The Economist UK - 31.08.2019

The EconomistAugust 31st 2019 71

1

F

ew economistsworked at the Federal

Reserve in the early 1950s. Those who

were on the staff of America’s central bank

were relegated to the basement, at a safe re-

move from the corridors where real deci-

sions were made. Economists had their

uses, allowed William McChesney Martin,

then the Fed’s chairman. But they also had

“a far greater sense of confidence in their

analyses than I have found to be warrant-

ed”. They were best kept down with the sur-

plus furniture and the rats.

The world changes, and it can be hard to

say why, writes Binyamin Appelbaum in

“The Economists’ Hour”. Despite the clout

of a few individuals such as John Maynard

Keynes, economists as a class were once

held in almost universally low esteem by

serious policymakers, who saw them as

trumped-up statisticians with strange

views about human behaviour. But in the

decades after the second world war, the

profession clawed its way out of the base-

ment and up to extraordinary influence.

The rise was made possible by charis-

matic intellectuals such as Milton Fried-

man, who in that era spotted the chance to

nudge history in their preferred direction.

For nearly half a century rumpled theorists

held the ear of politicians around the

world. Their period of triumph ended in a

fog of financial crisis, economic conflict

and resurgent nationalism. Mr Appelbaum

aims to focus public attention on the role

of economists in the miasma’s descent.

His is a respected voice in American

journalism. Now an editorial writer at the

New York Times, he spent nearly a decade

covering economics and economic policy

in Washington. “The Economists’ Hour” is

a work of journalism rather than polemic.

It is a well reported and researched history

of the ways in which plucky economists

helped rewrite policy in America and Eu-

rope and across emerging markets.

Some of the stories Mr Appelbaum tells

will be unfamiliar. He describes how econ-

omists inspired by Friedman persuaded

Richard Nixon to abandon military con-

scription in favour of all-volunteer armed

forces. The draft misused resources, they

argued, by pressing into service young peo-

ple whose skills might be better applied

elsewhere. The Pentagon might actually

save money by relying solely on volun-

teers, thanks to reduced turnover and thus

lower training costs. Nixon had his own

reasons for ending conscription. But the

economists helped make up his mind.

And they managed to undercut an age-

old American scepticism of big business.

In the late 19th and early 20th centuries,

America had reined in the behemoths built

by robber barons. In the 1950s economists

were second-class citizens in the antitrust

division of the Department of Justice. The

economists’ hour changed all that.

George Stigler, a friend of Friedman and

a fixture at the University of Chicago, reck-

oned that “competition is a tough weed,

not a delicate flower”, and that in practice

firms would struggle to maintain and wield

market power. Aaron Director, an econo-

mist sympathetic to Stigler’s ideas on com-

petition (and Friedman’s brother-in-law),

spent most of his career in Chicago as well,

instructing law students in the emerging

economic perspective on antitrust issues.

He became a mentor to Richard Posner, a

legal scholar and later a judge, who pro-

moted the notion that justice in the law

meant no more and no less than economic

Unintended consequences

The numbers guys

Economists have a lot to answer for, argues a veteran analyst

The Economists’ Hour.By Binyamin

Appelbaum. Little, Brown; 448 pages; $30.

To be published in Britain by Picador in

January; £20

Books & arts

72 Catering empires

73 Christianity’s influence

73 Historical fiction

74 Georgian culture

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