David Warsh: 'The Economists' Hour' and its hangover

Sep 5

SOMERVILLE, Mass.

Books like The Economists’ Hour: False Prophets, Free Markets and the Fracture of Society (Little Brown, 2019), by Binyamin Appelbaum, of The New York Times, don’t come along very often. Tyler Cowen, the peripatetic George Mason University professor, says he read the whole thing in one sitting. It took me three days, but the impulse was the same. I picked it up every chance I got. When I had finished, I read its 90 pages of endnotes one after another, as if it were a second book, only slightly less interesting than the first.

Why? Well, Appelbaum is a careful reporter, a graceful writer, and a first-rate story-teller. He joined The Times’s Washington bureau in 2010 from The Washington Post, and, before that, The Boston Globe, and the Charlotte Observer, to cover monetary policy in the aftermath of the financial crisis. In the book he covers a much broader spectrum of policy developments. He did a good deal of first hand reporting, ingested a huge amount of secondary literature, and did some archival work himself. Mainly, though, I was impressed by his skill as a listener. He possesses a special gift for capsule biography.

Of necessity, the storyteller gets the upper hand. Appelbaum writes:

In the four decades between 1969 and 2008, a period I call ‘‘the Economists’ Hour,” borrowing the phrase from the historian Thomas McCraw, economists played a leading role in curbing taxation and public spending, deregulating large sectors of the economy, and clearing the way for globalization. Economists persuaded President Nixon to end military conscription. Economists persuaded the federal judiciary largely to abandon the enforcement of the antitrust laws. Economists even persuaded the government to assign a dollar value to human life – around $10 million in 2019 – to determine whether regulations were worthwhile.

Such a “biography” of a “trust-in-markets” revolution needs a central character, and Appelbaum chose his well. His subject is Milton Friedman, who concentrated on research in the first half of his career and became a public intellectual in the second half. In Capitalism and Freedom, which appeared in 1962, Friedman advocated most of the nostrums that were adopted in one degree or another in the coming decades: floating exchange rates instead of fixed one, an all-volunteer army instead of one based on conscription, draconian tax reductions, charter schools, industrial deregulation, shareholder hegemony in public corporations, and one measure that didn’t eventuate – a guaranteed annual income for all citizens, replacing the Social Security retirement system.

In fact all this was a counterrevolution, Appelbaum knows it, and says as much at several points in his story. But he was born in 1978. He wasn’t there during the four decades that ended in 1969: the New Deal; the Keynesian revolution; the economists’ triumph as architects of World War II logistics; the Marshall Plan; the “new economics” of the Sixties; and the record-breaking post-war boom of the industrial democracies.

This rise of the “modern mixed economy” after 1933 was viewed at the time as an alternative to the top-down government control that characterized Soviet and Chinese communism. It had plenty of dynamism, but retained enough of the communitarian ethos of wartime (such as fixed exchange rates under the Bretton Woods Agreement) as to seem, by the late 1960s, more than a little confining. Appelbaum knows all this because he has read widely; he even cites Tony Judt, the leading historian of the postwar decades, in an endnote. But, like many others, he gives short shrift to the period before his own.

Instead, he starts with something we all know, the Vietnam War. A brilliant first chapter traces the evolution of a plan for an all-volunteer army from a chance dinner-party conversation between economic professor Martin Anderson and a law partner of Richard Nixon, through its gradual adoption by Nixon 1968 presidential campaign, and its design by University of Rochester economist Walter Oi, to its eventual adoption under the guidance of economist George Shultz, then director of the Office of Management and Budget. A little extra time to end the war had been purchased. The basic inequity of conscription had been solved. A market for soldiering had been established. But, writes Appelbaum, “War, once an abnormal act of national purpose, has become a regular line of work.”

Appelbaum then works his way through chapters on inflation, taxation, antitrust enforcement, deregulation, cost-benefit analysis, exchange-rate regimes, globalization, and banking. any one of which could warrant an entire book. These are successively less satisfying. He is forced to take shortcuts: Robert Mundell wasn’t a baby-faced hero; antitrust enforcement isn’t dead; the story of Venezuela is as interesting as the very different one of Chile. But such are his skills as a storyteller that, by the time he introduces Albert Hirschman, author of Exit, Voice, and Loyalty, in the book’s final pages, Appelbaum’s central point has become indelibly clear: “[T]he defining feature of a market is the freedom to walk away.”

Appelbaum writes, “Friedman chose to see the role of individual initiative rather than the context of public support. He celebrated drivers and took roads for granted.” That’s very apt, as far as it goes. And in the end even he gets a sensitive hearing: “Friedman had as large a hand in the [2008] crisis as any man, but it is a mark of the complexity of his legacy that he also left effective instructions for limiting the damage.”

The problem is that plenty of economists have continued to celebrate roads during the last 40 years – as well as government-sponsored retirement systems, health insurance, unemployment insurance, capital budgets, trade agreements, counter-cyclical spending, environmental protection, and, in general, social and cultural entrepreneurship.

For a more balanced view of the stance of the economics profession towards society, you might read The Vital Few: The Entrepreneur and American Economic Progress (1986), by economist Jonathan Hughes. It is a highly readable history, couched in much the style Appelbaum has written. Hughes, of course, published his account in the halcyon period before the costs of late-stage globalization became apparent. The Economists’ Hour is a useful guide to those costs. Applebaum writes:

In the pursuit of efficiency, policy makers subsumed the interests of Americans as producers to the interests of Americans as consumers, trading well-paid jobs for low-cost electronics. This, in turn, weakened the fabric of society and the viability of local governance. Communities mitigate the consequences of local job losses; one reason mass layoffs are so painful is that the community, too, often is destroyed. The loss exceeds the sum of its parts.

It wasn’t obvious what would happen when Apple chose to manufacture its smartphones in China; or when IBM sold its laptop business to Lenovo. It was, however, clear enough to corporate executives and their government counterparts what would happen if they didn’t: Chinese companies would inevitably enter the product market themselves and catch up, albeit more slowly than otherwise would have been the case. American policy-makers have been caught flat-footed by the alacrity with which Chinese industry has grown toward the frontiers, and Appelbaum makes much of the ability of Asian nations to carefully manage their economies. But it’s much easier to know what to do when you are following a leader than when you are trying to stay ahead.

What comes after the Economists’ Hour? Appelbaum is clearly focused on inequality, and the extent to which money has gained power beyond its proper sphere. He is 41, and this is his first book. (He is now serving on The Times’s editorial board). It is a sensational debut. Here’s hoping The Times gets him back on the beat, preferably writing the Economic Scene column that Leonard Silk made famous in the ‘70s and ‘80s. Meanwhile, read his book, as a down payment on the next 30 years.

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New on the Economic Principals bookshelf:

Transaction Man: The Rise of the Deal and the Decline of the American Dream, by Nicholas Lemann (Farrar, Straus)

Free Enterprise: An American History, by Lawrence Glickman (Yale)

Rethinking the Theory of Money. Credit, and Macroeconomics: A New Statement for the Twenty-First Century, by John Smithin (Lexington Books)

Crying the News: A History of America’s Newsboys, by Vincent DiGirolamo (Oxford)