If you ask the truck driver whose long distance runs put him over the limit on hours he can safely work, or call center workers who fret about losing their jobs, if they know anything of economics, you’ll likely get the same answer: “Not a thing.”
Yet these are the very people, along with millions of others like them, who pay the price when the nostrums advocated by economists turn the economy on its head, and make things worse rather than better.
According to Binyamin Appelbaum, author of what is sure to be this fall’s economics blockbuster book, The Economists’ Hour, (Little, Brown and Company), the economists have become the new policy makers in government, not always with good results.
He traces the role of economists in the four decades between 1969 and 2008 “in curbing taxation and public spending, deregulating large sectors of the economy, and clearing the way for globalization.”
Any one of the folks I mentioned above is likely to suffer the consequences tomorrow of the economies these new policy-makers have created: one that’s either over-heated through easy money and inflation, in retrenchment due to cutbacks in government and consumer spending, or starved of public fiscal stimulus.
Nor have the economists solved unemployment, which is higher than official figures claim – six per cent for Canada and around four per cent for the United States. These numbers count only people looking for work, and ignore those out of work who have given up looking for jobs. Appelbaum gives the extreme example of Galesburg, Ohio, where the official jobless figure was six per cent for men in 2016. He says an additional 41 per cent of the city’s working-age men were neither working nor actively seeking work: “Some were retired, some were happy, but many had simply given up”
America has shifted from such trades as shoe making to bond trading due to forces that are mainly “beyond the control of policy makers,” according to Appelbaum. He cites the reduced need for workers due to technological progress in making everything from cars to computers, and the more even spread of manufacturing jobs throughout the world.
In the face of this, the transformation of policy driven by economic theories, Appelbaum argues, “has hastened the evolution of the American economy, and funneled the benefits into the pockets of a plutocratic minority.”
If there was a starting point for the surrender of policy-making to economists, it was the appointment of an economist, Arthur F. Burns, as chairman of the U.S. Federal Reserve Board in 1970. Two years later, George Schultz became the first economist to serve as Secretary of the Treasury (under President Nixon) and by the late 1970s the U.S. government was employing more than six thousand economists.
Appelbaum asserts that growth slowed in each successive decade during the following half century. “A few people became rich beyond the wildest dreams of Croesus, while the middle class now has reason to expect that their children will lead less prosperous lives.”
As the role of government grew after World War II, extending regulation over large swaths of economic activity, “the effect seemed almost magical,” Appelbaum declares. The disciples of British economist Maynard Keynes, who advocated government spending to stimulate the economy, held sway during the Kennedy and Johnson years.
Then came a dread period of “stagflation” when unemployment and inflation rose together in the 1970s. Enter the supply-side economists, who argued for cuts in both taxes and government spending,
Calling for faith in markets, conservative economists like Milton Friedman and George Stigler lent their expertise to a coalition of the powerful, “defending the status quo against threats real and imagined.” Some became intimates of the Mount Pelerin Society, a right-wing elitist group assembled by the Austrian-born libertarian, and fascist friendly, Friedrich Hayek.
The only problem is that none of the cures advocated by the supply-side economists, as they came to be known when Arthur Laffer rose to prominence, worked. Tax cuts for upper income brackets did not increase employment. Cuts in government spending on benefits to lower income taxpayers were eaten up by increases in military spending and bigger subsidies for corporations. Government deficits rose.
Today, the United States under Donald Trump is running an annual deficit of close to one trillion dollars. If applied to Canada on the usual ratio of one-to-ten for population difference, this would mean a $100 billion deficit. In fact, Canada’s budget for 2019 laid out a deficit of just over $19 billion, making Prime Minister Justin Trudeau a Scrooge by comparison.
The result of the ‘economists’ hour,’ Appelbaum argues, is that “America has pursued economic growth without sufficient regard to the strength of the safety net,” leading to an imbalance “that has proven destructive.” It’s the reason, he concludes, that “the very survival of liberal democracy is now being tested by nationalist demagogues as it was in the 1930s.”
(My thanks to Little, Brown for an advance reading copy).