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Recently finished reading ‘The Economists’ Hour’ by @BCAppelbaum. It’s a remarkable history of economic policy making. What we also get in the process is a series of fascinating portraits about economists who served as policymakers and advisers in successive US admins.
TIL: economists didn’t have a big say in US economic policies till the sixties. And since the sixties was the apogee of faux Keynesian economics the Economists’ finest hour coincided with a hard pendulum swing to the free markets orthodoxy. Exit Keynesian, enter Chicago school.
In general, markets are good at allocating resources, price signals do a better job at sorting and trade is a positive sum game. But taken to extremes and married with unregulated financial markets or as Appelbaum terms it ‘markets in everything’ produced the train wreck of 2008.
In fact the number of financial crises has been going up since the eighties and 2008 was the grand finale. Although the book is predominantly about US, a couple of chapters take us on a tour of Chile, Taiwan and Iceland. And those are the most engrossing chapters for me.
Chile is held up as a poster boy for free market economics. Los Chicago Boys carried out ‘reforms’ under a brutally repressive right wing military dictatorship. And it’s not clear if Chile got the best bargain out of it given the levels of inequality in that country.
Taiwan otoh listened to American economists but decided to strike out its own path. Engineers in charge viewed the economy as a machine that can be tinkered with to produce the optimum results. IIRC engineers have played a large role in steering policies in mainland China also.
Iceland lost its way for about two decades before the economy spectacularly blew up in 2008. It’s an apt metaphor for globalisation that banks went belly up in New York and Reykjavik. Hopefully the country is now back on right track. So what’s the lesson for a developing country?
Don’t worship at the altar of free markets, strike out your own path depending on starting conditions, and don’t let the financial market genie escape from captivity. Going against prevailing orthodoxy is difficult but being pragmatic and sceptical is better than being faithful.
One puzzling thing for me is that Appelbaum never uses the term neoliberalism in the book. That term sums up the consensus that prevailed as the governing policy for four decades. Like he points out it was embraced by both conservatives and liberals as the new orthodoxy.
The book doesn’t elaborate on an alternative programme and solutions for US. But a lot of that is being debated and drawn up these days by progressive economists and policy wonks. The pendulum may again swing from efficiency to equity and from winner takes all to fairness.
Overall it was a thoroughly absorbing book to read. Appelbaum has an engaging style. He explains complex economic concepts well. His sympathies are clear from the first page and he regularly dismisses Chicago school excesses with a cutting remark.
The copious footnotes are also a joy. Many good books have come after 2008 seeking to explain and elaborate on what went wrong. By zooming out for a longer view and the bigger picture Appelbaum has produced a solid book and a treat for students of economic history.
