For most of American history, economists have not been looked upon with favor. William McChesney Martin, the U.S. Chairman of the Federal Reserve in the early 1950s, once famously commented, “We have 50 econometricians working for us at the Fed. They are all located in the basement of this building, and there is a reason why the are there.” Although they asked good questions, “they don’t know their own limitations, and they have a far greater sense of confidence in their analysis than I have found to be warranted.” He was hardly alone: Presidents from Franklin Delano Roosevelt to Dwight Eisenhower have viewed economists as impractical at best.
All of that was to change soon enough. In “The Economists’ Hour,” Binyamin Appelbaum explains how economists rose to power and influence during the late 1960s and have, since that time, reshaped the modern world, curbing government regulation, slashing tax rates, unleashing corporate power and clearing the way for unrestrained globalization, with far-reaching political and environmental consequences. Few are better suited to tell the story than Appelbaum, an award-winning New York Times reporter who covers economics and business.
Much of the shift is attributable to a small group of economists from the University of Chicago, including Milton Friedman, George Stigler, Gary Becker and Robert Mundell. All fiercely advocated for a belief in the efficacy of free markets and a marked hostility toward any form of government regulation. Arthur Laffer famously drew a curve on a cocktail napkin, purporting to show how economic growth flowing from tax cuts would offset the lost tax revenue, enshrining tax cuts as a cornerstone of Republican economic policy. That the promised economic growth never actually materialized does not seem to have dimmed the appetite for tax cuts in the years since Laffer’s napkin-based theories were first embraced.
All of them pushed to restrain governmental regulation, advocated for markets to produce the most “efficient” results and to deliver prosperity. But floating currency exchange rates, cutting taxes and encouraging the unrestrained flow of trade across borders have had consequences far beyond short-term economic effect. The evisceration of the American industrial base, for example, is directly attributable to unrestrained market forces, as multinational corporations moved production facilities (and good jobs) overseas, decimating the very communities that had supported them for decades.
As Appelbaum notes, this wholly unrestrained form of globalism may have produced inexpensive goods that benefit Americans as consumers, but it wreaked savage consequences on those same citizens, who watched in dismay as entire industries disappeared, good jobs evaporated into thin air and a rapidly unfolding environmental catastrophe ensued.
Inequality, too, has dramatically risen. Compare the economies of the U.S. and France. While the growth of the American economy easily outstripped the growth of the French economy overall in the 20th century, the picture is different if you exclude just the top 1% of households in both countries: for the rest of the 99% of households, income growth in France was much faster than in the United States. As Appelbaum notes, “almost everyone in France prospered more than almost everyone in the United States.”
Appelbaum’s writing brings refreshing clarity to monetary policy, floating currency exchange rates and modern international trade — complicated topics all. But it’s precisely that complexity that makes politicians, and the public more generally, susceptible to the confident (but often ill-considered) prescriptions of the modern-policy-making Chicago school economists. This book will do little to convince the economists, of course, but provides a refreshing tonic for the rest of us.
And the stakes simply could not be higher. The policy prescriptions promoted by these economists has fed a political backlash threatening the very foundation of liberal democracies across the globe, not least in the United States. Appelbaum concludes “the market economy remains one of humankind’s most awesome inventions, a powerful machine for the creation of wealth. But the measure of a society is the quality of life at the bottom of the pyramid, not the top.” By that measure, unrestrained markets have, rather dramatically, failed us all.
“The Economists’ Hour: False Prophets, Free Markets and the Fracture of Society” by Binyamin Appelbaum, Little, Brown and Company, 336 pp., $30