Binyamin Appelbaum on *The Economists' Hour: False Prophets, Free Markets, and the Fracture of Society*

Episode Summary

Executive Summary: Benjamin Appelbaum argues that since the late 1960s economists gained unprecedented influence over policy, promoting markets, deregulation, low inflation, and globalization. While this brought real gains globally and some efficiency improvements, he says the revolution went too far in the U.S., slowing public investment, widening inequality, and weakening democracy.

Main Topics: The rise of economist influence in public policy (Priority: 5/5): Appelbaum traces how economists moved from the margins into the center of policymaking in the late 1960s and 1970s, reshaping how government intervenes in the economy. Milton Friedman and the monetarist revolution (Priority: 5/5): Friedman is presented as the most consequential economist of the 20th century, especially for shifting debate toward monetary policy, limited government, and disciplined central banking. Supply-side economics and tax-cut politics (Priority: 4/5): The conversation covers Robert Mundell, Arthur Laffer, Jude Wanniski, and the Reagan-era embrace of tax cuts and lower marginal rates as growth policy. Deregulation, cost-benefit analysis, and the value of life (Priority: 4/5): Appelbaum explains how economists changed regulatory thinking by pushing cost-benefit analysis, including explicit valuation of lives saved in safety and environmental regulation. Growth, inequality, and social fragmentation (Priority: 5/5): He argues the market-oriented turn did not deliver promised prosperity, contributed to rising inequality, and strained democratic cohesion by leaving Americans with less in common. Monetary policy, inflation targeting, and the limits of central banking (Priority: 4/5): The discussion argues that Friedman’s ideas survived through inflation targeting and low-inflation orthodoxy, but the post-2008 era exposed limits of monetary policy alone. Global gains versus U.S. disinvestment (Priority: 4/5): Appelbaum acknowledges global progress, poverty reduction, and technological change, while arguing the U.S. underinvested in education, research, and infrastructure during the same era.

Key Arguments: Economists became unusually central to policymaking starting in the late 1960s/early 1970s, and their ideas materially changed law, regulation, and everyday life. The dominant school was not just a Chicago School takeover; there was broad professional consensus on many issues such as anti-inflation policy, opposition to tariffs, and skepticism toward rent control. The free-market revolution initially corrected real problems of the 1970s, but its reach went too far and produced weaker long-run growth, greater inequality, and democratic strain. The U.S. experienced significant prosperity and technological improvement, but much of it rested on earlier public investment that later eras failed to maintain. Milton Friedman’s influence was especially important because he changed how economists thought about the draft, money, inflation, and the proper scope of government. Monetarism did not vanish; it evolved into inflation targeting, meaning Friedman won more of the policy war than is commonly recognized. Supply-side economics helped legitimize tax cutting as a governing philosophy, limiting government revenue and weakening its ability to invest or redistribute. Cost-benefit analysis improved regulation by forcing explicit tradeoffs, but it also made the value of life a central policy question. Monetary policy alone is no longer sufficient to stabilize the economy; future crises will likely require more fiscal-monetary coordination. Appelbaum sees markets as human-made institutions requiring deliberate rule design, not natural systems that function well without governance.

Data Points: Time period of revolution: Late 1960s to early 1970s - Appelbaum says economists became much more influential in public policy during this period. Key policy era: 1990s - Described as a period of prosperity built on earlier public investment, but also of disinvestment in education, technology, and research. Duration of Friedman/Schwartz project: 14 years - The monetary history project was commissioned in 1949 and took far longer than the expected eight months. Original time estimate for Friedman/Schwartz project: 8 months - Friedman reportedly said the project would take only eight months. Inflation target cited by Greenspan: 2% vs. 3%, 1% vs. 2%, and 0% vs. 1% - Used to illustrate how the Fed prioritized lower inflation step by step. Share of income paid by the wealthiest Americans: Around half to around one-third - Appelbaum argues tax policy shifted from wealthier Americans paying more than half of annual income in taxes to about a third. Number of people lifted out of poverty globally: Billions - He acknowledges major global gains from the era's policy changes. Consumer technology example: A phone replacing record player, radio, books shelf items, etc. - Used to illustrate technological consolidation and dematerialization of the economy.

Pivotal Quotes: "Markets are human constructs. They don't exist outside of government." — Benjamin Appelbaum: He summarizes his policy view that government must deliberately set rules for markets. "I think that our democracy is being strained in part by the fact that we now have less and less in common." — Benjamin Appelbaum: He explains one of the key costs of rising inequality and social fragmentation. "It’s not that monetary policy can be used to fine tune economic conditions... the government needs to step back and acknowledge its limitations." — Benjamin Appelbaum: He describes Friedman’s core message about disciplined, minimalist monetary policy.

Implications: The episode suggests economists still shape policy, but the post-1970s model needs revision: stronger public investment, better distribution, and broader policy tools beyond inflation control are likely necessary for future stability.