[Marxism] Blame Economists for the Mess We’re In

Louis Proyect lnp3 at panix.com
Sun Aug 25 10:25:03 MDT 2019

NY Times Op-Ed, August 25, 2019
Blame Economists for the Mess We’re In
By Binyamin Appelbaum

In the early 1950s, a young economist named Paul Volcker worked as a 
human calculator in an office deep inside the Federal Reserve Bank of 
New York. He crunched numbers for the people who made decisions, and he 
told his wife that he saw little chance of ever moving up. The central 
bank’s leadership included bankers, lawyers and an Iowa hog farmer, but 
not a single economist. The Fed’s chairman, a former stockbroker named 
William McChesney Martin, once told a visitor that he kept a small staff 
of economists in the basement of the Fed’s Washington headquarters. They 
were in the building, he said, because they asked good questions. They 
were in the basement because “they don’t know their own limitations.”

Martin’s distaste for economists was widely shared among the midcentury 
American elite. President Franklin Delano Roosevelt dismissed John 
Maynard Keynes, the most important economist of his generation, as an 
impractical “mathematician.” President Eisenhower, in his farewell 
address, urged Americans to keep technocrats from power. Congress rarely 
consulted economists; regulatory agencies were led and staffed by 
lawyers; courts wrote off economic evidence as irrelevant.

But a revolution was coming. As the quarter century of growth that 
followed World War II sputtered to a close, economists moved into the 
halls of power, instructing policymakers that growth could be revived by 
minimizing government’s role in managing the economy. They also warned 
that a society that sought to limit inequality would pay a price in the 
form of less growth. In the words of a British acolyte of this new 
economics, the world needed “more millionaires and more bankrupts.”

In the four decades between 1969 and 2008, economists played a leading 
role in slashing taxation of the wealthy and in curbing public 
investment. They supervised the deregulation of major sectors, including 
transportation and communications. They lionized big business, defending 
the concentration of corporate power, even as they demonized trade 
unions and opposed worker protections like minimum wage laws. Economists 
even persuaded policymakers to assign a dollar value to human life — 
around $10 million in 2019 — to assess whether regulations were worthwhile.

The revolution, like so many revolutions, went too far. Growth slowed 
and inequality soared, with devastating consequences. Perhaps the 
starkest measure of the failure of our economic policies is that the 
average American’s life expectancy is in decline, as inequalities of 
wealth have become inequalities of health. Life expectancy rose for the 
wealthiest 20 percent of Americans between 1980 and 2010. Over the same 
three decades, life expectancy declined for the poorest 20 percent of 
Americans. Shockingly, the difference in average life expectancy between 
poor and wealthy women widened from 3.9 years to 13.6 years.

Rising inequality also is straining the health of liberal democracy. The 
idea of “we the people” is fading because, in this era of yawning 
inequality, there is less we share in common. As a result, it is harder 
to build support for the kinds of policies necessary to deliver 
broad-based prosperity in the long term, like public investment in 
education and infrastructure.

Economists began to enter public service in large numbers in the middle 
of the 20th century, as policymakers struggled to manage the rapid 
expansion of the federal government. The number of economists employed 
by the government rose from about 2,000 in the mid-1950s to more than 
6,000 by the late 1970s. At first they were hired to rationalize the 
administration of policy, but they soon began to shape the goals of 
policy, too. Arthur F. Burns became the first economist to lead the Fed 
in 1970. Two years later, George Shultz became the first economist to 
serve as Treasury secretary. In 1978, Volcker completed his rise from 
the Fed’s bowels, becoming the central bank’s chairman.

The most important figure, however, was Milton Friedman, an elfin 
libertarian who refused to take a job in Washington, but whose writings 
and exhortations seized the imagination of policymakers. Friedman 
offered an appealingly simple answer for the nation’s problems: 
Government should get out of the way. He joked that if bureaucrats 
gained control of the Sahara, there would soon be a shortage of sand.

He won his first big victory in an unlikely battle, helping to persuade 
President Nixon to end military conscription in 1973. Friedman and other 
economists showed that a military comprised solely of volunteers, 
recruited by offering market-rate wages, was financially viable as well 
as politically preferable. The Nixon administration also embraced 
Friedman’s proposal to let markets determine the exchange rates between 
the dollar and foreign currencies, and it was the first to put a price 
tag on human life to justify limits on regulation.

But the turn toward markets was a bipartisan affair. The reduction of 
federal income taxation began under President Kennedy. President Carter 
initiated an era of deregulation in 1977 by naming an economist, Alfred 
Kahn, to dismantle the bureaucracy that supervised commercial aviation. 
President Clinton restrained federal spending in the 1990s as the 
economy boomed, declaring that “the era of big government is over.”

Liberal and conservative economists conducted running battles on key 
questions of public policy, but their areas of agreement ultimately were 
more important. Although nature tends toward entropy, they shared a 
confidence that markets tend toward equilibrium. They agreed that the 
primary goal of economic policy was to increase the dollar value of the 
nation’s output. And they had little patience for efforts to limit 
inequality. Charles L. Schultze, the chairman of Mr. Carter’s Council of 
Economic Advisers, said in the early 1980s that economists should fight 
for efficient policies “even when the result is significant income 
losses for particular groups — which it almost always is.” A generation 
later, in 2004, the Nobel laureate Robert Lucas warned against any 
revival of efforts to reduce inequality. “Of the tendencies that are 
harmful to sound economics, the most seductive, and in my opinion the 
most poisonous, is to focus on questions of distribution.”

Accounts of the rise of inequality often take a fatalistic view. The 
problem is described as a natural consequence of capitalism, or it is 
blamed on forces, like globalization or technological change, that are 
beyond the direct control of policymakers. But much of the fault lies in 
ourselves, in our collective decision to embrace policies that 
prioritized efficiency and encouraged the concentration of wealth, and 
to neglect policies that equalized opportunity and distributed rewards. 
The rise of economics is a primary reason for the rise of inequality.

And the fact that we caused the problem means the solution is in our 
power, too.

Markets are constructed by people, for purposes chosen by people — and 
people can change the rules. It’s time to discard the judgment of 
economists that society should turn a blind eye to inequality. Reducing 
inequality should be a primary goal of public policy.

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 throughout the pyramid, not just at the 
top, and a growing body of research shows that those born at the bottom 
today have less chance than in earlier generations to achieve prosperity 
or to contribute to society’s general welfare — even if they are rich by 
historical standards.

This is not just bad for those who suffer, although surely that is bad 
enough. It is bad for affluent Americans, too. When wealth is 
concentrated in the hands of the few, studies show, total consumption 
declines and investment lags. Corporations and wealthy households 
increasingly resemble Scrooge McDuck, sitting on piles of money they 
can’t use productively.

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 by nationalist demagogues. I have no 
special insight into how long the rope can hold, or how much weight it 
can bear. But I know our shared bonds will last longer if we can find 
ways to reduce the strain.

Binyamin Appelbaum (@BCAppelbaum) is a member of The New York Times 
Editorial Board and the author of the forthcoming “The Economists’ Hour: 
False Prophets, Free Markets and the Fracture of Society,” from which 
this essay is adapted.

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