Key Messages
The Astonishing Rise Of Economic Thinking: How A Few Radical Ideas Transformed Politics, Power, And Our Everyday Lives
The Economists’ Hour provides a critical account of economic history by looking at the influence of economic ideas on politics and everyday life in the post-World War II era.
It examines how Milton Friedman, Arthur Laffer, and Walter Oi helped catapult their radical market-centric ideas into the halls of power, resulting in a culture shift that left governments weak and corporations strong.
But this book goes beyond simply telling the story – it delves into controversial topics such as why right-wingers objected to the draft, why AT&T shared its patents, and who visited Chilean dictator Pinochet with special advice.
Through this detailed exploration, The Economist’s Hour sheds light on sometimes uncomfortable truths about our economy today and helps readers think critically about their own beliefs when it comes to financial matters.
Right-Wing Economists Forced A Sea Change In Us Military Culture
When it comes to ending the military draft, free-market economists had their own role in influencing this change.
In the decades after World War Two, a certain number of fighting-aged men were assigned for service regardless of their desire to do so.
Disgruntled individuals protested in places such as the University of Chicago against this arrangement.
Throughout the 1960s and 1970s, iconic free-market economists such as Milton Friedman, Martin Anderson, and Walter Oi took up the fight to end mandatory military service.
They argued that instead of forcing people into service, what needed to happen is that fair wages should be offered in order to attract volunteers who would be motivated by more than just obligation.
Of course this sparked worries that poorer individuals would sign up out of necessity, but these ideas were gaining traction and eventually candidate Richard Nixon championed them with his successful campaigning which led to the abolishment of the draft in 1973.
The success of these right-wing economists proved that they also contributed behind the scenes and had a major hand in influencing this policy change.
It was truly a remarkable achievement that they helped bring an end to mandatory service – exposing just how powerful free market ideals can be!
The 1960S Debate Between Keynesian And Monetarist Economists
In the 1960s, Keynesian economics had been the dominant force in managing the U.S.
economy for a few decades.
But it was during this decade that its power would start to shift and wane.
This shift began with Milton Friedman and his associates from the Chicago school of economics.
As inflation began to increase due to President Johnson’s large public spending programs, these economists proposed an alternate way of managing the economy: by government stepping out of its current dominant role altogether.
Friedman argued that the only role for government should be that of a regulator, regulating money supply in order to try and control inflation – but not much else.
This steady yet radical departure from Keynesianism was highly controversial – but over time it gained significant traction within economic circles becoming more popular with every passing year throughout this decade.
Reaganomics: Tax Cuts To Trickle Down, But Not Everyone Is Benefitting
Under President Reagan, tax cuts and supply-side economics were at the forefront of economic strategy.
The goal of these policies was to increase supply in the economy, which in turn would lower inflation and eventually bring down unemployment rates.
Reagan implemented a series of large-scale tax cuts across the board.
His most significant change was to lower the top income tax rate from 50% to 33%.
This meant that more money would be available for businesses to use towards investments, leading to an increase in goods and services eventually leading to higher wages for workers.
Unfortunately, this growth did not benefit everyone.
Despite a slight uptick in economic activity, average Americans did not see a boost in wages or savings.
Additionally, inequality also increased significantly during Reagan’s tenure due to the policy changes.
This led to increased pressure on government spending resulting in cuts to government services and reliance on deficit spending instead.
Despite its drawbacks, Reaganomics is still popular amongst lawmakers today as it is seen as an effective way of increasing supply and stimulating economic growth quickly and effectively.
The Hands-Off Approach To Business Led To Monopoly Formation And Higher Prices
The pursuit of economic efficiency has long been a major part of our society.
Unfortunately, this effort to become more economically efficient can sometimes lead to monopolies controlling markets.
This was the case in The Economists’ Hour Book Summary, as it outlines how companies like AT&T and Exxon had control over their respective industries due to government deregulation since the 1970s.
It began with a new approach to economics in which big businesses were allowed given free reign to do whatever they wanted as long as it resulted in low prices for consumers.
This view was then amplified by organizations that these same companies funded who preached economic efficiency over fairness.
And, eventually, these views came into mainstream thinking.
As a result, antitrust laws became less strictly enforced leading to an environment conducive for monopolies to form as competition decreased and prices rose.
The airline industry is one great example of this outcome as four companies now collectively control 80 percent of US passengers and receive higher prices than those airlines regulated in Europe have access too.
Economic efficiency might be beneficial for certain businesses but we must also remember the potential downsides associated with them such as corporate power being centralized which can lead to exploitation of resources and negative externalities in the market at large.
The Cost Of A Human Life: How Cost-Benefit Analysis Replaced Moral Reasoning
Economists have drastically changed the way governments approach regulation.
Instead of relying on moral reasoning alone, economists now use cost-benefit analysis to weigh each decision’s potential advantages and disadvantages.
This type of analysis was first introduced by Charles Hitch in the 1950s, who applied it to military spending decisions during the Cold War.
However, the idea wasn’t really taken up until the 1970s when thinkers like Howard Gates and Jim Tozzi used cost-benefit analysis to push back against new regulations.
They argued that these rules should only be enforced if they could prove their value by saving money – even if they might save human life in the process.
The Reagan administration then made cost-benefit analysis a cornerstone of their regulatory policy with an executive order requiring all agencies to account for such considerations in 1981.
Ever since then, economic reasoning has been a primary driver behind government policies, so much so that even things as important as human life can be measured in terms of dollars and cents.
The End Of Bretton Woods Showed Just How Volatile And Unpredictable The Global Economy Could Be
When the Allied countries met at Bretton Woods, New Hampshire in 1944, they created an arrangement that would revolutionize international trade.
This deal, the Bretton Woods Agreement, set fixed exchange rates between currencies with the United States dollar as the standard.
This meant that everyone’s currency was pegged to a stable rate, which made for more predictable trade by leaving less room for wild fluctuations in money values.
However, this system was not to last; in August 1971 President Nixon and economist George Shultz decided to withdraw from Bretton Woods and instead allow market forces to decide how much a dollar was worth compared to other currencies.
This deregulation of fixed exchange rates resulted in an extremely large and volatile new system of global trade.
The larger fluctuation of currencies led to both advantages and disadvantages for buyers, sellers, banks and businesses alike.
On the plus side, consumers could buy more goods from abroad due to increasing value of the US dollar; however manufacturers suffered as foreign imports became far cheaper than goods produced domestically.
The creation of this new global trading system presented opportunities and challenges that no one had encountered before.
The Tragic Consequences Of Milton Friedman’S Free-Market Experiment In Chile
In 1975, with the help of the CIA, Augusto Pinochet seized power in Chile and began ruling with terror.
Yet upon coming to power, he put Milton Friedman’s economic theories into practice.
Friedman flew to meet personally with Pinochet and his advisor Sergio de Castro to put his ideas into practice.
These ideas purported that slashing government programs and eliminating financial regulations would stimulate growth.
Yet this did not turn out to be the case for Chile.
Government programs were cut and industries privatized leading to thousands of jobs lost for much of the working class in Chile.
Furthermore, capital controls were eliminated which made way for foreign investors to purchase Chilean natural resources while forcing Chilean businesses to borrow large sums of foreign currency.
This left Chile deeper in debt than any other country in Latin America by the 1980s despite it being more prosperous than Cuba at one point.
Pinochet’s free-market experiment brought chaos instead of growth to Chile.
Economic inequality had been rising steadily since 1975 until Pinochet was ousted in 1990, leaving a crumbling economy behind him as well as much political repression that still needs rectifying today.
The Danger Of Relying On An Unregulated Market: A Lesson From Alan Greenspan’s Defiance Of Regulation
Unregulated markets have a history of becoming out-of-control, producing serious financial repercussions.
This is the key lesson revealed in The Economists’ Hour by Binyamin Appelbaum.
He examines the case of Alan Greenspan, the former Federal Reserve chairman who championed free markets and argued against government interference in finance.
The reality is quite different – even a brief look at the last few decades reveals numerous examples of how deregulating an industry can lead to disastrous consequences if left unmonitored.
Credit derivatives, for instance, are popular yet highly risky financial instruments that allow investors to bet on whether or not borrowers will repay their debts.
Without regulations on its usage, banks led to major financial losses with Orange County and Barings Bank both bankrupted due to mismanaged derivatives.
With subprime mortgages suffering a similar fate after they were introduced in late 90s, Greenspan kept an anti-regulation stance by refusing to reign in this industry’s riskier activities despite warnings from interested groups.
A decade later when the bubble bursted, it plunged the world into crisis 2008 – an event that could have been avoided if sensible regulations were brought in earlier on.
This shows that leaving markets unchecked can easily result in disaster – which serves as a crucial reminder for all future generations about the importance of regulation in an increasingly globalised economy.
Wrap Up
The Economists’ Hour book provides a telling summary of the sweeping era of economic policies adopted by many western countries since the end of World War II.
At its heart, this summary revolves around the impact these policies have had on general well-being; namely, stagnant wages, weakened industrial and manufacturing sectors, and historically high levels of inequality.
In effect, a cadre of influential economists led by Milton Friedman, George Shultz, Arthur Laffer, and George Stigler are at the center of this debate.
Their influence has resulted in a low tax environment with limited government oversight on private businesses.
Ultimately what’s clear is that while these policies may be popular with investors and senior business leaders; they haven’t done much to increase wage growth or improve conditions for average citizens.
