The ‘truth sandwich’ and the impacts of neoliberalism

On June 15, 2018, the OECD released their report – A Broken Social Elevator? How to Promote Social Mobility – which provided “new evidence on social mobility in the context of increased inequalities of income and opportunities in OECD and selected emerging economies”. If you are still wondering why the mainstream progressive political parties have lost ground in recent years, or why the Italian political landscape has shifted from a struggle between ‘progressive’ and conservative to one between anti-establishment and establishment (the latter including both the traditional progressive and conservative forces which are now virtually indistinguishable) then this evidence will help. It shows categorically that neoliberalism has failed to deliver prosperity for all. While the full employment era unambiguously created a dynamic environment where upward social mobility and declining inequalities in income, wealth, opportunity were the norm, the more recent neoliberal era has deliberately stifled those processes. It is no longer true that ‘all boats rise on a high tide’. The point is that this is a situation that our governments have allowed to arise and which they can alter if they so choose. We should be forcing them to restore the processes that deliver upward mobility. And that is where the “truth sandwich” comes in. Progressive politicians that bang on about ‘taxing the rich to deliver services to the poor’ or who ask ‘where is the money going to come from’ or who claim the ‘bond markets will rebel’ and all the rest of the neoliberal lying drivel should familiarise themselves with the way the sandwich works. It is a very tasty treat if you assemble it properly.

The ‘truth sandwich’

I was reading the OECD Report just after I had read a Washington Post article earlie this week (June 17, 2018) – Instead of Trump’s propaganda, how about a nice ‘truth sandwich’? – which dealt with how the media should be dealing with the Trump phenomena.

George Lakoff was quoted in the Washington Post article and outlined his concept of a “truth sandwich”.

The “truth sandwich” is a strategy I have been trying to use for some time and is consistent with my often-criticised standpoint that proponents of Modern Monetary Theory (MMT) should not compromise with errant statements made by progressive commentators and politicians.

I often get E-mails (and comments on various of my blog posts) that taking a hard line is not a sound strategy because even if statements made by progressives about fiscal matters, for example (such as, that taxpayer funds are the source of government spending) are erroneous we should not call them out because they are progressive in spirit and the MMT community needs to build coalitions.

This came up often when I was recently discussing stupid statements made about trade and foreign exchange market transactions by so-called progressives.

Lakoff’s ‘truth sandwich’ explains, in part, why I adopt the hard-line approach and emphasis purity of concepts rather than compromise for the sake of making everyone feel good about themselves.

George Lakoff tweeted today about the essence of the ‘truth sandwich’:

1. Start with the truth (if you lead with the lie, you privilege it)
2. Note attempt to divert truth (note, rather than amplify, the lie)
3. Return to the truth the lie is designed to hide (don’t allow the distraction/diversion to work)

I think that is a very good way of framing an intervention and commentary and one I am trying to master in my own advocacy and writing.

The Washington Post interview with Lakoff constructs the ‘truth sandwich’ in this way:

First, he says, get as close to the overall, big-picture truth as possible right away. (Thus the gist of the Trump-in-Singapore story: Little of substance was accomplished in the summit with North Korean leader Kim Jong Un, despite the pageantry.) Then report what Trump is claiming about it: achievement of world peace. And then, in the same story or broadcast, fact-check his claims.

That’s the truth sandwich – reality, spin, reality – all in one tasty, democracy-nourishing meal.

Avoid retelling the lies. Avoid putting them in headlines, leads or tweets … Because it is that very amplification that gives them power.

His message is to the media. But it also applies to those who are contesting mainstream thinking which is caught up in destructive Groupthink.

That is what people who hold my views in economics have been up against for some decades.

This is why I am hostile to the ideas of the Europhiles on the Left who cannot admit that the whole shebang has failed but rather hang on to the ‘hope’ that reforms can improve things incrementally until such time as a progressive outcome is achieved.

My approach to the EMU, for example, along the lines of the ‘truth sandwich’:

1. The EMU was flawed from day one, has failed once confronted with real world economic forces, and should be dissolved. It is an anti-democratic, corporatist state that has undermined the prosperity of the majority (“Start with the truth”).

2. The Europhile Left continually claim that dissolution (exit) would be disastrous and that the terminally flawed foundations can be repaired through minor changes. They also claim that there is no democratic deficit (“Note attempt to divert truth”).

3. A house with poor foundations sinks irrespective of the colour you paint the walls (“Return to the truth the lie is designed to hide”).

My approach to Brexit, for example, along the lines of the ‘truth sandwich’:

1. The EU is an anti-democratic, corporatist structure that privileges neoliberal policies that advance the interests of the few at the expense of the many. No progressive state will benefit from membership. Brexit provides progressive forces in Britain with unfettered space to develop truly innovative policies based on a recognition of the fiscal capacity that the British government has as a currency-issuer. Whether they are competent enough to exploit that space remains to be seen. Brexit will not help Britain if the Tories retain power indefinitely and continue their austerity-bias (“Start with the truth”).

2. Brexit will be disastrous – there will be massive income losses, trade will evaporate, planes will stop flying, the Premier League will not be able to recruit players, cancer incidence will rise, and all the rest of it (“Note attempt to divert truth”).

3. Staying in the EU is not conducive to a full democracy because the European Court of Justice can overrule British legislation. A free trade agreement struck between the EU and somewhere else with investor dispute mechanisms in-built could easily privilege corporations over government policy aimed at benefitting the many not the few. As a currency-issuer, the British government can prevent any income losses arising from non-government sector spending shifts. The loss of the unproductive financial sector (which will not happen anyway) is hardly a loss. The Premier League will continue and the planes will continue to fly (“Return to the truth the lie is designed to hide”).

So think about the “truth sandwich” in the context of the OECD Report on reduced social mobility and rising income inequality.

The mainstream will try to blur the causality by bringing in a range of smokescreens and diversions – such as globalisation, robots, not enough work anymore, and all the rest of the ruses that you hear trotted out in relation to these trends.

Even progressives are captured by these ruses – leading the charge on the robots-are-coming-to-take-all-the-jobs-so-we-need-UBI narrative.

They line up alongside the worst employers and CEOs who say the same thing and cannot see that such an association is a problem.

I dealt with that issue in this blog post – Basic income guarantee progressives cosy up with the worst CEOs in the world (April 4, 2018).

The traditional view of social mobility and full employment

During the era of true full employment (Post WW2 to the start of the neoliberal era), there was a consensus among economists, sociologists, etc that an economy running at high pressure (full capacity) delivered massive benefits beyond just the strong income growth.

The late American economist, Arthur Okun encapsulated this view in his upgrading hypothesis (in the 1960s and 1970s) and the related high-pressure economy model, which provided a coherent rationale for Keynesian demand-stimulus policy positions.

Two relevant (easy to read) references are:

1. Okun, A.M. (1973) ‘Upward Mobility in a High-Pressure Economy’, Brookings Papers on Economic Activity, 1: 207-252.

2. Okun, A.M. (1983) Economics for Policymaking, Cambridge, MIT Press.

Okun (1983: 171) believed that:

… unemployment was merely the tip of the iceberg that forms in a cold economy. The difference between unemployment rates of 5 percent and 4 percent extends far beyond the creation of jobs for 1 percent of the labor force. The submerged part of the iceberg includes (a) additional jobs for people who do not actively seek work in a slack labor market but nonetheless take jobs when they become available; (b) a longer workweek reflecting less part-time and more overtime employment; and (c) extra productivity – more output per man-hour – from fuller and more efficient use of labor and capital.

The positive side of this thinking is that disadvantaged groups in the economy were considered to achieve upward mobility as a result of higher economic activity.

The saying that was attached to this line of reasoning was “all boats (large or small) rise on the high tide”.

Okun’s (1973) results are summarised as follows:

• The most cyclically sensitive industries have large employment gaps, and were dominated by prime-age males, offered high-paying jobs, offered other remuneration characteristics (fringes) which encouraged long-term attachments between employers and employees, and displayed above-average output per person hour.
• In demographic terms, when the employment gap is closed in aggregate, prime-age males exit low-paying industries and take jobs in other higher paying sectors and their jobs are taken mainly by young people.
• In the advantaged industries, adult males gain large numbers of jobs but less than would occur if the demographic composition of industry employment remained unchanged following the gap closure. As a consequence, other demographic groups enter these ‘good’ jobs.
• The demographic composition of industry employment is cyclically sensitive. The shift effects are in total estimated (in 1970) to be of the same magnitude as the scale effects (the proportional increases in employment across demographic groups assuming constant shares). This indicates that a large number of labour market changes (the shifts) are generally of the ladder climbing type within demographic groups from low-pay to higher-pay industries.

There was strong evidence across many nations to support the idea that when the economy is maintained at high levels of employment, workers in low paying sectors (or occupations) also receive income boosts because employers seeking to meet their strong labour demand offer employment and training opportunities to the most disadvantaged in the population.

If the economy falters, these groups are the most severely hit in terms of lost income opportunities.

Upgrading also focuses on the mapping of different demographic groups into good and bad jobs. The groups who experience the greatest relative employment gains when economic activity is high are those who are stuck in the secondary labour market, typically, teenagers and women.

While these groups are proportionately favoured by the employment growth, the industries with the largest relative employment growth are typically high-wage and high-productivity and employ mostly prime-age males.

Expansion is therefore equated with ladder climbing whereby males in low-pay jobs (as a result of downgrading in the recession) climb into better jobs and make space for disadvantaged workers to resume employment in their usual sectors.

In addition, favourable share effects in predominantly male industries provide better jobs for teenagers and women.

So there are many benefits from growth which spread out across rising participation, rising wages, rising hours of work, rising employment and falling unemployment.

The deregulation and austerity-era under neoliberalism has reversed or stifled many of these processes. The evidence is growing that upward income and social mobility is now failing to accompany economic growth.

Wages are flat while profits boom.

The quality of employment is in decline as capitalists use legislative changes to industrial relations and wage setting to de-skill and casualise jobs and attack other protections.

Governments have become co-opted and captured by capital and used their legislative and regulative capacities to tilt the balance firmly in favour of capital.

Whereas during the upward mobility era, social democratic governments acted as a mediator in the capital-labour conflict, in this neoliberal era, governments have become agents of capital and have been punishing labour.

That is the TRUTH.

The OECD Report on Social Mobility

The OECD Report bears on this issue.

Here is what the OECD Report tells us:

1. “In a number of countries, there is a growing perception that social mobility across generations has declined and that, increasingly, parents’ fortunes and advantages play a major factor in people’s lives.”

2. “There is also growing pessimism about the chances of improving one’s own financial situation over the life course and this trend appeared well before the global financial crisis.”

3. “In the context of increased inequalities of income and opportunities, lack of upward mobility at the bottom of the income distribution means that many potential talents are missed out or remain under-developed.”

4. “At the opposite end, a lack of mobility at the top may translate into persistent rents for a few at the expense of the many, due to unequal access to educational, economic or financial opportunities.”

5. “high risks of downward mobility and loss of social status tend to reduce life satisfaction and undermine individual self-esteem, social cohesion and people’s feeling that their voice counts, particularly among middle- and lower-income people.”

6. “This reduces trust in the socio- political system with potential negative consequences on democratic participation. This also strengthens political extremisms or populism.”

Come in Italy, Germany, Trump and a host of other elections that have gone against the ‘establishment’ view.

We know from the OECD research that:

1. “Children with a disadvantaged background struggle a lot to move up the ladder” – lack of income opportunities, stultified educational attainments, lower-paid occupations.

2. “Upward mobility for people with lower educated parents tended to increase for individuals born between 1955 and 1975, but then stagnated for those born after 1975” – truth – neoliberalism undermines prosperity by stifling upward mobility. It is wiping out the middle class.

3. “Those at the top of the distribution are effective in ensuring that advantages are passed on to their children” – they always have been doing that but in the neoliberal era there is more space for them because the lower end is effectively prevented from upward mobility.

4. “There is no evidence that greater inequality would bring higher income mobility to people” – forget ‘trickle down’ etc.

The OECD recommend that government policy:

1. Focus on improving educational opportunities for low income groups – which means strong investment in public education and pre-school interventions. Exactly the opposite to the strategy following by governments that have become obsessed with austerity and claim they ‘cannot afford it’.

2. “public investment in health has the potential to support social mobility over the life course and across generations” – strong public health systems. Breaking the nexus between health care and private profit generation. Eliminating the disincentives that private insurance schemes introduce for poor people to improve their health.

Exactly the opposite to the strategy following by governments that have become obsessed with austerity and claim they ‘cannot afford it’.

3. “family policies, in particular policies that promote a good work and family balance, early education and care policies and services” – which includes making sure that every adult can access paid work and every young person can transit smoothly from education into paid work.

Again, the austerity obsession has left millions of people around the world unemployed and young adults without any pathways.

4. “policies affecting wealth accumulation and savings behaviour are an important tool for enhancing social mobility” – that is, make sure that the wealth generated in the economy is more evenly shared and that people can save so as to risk manage.

Squeezing the capacity of private households to save via an obsession with fiscal surpluses is the anathema.

But not – the ‘truth sandwich’ – never say that we need to tax the rich to provide better services or opportunities for the poor.

We want to make the tax system more progressive and undermine the obscene wealth disparities because we want to improve social mobility, individual risk management and a more even spread of power within society.

5. “fostering social mobility also requires policies to reduce regional divides and spatial segregation in cities” – making sure that the economic settlement (where jobs are) remains consistent with the social settlement (where people live).

The idea that ‘market forces’ will bring thse two settlements into line (via migration) has never worked. People live in social communities and there are many forces preventing a free flow of people to places where there are new jobs (as industry shifts).

Government as an investor and employer can significantly influence where jobs are created both directly by creating them themselves and indirectly via strategic investment and infrastructure provision that crowds in non-government activity.

Governments need to revive regional planning and abandon their blind faith in ‘market forces’.

6. “income-support schemes for the unemployed, set at an adequate level associated with active labour market policies and re-training strategies” – far better for the government to eliminate involuntary unemployment by introducing a Job Guarantee and offering skilled development within that framework.

This would be a dynamically efficient strategy because it would militate against private sector employers who are happy to provide low pay with shoddy jobs that have low productivity.

Such employers would not be able to compete against the Job Guarantee and if they wanted to stay in business would have to build productive capital, restructure their jobs to make them more productive so they could pay higher wages and attract labour.

The ‘training merry-go-round’ in the context of on-going mass unemployment is totally ineffective in encouraging improved social mobility. It just shuffles the jobless queue.

7. “tying social protection entitlements to the individual, instead of the job” – sure and ensure every person who wants to earn an income can access a job, which requires a strong public sector involvement as an employer and a buffer stock of public jobs (the Job Guarantee).

Truth Sandwich and the Eurozone

To finish, I constructed this graph from the database underpinning the OECD Report. It shows the change in poverty rates between 2007 and the most recent year (usually 2016) for the OECD nations.

The green columns are for the Eurozone nations. 13 of the 19 EMU nations have seen increases in poverty rates since 2007 and dominate the overall nations that are enduring increased poverty.

A monetary system that delivers a dominating increase in poverty over an extended period is a failure. There is never an excuse for increased poverty on a national scale.

Governments that use their fiscal capacities appropriately can always prevent that from occurring.

Conclusion

As I noted at the outset, the trends that the OECD have highlighted are the facts.

The truth underlying the trends are fairly obvious.

The capacity of the government to alter those trends and restore processes that allow upward mobility, allow for more equal sharing of the productive returns of the economy, and largely eliminate poverty are also obvious and real.

Governments have allowed inequality to increase. They have stifled upward social mobility and undermined productivity growth.

There was nothing inevitable about it.

All these trends can be steered if the government chooses to introduce policies that benefit the many rather than the few.

The neoliberal era has seen governments choose the few over the many.

That has been aided by progressive politicians spouting macroeconomic nonsense like ‘taxing the rich to deliver services to the poor’ or ‘where is the money going to come from’.

It is about time these politicians showed leadership and challenged the lies. They need to order the “truth sandwich” every day.

Our construal processes indicate we will accept a different narrative if it is framed properly. At present, whenever some progressive politician claims they will increase the taxes on the rich to fund services for the poor all we hear is that ‘government will run out of money and cannot afford things’.

Start assembling the sandwich base – truth first.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.