Re: The Economists’ Hour
There is so much going on in Binyamin Appelbaum’s book “The Economists’ Hour” that I’m having a hard time writing a review which isn’t as long as the book itself. So instead I use it to line up a few shorthands I’ve developed to help me sort through the questions the book asks.
The first shorthand is “Gibreel’s two questions”, which underpin Salman Ruhdie’s Satanic Verses:
1. What kind of an idea are you: one that compromises or one that changes the world?
2. What will you do after you win?
Economics ascending
Appelbaum’s book can seen as a successor to Robert Heibroner’s Worldly Philosophers for the post-War era: a narrative history of ideas and protagonists in the world of “high economics” — the (US-centric) arena where academia and global politics clash.
So it shouldn’t be seen as a history of economics per se. Too many luminaries of the field (von Neumann, Arrow, Simon, Becker) don’t make an appearance or are relegated to the footnotes.
Heilbroner‘s story arc built on economic history as a history of brilliant but flawed individuals — even those who shaped the world could look only so far ahead and were eventually undone by their own success, and by a successor who recognized the flaws in their theory.
Appelbaum’s storytelling resembles Heilbroner’s, but his tone is more ominous, and his field of protagonists is more crowded. Even the first part, which might be called “economists ascending”, offers a sense of foreboding, already implicitly raising Gibreel’s second question.
The one name that stands out in the book is Milton Friedman’s. Otherwise, the story leads us through a bewildering lineup of sharp character sketches for the economists who contributed some of the pieces that make up the puzzle.
This gives the book the feel of a modern counterpart of Heilbroner’s chapter on the utopian socialists and its ensemble cast — the utopian capitalists so to speak — who carried forward the (in Rushdie’s words) damnfool notion that markets should not be fiddled with.
In the first part, Friedman and his phalanx of mostly Chicago-based combatants take on a team of incumbents made up of politicians, lawyers, and Keynesian economists, to score point after point with hardly a reversal (monetarism being a notably exception).
The first surprise might be that the critical juncture of markets unchained didn’t coincide with the ascendancy of Thatcher and Reagan, but with the Carter administration.
While the 1970s are still the era of Keynesian dominance running full on into a Malthusian check, the inauguration of Ronald Reagan heralds the era of Friedman and Chicago — the Economists’ Hour as Appelbaum calls it. The time to ask Gibreel’s second question.
Economics triumphant
The beauty of Gibreel’s questions is that the skills needed for an idea to succeed with the first question, the ramrod-backed bloody-mindedness, are also the skills that lead to the idea’s undoing in the second question. No longer an outsider idea, unwillingness to yield kills.
Which brings me to my second shorthand: the drunk bicyclist’s progress.
Our hope that we possess the skills to reduce the complexity of human coexistence into a succinct formula is eternally frustrated, so that we never just move straightforward into a prosperous future, but veer from side to side like a bicyclist — often violently so.
As I pointed out before, the Western template of democratic capitalism depends on our ability to move from side to side with a modicum of soberness, and not to get drunk and ride into the ditch — be it the one on the left or the one on the right.
Markets are remarkable mechanisms to create and allocate prosperity under certain conditions, one of them being that we are to reign in externalities — the blessings and injuries our actions bestow on others.
Another one being that we are able to reward contributions, and not endowments.
The first part of the book might have driven the point home that markets are almost certainly better than the often cartoonish regulations of the post-War era, but the wider question becomes if it is ever wise to interfere in the inexorable mechanics of market allocations.
Note that this hypothesis does not presume that markets are perfect, just less imperfect that the attempts to interfere with the interplay of supply and demand.
In the second part, which also moves beyond the American battleground into countries in dire need of economic development, Appelbaum asks the question whether the bitter medicine of markets, administered in a shock therapy, proves ultimately healing.
The results are ambiguous, especially in the examined cases of Chile and Taiwan, and in a rare deviation from the overall tone Appelbaum offers two personal observations on the contrasting trajectories of the two countries.
- Today’s prosperity might be more a result of the redistribution of feudal lands than the interplay of market forces, and
- Taiwan’s engineering approach to the economy might’ve been more conducive to bringing prosperity for all than Chile’s economic approach.
The upshot is that sober interference can outdo the hope that the bicycle rights itself, and that endowments matter much more than standard economic theory lets on.
Economics descending
If the OPEC crisis marked the end of the Keynesian age, the collapse of Bear Stearns and Lehman Brothers might’ve posed a Malthusian check to the age of free markets.
This is problematic on two counts. For one, while financial markets might be less regulated and corporate malfeasance more narrowly defined, we are still not in a perfect free market world. Like with true Scotsmen, there might be no such thing.
For two, while the 1970s still allowed for the Heilbroner model of a clean succession of economic doctrines, we are now at a point where even if we are willing to discard the old doctrine, it is very unclear how the new doctrine should look like.
But 2007 did not come out of nowhere. The collapse of the Soviet Union should’ve taught us that markets work only within supporting institutions. Enron and LTCM should’ve taught us that markets aren’t good cops against corporate malfeasance.
And finally, the long-looming crises of persistent and increasing inequality and global warming should’ve made the point more forcefully that externalities matter and that endowments matter.
Deckchairs rearranged
Which brings me to the third shorthand that the defining conflict of humankind is the conflict between staying together and venturing out.
There is a Hollywood trope reflected in Appelbaum’s story of the struggle between the enlightened outsider and the calcified establishment, and we like to see ourselves on the side of the outsider. But the story isn’t that simple.
Indeed we all have fairly complex ideas on which things we like to hold the tribe together and on which things we want it to move forward. And if we align everyone within our tribe along these ideas, we might discover the hidden underpinning of ideology.
A major topic of the book is whether inequality matters. And indeed if we decide it doesn’t, the case of Chile’s prosperity looks much better than if we decide it does.
Prosperity to some might be considered progress, but the bitter medicine of austerity turns into poison if it is not followed by the healing effect of prosperity for all. And for most Western countries, the verdict on this count over the last decades is damning.
It is to be expected that The Economists’ Hour will be subjected to much insider criticism which will certainly point out how his retelling of the “Top 50 moments in post-War economics” is foreshortened, gets details wrong, misses important insights, and draws the wrong conclusions.
This kind of criticism should be ignored even on the points where it is factually correct. Appelbaum is not an academic economist, and the story reflects an erudite outsider’s perspective. As such it’s an important contribution.
From a personal perspective, I’ve heard most of the stories captured in the book in some form, from various angles with heroes and villains reflecting the storytellers leanings. It is still important to see the puzzle as a whole, even if brevity mandates that many pieces are still missing.
The overall point of the book is also not that “Friedman was wrong in the end”, that’s something we should’ve learned from Heilbroner and Kuhn. It is that with some twenty years of advance warning, economics has made too little progress in defining what comes after.
