Binyamin Appelbaum On 'The Economists' Hour'
NOEL KING, HOST:
Picture this. In the early 1950s, a young guy is working at a desk deep inside the Federal Reserve Bank of New York. It's not exactly a corner office. And he complains to his wife that he has no future there at the Fed. He's not a banker. He's not a lawyer. He is a lowly economist. That is what life is like for economists in the 1950s.
BINYAMIN APPELBAUM: Nobody respects them, in part, just because economics was a new thing in the world. The idea that people could manage economic conditions, could improve economic conditions - these were new ideas in the world. I mean, it's just stunning to think about that era. It was so different.
KING: That is Binyamin Appelbaum. He writes about economics for The New York Times, and he's written a new book, called, "The Economists' Hour" that traces what he calls a revolution in the way we think about economists.
APPELBAUM: This quiet but really important revolution that happens, really, beginning in the late 1960s and the early 1970s, where economists begin to gain tremendous influence over public policy in the United States.
KING: In fact, that young economist who told his wife he had no future at the Fed, that was Paul Volcker. He became one of a small group of economists who made themselves indispensable to U.S. presidents. Volcker rose to become the chairman of the Federal Reserve in the Carter and Reagan years.
So I asked Appelbaum, how did a bunch of economists go from nobodies to being important people? And he said it's pretty simple. In an era of real economic problems, they promised solutions.
APPELBAUM: By the early 1970s, it's really becoming clear that something is wrong with the American economy. People worry about their own future, their children's future. And economists are enormously successful in asserting that they can fix the problem. And their answer is basically that government needs to reduce its role in the economy, that bureaucrats need to take their hands off the economy and allow markets to allocate resources. Government needs to trust in markets.
KING: And this idea came from many economists. But there was one economist in particular - in your book, you write about him a lot - and that's Milton Friedman. Milton Friedman had this very, very simple idea that proved to be enormously popular. And along the way, Milton Friedman became, like, kind of a household name.
APPELBAUM: He's a remarkable person. He is this elfin libertarian who commands any room that he's in, even though he's often the smallest person in the room. And he's enormously successful essentially in proselytizing this idea that the solution to almost every public policy problem is for government to get out of the way. And it has enormous appeal, I think, in part, because of its modesty. He's not saying Milton Friedman should be in charge of the economy. He's saying, neither I nor anyone else should be in charge. And for a generation that is confronting the failure of the economy, this has enormous appeal.
KING: So at the heart of your thesis is not necessarily that Milton Friedman was correct. You talk about these really negative unintended consequences that come from this idea that the market is always right. In 2019, when we look back at the legacy of Milton Friedman and others like him, with their faith in the markets, where does that leave us now?
APPELBAUM: Economists really emphasized that there was a tradeoff between efficiency, meaning getting the economy to grow as quickly as possible, and equality, meaning that everybody shared in the rewards of prosperity. And they argued that government needed to focus on efficiency, that the goal of public policy should be to make the economy grow as fast as possible, get as big as possible, but by ignoring inequality, by deciding, basically, that government should stop trying to equalize the distribution of prosperity or the opportunities to prosper. It really contributed significantly to the rise of massive inequality in our society.
KING: You've been writing about economics for years. And I wonder, when you were researching this book, were there any moments where you said, that's not what I thought it was?
APPELBAUM: I'll tell you what I did not appreciate when I started this process. I did not understand the extent to which economists in the '70s were responding to real problems, to a real breakdown in our system of governance and economic policy, the extent to which these free-market ideas really gained prominence and popularity because of a broad perception that what we were doing had failed.
KING: That is the thing, though, that makes me want to spring to the defense of economists. I mean, I was unaware, or only aware in a very vague sense, that in the '70s this country hit inflation at, like, 11%, 12%, which is unthinkable now. Right? We haven't seen inflation like that in years. Our money has been stable in this country. There are so many other countries that don't have that luxury. It makes me think, well, don't these guys deserve a lot of credit for the fact that my dollar is going to be worth, in a year, about a dollar, as opposed to 70 cents?
APPELBAUM: I think they do deserve a lot of credit. I think it's a classic example of a revolution that went too far. The gains are real. The benefits are real. Economists brought a lot of discipline to policymaking. In a lot of ways, they improved the quality of public policy. But by sort of embracing that idea to the exclusion of any other priorities, by saying, we're just going to focus on efficiency. By advocating for economists to take the wheel and excluding other points of view, we ended up in a really problematic place.
KING: What about the opening of markets worldwide, the phenomenon of globalization, the massive shifts that took place with globalization? I mean, don't those play a role in inequality? Can you really lay this at the feet of a handful of guys who influenced a handful of presidents?
APPELBAUM: I don't mean to assign sole responsibility to economists...
KING: OK. (Laughter).
APPELBAUM: ...But I do think they played an important role. There obviously were forces at work beyond the control of any policymaker. You know, manufacturing has spread much more evenly across the face of the globe. Prosperity has spread much more evenly across the face of the globe. And that's been a really good thing for billions - with a B - of people, and none of that should be minimized.
But I do think it is the case that economists in the United States and in other developed nations made that process much more painful for the average American, that the policies that they implemented or convinced policymakers to implement had the effect on the whole of concentrating the benefits of globalization in relatively few hands and of leaving many Americans to suffer the consequences.
KING: Well, what do you think should happen now? I mean, economists are pretty firmly installed where they are. They do have the ears of presidents. What do you think should happen?
APPELBAUM: I'm not advocating for getting rid of economists...
APPELBAUM: ...To be clear.
KING: (Laughter). Again, they'll be thrilled to know.
APPELBAUM: Absolutely. I think that our problem is inequality. And the solution is to make inequality an explicit focus of public policy, not just, is this good for society as a whole, which is a meaningless abstraction, but who actually will be the beneficiaries? And if the answer is, you know, that wealth concentrates at the top, we ought to reconsider those policies.
KING: Binyamin Appelbaum, thanks so much.
APPELBAUM: Thank you.
KING: Binyamin Appelbaum is author of "The Economists' Hour."
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