Binyamin Appelbaum on the Economists' Hour
Dec 16 2019

Economists-Hour-201x300.jpg Journalist and author Binyamin Appelbaum of the New York Times talks about his book, The Economists' Hour, with EconTalk host Russ Roberts. Appelbaum blames the triumph of free-market ideology for the rise in inequality and the decline in growth rates over the last half-century. The result is a lively, civil conversation about the economic events over that time period and the role of economists in changing economic policy.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Dec 16 2019 at 7:55am

I really liked how the guest articulated his views. They seem to capture the current liberal leaning view of today’s economic climate.

Its also amusing to see the current situation as somehow a product of a neo-liberal agenda. Sclerotic growth, homelessness, inequality? All a function of monetary policy, monopoly power, and a lack of a social safety net. When Russ rightly offered alternative explanations, the guest considered them as plausible, but clearly not worthy enough to take seriously.

And Yet…even a basic cursory look at the facts would show…health care spending by government per capita is the highest in the world. Education spending by government per capita..yep highest in the world. Spending on climate change, homelessness, welfare, disability – all highest in the world. And the growth slowdown and rapid inequality that shows all over the world? yep, somehow still a function of the Friedman doctrine of free market unfettered capitalism.

I also dispute his claim that the rise in homelessness is from people working who are working but cannot afford to live. Um…that doesn’t’ fit the facts either.

I could go on and on but I’d be beating a dead horse.

Robert Kennedy
Dec 16 2019 at 9:12am

Bravo!    It is so refreshing to hear a civil conversation between 2 folks who disagree on so much.   no personal attacks;  no “gotcha” questions;  very little defensiveness.    Just 2 people who have strong points of view but can still respect other points of view and can seek out areas of agreement.    Further confirmation of how great of an interviewer that Russ has become,

one quibble:   near the end, there was a discussion about the airline industry in the US and how lack of regulation & lack of antitrust enforcement has resulted in less suppliers and higher prices.    But no mention of the regulations that prevent foreign carriers to fly between cities in the US or limit the ability to  fly “fifth freedom” flights between the US & non-host countries.  that is a huge barrier to entry, imo, that curtails competition.   No mention of such in the discussion,

Todd Kreider
Dec 16 2019 at 9:38am


But it is a fact that average growth declined in every decade from the 1960s through the oughts [2000s–Econlib Ed.] in the United States, adjusted for population. And it is a fact that during that period, we saw a fundamental shift in our approach to managing the economy.

U.S. per capita growth (OECD)

1970s 2.5%

1980s 2.3%

1990s 2.1%

2000s 1.0%

2010s 1.7%

I’m not sure what “managing our economy” means in an American context but 50 years seems too long a time period to say anything very meaningful about a “fundamental shift”.  And if arguing this shift has been a 50 year process, why not add the most recent decade for 60 years of a fundamental shift?

Dec 17 2019 at 2:19am

Great episode and fantastically respectful conversation.

The guest made an important and interesting point about the rise of economic homelessness – making a case that ordinarily people with jobs (like teachers and people working in the restaurant industry)  accounts for the rise, because their jobs does not pay enough to afford housing anymore. Would have liked Russ to try to respond to that. It does not fit his narrative aiming at keeping the minimum wage down.

Perhaps could the rise in homelessness be a topic for a future full episode?

[ typo to Russ’s name corrected. —Econlib Ed. ]

Todd Kreider
Dec 17 2019 at 7:58am

Applebaum also said:

The fact that we now have a degree of homelessness that is unprecedented in American history is a direct reflection of how frayed our safety net has become.

The homeless rate was likely higher in the past but unclear because more accurate counting is fairly recent.

There has been almost a 20% drop in homelessness from 647,000 in 2007 to 553,000 in 2018 as the U.S. population rose 8%. So, 0.21% of the population in 2007 to 0.17% of the population in 2018.

See: “Homelessness in the United States,” Wikipedia, Exhibit 1.1. graph toward the bottom.

Dec 17 2019 at 11:41am

Thank you for that data.

Also if there is a growing problem in big coastal cities it seems due to very UN-libertarian euclidean zoning.

Dec 17 2019 at 9:26am

While discussing deregulation and mergers in the airline industry, Mr. Appelbaum claimed that there were ‘only 4 airlines left’ in the country.  Not true.

There have been plenty of new airline startups over the past decades.  Granted, not all have survived, but why should we expect every new business to succeed?

A quick current list of US airlines:  American, United, Delta, Southwest, Jet Blue, Allegiant, Sun Country, Frontier, Spirit, Alaska, Hawaiian.  There’s probably more that I’m forgetting, but clearly more than 4.

Dec 19 2019 at 9:32am

While there are more than 4 airlines, just 4 large US airlines capture most of the US air travel business.  By passenger numbers in the millions for 2017

#1 Southwest: 157.677

#2 Delta: 145.647

#3 American: 144.864

#4 United: 107.243

#5 Jet Blue: 40.015

#6 SkyWest: 35.776

and so on..

John P.
Dec 17 2019 at 10:51am

Thanks for doing this interview.  A book by a New York Times editorial-board member about free-market economists is not one I’d normally pay any attention to, so I’m glad that Russ read the book for me, picked out the good parts, and probed some of the problematic parts.

I see that the book’s index indicates no mention of public-choice theory and only three mentions of James M. Buchanan (two of which are in notes).  Public-choice theory, it seems to me, is one of the most significant developments in economics in the period covered by the book, and it would appear to be particularly relevant in a book advancing the thesis that we need more top-down intervention in the economy.

Dec 17 2019 at 3:04pm

Boomers love their weekend cycling sessions…don’t see any of them riding Huffy’s in my area…

The Huffy story is an interesting one. The guest frames it a story of globalization and the closing of US-based factories because of Wal-mart. Another way to frame it is that Huffy missed the shift in the bicycle market. As cycling became more advanced, safer and more competitive, consumers became more willing to spend a lot of money on bicycles. Huffy was in a market that a smart business person would recognize was a race to the bottom. If you look at high end brands like Specialized, Yeti and Kestrel, many are US-based if not made in USA. These brands don’t sell in Wal-Mart because they have created their own, more lucrative distribution channels.

So in other words, the business school story would be “Huffy failed to innovate and see where bicycle industry was going and where the most profits would be” but the New Left view is “Neoliberal Capitalism and Economists closed the factory.”

Ajit Kirpekar
Dec 18 2019 at 12:53am

Thanks for pointing this out.

I would say this is a good example of the symptomatic nature to lefty blame casting. It also extends to inequality,a exec pay, and now homelessness. Despite evidence of the skill premium being the overwhelming driver on inequality, it doesn’t fit with the overall narrative.


I invite the guest to visit SF where I live and work.  Walk through the tenderloin district, sections of Fidi, Soma, Haight, and the mission and see if the first conclusion you reach is that these are working Americans forced into the streets because of high rents. I don’t deny rents are absurdly high(hardly a fault of free market capitalism run amok), but these are not working Americans. I have tremendous sympathy for them, but we shouldn’t be using their plight to further a popular agenda no matter how much it sings politically. And

Nick Ronalds
Dec 19 2019 at 1:07pm

This episode was a bit weird. Applebaum blames deregulation and monetarism, among other things, for current trends and conditions he deplores. Yet he agreed that the deregulation of the 70’s by Alfred Kahn and others was beneficial, and agrees that financial policy of the 70’s and before led to stagflation. If Keynesian policies failed, and monetarism is bad, what’s his preferred basis for monetary policy? Is he a fan of Market Monetarism, perhaps? And if “deregulation” went too far and is responsible for a decline in economic growth, where’s the empirical evidence for that? For contrary evidence, see Pierre Lemieux’s essay on the impact of regulation, including a review of a study suggesting that if there had been no new regulations since 1949, annual GDP growth would have averaged 2% more from 1949 to 2011. That implies 2011 GDP of $54 trillion rather than $15 trillion. No typo—GDP would be over thrice what it is. See Whether you believe steady increases in regulation could have that big an effect, the evidence that regulations’ impact on GDP would be negative is surely more compelling than that it would be positive. Yes, that leaves aside the doubtless positive effects of some regulations on e.g., the environment. But Applebaum is arguing for a positive effect of regulation on GDP. (The study cited by Lemieux is “Federal Regulation and Aggregate Economic Growth,” by John W. Dawson and John J. Seater. Journal of Economic Growth, Vol. 18 (2013).)

As another commenter noted, it is commonly suggested, and borne out by analyses, that the rise in inequality has something to do with the skill premium.  To that one could add the increase in a “winner-take-all” effect from globalization. No mention either by the guest.

Most of guest’s assertions seem similarly implausible and inconsistent with a fair reading of the evidence.

Nick Ronalds
Dec 19 2019 at 6:55pm

This episode was a bit weird. Applebaum blames deregulation and monetarism, among other things, for current trends and conditions he deplores. Yet he agreed that the deregulation of the 70’s by Alfred Kahn and others was beneficial, and agrees that financial policy of the 70’s and before led to stagflation. If Keynesian policies failed, and monetarism is bad, what’s his preferred basis for monetary policy? Is he a fan of Market Monetarism, perhaps? He didn’t say.

And if “deregulation” went too far and is responsible for a decline in economic growth, where’s the empirical evidence for that? For contrary evidence, see Pierre Lemieux’s essay on the impact of regulation, including a review of a study suggesting that if there had been no new regulations since 1949, GDP growth would have averaged 2% more annually from 1949 to 2011. That translates into a 2011 GDP of $54 trillion rather than $15 trillion. No typo—GDP would be over three times what it is. See If you have trouble swallowing that big an effect, surely there’s more evidence, anecdotal and academic, that more regulation depresses economic growth than stimulates it. (The study cited by Lemieux is “Federal Regulation and Aggregate Economic Growth,” by John W. Dawson and John J. Seater. Journal of Economic Growth, Vol. 18 (2013).)

Maybe Applebaum thinks good regulations stimulate growth, but not bad ones. Good luck with that! Congress and the Executive are just so good at distinguishing one from the other, as we know.

As another commenter noted that the rise in inequality has much to do with the skill premium. To that one can add the Winner-Take-All effect of globalization (i.e. much lower transaction costs). No mention of that by the guest.

Most of guest’s assertions seem similarly implausible and inconsistent with a fair reading of the evidence.





Jeff Lacker
Dec 19 2019 at 8:32pm

Kudos for inviting Applebaum on the show. About Greenspan, he used to say that price stability is the best contribution monetary policy can make to “maximum employment,” the other arm of the so-called dual mandate. (Actually a triple mandate–the third is “moderate long-term interest rates,” to which price stability is also the best contribution monetary policy can make.) The notion that low and stable inflation is best for labor market outcomes is exactly what Friedman argued. That’s an argument Friedman also won, I believe.

Samuelson came up toward the end. I would have liked to have heard a discussion of the extent to which the Keynesian idea that tolerating somewhat higher steady-state inflation could permanently reduce the unemployment rate, championed by him, Solow and others, contributed to the disastrous inflation experience of the 1970s. Without that, no account of the influence of economists on late 20th century economic outcomes is complete, or balanced.

Dec 20 2019 at 9:44am

I’m such an admirer of Milton Friedman I did not what to listen but I forced myself because I think a person should listen to both sides.
In the end, I think if that’s all he has, Milton Friedman was truly great.

Dec 23 2019 at 10:31am

Applebaum’s example of the beer industry is just flat out wrong.

Treating craft beer like an entirely different industry is not correct, considering how much effort the big brewers put into attempting to kill it and/or co-opting it.

Another success of Carter deregulation, as many of the craft brewers came out of the home brewing movement that Carter legalized.



Steve Fritzinger
Dec 24 2019 at 3:07pm

Ironically, I listened to this episode while driving back to my home town of Celina, Oh.  Appelbaum gets more than just the name of the town wong (it’s CeLIna, not CeLEna).

When Huffy left town,  the factory was taken over by Crown  Equipment.  Now the people who had built bicycles build forklifts.  Despite the Rust Belt stereotype, that part of Ohio has a thriving manufacturing section and a 2.6% unemployment rate.

Several years ago, NPR also did a story on Huffy leaving Celina.  They also ignored all the good things happening there. Instead, they told the story of a laid off Huffy work who received retraining through the Trade Adjustment Assistance program.  He now works for the Trade Adjustment Assistance program.

Michael Pettengill
Jan 31 2020 at 9:50am

Missed this one until looking for a favorite.

I agreed that Friedman is responsible for many bad policies harming growth, etc, but both Russ and Bin have the wrong frame for looking at the bad policies.

On housing, yes, it’s bad regulation, like Prop 13 that make hiking taxes to fund bonds to build streets, highways, transit, water and sewer, etc to expand the buildable land for housing the doubling of population in areas where innovation is creating jobs for the kids of workers losing jobs where innovation is killed.

As an early boomer, construction of infrastructure created a lot of demand that provided opportunity. That infrastructure generally had a 40 year design life. Much is at 60+ years with growth in the area not driving new infrastructure that allows replacing that beyond design life. Water and sewer are leaking in almost every city and town, but opposition to taxes/fee hikes means emergency repairs of sink holes in the street swallowing cars, etc.

But with people forced to resort to Locke in building housing, eg, improving a plot of common land, the demand is government bulldoze the Locke housing, tents under highway overpasses, deep in public urban woods, etc. A century ago, they were hobo camps and latter Hoovervilles. I knew of camps in the 60s frequented by bikers, hippies, tolerated because they followed seasonal work.

Airline competition misses that near total eliminations of competition: buses, trains. Further, the number of airports with scheduled service of any kind is probably cut in half from 50 years ago. Large areas of the US have not transportation other than personal cars, friends and family, a huge change from a century ago when few had cars.

The big change in transportation is basically a shift from customers picking the provider to the providers picking the customers, with 80% of customers discarded. The same is true for telecomm. Good Internet service is unavailable in 60% or more of US land area, ditto cell service with data. Voice over copper wire serves probably 90% of private land because electric power serves it thanks to New Deal programs still in place building powerlines into what will become new suburbs eventually. But for telephone, the Bell companies have carved out large rural areas and given them to small under capitalized phone companies that go bankrupt.

I remember Milton Friedman writing that electric and telephone service was too good, and that lower service standards would cut costs to consumers, and those who wanted more should pay much higher costs for service. And those living in rural areas need to pay much higher costs rather than forcing city customers to pay higher rates.

Now, that means government can’t use the Internet when servicing all citizens. Trump’s work requirements cost more to implement than they can possibly save because most poor people don’t have smart phones or Internet access. Nor cars to drive to government offices or libraries when open, and buses run only during the day, if at all. Note, US mail served every address starting about a century ago making it a way to contact citizens/taxpayers without government agents visiting. In the prior century plus, “the free market” failed to provide mail or parcel service to every address in the US. When the Post Office provided both after 1920, its business grew so rapidly that economies of scale resulted in profits even as service improved and rates were cut. This universal service resulted in a business boom like after 1995 and the opening of the Internet. And regular scheduled passenger service was driven by Post Office Airmail carriage contracts, tying back to passenger air service.

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TimePodcast Episode Highlights

Intro. [Recording date: November 5, 2019.]

Russ Roberts: Today is November 5th, 2019, and my guest is author and journalist Binyamin Appelbaum of the Editorial Board of the New York Times. He's the author of The Economists' Hour: False Prophets, Free Markets, and the Fracture of Society. Binyamin, welcome to EconTalk.

Binyamin Appelbaum: Thank you.

Russ Roberts: Your book is a history of the last 50 or so years of economists, their ideas, their influence on public policy. The star of the book is Milton Friedman. I would say he's also the villain. How do you characterize Friedman's view of the world and that of his fellow travelers-- if I may use an ironic term? And, what have they accomplished that you find problematic?

Binyamin Appelbaum: I think of this book as the story of a revolution that really gets going in the late 1960s and the early 1970s, where Friedman and a number of like-minded economists really begin to influence government policy across a wide range of areas. Specifically, I think of their message as being quite simple. What they are saying is: Government is overly involved in the economy. It has its hand on too many of the levers. It needs to pull back. It needs to trust in market forces. It needs to allow markets to allocate resources and to do less central planning, less economic management, less regulation. The problems the economy is facing are basically a result of the government's involvement, and the solution is for the government to be less involved.

Russ Roberts: And that grew somewhat out of Mont Pelerin Society meetings at the end of World War II, where Hayek and Friedman and others were concerned about the collectivist trend that was--obviously part of the Soviet Union was starting to influence the United Kingdom, England, and parts of Europe. Do you think we've gone too far? I would say it's hard to characterize--any other directions how you would characterize your assessment?

Binyamin Appelbaum: Yes. I think that's right. So, the overall assessment here is that this revolution, as many revolutions do, went too far. That this effort began with real problems. There were genuine issues that needed to be addressed in the mid-century, areas in which economic policy was broken, real problems in the economy. And some of these solutions initially were quite constructive and productive. But we took them too far.

And so, if you look at the sum total of this half-century of hands-off economic policy, there are sort of three big consequences. The first is that I think it's been bad for economic growth. And the central reason there is that we need government regulation to stabilize growth. We need government investment to plant the seeds for growth. And I think in the absence of those forces, we all have suffered.

The second issue is inequality. One of the central messages that economists brought to policymakers was that inequality was both overrated as a policy issue, and that trying to deal with inequality came at the expense of economic growth.

They convinced policymakers to do less about inequality, to reduce the government's efforts to combat inequality. And as a consequence, I think that's one big reason--not the only reason--but one big reason that we have a lot more inequality.

And the third issue, which I think we're, you know, grappling with particularly in recent years, is that inequality has come at the expense of democracy. The idea of 'We, the people,' is being strained because we have less and less in common. And as a consequence, it is harder to govern this society and other societies suffering with similar issues. It is harder to construct a sense of common purpose and to pursue shared goals.


Russ Roberts: So, let's go through those one by one. Before we do, I want to challenge the basic thesis that underlies the book, which is that it's a revolution. I think there are two things to wonder about. One is--and I think this is somewhat true, but this is clearly a matter of judgment--and that is, I think economists certainly have the rhetoric that politicians use. Whether they're the underlying cause of the revolution is always an interesting question. We can talk about that if you want.

I think the harder challenge to your claim, and set of claims, is that when I interviewed Milton Friedman in 2006 and we talked about his book, Capitalism and Freedom, which you talked about in some detail in the book, and the policy proposals that he put forward there, he was rather disappointed, looking back on his life at how little he had accomplished.

Yes, the volunteer army had come into being, and you devote a really superb chapter to the history of how that happened and the role that economists played in it. We have sort-of floating exchange rates, which was another idea he'd put forth in the book.

The rest of that book, just all the policies--they're on the table or they were put on the table, which was quite an achievement for him. I think his intellectual accomplishment there was extraordinary.

But, if you look down the list--ending corporate welfare, ending various subsidies to business and elsewhere, eliminating the Social Security system, a negative income tax, which now is again on the table in a form of the Universal Basic Income--may happen but hasn't, to replace the labyrinthine Kafkaesque welfare system we have now.

A smaller government, lower tax rates, more role for individual initiative--most of those things didn't happen. So, why do you give so much credence? What's the--a better way to say it is, I think Friedman would say it's a revolution that failed. It slowed down the horse, but it didn't turn it back toward the direction he wanted it to go. Why do you feel it was so influential?

Binyamin Appelbaum: So I think, I guess I'd kind of disagree with Friedman's assessment in a couple of respects. The first is, I think, you know, one thing missing--

Russ Roberts: He was just being modest--iss one possibility. I didn't feel that though. But go ahead.

Binyamin Appelbaum: I don't doubt that he was disappointed. He wanted more than he got. There's no question about that. There were types of change he pushed for that didn't materialize or that didn't materialize as fully as he'd like. So we have an Earned Income Tax Credit but we don't have the full realization of his vision in that respect.

One thing that wasn't on your list that I think is really important is his success in, you know, placing monetary policy in the central role as an actor in macroeconomic policy.

But, I think that, you know, there's two important points here.

The first is that the successes deserve consideration. They need to be weighed, and they really were considerable.

The second is that, this isn't just the story of Milton Friedman. So, he was not a central voice in the push to flatten income taxation, but that is an area in which a similar set of ideas prevailed. He was not the primary advocate for the deregulation, for the end of economic regulation of industry, but that is an area in which the ideas of economists who were allied with his vision also prevailed and had a significant effect on the economy.

So, I think it's true that Friedman--if you sort of took the, you know, the ten biggest things he wanted to change about the world, a number of them happened, quite, I think, quite fully. A number of them happened partially. A number of them failed to happen or are still open questions. But, I think the sum total of his influence was massive. Most people don't succeed in winning even one battle of that magnitude; and he came in and changed our society in multiple respects.

Russ Roberts: And he did it through a really unusual combination of scientific--I hate to use that word with respect to economics, but he did, and many people would use it--his scientific legacy was established as a scholar. On top of that, he had incredible charisma, and he was a superb, clear writer. He was not a brilliant stylist like his buddy, George Stigler, but he was a very good communicator, obviously.


Russ Roberts: I'm hoping we're going to get through those three things that you mentioned. We might not because I wanted to backtrack, and I want to talk about regulation.

Certainly, free-market folks--now increasingly called neo-liberals; I like to call us classical liberals--and Friedman used that term as well. Classical liberals do want less, did want less regulation of industry. They got it in trucking. They got it in airlines. As you say in the book, it's been very good. That was very good for consumers.

In a lot of areas, the rest of the economy that are much more regulated than they used to be. They are the commanding heights: healthcare, education, the financial sector, which is a mix of deregulation and bail-out subsidies, sweet deals. So, I don't see--I see the glass is very half empty even on that basic idea of deregulation.

Binyamin Appelbaum: I think that there are two glasses. The first of them is a concept that largely is no longer with us, and it's a little hard to remember how important it was in the mid-century. That was that the government was playing an active role in setting prices and in regulating prices and regulating quantities, and this type of economic regulation was really quite pervasive. I mean, some of the more famous examples are the government's control of the airline industry and of other transportation sectors, its control of telecommunications.

But, you know, for several mid-century administrations [mid-20th century administrations--Econlib Ed.], they thought nothing of intervening to set steel prices, establishing price boards to deal with inflation. They thought of setting prices as a valid tool of government macroeconomic policy, and they used it at times in quite a sweeping fashion. This reached its absolute apogee under Richard Nixon and his battle against inflation in the early 1970s. That whole concept has been fundamentally discredited, and it would be inconceivable for a modern president to stand up and say, 'We are going to create a board to determine the prices of commodities across the economy.'

And so that I think is a victory. And its something that changed because economists were successful in articulating an alternative framework, because the efforts to do it failed rather magnificently, and it was hard to miss the fact of the failure.

At the same time, there was another glass, which was a health and safety and environmental regulation: a set of concerns that really the government was not attempting to regulate for the most part in the mid-century. And beginning in the 1960s and the 1970s, the government creates this panoply of new regulatory agencies to really begin for the first time asserting a federal role in protecting workers, in protecting consumers and in protecting the environment.

And the result is that the sum total of regulation has increased, undoubtedly. But that one kind of regulation has gone away almost completely, and another that didn't really exist has more than taken its place. So it's a bit of a nuanced story there: One victory and then from the perspective of those who would like regulation, an offsetting defeat.


Russ Roberts: So, when you now will look I hope, move to your three parts of that revolution or impacts of that revolution, the bad growth:I don't think we understand growth very well. Again, free market types tend to think regulation slows growth down. Obviously, there are some regulations that enhance growth. There's government intervention that can enhance growth through infrastructure, the educational system if it's done well.

Given the rich ups and downs of regulation--and investment by the government, in infrastructure and education, with very mixed results --why do you blame free-market ideology for the mediocre growth of, say, the 1970s and 1980s? Or the post---I guess, people like to pick on 1973, so some time in the 1970s it's claimed something changed. I think it's funny that we don't know what that is. But the data seems to suggest a change. Why would you argue that that's the result of free markets?

Binyamin Appelbaum: So, I want to agree first off that our understanding of growth is highly incomplete, and that we are to some extent here talking about things we don't fully understand. But it is a fact that average growth declined in every decade from the 1960s through the oughts [2000s--Econlib Ed.] in the United States, adjusted for population. And it is a fact that during that period, we saw a fundamental shift in our approach to managing the economy. If we think that that approach was consequential, it's not unreasonable at least to wonder about how it might have affected that trend.

And I think there's a couple of levers in particular where there is evidence that it would have been influential. One of the most important--you know, perhaps one way to frame this is to think about the 1990s, which was a period that many of us remember as the last time things were really good.

And one thing about the 1990s that often gets lost in that discussion about all of the things that economic policymakers were doing at that time is the things that had been put in place before that time. We entered the 1990s with the most educated workforce in the developed world. We entered the 1990s with a war chest, basically, of innovation that had been stored up in part through funding of basic research, in part through, you know, a development ecosystem that had very different rules than the modern system in terms of patents and protections for intellectual property. We come into that era, basically, with a lot of smart people ready to take advantage of technology. And the economy experiences a boom as a consequence of those investments.

During the 1990s, we reduced those investments. We're no longer funding education in the same way. We're no longer investing in research in the same way. We're allowing companies increasingly to tighten their control over intellectual property. And I think that, you know, it's not a coincidence that growth declines in the aftermath. If you stop planting seeds in the orchard, you get fewer apples.


Russ Roberts: I have to disagree on part of that. A couple of parts I want to push back on.

One is education expenditures--I'd say at every level--have gone up since the 1990s. I'm not sure education has gone up. There are more people sitting in chairs at schools. There are more people going to college--a lot more. There was a big push in parts of the 2000s to subsidize college education through cheaper loans. That did encourage a lot more people to go. They didn't finish, many of them--which is a tragedy, and now they're stuck with some loans.

The other thing I point to, and this is--we could spend the whole time on this, so I don't want to, but I want to mention it, and you can respond to it. A lot of people felt, and said, that we had gotten much better at controlling the economy using monetary policy, as you alluded to earlier--the increased use of monetary policy. That story fell apart in 2008. And we'll talk, I hope, about why that happened.

But one of the things that happened in the 1990s was--a couple of things that happened in the 1990s that I thought were important, which were the Mexican Crisis, where the government bailed out--they said they bailed out Mexico. They really bailed out the American banks that had lent money to Mexico. They orchestrated the rescue of Long-Term Capital Management, the hedge fund that blew up or was about to blow up, and take a lot of folks down with it. And so, I don't see it as a Golden Age of either investment or macroeconomic policy.

Binyamin Appelbaum: I certainly agree that there were big problems in both of those areas, which we can absolutely talk about.

You know, the story, particularly what's happening in the financial industry, is double-edged. On the one hand, the government is pulling back and allowing these institutions to do a lot more things. And on the other hand, as a consequence, it's more intimately involved in sustaining them, and that ends up having consequences that we're living with today.

Russ Roberts: Do you want to say anything about the education story? and the infrastructure issue, investment? I think there's enormous expansion of research of all kinds, not necessarily at the most fundamental levels, but the money that's being spent. So, in theory, we should be--we're planting a lot of seeds.

Binyamin Appelbaum: That's a very critical distinction, right? Funding for basic research is something that government historically has had to provide because it's under-provided by private industry.

And so, I think, you know, while it's true that in aggregate, we're spending more on everything that is called research, the nature of that investment has shifted in ways that I think are consequential. And with regard to education, similarly, while total spending on education has increased, the nature of that spending has changed very fundamentally. Much more of it is in the form of borrowed money. What people are obtaining with that borrowed money is different. And the expense that they incur in order to obtain those educations ends up hampering the type of lives that they lead.


Russ Roberts: So, I want to throw out an alternative hypothesis to get your thoughts. Because, it is a fact that per capita growth rates are not what they were. I mean, there's a lot of macro/international issues that that might be caused by--some people would blame oil prices sometimes. Sometimes they would blame the rise of other economies that compete with us. Let's put that to the side. Let's talk about just what's directly happening in the United States.

One of the things that we've done over the last--I would say the two most important things that economists often neglect over the last 40 years is the change in the American family: enormous change in the mix and demography of family structure in the United States. And, which has implications, we don't, I don't think, fully understand.

The second would be the incredible subsidization of healthcare starting in the 1960s, which--ironically we're talking about Milton Friedman--but the withholding that he[?] put in place in World War II, and then I think the, alongside that, was the tax deductibility of healthcare costs for employers.

Then the Great Society comes along. We basically have subsidized the demand for healthcare tremendously. We have restricted the supply--not totally, but we make it hard to become a doctor in the United States. Make it hard for a foreign doctor to come here in the United States. Make it really hard for hospitals to open. We've done all these things, which made healthcare a ridiculously expensive item relative to what we get from it.

I think we have great healthcare in United States for most Americans. Many don't have access to it, but the ones who do, it's fantastic. But it's still incredibly expensive. We put away too many resources. I think by doing that through the employment process and making employer-based healthcare the norm has been a hideous disaster for growth, establishing new businesses, and so on.

Binyamin Appelbaum: So, I absolutely agree. I'm highly sympathetic to the idea that our health system is broken and that that has enormous consequences for our economy. The book does not get into that because it's the story of economists rather than the economy, and there is a difference. This is not an area in which economists have succeeded in reshaping the system, obviously. But I do think it's enormously consequential. I do think that the changes in our society, in our social life, in our communities and our families are enormously consequential as well.

I think that there's a feedback loop between economic breakdowns and societal breakdowns that is difficult to unpack but really important to think about.

And then the third thing that I'd mention that I think has contributed to slower growth is inequality. I think there's a growing body of really interesting evidence that inequality itself begins to weigh on growth. And I think that is important.

Russ Roberts: Yeh; I don't agree with that, but that's a long topic for another time.

I just think the--I'm much more concerned about poverty and opportunity at the bottom of the income distribution than I am about the gap between the top and the bottom. And I find it hard to understand how that gap itself has a causal impact on other things, given that most of the time we can't sense it. We don't know what it is unless we happen to open a economics data book.


Russ Roberts: But, let's talk about inequality. Why do you blame free market policies for that?

Binyamin Appelbaum: Well, here I think the story is much clearer and much more direct, because it was an explicit purpose of many of these policies to shift the focus of government policy from an equalization of opportunity and of distribution of output to an emphasis on efficiency and overall growth. And we can see this in a bunch of different areas of policy. It's certainly true of the tax code, where there was a judgment that the government was far too involved in taking money from those who made the most.

It's certainly true of monetary policy, where the emphasis on inflation came at the expense of tolerating a higher-than-necessary rate of unemployment. It's true in the area of deregulation where the Carter Administration, which got this train rolling, was explicitly focused on reducing what it saw as excess compensation for workers in protected industries to benefit--well, they thought they were going to benefit consumers, and they probably did to some extent. The people who actually ended up getting a lot of that money were the executives at those companies and the investors in those companies.

But in area after area of economic policy, there was this explicit focus on setting aside a concern for distribution and for equality, which was seen as problematic and focusing instead on efficiency. And they got what they wanted.


Russ Roberts: Let's talk about that inflation/unemployment trade off, because you spend a lot of time in the book on monetary policy, the behavior of the Fed. And I just want it as a footnote, as I mentioned before we started recording: I knew or know many of the characters in your book, the economists. Some of them were my teachers. Some of them my colleagues. And I have to say, even though I disagree with some of your conclusions, you do a superb job in laying out the history of how the intellectual ideas evolved in the profession. It's an extremely impressive book in that way, and, with one or two nitpicks, it's extremely fair to the people who were involved.

Most of my disagreement comes with the conclusions you draw from it, but I think it's important to state for listeners who are either on my side of the fence or on a different side, I think what's strong about the book and what its strengths are. And you've done really an excellent job laying that out.

So this issue, that you spend a lot of time on, which is of course very important--it at least seems to be the Federal Reserve and monetary policy. And you're very critical of this movement toward fighting inflation. So, talk about whether that's--how that came about . And then I want to give some thoughts on why I think you're right and why I think maybe that was still okay.

Binyamin Appelbaum: First, I just want to say thank you. You know, 90% of this book is a narrative. And 90% of the time I spend talking about it is about the conclusions. Which is totally understandable; but it is a narrative that I tried to tell as fairly and evenhandedly as possible. And I hope that anyone who is interested in this history will find it interesting, independent of the conclusions that I reach.

The story of monetary policy is really one of the central narratives in this book, because there was such a consequential revolution in that space, and it was directly the result of Milton Friedman's ideas. And so it's just a fascinating story about the way that, really, one man can reshape, you know, the approach to economic policy, not just in the United States but around the world. It's an amazing story.

And, the short version of it goes like this. It used to be the case in the aftermath of World War II that monetary policy was regarded as a bit player. The government was focused on fiscal policy as the primary lever of macroeconomic policy; and they thought that they had the ability to really, you know, manage economic growth by, you know, tinkering with taxation and with spending.

And Friedman begins to argue, vigorously, even before he has the evidence for it, that really this is misplaced: that the result is never going to be good; that what you want to do is focus on monetary policy. And in focusing on monetary policy, you want to take a very narrow view of what that means. In his view, you should just increase the supply of money at a regular rate. You should try to take sort of a--in the face of uncertainty, adopt a minimal approach to moving forward.

I think of this as the question of how one moves through a dark room, basically. The Keynesians were very much of the view that you sort of grope your way through the room--try to adjust situationally, respond to the individual obstacles as you confront them. And Friedman by contrast was saying 'No. The best way to get across is to walk a slow, straight line across that room. That will produce the best results on average,' basically.

And so he argued for what came to be called monetarism, this approach, and gradually prevailed beginning in the late 1960s.

In the early 1970s, he brilliantly made a series of predictions about the results of the Fed's monetary policy that he publicly contrasted with the Fed's expectations, and showed, repeatedly, that he was right and they were wrong--that his mechanics better explained what was happening in the economy. And as the economy faltered in the 1970s, policymakers began to say, 'Okay, our tools aren't working. How do we adjust our understanding of what is happening here?'

Friedman has said that the way that economists influenced public policy, and I think it's a profound insight, is when things break down, you have an alternative ready to go. And that's what happened in the 1970s. There was this breakdown in economic understanding.

Russ Roberts: Stagflation, high unemployment and inflation, which was thought to be impossible in the Keynesian framework.

Binyamin Appelbaum: One of the stories I tell in the book, which I love, is about a woman named Juanita Kreps, who was a Professor of Economics at Duke University and also the Commerce Secretary in the Carter Administration. She resigns from the Carter Administration in the late 1970s, because she's become so frustrated with their inability to grapple with these problems. And she also resigns as a professor at Duke University because she says she doesn't know what to teach her students about economics anymore. That story more than anything captures for me the existential crisis of Keynesianism in those years.

Russ Roberts: That would make Diogenes very happy. That's such a rare--an honest professor and honest economist. You've got to search high and low for him.

Binyamin Appelbaum: Absolutely. And so what happens is Paul Volcker, who, not necessarily because he was a student of Friedman's, but because their minds met and they agreed about these issues, comes into power in those years and adopts--he declares war on inflation, in so many words; and he sets out to really break the back of inflation expectations in the United States and implements a new approach to monetary policy that is focused on inflation.

If you look around the world, the Central Bank of New Zealand is a great example of this. Their mandate in the 1970s had, like, eight objectives in it. They were responsible for trade balances. They were responsible for the exchange rate. They were responsible for unemployment. They were responsible for all sorts of things; and it was stripped down to just one, which is: Hit an inflation target. That's sometimes portrayed, by the way--the rise of inflation targeting, which is what emerges in the aftermath of the Volcker era--it was certainly portrayed at the time as a failure of Milton Friedman's ideas.

I think that's fundamentally wrong. I think it was his victory in a slightly different form than he anticipated, but the idea that monetary policy was central, that it should be minimalist in its approach, that it should just try to keep things on an even keel was really the core of his idea. By convincing people that that was the proper approach to monetary policy, he gradually changed the approach to central banking around the world.

Russ Roberts: It's interesting. When I interviewed him in 2006, he attributes the success and triumph of his ideas not to his research, The Monetary History of the United States, this magisterial volume of incredible detail, but rather to the success of Don Brash, the Central Banker of New Zealand, in slaying inflation there and opening the eyes of people to this possibility.

Interestingly, he also argued--he remained puzzled by the disinterest in publicly talking about monetary targets and instead looking at, say, interest rates. He said, 'That's what they say, but it's not what they do.' And, I challenged him, interestingly--I just have to mention this anecdote. I've never told it on air. After that episode came out, I challenged him. I said, 'You know, the monetary aggregates don't really show the correlation with economic activity that you're suggesting.' He said, 'No, you're looking'--he brought me back, and he said, 'This is again--it's 2006.' He's 93 or 94 at the time, I think. He says--he sent me a spreadsheet. He said, 'You're looking at the wrong M. It's M2,' or whatever it was. I don't remember. It's not important really right now. It just was an extraordinary thing that this 90-plus year old man was sending me a spreadsheet just--because he still cared. He cared a lot. I don't know whether he's right or not, but he was fascinated by this issue of how his recommendations of a steady rate of growth in a monetary aggregate was still underlying what he thought was the economic stability of the world's economies. I don't know if he's right or not, but it's a great moment in intellectual history that I got a little window into personally.


Russ Roberts: But, the part that I don't understand about your claim is that--I don't know what actual share of the Fed attributes are and true motivations--but the Humphrey-Hawkins Act told them they should look at two things, right? They have to look at unemployment and inflation. It seems to be they pay a lot of attention to both, that if inflation is rising--excuse me, if the unemployment were rising, it would encourage activity from the Fed. They wouldn't ignore it.

Fiscal policies still plays a role. We had $787, I think, billion dollar, whatever it was, stimulus package from Obama. Is it really as strong as you claim in terms of that mix?

Binyamin Appelbaum: I think Humphrey-Hawkins is a really interesting law because it was written as a last gasp of this Keynesian view of monetary policy, and really was never--never really took hold. It was their last attempt to force the Fed to behave in a way that the Fed had decided it was no longer going to behave.

So, I think the answer to the question is really the Greenspan Era. And, during the Greenspan Era, what you have is a Central Bank that has decided that its focus is on inflation targeting, although it has not yet said that explicitly and publicly, but it is behaving as an inflation-targeting Central Bank, and furthermore has concluded--and Greenspan did say this publicly--that 1% inflation is better than 2%, and 0% inflation is better than 1%. There's no evidence for this, certainly none that it presented at the time, but that is focused on minimizing inflation and that is willing to tolerate higher unemployment in the service of that goal. And so, there are these very interesting calculations of the extent to which the Fed tolerated higher unemployment that conclude that, on average during the Greenspan Era, it was as much as a percentage point higher than it needed to be. Which is to say that millions of Americans were out of work unnecessarily during that period.

And so, yes, there was never a time when they said, 'We don't care about unemployment.' There was never a time when perhaps if unemployment had risen to 10% as it did during the recent recession, that they wouldn't have responded aggressively. But it was the case that at the margin, they were prioritizing the minimization of inflation over unemployment.

Russ Roberts: And I think that's a fair point. I think that's the right way to say it. I think the emphasis was always on inflation. Sometimes, they regretted it. I don't think they--I think when it did lead to a recession, they were very disappointed.

But I do think there's a historical aspect of this. When I talked to Friedman about the price controls and the death of price controls and the fact that there was no clamoring for price controls today, say, on gasoline when, in 2006, when gas prices were somewhat high. And I said, 'Well, I see economists have finally accomplished something.' He said, 'Nah, it has nothing to do with economists.' He said, 'People are alive today who lived through price controls in the 1970s, and they hated them because it led to long lines and fights. And when those people die off, the demand will come back.'

I suspect there's some of that going on with inflation. The people that you profile in the book--Volcker, Burns, Friedman, others--they had a very different memory of, say, the 1930s than you and I can have. For me, I know that my parents lived--my dad was born in 1930, my mom in 1932. And as I've probably mentioned on this show before, I lie to them sometimes. I usually tell them later; but I often will lie to them about how much I paid for a pair of shoes, because they just can't imagine paying more than, say, $25, $40, $50 for a pair of shoes--because in their life, growing up, shoes were not something that you wasted money on. You got a pair that covered your feet and you moved on.

There was always a haunting fear of a depression. And so people born in that era, grew up in that era, lived through that era behave differently. I suspect central bankers who either lived through the Great Depression or were close to it through their teachers probably have a different attitude of, say, the Weimar Republic and the destruction that inflation led to. So, that fear, I think, played a role and maybe won't play as much role in the future.

Binyamin Appelbaum: Listen, I am not trying to make the case that ideas operate independent of a context. I think that economists are enormously influential, but they're influential in a world in which people are venal and people are fearful and people are selfish, and all of these things are true side-by-side. But it is also true that what makes it possible, what sort of shapes the way that humans express those tendencies, is often the set of available ideas and policy options.

And so, it is the case that, you know, the reason people didn't want to put price controls on gasoline is that they remembered the long lines of cars in the 1970s.

But it's also the case that the idea had been discredited and an alternative framework was available. There's a wonderful story about an economist coming to Washington [Washington, D.C.] to tell a congressional aide to try and convince him that there was a problem with a policy. And the guy said, 'Well, this'--he made his presentation. And the aide responded, 'Well, this isn't a political issue.' And the guy said, 'Well, what do you mean it's not a political issue?' The aide said, 'Well, you haven't given me an alternative, and until there's an alternative, it's not a political issue.'


Russ Roberts: Let's talk about consumers. One of your critiques of modern economists is that we focus too much on consumption at the expense of production. And so, I'm going to try to defend that perhaps. But I want to let you make the case. What's wrong with that? It goes back, by the way, to Adam Smith. It's really the centerpiece of the Wealth of Nations.

Binyamin Appelbaum: Absolutely. So this is one of Smith's big ideas, one that's so much in the water now that it almost--he doesn't get credit for it, I think. But it's a very central idea. And it's a longstanding debate.

I think that the problem as it played out in the United States was that this priority--I think of the town of Celina, Ohio, which is where Huffy Bicycles were made for years and years and years. You know, about 1,000 people were employed making these bicycles. And Huffy was under pressure from Walmart to reduce its prices, and so it closed that factory in the late 1990s, and moved it to China. And today, there is, in the parking lot of the former Huffy factory, there is a Walmart Supercenter where you can buy Huffy bikes that are cheaper than the ones that were once made in that town.

The unemployment rate in Celina eventually returned to something resembling, you know, the Huffy period. But the jobs don't pay as well. What's there now is not as good as what was there a couple of decades ago. The bikes are cheaper, but the people are making less money.

And that in a nutshell is the condition of a lot of communities across the United States. We were very successful in reducing the prices of goods and services, with some notable exceptions: healthcare, education, obviously. But, in general, consumer goods and services are a lot cheaper than they used to be. But the consequence, the way that we achieved those victories, was by tearing the heart out of a lot of communities. You know, making it harder for people to make a living, particularly at the low end of the economic spectrum.

There's an economist named Alfred Kahn who deregulated the airline industry. And he has this quote in the 1950s where he says, basically, you know, 'It can't just be about prices. It also has to be about the jobs. It also has to be about the communities.' And I think that's right--that that broader calculus is important.

Russ Roberts: Ironic, from the man who relentlessly lowered prices through deregulation--

Binyamin Appelbaum: Indeed--

Russ Roberts: and is forgotten, I think, to some extent. So I'm glad you're bringing him back. He's in the book. Obviously, he gets a nice coverage in the book.


Russ Roberts: So, I want to give a different perspective on the Huffy story. But first, I want to just ask you, 'What would you do about it?' So, Walmart put that pressure on. That's capitalism, what used to be called capitalism. Consumers got the benefit. It was hard on some people in that town, for sure. Would you have stopped it? Would you've put tariffs on the bikes coming in from China to discourage Walmart?

So, things--economic change has some tough times and some good things. How do you pick and choose? How would you possibly deal with that?

Binyamin Appelbaum: I think that change is good and important. I think, so, one important function of government as an economic policy maker is regulating the pace of change or creating an environment in which that can be done. This is a point that Karl Polanyi makes very powerfully, and I really agree with him.

And I think, you know, with regard to globalization in particular, the fact of globalization was inevitable and beyond the control of policy makers in the United States. Manufacturing was going to be spread more evenly across the face of the globe. And that has had enormous benefits both for the people in the rest of the world and in many respects for the people here in the United States.

The role that I think the government failed to play was threefold. First, in regulating the pace of that change.

One example, you know, is dockworkers' unions, which were enormously successful in negotiating deals as break bulk shipping was replaced by container shipping, and the need for dockworkers was radically reduced. They basically negotiated with the shipping lines to say, 'Don't take the full measure of the available profits immediately. Phase us out. Let us retire and don't replace us.' And these deals were successful in preserving the livelihoods of that generation of workers while giving their children time to go get a college degree and find something else to do with their lives.

The second thing, which we've already talked about, is I think disinvestment. The government pulled back from its role in investing in future economic growth, in helping to seed the replacement--the industries that might have emerged to replace some of the jobs that were lost in lower-paying industries.

And so, you know, North Carolina textile factories were never going to be preserved. There's no version of modern times in which thousands of workers are still making Cannon towels in Kannapolis, North Carolina.

The question is: What could government have done to seed new industries that might have employed more of those people?

And then, you know, I think that the final aspect of it is the social safety net. Is the question of what you do for people who are left behind. What is the obligation of American society to people who, through no fault of their own, but simply because of changes that are good for us in the aggregate, have been dropped out of the bottom of society?

And I'll say this: The fact that we now have a degree of homelessness that is unprecedented in American history is a direct reflection of how frayed our safety net has become.


Russ Roberts: Well, I disagree with that last point. Pretty vehemently, I think. But I don't want to forget my previous point, which is more important, so I'm going to let that go for a moment. Maybe we'll come back to it.

The pace of change is an interesting question. I don't think it's a good idea to change policy radically, instantly, and not phase it in. I totally agree with that.

I think the seeding of new industries--I don't think government is for good at it--and I think the private sector is really good at it. It's really good at starting new businesses and new industries, and did. We've had enormous expansions in all kinds of sectors in a response to the innovations and the growth of trade in the United States.

The problem is: those new industries weren't particularly attractive or didn't particularly use the people who had been in Kannapolis, North Carolina making those towels.

So, those communities did struggle. Normally, what would have happened--what happened throughout American history--is they would have moved to where the better jobs were.

For some reason, that hasn't happened. For a lot of reasons that are probably complicated and not easily figured out. But one of them of course is that moving to a large American city instead of a small town like Kannapolis has gotten increasingly expensive because of the way we regulate land use in a handful of important cities that have economic growth.

Sorry, I half-agree with you there; but it's just not obvious to me that the government could have done a better job, say, finding opportunities for less-educated workers--high school graduates or people who didn't finish high school--who used to have an easier time.

Binyamin Appelbaum: I mean, I think one of the big problems here actually is a failure of regulation, which is the regulation of the housing market, which has made it impossible for workers to find affordable housing in the areas where jobs are most available.

But there's also a failure of regulation that I think is consequential. And that is, and we haven't talked about this yet, but the dismantling of antitrust enforcement. We've seen a real, real slow down in new business creation in the United States. And I think one big reason for that is that it has become--it's a sclerotic landscape basically. It's just really hard for new businesses to find the room to grow and to thrive against big competitors. That question of why new business creation is slowing down, I think, is a critical one because--you're right. I mean, even if government is successful in investing in basic research or in creating some kind of infrastructure to foster new industries, the vast majority of that's going to happen in the private sector, necessarily and appropriately. And the question is: Are you creating a regulatory environment in which companies can prosper and grow? It seems pretty clear that in the United States right now, we've got some problems in that area.

Russ Roberts: Of course, it could be that we over-regulated small business.

Binyamin Appelbaum: Sure.

Russ Roberts: It's hard to know.

Let's talk for a minute about the homeless problem, because it's deeply disturbing. And I think in some cities, it's growing; and things are going to change. I'm not sure what direction they're going to go. I feel--maybe I'm reading the data wrong--in my reading of the data, the safety net, it's not gotten any smaller over the last 40 years. You could argue it should be more generous, but I don't think it's gotten, like, Spartan. Most of the homeless problem are people with mental health problems that we decided to give them the freedom which is a beautiful thing. Instead of locking them up and treating them as criminals, which is what we did in the 1960s and 1970s for people who had schizophrenia and other serious mental health issues, we let them live their own lives.

That's a beautiful thing, and it's a very painful thing. Obviously, it's not clear that they can do that well. It's not clear who should make that call. But those are folks who don't want to be part of--a lot of them don't want to be part of a safety net. They are just doing their own thing on the streets. You could argue it's one of the great kindnesses of our society and one of the great cruelties. I have mixed feelings about it.

Binyamin Appelbaum: So, I think we could spend a whole hour on homelessness because I think not only is it a fascinating and important issue, but it's a lens on this moment in American society.

I'll just say two things quickly. The first is whatever your views of how we're dealing with the mentally ill, whatever you think about that aspect of the problem, the growth of homelessness, particularly in cities like Los Angeles and San Francisco and New York, is being driven not by that traditional homelessness population, which has remained relatively stable in its dimensions, but by a new kind of economic homelessness in which people are losing their homes even if they have jobs.

I was recently in LA [Los Angeles], and they have these supervised car parks where people can sleep at night. The people who sleep there are school teachers and Walmart employees and Disneyland employees. They're not mentally ill. They're not abusing substances. They simply don't make enough money to afford a home in Los Angeles. That problem, which is fairly new, is I think really the one that needs urgent public response.


Russ Roberts: Well, let's talk about antitrust, which you mentioned. We have gotten a lot more tolerant of mergers. I think it's a really important issue. My side has generally applauded that, and certainly intellectual roots of that applause respond, as you point out correctly, in the work of Aaron Director at the University of Chicago Law School, Friedman and others who saw, I think correctly, that much antitrust policy did not help consumers. It helped reduce competition. It made it easier for large firms to thrive.

The consequence of that is that it's gotten a lot easier to become a large firm and maybe a little harder to start a new firm. I don't know if that's true, but as you point out in the book--and I salute you for it--most of those large firms treat their consumers well. So, what's to be concerned about there?

Binyamin Appelbaum: So, this is in the first place another of these, I think, clear and fascinating narratives about the way that economists literally reshaped the American economy through the force of their ideas. And Aaron Director, as you mentioned, plays the central role in this drama--Milton Friedman's brother-in-law and--

Russ Roberts: Friedman everywhere.

Binyamin Appelbaum: Friedman everywhere. A fascinating guy in his own right, an economist who taught at the University of Chicago's law school and taught a generation of legal scholars, including Robert Bork who was one of his students. Richard Posner was not a student of his, but ended up being something of a protege as a fellow member of the faculty at Stanford actually. And they reshaped the government's approach to antitrust enforcement, largely by convincing the courts rather than the executive or legislative branches.

And he consequence--I think it's really important to be clear about this--there is very little, if any, evidence that this has been bad for consumers. To the contrary, it's probably been good for consumers.

Beer is a great example of this. We've seen the number of brewers consolidate radically over the last half century. We're not talking here about the separate universe of microbrewing, which is a small and almost a different product, but your basic six-pack is now produced by one of two companies. It's cheaper than it's ever been before. The quality is probably better than it's ever been before. There's a straight line there between consolidation and the improvement of the consumer experience.

So what's wrong? Well, what's wrong is a couple things. The first is that this old, what we were talking about a moment ago, the trade off between our lives as consumers and our lives as producers. When you get this type of consolidation in industry after industry, it means that brew masters have fewer places to work and less leverage to negotiate wages. That's true right down to the level of fast food workers taking orders on the overnight shift at Burger King. We've seen a diminution in the variety of employment options, and as a consequence, a diminution in the bargaining power of workers. There's increasingly interesting evidence that these effects are one reason that wage growth has been less good than we might like.

That's one issue. Another is the consequence for innovation. Concentrated industries have fewer incentives to innovate. This is a big concern, I think, right now in the mobile phone industry where much of what has driven just an absolute explosion in innovation in the last few decades was this frantic fight for survival between T-Mobile and Sprint, both of which were scratching and clawing to keep pace with Verizon and AT&T. Life as a mobile phone executive sucked. It was terrible. It was no good.

That's exactly what we want. That's how it's supposed to work. That's capitalism in all of its raw beauty. And the solution is that we're now allowing T-Mobile to buy Sprint--which is just antithetical to capitalism. It means that there's going to be less competition, less urgency, less fear of survival, less of all of the things that drive innovation and improve the customer experience.

We've seen that in industry after industry, and I think it's consequential. It's made life easier for the companies and their executives to be sure, but not in the long term for the consumers.

Russ Roberts: I'm not sure that's right. Obviously, it's a complicated issue. I just want to point to one area where large still leads to a lot of innovation, and that's the tech industry.

Now, I'm increasingly worried as listeners know about the power and influence of a handful of large firms. But it's interesting: right now, one of the ways you get really rich in America is to come up with something that Google wants to buy. I think they just bought Fitbit. Is it Google that bought them? I think Google bought Fitbit. It's either Google, Amazon or Apple, and Amazon, Apple, they didn't buy them. So it's Google. So Google buys Fitbit. So Fitbit, I think it sold for $2 billion. That was a good deal. I knew somebody who worked at Fitbit a while back, and I thought, 'She's not going to make it, because this company's not going to make it. She's going to need to look for a job soon,' because Fitbit's just--there's too many--the Apple watch--there's too many big companies that can stomp them out, out-compete them. But they didn't. Fitbit stayed alive.

And I think of the things that revolutionized my life. One of them would be Waze. Waze is a glorious--the navigation tool on my phone. It's extremely helpful to me. Unimaginable 25 years ago. Twenty five years ago, the technology for not getting lost was called a map. And it wasn't very good. It didn't work very well. Waze is extraordinary.

So, I see a lot of innovation. Now, you can debate whether that's a good model--that you should innovate a lot so you can be bought out by a large, enormous behemoth--but I just see a lot in the tech world.

Binyamin Appelbaum: I think there's an obvious analog actually in the pharmaceutical industry where there's a fairly evolved model of small companies innovating in the hope of being purchased by one of the giants, which is good at marketing and distribution and these types of end-stage [crosstalk 00:52:33] issues.

Russ Roberts: And getting FDA [Food and Drug Administration] approval, which is an enormous fixed cost that no small firm can endure.

Binyamin Appelbaum: Absolutely. I mean, I spend a lot of time thinking about what's going on in the tech industry, but I'm not sure I have opinions about what we should make of it all; but I think it's really complicated whether that framework is the best for society as a whole.

Where I'm more sure that we have reason for concern, where I see greater reason for concern, is in industries where innovation is not, you know, fast-paced, and we're dealing with a fairly stable set of services.

I mean, the airline industry, to take an obvious example of this. We now have four airlines, because the government allowed larger airlines to eat smaller airlines until there were four left. And it's not a coincidence that when you go online and you shop for a route, the prices are going to be the same. That's an industry in which we have failed to preserve or engender competition.

I think--so the airline prices in the decade, so the airline industry as we've talked about was regulated in the mid-century. It's sort of a preeminent example of how terrible a system that was. Beginning in the late 1970s, the Carter Administration turns to an economist who we've mentioned Alfred Kahn, to deregulate that industry to essentially allow price and route competition. There's an explosion of competition. And for the first three decades of that process, prices are falling, choice is increasing. I know we're all miserable when we fly, but that's a choice, too, that we've all collectively made and continue to make.

And that's great, but for the last 10 years, prices have not been falling. For the first time in history, it's more expensive to fly in the United States than Europe on a per mile basis. One plausible explanation for that is that Europe arrested concentration at an earlier phase than the United States did. There are more airlines in Europe competing more aggressively on route choice and on price. As a consequence of our failure to do that, we've lost out on the benefits of competition.

Russ Roberts: Yeah; I would argue that the right way to deal with that, at least to start, is to make it easier to enter markets, which are right now controlled through the crazy way that airports are for landing slots. It's a very unpleasant market, and that's a shame. And some of the innovators who revolutionized it, like Southwest, would find it probably harder to do now, which is--of course, the way they did it was they just built new airports or new terminals is one way to get around or tried to at least get around it.


Russ Roberts: I want to take a look at a different set of issues before we leave some of this history behind. We're going to look forward, next, to it. Let's leave the history behind. I just want to make a footnote to one of your claims and see if you want to disagree with me. I make the footnote because it bothers me so much. It's a little bit of a pet peeve of mine. Alan Greenspan was an acolyte of Ayn Rand. He's a free market ideologue. You quote a number of places in the book where he talks about how markets can regulate themselves, and we don't need to have the Fed impose its order here.

And, I think that's an example of where the rhetoric is not consistent with the action. This is a man who is highly interventionist. First, he ran the Fed. As you point out, that's one of the little--one of Friedman's stranger things, that he wants government out of everything except money, which kind of important. Hayek actually favored private money. And maybe we'll get there someday. I doubt it, but maybe.

But Greenspan is this free-market rhetorician who's really good at that. And he's a great rhetorician. And yet when push came to shove, he would bail out the banks. He bailed out Mexico. He testified in front of Congress and said, 'Well, it's a terrible thing. Of course, they shouldn't be bailed out. But we don't have a choice.' He orchestrated the rescue of Long-Term Capital Management [LTCM], a firm that should have been allowed to lose all its money as well as those who had foolishly lent it to them.

And so, to me, he broke the feedback loops that allowed finance to have any chance of being self-regulating. With others; he wasn't alone. Obviously, a lot of people played this role.

But if I want to understand what motivated Alan Greenspan, it wasn't a free-market ideology. It was: He wanted to stay friendly with the bankers of the United States and be their buddy. And I think it's really important for a great reporter like you to recognize, if you can, that part of the story, because he was--you know, I don't know if he knew it consciously, but he was not a free marketer in his actions.

Binyamin Appelbaum: So, I think Greenspan is a really complicated and fascinating figure. And, I take the point that you're making, and I think it's an important one, which is that there was a coincidence of interest between advocates of deregulation and of some of these other policies, and of corporations who took a very self-interested--who basically were delighted to find people articulating what they saw as their own interests as verities and as economic principles.

And those two things informed each other and talked to each other. Some of the economists who came to prominence and were successful in the policy space were the ones who were willing to walk over a little bit and say, 'Hey, you know what? Actually, corporations--' I mean, a great example of this, excuse me, is in the antitrust space, where people like George Stigler and others who were once fierce opponents of corporate size, who once really argued vociferously that large corporations were a problem and a threat, came to see large corporations as a preferred alternative.

I think it's hard to miss the influence of corporate money on that evolution.

But, in the case of Greenspan specifically, I think actually that he was a pragmatist at his core, and that is certainly part of what you're seeing in his record, is that he was willing to make what he saw as the necessary decisions, even if ideologically they were somewhat inconsistent. But it's also the case that he kept on--I think he did believe in the idea of markets in some fundamental sense. He believed that regulation would produce inferior outcomes. And, what you see in his--there's a long paragraph in the book where I tried to document this--every time something goes wrong, he has the same reaction, which is, 'Yes, we need to bail them out this time, but they will now learn their lesson, and going forward, we won't encounter this problem again.' This is a remarkable faith that it was going to work out: that next time, you wouldn't need to to show up and intervene again.

Russ Roberts: I take that more as a wink to his corporate friends than--but, whatever.


Russ Roberts: I want to take a look at a different issue. And it will take us, I think, I hope a little toward the future and less of the history. Most of your book--it's interesting: I'm sure people on the Left in the economics profession are not happy with parts of your book. Paul Samuelson gets short shrift, for example. Samuelson was this giant figure in both economic theory, and somewhat in public policy--not like Milton Friedman, but he generally agrees with Friedman in the couple of places he gets mentioned, which, of course, he did on many things.

And yet, there's a large segment of our professional, the economics profession now, the economics profession, particularly in the last 20 years, that is very far from free market, very far from Friedman as classical liberal, whatever you want to call it. There are hardcore people on the Left. They want much more redistribution. They want government to play a more active role. They're more Keynesian in their macroeconomic policy. And they increasingly, I think, command the heights of the intellectual debate. They've softened tremendously the economic opposition to, say, the minimum wage.

In fact, many Nobel Prize winners now favor, although some still oppose, but many favor--they've brought the data about inequality that you're worried about. I think much of that is misleading: it's much more complicated. But they are the voices that are giving you voice to these concerns. So, how do you feel about that?

Binyamin Appelbaum: So, I think that that's an accurate description on the whole. And, some of the reaction to the book has been along the lines of, 'Well, this isn't true of the present.' Well, right, it's a history. It's the story of what happened. And for much of the period that I'm describing, I think there was remarkable homogeneity in the mainstream of economic thinking in the United States.

And I think that Paul Samuelson ended up conceding to Milton Friedman on a number of really important issues, and I think was not as influential, and therefore is not as large a figure in the book--which is kind of a fascinating coda to the history of the 20th century. Because if you'd asked an economist, really at any point during the 20th century--

Russ Roberts: Sure--

Binyamin Appelbaum: who they thought the most important economist in America was, Samuelson probably would've won the poll.

So, with regard to this specific question: Yeah, I think that's right. I mean, there's been this trends--there is a number of related revolutions underway in economics. 'Revolution' is perhaps too strong a word. But, new approaches, new ways of thinking, new analytical tools, computing power and the power of large databases. All this is transforming the way that a lot of economists think about the economy.

I think also if you want to think about policy as a natural experiment, an ongoing natural experiment, economists had been taking lessons from it, and there are things that haven't been working. And people are responding to those failures or shortcomings and saying, 'Okay, what did we get wrong? How does this reshape our understanding?'

And so there is something, I think, interesting and exciting happening where economists are confronting those questions. And it's simply true that many of my criticisms and many of my observations are rooted in the work of economists who have been working in these veins on the fronts of the coal mine in recent decades, I think, adding to our understanding of inequality and of these other dynamics.


Russ Roberts: Now, one of the issues we haven't talked about but I think is really relevant as we think about the role of the economist more generally, that's what economists call efficiency--that we want the pie to be as big as possible. You point out, and I think every good economist respects the point, that we don't just care about the size of the pie. We care about how it's distributed.

I think the other thing I think is lacking both from the standard economic story as well as the critique of it is a recognition of change over time. I want to go back to our Huffy factory in small-town Illinois. It's true: Very hard times for that town. But eventually, those children--contrary to what I think the data suggests, that some have been claiming--but I think those children will have better lives because we're allowing the pie to get bigger. At any one point in time, efficiency, I think, is--it's valuable to remember that some policies have costs that could make the pie smaller. We might even accept those costs sometimes and accept a smaller pie because of regulation or other things.

But in general, over time, a dynamic economy has rewards for all citizens. It's not really--I don't think it's always wise to look at a point in time and say, 'Well, these people lost. These people won.' Where I agree with you is that the fact that the winners gained more than the losers lose is ridiculous ethical calculus that's utilitarian and morally bankrupt as far as I'm concerned.

But to then say, 'Well, we should stop it from happening and ignore the potential that it has to hurt future innovation'--and I would say that'd be the same thing for true in the medical industry and elsewhere--we want to keep our eye on that prize, too.

Binyamin Appelbaum: I absolutely agree with the framing that you're proposing. And I think that this is an empirical question that we're beginning to see people present evidence about. And it's an urgent and important empirical question. We need to know whether that's true. If it is the case, as the work of Raj Chetty suggests, for example, that we're seeing a deterioration in the likelihood that you're going to do better than your own parents. That suggests that we need to make urgent course corrections.

If it is conversely true that in general the children of those Celina families are living better lives than their parents, that suggests that we deserve better marks for the policies that we had in place over the last generations.

I think this is a critical issue, and we certainly do not want to be taking point in time measurements and making judgements. We really want to think about it in exactly the way that you're suggesting.

Russ Roberts: Of course, Celina may collapse, but their children could live elsewhere. That's often forgotten, also. The fact that--I don't really want to preserve Celina as an economic opportunity. I don't want to destroy a community in America or small town life if that's how people want to live, but I don't think we want to preserve those as they are for some--just for some--just for it's own sake.

Binyamin Appelbaum: Yeh. I mean, I agree with that.


Russ Roberts: So the other point I want to make where--I think we agreed deeply, but it's not discussed in the book--is even, though I like many of my former colleagues and teachers, maybe a little more than they do in their impact on American life, and I am a little more disappointed than you might recognize on how ineffective they've been. But, I do think economists are too powerful. I think it's fascinating that we have become--you know, George Stigler said this--you have some great Stigler quotes in the book--but one of his non-witty remarks is that he said, 'There's only one social science and we are its practitioners.'

And, I think that was a--when I was younger and coming out of grad school at Chicago, I thought, 'Damn right.' Now, I'm kind of ashamed of it. It's arrogant. It's false. And I think the biggest danger--I used to think, 'Well, it's appropriate because we're the only ones that have a theory. They are just, the rest of them, they're just all ad hoc--psychology, sociology, anthropology. They just look at different stuff, and they don't know what they're doing. We have a theory, consumer-maximization--utility maximization. Etc., etc. Rationality.'

And I--first of all, I think a lot of those models are not very good predictors any more. I don't agree with that.

But the deeper point is that economists focus on what they can measure. And I've come to believe that most of the interesting things in life and a lot of the most important things in life are things we can't measure, at least in a dataset. Poverty is a horrible thing. [1:06:55] So, I think it's okay to worry about how much money people have and their opportunity to earn a living. But, meaning and purpose, dignity, agency, responsibility, these are the things that make life rich; and economists have nothing to say about them.

So, you'd say, 'Well, okay, so other people have stuff to say, but no, we drown them out. We win because we have the data.' I think that's a big problem whether you are on the Left or the Right, in America and the economics profession. And I'm curious about your reaction.

Binyamin Appelbaum: So I mean, you've written eloquently about this. I think that that's right. I wouldn't say that economists have nothing to say. They just have no comparative advantage in talking about it.

Listen, this is profoundly true. I think it's one fundamental problem with what we've experienced during the economists are that there's been a privileging of what can be measured over what can't be measured. We haven't talked about the rise of cost-benefit analysis, which is one of the most profound revolutions of this period. This systematization of, you know, the consideration of the costs and benefits of public policies, which has enormous benefits. It's been a wonderful thing in many respects.

But it is the case that that approach basically makes explicit the idea that if you can put a dollar figure on something, then it's going to be privileged in the consideration of public policy over those things that cannot have dollar figures assigned to them. And so you get this almost frantic effort to, for example--and these are real examples--assign a price to a view unimpeded by smog or better yet, my favorite, assign a price to a wilderness that no one experiences. How much is that worth to the people who are not experiencing it?

These are fascinating questions, but the idea that the only way or even the best way to consider them is through monetary valuation strikes me as misguided. And finding frameworks for doing public policy with economics and other perspectives alongside it. What is valuable about economics but also what is valuable about other disciplines I think is enormously important.

Russ Roberts: My guest today has been Binyamin Appelbaum. His book is The Economists' Hour. Binyamin, thanks for being part of EconTalk.

Binyamin Appelbaum: Thank you.

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