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The Economists' Hour: False Prophets, Free Markets, and the Fracture of Society
The Economists' Hour is the biography of a revolution: The story of how economists who believed in the power and the glory of free markets transformed the business of government, the conduct of business and, as a result, the patterns of everyday life. In the four decades between 1969 and 2008, these economists played a leading role in reshaping taxation and public spending and clearing the way for globalization. They reshaped the government's approach to regulation, assigning a value to human life to determine which rules are worthwhile. Economists even convinced President Nixon to end military conscription.
The United States was the epicenter of the intellectual ferment, but the embrace of markets was a global phenomenon, seizing the imagination of politicians in countries including the United Kingdom, Chile and New Zealand.
This book is also a reckoning. The revolution failed to deliver on its central promise of increased prosperity. In the United States, growth has slowed in every successive decade since the 1960s. And the cost of the failure was steep. Policymakers traded well-paid jobs for low-cost electronics; the loss of work weakened the fabric of society and of democracy. Soaring inequality extends far beyond incomes: Life expectancy for less affluent Americans has declined in recent years. And the focus on efficiency has come at the expense of the future: Lower taxes instead of education and infrastructure; limited environmental regulation as oceans rise and California burns.
The United States was the epicenter of the intellectual ferment, but the embrace of markets was a global phenomenon, seizing the imagination of politicians in countries including the United Kingdom, Chile and New Zealand.
This book is also a reckoning. The revolution failed to deliver on its central promise of increased prosperity. In the United States, growth has slowed in every successive decade since the 1960s. And the cost of the failure was steep. Policymakers traded well-paid jobs for low-cost electronics; the loss of work weakened the fabric of society and of democracy. Soaring inequality extends far beyond incomes: Life expectancy for less affluent Americans has declined in recent years. And the focus on efficiency has come at the expense of the future: Lower taxes instead of education and infrastructure; limited environmental regulation as oceans rise and California burns.
448 pages, Hardcover
First published September 3, 2019
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August 16, 2022
I slept through or skipped 80% of my AP Economics classes in high school. I also did the bare minimum in my undergrad Econ class, yawning and skimming Gilpin's "The Challenge of Global Capitalism" and regurgitating only what was necessary to pass exams. At 22, I somehow swindled my way into getting a cool boutique derivatives trading firm in Chicago to fly me out for an interview. I swept through the mental math and social interview portions of the gauntlet but definitely got my ass eliminated when I couldn't for the life of me reason through for the 5th round interviewers how interest rates affected inflation. I hadn't anticipated needing to retain that information because I had no reason to apply it or ever think about it after I'd spat it out for exams years before. Ugh. My teachers made the study of economics gruelingly boring and I feel betrayed because I didn't just miss out on a random job because of it; I also missed out on a really cool framework for thinking about politics and the world at large.
Because of my fraught relationship with economics in academia, I was skeptical of whether I'd like this book, an advance uncorrected proof of which I found under a stack of tacky looking SciFi in a bookstore's free book pile. This book wound up transforming my outlook on how power, influence, and policy work.
This was totally engrossing, and I was surprised to find myself actually desperately wanting to form a more natural understanding of concepts that had previously felt limited to abstractions and charts. I frequently needed to pause and slowly re-read things to make sure I actually understood what was happening; this required a significant amount of laborious mapping in my brain, drawing little imaginary arrows of causes and effects so I could wire myself to understand the human motivations behind economic theory. Point is, I think it's a miracle that this book was written so captivatingly that it made me want to do some real work to resuscitate my sad grasp of economics.
For example, here are some of the many questions I frantically texted my economist friend so I could talk through my weak understanding of these concepts. Before I picked up this book I would have never in a million years imagined wanting to dedicate more than two seconds of brain-strain to attempting to figure this stuff out:
- Why don't we like it when other countries devalue their currency?
- Why do countries buy and hoard each other's currency?
- Why, during Bretton Woods, was another country buying and sitting on USD considered the same thing as giving a loan to the US?
- Could you really just dig more gold out of the ground to manipulate the value of your currency?
- When we were using fixed exchange rates, why was it a problem when the value of the dollar went up and a foreign company had to pay its bills in USD? Couldn't they just exchange their currency as agreed and be fine? Ok clearly I just struggle with monetary policy in general
- Who am I, and why have I suddenly become obsessed with econ?
This book was also filled to the brim with fascinating stories and analyses of why the world operates the way it does. Some of the things I felt shocked or had my sense of normalcy challenged by:
- How recently American society started making life or death policy decisions based on how much they would cost
- How drastically antitrust enforcement has slipped in the last century
- How people were warning us like 80 YEARS AGO that unfettered corporate concentration and its ability to negatively affect societal choice and welfare would eventually fuel cries for more government until our democracy becomes unrecognizable (yet here we are)
- All sorts of minutiae and history behind fiscal & monetary policy decisions, and various outcomes of intervention vs nonintervention in their respective historical contexts
- How "efficiency" became standard for perfection even though it comes with certain cruelties, though humans in developed countries especially have the option to ~not be cruel~
- How harebrained fringe ideas can move into the mainstream just by a bit of long-game jockeying in politics and academia
- I know how much America meddles in other countries' politics but I still feel shocked every time I am reminded of how much America actually meddles
- Chilean politics, man
Anyway, anyone who cares about how policy and human well-being dance together should read this. Especially recommend for anyone who also slept through horrible Econ classes, for this will rock your world.
Because of my fraught relationship with economics in academia, I was skeptical of whether I'd like this book, an advance uncorrected proof of which I found under a stack of tacky looking SciFi in a bookstore's free book pile. This book wound up transforming my outlook on how power, influence, and policy work.
This was totally engrossing, and I was surprised to find myself actually desperately wanting to form a more natural understanding of concepts that had previously felt limited to abstractions and charts. I frequently needed to pause and slowly re-read things to make sure I actually understood what was happening; this required a significant amount of laborious mapping in my brain, drawing little imaginary arrows of causes and effects so I could wire myself to understand the human motivations behind economic theory. Point is, I think it's a miracle that this book was written so captivatingly that it made me want to do some real work to resuscitate my sad grasp of economics.
For example, here are some of the many questions I frantically texted my economist friend so I could talk through my weak understanding of these concepts. Before I picked up this book I would have never in a million years imagined wanting to dedicate more than two seconds of brain-strain to attempting to figure this stuff out:
- Why don't we like it when other countries devalue their currency?
- Why do countries buy and hoard each other's currency?
- Why, during Bretton Woods, was another country buying and sitting on USD considered the same thing as giving a loan to the US?
- Could you really just dig more gold out of the ground to manipulate the value of your currency?
- When we were using fixed exchange rates, why was it a problem when the value of the dollar went up and a foreign company had to pay its bills in USD? Couldn't they just exchange their currency as agreed and be fine? Ok clearly I just struggle with monetary policy in general
- Who am I, and why have I suddenly become obsessed with econ?
This book was also filled to the brim with fascinating stories and analyses of why the world operates the way it does. Some of the things I felt shocked or had my sense of normalcy challenged by:
- How recently American society started making life or death policy decisions based on how much they would cost
- How drastically antitrust enforcement has slipped in the last century
- How people were warning us like 80 YEARS AGO that unfettered corporate concentration and its ability to negatively affect societal choice and welfare would eventually fuel cries for more government until our democracy becomes unrecognizable (yet here we are)
- All sorts of minutiae and history behind fiscal & monetary policy decisions, and various outcomes of intervention vs nonintervention in their respective historical contexts
- How "efficiency" became standard for perfection even though it comes with certain cruelties, though humans in developed countries especially have the option to ~not be cruel~
- How harebrained fringe ideas can move into the mainstream just by a bit of long-game jockeying in politics and academia
- I know how much America meddles in other countries' politics but I still feel shocked every time I am reminded of how much America actually meddles
- Chilean politics, man
Anyway, anyone who cares about how policy and human well-being dance together should read this. Especially recommend for anyone who also slept through horrible Econ classes, for this will rock your world.
January 2, 2022
4.5 "insightful, vigorous, enlightening" stars !!!
2021 Honorable Mention Read
Thank you to Netgalley, the author and Little, Brown and Company for an e-copy in exchange for my honest review. This book was published September 2019.
An even warmer thank you to my sweet partner who spent hours explaining the basics of economics to me over and over and over again so that I could understand more clearly what lay within this book.
I do not have the kind of mind or intellect to give this book a fair shake. I do not have any background in economical theory and I understood perhaps only half of this book and even that is iffy.
I had to keep asking my partner the same questions over and over again and at best the concepts only partially set in.
Despite this, however, I learned an awful lot about American economic policy and history, the rise of Economics as a force to be reckoned with, the use of Economics to predominately assist the wealthy and to a lesser degree the upper middle classes. How Economics appears to be more of a pseudo science masquerading as truth and can be used to manipulate hither dither. That economics purports to helping society but in fact assists the wealthy in getting not just a huge piece of the pie but all of it...leaving a piece of fruit for the dwindling middle classes and crumbs for the working class which gobble it up before the poor of other countries might get a morsel.
I learned about economic crashes, economic theories, how Greenspan was good friends with Ayn Rand, how economic crimes go mostly unpunished, how economies developed or imploded in Chile,
China, Iceland, Taiwan. How American government tamper all over the world for their own advantage. I learned and learned and learned some more...and understood just a little but enough to confirm my intuitions that as a species we are pretty awful and selfish...that is universal and the bigger your wallet the more likely you are to be despicable !
Not an easy read, but an enlightening one. Thanks so much Mr. Appelbaum !
2021 Honorable Mention Read
Thank you to Netgalley, the author and Little, Brown and Company for an e-copy in exchange for my honest review. This book was published September 2019.
An even warmer thank you to my sweet partner who spent hours explaining the basics of economics to me over and over and over again so that I could understand more clearly what lay within this book.
I do not have the kind of mind or intellect to give this book a fair shake. I do not have any background in economical theory and I understood perhaps only half of this book and even that is iffy.
I had to keep asking my partner the same questions over and over again and at best the concepts only partially set in.
Despite this, however, I learned an awful lot about American economic policy and history, the rise of Economics as a force to be reckoned with, the use of Economics to predominately assist the wealthy and to a lesser degree the upper middle classes. How Economics appears to be more of a pseudo science masquerading as truth and can be used to manipulate hither dither. That economics purports to helping society but in fact assists the wealthy in getting not just a huge piece of the pie but all of it...leaving a piece of fruit for the dwindling middle classes and crumbs for the working class which gobble it up before the poor of other countries might get a morsel.
I learned about economic crashes, economic theories, how Greenspan was good friends with Ayn Rand, how economic crimes go mostly unpunished, how economies developed or imploded in Chile,
China, Iceland, Taiwan. How American government tamper all over the world for their own advantage. I learned and learned and learned some more...and understood just a little but enough to confirm my intuitions that as a species we are pretty awful and selfish...that is universal and the bigger your wallet the more likely you are to be despicable !
Not an easy read, but an enlightening one. Thanks so much Mr. Appelbaum !
October 23, 2019
This isn’t your standard book on economics – this reads like a novel and you don’t particularly need to know all that much about economics to enjoy it. The battles between economists are personified here, you come away knowing more about the economists than I've learnt from reading dozens of other books, and what they are fighting over is presented clearly without being dumbed down to the point of parody. This really is a good read.
One of the things I particularly liked about this book was that virtually all of the chapters take something serious – the rise and rise of economics, say, or the disagreements between Keynes and Friedman, and it provides not only what their opposing ideas were, but also a history of the problems that beset one side and how those problems were addressed by the other side - often in what appears to be a complete victory. This always then produces hubris on the side of the victor – only for Nemesis gets called in and for the victor to be vanquished. It is remarkable how often this plays out.
A book I read recently by Blanchflower called Not Working makes a similar point to this one. Economists often see their subject as being proof of some deeper truths about the world; the virtues of free markets is a case in point, or how one can trade off how much or how little inflation and unemployment society will have. But while these theories seem to work for a while, eventually something goes terribly wrong, like the oil crisis of the early 1970s or the GFC of 2008 and these pet theories will look anything but set in stone. Blanchflower says that economics would do well to remember that it is an experimental science. This book says much the same.
I particularly liked the last chapter on Iceland. There is a saying in Australia that is is best not to believe your own bullshit – that should become the motto of the economics profession. This book makes it clear the failures of economists can have serious consequences for society (beyond the slowing of the growth of GDP) Those consequences are also a theme here. This is something of an urgent read, I think, as well as a good one.
One of the things I particularly liked about this book was that virtually all of the chapters take something serious – the rise and rise of economics, say, or the disagreements between Keynes and Friedman, and it provides not only what their opposing ideas were, but also a history of the problems that beset one side and how those problems were addressed by the other side - often in what appears to be a complete victory. This always then produces hubris on the side of the victor – only for Nemesis gets called in and for the victor to be vanquished. It is remarkable how often this plays out.
A book I read recently by Blanchflower called Not Working makes a similar point to this one. Economists often see their subject as being proof of some deeper truths about the world; the virtues of free markets is a case in point, or how one can trade off how much or how little inflation and unemployment society will have. But while these theories seem to work for a while, eventually something goes terribly wrong, like the oil crisis of the early 1970s or the GFC of 2008 and these pet theories will look anything but set in stone. Blanchflower says that economics would do well to remember that it is an experimental science. This book says much the same.
I particularly liked the last chapter on Iceland. There is a saying in Australia that is is best not to believe your own bullshit – that should become the motto of the economics profession. This book makes it clear the failures of economists can have serious consequences for society (beyond the slowing of the growth of GDP) Those consequences are also a theme here. This is something of an urgent read, I think, as well as a good one.
September 12, 2019
Binyamin Appelbaum’s new book opens with a tone-setting quote from John Kenneth Gailbraith: “what is called sound economics is very often what mirrors the needs of the respectably affluent,” and from there moves to tracing the recent history of some of the most pernicious and influential economic ideas that have created the world we now inhabit, a world where a turn towards unfettered free markets has not delivered promised prosperity but instead resulted in slowing growth for each decade that followed, as he notes, from 3.13 percent a year in the 60s to .94 percent per year in the 2000s, adjusted for population and inflation.
Though Appelbaum takes pains to note that “economists are a diverse group. Any reasonable roster includes both Milton Friedman and Karl Marx, which is to say that membership cannot be defined in terms of support for any particular set of policies…. (and) some economists vigorously opposed each of the changes described in this book,” you will not find that diversity of perspectives represented here. Appelbaum instead focuses on those whose “narrow portion of the ideological spectrum” came to define some of our most impactful, and many cases, noxious policies.
Binyamin Appelbaum made his career reporting on the economic meltdown of the late aughties for the Charlotte Observer (the hometown paper on the front lines of Bank of America, Wachovia, Countrywide Financial, and the Beazers Homes scandal), and his long-time reporting on the economy moved from there to the Boston Globe and in this decade, to the New York Times, where he covers economic policy in Washington. His clear-eyed reporting on how policies make impact is long established, and his study here shows how ideological obsessions can become mainstream policies. Why did the fed come to see its job only as maintaining inflation targets of 2-3% a year? How was this a woefully inadequate objective in the face of the financial crisis and its aftermath? Appelbaum traces this, and other ideas, from inception to conclusion.
The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society is a standard-ish work of economic history, but a sweeping one, covering some 70 years of the big players from Friedman to Volker to Greenspan, their ideas, and the outcomes of the rise to power of the wonks with a deep dive into archives for juicy quotes and tidbits. It is important work for the historical record, bridging the gap between Robert Heilbroner’s The Worldly Philosophers and now.
Though Appelbaum takes pains to note that “economists are a diverse group. Any reasonable roster includes both Milton Friedman and Karl Marx, which is to say that membership cannot be defined in terms of support for any particular set of policies…. (and) some economists vigorously opposed each of the changes described in this book,” you will not find that diversity of perspectives represented here. Appelbaum instead focuses on those whose “narrow portion of the ideological spectrum” came to define some of our most impactful, and many cases, noxious policies.
Binyamin Appelbaum made his career reporting on the economic meltdown of the late aughties for the Charlotte Observer (the hometown paper on the front lines of Bank of America, Wachovia, Countrywide Financial, and the Beazers Homes scandal), and his long-time reporting on the economy moved from there to the Boston Globe and in this decade, to the New York Times, where he covers economic policy in Washington. His clear-eyed reporting on how policies make impact is long established, and his study here shows how ideological obsessions can become mainstream policies. Why did the fed come to see its job only as maintaining inflation targets of 2-3% a year? How was this a woefully inadequate objective in the face of the financial crisis and its aftermath? Appelbaum traces this, and other ideas, from inception to conclusion.
The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society is a standard-ish work of economic history, but a sweeping one, covering some 70 years of the big players from Friedman to Volker to Greenspan, their ideas, and the outcomes of the rise to power of the wonks with a deep dive into archives for juicy quotes and tidbits. It is important work for the historical record, bridging the gap between Robert Heilbroner’s The Worldly Philosophers and now.
September 19, 2019
This was an excellent history of economics--warts and all. It shows how economics and especially certain "confident" economists like Friedman came to create policy. The draft story was fascinating and I think the book is particularly strong when it talks about that era (late 60s and 70s) and the turning tide against the Great Society. The book is missing some important stories--there's not much about greenspan or the law and econ movement heros like Posner or the behavioral econ people like Sunstein and how they completely changed regulatory governance. Still, a very important read.
September 5, 2019
Let's admit up front that this book is full of interesting and little-known anecdotes about economists ranging from Milton Friedman to the Austrian school. It's far from a boring read. The reason The Economist's Hour merits only a so-so ranking is because both the author and the marketing team imply something much greater, sort of a Thomas Pikkety look at the rise of monetarism and market-based economics. In this goal, the author only takes the reader halfway there, if that.
Appelbaum begins the book with a broad-brush statement suggesting that the rising stature of economists at the end of the 20th century was in itself responsible for David Stockman, the Laffer Curve, and zero-sum economics. But using "economists" in such a broad fashion is like saying scientists were an overall problem at the end of the last century because they gave us nuclear physics, environmental science, and cosmology. The argument just doesn't make sense, and resembles in some way a populist "anti-expert" diatribe. Appelbaum says he isn't up to such blanket analysis, but the first few chapters of the book don't make enough of a case distinguishing Keynesianism from Reaganomics. It's not the discipline of economics that's inherently bad, it's the economic theory.
Later on, Appelbaum moves slowly to an argument that the move to market worship (as prevalent under Clinton as under Reagan) over a disciplined neo-Keynesianism doomed the planet to the crash of 2007, as well as to all the problems that arose from hyper-globalism. One could surmise that populism arose worldwide in response to the speed of hyper-globalism. Appelbaum is on far more firmer ground here, but the problem is, he does not lay out his theories clearly and explain them sequentially. Instead, the book hops around between budget debates and financial crises, without a clear sense of cause and effect.
The conclusion of the book gives a tight and concise view of where we find ourselves in the 21st century. Appelbaum decries the anti-intellectual populism of Trump and others as destroying any good globalism might have through use of tariffs and trade wars, but he also chides Obama for only having a mild interest in Keynesian stimulus, and for hiring wolves in sheep's clothing, such as Larry Summers and Robert Rubin. He also points the finger very accurately at Obama's attorney general Eric Holder, who let far too many banking CEOs avoid prosecution because it would be "bad for the economy." As attorney general, Holder wasn't supposed to care about the economy - his job was to prosecute wrongdoing.
The problem with this great conclusion is that it comes at the end of a book that meanders as often as it clarifies. A book that made Appelbaum's points in a straightforward historical way could be a minor blockbuster. Instead, what we are left with here are parables of famous economists written in disjointed storybook fashion.
Appelbaum begins the book with a broad-brush statement suggesting that the rising stature of economists at the end of the 20th century was in itself responsible for David Stockman, the Laffer Curve, and zero-sum economics. But using "economists" in such a broad fashion is like saying scientists were an overall problem at the end of the last century because they gave us nuclear physics, environmental science, and cosmology. The argument just doesn't make sense, and resembles in some way a populist "anti-expert" diatribe. Appelbaum says he isn't up to such blanket analysis, but the first few chapters of the book don't make enough of a case distinguishing Keynesianism from Reaganomics. It's not the discipline of economics that's inherently bad, it's the economic theory.
Later on, Appelbaum moves slowly to an argument that the move to market worship (as prevalent under Clinton as under Reagan) over a disciplined neo-Keynesianism doomed the planet to the crash of 2007, as well as to all the problems that arose from hyper-globalism. One could surmise that populism arose worldwide in response to the speed of hyper-globalism. Appelbaum is on far more firmer ground here, but the problem is, he does not lay out his theories clearly and explain them sequentially. Instead, the book hops around between budget debates and financial crises, without a clear sense of cause and effect.
The conclusion of the book gives a tight and concise view of where we find ourselves in the 21st century. Appelbaum decries the anti-intellectual populism of Trump and others as destroying any good globalism might have through use of tariffs and trade wars, but he also chides Obama for only having a mild interest in Keynesian stimulus, and for hiring wolves in sheep's clothing, such as Larry Summers and Robert Rubin. He also points the finger very accurately at Obama's attorney general Eric Holder, who let far too many banking CEOs avoid prosecution because it would be "bad for the economy." As attorney general, Holder wasn't supposed to care about the economy - his job was to prosecute wrongdoing.
The problem with this great conclusion is that it comes at the end of a book that meanders as often as it clarifies. A book that made Appelbaum's points in a straightforward historical way could be a minor blockbuster. Instead, what we are left with here are parables of famous economists written in disjointed storybook fashion.
October 19, 2019
The Economists' Hour is a focussed book. It spends almost its entire length discussing how various practicing high profile economists' ideas created the present "free market" world. The author strongly believes, without much discussion in the book, that the current US society could not be worse. And all the blame is heaped on the system devised by the free-market academicians led by Milton Friedman.
It is unclear what precisely the author wants, but the short descriptions at the end seem to suggest that he wants a world with regulated markets. There is no enunciation of details. Regulations could come in an endless number of forms. How they work, how long they work, what they result in etc. depend on even more number of other parameters. The book proves how easy it is for someone in an ivory tower to demand destruction of whatever is in existence without any idea of what they want in replacement. A vast majority readily joins hands in asking to bring down an existing system, and this seems to be the wont of our era. Yet, it is proving nigh impossible to brook any agreement on the most straightforward facets of the next systems. Cue Brexit.
Let's talk about the broader issues in economic management before returning to the book. The tragedy of real-life policymaking is that it can be based on bad economic theories and the worse ones. The worst is when there are no economic theories. Only a novice would believe in perfect universal methods that are appropriately applicable across geographies, for the solutions of all issues, and at all times. The fate of every planner, politician, or economist is that their best ideas are also doomed to look lousy In the eyes of the nitpicky out of context or even within the context from a different viewpoint.
Let's take a step back and think more about what gives rise to new economic theories. Simply put, they are frameworks borne out of the desires to solve problems of societies as they exist then. These human brain constructs are idealistic, far more uncomplicated compared to the communities on which they are applied. They cannot be anything else as a set of brains, however brilliant, cannot simultaneously fathom all the real-life variables and their movements over time. Even the best of them tend to work for the briefest of times, as desired. And, they have undesirable consequences aplenty. Every implementation and its associated problems give rise to the need for new frameworks or at least heavy criticism of the ones in force. This is the policymaking and economic circle of life.
The above arguments do not imply that there are no better theories within a list of the available ones. Where the book fails is in the following:
Its unbalanced criticism: The author has little good to say about how the US economy did across the board for most of the last half a century.
Highly biased inferences: The author's abhorrence for free markets and love for regulations lead to an extremely distorted analysis of growth and its drivers in whatever examples he picks.
Lack of solutions: The author fails to see that market tinkering can take thousands of forms. The book provides no basic discussions on what good regulations are and what a system must do to ensure them.
The worst policymakers are perhaps those who feel that they have the elixir to cure economic all. And worst critics are the ones who not only see everything with tainted glasses but believe that after destroying whatever in existence, the new system will be led by these cure-all policymakers.
There is a lot of interesting history in the book, although primarily confined to the post-war, pre-tech US. The author is equally right in his main conclusion that the monetary regime created around the collapse of Breton-Woods has given rise to many problems. The developed world needs a more rapid policymaking evolution, with revolutionary ideas in some realms. The book does not provide any guidance on what is required for the path ahead.
It is unclear what precisely the author wants, but the short descriptions at the end seem to suggest that he wants a world with regulated markets. There is no enunciation of details. Regulations could come in an endless number of forms. How they work, how long they work, what they result in etc. depend on even more number of other parameters. The book proves how easy it is for someone in an ivory tower to demand destruction of whatever is in existence without any idea of what they want in replacement. A vast majority readily joins hands in asking to bring down an existing system, and this seems to be the wont of our era. Yet, it is proving nigh impossible to brook any agreement on the most straightforward facets of the next systems. Cue Brexit.
Let's talk about the broader issues in economic management before returning to the book. The tragedy of real-life policymaking is that it can be based on bad economic theories and the worse ones. The worst is when there are no economic theories. Only a novice would believe in perfect universal methods that are appropriately applicable across geographies, for the solutions of all issues, and at all times. The fate of every planner, politician, or economist is that their best ideas are also doomed to look lousy In the eyes of the nitpicky out of context or even within the context from a different viewpoint.
Let's take a step back and think more about what gives rise to new economic theories. Simply put, they are frameworks borne out of the desires to solve problems of societies as they exist then. These human brain constructs are idealistic, far more uncomplicated compared to the communities on which they are applied. They cannot be anything else as a set of brains, however brilliant, cannot simultaneously fathom all the real-life variables and their movements over time. Even the best of them tend to work for the briefest of times, as desired. And, they have undesirable consequences aplenty. Every implementation and its associated problems give rise to the need for new frameworks or at least heavy criticism of the ones in force. This is the policymaking and economic circle of life.
The above arguments do not imply that there are no better theories within a list of the available ones. Where the book fails is in the following:
Its unbalanced criticism: The author has little good to say about how the US economy did across the board for most of the last half a century.
Highly biased inferences: The author's abhorrence for free markets and love for regulations lead to an extremely distorted analysis of growth and its drivers in whatever examples he picks.
Lack of solutions: The author fails to see that market tinkering can take thousands of forms. The book provides no basic discussions on what good regulations are and what a system must do to ensure them.
The worst policymakers are perhaps those who feel that they have the elixir to cure economic all. And worst critics are the ones who not only see everything with tainted glasses but believe that after destroying whatever in existence, the new system will be led by these cure-all policymakers.
There is a lot of interesting history in the book, although primarily confined to the post-war, pre-tech US. The author is equally right in his main conclusion that the monetary regime created around the collapse of Breton-Woods has given rise to many problems. The developed world needs a more rapid policymaking evolution, with revolutionary ideas in some realms. The book does not provide any guidance on what is required for the path ahead.
April 23, 2020
It’s not that everything was perfect before American politicians began paying attention to economists, but things sure were different. Between 1969 and 2008, author Binyamin Appelbaum argues that economists rose from the deepest depths of academia to rest in positions like secretary of the treasury and chairs of the Federal Reserve and, more broadly, as policymakers. From deregulation to antitrust to conscription, economists have spent fifty years with their fingerprints on everything. So how did it happen and, better yet, what’s been the result of this economist-driven revolution?
Appelbaum has crafted one of the most readable economic histories imaginable. While detailing the major players behind the current free-market economy and its gradual evolution could easily be dry, he avoids this by exploring its practical application to everyday life across the decades. For example, Milton Friedman and his University of Chicago gang share a bulk of Appelbaum’s focus, and Friedman’s theories led to him pushing for an end to the military draft in the U.S.—a major plus. Yet this same worldview led to the deregulation of financial institutions, eventually resulting in the subprime mortgage crises—a major yikes. Similar anecdotes, both positive and negative, are peppered throughout the book and break up some of the more detail-dense topics.
Since Appelbaum’s focus on the historical aspects at the beginning of the book shows off the breadth of his research, there’s an added sense of authority when he reaches his later criticisms. He takes issue with the idea that free-market-focused economists manufacture riches to anyone beyond the ruling class, instead pointing to their deficiencies as the catalyst for the Great Recession. In this instance, it’s a measured, focused rebuttal to this way of governing, but Appelbaum’s delivery can veer from patient to sharp and, frankly, funny depending on how absurd he finds each proposal.
With carefully researched analysis and an easy style, The Economists’ Hour provides something Appelbaum might argue many economists don’t: accessibility.
Note: I received a free ARC of this book through NetGalley.
Review also posted at https://pluckedfromthestacks.wordpres...
Appelbaum has crafted one of the most readable economic histories imaginable. While detailing the major players behind the current free-market economy and its gradual evolution could easily be dry, he avoids this by exploring its practical application to everyday life across the decades. For example, Milton Friedman and his University of Chicago gang share a bulk of Appelbaum’s focus, and Friedman’s theories led to him pushing for an end to the military draft in the U.S.—a major plus. Yet this same worldview led to the deregulation of financial institutions, eventually resulting in the subprime mortgage crises—a major yikes. Similar anecdotes, both positive and negative, are peppered throughout the book and break up some of the more detail-dense topics.
Since Appelbaum’s focus on the historical aspects at the beginning of the book shows off the breadth of his research, there’s an added sense of authority when he reaches his later criticisms. He takes issue with the idea that free-market-focused economists manufacture riches to anyone beyond the ruling class, instead pointing to their deficiencies as the catalyst for the Great Recession. In this instance, it’s a measured, focused rebuttal to this way of governing, but Appelbaum’s delivery can veer from patient to sharp and, frankly, funny depending on how absurd he finds each proposal.
With carefully researched analysis and an easy style, The Economists’ Hour provides something Appelbaum might argue many economists don’t: accessibility.
Note: I received a free ARC of this book through NetGalley.
Review also posted at https://pluckedfromthestacks.wordpres...
October 31, 2019
This book tells the history of one of the most powerful yet underestimated forces to shape a society and its people - economics. For most of the 20th century the world didn’t really understand the forces that shaped our economic destiny. We blundered through opulence, recessions and depressions on a routine schedule, all the while oblivious to causality. Ignorant politicians, greedy oligarchs and crusading labor unions were the most influential players and their often unscrupulous tactics perpetuated this roller coaster cycle of boom and bust.
But finally, some smart people started to figure out a few basics of building a stable economy. Two great mindsets were created on the work of two revolutionary economists, John Maynard Keynes and Milton Friedman. One school advocated powerful government control, the other laise-faire free markets.
The Economists’ Hour tells the fascinating story of the big wins and devastating losses of the bold, smart and often tragically misguided visionaries who tried to figure what it takes to run a successful economy. All the big personalities are in this book: Ronald Reagan, Paul Volcker, Alan Greenspan, Richard Nixon, Margaret Thatcher. The author tells the riveting story of their thunderously big wins that uplifted the plight of millions and their devastating mistakes that wiped out prosperity with inflation, stagnation and unemployment.
I was mightily impressed with how the author took such a dry topic and built a plot and cast of characters worthy of a novel. He reveals the deeply personal motivations of these legendary economic visionaries and shows how hubris and group-think often led them astray. The book tells the entire story, explaining the consequences of the Keynesian government free spending of the 1930s depression, to the hyper-inflation of the 1970s, to the free-market recklessness that led to the 2008 crash.
I particularly enjoyed the history of Alan Greenspan. I never knew the guy had such an eclectic history.
I also enjoyed the story of Paul Volcker and the off-the-rails chances the guy took. It was amazing how courageous Volcker was at taming inflation. 1970s inflation was absolutely punishing and the fact that government and the Fed had the wherewithal to stick with it was pretty impressive.
This was a very good book.
But finally, some smart people started to figure out a few basics of building a stable economy. Two great mindsets were created on the work of two revolutionary economists, John Maynard Keynes and Milton Friedman. One school advocated powerful government control, the other laise-faire free markets.
The Economists’ Hour tells the fascinating story of the big wins and devastating losses of the bold, smart and often tragically misguided visionaries who tried to figure what it takes to run a successful economy. All the big personalities are in this book: Ronald Reagan, Paul Volcker, Alan Greenspan, Richard Nixon, Margaret Thatcher. The author tells the riveting story of their thunderously big wins that uplifted the plight of millions and their devastating mistakes that wiped out prosperity with inflation, stagnation and unemployment.
I was mightily impressed with how the author took such a dry topic and built a plot and cast of characters worthy of a novel. He reveals the deeply personal motivations of these legendary economic visionaries and shows how hubris and group-think often led them astray. The book tells the entire story, explaining the consequences of the Keynesian government free spending of the 1930s depression, to the hyper-inflation of the 1970s, to the free-market recklessness that led to the 2008 crash.
I particularly enjoyed the history of Alan Greenspan. I never knew the guy had such an eclectic history.
I also enjoyed the story of Paul Volcker and the off-the-rails chances the guy took. It was amazing how courageous Volcker was at taming inflation. 1970s inflation was absolutely punishing and the fact that government and the Fed had the wherewithal to stick with it was pretty impressive.
This was a very good book.
November 2, 2019
Oh the economists are coming, bearing policy suggestions. Run for your life!
In this history of the ascend of the economists, Appelbaum detailed the rise of economics from a social study discipline to the scientific discipline apparently based on scientific principles and data. This led to the rise of the economists, inserting economic analyses into every single thing we do. This complete belief in the free markets had led to globalisation, opening up of capital flows, deregulation, tax reduction and reduced social services. Milton Friedman was singles out as the Chief Villain in creating all the problems that ensued. The problems are:
1. When markets are deregulated and financial institutions are left to regulate themselves, fraud such as what happened during the subprime mortgage crisis (NINJA loans, pay only interest loans etc) happens. For all the talks of the Efficient Market Theory, whenever crises happened, the State is expected to step in and rescue the market. People who committed fraud should have been prosecuted like in Iceland, but they were not in other countries; instead they were paid bonus when Main Street people are losing their jobs and houses.
2. When tax rate is decreased, the Budget deficit soars. This will drive trade imbalances, and decrease essential services such as health care, public works and social services. Of course the Armed forces are immune because they are important...
3. When capital flows are relaxed, hot money flows into developing countries cause both a boom and a bubble; when capital flows out, recession ensues. Only countries (like America) that borrow in her own currency is immune to this.
4. When government assets are privatised, it does not necessarily lead to better service. Even the Singaporean Metro was not immune, and had led to severe criticism when trains had frequent breakdowns.
5. When Ricardo’s comparative advantage advice is followed, it means that counties that export watermelons will forever export watermelons. If they dare to develop electronics and services, it is not economically wise...
6. Globalisation has led to the poor in developing countries out of poverty, and rich people who have assets and large corporations benefit from the lower costs. Sure, stuffs become cheaper too so we have more stuff. However the middle class in Rich Countries start to lose their jobs and whole communities are decimated.
7. A tale of 2 regions: South America listed to the economists and opened their markets, privatised their essential services and allowed hot money to flow in. Now most of them have lower GDP growth as other countries, with multiple financial crises (like Argentina). Asian countries such as South Korea, Taiwan and Singapore did not listen. They protected their nascent manufacturing industries and became the Tigers.
8. Cost benefit analysis start to put a price on human life to let government decide whether some harm is ‘cost-effective’. So it is ok to pollute the river a bit as Long as economic calculations show that does not kill too many human beings...
To be fair to economists and economic theory, they allow the development of the capital, future, insurance and financial markets. Without those most of us would not have been able to own our houses and buy insurance to protect ourselves and our families. However it is clear that Equality is also important and economists must come up with new theories that address this. Simply using the median and not the mean when they calculate anything will already have tremendous beneficial effects on the poor. It is also clear that since financial companies can destroy countries, they must be tightly regulated.
In this history of the ascend of the economists, Appelbaum detailed the rise of economics from a social study discipline to the scientific discipline apparently based on scientific principles and data. This led to the rise of the economists, inserting economic analyses into every single thing we do. This complete belief in the free markets had led to globalisation, opening up of capital flows, deregulation, tax reduction and reduced social services. Milton Friedman was singles out as the Chief Villain in creating all the problems that ensued. The problems are:
1. When markets are deregulated and financial institutions are left to regulate themselves, fraud such as what happened during the subprime mortgage crisis (NINJA loans, pay only interest loans etc) happens. For all the talks of the Efficient Market Theory, whenever crises happened, the State is expected to step in and rescue the market. People who committed fraud should have been prosecuted like in Iceland, but they were not in other countries; instead they were paid bonus when Main Street people are losing their jobs and houses.
2. When tax rate is decreased, the Budget deficit soars. This will drive trade imbalances, and decrease essential services such as health care, public works and social services. Of course the Armed forces are immune because they are important...
3. When capital flows are relaxed, hot money flows into developing countries cause both a boom and a bubble; when capital flows out, recession ensues. Only countries (like America) that borrow in her own currency is immune to this.
4. When government assets are privatised, it does not necessarily lead to better service. Even the Singaporean Metro was not immune, and had led to severe criticism when trains had frequent breakdowns.
5. When Ricardo’s comparative advantage advice is followed, it means that counties that export watermelons will forever export watermelons. If they dare to develop electronics and services, it is not economically wise...
6. Globalisation has led to the poor in developing countries out of poverty, and rich people who have assets and large corporations benefit from the lower costs. Sure, stuffs become cheaper too so we have more stuff. However the middle class in Rich Countries start to lose their jobs and whole communities are decimated.
7. A tale of 2 regions: South America listed to the economists and opened their markets, privatised their essential services and allowed hot money to flow in. Now most of them have lower GDP growth as other countries, with multiple financial crises (like Argentina). Asian countries such as South Korea, Taiwan and Singapore did not listen. They protected their nascent manufacturing industries and became the Tigers.
8. Cost benefit analysis start to put a price on human life to let government decide whether some harm is ‘cost-effective’. So it is ok to pollute the river a bit as Long as economic calculations show that does not kill too many human beings...
To be fair to economists and economic theory, they allow the development of the capital, future, insurance and financial markets. Without those most of us would not have been able to own our houses and buy insurance to protect ourselves and our families. However it is clear that Equality is also important and economists must come up with new theories that address this. Simply using the median and not the mean when they calculate anything will already have tremendous beneficial effects on the poor. It is also clear that since financial companies can destroy countries, they must be tightly regulated.
September 19, 2019
This is a book by an economic journalist for the NYTimes written for a broad audience that provides a history and critique of the public economics part of the profession following WW2 and especially after 1970 following the economics slowdowns of the 1970s and 1980s and the rise of the strongly market oriented approach to the field as espoused by the University of Chicago. The book has a broad scope covering up through the financial crisis following 2008 and even the 2016 election of Trump.
The history recounts the efforts of economists, many associated with the University of Chicago, to introduce a strongly free market and anti regulatory point of view to the practice of the economics profession. This includes the active capture of senior cabinet, agency, and advisory positions within the national government. The story is well known and demonstrates perhaps the most successful efforts by an Ivory Tower intellectual community to exert real influence and gain substantial prestige in the real world. This professional capture is an amazing accomplishment and well worth reading on its own terms.
But that is not what makes this book effective.
Appllebaum’s account is a nearly unbroken story of economists eventually going too far in attempting to put some fairly abstract ideas into practice and influence the lives of real people. The results of this end up in a series of periods of economic distress that leave the less connected “little people” suffering while those controlling big firms and financial institutions prosper. The book reads like an unbroken lines of fads and fashions that are put on display in the economy. While many economists can on occasion display wide knowledge as well as some depth of insight, the people who follow these economists and try to put these ideas into practice to make some money are clearly not as deep or thoughtful, although potentially more destructive. Keynes was good - until stagflation showed up. Monetarism was crucial, until it was not crucial around the time of the Great Recession. Derivatives markets enhance market efficiencies until they promote a casino mentality and an abdication of rules.
The book also makes clear what many have known for a while - that the dichotomy between markets and organizations/hierarchies is not a hard and fast distinction. The most “efficient” markets are also highly regulated. Markets that fail do so from a lack of rules rather than too many rules. But what is also important is that people fail in markets - buyers and sellers as well as regulators. The issue is balancing freedom and regulation not eliminating regulation and government. This suggests that there are limits to any economic theories. It also means that with respect to national economics, the secret to success is that there is no secret - just clear thinking, careful examination of evidence, and experience and perspective in making policy judgments.
This book is effective at motivating the economic fads and fashions that dominated the US from the 1980s on - and documenting how inadequate these fads and fashions are for effective strategic decisions by firm and government actors. Applebaum respect economics and economists, but only to a point. Disasters follow from excess and abandonment to some pet idea. The book is a good treatment of the need for moderated and skillful policy analysis.
It is also a quick and fun read that I highly recommend.
The history recounts the efforts of economists, many associated with the University of Chicago, to introduce a strongly free market and anti regulatory point of view to the practice of the economics profession. This includes the active capture of senior cabinet, agency, and advisory positions within the national government. The story is well known and demonstrates perhaps the most successful efforts by an Ivory Tower intellectual community to exert real influence and gain substantial prestige in the real world. This professional capture is an amazing accomplishment and well worth reading on its own terms.
But that is not what makes this book effective.
Appllebaum’s account is a nearly unbroken story of economists eventually going too far in attempting to put some fairly abstract ideas into practice and influence the lives of real people. The results of this end up in a series of periods of economic distress that leave the less connected “little people” suffering while those controlling big firms and financial institutions prosper. The book reads like an unbroken lines of fads and fashions that are put on display in the economy. While many economists can on occasion display wide knowledge as well as some depth of insight, the people who follow these economists and try to put these ideas into practice to make some money are clearly not as deep or thoughtful, although potentially more destructive. Keynes was good - until stagflation showed up. Monetarism was crucial, until it was not crucial around the time of the Great Recession. Derivatives markets enhance market efficiencies until they promote a casino mentality and an abdication of rules.
The book also makes clear what many have known for a while - that the dichotomy between markets and organizations/hierarchies is not a hard and fast distinction. The most “efficient” markets are also highly regulated. Markets that fail do so from a lack of rules rather than too many rules. But what is also important is that people fail in markets - buyers and sellers as well as regulators. The issue is balancing freedom and regulation not eliminating regulation and government. This suggests that there are limits to any economic theories. It also means that with respect to national economics, the secret to success is that there is no secret - just clear thinking, careful examination of evidence, and experience and perspective in making policy judgments.
This book is effective at motivating the economic fads and fashions that dominated the US from the 1980s on - and documenting how inadequate these fads and fashions are for effective strategic decisions by firm and government actors. Applebaum respect economics and economists, but only to a point. Disasters follow from excess and abandonment to some pet idea. The book is a good treatment of the need for moderated and skillful policy analysis.
It is also a quick and fun read that I highly recommend.
December 29, 2019
The “critiques of neoliberalism” genre is very heavily populated this days, but to my taste Binya Applebaum’s is my favorite of the genre. He eschews annoying left-wing academic jargon in favor of a readable narrative frame and I think gets at the core of the issue.
I know a fair number of economists think the framing conceit somewhat flattens the range of work coming out of their profession, which is fair enough, but I think fundamentally Applebaum is persuasive on his key thesis — the rise of economics-first thinking among policymakers has contributed to significant social problems.
Just one example.
Labor unions are clearly economic phenomena. But they are also political actors and mechanisms of socialization. If you look at them exclusively through an economics lens you will likely conclude that unions are a kludgy and inefficient way of achieving their goals. But if you take a political science view, you may see that without unions it’s impossible to build workable political coalitions for the kind of “more efficient” redistributive means that progressive-minded economists might like. And if you take a sociological view, you may see that without unions a diverse society is overwhelming likely to fracture along ethnic or sectarian lines to the detriment of all kinds of useful goals.
Economists of course can (and increasingly do) appreciate these points. You need to be pretty smart to get an economics PhD and economists use their statistical tools to measure all kinds of things. But baseline economic analysis — including by the PhD-wielding advisors to the Kennedy, Carter, Clinton, and Obama administrations — led to a skeptical view of unions that’s been harmful to America.
Many more examples in the book.
I know a fair number of economists think the framing conceit somewhat flattens the range of work coming out of their profession, which is fair enough, but I think fundamentally Applebaum is persuasive on his key thesis — the rise of economics-first thinking among policymakers has contributed to significant social problems.
Just one example.
Labor unions are clearly economic phenomena. But they are also political actors and mechanisms of socialization. If you look at them exclusively through an economics lens you will likely conclude that unions are a kludgy and inefficient way of achieving their goals. But if you take a political science view, you may see that without unions it’s impossible to build workable political coalitions for the kind of “more efficient” redistributive means that progressive-minded economists might like. And if you take a sociological view, you may see that without unions a diverse society is overwhelming likely to fracture along ethnic or sectarian lines to the detriment of all kinds of useful goals.
Economists of course can (and increasingly do) appreciate these points. You need to be pretty smart to get an economics PhD and economists use their statistical tools to measure all kinds of things. But baseline economic analysis — including by the PhD-wielding advisors to the Kennedy, Carter, Clinton, and Obama administrations — led to a skeptical view of unions that’s been harmful to America.
Many more examples in the book.
December 16, 2019
I would never intentionally read a book written about economic theory, but I received this as a Netgalley e-review copy.
Reading this is an eye-opener, demonstrating how economists' theories can have a huge influence on government policy and how this can affect our daily lives in unexpected ways. This may not sound sexy but it sure is eye-opening.
Reading this is an eye-opener, demonstrating how economists' theories can have a huge influence on government policy and how this can affect our daily lives in unexpected ways. This may not sound sexy but it sure is eye-opening.
February 7, 2020
This book is unusual- it's a balanced polemic. It covers evenhandedly the rise of economics (and specifically free-market rational choice economics) as an influencer of public policy both in the USA and internationally. In fact, for the first half of the book I thought this was just going to be a history of free market economics and the ways it was better than the previous system which featured more government control and direction. And I think this beginning strengthens the criticism at the end. It's clear that markets do solve some problems that can't be easily solvable otherwise. But Applebaum does a good job of showing the ways that faith in markets have led to poor results - especially how the losers in the global economy keep losing. A few thought provoking quotes:
“'The argument was always that the winners could compensate the losers,' said economist Joseph Stiglitz. 'But the winners never do.'”
“During its investigation [of amino acid price fixing], the FBI discovered...a cartel fixing the price of citric acid...that led to another cartel...to fix the prices of a wide range of food additives...Stigler’s 1964 paper had popularized the view that collusion was rare and unstable. The Reagan administration had embraced that premise...Now the real world was intruding.”
“Some took the view that trade, like cost-benefit analysis, was justified because government could compensate the losers. Others went so far as to say the government should compensate the losers. But Seventy-Five years after the United States embarked on its effort to encourage foreign trade, the reality is that the government has made little effort to do so.”
“In financial markets, one of the most consequential shifts was the demise of the idea that a banker had to act in a client’s interests....John Reed, the former head of Citicorp, has argued that the integration of Wall Street trading firms and commercial banks replaced a cultural emphasis on long term relationships with a focus on short-term profit taking. The rewards for misbehavior have also multiplied.”
“Financial crises have a long history of corroding faith in liberal democracy. A study of financial crises in developed nations since 1870 found far-right political parties often are the beneficiaries, winning popular support by blaming immigrants and minorities for the loss of prosperity.”
“'The argument was always that the winners could compensate the losers,' said economist Joseph Stiglitz. 'But the winners never do.'”
“During its investigation [of amino acid price fixing], the FBI discovered...a cartel fixing the price of citric acid...that led to another cartel...to fix the prices of a wide range of food additives...Stigler’s 1964 paper had popularized the view that collusion was rare and unstable. The Reagan administration had embraced that premise...Now the real world was intruding.”
“Some took the view that trade, like cost-benefit analysis, was justified because government could compensate the losers. Others went so far as to say the government should compensate the losers. But Seventy-Five years after the United States embarked on its effort to encourage foreign trade, the reality is that the government has made little effort to do so.”
“In financial markets, one of the most consequential shifts was the demise of the idea that a banker had to act in a client’s interests....John Reed, the former head of Citicorp, has argued that the integration of Wall Street trading firms and commercial banks replaced a cultural emphasis on long term relationships with a focus on short-term profit taking. The rewards for misbehavior have also multiplied.”
“Financial crises have a long history of corroding faith in liberal democracy. A study of financial crises in developed nations since 1870 found far-right political parties often are the beneficiaries, winning popular support by blaming immigrants and minorities for the loss of prosperity.”
January 2, 2020
The Economists' Hour by Binyamin Appelbaum is a superb journalistic account of how "free" market-oriented economists gained pervasive influence in the US (and elsewhere) and helped stall increasing prosperity for the middle class and shovel gold into the pockets of the upper/upper class. This transpired during the 60s,70s, and 80s and continues to this day.
Appelbaum has all the names, dates, and data in hand to make his case. I'll try to make his case in more general terms.
The highly influential economics department at the University of Chicago (and Harvard and MIT and Michigan) led by Milton Friedman turned economics into the study of money, leaving out the larger component one might expect of economics: human welfare. Specifically, Friedman et al believed that the way you control a national economy is through controlling the money supply, which is best left uncontrolled in the service of market efficiencies, which are always smarter than the government, politicians, and bureaucrats.
In crude terms, we all know where this kind of thinking leads: maximization of profits, more wealth for the wealthy, lower taxes for the wealthy, and less regulation of everything. Why? Because more money is always a good thing...whatever it costs.
Impediments to wealth maximization are things like unions, environmental protection, and virtually any kind of taxation of giant corporations.
Friedman et al (Walter Heller, Alan Greenspan, Paul Volcker, Arthur Laffer, George Stigler) were a smart bunch who appeared able to argue their case better through numbers than others were able to argue theirs through pointing not just to economic efficiency but to economic effects.
Case in point: Alan Greenspan as head of the Federal Reserve had zero interest in the Fed's role as the nation's most senior bank regulator. Whoops, this led to the horrors of the 2008 Great Recession.
Case in point: If you were born in 1951, you had a better than 50-50 chance of earning more than your wage-earning parent when she was 30. If you were born in in 1978, you had less than a 50-50 chance of doing better than your wage-earning parent at age 30.
This was not because there was less "money" in 1978 than in 1951; it was because the wealthy paid fewer taxes in 1978, they had learned how to maximize their profits by heading offshore for lower-cost labor, and they were riding the wave of government-research money that flowed out of WWII and blessed them with incredible new technologies (which they never would have financed themselves...only the "public" could do that.) Meanwhile, our 70s baby was running hard into high inflation, high interest rates, and the transformation of the US economy from producing things to "servicing" things, which turned out to be good for Wall Street, not so good for Maple Avenue, Anywhere, U.S.
The stunning thing about people who espouse "the free market" (which led to the Trump tax-giveaway to the rich) is that they manage never to admit how they shape the market to serve their interests; in fact, the truth is that if there is any kind of free market in the US, it belongs to the people who paved its roads, staffed its courts, policed its neighborhoods, taught in its schools, and so forth. Those people--the public--should be the ones shaping the market they created.
This book justifies calling economics the dismal science, partly because it makes for distressing reading (dismal) and partly because economics is not a science; certainly it is not the subset of economic analysis and self-interest free marketeers claim as the totality of economics.
In the last 40 years, the American middle class has made no progress in sheer money terms; it is not more prosperous than it was in 1980; its financial future is not brighter. These truths, coupled with the nightmare of the Great Recession, have led America in two highly incompatible directions at once. On the one hand, a filthy rich billionaire as president is able to associate himself with massive grievance in the middle class, pretending to be its friend because, of course, profit maximization helps everyone (it doesn't). On the other hand, left-leaning politicians propose utterly unrealistic remedies for the beleaguered middle class. Figures like $20 or $30 trillion for Medicare for All are the worst kind of pandering and, ultimately, bait and switch. Getting Obamacare as far as it has gotten is proof that America will climb out of its healthcare ditch one step at a time, not by means of magical edicts from presidential candidates.
Appelbaum gets very detailed as he traces the intellectual history of unregulated free markets. He offers quite interesting case studies of Chile (a divided society, rich and poor), Iceland (a society that almost went completely bankrupt in the Great Recession) and Taiwan (a highly managed and highly successful country where the rich/poor wealth gap is not as pronounced as elsewhere.)
As is customary after poking holes in so much hypocrisy, so much skullduggery, so many ghastly outcomes for real people living real lives, Appelbaum professes some hope for the future. He points out that Janet Yellen, when she headed the Fed, worked hard on job creation policies. He notes that the economists' hour really has come to an end...albeit by cleaving the body politic in half.
But I worry. We still need an economics that addresses all of our interests, that takes environmental costs into account, that recognizes the need for large-scale government funded basic research, that lowers healthcare and higher education costs and makes hospitals and universities much more open to everyone.
Right now Trump and company are trashing everything and encasing future generations in coffins of debt so that they and their playmates can keep living better than anyone on earth deserves. The economists' hour may have expired, but the greed clock keeps on ticking merrily away.
Appelbaum has all the names, dates, and data in hand to make his case. I'll try to make his case in more general terms.
The highly influential economics department at the University of Chicago (and Harvard and MIT and Michigan) led by Milton Friedman turned economics into the study of money, leaving out the larger component one might expect of economics: human welfare. Specifically, Friedman et al believed that the way you control a national economy is through controlling the money supply, which is best left uncontrolled in the service of market efficiencies, which are always smarter than the government, politicians, and bureaucrats.
In crude terms, we all know where this kind of thinking leads: maximization of profits, more wealth for the wealthy, lower taxes for the wealthy, and less regulation of everything. Why? Because more money is always a good thing...whatever it costs.
Impediments to wealth maximization are things like unions, environmental protection, and virtually any kind of taxation of giant corporations.
Friedman et al (Walter Heller, Alan Greenspan, Paul Volcker, Arthur Laffer, George Stigler) were a smart bunch who appeared able to argue their case better through numbers than others were able to argue theirs through pointing not just to economic efficiency but to economic effects.
Case in point: Alan Greenspan as head of the Federal Reserve had zero interest in the Fed's role as the nation's most senior bank regulator. Whoops, this led to the horrors of the 2008 Great Recession.
Case in point: If you were born in 1951, you had a better than 50-50 chance of earning more than your wage-earning parent when she was 30. If you were born in in 1978, you had less than a 50-50 chance of doing better than your wage-earning parent at age 30.
This was not because there was less "money" in 1978 than in 1951; it was because the wealthy paid fewer taxes in 1978, they had learned how to maximize their profits by heading offshore for lower-cost labor, and they were riding the wave of government-research money that flowed out of WWII and blessed them with incredible new technologies (which they never would have financed themselves...only the "public" could do that.) Meanwhile, our 70s baby was running hard into high inflation, high interest rates, and the transformation of the US economy from producing things to "servicing" things, which turned out to be good for Wall Street, not so good for Maple Avenue, Anywhere, U.S.
The stunning thing about people who espouse "the free market" (which led to the Trump tax-giveaway to the rich) is that they manage never to admit how they shape the market to serve their interests; in fact, the truth is that if there is any kind of free market in the US, it belongs to the people who paved its roads, staffed its courts, policed its neighborhoods, taught in its schools, and so forth. Those people--the public--should be the ones shaping the market they created.
This book justifies calling economics the dismal science, partly because it makes for distressing reading (dismal) and partly because economics is not a science; certainly it is not the subset of economic analysis and self-interest free marketeers claim as the totality of economics.
In the last 40 years, the American middle class has made no progress in sheer money terms; it is not more prosperous than it was in 1980; its financial future is not brighter. These truths, coupled with the nightmare of the Great Recession, have led America in two highly incompatible directions at once. On the one hand, a filthy rich billionaire as president is able to associate himself with massive grievance in the middle class, pretending to be its friend because, of course, profit maximization helps everyone (it doesn't). On the other hand, left-leaning politicians propose utterly unrealistic remedies for the beleaguered middle class. Figures like $20 or $30 trillion for Medicare for All are the worst kind of pandering and, ultimately, bait and switch. Getting Obamacare as far as it has gotten is proof that America will climb out of its healthcare ditch one step at a time, not by means of magical edicts from presidential candidates.
Appelbaum gets very detailed as he traces the intellectual history of unregulated free markets. He offers quite interesting case studies of Chile (a divided society, rich and poor), Iceland (a society that almost went completely bankrupt in the Great Recession) and Taiwan (a highly managed and highly successful country where the rich/poor wealth gap is not as pronounced as elsewhere.)
As is customary after poking holes in so much hypocrisy, so much skullduggery, so many ghastly outcomes for real people living real lives, Appelbaum professes some hope for the future. He points out that Janet Yellen, when she headed the Fed, worked hard on job creation policies. He notes that the economists' hour really has come to an end...albeit by cleaving the body politic in half.
But I worry. We still need an economics that addresses all of our interests, that takes environmental costs into account, that recognizes the need for large-scale government funded basic research, that lowers healthcare and higher education costs and makes hospitals and universities much more open to everyone.
Right now Trump and company are trashing everything and encasing future generations in coffins of debt so that they and their playmates can keep living better than anyone on earth deserves. The economists' hour may have expired, but the greed clock keeps on ticking merrily away.
August 9, 2021
Many hidden gem stories make it 4 star, rather than 3.5
Upset with the “lost” earnings of his son who was turning 20, the famed economist Milton Friedman started pushing in the Sixties for the end of compulsory military service making arguments based on economic efficiency - unlike what anti-draft proponents had done before. And he succeeded. He was assisted in this by a visually challenged economist, Walter Oi, a character who liked to spend his free time sitting in the stands during car races, getting high on the sounds, fumes and heat.
Arthur Laffer, invoked by tax cutters everywhere, was meeting with Dick Cheney and Donald Rumsfeld, now better known for other reasons, when he famously sketched his argument for tax cuts on a paper napkin. Having moved to Tennessee because of its lower taxes, he discovered it had punitive taxes and so started a tax abolition campaign –to make it, in his words, a good place to both live and die.
Thomas Schelling, a Nobel Prize winner and inspiration for Kubrick’s Dr. Strangelove, was instrumental in introducing the practice of putting a value to human life. This was for the purpose of enabling government agencies to do better cost/benefit analysis for regulations. And this price of life, as it were, has moved up in Democratic administrations and down in Republican ones!
These and many such vignettes pepper through “The Economists’ Hour”, a broadly critical but entertainingly chronicled look at economics’ encroachment into public life. The title, taken from a term used by Pulitzer-winning historian Thomas McCraw, refers to the roughly 40-year period from 1968-2008. During this time, economists fully insinuated themselves into the policy-making mainstream.
As befits someone who was listed for the Pulitzer prize himself (for his reporting on the sub-prime crisis), Appelbaum knows his subject and all its complexities well. The result is a very well researched book, with a lot of footnotes. He is also a deft story teller. Many of the topics covered are connected by the underlying theme of economics entering into new areas, and he writes lucidly about them. The result is a good running history of free market thought, and vignettes of how specific ideas interacted with specific individuals and circumstances to end up influencing those in power.
Before the 1960s, economists were regarded as not very useful even at institutions like the Treasury and the Federal Reserve. This changed post Sixties. Economists started finding their views being taken seriously on a range of policymaking issues, from anti-trust lawsuits, to regulatory decisions, to ending the military draft. The author is not much of a fan of the results.
As Appelbaum highlights, while generally associated with rising globalization, economic growth and soaring markets, from an American standpoint real wages are more than $2000 lower in 2017 than in 1978. Meanwhile, even as life expectancy has for the top 20 percent of income earners in the past 30 years, it has declined for the bottom 20 percent of Americans. Among women, this gap has widened by more than 10 years.
The book is a critical look at these developments, with the author concluding that the pendulum has gone too far in favour of seeking economic rationales for all policymaking. He blames the Chicago School economists for this shift (led of course by Friedman) and argues that a single minded focus on economic efficiency has led to rising inequalities and inequities in the world.
While many of the points made in the book are valid, and it’s hard to defend the continued “marketisation” of public policy, his left of center leanings appears to colour most of his judgements. While Friedman indeed may have been a publicity obsessed, single minded free marketer, the fact is that ending the draft was popular among the Boomers, who were on their way to becoming mainstream America. This was something that was being missed by the older politicians and generals. So didn’t Friedman just accurately catch the zeitgeist of the moment, rather than create it? Likewise was Paul Volcker’s attack on inflation really such a bad thing considering that it laid the ground for the strong economic rebound of the Eighties and Nineties? Surely to say (as he does) that Volcker’s policies caused an extra million to be unemployed is guesswork at best.
In sum, the book succeeds as a history of economic decision making, and decision makers, of the past half century. However, the author’s unremittingly negative conclusions of these results detract from the value of the book. A more balanced assessment would have made the book perfect. Also note that the focus of the book is largely on American economists – the (excellent) parts focussing on the damage their policies wrought to Chile, a former poster child of emerging markets’ free economics, and Iceland in 2008, being the main exceptions to this US bias.
Upset with the “lost” earnings of his son who was turning 20, the famed economist Milton Friedman started pushing in the Sixties for the end of compulsory military service making arguments based on economic efficiency - unlike what anti-draft proponents had done before. And he succeeded. He was assisted in this by a visually challenged economist, Walter Oi, a character who liked to spend his free time sitting in the stands during car races, getting high on the sounds, fumes and heat.
Arthur Laffer, invoked by tax cutters everywhere, was meeting with Dick Cheney and Donald Rumsfeld, now better known for other reasons, when he famously sketched his argument for tax cuts on a paper napkin. Having moved to Tennessee because of its lower taxes, he discovered it had punitive taxes and so started a tax abolition campaign –to make it, in his words, a good place to both live and die.
Thomas Schelling, a Nobel Prize winner and inspiration for Kubrick’s Dr. Strangelove, was instrumental in introducing the practice of putting a value to human life. This was for the purpose of enabling government agencies to do better cost/benefit analysis for regulations. And this price of life, as it were, has moved up in Democratic administrations and down in Republican ones!
These and many such vignettes pepper through “The Economists’ Hour”, a broadly critical but entertainingly chronicled look at economics’ encroachment into public life. The title, taken from a term used by Pulitzer-winning historian Thomas McCraw, refers to the roughly 40-year period from 1968-2008. During this time, economists fully insinuated themselves into the policy-making mainstream.
As befits someone who was listed for the Pulitzer prize himself (for his reporting on the sub-prime crisis), Appelbaum knows his subject and all its complexities well. The result is a very well researched book, with a lot of footnotes. He is also a deft story teller. Many of the topics covered are connected by the underlying theme of economics entering into new areas, and he writes lucidly about them. The result is a good running history of free market thought, and vignettes of how specific ideas interacted with specific individuals and circumstances to end up influencing those in power.
Before the 1960s, economists were regarded as not very useful even at institutions like the Treasury and the Federal Reserve. This changed post Sixties. Economists started finding their views being taken seriously on a range of policymaking issues, from anti-trust lawsuits, to regulatory decisions, to ending the military draft. The author is not much of a fan of the results.
As Appelbaum highlights, while generally associated with rising globalization, economic growth and soaring markets, from an American standpoint real wages are more than $2000 lower in 2017 than in 1978. Meanwhile, even as life expectancy has for the top 20 percent of income earners in the past 30 years, it has declined for the bottom 20 percent of Americans. Among women, this gap has widened by more than 10 years.
The book is a critical look at these developments, with the author concluding that the pendulum has gone too far in favour of seeking economic rationales for all policymaking. He blames the Chicago School economists for this shift (led of course by Friedman) and argues that a single minded focus on economic efficiency has led to rising inequalities and inequities in the world.
While many of the points made in the book are valid, and it’s hard to defend the continued “marketisation” of public policy, his left of center leanings appears to colour most of his judgements. While Friedman indeed may have been a publicity obsessed, single minded free marketer, the fact is that ending the draft was popular among the Boomers, who were on their way to becoming mainstream America. This was something that was being missed by the older politicians and generals. So didn’t Friedman just accurately catch the zeitgeist of the moment, rather than create it? Likewise was Paul Volcker’s attack on inflation really such a bad thing considering that it laid the ground for the strong economic rebound of the Eighties and Nineties? Surely to say (as he does) that Volcker’s policies caused an extra million to be unemployed is guesswork at best.
In sum, the book succeeds as a history of economic decision making, and decision makers, of the past half century. However, the author’s unremittingly negative conclusions of these results detract from the value of the book. A more balanced assessment would have made the book perfect. Also note that the focus of the book is largely on American economists – the (excellent) parts focussing on the damage their policies wrought to Chile, a former poster child of emerging markets’ free economics, and Iceland in 2008, being the main exceptions to this US bias.
October 21, 2019
The Economists' Hour is a history of how economists have gained primacy in policy-making in all three branches of government. From big business paying judges $1000 to go on a one-week Florida junket where they were taught regulations are bad and anti-trust laws are bad to the takeover of administrative positions, economic ideology has replaced political ideology. Of course, economists insist they are dealing in facts which is laughable when we learn such lovely things such as Milton Friedman announcing the results of his research before he began collecting data.
Since World War Two, economists associated with the University of Chicago, most notably Milton Friedman, have waged war on Keynes advocacy of government intervention. They have encouraged the business consolidation and the elimination of regulations, insisting the market will fix everything but stupidity. When their ideas result in disasters like the should-be-criminal predation that led to the crash in 2008, they say it’s stupidity, but now everyone has learned better and it won’t happen again, so regulation is not necessary. Yeah, right.
I learned a lot from this history. We all know the conventional narrative of how America lost manufacturing jobs to other countries. Big business loves to blame labor unions demands for wages and benefits, though they never note the growth in productivity of American workers outpaced their wages. Sometimes we are told that automation destroyed the jobs, however, in this book, we learn how anti-trust, monetary policy, and currency trading played significant roles as well
The Economists’ Hour is an excellent history. It has enough of the gossipy kind of details and snarky quotes from people who knew the people he is writing about to be fun while doing a great job of explaining and presenting economic history. I struggled at first because it seemed like such a huge book. I read and read and read and was only 10% of the way through. Finally, I checked and discovered about 40% of the book is footnotes. Then it seemed less daunting. I was making progress.
This is the most holistic and credible history of how we got here from there in terms of growing inequality. It is nonpartisan and I get the impression that Appelbaum is not a pure advocate for either Friedman or Keynesian theories of economic policy. Instead, he seems to believe that what we really need is pragmatists, not ideologues, who can shift strategies depending on the current situation and reality. He notes the times that Friedman has been right and when the absolutists have been wrong.
If you don’t like where we are, it is smart to learn how we got here so we make the right choices in trying to change it. The Economists’ Hour will be invaluable in that pursuit.
I received an e-galley of The Economists’ Hour from the publisher through NetGalley.
The Economists’ Hour at Little, Brown and Company
Binyamin Appelbaum author site
Since World War Two, economists associated with the University of Chicago, most notably Milton Friedman, have waged war on Keynes advocacy of government intervention. They have encouraged the business consolidation and the elimination of regulations, insisting the market will fix everything but stupidity. When their ideas result in disasters like the should-be-criminal predation that led to the crash in 2008, they say it’s stupidity, but now everyone has learned better and it won’t happen again, so regulation is not necessary. Yeah, right.
I learned a lot from this history. We all know the conventional narrative of how America lost manufacturing jobs to other countries. Big business loves to blame labor unions demands for wages and benefits, though they never note the growth in productivity of American workers outpaced their wages. Sometimes we are told that automation destroyed the jobs, however, in this book, we learn how anti-trust, monetary policy, and currency trading played significant roles as well
The Economists’ Hour is an excellent history. It has enough of the gossipy kind of details and snarky quotes from people who knew the people he is writing about to be fun while doing a great job of explaining and presenting economic history. I struggled at first because it seemed like such a huge book. I read and read and read and was only 10% of the way through. Finally, I checked and discovered about 40% of the book is footnotes. Then it seemed less daunting. I was making progress.
This is the most holistic and credible history of how we got here from there in terms of growing inequality. It is nonpartisan and I get the impression that Appelbaum is not a pure advocate for either Friedman or Keynesian theories of economic policy. Instead, he seems to believe that what we really need is pragmatists, not ideologues, who can shift strategies depending on the current situation and reality. He notes the times that Friedman has been right and when the absolutists have been wrong.
If you don’t like where we are, it is smart to learn how we got here so we make the right choices in trying to change it. The Economists’ Hour will be invaluable in that pursuit.
I received an e-galley of The Economists’ Hour from the publisher through NetGalley.
The Economists’ Hour at Little, Brown and Company
Binyamin Appelbaum author site
October 10, 2019
The Economists' Hour by Binyamin Appelbaum
Disclosure: I received a free copy of this book from the publisher, via Netgalley, in exchange for potentially writing a review. My opinions are my own.
The "Economists' Hour" refers to the period from the late 1960s to late 2000s when the ideas of free-market economists like Milton Friedman influenced economic policy around the world to greater openness and less government regulation with mixed results. Positive examples include deregulation of the airlines leading to cheaper prices and millions more people traveling around the world than would have otherwise. Negative examples include a willful blind eye of regulators (because the market will regulate itself) on the shadow lending market that ended up creating the last housing crisis and recession (that led to the rise of right-wing populism around the world) that largely harmed the middle and lower classes.
I have long respected Binyamin Appelbaum's economics writing (we interacted on Twitter back during the financial crisis when I was teaching economics and before everyone used Twitter). 40% of this book is the author's footnotes and references, the breadth of reading and research is incredible. He claims in the Acknowledgments that his home library is the Library of Congress, hence he had materials available. I made dozens of highlights.
An eerily similar book is Yergin and Stanislaw's The Commanding Heights (2002), which was also made into a multi-part PBS documentary. That book includes different international perspectives but features many of the characters Appelbaum researches (like Milton Friedman and George Schultz) in their own words (curiously, Appelbaum quotes it only once but it appears some of his other sources are also quoting it as some of the direct quotes come straight from interviews on the documentary). The story is roughly the same, how market-oriented economists influenced the United States and other countries to deregulate, privatize, and think differently about monetary policy than they had in the years following the Great Depression and WWII. Appelbaum visits Chile and Taiwan whereas Yergin and Stanislaw focused on Bolivia, India, Poland, and Russia-- economies that Appelbaum ignores. It is as if he is trying to write a contrary perspective to their work without saying so. Appelbaum's perspective is similar to Joseph Stiglitz's in Globalization and its Discontents-- namely that the "Washington Consensus" prescribed policies to developing countries that ultimately harmed those countries, and countries who adopted contrary policies (regulating capital flows, industrial policy, etc.) fared better in the global financial crisis of the late 1990s.
The early chapter on the history of monetarism is quite good and Appelbaum finds some pretty obscure sources for quotes from Friedman and others. The birth and popularization of "supply-side economics" and tax policy is also good.
I do not agree with all of the author's opinions or conclusions, particularly when it comes to industrial policy. For example, Appelbaum decries the loss of jobs when Chile privatized its industries, but should Chilean taxpayers have propped up jobs that are inefficient? Who is to say whether Chile should have produced televisions or that South Korea should have produced steel? How is any dictator or politician or economist in a position to have that knowledge? (This is basically Hayek's critique of socialism and price controls.) This is the problem with protectionism and industrial policy--Taiwan was evidently careful to support "seedlings" without creating "greenhouses" but where does one draw the line? Taiwan's economic planner made a strategic and controversial choice to invest state funds into microprocessor research and manufacturing. Hindsight bias can say that was the correct call. I am reminded of the sum of what I learned in one of my grad school economic development courses comparing economic policy among Asian economies, taught by a disciple of Amartya Sen: "There are many recipes" and "it depends." One could argue that Chile suffered from the resource curse (ie: minerals) making it difficult to export anything else whereas Taiwan (and Hong Kong) benefited by having no such resources and being forced to innovate.
One area I have come to disagree with libertarians (and the author) on is in regards to antitrust and breaking up monopolies. Appelbaum documents how the University of Chicago ultimately influenced a host of people who radically transformed/weakened antitrust law in the belief that antitrust was not helping the consumer, but rather harming the consumer by punishing companies from being successful. That lower prices are never anticompetitive behavior, but rather signs of efficiency. Acemoğlu and Robinson's Why Nations Fail is the conclusive work showing that nations fail when exclusive economic structures (ie: monopolies) work to create exclusive political structures (rent-seeking behavior) and this drives away freedom, innovation, and economic growth. In the 1950s, Appelbaum writes, the the U.S. government forced IBM to divulge trade secrets about microchips so that other Western companies could also innovate and develop new technologies around it in competition with the Soviets. Now, America's largest firms spend a great deal of time and money patenting ideas and stifling competition and the government rarely gets involved in regulating predatory behavior. "The Federal Trade Commission...won 88 percent of its (antitrust) lawsuits during the first half of the 1970s. Between 1976 and 1981, the agency won 43 percent of the time." One wonders if Appelbaum may have found a reason for the great and mysterious U.S. productivity slowdown seen from the mid-1970s onward.
Appelbaum writes that the Economists' Hour ended sometime about the time the Bush Administration pushed through TARP and bought equity in the largest financial firms in order to stave off the downturn. Keynesian stimulus was back in vogue and behavioral economists, who argue that markets are irrational and prices are not always right, were finally ascendant. (The election of Donald Trump, who openly rejects free trade, tweets threateningly at the Chairman of the Federal Reserve, and affects stock prices with every public comment, put the nail in the coffin.) He writes that his point is that "markets are constructed by people, for purposes chosen by people--and they can be changed and rebuilt by people." He's essentially arguing that economic policies may have led to overall economic growth and been beneficial to some, but the costs to others were too-often ignored, leading to our current peril. While markets are awesome, "(t)he willful indifference to the distribution of prosperity over the last half century is an important reason the very survival of liberal democracy is now being tested...our shared bonds will last longer if we can find ways to reduce the strain."
But this book, like the others Appelbaum dusted off at the Library of Congress, will soon be forgotten. The financial banks and political entities that worked so hard over the years to fund education and politicians that promote lax antitrust regulation, tax-friendly policies, and special investment vehicles are still alive and well-- as Appelbaum documents (ex: Art Laffer is still invited to speak to policymakers about tax policy). Zombies never die, history repeats itself, and "this time" is always "different." I give this book four stars out of five. Definitely read the footnotes for insight and the author's nuances.
Disclosure: I received a free copy of this book from the publisher, via Netgalley, in exchange for potentially writing a review. My opinions are my own.
The "Economists' Hour" refers to the period from the late 1960s to late 2000s when the ideas of free-market economists like Milton Friedman influenced economic policy around the world to greater openness and less government regulation with mixed results. Positive examples include deregulation of the airlines leading to cheaper prices and millions more people traveling around the world than would have otherwise. Negative examples include a willful blind eye of regulators (because the market will regulate itself) on the shadow lending market that ended up creating the last housing crisis and recession (that led to the rise of right-wing populism around the world) that largely harmed the middle and lower classes.
I have long respected Binyamin Appelbaum's economics writing (we interacted on Twitter back during the financial crisis when I was teaching economics and before everyone used Twitter). 40% of this book is the author's footnotes and references, the breadth of reading and research is incredible. He claims in the Acknowledgments that his home library is the Library of Congress, hence he had materials available. I made dozens of highlights.
An eerily similar book is Yergin and Stanislaw's The Commanding Heights (2002), which was also made into a multi-part PBS documentary. That book includes different international perspectives but features many of the characters Appelbaum researches (like Milton Friedman and George Schultz) in their own words (curiously, Appelbaum quotes it only once but it appears some of his other sources are also quoting it as some of the direct quotes come straight from interviews on the documentary). The story is roughly the same, how market-oriented economists influenced the United States and other countries to deregulate, privatize, and think differently about monetary policy than they had in the years following the Great Depression and WWII. Appelbaum visits Chile and Taiwan whereas Yergin and Stanislaw focused on Bolivia, India, Poland, and Russia-- economies that Appelbaum ignores. It is as if he is trying to write a contrary perspective to their work without saying so. Appelbaum's perspective is similar to Joseph Stiglitz's in Globalization and its Discontents-- namely that the "Washington Consensus" prescribed policies to developing countries that ultimately harmed those countries, and countries who adopted contrary policies (regulating capital flows, industrial policy, etc.) fared better in the global financial crisis of the late 1990s.
The early chapter on the history of monetarism is quite good and Appelbaum finds some pretty obscure sources for quotes from Friedman and others. The birth and popularization of "supply-side economics" and tax policy is also good.
I do not agree with all of the author's opinions or conclusions, particularly when it comes to industrial policy. For example, Appelbaum decries the loss of jobs when Chile privatized its industries, but should Chilean taxpayers have propped up jobs that are inefficient? Who is to say whether Chile should have produced televisions or that South Korea should have produced steel? How is any dictator or politician or economist in a position to have that knowledge? (This is basically Hayek's critique of socialism and price controls.) This is the problem with protectionism and industrial policy--Taiwan was evidently careful to support "seedlings" without creating "greenhouses" but where does one draw the line? Taiwan's economic planner made a strategic and controversial choice to invest state funds into microprocessor research and manufacturing. Hindsight bias can say that was the correct call. I am reminded of the sum of what I learned in one of my grad school economic development courses comparing economic policy among Asian economies, taught by a disciple of Amartya Sen: "There are many recipes" and "it depends." One could argue that Chile suffered from the resource curse (ie: minerals) making it difficult to export anything else whereas Taiwan (and Hong Kong) benefited by having no such resources and being forced to innovate.
One area I have come to disagree with libertarians (and the author) on is in regards to antitrust and breaking up monopolies. Appelbaum documents how the University of Chicago ultimately influenced a host of people who radically transformed/weakened antitrust law in the belief that antitrust was not helping the consumer, but rather harming the consumer by punishing companies from being successful. That lower prices are never anticompetitive behavior, but rather signs of efficiency. Acemoğlu and Robinson's Why Nations Fail is the conclusive work showing that nations fail when exclusive economic structures (ie: monopolies) work to create exclusive political structures (rent-seeking behavior) and this drives away freedom, innovation, and economic growth. In the 1950s, Appelbaum writes, the the U.S. government forced IBM to divulge trade secrets about microchips so that other Western companies could also innovate and develop new technologies around it in competition with the Soviets. Now, America's largest firms spend a great deal of time and money patenting ideas and stifling competition and the government rarely gets involved in regulating predatory behavior. "The Federal Trade Commission...won 88 percent of its (antitrust) lawsuits during the first half of the 1970s. Between 1976 and 1981, the agency won 43 percent of the time." One wonders if Appelbaum may have found a reason for the great and mysterious U.S. productivity slowdown seen from the mid-1970s onward.
Appelbaum writes that the Economists' Hour ended sometime about the time the Bush Administration pushed through TARP and bought equity in the largest financial firms in order to stave off the downturn. Keynesian stimulus was back in vogue and behavioral economists, who argue that markets are irrational and prices are not always right, were finally ascendant. (The election of Donald Trump, who openly rejects free trade, tweets threateningly at the Chairman of the Federal Reserve, and affects stock prices with every public comment, put the nail in the coffin.) He writes that his point is that "markets are constructed by people, for purposes chosen by people--and they can be changed and rebuilt by people." He's essentially arguing that economic policies may have led to overall economic growth and been beneficial to some, but the costs to others were too-often ignored, leading to our current peril. While markets are awesome, "(t)he willful indifference to the distribution of prosperity over the last half century is an important reason the very survival of liberal democracy is now being tested...our shared bonds will last longer if we can find ways to reduce the strain."
But this book, like the others Appelbaum dusted off at the Library of Congress, will soon be forgotten. The financial banks and political entities that worked so hard over the years to fund education and politicians that promote lax antitrust regulation, tax-friendly policies, and special investment vehicles are still alive and well-- as Appelbaum documents (ex: Art Laffer is still invited to speak to policymakers about tax policy). Zombies never die, history repeats itself, and "this time" is always "different." I give this book four stars out of five. Definitely read the footnotes for insight and the author's nuances.
January 25, 2021
Binyamin Appelbaum produces a stunning overview of the changes in the role and prestige of economists from the 1960s to the present. I majored in economics and think myself fairly conversant, but I was not fully aware of the extent to which economic language and methods are relatively new to society; a shift amounting to nothing less than a revolution. Appelbaum describes how in the 1950s, there were no economists working in the Federal Reserve's leadership, instead being treated there and elsewhere as primarily data analysts. Over the course of the book, he looks at how in fields from taxation and currency valuation, to antitrust and corporate regulation, economists propounded a particular laissez-faire approach to policymaking with often devastating consequences.
What particularly struck me is the naked ideology described in the narrative. Milton Friedman shows up repeatedly, bringing a libertarian approach to topics from the draft to tax cuts but his motivation is not evidence, but belief in "freedom". Alan Greenspan is the chief proponent of zero regulation in the financial sector, despite mounting abuses and failures. The narrative highlights the extent to which economists were declaring truths that they did not have evidence for; an unearned confidence that remains today. I don't think Appelbaum believes, nor do I, that the pre-economic ways of thinking were ideal. Tools such as cost-benefit analysis or principles of quantifying problems are clearly beneficial. But for all the economic discussion of positive vs. normative analysis, the ideology clearly shaped (and shapes) the kinds of analyses being proposed, and excludes factors that a society might wish to include. It's particularly shocking when confronted with the human costs of this thinking; in the gutted Rust Belt, in Pinochet's Chile. Even more so when you recognize how deep this neoliberal ideology rooted itself, since most of the relevant actors knew these costs and forged ahead anyway.
I strongly recommend this book; it's an invaluable reminder of the relative newness of certain "facts" that neoliberalism has tended to portray as such. For economists, lauded by society, it's a suggestion to preserve some humility. In an era of rising populism and criticisms of capitalism it remains to be seen whether we can build something better, but I hope this book will give us some of the context to get us there.
What particularly struck me is the naked ideology described in the narrative. Milton Friedman shows up repeatedly, bringing a libertarian approach to topics from the draft to tax cuts but his motivation is not evidence, but belief in "freedom". Alan Greenspan is the chief proponent of zero regulation in the financial sector, despite mounting abuses and failures. The narrative highlights the extent to which economists were declaring truths that they did not have evidence for; an unearned confidence that remains today. I don't think Appelbaum believes, nor do I, that the pre-economic ways of thinking were ideal. Tools such as cost-benefit analysis or principles of quantifying problems are clearly beneficial. But for all the economic discussion of positive vs. normative analysis, the ideology clearly shaped (and shapes) the kinds of analyses being proposed, and excludes factors that a society might wish to include. It's particularly shocking when confronted with the human costs of this thinking; in the gutted Rust Belt, in Pinochet's Chile. Even more so when you recognize how deep this neoliberal ideology rooted itself, since most of the relevant actors knew these costs and forged ahead anyway.
I strongly recommend this book; it's an invaluable reminder of the relative newness of certain "facts" that neoliberalism has tended to portray as such. For economists, lauded by society, it's a suggestion to preserve some humility. In an era of rising populism and criticisms of capitalism it remains to be seen whether we can build something better, but I hope this book will give us some of the context to get us there.
June 15, 2020
I think appelbaum makes some interesting points and his main one is that wealth and income inequality is what the economics of the past fifty years has created, which is bad for the general welfare of all americans. this I wholeheartedly agree with because as evidenced by los angeles elitist private school h*rvard-w*stlake, making a small handful of people uber rich does not at all improve society. this book does not try to hide that it is biased, which is fine, but as I learned in ap united states history (apus), retelling history, even economic history, is inherently opinionated. I would have liked more analysis on policies that appelbaum claims were actually beneficial policies, and why they worked as opposed to simply stating that they did work. I suppose for the sake of making the book more accessible to the public and also making his point he didn't but it is fine. the best part is the epigraph in chapter four from john kenneth galbraith, which says, "what is called sound economics is very often what mirrors the needs of the respectably affulent."
June 5, 2020
Outstanding recount of how the profession of "Economist" went from being a nerdy back-office position to become the creators of policy that affect millions.
The first 2/3 of the book are outstandingly rich but the book plateaus there and the remainder is kind of lacklustre as the direction the book takes in the period since the 1990's is as you would expect it to be taken, but the depth presented is nowhere near as rich as the pre-1990's session... even exposing a somewhat ideological rather than pragmatic stance at the end.
The book feels like it could have been improved greatly had the author had more time - and maybe data skills - on his hands.
The first 2/3 of the book are outstandingly rich but the book plateaus there and the remainder is kind of lacklustre as the direction the book takes in the period since the 1990's is as you would expect it to be taken, but the depth presented is nowhere near as rich as the pre-1990's session... even exposing a somewhat ideological rather than pragmatic stance at the end.
The book feels like it could have been improved greatly had the author had more time - and maybe data skills - on his hands.
August 3, 2021
It's a story as old as time. Things were going well, or well enough. The country was prospering for large swaths of the population. Of course, things were not perfect. Nevertheless, the country was as prosperous as it had ever been. Then a small group of true believers began to wonder if they could go further. Well, that was our story here in America. In the Economists' Hour, Appelbaum retells how the political economy that gave rise to mid-century prosperity was captured, spurred on under the cover provided by the ideologues for free markets. The storytelling is not perfect, it was a little too focused on personalities and historical vignettes, and a fuller account would have seamed the threads and closed the loop with big business and the funding provided by capital in its triumph over labor. Nevertheless, this work added to the growing literature chronicling how the old right and the new right seized upon the window of opportunity created by post-industrialization and steered the economy into the free market excesses of 80s, 90s, 2000s, and 2010s.
February 23, 2020
There are important ideas in this book, mainly having to do with the mismatch between the poverty of economic models and the enormous trust placed in them by politicians from Reagan onward. Generally, as economists have wielded more authority among politicians, inequality has flourished and competition has suffered at the hands of megacorporations and their lobbyists. This is important history to know. But the book keeps veering away from its key claims and going into silly potted histories about the economists themselves, about sharing a Buick and playing tennis and trading quips and so on, as if some editor is hovering over Appelbaum's shoulder and telling him to keep things light and personal, and to avoid exploring ideas in any depth. The pity is that I am sure Appelbaum could have written such a more interesting book. Frustrating.
September 5, 2019
This is a very important book. I knew some of the story, but filling in the details was sometimes shocking. The first chapter about how Milton Friedman attempted to end the draft was too long ad didn't seem particularly relevant and there were some sections where I felt that I had already read, but other than that, the research was exquisite. I've already downloaded several books from the notes where I wanted more detail about some subjects, Everyone who has a bank account or a job should read this book and realize how we have been exploited by those who have the wealth and power today. Maybe then there might be hope that something might change.
September 14, 2020
One of my new favorite books! This book introduces the major ideas and people in the history of economic policy in America. So many great examples of how technocracy merged w/ policymaking over the years. Personally, it was fascinating to contrast the history with tech-driven policy today and the views of government / markets that many people around me seem to hold.
It's centered around the characters that drove the movement, which makes it especially fun / interesting to read — Appelbaum's observations and dry humor made me laugh out loud at multiple points during the book. Reminds me a lot of the existentialist philosophy equivalent (another fav) At the Existentialist Cafe.
It's centered around the characters that drove the movement, which makes it especially fun / interesting to read — Appelbaum's observations and dry humor made me laugh out loud at multiple points during the book. Reminds me a lot of the existentialist philosophy equivalent (another fav) At the Existentialist Cafe.
October 1, 2019
A fantastic book detailing the fascinating history behind the current economic consensus. Very well written, and very approachable. Highly recommended for those interested in fiscal and monetary policy, the Chicago school, and finance.
June 6, 2021
This book describes the history of (mostly American) Economics, and how Economists have come to be regarded as first class advisors, starting from a largely ignored position, sitting in the proverbial "basement" of policy institutions. It is a dense but very informative read, and sets the tone to understand decisions made by governments in clearer terms with regard to our own experience in the past, helping us understand political and economic motivations, and giving us ideas for how we can improve. It also helped me understand how economics as a human experience (across countries) is different from Economics which is typically understood as a bunch of theories. It left me more open minded in my own understanding of Economic Decision making by individuals and governments, and left me less anchored to the theories we use to understand these decisions, by exposing how these failed historically. The singular example that comes to mind is the Laffer curve, which suggests that after a point, reducing the tax rate increases overall tax revenues; this statement might be meaningless because that point might be too high to be of any practical relevance. Another example is the tradeoff between unemployment and inflation, which time and again has been seen to not be ubiquitously true.
This is an extremely well researched piece of writing in my understanding; though one would do well to be conscious of the fact the author might have some of their own biases in writing the book.
To serve my own memory, I will lay down a brief chapterwise summary of ideas in this book in this review (which I also struggled to find anywhere else). I believe a more trained economist can improve upon my review.
1. Markets in Everything:
In this chapter, the author speaks to how economists laid the foundation for government institutions to trust the functioning of markets in every aspect of public decision making. The case in particular is that of ending the military conscription, which was spurred by such pushes from economists. Notably, for the first time, Economists tried to show that the costs of ending conscription (which would be largely incurred by having to offer more competitive wages for joining the army) would be largely offset by the gains from the otherwise lost economic activity that would be generated by men who chose to not join the army, precisely because they foresaw making more wealth in other ways. Thus was seeded the idea for a marketplace for recruiting even for the military, where in people would join only of their own volition. Of course, it is naive to say that this pivot in policy was solely economic. There were strong political factors and a general dissatisfaction among the public with regard to forced conscription. Making matters complicated was the fact that it was based on a lucky draw. Further, America's involvement in a foreign conflict was seen as very different from earlier situations, if not entirely unnecessary. However, there is no doubt that economists played an irreplacable role in pushing this shift in policy.
2. Friedman vs Keynes
This chapter describes the battle of ideologies that played out in the American Economy. On the one hand was Keynes, who suggested that fiscal policy had a large role to be played in enhancing economic welfare. On the other side was Friedman, who suggested that monetary control was the only thing that could affect economic welfare, and that giving out fiscal stimuli was the same as giving out cash to the public. But because the public at large was incentivised to spend money better since they had their own skin in the game, it would be more beneficial for government to dole out cash directly instead of fiscal stimuli - for one comparison, a suggestion is made that the government could pay people to dig ditches, in which they were to find money itself. The way this played out in the American experience is that since Keynes' ideology supposedly had one in a big way post the 1930s depression, it continued to have the upper hand for most of the next half century; but eventually, Friedman's legacy was stamped all over the world in terms of governments shifting to reduced fiscal involvement and more monetary intervention
3. One Nation - Under Employed
This chapter notices the end of the Keynesian era where there was a limit hit with respect to unemployment being solved at the cost of inflation. The American political system realised that fiscal stimulus was no longer cutting it, and that austerity was required in order to bring down inflation which had its own perils. What follows is a description of this austerity under the Reagan administration, and then even under the Clinton administration, who had explicitly sought at first to increase spending, but was mellowed down by his advisors.
4. Representation Without Taxation
This chapter describes the pivot towards a policy of reducing taxation in order to increase incentives for people to earn more, which would supposedly more than offset the losses due to a decrease in percentage taxed. In other words, the size of the pie taken would increase even though the fraction would reduce, because the entire pie itself would become much larger. Remarkably, this trend was observed not only in America, but also the remaining developed world such as Europe and Japan. This was most strongly supported by economists such as Mundell and Laffer. However, this came at its own cost. The trickle down effect of low corporate and income taxes did not ever kick in, and government did not reduce its spending as much as it reduced its revenue collection. This led to a surge in public debt, which was conveniently down played as cheap credit flowed in from first Japan, and then a decade or so later, from China. However, it did mean that post the decrease, governments did have to resort to austerity to bring public debt rates in control. However, tax rates have since not been higher than 40 percent in any part of the developed world; and since government spending has only boomed every since, the world has seen a shift to the norm of deficit financing.
5. In Corporations We Trust
This chapter describes the emergence of the Chicago School of Antitrust, or rather, Protrust, brewed by characters such as George Stiegler, Richard Posner and Richard Bork. This school radically altered antitrust regulation in favour of deregulations and not meddling with large corporations - in terms of blocking mergers or anticompetitive pricing. The bedrock of this shift was the newfound arguments in economics which characterised law as a manifestation of economics itself (Even historically, according to Posner). Bork and Stieglier gave economic arguments for the instability and infeasibility of large of cartels, sustained anti competitive or predatory pricing and the losses of large scale vertical mergers. It was argued that the erstwhile arguments against each of these were political rather than economic, and they needed replacement. While there was merit in the political reasons for the work of antitrust law in terms of not wanting to allow concentration of power and keeping bargaining power evenly balanced between corporations and wage earners, it would be unfair to say that these arguments are not sound Economics. However, what is also true is that there is not much evidence of loss to consumers due to lesser antitrust regulation, at least not directly. However, some of these counterfactuals are impossible to estimate, such as the drop in innovation due to the persistence of large conglomerates, and the effect on democratic conduct. In recent times, the law community has asked for a revisit and reconsideration of this policy due to various reasons, and examples of growing monopolies such as Amazon.
6. Freedom from Regulation
This chapter charts out the path of civil aviation and trucking the United States from being heavily regulated to being entirely deregulated. This led to falling prices for transportation and shipping, and much higher utilization. The experience was also felt in Europe, notably Britain and Ireland. However, while the US experience has been to replace heavy regulation with non regulation, the European experience has been to keep limited regulation in favour of preserving high levels of competition. The author concludes with the idea that while deregulation helps, absolute deregulation comes with its own problems, and in the specific cases of the airline industry and internet service providers, Europe is doing better than the US because of its predilection to actively maintaining competition. As a side point, we learn the etymology of the tile of the book, the term Economists's hour, which was introduced by Thomas McGraw in his book "Prophets of Regulation".
7. The Value of Life
In the spirit of cost benefit analysis of the previous chapter, the author continues down the line of where cost benefit analysis must find its ultimate gold standard - in the analysis of policy relating to human life. Placing a value on human life prior to the economists' hour was considered unethical. The first precedent in changing this mindset was the emergence of life insurance in Britain in the mid 19th century, where people started examining and pinning down the value of life. This was important from a policy perspective, because at present, the US government was passing law to protect human life without a consideration of the costs of such law, because human life was declared unquestionably paramount. It was the same line of argumentation which allowed unlimited military spending, as well as more benign restrictions such as the recall of potentially fatal armchairs and passing of law which protects cotton pickers from getting their lungs hurt by occupational hazards. The conclusion of the chapter is that overcoming opposition time and again, the valuation of life seeped into American policy making, which changed decision making to now happen more on economic than political grounds. What remained was a debate on specific numbers; and the value of life increased steadily starting at around 1 million dollars to near 10 million dollars with the Obama administration. This number was important; a higher value permitted higher regulation, as a general rule.
8. Money, Problems
This chapter describes the journey of international monetary policy from the Bretton Woods agreement post World War 2, where the US laid down fixed exchange rate between currencies, to the reversal of this agreement. Closely tied to this was the idea that the US would compensate any bearer of US dealers with a fixed amount of gold per dollar. This largely crippled the United States, because while its currency was pegged to the gold standard, other economies were freer in calibrating their currency. In particular, Japan and Germany made great use of this situation, by becoming huge exporters to the US. Their goods found a ready market in the US as they turned out to be cheaper than domestic American goods. While the exact monetary dynamic behind this has not been explained by the author, one can presume that this happened because these countries were able to artifically lower the prices on their exports by printing less money, thereby making their currency more valuable and increasing purchasing power for Americans. It was soon understood that this pegging of exchange rates was infeasible, and after a bunch of haggling between nations, the world eventually settled on truly floating exchange rates and removal of the pegging of the US dollar to the gold standard. This shift in paradigm gave great power to the US in the international economy - one reason for this was that the USD became the currency of the world. Countries would trade amongst each other on the basis of the USD. However, this floating of exchange rates has come with its share of problems - Japan and China were able to stealthily control their currencies, make their goods cheap in the US market and hoard large amounts of US dollars, simultaneously unfairly pushing their economies as well as gaining control of American assets. The author also describes the creation of the Euro; with its motivations lying in avoiding the problems of freely floating currencies posing transactions costs for trade within Europe. This was also an imperfect compromise, and countries which were economically weaker which agreed to adopt the Euro suffered.
9. Made in Chile
In this chapter, the author constrasts the Chilean and Taiwanese experiences of growth. While Chile maintained extreme free market policies which resulted in debilitating social and economic inequality in the country, Taiwan pursued a protectionist policy starting out, gradually liberalising its economy. It made impactful decisions of splitting land holdings between the actual tillers of the land, increasing equity as well as efficiency at the same time; while Chile in the name of free markets continued to be controlled by a handful of powerful decision makers.
10. Paper Fish
In the final chapter of the book, the author moves almost to the present. He describes the history of financial deregulation - where in secondary markets in derivates were left entirely de regulated. He points out how this has time and again led to systematic fraud - and contrasts arguments by stalwarts such as Greenspan who thought of this as the market punishing the idiots, vs the author's (among other economists') view of this as a systematic information asymmetry based market failure. He alludes to this leading to the financial crisis of 2008, which didn't change much in the name of deregulation. He gives the example of Iceland, which completely deregulated its financial services industry, culminating in severe fraud to the effect of about 70,000 USD per citizen. While Iceland punished its wrongdoers by sending them to prison, America did not.
Conclusion:
In conclusion, the author describes the journey of policy making from being entirely political to moving its to burden economists, systematically. While the world benefitted from deregulation at large, it is also true that deregulation is not to be favoured at every time and in extreme. The author argues that the Economist's hour partly ended in 2008, based on the government's response (or lack thereof) to the crisis. However, this seems like a myopic conclusion, especially based on evidence from the book itself, where the author has shown how it has taken time to convince decision makers of economic arguments to devise better policy. There is a particular focus on how inequality has systematically risen in the developed world, especially in America, and how that is making its citizens worse off, and the economy suffer. Partial blame rests with the American social security net, especially in terms of healthcare, whereby pepole lead harder lives because basic welfare is not guaranteed.
This is an extremely well researched piece of writing in my understanding; though one would do well to be conscious of the fact the author might have some of their own biases in writing the book.
To serve my own memory, I will lay down a brief chapterwise summary of ideas in this book in this review (which I also struggled to find anywhere else). I believe a more trained economist can improve upon my review.
1. Markets in Everything:
In this chapter, the author speaks to how economists laid the foundation for government institutions to trust the functioning of markets in every aspect of public decision making. The case in particular is that of ending the military conscription, which was spurred by such pushes from economists. Notably, for the first time, Economists tried to show that the costs of ending conscription (which would be largely incurred by having to offer more competitive wages for joining the army) would be largely offset by the gains from the otherwise lost economic activity that would be generated by men who chose to not join the army, precisely because they foresaw making more wealth in other ways. Thus was seeded the idea for a marketplace for recruiting even for the military, where in people would join only of their own volition. Of course, it is naive to say that this pivot in policy was solely economic. There were strong political factors and a general dissatisfaction among the public with regard to forced conscription. Making matters complicated was the fact that it was based on a lucky draw. Further, America's involvement in a foreign conflict was seen as very different from earlier situations, if not entirely unnecessary. However, there is no doubt that economists played an irreplacable role in pushing this shift in policy.
2. Friedman vs Keynes
This chapter describes the battle of ideologies that played out in the American Economy. On the one hand was Keynes, who suggested that fiscal policy had a large role to be played in enhancing economic welfare. On the other side was Friedman, who suggested that monetary control was the only thing that could affect economic welfare, and that giving out fiscal stimuli was the same as giving out cash to the public. But because the public at large was incentivised to spend money better since they had their own skin in the game, it would be more beneficial for government to dole out cash directly instead of fiscal stimuli - for one comparison, a suggestion is made that the government could pay people to dig ditches, in which they were to find money itself. The way this played out in the American experience is that since Keynes' ideology supposedly had one in a big way post the 1930s depression, it continued to have the upper hand for most of the next half century; but eventually, Friedman's legacy was stamped all over the world in terms of governments shifting to reduced fiscal involvement and more monetary intervention
3. One Nation - Under Employed
This chapter notices the end of the Keynesian era where there was a limit hit with respect to unemployment being solved at the cost of inflation. The American political system realised that fiscal stimulus was no longer cutting it, and that austerity was required in order to bring down inflation which had its own perils. What follows is a description of this austerity under the Reagan administration, and then even under the Clinton administration, who had explicitly sought at first to increase spending, but was mellowed down by his advisors.
4. Representation Without Taxation
This chapter describes the pivot towards a policy of reducing taxation in order to increase incentives for people to earn more, which would supposedly more than offset the losses due to a decrease in percentage taxed. In other words, the size of the pie taken would increase even though the fraction would reduce, because the entire pie itself would become much larger. Remarkably, this trend was observed not only in America, but also the remaining developed world such as Europe and Japan. This was most strongly supported by economists such as Mundell and Laffer. However, this came at its own cost. The trickle down effect of low corporate and income taxes did not ever kick in, and government did not reduce its spending as much as it reduced its revenue collection. This led to a surge in public debt, which was conveniently down played as cheap credit flowed in from first Japan, and then a decade or so later, from China. However, it did mean that post the decrease, governments did have to resort to austerity to bring public debt rates in control. However, tax rates have since not been higher than 40 percent in any part of the developed world; and since government spending has only boomed every since, the world has seen a shift to the norm of deficit financing.
5. In Corporations We Trust
This chapter describes the emergence of the Chicago School of Antitrust, or rather, Protrust, brewed by characters such as George Stiegler, Richard Posner and Richard Bork. This school radically altered antitrust regulation in favour of deregulations and not meddling with large corporations - in terms of blocking mergers or anticompetitive pricing. The bedrock of this shift was the newfound arguments in economics which characterised law as a manifestation of economics itself (Even historically, according to Posner). Bork and Stieglier gave economic arguments for the instability and infeasibility of large of cartels, sustained anti competitive or predatory pricing and the losses of large scale vertical mergers. It was argued that the erstwhile arguments against each of these were political rather than economic, and they needed replacement. While there was merit in the political reasons for the work of antitrust law in terms of not wanting to allow concentration of power and keeping bargaining power evenly balanced between corporations and wage earners, it would be unfair to say that these arguments are not sound Economics. However, what is also true is that there is not much evidence of loss to consumers due to lesser antitrust regulation, at least not directly. However, some of these counterfactuals are impossible to estimate, such as the drop in innovation due to the persistence of large conglomerates, and the effect on democratic conduct. In recent times, the law community has asked for a revisit and reconsideration of this policy due to various reasons, and examples of growing monopolies such as Amazon.
6. Freedom from Regulation
This chapter charts out the path of civil aviation and trucking the United States from being heavily regulated to being entirely deregulated. This led to falling prices for transportation and shipping, and much higher utilization. The experience was also felt in Europe, notably Britain and Ireland. However, while the US experience has been to replace heavy regulation with non regulation, the European experience has been to keep limited regulation in favour of preserving high levels of competition. The author concludes with the idea that while deregulation helps, absolute deregulation comes with its own problems, and in the specific cases of the airline industry and internet service providers, Europe is doing better than the US because of its predilection to actively maintaining competition. As a side point, we learn the etymology of the tile of the book, the term Economists's hour, which was introduced by Thomas McGraw in his book "Prophets of Regulation".
7. The Value of Life
In the spirit of cost benefit analysis of the previous chapter, the author continues down the line of where cost benefit analysis must find its ultimate gold standard - in the analysis of policy relating to human life. Placing a value on human life prior to the economists' hour was considered unethical. The first precedent in changing this mindset was the emergence of life insurance in Britain in the mid 19th century, where people started examining and pinning down the value of life. This was important from a policy perspective, because at present, the US government was passing law to protect human life without a consideration of the costs of such law, because human life was declared unquestionably paramount. It was the same line of argumentation which allowed unlimited military spending, as well as more benign restrictions such as the recall of potentially fatal armchairs and passing of law which protects cotton pickers from getting their lungs hurt by occupational hazards. The conclusion of the chapter is that overcoming opposition time and again, the valuation of life seeped into American policy making, which changed decision making to now happen more on economic than political grounds. What remained was a debate on specific numbers; and the value of life increased steadily starting at around 1 million dollars to near 10 million dollars with the Obama administration. This number was important; a higher value permitted higher regulation, as a general rule.
8. Money, Problems
This chapter describes the journey of international monetary policy from the Bretton Woods agreement post World War 2, where the US laid down fixed exchange rate between currencies, to the reversal of this agreement. Closely tied to this was the idea that the US would compensate any bearer of US dealers with a fixed amount of gold per dollar. This largely crippled the United States, because while its currency was pegged to the gold standard, other economies were freer in calibrating their currency. In particular, Japan and Germany made great use of this situation, by becoming huge exporters to the US. Their goods found a ready market in the US as they turned out to be cheaper than domestic American goods. While the exact monetary dynamic behind this has not been explained by the author, one can presume that this happened because these countries were able to artifically lower the prices on their exports by printing less money, thereby making their currency more valuable and increasing purchasing power for Americans. It was soon understood that this pegging of exchange rates was infeasible, and after a bunch of haggling between nations, the world eventually settled on truly floating exchange rates and removal of the pegging of the US dollar to the gold standard. This shift in paradigm gave great power to the US in the international economy - one reason for this was that the USD became the currency of the world. Countries would trade amongst each other on the basis of the USD. However, this floating of exchange rates has come with its share of problems - Japan and China were able to stealthily control their currencies, make their goods cheap in the US market and hoard large amounts of US dollars, simultaneously unfairly pushing their economies as well as gaining control of American assets. The author also describes the creation of the Euro; with its motivations lying in avoiding the problems of freely floating currencies posing transactions costs for trade within Europe. This was also an imperfect compromise, and countries which were economically weaker which agreed to adopt the Euro suffered.
9. Made in Chile
In this chapter, the author constrasts the Chilean and Taiwanese experiences of growth. While Chile maintained extreme free market policies which resulted in debilitating social and economic inequality in the country, Taiwan pursued a protectionist policy starting out, gradually liberalising its economy. It made impactful decisions of splitting land holdings between the actual tillers of the land, increasing equity as well as efficiency at the same time; while Chile in the name of free markets continued to be controlled by a handful of powerful decision makers.
10. Paper Fish
In the final chapter of the book, the author moves almost to the present. He describes the history of financial deregulation - where in secondary markets in derivates were left entirely de regulated. He points out how this has time and again led to systematic fraud - and contrasts arguments by stalwarts such as Greenspan who thought of this as the market punishing the idiots, vs the author's (among other economists') view of this as a systematic information asymmetry based market failure. He alludes to this leading to the financial crisis of 2008, which didn't change much in the name of deregulation. He gives the example of Iceland, which completely deregulated its financial services industry, culminating in severe fraud to the effect of about 70,000 USD per citizen. While Iceland punished its wrongdoers by sending them to prison, America did not.
Conclusion:
In conclusion, the author describes the journey of policy making from being entirely political to moving its to burden economists, systematically. While the world benefitted from deregulation at large, it is also true that deregulation is not to be favoured at every time and in extreme. The author argues that the Economist's hour partly ended in 2008, based on the government's response (or lack thereof) to the crisis. However, this seems like a myopic conclusion, especially based on evidence from the book itself, where the author has shown how it has taken time to convince decision makers of economic arguments to devise better policy. There is a particular focus on how inequality has systematically risen in the developed world, especially in America, and how that is making its citizens worse off, and the economy suffer. Partial blame rests with the American social security net, especially in terms of healthcare, whereby pepole lead harder lives because basic welfare is not guaranteed.
October 12, 2020
Supply-side economics, Reaganomics, voodoo economics, trickle-down economics, call it what you will, but the neoclassical theories of Milton Friedman and his acolytes have oriented economic policy making in America, Britain, and much of the rest of the world for the last few decades. In this detailed, yet approachable, work of economic history, Mr. Appelbaum traces its roots, its disciples, its benefits and its costs.
On the periphery of economic thinking in the immediate post-WWII American boom, Mr. Appelbaum shows how Milton Friedman and other neoclassical economists had sharpened their knives in the background until 1970s stagflation and the rise of conservative politics embodied in Ronald Reagan gave them the chance to finally put their theories into practice by cutting taxes, deregulating large sections of the economy, and floating currency exchange rates birthed the market economy that we have today. This is a book that could’ve easily fallen into a hell of minute details, but Mr. Appelbaum admirably makes this book accessible even for someone who has never learned a thing about economics. There are still the occasionally head spinning data points, but they are used sparingly.
Another great aspect of this book is how even handed the analysis feels. Mr. Appelbaum does make his criticisms of the neoclassical economists quite plain throughout, particularly shining a light on how uneven the economic gains of the last few decades have been. However, he also does a good job of showing the failures of Keynesian economists to arrest stagflation in the 1970s and how the neoclassical economists of the period, such as Paul Volker, aggressively implemented new thinking that helped rescue the economy. But for every economic action there is an equal and opposite economic reaction, as Mr. Appelbaum ably points out on every page. This book could’ve easily been a polemical railing against Friedman and other neoclassical economists, and occasionally it is. But I felt the judgements to fair and balanced on the whole.
The great takeaway from this book, and one that will plague policy makers and voters for the several years, is that markets are made by people, not impersonal forces. Neoclassical theories may lead to more efficient economic outcomes, but not always fair or just outcomes. So striking that balance between efficient and fair is our present challenge. I highly recommend this book to anyone interested in learning more about how we got to the present economic moment and want to try to imagine how it might be different.
On the periphery of economic thinking in the immediate post-WWII American boom, Mr. Appelbaum shows how Milton Friedman and other neoclassical economists had sharpened their knives in the background until 1970s stagflation and the rise of conservative politics embodied in Ronald Reagan gave them the chance to finally put their theories into practice by cutting taxes, deregulating large sections of the economy, and floating currency exchange rates birthed the market economy that we have today. This is a book that could’ve easily fallen into a hell of minute details, but Mr. Appelbaum admirably makes this book accessible even for someone who has never learned a thing about economics. There are still the occasionally head spinning data points, but they are used sparingly.
Another great aspect of this book is how even handed the analysis feels. Mr. Appelbaum does make his criticisms of the neoclassical economists quite plain throughout, particularly shining a light on how uneven the economic gains of the last few decades have been. However, he also does a good job of showing the failures of Keynesian economists to arrest stagflation in the 1970s and how the neoclassical economists of the period, such as Paul Volker, aggressively implemented new thinking that helped rescue the economy. But for every economic action there is an equal and opposite economic reaction, as Mr. Appelbaum ably points out on every page. This book could’ve easily been a polemical railing against Friedman and other neoclassical economists, and occasionally it is. But I felt the judgements to fair and balanced on the whole.
The great takeaway from this book, and one that will plague policy makers and voters for the several years, is that markets are made by people, not impersonal forces. Neoclassical theories may lead to more efficient economic outcomes, but not always fair or just outcomes. So striking that balance between efficient and fair is our present challenge. I highly recommend this book to anyone interested in learning more about how we got to the present economic moment and want to try to imagine how it might be different.
October 19, 2019
As one who has no understanding of economic principles, especially on the national level, I really appreciated this book. I began to understand the influence economists have had on US economic policies. I appreciated the history of how economists began to influence governmental decisions. I also appreciate more the tough decisions government officials need to make to keep the economy running as they desire. Do you print money to stimulate job growth or not? Do you cut taxes to stimulate the economy and raise interest rates to control inflation? Do you cut spending? How are decisions made when they affect other nations as well?
I'm not sure of Appelbaum's political persuasion but it seems he highlights the failed actions of Republicans while pointing out the successful actions of Democrats. He notes the failure of the Reagan “supply-side” economics. The promised benefits did not materialize after the rich saw their tax rates decline considerably. As a result, “After-tax income inequality in the United States rose faster during the mid-1980s than during any other period in the postwar era.” (Loc 1996/9460) Clinton restored tax hikes. “Under Clinton, the economy boomed and deficits vanished.” (Loc 2038/9460) Bush's tax cuts failed too, Applebaum notes, and the US had to borrow from China.
This is a long book and it took this layperson (with respect to economic and governmental policies) a long time to get through it. I'm glad I did, however, as now I understand more how difficult the task is to make the most effective economic decisions.
I received a complimentary egalley of this book from the publisher. My comments are an honest and independent review.
I'm not sure of Appelbaum's political persuasion but it seems he highlights the failed actions of Republicans while pointing out the successful actions of Democrats. He notes the failure of the Reagan “supply-side” economics. The promised benefits did not materialize after the rich saw their tax rates decline considerably. As a result, “After-tax income inequality in the United States rose faster during the mid-1980s than during any other period in the postwar era.” (Loc 1996/9460) Clinton restored tax hikes. “Under Clinton, the economy boomed and deficits vanished.” (Loc 2038/9460) Bush's tax cuts failed too, Applebaum notes, and the US had to borrow from China.
This is a long book and it took this layperson (with respect to economic and governmental policies) a long time to get through it. I'm glad I did, however, as now I understand more how difficult the task is to make the most effective economic decisions.
I received a complimentary egalley of this book from the publisher. My comments are an honest and independent review.
November 2, 2019
A disheartening book. The United States no longer has any autonomy with regard to control of its own currency. And we need not value gold, the laws of Congress nor Supreme Court rulings. Rejoicing in this, Alan Greenspan tells us in 2007, “We are fortunate that, thanks to globalization, policy decisions in the United States have been largely replaced by global market forces. . . it hardly makes any difference who will be the next president. The world is governed by market forces.” Unfortunately we can't regain our autonomy by disengaging from the rest of the world can't work either; we can't stop trading with each other unless we want to give up our cell phones, computers, etc. But we can implement better laws if only they weren't written by the financial industry who won't allow basic regulation such as making their book keeping available for review.
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