happens even if the budget as such is not decreasing. And we are spending lots of money, as we know, on a war effort that is putting a lot of money in the pockets of the few who invest in the military industrial complex. So this is one part of fiscal austerity. Then we have taxation. Again, it's not about increasing taxes in general, it's about increasing taxes on the people. So it's regressive taxation, increasing, for example, consumption taxes while we are cutting structurally taxes on the rich. We know that in this country we have an allergy for taxing capital, for taxing inheritance, for taxing all forms of accumulated wealth. And this is what austerity is about. It's again about shifting resources away from the people and incentivizing the few. This fiscal austerity goes hand in hand with monetary austerity. And monetary austerity is what we are quite used to hearing when we look at the news or read the newspaper. Because it's been all about interest rate hikes lately. And interest rate hikes appears as this neutral thing experts do at the Fed and so distant from us. But what I want to show is that actually increases increases in interest rate mean that you are making borrowing more expensive, which has two consequences. The first, more immediate, is as working class consumers who have a hard time getting to the end of the month, borrowing money becomes more expensive, but it's even worse because it hits us as workers, because what interest rates going up do is slow down the economy. We very well know that the reason why the Fed needs to increase interest rates is indeed to impact the labor market if you slow down the economy, there's less job openings, there's actually firings, and the unemployment level goes up. More unemployment means greater disciplinary power over working people who again are in competition with one another and will have to accept lower wages. And this will defeat organized labor. Right now we see in the United States there's lots of mobilization. Of course, monetary austerity works to defeat these wins that workers are getting. And finally, we have industrial austerity, which is about the state directly intervening to curb the bargaining power of the workers by privatizing, so firing public employees and sending them off in the private competition, deregulating labor, making it more precarious and ultimately forms of also wage suppression. And this trinity works together. So what I show is how they actually operate to reinforce one another. And once more, the message is that fiscal and monetary issues, which we think to be something so much separate from us, really hit us deeply, primarily as workers. And it also hits our capacity to imagine alternative societies in which to live in.

[B]

So it's super interesting, I would say that we're substantially in agreement with the basic thrust of your argument. We here tend to think of the problem in a slightly different way and characterize it in a slightly different way. What you call austerity, we in many ways call trickle down economics, because it's just sort of the popular instantiation of it. You know, what you did is tried to tease out the history of this, using England and Italy as examples. Can you tell us what you learned from that analysis?

[D]

What you learn from the analysis of history is that austerity acts as a very powerful weapon, especially in moments when there is demands from the general public for social media and economic transformation. So what you see again is that austerity unfortunately cannot be reduced to a policy mistake from the part of the legislator. And this is actually, unfortunately, weakness of a lot of Keynesian analysis is to reduce austerity to a policy mistake. Austerity, unfortunately, is extremely successful in operating to disempower our imagination for how to organize society in a more democratic in a way that actually satisfies and fulfills our needs, and instead in favor of a society that is meant to fulfill the priorities of capital accumulation. So this is the first thing you we learn is that in 1919, it was a moment in which there was extreme demands for a real radical change of the fundamentals of our economy. And especially the objective was to challenge wage relations. So again, the fact that our society is based on the relation of exploitation, meaning that very simply that the workers produce much more value than the value they put in their pockets at the end of the month. And this is indeed, according to classical political economy analysis, which I participate in, this is the fundamental element for economic growth under capitalism. So it was after the First World War that actually wage relations were challenged in favor of forms of actually democratic management of production and distribution in which workers would have a central role in actually running their own activity and in knowing where the output of their labor went. So I look at the cases of workers councils in Italy with Antonio Gramsci, who's a big, big name in the idea of actually cultivating novel institutions, and of course all of the cases in Britain with the Guild Socialists, forms of workers management and austerity there we see emerges really as a very, very powerful way for experts siding with the governments to say, I'm sorry, what you're doing is completely impossible. We want to reimpose the capital order as we know it. And again I stress the title of the book is the Capital Order to show that we tend to think of our economy as like the only economy possible and is a very again neutral object out there that we just have to accept. What I want to show is actually our economy is based a capital as money presupposes the capital order as the social relation of subordination of the majority. And so what we see is that historically economists sided with Benito Mussolini in Italy, with the first founding father of fascism in Italy. But not only they found other ways to implement austerity that were quite authoritarian. In Britain they went with independent central banks, which is a very, is something that we take for granted. But history shows us that actually, for example, central bank independent independence was a very, very important battle for economists in order to safeguard the economic sphere away from people that actually wanted to participate in economic decisions. It was the best way to tell them, I'm sorry, this is a sphere that does not belong to you. We will take decisions and of course, maybe we can get into it later. The point that austerity policies require very sturdy economic justification. And what I show is historically is that the type of theory we take for granted today, you could call trickle down economics, if you like, has a precise history, which is a history that is deeply connected with the class struggle of the time, in which indeed this neoclassical framework was emerging. And what you see is that it was emerging not presenting itself as pure economics, right, as something completely above parts, but really disguising, and not even so much disguising this profound classes attitude of having actually to discipline and to tame working people who are Indeed demanding greater say in how to run the economy.

[C]

I see a tension at the heart of your thesis, which is that austerity is a tool for protecting the owners of capital, capital and their owners. On the other hand, it doesn't necessarily preserve capitalism. We saw in the United States during the New Deal and the, and of course in Europe as Well, in the three decades following World War II, there was a treaty between labor and capital and there was this general societal agreement that we needed a social welfare state in order to fend off, protect capitalism, market capitalism from the threat of communism and perhaps a return of fascism. Is austerity ultimately self defeating for capitalism?

[D]

So, thank you. I think this is a very, very important point, is that I think austerity exposes how our economic system, namely capitalism, is not a system with a vision, not a system with a long term vision, but it is a system that has immediate priorities. And the first priority is indeed to make sure that people go to work every day for a wage. And this seems stupid, but we see even in this moment, as we speak, that it is a fear of legislators and experts that potentially people start thinking that they don't want or don't have to go to work for low wage. The great resignation was really a problem. And this is like part of the fact that this does indeed increase the bargaining power of those who do go to work. That creates the sense by which actually the priority, priority of our system is to stabilize wage relations. Right. So I would say that it's a system without a vision, but it is also a system in which there are priorities. And that is the first priority, because it is indeed the fundamental of the system. So that is the first point is that whatever it takes to ensure that wage relation and after the First World War, what we saw was that a moment actually, I think in a way similar to today, of course, much more radicalized, in which people were in a moment of greater bargaining power, so could indeed push against this wage relation. The priority there was indeed to make sure that that didn't fall apart. And it was a priority that also Keynes had. Right. Keynes is indeed in my book, to show that actually in 1919, 1920, the fear of Keynes was the breakdown of the only possible civilization that he could imagine, which was bourgeois capitalist civilization. Right. So that was the priority. Now, as you say, in the long run, austerity, I do think shows how in general, capitalism is quite a self defeating system. If by self defeating we mean that ultimately the contradiction between the detachment between the objective of maintaining profit rates high and Maintaining the profit motive alive with respect to actually the satisfaction of people's needs and ecological, for example, requirements to sustain us as humans. There is clearly a detachment there. Right. And so we do see that ultimately the driver of austerity is not allowing us to think creatively about the issues that will ultimately potentially destroy us as humans. And I think you see this also very clearly in the fact that the IMF has constantly imposed austerity programs on south of the globe countries, and these south of the globe countries are now defaulting on their debt. Right. And this is ultimately a moment in which there is a clear tension, as you were pointing out, between the need to enforce the wage relations and the priority of capital accumulation. And in a way, what are human necessities of survival and actually really like physical survival. So definitely, I think austerity exposes. The thesis that I would like to propose is that austerity is not a bug in capitalism. It's quite structural to it. This is why I'm now writing a second book on the golden age of capitalism after the Second World War. But, but if you start thinking of austerity as indeed a feature of capitalism, this does two things. One, it avoids the kind of fake understanding that we can imagine the state as being against the market, right? This idea by which our society is either market or the state, actually you see that the state under capitalism actively intervenes to fortify, to protect the market. But two, what this does is ultimately to tell you that if austerity has no interest in the long run maintenance of humans alive, this is true of capitalism also, right? So it exposes why we really should get more imaginative about how to organize our society.

[B]

You know, one of the things that you mentioned was that austerity requires a pretty elaborate economic justification. And in our own work, we don't just run a podcast, we're. We're also political activists and do policy work and intervene. As the country went into the, the pandemic, the central goal of our team at Civic Ventures was to head off austerity in the state of Washington, which is where we operate and what had happened before in other downturns, although not as severe. And so we, you know, we mobilized to try to kill the idea that the best approach for the state would be an austerity budget, which, by the way, we call just trickle down economics in budget form. Right. It's just another way of making rich people richer and everybody else poor. And we did it very successfully, actually. And I think we can take a lot of credit for not letting the state slip into that old, terrible habit, but mostly by demonstrating that it's the opposite of an austerity budget. Is the actually the opposite of what you want to do, if you want to sustain your economy in a downturn, the worst possible thing you can do from an economic perspective. And that carried the day, and I think we're better off as a consequence of it. So can you explain a little bit more about what the usual economic justifications are for austerity and how that's played out in the past and is playing out now?

[D]

Perhaps before I do that, I could comment on what you said. I think the power of focusing on austerity capitalism is that it gives a. It emphasizes how our economic system is primarily based on compulsion. Right? How austerity ultimately is a way to repress people's livelihood in order to compel them to maintain their conditions as wage workers. And I think this is very important because in a way, trick or dime economics, which is a perfect way of saying it, I think, though perhaps doesn't stress enough this element, again, of a fact that there is. It's not that anything is spontaneous here. There's actually public intervention to shift resources away from people in the hands of the few. And this creates a sense by which the market is not at all the domain of freedom. Right. We need to overcome the idea that there is some thing as freedom of choice in our economy. And this, I think, is why stressing the compulsion element, the economic compulsion, which is typical of our system, is so, so important. So what is the economics behind austerity? That is very important because I think it, again, exposes how.

[B]

Well, I mean, can we just, can we just come back to that? I mean, I just want to push on that a little bit. I mean, for as long as humans have had societies, people have been compelled to work from our earliest days as hominids. If you didn't work, you didn't eat, you didn't eat, you didn't, you didn't live. So a compulsion to work is not an invention of capitalism. Now, I'm in violent agreement with you that by impoverishing the majority of citizens by, for example, suppressing the 50 years of wage suppression we just lived with through the neoliberal era in the United States is a way of depowering working people and making it harder for them to advocate for their own interests. It's a way of making it harder for them to participate in the political process. All of that stuff. I'm like, I'm totally in sync with you on. But to be clear, there is no existing arrangement either now or in the history of planet Earth where people weren't pretty compelled to take action to improve their circumstances. So surely we could draw a distinction between exploitation and the necessity of engaging in moving your own circumstances in the circumstances of your family and community forward.

[D]

Yes, definitely. And I think that's the key part, right? Is that indeed what happens is that for how we, how we study the history of humanity, the way that a lot of history has been done is to conceal what is the historical specificity of capitalism, right? And there's a lot of effort in people like Ellen Minskin Wood, for example, that is of course a scholar of Marx who really wants to stress we need to figure out what is specific of our socioeconomic system, because otherwise we end up internalizing the sense of the end of history by which capitalism ultimately has always been and always will be, because somehow it has nothing specific to it is just an evolution of who we are as humans, right? So perhaps it's important to stress that what I meant is of course, any human has to work. That's like actually like the first part of, of Marx and analysis is the idea that economics should be about historical life processes. Because actually what matters for us is our life experience. And as life experience, the first thing is to indeed make sure that you can make a living. But the point is that the type of economic compulsion that is specific to capitalism is an economic compulsion by which we are agents anymore of our work, right? It's very different. The fact that economists use the example of Robinson Cruzway has been widely criticized by Marx as a typical form of bourgeois ideology. Because here the idea is Robinson Crusoe has nothing to do with how actually we live under capitalism. Because Robinson was someone that was indeed eating his own food and using the products of his own labor, right? While in our society, what happens is that we are compelled to go work to get a job. It doesn't matter what job we do, right? The idea is that we need to just get a job because what we need is money in our paycheck in order to actually consume the basic things we need to survive. So this is what happens is that under capitalism we are compelled to go sell our capacity to work, and then we are not in control. And this is the reality for the majority of people in the planet. We are not able to control the activity of our labor nor the output of our labor. And this is indeed the key of economic growth under capitalism because it's the output that we don't control that is actually surplus value, which is what keeps the system going and why capital accumulation happens in the first place. Right. So this for me is very, very important, is that sure, in any society people have to work to exist, of course, but the fact that we in our society have lost agency over the production of our material resources is what matters to say, listen, capitalism is fundamentally a non democratic system. It is compatible with what we could say, you know, electoral democracy. But this doesn't mean that it is compatible with actual democracy in the workplace. Right, and this is exactly the point that in moments in which people start demanding for greater democracy in the workplace, meaning greater rights, meaning greater agency, meaning actually potentially having a say over the output and how the world works, this is moments in which austerity needs to come back with a vengeance and is wielded very powerfully to impede these alternatives to our economic system from emerging. Right.

[B]

Okay. And so can I ask a clarifying question?

[D]

Yes.

[B]

So just to reiterate, I think both Goldie and I would be in agreement with you that one of the principal challenges of modern capitalism is that it certainly lasts 40 or 50 years, is that we have restructured our policy frameworks in ways that have shifted power from working people to the extent that they had any more to capital. And as a consequence a greater and greater share of the value created by the society is captured by a diminishingly small group of people at the very tippy top. Right. This is the story of the last 50 years of neoliberalism and that in order to fix this system we have to find a way to re empower working people so that they can make a bigger and better claim on the value created by the society. And you know, our view is that there's about a two and a half trillion dollar swing at minimum over the last per year, per year from working people to capital. That at a minimum we should try to reverse that policy success from our point of view would be to pre distribute about two and a half trillion dollars a year from the owners of capital to working people in the United States. So a lot of money per family per year. But that is very different from a democratically organized workplace because a democratically organized workplace will fail. There are no examples on planet Earth of democratically organized workplaces that can compete with hierarchical organizations because hierarchical organizations are infinitely more nimble than democratic ones. So are you talking about the former or the latter? And now? Of course, I mean, I just want to say that it's not just the money that counts in relationship between capital and labor, it's how well you're treated at work and the hours you work. And if you know, like all the things. Right. There are just so many ways in which a job that is well compensated could still be awful and exploitive. But anyway, I just, I just. Can you respond to that?

[D]

Yes. So there's, it's, there's lots to be said here. I'm trying to figure out what to prioritize.

[C]

Just remind yourself how conflicted Nick is as somebody who is one of those, those capitalists at the top who is very self conscious about how much misery he's imposing on the rest of us.

[D]

So I think this is the power of historical analysis, is that really it tries to debunk the idea by which anything that is not hierarchical relations of production fails. And I think actually the first part of the book, book, the first part of My Capital order is really about giving voice to these experiments. And of course, though showing how the difficulty is to survive, indeed under the pressure of the elites trying to reimpose what for them is the system that best works to increase the profit rate. So the question is failure according to what criterion? Of, of course is the criteria is greater capital accumulation. And capitalism has done pretty well in that. But the point is that if we consider actually human needs potentially as the benchmarks that economists don't use, then we would start rethinking our concept of failure. But I think what really is interesting here is also to realize that any type of push, even just the more moderate push for greater benefits in the workplace without wanting to challenge the wage relationship itself, Right. Comes as a form of class struggle. Right. So this is what I think is important, is that historical political economy can have us realize that the economy is not something that is again an object of neutral analysis. It is all about social relations, political relation and class. So this is super important. Right. So anything you want to do. Also your proposals that were very important in order to push back against the austerity mechanisms come out of political pressure. Right. And so the point is, how is it that you provide people with greater agency in understanding what are the potentials that are out there? And I think history really helps in this, while at the same time it's also very important to see how economics as a discipline has played the role to completely forestall our political imagination, to give us a sense by which anything that is not capitalism is doomed to failure and to give us a sense that capitalism isn't really even a system thing because it's just the world and there's no other possible and no best possible world or like better than capitalism world. And so this, I think is what I try to expose in my work is that if we look at the origins of the type of textbook economics that we take for granted as students of economics today and the type of economics that is even taught in high school.

[B]

Yeah, right.

[D]

This is type of economics that is ultimately, in its methodological roots, disempowering of our political imagination. Yeah. Because it is all based on the idea that we are all homo economicus, we are all rational economic agents, that the market is meant to actually maximize our choices and our utility. You see, there is a complete subversion of what the market actually is. Because in a boxing tradition, you would say, no, the market is not the space for actual fulfillment of people's needs. It's actually the place where capitalists fight for the realization of profits. So you see how there was a completely different analysis that can come out if you take history seriously. And this is exactly what I try to show, is that the type of economics that we think is neutral and that thus we accept, as you know, okay, it's a bitter pill. We have to increase interest rates. It's the best, it's the only way to fight inflation. We have to cut social expenditures. There is no money. All of this rhetoric that we, yes, hear over and over again and that we accept as given by experts, this we need to rethink and history helps us revealed that actually it is a profoundly classist project to take away power from people.

[B]

Yes. If I could just say on this, Clara, we're in violent agreement. I mean, nothing is more maddening to me than the idea that the way, but by the way, we do not have inflation. We have higher prices as a consequence of a global supply chain shock. Inflation is a different thing than that. So raising interest rates is effectively the opposite of what you should do to address that problem. But put that aside. The idea that the only way that we can help the economy is to throw millions and millions of families out of work in order to crater the economic system to bring prices down is just such an abomination when you could just as easily say, let's take the trillion dollars a year in stock buybacks corporations are doing and redistribute it to people in the form of wages.

[D]

Right.

[B]

Like those are alternatives to addressing the issue of prices.

[C]

So this, I think raises a very simple two part question, Clara. One is, is there any historical evidence that the claims of austerity proponents have ever been delivered that, you know, We've had lots of natural experiments with different countries going different paths. Has austerity ever delivered more than the opposite? And two, I think I know the answer. But if it hasn't, are the economists, the austerity economists, are they on the level? I mean, are they or do they actually believe what they're selling?

[D]

I do think that this is what's very interesting, is not to reduce everything to bad intentions. Right. Actually, what is much more fascinating. Yes. Yet scary, is the point that the people, the experts that tell you that we have to increase interest rate, they truly believe in the power of their models. Right. And in the truth of their models. So also I think this uncovers a whole, a whole aspect of which I tried to teach my students, which is all about what is this self understanding of the economist in his role as expert. Right. And the idea that ultimately the expert has the, the authority to dominate society and to impose sacrifice on others, obviously never on himself, because he's always part

[C]

of the

[D]

fact that he has the power to impose sacrifice. Another, in the name of fixing the economy. This is something that is violent, is classist, and we need to understand it as such. Because I agree with you that the problem here. Just take inflation. One of the very important ways in which economists go about their capacity to kind of dumb us all is to give us a sense by which they're only doing economics and there's nothing political here. Right. And so this is part of what I show is actually that austerity functions well when you're able to depoliticize, quote unquote, the economic sphere. So inflation, for example, is taken as a purely economic phenomenon. But anyone knows, including someone like Keynes, that inflation is typically something that you understand how the political and economic cannot be separable for two reasons. One is that the reason why there are increases in prices is not an automatic, like deterministic fact. It comes out of the political choice of those who actually run production, the large corporations that decide to actively increase prices. Right. Price increases are decisions taken by the large corporations that actually have an impact on global prices. So this is the first thing is that again, it's not. It's something that happens through people and through decisions that come from those who have the power over the economy and over production because they actually lead that. Two, inflation is fundamentally a political problem also because it gets people pissed off. Right? So what is problematic for economists is the fact that one, inflation inflationary moments are usually moments of deeper political and social contestation. People go in the streets, people strike more people get fed up and do not believe that our system is the only and best possible system anymore. Right. There's a breakdown of the dominant ideology, if you like. It is a moment of breakdown. What are the priorities here? The priorities are not too much about explaining the real reason why prices are going up right now, as, as you were pointing out, Nick. Right, like that, that we should understand why is it prices are going up? And there's a lot of research that shows that it's actually the huge profit margins.

[B]

Yes.

[D]

That are driving inflation. Right. So again, how political that is? Because again, it's a decision from the part of large corporations to do that to, to get more profits. But instead of thinking about the actual cause of inflation, economists are all about the solution. And guess what the solution is? A solution that immediately goes to what their priority is, which again, I think is making sure that labor relations don't get messed up by inflationary pressures. Right. We need to make sure that people lose their jobs so that the labor market is less tight, meaning that people lose their bargaining power. So again, I think if we see, I look at what happened in 1920 in Britain and exactly the same thing that is happening now, even if in, in 1920 they were much more successful. Indeed, if you look at the data, as soon as they induced a recession, a recession was a short term cost for a much more structural gain, which is that of securing industrial peace. And this I think is ultimately the same reasoning that is happening now in the hands heads of the experts. And again, it's not because of bad intentions that their models tell them the deep reality of capitalism, which is the system works when people are tamed and accept worse working conditions. This is when the system works.

[B]

Unfortunately, all of this reflects a mindset again, which we call trickle down economics or neoliberalism or whatever it is that I think most economists sort of intuitively accept as real. Is that anything good that happens to rich people or corporations is an unalloyed good. There's no profit margin too high, no bonus too high. But anything good that happens to people at the bottom or middle of the economic distribution in any of those cases, we must affirmatively prove that doing something for those folks will create no harm. Right. It's just this.

[C]

There's always a big trade off, Nick.

[B]

Yeah, yeah, yeah. There's always this crazy upside down view of what's important and how the economy works. And I mean, we're talking about the same thing. This is just the central problem of how economists conceive of how the world works in Cause and effect right now. And it, you know, is. Is what's making everybody so angry and crazy.

[D]

Yes.

[B]

So, Claire, it's been fascinating a couple of final questions. So the first, the benevolent dictator question. If you were in charge of the world, what would you do?

[D]

I would make sure that everyone had at least a home to live in and food on their table and that war would stop, which is clearly something that capitalism cannot deliver in its current form. Neither of those three objectives are happening right now. And so, yes, that's what I would say.

[C]

But if you house feed, clothe everybody and eliminate war, you're only going to hurt the people you're trying to help. That's what I've been told.

[D]

Absolutely. And going back to the point we were making before, I think this is why history is useful, because if you remain trapped in the logic of economists, they might even persuade you. Right. So instead, if you expose what they do concretely in order to maintain their power, for example, siding with Benito Mussolini fascism, and actually supporting torture and political. And beating a political opposition in the name of their economic models, there's where I think this is something that can actually be empowering for people because they feel, okay, then we could have our say and not leave it to the expert. And I think this is really important.

[B]

And one final question is, why do

[D]

you do this work exactly for what I just said? I do this work because I really believe that there's so much more space for democratic participation in how we run our society and that there's so much demand for this, there's eagerness. I was just in Sweden the other day, a country that we think of as social democracy, and they've been tormented by austerity since the 90s. And the when. When you tell people that actually they shouldn't just leave it in the hands of the expert and they should take charge and understand how our economic system works and understand how they could improve it, that actually institutions can change, that our economic system can really change. They, they people really, really feel strong and feel motivated to participate in changing our world. And I'm just giving my small contribution through scholarship that tries to accelerate these social transformations.

[C]

I'm surprised to hear that you're not doing this work because you are compelled to, to earn a wage to pay for your food and housing.

[D]

Well, I'm compelled. I. Well, that's also true, but that part of compulsion, I satisfied by my teaching skill tasks, which I ultimately, I know we, as teachers, we are in a better situation because I actually like my job, but definitely I feel a lot of compulsion from my institution in the sense of I have a lot of duties that go beyond the research.

[C]

Well, thank you very much for joining us today.

[B]

Yeah, Clara, super fun, super interesting. Congratulations on the new book and best of luck to you.

[D]

Thank you so much. Talk soon.

[B]

Well, Goldie, Clara is really smart and like you. Sure. I'm very sympathetic to lots of our arguments. I think some of it may be a bridge too far for me.

[C]

Right. As you know, I'm. I'm a little more sympathetic because, well, not a Marxist. I have a lot more sympathies towards the, this sort of class analysis than you do. I'm also a lot less protective of the capitalist order because it hasn't worked as well for me as it does for you. Yeah, yeah.

[B]

You know, you and I have been spent the last five years together, whatever, is writing a book which seeks to demolish capitalism. So we're in violent, you know, like we're in agreement with Clara that capitalism as it exists has to go. It had its role in human societies, I think, for the last hundred or two hundred years, but it no longer is up to the challenge. The challenge of inequality, the challenge of climate change, the challenge of the coming demographic transition. You know, capitalism is insufficient to deal with the great problems modern societies face and has to go.

[C]

Right. You know, part of her thesis is this idea that capitalism presents itself as inevitable, that this is the end of history, that that market capitalism is the only system and all we can do is figure out how to preserve it. And, you know, that's her thesis, that they use austerity to preserve this order by disempowering workers to the point where they really can't fight back against it.

[B]

Yeah.

[C]

I think, Nick, what's interesting to me is that there is so much overlap in her description of austerity, her definition of austerity and our definition of trickle down economics, which, by the way, when we started this almost ten years ago, nine and a half years ago, and we started working together, we had some pushback from allies because we were using an expansive definition of trickle down.

[B]

Correct? That's right.

[C]

A lot of people thought of trickle down as only on the tax side.

[B]

That's right. Tax cuts for the rich.

[C]

You cut taxes for the rich and the economy will grow and the benefits will trickle down to everybody. And we used this trinity just like she did.

[B]

That's right.

[C]

Where we said it's tax cuts for the rich, it's deregulation of the powerful and it's wage suppression for everybody else. And that aligns very well with her breaking down of that fiscal austerity, which is both cutting back spending and shifting the tax burden from the wealthy to everybody else. That monetary austerity, which is what we're seeing now with the higher interest rates, which are explicitly meant to drive up unemployment. We've talked about that many times that what the Federal Reserve is trying to do is put people out of work so as to drive down wages so they won't have that inflationary pressure on the wage side. And what she says that industrial austerity, which is this direct intervention or often lack of intervention by the state in terms of regulating the workplace. So really, in a way, we've described the same thing, but you and I, we haven't really thought about it in terms of it being explicitly an austerity.

[B]

Yeah. Although austerity to us is just trickle down in budget form. Anyway, really interesting conversation with Clara again. All these efforts are in the right track. I'm not sure if I would go all the way to where she is, but our own work takes us a long way there. Right?

[C]

Right. Again, we recommend you read her book the Capital How Economists Invented Austerity and Paved the Way to Fascism. There is a link in the show notes and of course you can buy it at your local independent bookstore or from that, the Capital Order itself, that big online monopoly.

[E]

Pitchfork Economics is pretty produced by Civic Ventures. If you like the show, make sure to follow, rate and review us. Wherever you get your podcasts, find us on other platforms like Twitter, Facebook, Instagram and threads. Itchforceconomics Nick's on Twitter and Facebook as well. Ickhanhauer for more content from us, you can subscribe to our weekly newsletter, the Pitch over on Substack. And for links to everything we just mentioned, plus transcripts and more, visit our website, Pitchfork economics.com as always from our team at Civic Ventures, thanks for listening. See you next week.