Blame Economists for the Mess We’re In
In his refreshingly positive book Factfulness, Dr Hans Rosling talked about how people across the world are living longer with average life expectancy globally now at 72yrs rising up form 60yrs in 1973. This trend was true for the United States as well until recently when it has started to decline. It turns out that Dr Rosling like most of us was also misled by statistical averages which masked the long declining trend of life expectancy for the American poor. “Perhaps the starkest measure of the failure of our economic policies is that the average American’s life expectancy is in decline, as inequalities of wealth have become inequalities of health. Life expectancy rose for the wealthiest 20 percent of Americans between 1980 and 2010. Over the same three decades, life expectancy declined for the poorest 20 percent of Americans. Shockingly, the difference in average life expectancy between poor and wealthy women widened from 3.9 years to 13.6 years” says Binyamin Appelbaum in this essay which is adapted from this forthcoming book “The Economists’ Hour: False Prophets, Free Markets and the Fracture of Society”. Appelbaum attributes the rise in income inequalities now reflecting in rather diverging trends in health to the rise in economists’ role in policymaking over the past five decades, especially their willful indifference towards distribution of prosperity. He notes that until 1968 economists had little role in policymaking.
“In the early 1950s, a young economist named Paul Volcker worked as a human calculator in an office deep inside the Federal Reserve Bank of New York. He crunched numbers for the people who made decisions, and he told his wife that he saw little chance of ever moving up. The central bank’s leadership included bankers, lawyers and an Iowa hog farmer, but not a single economist. The Fed’s chairman, a former stockbroker named William McChesney Martin, once told a visitor that he kept a small staff of economists in the basement of the Fed’s Washington headquarters. They were in the building, he said, because they asked good questions. They were in the basement because “they don’t know their own limitations.”
Martin’s distaste for economists was widely shared among the midcentury American elite. President Franklin Delano Roosevelt dismissed John Maynard Keynes, the most important economist of his generation, as an impractical “mathematician.” President Eisenhower, in his farewell address, urged Americans to keep technocrats from power. Congress rarely consulted economists; regulatory agencies were led and staffed by lawyers; courts wrote off economic evidence as irrelevant.”
From 1969, they began to influence policy making, first with rationalising the administration of policy and then to setting policy goals as well. Much of it was towards the development of free markets driving deregulation across industries and reduction in the role of the government. But it is their lack of appreciation of the threats to inequality that Appelbaum laments.
“Although nature tends toward entropy, they (economists) shared a confidence that markets tend toward equilibrium. They agreed that the primary goal of economic policy was to increase the dollar value of the nation’s output. And they had little patience for efforts to limit inequality. Charles L. Schultze, the chairman of Mr. Carter’s Council of Economic Advisers, said in the early 1980s that economists should fight for efficient policies “even when the result is significant income losses for particular groups — which it almost always is.” A generation later, in 2004, the Nobel laureate Robert Lucas warned against any revival of efforts to reduce inequality. “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution.”…
….The market economy remains one of humankind’s most awesome inventions, a powerful machine for the creation of wealth. But the measure of a society is the quality of life throughout the pyramid, not just at the top, and a growing body of research shows that those born at the bottom today have less chance than in earlier generations to achieve prosperity or to contribute to society’s general welfare — even if they are rich by historical standards.
This is not just bad for those who suffer, although surely that is bad enough. It is bad for affluent Americans, too. When wealth is concentrated in the hands of the few, studies show, total consumption declines and investment lags. Corporations and wealthy households increasingly resemble Scrooge McDuck, sitting on piles of money they can’t use productively.
Willful indifference to the distribution of prosperity over the last half century is an important reason the very survival of liberal democracy is now being tested by nationalist demagogues. I have no special insight into how long the rope can hold, or how much weight it can bear. But I know our shared bonds will last longer if we can find ways to reduce the strain”