How might mid-20th-century Keynesian economists have contributed to the rise of their neoliberal successors? How might a rhetoric of modest restraint (combined with pointed resistance to prevailing forms of economic redistribution) have contributed to the argumentative and political successes of those neoliberal successors? When I want to ask such questions, I pose them to Binyamin Appelbaum. This present conversation focuses on Appelbaum’s The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society. Appelbaum writes about economics and business for The New York Times’s editorial page. From 2010 to 2019, he was a Washington correspondent for the Times, covering economic policy in the aftermath of the 2008 crisis. He previously worked for The Charlotte Observer, where his reporting on subprime lending won a George Polk Award and was a finalist for the Pulitzer Prize.
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ANDY FITCH: Could we start with an American economic sugar-high burning its way across the 1960s and early 70s: with JFK calling for pro-growth tax cuts, with LBJ refusing to raise those rates back up even as the economy started overheating, with Nixon telling his advisory team to “err on the side of inflation”? Of course our own present-day economic prospects here come to mind. But first, what did late-20th-century American officials themselves need to learn about the limits to applying an expansionary fiscal policy? What can this 1960s-70s span perhaps teach us about overconfident Keynesians presuming they could fine-tune macroeconomic trends? And / or what can this particular span teach us about undisciplined or insecure politicians in a liberal-democratic context simply lacking the resolve to follow Keynesian protocol and rein in the economy at appropriate times?
BINYAMIN APPELBAUM: In the wake of World War Two, economies in Western Europe and the US experience this golden age, this period of steady growth broadly benefiting society. When you rebound from a period of horrors, when you finally can tap a lot of pent-up innovation, when you finally can disseminate new technology across an entire economy, that simple process of recovery and catch-up can provide a powerful economic engine.
So for basically three decades (which the French refer to as Les Trente Glorieuses), the economy keeps growing, and everything seems to go pretty smoothly. And in that environment, Keynesian economists say: “We now understand how this whole macroeconomic machine works. We can fine-tune it. We can improve even the performance of this sports car. We can maximize the speed, maximize the prosperity, ensure that everyone benefits as much as possible.”
The Kennedy and then the Johnson administrations embrace these attempts to supercharge growth through tax cuts and then through spending programs aimed at reducing poverty. The sugar-high comes from that particular combination. And today, many people still remember this era fondly — without quite understanding why it happened, and why it all came crashing down.
That crash came in part from overconfidence. Keynesian economists had relied on political leaders to act appropriately and restrain growth when necessary (by raising taxes and constraining public spending). But when these economists go to President Johnson and say that the time has come, they discover politics just doesn’t work that way, with politicians much less inclined to constrain growth than to stimulate it. People used to refer not to “economics” but to “political economics.” That fuller phrase sounds more realistic to me.
So as we start to trace a historical pivot from “generous” fiscal policy to “austere” monetary policy, as we bring into the account not just 20th-century conservative figureheads like Milton Friedman but more recent progressive-sounding stalwarts like Paul Volcker, as we contemplate where the American economy might find itself today had Bill Clinton followed his instincts and prioritized New Deal-like fiscal stimulus over Bob Rubin-managed monetary mechanisms — as many of us approach this (needless to say, mostly established-white-guy) economists’ hour with great suspicion, without much solid memory of ever living through salary-eroding inflationary cycles ourselves: could you also make as vivid as possible, just from our own country’s relatively recent past, the pervasive psychological drag produced by calculating constantly what you could have had (what you should have, basically) if only every cost didn’t kept climbing all around you?
I sometimes hear, particularly from certain progressive circles, particularly in the present moment, this inclination to represent a return to Keynesian economics as an obvious solution to our problems. So I wanted this book to stress the historical fact that the rise of neoliberal free-market policies came directly out of the failures of the Keynesian, hands-on approach.
For one quick example, in the late 1960s, the Southern Railway developed a double-sized hopper car to compete more effectively with trucking. But the government had taken responsibility for managing the smallest details of our transportation infrastructure, specifically to prevent free-market forces from “running wild.” The government decided that the Southern Railway could not deploy these cars, because that might have rippling effects throughout the economy. So these railways, already struggling financially, essentially found themselves precluded from cutting prices or from innovating. Predictably, the freight-railroad industry moved to the very verge of failure and needed a government bailout.
And gradually consumers / taxpayers / workers feel the impacts?
By the 70s, Americans are getting increasingly frustrated by the sense that prices just keep racing out of control. Remarkably, if you look at the data retrospectively, you see that average American wages actually kept rising faster than prices throughout this period. But you get, for instance, this late-70s New York Times article about a traveling salesman who tells the Times he had to abandon his dream of homeownership because of inflation. In fact, the data show that this man’s spending power increased during the 70s. He could buy more stuff by the 70s end than at the beginning, even as he perceived his quality of life to have deteriorated rapidly. And this was broadly true, actually: homeownership reached its peak in the late 1970s. Americans did keep buying homes. But they felt like things were going south.
They hated how prices kept changing so unpredictably. People just felt undermined by those dynamics. They started voicing this real sense of concern. Here one close parallel to our present moment definitely stands out — with corporate innovation in sharp decline, with America no longer creating new ideas or developing new industries. Back then, Americans felt themselves losing ground to the Japanese and to the Germans, as some Americans today do to the Chinese. This sense of despair was spreading.
Eventually you see these stunning examples of economists abandoning their basic assumptions. Juanita Kreps, Jimmy Carter’s secretary of commerce, a Duke professor and a Keynesian, resigns in the late 1970s, because she’s so frustrated by the Carter administration’s inability to return the economy to working condition. She feels such despair about her Keynesian principles falling short that she tells The Washington Post she needs to resign not just from the Carter administration, but from her job as a professor at Duke — because she no longer knows what to teach her students. To me, that encapsulates how completely Keynesians themselves had come to think their own ideas had failed. And again, we need to see more recent economic ideas as gaining ground amid that sense of failure.
So for one parallel timeline, could we likewise start sketching the relative clout of economists in American policymaking across the 20th century: with even a Keynesian-seeming FDR actually deriding Keynes as an impractical “mathematician,” with Volcker starting off basically as a New York Fed human calculator — but with an intellectual revolution soon enough emerging in which economists dramatically reshape not just taxation and spending, but also military policy, judicial paradigms, conceptions of governmental responsibility and accountability within an increasingly regulatory state? And here could you first describe the paradoxical posture of these economists boldly asserting better ways of doing all these things, even while showing a “striking element of modesty,” even while claiming “not to have the answers,” even while recommending that policymakers “get out of the way instead of trying to make good choices”? Might this revolution never have happened without that disarming rhetorical twist (and without, alas, an implicit call to cease postwar efforts at economic redistribution)?
While researching this broader policy revolution, it really started to stand out how little economists participated in policymaking until the not-so-distant past. Readers might have this notion of the New Deal as a Keynesian project. Well, the New Dealers didn’t particularly listen to Keynes, or to any other economists. The leading New Deal figures had a pragmatic policy conception that economists later explained and sort of put a framework around. But in the 1930s and into the 40s, economics mostly existed on the fringes of public policy.
Similarly, economics hadn’t yet become the sort of top dog among social sciences. John M. Clark, a Columbia professor, complained in the 1950s that he made about as much as a well-trained carpenter. How the carpenter felt about this, I don’t know [Laughter]. But Clark certainly felt underpaid and undervalued. Paul Volcker starts out, as you mentioned, in the bowels of the Fed, basically just producing the numbers that actual policymakers use to make decisions. The head of the Fed himself expresses disdain for economists as a species.
Things start to change, at first, because the government needs help managing its own growth. That’s why the government starts hiring a lot of economists. Particularly on national-defense concerns, economists start to design complicated models, and to produce compelling answers for questions like: “Which bridges should we blow up? What’s a machine gun’s proper firing rate? How should you bomb the Soviet Union?” Only after becoming bureaucratic helpers, basically, do economists begin inserting themselves into policy debates.
And only after the postwar state dramatically expands (your book later demonstrates) can it hire economists to start cutting back.
The rise of the economists does get very much entwined with the particular argument they make. And that argument basically says not “Please put us in charge of the economy,” not “We wise economists will make all the right choices,” but instead (and quite deliberately): “Unhand and unshackle the economy. Stop pretending that you (or really any of us) can make the right choices. Stop worrying, and trust the markets.” As you suggested, this disarms a lot of potential skepticism and opposition. Milton Friedman, one of this book’s central figures, makes the argument for decades that the Federal Reserve needs a new approach to monetary policy. But Friedman doesn’t argue that the president should appoint Milton Friedman to run the Federal Reserve. Friedman actually argues that a computer program should run the Fed, producing money at a regular rate, and avoiding all the problems basically brought about by policymakers’ interference. That sense of modesty makes it possible to take this unconventional (at the time) approach more seriously. “Nobody should be in charge” came across as refreshingly humble, though of course it contained its own astonishingly arrogant premise.
You also raised another of this book’s central concerns: that one major consequence of this shift in economic policymaking involves resurgent assumptions that government ought not to engage in the business of distribution, that government should focus on increasing the size of the pie rather than the size of the pieces, that government intervention interrupts natural economic growth, that we face an inherent tradeoff between creating as much prosperity as possible and intervening in the distribution of that prosperity.
Of course that particular diagnosis appealed to people with money. And the relationship between economists and their patrons remained pretty complicated throughout this whole period. I by no means would place myself in the camp of those who see an entirely instrumentalist, self-serving angle here. Most of these quite impressive economic thinkers arrived at their ideas independently of their relationships with wealthy supporters. But their non-interventionist approach no doubt deeply appealed to powerful interests, who loved the idea that the economy works best when more money stays in the hands of corporations and shareholders.
We also should keep in mind that any notion of conservative reactionaries imposing something sinister on well-intentioned liberals just doesn’t fit the historical record. Many of the foremost of those liberals ended up embracing this basic proposition that distribution comes at the expense of economic growth, and that government should do less of it.
So here picking up your book’s most basic argument that “markets are constructed by people, for purposes chosen by people — and they can be changed and rebuilt by people,” could we sketch your qualified historical assessment of recent generations’ market-oriented reforms having “lifted billions of people from abject poverty,” with most individuals experiencing “healthier…happier lives as a consequence,” with markets making it “easier for people to get what they want when they want different things, a virtue that is particularly important in pluralistic societies which value diversity”? Could we bring in your ongoing concern that, at the same time, “the single-minded embrace of markets has come at the expense of economic equality, of the health of liberal democracy, and of future generations”? And could you offer a couple examples of where and when and how a liberal-democratic US has done its best job historically of both thinking through the most desirable roles for markets in society, and of implementing that vision to maximum social benefit?
Not all that long ago, people could conceive of markets as these human-made objects. Markets existed as physically circumscribed spaces, during defined hours of the day. So it was easier to understand that we got to write the rules for these markets — whereas now “the marketplace” has become much less of a material entity that we can picture and control and reorganize. We live in the marketplace, all the time, so it seems like a state of nature. But actually, markets work best when we are intentional about writing good rules for them.
I don’t know if we’ve ever had a golden age of markets to which we now need to return. I’d say in certain periods we grappled more successfully or less successfully with particular issues. I consider the early-20th-century progressive era ultimately very successful in asserting that the government has a role to play as a regulator of business. I think of the 20th-century labor movement making a convincing case that we need a constitution of sorts between capital and labor, governing how employers can treat workers and what workers can expect from their employers — and that markets by themselves would not deliver this deal, would never have created “the weekend.” And here I also think of the public recognition urged by crusaders in the 1960s and 70s that government needed to intervene to protect the environment.
But also of course during those same years we see enormous shortcomings in terms of whose interests government serves (largely excluding the interests of racial minorities and of women). We see, at the same time, significant bureaucratic overreach. So overall, I’d say that by no means have we seen linear or consistent progress. By no means have we seen eras in which almost nothing could have been done better. We always have had (and still have) real opportunities to improve how we conduct economic policy — to build on past successes, and to fix persistent problems.
Skipping ahead then to your assessment of our more recent macroeconomic past, let’s say we adopt your conclusion’s succinct-enough summation that: “There is no alternate version of history in which American politicians embraced different policies and thousands of Americans are still making refrigerators in Galesburg, or steel in Pittsburgh, or cotton sheets in the mills of the Carolina Piedmont.” And let’s say we adopt your quick follow-up: “But it didn’t have to be so painful.” How might a different type of economists’ hour have “hastened this evolution of the American economy,” without funneling almost all “the benefits into the pockets of the plutocratic minority”?
Pacing is really important. Many of our recent economic transitions could have been much more palatable and much less painful if the government had intervened on the side of just slowing things down. No factory has to last forever, but extending its life might greatly benefit the people working there now — giving them time to transition to other kinds of work, allowing their children to train for more realistic employment prospects.
Unions have had some success, at least historically. One great example comes from the dockworkers’ unions that negotiated successfully with shipping companies, basically saying: “Okay. We get that people won’t carry all of these boxes off the boats forever. We get that cranes eventually will do that for us. Let’s negotiate a transition period. Let’s secure employment for some number of people for some period of time. We won’t create some absurd scenario of four workers standing around all staring at the same switchboard. But we will give workers some time to adjust. We’ll accept these technological innovations, and you won’t immediately seek to maximize profits at all costs.”
We should emulate that historical precedent in any number of cases. But in addition to slowing the pace of change, I think we still need government directly involved in distributional questions. When the government projects the effects of a trade deal, for example, it cannot just calculate the net benefit to the United States as a whole. It needs to assess realistically who most likely will benefit from and will suffer from this new arrangement. And it needs to find effective ways to offset those losses. I actually consider this potential shift in regulatory approach (from calculating aggregate societal benefits to really grappling with individual lived outcomes) the single most important change necessary to making government policy work better for people.
For one point of international comparison, could we bring in your condensed case studies of later-20th-century economic policy in Chile and in Taiwan: with Chile directly importing University of Chicago professors and precepts, yet never fully learning to master market forces in a way that builds social stability and cohesion; and with Taiwan’s emphasis on macroeconomic “engineering” prompting citizens first to value the stabilizing / equalizing impacts of certain policies, and then to proactively refine such policies towards ever-greater efficiency? And how did Taiwan arrive at such an impressively egalitarian post-industrial income distribution without its government relying on heavy rates of taxation and spending? And what here seems like a particularly resourceful response to Taiwan’s own distinctive (alas neocolonial) recent history, and what seems more broadly exportable?
The economist Gustav Ranis basically argued that his colleagues routinely got this point wrong. When advising developing countries, they tended to assert that first you should pursue economic efficiency, and then from that basis of prosperity, you can begin to promote civic virtues and liberal democracy, and advocate for equality and opportunity. Ranis argued the opposite. He said you first need to create an environment in which people see a basic fairness play out, in which people believe that society distributes benefits fairly — and then you can convince a populace to support policies likely to produce growth.
For Taiwan, really the key decision is the redistribution of agricultural land in the 1950s. This creates a nation of smallholders, of petit capitalists, each of whom has just enough to pursue opportunity, to get an education, to feel part of a political body in which people’s interests get treated pretty equally. From this basis, a society develops that can (and did) pursue its collective interests in intelligent and interesting ways, building prosperity on top of that egalitarian foundation. That type of broad-based development, of course, doesn’t itself get invented in Taiwan. Political and economic moves made in Taiwan replicate moves previously made in Japan, which replicate moves made in Germany, replicating moves made right here in the United States. And of course, like you said, postwar Taiwan has some circumstances that neither could nor should be replicated — including a brutal dictatorship that killed tens of thousands of island residents, many of whom had been the owners of that redistributed land.
On the flip side, when you see rising inequality (as we do in the US at present), it becomes increasingly difficult to preserve common ground, to create a space in which people can agree on policy. Their interests just start diverging too much. And that’s the story of Chile, which fervently embraces free-market policies and creates a largely privatized state, where middle-class families barely interact with the government: where they rely on private schools, and private commuter buses, and private roads, and private water, and private hospitals. As a result, no political middle ground really exists in Chile. You’ve got elites seeking rent (seeking for the government to help them, in various ways, to extract money from everyone else), and poor people seeking direct assistance from the government — with more and more people pulled in one of these two opposite directions, and with the middle class essentially disengaged. In Chile the middle class actually votes at lower rates than the working class, because the government has so little to do with middle-class lives. That erodes the very idea of a republic.
Well here, and even as you cite American precedents of sound economic management for certain Taiwanese policy approaches, I can’t help wondering, by contrast: if theoretically unsound and historically disproven claims for supply-side economics continue to drive many of our own country’s successful political campaigns, if both major parties long have refused to follow up on Clinton-era demonstrations that redistributive tax increases can play a constructive part in a robust economy, then have economists really taken over our politics? But here of course we need to think of “our politics” stemming not solely from what the president says, from what Congress does or does not pass, but also from countless (and ever-increasing) decisions made by our courts and regulatory agencies. So to give one example, say starting from a distinctly American antitrust tradition, could you introduce the prevailing mid-20th-century consensus view that antitrust proscriptions not only enhance efficiency and lower prices, but help to ensure the basic political autonomy on which our modern liberal-democratic social compact gets premised? And then could you outline the free-market, economics-driven logic by which not just some far-right court appointment, but a justice like Stephen Breyer today might think otherwise?
I referenced, a moment ago, the idea that America itself was once a nation of smallholders. That era comes under tremendous pressure in the late-19th and early-20th century, with the rise of larger and larger corporations. And America’s response to these corporate conglomerates differs from what happens in other developed countries. A strong consensus view emerges that sees large corporations as inimical to democratic society. This view asserts that you need to control and even to prevent the concentration of corporate power, not primarily as an economic issue, but as a political issue — to preserve a social balance in which people can aspire to individual economic autonomy and, as a consequence, can make decisions as a polity on fairly equal footing. Members of Congress, standing on the floor during debates about the first antitrust laws, say: “Sure, maybe Standard Oil has driven down the price of kerosene, but that’s not good enough. That’s not our goal. Our goal is to preserve democracy, and Standard Oil hurts democracy.”
And that set of ideas and ideals then comes under frontal assault by economists. To me, the most underappreciated aspect of this book’s whole story is the degree to which economics has transformed regulatory policy and the courts. Everybody knows about the tax cuts. Everybody knows about the monetary policy. But the degree to which economics has rewritten US law still stands out as just shocking. And the degree to which economics has become the language of regulation seems just absolutely critical. Specifically within the domain of antitrust, economists and allied legal scholars have argued that antitrust policy’s sole purpose should be to drive consumer prices as low as possible. They insist that antitrust policy always has prioritized this narrow goal. They make that clearly false historical argument, and they make it quite successfully. They succeed thanks to some of the reasons we’ve discussed. In the 1960s and 70s, people sense the old system start failing, and sense it’s providing inconsistent judgments. People sense the US falling behind countries like Japan (which embraces large corporations as the engine of its postwar economic revival) and Germany (which sanctions large-scale cartels).
So this law-and-economics approach says: “We need to trust in markets. We have to stop constraining our corporations. They won’t take advantage of consumers.” Aaron Director, an economist on the University of Chicago Law School faculty, and one of the most important figures in this revolution, imbues a generation of students with this notion of corporations so busily struggling to survive in the Darwinian corporate world that they have no chance to take advantage of consumers. A company that takes advantage of consumers supposedly will lose out to its competitors. Corporations acting in their own interest supposedly act in the interest of society. And amazingly, these economists’ assumptions start finding their way into law. The Supreme Court begins to cite these economists’ ideas without ever having Congress rewrite the original antitrust laws. The courts rewrite the meaning of those laws and impose a very limited concept of antitrust, and thereby sanction corporate concentration.
Could you sketch here, perhaps in a regulatory context, a corresponding emphasis on economic consumers over economic producers, and then also the much broader implications of where we might consider it appropriate (or not) for government intervention to address which economic / social / ecological concerns?
Right, again we get this vastly underrecognized social transformation. Americans for a long time identified as producers. People thought of themselves as farmers or as factory workers — basically whatever they did for a living. The government regulated our economy with an eye on the people as producers. But over the 20th century, this great shift takes place, with Americans coming to think of themselves primarily as consumers. Your life gets defined in terms of what kind of house you have, what kinds of clothes you wear, what you eat, what you own. As a consequence, the government grows increasingly impatient with protecting producers’ interests, and increasingly focuses on protecting consumers’ interests.
Take Walmart. This company’s whole business model emphasizes delivering the lowest possible prices on the broadest possible range of goods and services, without much regard for the conditions under which its employees labor. The government basically sanctions this tradeoff. And today, even though the vast majority of us live out both roles, as producers and as consumers, we suffer as producers so that we can benefit as consumers.
It just fascinated me to see the role that someone like Ralph Nader plays here. His language at times sounds Marxian, but his proletariat is a proletariat of consumers. He doesn’t represent the workers against capital. He represents the consumers against the producers. That small-seeming pivot brings this enormously consequential shift. And the first president to embrace this shift is actually Jimmy Carter. He does so symbolically, by becoming the first Democrat in half a century to basically disdain speaking at labor rallies during his presidential campaign. He instead addresses a Nader-created umbrella group of consumer advocates. He tells the American people they finally will have a consumer advocate in the White House. He really grasps that the Democratic Party’s base has shifted from the party of workers to the party of shoppers. His political rise gets tied up in this broader cultural shift in ways we haven’t yet fully appreciated.
Carter definitely stands out in your book as a partisan advocate for regulation-repealing efficiencies, and also as a compulsive cost-benefit analyzer. Here what kind of cost-benefit analysis might you see this book providing on cost-benefit analysis itself? Does it seem fair, for example, to describe economists’-hour cost-benefit analyses presenting rigorously precise calculations, but failing to resolve (or perhaps even to recognize) more pressing subjective questions of what we should value in the first place? Do you see cost-benefit analysis more or less always pushing (or pushed by) an undisclosed ideological agenda? Or what upsides and downsides might you find in a typical European cost-benefit calculation placing greater emphasis than we do upon reducing risks? And for those of us categorically put off by cost-benefit analyses, what equivalent approach to assessing comparative policy outcomes might make more sense?
Cost-benefit analysis is the idea that government should put a dollar figure on the costs and benefits of potential policies, and pursue those policies that produce more dollars in benefits than they impose in costs. At the very center of this approach, in order to make its calculations work in many cases, you need to put a value on human life — because the government’s most consequential decisions are basically about how much money to spend protecting life, and under which circumstances to allow deaths because it would just cost too much to prevent them.
One of the RAND Corporation’s (created after World War Two by the Air Force, as a means of retaining scientific talent) first big contracts asks it to determine the best way of destroying the Soviet Union. All these scientists go to work on this question of how to kill tens of millions of people. These scientists eventually recommend to the Air Force building a lot of cheap bombers and putting a lot of small nuclear weapons on them and just sailing them into the teeth of the Soviet defenses. And yeah, a whole bunch of them will get shot down, but not all of them. Enough will get through to obliterate the Soviet Union. So that all sounds good, except RAND forgot to calculate one thing — the cost of US pilots’ lives. That particular miscalculation obviously troubles the Air Force. And that’s the beginning of efforts at RAND which lead to calculations of the value of life.
When the government decides how strong car roofs should be, it literally calculates how many people most likely will get killed with current car roofs, and it puts a dollar figure on their lives, and asks: “How much would it cost to require stronger car roofs?” and then just straight up compares those two things. If the government regards those lives as not sufficiently valuable to warrant this additional protection, then it, in effect, sanctions the deaths — not of specific people, obviously, but of some predictable number of people. Cost-benefit analysis has become the language in which these regulations get made and these battles get fought.
I love here your question about cost-benefit analyzing cost-benefit analysis. And, in a sense, I’d give this same analysis for economics more broadly. I consider cost-benefit analysis an important method for thinking carefully about trade-offs inherent in policymaking. Inevitably we will need to sanction some deaths, because it does get too expensive to prevent them. Some people might find it abhorrent to express this reality, but that doesn’t change the reality. We have limited resources. We have to decide how to allocate them. We shouldn’t pretend that choices don’t exist. But, as with economics more generally, we shouldn’t take cost-benefit analysis as an absolute. If you place too much faith in your ability to calculate precisely the costs and benefits, you end up believing that you know more than you do. If you embrace quantification over any other way to evaluate things, you end up excluding factors that can’t be quantified. It is a fact that the value of human life has climbed during Democratic administrations and has fallen during Republican administrations. And European approaches to cost-benefit analysis differ from ours most on this question of how to treat things that may be dangerous. The Europeans apply a principle that says: “Let’s err on the side of caution.” The US insists on evidence. So that’s an example of how the same set of facts can produce two different conclusions, just depending on a political judgment about how to calculate unknowns.
So with cost-benefit analysis sounding like a useful empiricism still seeking a catalyzing idealism, could it likewise makes sense to see fraught late-20th-century public conversations around cost-benefit analyses anticipating conversations soon to come for us around AI-driven decision-making: as, say, some algorithmic logic meticulously calculates the value of individual human lives, and makes ultra-strategic utilitarian policy recommendations on “society’s behalf,” without offering explanatory rationales that we as humans possess the capacity to understand and to assess (morally, more or less)? Or for, in fact, a values-oriented application: how might cost-benefit analyses today find themselves absorbed into broader effective-altruism approaches that quite deliberately do push certain value preferences?
Good comparison. Though I’d maybe first step back to contextualize how this type of empiricism does get associated with a particular conception of morality, prioritizing efficiency. One of the most consequential and most troubling beliefs that this free-market movement comes to embrace is the idea, in the words of the legal scholar Richard Posner, that justice can be defined as economic efficiency. This extraordinary and provocative claim underscores that these free-market believers do consider their approach fundamentally moral. So people concerned by cost-benefit analysis need to articulate a powerful alternative morality — because that compelling free-market vision actually resonates across American society, which has come to accept many related ideas and perspectives and priorities.
With AI machines, we very easily could end up in a world (in many ways, we already have entered this world) where cost-benefit approaches get used to reach apparently normative judgments — where defenders consider these judgments moral. So the challenge here is not simply to insist that morality play an important role in decision-making, but to wrestle with which morality we deem most just. I mean, just the other night, at this dinner organized around alternatives to neoliberalism, I heard a lot of interesting ideas, but didn’t hear anybody develop an underlying conception of morality that could convince enough people to embrace some alternative. That seems critical.
For one related example, your own book’s Great Recession recap does seek to dispel “the nostalgic narrative that policymakers could have prevented the modern era of financial crises by maintaining the system of banking regulations.” You argue that this regulatory apparatus already was falling apart, and you instead pinpoint a failure to proactively “write new rules for the rapidly changing industry.” So let’s say we start from the objective-seeming observation that the premise of a self-regulating financial market proved flawed on any number of fronts (ignoring the obvious asymmetrical advantage that full-time finance professionals hold over once-a-lifetime customers, for example, and overlooking the extremes by which anti-regulatory zealots would discard even basic needs for transparent record-keeping and public disclosure). What does your retrospective analysis suggest might have been then, or what might be now, the most strategic ways to harness both the private and the public benefits of financial-industry innovations, while sufficiently policing the risks?
I don’t remember if I ended up including this in the book, but The Federalist Papers articulate this very explicit idea about government never attaining perfection, about government always needing to keep trying to improve, specifically in the never-ending battle to check special interests. We shouldn’t think that some perfect answer exists out there, and that we just keep failing to hit on it. Quite the contrary. We need to keep working at it. But if you start from the assumptions that government needs to serve as a regulator, as a counterpoint to corporate power, as a defender of the interests of individuals, then you’ll be in a much better place than if you’ve abandoned altogether all possibilities for government action. So most basically, I’d answer your question by saying that more effective financial regulation begins with trying. It begins with the simple act of deciding that markets need regulation for their own good, and that the government needs to engage in this struggle.
Then stepping back slightly, I would express skepticism that much of financial innovation has provided economic benefit for most of us. A lot of evidence suggests that this industry has benefited enormously by building tollbooths on perfectly functional roads, and collecting money from passers-by who have no other option. So we should be considering quite carefully which parts of this industry actually provide benefits and, therefore, should be regulated but allowed to thrive — and which more rent-seeking parts we should consider disallowing or at least discouraging, since they fundamentally impose taxes on society while producing no obvious benefits.
And then in areas where we do try to regulate, I have a lot of sympathy for the idea that a big mismatch exists between the capacities of the financiers and of the regulators, and that if you just pit them against each other in battle, with one side drawing up increasingly complex rules and the other engaging in increasingly complex avoidance strategies, that’s better than not trying, but probably still won’t get you where you want to end up. So I tend to sympathize with proposals to force the financial industry in a very basic way to limit its capacity to take on risks — for example by restricting the ability of financial firms to use borrowed money, by imposing what we call capital requirements. That offers one fundamental way to say: “Listen. We won’t tell you exactly what you can do with this money. You should be creative. You should have fun. But we will restrict your ability to leverage up, to play with somebody else’s borrowed money, to make much larger bets that you can’t afford to lose.” At that very basic level, I think we should say: “We won’t tell you exactly which risks you can take. But we will tell you how much risk you can take.” That approach seems to me the most workable and promising over the long term.
So to shift back to a broader cultural vantage, I very much appreciate your formulation that, during this particular economists’ hour, capitalism itself became a self-satisfied monopolist in the marketplace of ideas, producing predictably distorted and dysfunctional outcomes over time. I myself tend to operate in professional circles preferring to resist this whole monetizable “marketplace” metaphor from the start, particularly when it comes to ideas, social values, policy choices. But what most compelling case can you make for the broadest possible range of Americans to foster today a liberal-democratic marketplace of ideas that certainly includes (and perhaps to some extent foregrounds) capitalist perspectives, but without presuming their inevitable superiority?
So a marketplace works best if you have a common currency — here if you have agreement on the basic terms of discussion and debate. From my perspective, it would help for us first to reclaim “capitalism” to mean something much broader than what we get in current public conversations. I don’t find the contemporary contrast between “capitalism” and “socialism” very useful. I think the term “capitalism” ought to suggest a fairly basic set of premises about the utility of market interactions as a means for organizing and allocating resources. And within this context of agreeing that market interactions do have some useful qualities, we could start discussing which rules society should impose on these markets.
I think what we want is a discussion about what regulation should look like, what redistribution should look like — all without this need to decide that we’re for or against capitalism. I mean, listen: we ran quite a remarkable experiment contrasting capitalist and non-capitalist systems during the 20th century. One shouldn’t ignore or resist the fact that capitalist systems produced a lot more good for a lot more people. They also, of course, produced their own deep flaws.
And that success of capitalism also transpired during a period in which capitalism looked quite different than it looks now. We found ourselves in this odd historical circumstance in which the Cold War victory of Western capitalist democracies seemed to affirm much more than just a way to do business. We ended up deifying capitalism. We turned toward this absolutism of markets that had no warrant in historical experience — especially since Western capitalist democracies just had spent half a century opposing the Soviet Union in part by building their own social-welfare states, and restraining the role of corporations, and publicly investing in innovation, and imposing taxes on the wealthy to ensure a fair distribution of prosperity. Then on the morning after the victory party, they began to describe capitalism as something other than what it had been during this long period of comparative success.
Finally then, perhaps to start bridging self-declared progressive and free-market camps today, where might you see room for a renewed economic liberalism to present itself as, in identarian terms: pro-diversity, pro-minority rights, pro-social tolerance, pro-immigration? Or where might a populist economic platform appeal to broad ranges of the electorate through a trustbusting agenda? If a particular 1960s convergence of economic conservativism and social conservativism eventually produced some of the more complacently discriminatory “efficiencies” of the 80s and 90s, how could these two constituencies find themselves decoupled again?
I do consider this a critically important question. This grand alliance of social and economic conservatism produces the political-economic shift we have seen in recent decades. Those groups come together around opposition to a common enemy. They both resent government overreach. Social conservatives see the federal government encroaching on their conception of private morality. Economic conservatives see government threatening private property. So they make common cause against government, but that doesn’t make them natural allies. And in fact, it seems quite clear that this alliance has much better served the interests of economic conservatives than of social conservatives.
So I do sense an hour of opportunity right now, when people concerned about the advance of free-market ideology really ought to think about how to find common ground with people who have found their social and communal goals undermined by this prioritization of markets. Of course this gets really complicated, because some Americans who oppose the power of markets also oppose an inclusive America. Some of their goals might sound anathema to social liberals. But I still do see areas of potential common ground.
I also see a warning sign, in that if we fail to create that common ground, we might see a further turn toward xenophobic nationalism across the developed world. So how do we build a more positive consensus? You mentioned one way, in terms of coalescing around the fear of corporate power. I can very easily imagine (and already see indications of) a resurgence of the American tradition that distrusts corporate power, that would seek to benefit us all by circumscribing the role of corporations in society, by regulating their conduct more strictly in certain instances, and by perhaps atomizing some of the larger companies.
And then I also sense possibilities for progressives themselves to consider whether regulation continues to serve its desired purposes in every case. Urban zoning especially stands out. Many urban American liberals find themselves engaged in exactly the type of exclusionary behavior that they profess to abhor: reinforcing inequalities, disenfranchising whole communities, designing a lived environment in which most people cannot prosper. So perhaps new political common ground can emerge around cities and progressive states like California providing greater access to livable housing arrangements — to literally expand the scope of our cities, so that more people can live in them and thrive in them. Here we have a great opportunity to build communities around something other than a neoliberal ideal, benefiting a much broader ideological spectrum of the American population.
Photo of Appelbaum by Djenno Bacvic.
