The current political wars are unfolding in a context that was created largely by the failure of elite economists and their dogmatic faith in markets. That’s the thesis of a compelling new book by Binyamin Appelbaum, an economics writer for the New York Times.
It’s often argued that the recent explosion in inequality is fueling the rise of populism on the left and the right — the latter of which has also given rise to the virulent nationalist strain of it that President Trump has demagogued to perfection, doing immense damage to our civic bonds and harming untold numbers of real people in the process.
In “The Economists’ Hour,” Appelbaum blames much of this on the economics profession. He charts a confluence of factors beginning in the 1960s: the rising influence of economists over policymaking and their unshakable adherence to the idea that lightly regulated markets are the only way to deliver prosperity and social progress.
That faith, Appelbaum argues, turned out to be badly misplaced — resulting in much of the current political and economic carnage. Restoring a more robust role for government in regulating the economy and structuring markets toward a much broader and inclusive vision of human material welfare — as opposed to Trumpian right-wing nationalist hocus-pocus — is the real answer to reversing it.
I spoke to Appelbaum about his book, which provides important context for understanding the resurgence of progressive populism as well. An edited and condensed version of our conversation follows.
You draw a line from a misguided faith in “free” markets right to our current political failures — soaring inequality, the rise in populist nationalism, declining faith in liberal democracy.
This book is the story of a quiet and important revolution beginning in the 1960s and early 1970s, when economists become increasingly important in shaping public policy. The economy was beginning to sputter. The message of these economists was that the answer to most policy problems is for government to get out of the way and allow markets to allocate resources.
They argue that a focus on redistribution, and on equality, will come at the expense of growth.
That’s the through line. From 1970 to 2010, there’s an indifference to inequality in public policy. That’s how we get to where we are today.
There’s an opening for nationalist demagogues to step into the breach.
We don’t get the growth we were promised. The basic idea that this is going to work to deliver prosperity doesn’t happen. What we get instead is huge inequality.
One very important consequence is that it makes it much harder to have democracy. You get this bifurcation where the interests of the poor and the rich are very different, and the middle class is shrinking. The result is that the ability for the populace to govern itself in its collective interest is really eroded.
In the wake of that, one of the inevitable responses is the rise of nationalist demagogues who say, “The solution is to reject open borders, to reject free trade, to reject technocracy.”
Your indictment of our current economy is familiar. You point to the bloat of the financial sector; short-termism and inadequate societally productive corporate investment; the failure to regulate financial “gambling,” leading to the financial crisis; the regressive turn in our tax code; the inadequacy of public spending on scientific research, education and health care; the decline of worker power; and so forth.
In some sense or other this all traces back to the failure of economic elites.
It’s helpful for me to think about the 1990s. It’s a period many people remember as the last time the economy was working well. I think it’s a period where much of what had been good about government policy in the mid-century had stored up economic potential.
The generation of workers who came of age in the 1990s in the U.S. were much more likely to have college educations than their peers in other industrialized nations. America in mid-century invested heavily in accessible public education.
But the generation born in the 1990s are less likely than their peers in many developed countries to have college educations. The reason is that we stopped investing in access to public education. We went from a period in which we were making public investments in long-term economic development to a period in which we are not.
The prosperity of the 1990s was built on, for example, the federal government’s construction of the Internet. So we had this massive boom in productivity growth which can be traced directly to federal support for basic research and the development of promising technologies. But what we weren’t doing during that same period is continuing to make those investments.
One important theme is the idea that markets are human creations — they are inevitably structured by rules, and we should operate from the assumption that we can structure our markets to optimize social outcomes.
We’ve lost track of the fundamental truth that markets are a human creation. They have rules, either by default or by choice. And the structure of those rules determines not only whether the market will function, but who will benefit from it, and how. We can make those choices.
Focusing on intentionally writing good rules for markets is at the very core of what we need to get better at doing.
It seems to me that the economic plans from some Democratic candidates, and from think tanks like the Roosevelt Institute, are operating from this intuition. This seems like a revival of ideas that held sway during the New Deal, and also during the progressive battle against laissez faire as the U.S. industrialized.
Is it right to think of this as a revival of sorts?
The financial crisis and its immediate aftermath was a clear inflection point. We are seeing a reconsideration of some of these basic debates that were decided one way in the 1970s and the 1980s. And we’re now seeing Democratic candidates — and in some cases Republican candidates — argue that we need a different set of solutions. Antitrust is one area where you see both on the left and right a real willingness to reconsider.
You write: “Our problem is that there are too many markets, and too much walking away.” I took this to mean that the mobile upper classes can always seek out markets that will deliver what they’re looking for, eroding their sense of social responsibility to the broader community.
One example you offer is that the wealthy can move to upscale neighborhoods to find better schools. Can you elaborate on this?
The very defining feature of a marketplace is that one has the choice to buy or not to buy. There are areas in which that makes a great deal of sense. But there are also areas in which allowing people to opt out — to walk away, to leave communities, to detach from public life — ends up eroding the quality of public life and public institutions.
There is no more important example than suburbs isolated from the administration of their regions. We end up with self-sufficient enclaves on the outskirts populated by people whose lives are going quite well, and nearby, people with whom they are tied economically — but have detached themselves from civically. That’s had enormously detrimental consequences.
The populations that are not doing as well can be both an inner-city population and a stagnating rural area.
Absolutely. The vast majority of the population has seen little improvements in the economic quality of their lives in recent decades. The quality of public services available to them has deteriorated. Their opportunity to get ahead has diminished.
This offers a very different analysis of the erosion in social bonds that is often discussed in the context of Trump’s rise. Conservative populist nationalists offer some kind of reassertion of solidarity, grounded in a reassertion of the value of national bonds or common culture or (though they won’t admit this) common ethnicity.
You hint at a different direction — overreliance on markets itself is leading to this kind of social dissolution.
Something very interesting is — or ought to be — happening on the conservative side. There was this grand alliance between social conservatives and economic conservatives, built around the fear of big government. The economic conservatives feared for their property rights. The social conservatives feared for their social rights.
That deal has worked out much better for the economic conservatives. I do think there is reason for people who think that America’s problem is the deterioration of the fabric of communities to recognize that this is being caused by an overreliance on markets.
In the book, you talk about markets as something that facilitates diversity and tolerance. For some of these conservative nationalists, that might be part of the problem.
For a progressive, the reason markets are causing this type of social dissolution is that they’ve led to an explosion of inequality and created a meritocratic elite which can kind of game the system on its own behalf and leave other populations behind. It’s a different problem with markets than these conservatives have, isn’t it?
It definitely is. Think about it as two things on an axis: markets increasing the diversity of choices, and markets increasing the economic power of some at the expense of others. Those are both desirable to some extent: The diversity of choice is the idea that people can achieve different goals without needing consensus to do so — an important benefit of markets. And the idea that markets can reward people for contributing to society is also something we value.
Yes, the areas in which progressives feel the greater stress, and the areas in which conservatives feel the greater stress, are on two different axes. But I do think there’s a commonality of interest in constraining markets. It relieves pressure on both of those dimensions.
About trade: You recount that the integration of China into the global economy did hit parts of our industrial heartland hard. Yet you also write that there was little policymakers could have done to stem the decline of manufacturing. International supply chains have spread manufacturing around the globe, alleviating global poverty in a big way. Technological progress was a main culprit; that had good effects.
But you say that it “didn’t have to be so painful” for workers. Where does this leave us, exactly?
It is undoubtedly the case that the spread of manufacturing more evenly across the globe has been beneficial to a huge portion of the globe’s population. That has also come at the expense of middle- and working-class populations.
There have been a lot of losers from trade, and the pain has been very concentrated. The premise that everyone is better off, and therefore we could compensate the losers, is not good enough if we don’t actually compensate the losers.
Where does Trump go wrong?
Tariffs have not proved effective. It is true that China cheats. How do you convince them to do less of that? Trump has had 2½ years. That approach has not succeeded in persuading the Chinese to be better trading partners.
There’s a plausible case that Trump sees China as something we need to disengage from entirely. When Trump ordered companies to leave China, I think he was getting at his real instincts. There seems to be a very deep conceptual confusion that explains why we’re in such a mess.
Fair point. If your goal is to improve the quality of America’s trading relationship with China, Trump’s approach doesn’t seem to be working. If your goal is to disengage from China, it’s a dangerous fantasy to think you can wind back the clock to some earlier era in which we’re making things here rather than there.
There’s just no evidence that it’s possible. The most likely outcome is that global supply chains shift to other places — not to Ohio, but to Vietnam.
Your ultimate conclusion seems to be that a restructuring of markets toward a much broader conception of the public and social good, and a much-strengthened safety net, offer an answer.
Our problem is inequality. We’ve been indifferent to inequality for a very long time in our public policy. The first step towards improving the situation is simply taking the problem seriously.