Event Recap: Book Talk by Binyamin Appelbaum
September 24, 2019
On September 24th, the Wharton Public Policy Initiative hosted Binyamin Appelbaum for a talk on his newly released book, The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society. Appelbaum is a member of the New York Times Editorial Board and his book traces the history of the US economists’ growing influence in the policy sphere.
Professor Peter Conti-Brown, a legal historian at the Wharton School, opened the event by introducing Appelbaum citing both his prolific career as a financial journalist and his return to campus as a Penn alumnus.
Following the brief introduction, Appelbaum quickly moved into the main topic of the event – his book. He began by explaining the title, The Economists’ Hour. In his own words, it refers to “a revolution in the late 1960’s and the early 1970’s where economists began to gain new influence over policymaking in the United States.” An influence that allowed them to assert a profound impact on domestic economic policy by reshaping how the government interacted with and regulated that economy. His book follows the story of how and why this happened, and addresses the consequences of this history on our contemporary society.
To begin this story, Appelbaum addressed what came before the revolution. Prior to the 1960s, economists did not play a principal role in shaping economic policy. To give us a sense of the times, Appelbaum shared the story of a certain young economist at the Federal Reserve in the early 1950’s. At the time, the economist was relegated to the basement of the building and served mostly as a “human calculator.” He simply prepared numbers and data for the real leaders and decision makers of the Feds, none of whom were economists. Appelbaum recounted how the young man would return home and lament to his wife about how he saw no future in his career at the bank; it simply was no place for an economist. To the audience’s surprise, however, this was the story of Paul Volcker, who would later go on to become the Chairman of the Federal Reserve. Volcker in this way represented a significant paradigm shift. When he began his career, there was not yet a prominent place for economists in the Federal Reserve or the policy world at large. But by the end of the 1970s, the bank became an institution almost entirely led and staffed by economists.
Appelbaum argues that economists began to meaningfully impact public policy with changes to military service. Since the end of World War II, the US army practiced a system of annual conscription to fill its ranks. For a variety of reasons, among them the optics of the Vietnam War, Americans grew increasingly opposed to this practice however. But what brought an end to compulsory conscription was not its unpopularity, it was the decision of President Nixon motivated by the logic of economists, most notably, Milton Friedman. Friedman convinced President Nixon that conscription was an inefficient model for recruitment. For one, it ran the risk of underutilizing talent that could be served better in other sectors of society. Instead, an incentive model where you paid soldiers would not only increase retention, but also sidestep the aforementioned inefficiency. This thinking deeply resonated with President Nixon and with that we had the end to conscription policy in 1973.
With this anecdote, Appelbaum then pivoted to a deeper discussion on Milton Friedman, whose influence was both “profound and far-reaching.” Friedman was a child of the Great Depression. Unlike many of his contemporaries however, he did not survive this period believing in the importance of governmental efforts to combat poverty and inequality. Instead he believed that government should simply “get out of the way,” and allow markets to function freely. Although Friedman did not always find much support for this position at first, by the 1960s his theory gained increasing currency. In the economic slowdown that followed the “Golden Age” of post-World War II America, there was a growing sense that the paternalistic role that the government had taken was no longer working. As such, in a nation looking for a new economic model, economists provided this promise to a return to prosperity. Economists of this time argued that no one should regulate the economy because ultimately the market would regulate itself with greater efficiency. But Appelbaum shows how what ensued from the adoption of this ideology was not a deliverance of its promises, but rather significant economic problems, especially with respect to income inequality.
The last ripple cast by the economists that Appelbaum traces is one that concerns democracy at large. Due to the stratification of wealth and the widening of inequalities, Americans are starting to have less and less in common with one another. The very principle of “We the people” is being strained by differences exacerbated by the economists’ influence on our economy. In turn, Appelbaum posits that it has become harder for us to act on our collective interests because in fact that solitary is harder to define – a phenomenon he believes is well captured in the Law and Economics movement of the 20th century.
Finally, having taken a series of questions from the audience, Appelbaum closed out his lecture with a thoughtful descriptive statement about what he hopes readers and the audience takes away from his book: “Markets are seated in societies and their rules are determined by those societies. And the question of what the market does is very much in our hands. And I think we have lived in an era where what the market has produced is unacceptable, partly because we have failed to engage what those rules should be. The political process has deferred to economists not just for the achievement of our goals, but for the definition of our goals and that is where I’d like to see change.”