The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society

How much does it cost one person to make a chicken sandwich? New York Times financial columnist Binyamin Appelbaum knows the answer. As he footnotes in his vibrant, trenchant The Economists’ Hour, a YouTube aficionado named Andy George documented the process on video over six months, growing his own lettuce and wheat, evaporating sea water for salt, milking a cow, and killing a chicken. The result was a $1500 sandwich, three hundred times the $5 of a McChicken at the fabled Golden Arches. George’s expensive, time-consuming exploit proves a simple point, says Appelbaum: a network of specialization is key to production, as different parties – lettuce and wheat farmers, poultry entrepreneurs, Morton Salt – converge on that McChicken (or Popeyes’ sandwich, the current gold standard). It’s this kind of transaction that global markets require to function efficiently – or as Appelbaum argues, “There are few theories that command such broad agreement among economists as the assertion that free trade benefits all participating nations.”

Today’s markets stand on a seventy-five-year-old bedrock of ruin and rubble. After D-Day in 1944, as World War II was winding down, the triumphant Allies swore a pact to shun the economic disparities that had fueled the rise of Hitler and other despots. By forging the Bretton Woods agreement (named after the New Hampshire town where they convened) they hoped to establish a fixed monetary order that would usher in prosperity – and an uneasy peace — for all.

The Bretton Woods system ceded monetary policy to governments, and for a while it worked. But there were naysayers, among them Milton Friedman, a young economist from the University of Chicago and the fulcrum of Appelbaum’s story. Friedman believed that governmental jurisdiction would straitjacket markets and cripple growth. He advocated a floating exchange rate that would nudge governments out of the way, allowing markets to soar. The Economists’ Hour, then, vividly narrates the advance of Friedman and his peers out of academia and into the marbled corridors of Washington, D.C.

Through most of the first half of the Twentieth century economists were largely classroom curiosities; in the grand postwar remaking of markets their ideas were treated by policymakers largely as footnotes to the guiding work of liberal British economist John Maynard Keynes. From the federal level to local, governments pursued progressive taxation as a means of investment, a foundation for fiscal and moral growth.  “The government sought to mitigate the effects of inequality by ensuring people had the opportunity to rise, and by catching those who fell,” Appelbaum writes. “Federal spending as a share of the nation’s total economic output roughly doubled between 1948 and 1968, to 20 percent from about 10 percent. The United States built an interstate highway system, subsidized the expansion of commercial aviation, and laid the groundwork for the rise of the internet. The government also invested heavily in public education, public health care, and public pensions . . . There were plenty of problems – including the legal, social, and economic subordination of women and of African Americans – but economic gains were broadly shared.”

But then monetary policy became big business. A zealot for unfettered markets, Friedman changed everything, bringing along a coterie of transformative thinkers and doers, ushering in “the economists’ hour” (a phrase borrowed from historian Thomas McCraw) that ran from 1969 until the Great Recession of 2008. Appelbaum paints a lavish group portrait, from the famous, such as Paul Volcker and Arthur Laffer, to more obscure figures, among them Walter Oi and George Stigler.

Friedman wasn’t particularly invested in the notion that tax cuts stimulated growth, but if they shoved government to the sidelines, he was all for them. As economists migrated into Washington and state capitals, their ideas morphed into a gospel eagerly embraced by the Republican party. (One of Appelbaum’s many delicious anecdotes: Friedman helped to persuade President Nixon to end the Vietnam draft, illustrating economists’ growing clout.) In 1972 George P. Shultz became the first economist to helm the Treasury Department, implementing floating rates and tolling the death knell for Bretton Woods.

Economic expansion equaled accumulation of wealth that would float all boats . . . or so the theory ran. The reality was the opposite: to quote “Ain’t We Got Fun,” the Jazz Age song about the impoverished from another gilded age: “The rich get rich and the poor get poorer.” The salary gap between CEOs and their secretaries was poised to widen exponentially. Shultz and his ideological allies were hellbent on overturning the postwar political compact, and with Ronald Reagan they found the perfect salesman, a former B-level Hollywood actor who never strayed from a script.

And how do you solve a problem like Alan Greenspan? Appelbaum approaches the Zeus of free markets with a mix of respect, candor, and incredulity. An acolyte of the right-wing author Ayn Rand, Greenspan targeted inflation; a low rate, in his view, made it difficult to raise prices and pushed companies to pursue revenues through greater efficiency. “The difficulty, which Greenspan freely conceded in private, was that he had no evidence,” Appelbaum writes, and yet the Fed’s Chair pontificated with conviction, dazzling Presidents from Reagan to Obama. Never has a wise man deserved his laurels less.

To those familiar with Appelbaum’s Twitter feed, his sense of humor is whimsical, leavening the dense history and reflected here in headings such as “Bubble Trouble” and “Don’t Just Do Something, Stand There.” The Economists’ Hour tacks back and forth across the decades, occasionally diffusing the force and clarity of his storytelling. But after arguing passionately for capitalism’s virtues Appelbaum turns to its vices. He doesn’t hold back, indicting our fetishization of markets and greed: “Wealthy parents, for example, do not seek to improve urban schools. They move to the suburbs. America is a nation founded on the idea that it’s better to move on . . . Our problem is too many markets, and too much walking away.”

Time ran out on the economists’ hour in 2008, when the worst economic crash since the Great Depression defanged figures such as Greenspan and Volcker, and exposed the rot at the heart of our plutocracy. Appelbaum’s conclusion is stirring, as he brings a moral purpose to the inequity that plagues our politics today: “The market economy remains one of humankind’s most awesome inventions, a powerful machine for the creation of wealth. But the measure of a society is the quality of life at the bottom of the pyramid, not the top.”

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