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    Binyamin Appelbaum: The Problem With Modern Economics

    A historical review explains the deficiencies of today's policies
    by Adam Taggart

    Thursday, September 12, 2019, 2:53 PM

Why do we have the economic policies we do today?

These policies drive decision-making on Capitol Hill, corporate boardrooms, and on Wall Street. But who made them, why, and how did they come about? And how well are they serving us?

Binyamin Appelbaum has made these questions the focus of his new book The Economists’ Hour: False Prophets, Free Markets and the Fracture of Society, which shines a bright light on the rise of modern Economics and its dominating influence on society.

From anti-trust law to central banking, Appelbaum explains how Economics has evolved (metastasized?) into its current form, where the solutions it now offers may be no better (and possibly substantially worse) than the problems it’s designed to address:

We are at a real fork in the road and there is a very plausible path ahead of us in which our ability to grapple with our problems continues to deteriorate. One of the most important consequences of the embrace of economic policies has been the huge rise in economic inequality in this country. And one of the debilitating consequences of inequality which I think is terribly underappreciated is that it makes it very difficult to have a functional democracy. It really limits the shared space in which people can get together and agree on policies that serve all of their interests because their interests have become so diverse.

So I think that inequality itself threatens our ability to constructively confront our societal problems and challenges and I worry immensely about that. And I think economics is very much to blame for us having reached this state in our affairs.

So, that’s the bleak version. I think we are in crisis. We are in crisis in terms of our ability to confront problems, in terms of our ability to make good choices, our ability to build public consensus around positive public policy. And it’s not clear how we escape from it.

These are big issues. We have caused ourselves a lot of problems in the way we have dealt with public policy over the last century. And if we don’t start doing things differently and soon it is hard to see how this all ends well.

Click the play button below to listen to Chris’ interview with Binyamin Appelbaum (52m:10s).

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Chris Martenson:Welcome everyone to this Featured Voices podcast. I am your host, Chris Martenson. And it is August 6th, 2019.

Economics it's said to be a dismal science. I don't think it's a science at all. But often, mostly, a loose means for providing cover for politicians and corporations to justify and rationalize maybe even acting in self-interested ways. What we are going to be covering today is a fascinating story of how economists, even came to be as prominent as they are.

You know, once upon a time there was no role at all for an economist and today they are prominently perched at every major bank, in central banks, corporations, in governments. Today's guest is Binyamin Appelbaum, who joined the New York Times editorial board in 2019, from 2010 to 2019 he was a Washington correspondent for the Times covering the Federal Reserve and other aspects of economic policy.

He is the recipient of a Poke Award and a Lobe award and he has also been a finalist for the Pulitzer prize in public service. His first book, hot off the presses, is The Economist's Hour, which traces the rise of the economist first in the United States and then around the Globe as their ideas reshaped the modern world, curbing government, unleashing corporations and hastening globalization.

I got my hands on an advanced copy and immediately got immersed in it. Read it straight through. If you want to know where you are going you have to know where you are and to know that you have to know where you came from. The Economist's Hour does a spectacularly good job of tracing the paths that got us here to this moment in time.

Binyamin, welcome to the program.

Binyamin Appelbaum: It's really great to be with you.

Chris Martenson: So, Binyamin, tell us how was it you came to write a book called The Economist--was that a lifelong dream?

Binyamin Appelbaum: I wouldn't say it was a lifelong dream but as you said in the intro I have been writing about economic policy actually for about 15 years now, at the Times for about 10 years. And you know, in the course of writing about today's policies and the course of writing about what is happening now.

I became interested in how we had gotten to this point. And in particular, really fascinated by what I started to learn about how recent our current approach to policy making is. How recently economists who we now think of as a kind of permanent fixtures in the halls of power how recently they had come to be there and how recently their approach to policy making had taken hold.

And that was fascinating to me because that was a revolution that I think was so complete that for many people the idea that there was something before it was lost in the mists of time. I wanted to go back in time and first learn that story myself and then second, share it with readers because exactly as you said I think that it really is a powerful thing to understand how we came to be where we are.

Chris Martenson: Well, it truly is. And what I love about your book is that when you take on an issue like for example, what happened to antitrust laws and activity you rewind that tape far enough back that we can understand how we got here. Like in every case, we didn't just land here. This isn't like the best way to do things. There is a creeping and crawling as laws, customs, social morays were bent--maybe bent some more. So if we look at just this one aspect it seems to me that antitrust--this is what it seems to me--it is so dead that let's say insulin manufacturers can lockstep hike the prices far into socially damaging territory. People are dying, right? And yet there is not a peep from the U.S. Department of Justice about that or 100 other cases I can probably announce.

But within the confines of an interview, just in that one example, let's talk about how we would get to this position of antitrust being a really well practiced device a long time ago to today where it is almost unheard of?

Binyamin Appelbaum: I think that this is one of the most fascinating examples of the ways that economists have transformed public policy, so I'm glad you decided to start there.

Antitrust laws in this country, we think of them as basically economic regulations today. But they were not written by economists. They were written in the late 19th century by people who were extremely concerned about the rise of corporate power. And not even so much it's impact on the marketplace, although they were worried about that--but it's impact on democracy. They feared that large corporations were threatening the very fabric of American life. That they would overwhelm democracy by becoming too powerful, that they would overwhelm small businesses by becoming too powerful and that the United States had a vested interest in preventing corporate consolidation and the rise of these corporation titans.

And so, they wrote a law that was intended to vent that type of corporate consolidation--and this is a really key point--even if it came at the expense of economic efficiency. I suspect during the course of the conversation today we will come back to this point a couple of times but you know, they understood that there was this tension between squeezing every last drop of growth out of the economy and other things which might also be important. And if you just prioritize economic efficiency that might come at the expense of other things you considered valuable. For example, the survival of local small businesses or the ability of a nation to make choices democratically with the involvement of the entire population and not just to be dictated to by the interest of large corporations.

So that was the way the law was written and the most famous early example of it taking effect is the breakup of the standard oil company in the early 20th century as an example, perhaps the example of the corporation that was simply too large for the public good.

And so that law for well into the middle of the 20th century was understood to be aimed at a broad set of goals and not to be primarily about maximizing economic output. And what we see is that in the mid-20th century economists begin to gain a foothold in antitrust enforcement. And initially, they're invited into the room not so much because they disagree with the goals but because they offer themselves as being able to better administer the policy. They basically say, listen, there is a lot of inconsistency from case to case. The mergers that the Justice Department is seeking to block, it lacks rhyme or reason and we need to be more consistent. And that, you know, in and of itself seems reasonable enough. And so economists began to administer the laws and to argue that they should be--the cases should be evaluated on some economic basis.

And gradually, gradually as you say it is a slow drift. It's not you know, one stroke of a pen. It’s not a single moment but the idea that economists begin to advance is the idea that the sole standard for antitrust enforcement should be the impact on consumer prices. And furthermore, that companies should get the benefit of the doubt. And so, where you end up to jump ahead for a second is in a world in which the only kinds of corporate activity that are thought to be out of bounds anymore are instances in which you can clearly demonstrate that the corporate conduct will lead to higher prices. And that to be sure is something we want to avoid but it's not nearly broad enough and the effect of that standard has been to disembowel antitrust enforcement--to take away any broader sense of its purpose and to allow corporations to consolidate. Sometimes simply because you can't prove in advance that prices are going to rise and sometimes that prices actually don't rise but lots of other bad things happen.

One of the most important of which, which we are seeing more and more clearly is that when you get corporate consolidation workers have fewer choices about where to work. So if you have a particular skill set and there might be three or four employers in your area who would value those skills once corporate consolidation has taken hold there may just be one. There may only be one place to work and you will lose your leverage and your ability to negotiate for a better salary or benefits or what have you.

We have seen innovation decline because companies that don't see our competition have less reason to invest in innovation. And we have seen exactly what was predicted now almost 150 years is that corporations now exert tremendous power over the political process.

So economists are basically saying listen, we need to be able to measure outcomes and so we should focus on something we can measure. We are able essentially to take control of the antitrust process. There is a wonderful story I tell in my book about a team of researchers wandering into the Justice Department in the early 1970's and Justice at that time employed a few economists in the antitrust division. But they were basically human calculators.

And in fact, one of them was interviewed by this team interrupted the interview midcourse and said I'm sorry, I need to go, my master called. And what he meant is that the lawyer he worked for told him to come do something. Today, that situation is almost entirely inverted. The lawyers hands are tied. They cannot move forward with a case essentially without the consent of the economists and the economists in that position of authority have withheld their consent from almost all antitrust enforcement.

Chris Martenson: Well, and what I love is that what you have done in here is in your book is talk about the many ways that there are these fixations that come about. So, in this example we are talking about antitrust is now come down to this fixation to the idea that well, if it is about prices the only good outcome that we're going to measure here in the case of insulin--which I just talked about--if you look at price charts of the insulin from different manufacturers you can't see one from the other. They are in perfect lockstep. And it is an exponential rise. So even in the case where we now have clear example of where the fixation which is what price is. We can still see that prices alone are not sufficient any longer to trigger any sort of an action or a reaction. You had another case in the book talking about how Eric Holder had a really come forward with a very unusual sort of an idea, ruling around why we couldn't go after certain banks in particular. It was because it might have caused some disruption. He was worried about the market impacts, not the optics or the actual long term consequences of his actions in terms of how that would erode confidence potentially or create various perverse incentives, if not moral hazards.

Is that an appropriate way to connect those dots to say there was this creeping to this point where now essentially no action can be taken because it might harm a company?

Binyamin Appelbaum: Yeah, and I think you know, there is an importance in the case of insulin actually illustrates this. Almost as important as the exact definition of antitrust standard is this incredibly important shift that really grew out of a set of economic thinkers at the University of Chicago who inverted; traditionally antitrust had held that corporations were inherently suspect of engaging in anticompetitive behavior. This is sort of an articulation of something that goes back to Adam Smith who famously said--if there is a group of businessmen in a room you can be pretty sure that they are plotting against their consumers, that they are plotting to raise prices.

And that idea was at the heart of antitrust policy. That if corporations are allowed to get smaller or to engage in tactics that look like they are likely to cost people money, then you can pretty safely assume that people are going to be hurt by those actions.

And the University of Chicago, led by a guy named Aaron Director, argued systematically that corporate behavior in fact, should be understood as innocent. That corporations were so busy trying to survive in this Darwinian marketplace that almost anything they were doing was simply aimed at their own survival and was the best and most reasonable course of policy and shouldn't be understood as predatory, unless you could specifically prove that it was. That there was no reason to suspect corporations. You should give them the benefit of the doubt and unless you could prove that something was harmful you shouldn't seek to prevent it. Well, that's a very high standard.

And in many cases what it means is that even in cases where reasonable people can look at a merger, say the merger right now of two cell phone companies--T-Mobile and Sprint, who have been competing vigorously for years in large part by offering lower prices to consumers. Any reasonable person can look at that deal and say I know what is going to happen when those two companies get together--prices are going to go up.

Well, the Justice Department looks at that now and says well, we can't actually prove that prices are going to go up, and therefore we need to let it happen. It is not good enough to look at it and predict. And so, that's an impossibly high standard and it results in this conceit that markets are perfectly efficient and they bring the best outcomes. And so, what you get is you know, you talked about how the insulin prices are the same. Well Director and his acolytes people like Robert Bork very famously was one of his most important students--they basically argued that it was implausible that companies would engage in cartels in collusion with each other. And that you could pretty safely assume that any attempt at a cartel would fall apart.

Well, in the 1990's and I love this story I tell it in the book--the Justice Department, someone at the Justice Department had the clever idea of offering amnesty to the first company in a given cartel that confessed to what was happening. So if you got in the door first you didn't get punished but everyone else in the cartel would and the cartel would be broken apart.

This is really smart public policy and it had the effect almost immediately of exponentially increasing the number of companies that were coming in to the Justice Department to report that they were parts of cartels.

And you know, I talked to the guy who was the lead economist at the Justice Department in those years and what he said to me was we were stunned. We had this theory that there were basically are no cartels. And then we put it into practice. We tested it in the real world and discovered that the theory was nonsense. There were cartels everywhere. Companies were finding to coordinate pricing and to take advantage of consumers and because they--because the enforcers were in this group of economic theory that said markets are efficient they weren't able to see the thing that was happening in plain sight and that was obvious to everyone else.

Chris Martenson: That is fascinating. It is such a wonderful part of the book, and what I was really drawn to was getting the background for people like Friedman, Keen, Greenspan, Volker, you got just so many rich quotes and direct experiences and the way you lay that all out; how did you even come across all that material? I'm wondering what your research process was and where you found these amazing stories?

Binyamin Appelbaum: Yeah, so in part my position at the New York Times I am very lucky to have the opportunity to know many of these people personally. And so, I pretty much, if a person in the book is still alive the odds are very high that I have interviewed, spoken to them, know them that I am describing someone that I've encountered and interacted with.

But even for them and certainly for the many people in the book who have passed on; you know, one of the joys of this book for me was the opportunity to go back and learn about these lives and talk to people that knew them--to the extent that was still possible, to read their own works, their own writings, their own memoirs, to go into the archives, to read the letters that they wrote to each other, to read, you know, the papers that they prepared, the speeches they gave, anecdotes they told to celebrations to learn as much as I could about them. So, I really had the pleasure of you know spending time in archives and delving into this rich trove of historical material.

While some of these people are not particularly well known to the general public, many of them were very important and they were almost all very important in their own community, and so their lives are well documented and well recorded. Many of them had high regard for themselves and kept voluminous files of their own correspondence. You know, and so there are rich archives of this material that I think really haven't been exploited for general history. So you know, economists have a lot of interest in their own work or in their own field. Although, in general, they are not overly curious about the history of the discipline. I think there is sort of this wall where historians don't write about the economic aspects of history. And economists don't write about the historical aspect of economics.

And so, I really found myself in this world of material that is fascinating and deeply relevant to the way our society has developed but in my view at least really hasn't been written about enough.

Chris Martenson: I would agree with that. And the way you have brought it together, Binyamin, I get the sense especially from chapter one that back in the 40's and 50's and 60's there was really both an intellectual climate and very spirited public debates about really important topics. You know, conscription versus a volunteer military service, wealth and equality, how best to shape and balance taxes and monetary policy. Seems like there were at least two sides to things and they were publicly debated in a very spirited fashion.

I don't really have that same sense today. It kind of all seems so settled as if nobody in power is really questioning anything. As if there aren't two sides anymore. Have I overly romanticized from the period you have been writing about and maybe being unfair about characterizing the state of the debate today? It feels like almost debate free in some important ways.

Binyamin Appelbaum: I think that is interesting. I guess I would say a couple of things about that. The first thing is that it feels to me particularly with regard to economic policy and related areas. We have had the Great Depression, really sort of onward economic thinking unless people groping around for the understanding around them. And you know, in the decades after the Great Depression there was a lot of ferment and debate on how to understand what had happened.

I think actually the same thing happened in the 1970's. There was a sense that the prevailing economic understanding of the world had proved inadequate or wrong and that people were open to grappling with new approaches and new frameworks and new ideas. And I would like to think that the, you know, the Great Recession of 2008 has opened a new period in which people once again can see that these prevailing economic ideas were flatly wrong and that they are open to debate and to alternate frameworks, and to new approaches to these issues. And I think that has happened to some extent. I don't think, you know, we have made as much progress as we would like. The Presidency of Donald Trump is, among other things, a repudiation of the conventional wisdom about economic policy. Part of his success has been saying you know, you guys are idiots. Now, it turns out he doesn't have better ideas but I'm not sure he is totally wrong in his critique of what had passed for the establishment.

So, I think that we are at least in a period of opportunity for new ideas to emerge and I share your frustration that we haven't seen clear progress. But I guess the one thing I would say about that is in writing history, one of the things that is inevitable but probably a bit misleading is that probably tended to elevate the ideas that ultimately proved important to much greater prominence than would have been obvious at the time.

So, when I'm picking out the strains that became important and that emerged as dominant in saying you know, back in the 40's people were saying X. Back in the 40's people that were saying that things weren't getting much attention. And probably to the average person or even a fairly careful observer it wouldn't have been obvious that things would unfold in the way that they did and that these particular lines of critiques which at the time were being essentially advanced by fringe characters who didn't really command the public spotlight would eventually come to be seen in public spotlight. I think that you know, just by the nature of a book like this it probably makes the debates in the past seem more center stage than they did at the time.

Chris Martenson: Sure. Survivor bias. Very real thing. And still, you had a point in there where I can't remember exactly where there was a time where 320, if I have the number right, liberal intellectuals signed their names to something because they were very concerned and put it forward and we look at who the heroes were back then. You had the Einstein's, very prominent people who were intellectuals. It feels like the people were still openly grappling with things a bit.

So part of my frustration, as you rightly detected, is that centers on this idea that we underwent this thing called financialization which has now hit a real crescendo. And we had bubble one in 2000 which was I thought a clear mark of a failure of Greenspan's policies of flooding the world with money. Got a large bubble for it, and then Bernanke continued that. We got a housing bubble for our troubles then and now we got something maybe we can call the everything bubble, including 15 trillion of negative yielding debt, whatever that means and on and on.

And so, it feels to me that instead of learning the lessons of 2008, it was almost like a doubling down like an intellectual dogma that said we can't have gotten that wrong. We'll just do more of it this time. Is you know, do you have a sense that there is any concern in the economic sphere that maybe we are repeating mistakes that have already been proven unsuccessful twice?

Binyamin Appelbaum: Yeah, I guess I do want to push back a little bit because listen, I think that there was an incredible homogenization of the economics profession. Really part of it can be attributed to the collapse of communism really left the world with one dominant ideology and in the manner of a monopolist it became self-satisfied. And it became very difficult to have discussions about the obvious laws of capitalism.

Capitalism became even more--capitalism prevailed in large part because it accommodated and compromised and understood its limitations and was administered not as an absolute truth but as a part of the answer during the mid-century, and that is why it was so successful because nations undertook seriously to look after the interest of their citizens and not just throw them on the mercy of the markets.

But you know, in an odd way the collapse of communism allowed democracies to, you know, sort of embrace markets even more forcefully and intellectual debate faded away. And there was a few decades there where there really was an absence of inquiry or curiosity or debate. But I guess where I would differ a little bit is since the crisis there really has been a revival of basic questions, a questioning of first principles, a search for alternatives. And you see people like Tomas Pikkety or Emanuel Saiz advancing very different understandings of the mechanics of capitalism. You see, you know, people questioning the varieties of the Washington consensus which was this recipe for economic development in third world countries.

You see people like, you know, the economist Danny Roderick at Harvard really raising questions about the way we have approached third world development and I could go on. And I think, furthermore outside of the realm of economics you see people saying basically there are limits on what economics itself can teach us. We need to understand that economics exists in a context.

There is a woman a professor named Marianne Forcade who has been writing about the differences in the intellectual climate in Europe and the United States and how Americans tend to--American economists tend to assume that the market holds the answers. But the formulas themselves basically exist in the context of the societies in which they are written. I do hear a lot of ferment. Maybe it's because I am listening more carefully but I do hear a lot of voices raising these questions, fermenting these debates. I at least am hopeful that it will lead to positive change.

Chris Martenson: I am hopeful as well and I am aware of those voices on the edge. I think I was really my question was centered around the central banks because so much power is vested there. So when we look at the stated goals of say the Federal Reserve or any central bank out there, it is really the goal of any economist anyway. They want to guide economic outcomes if they can to their most favorable conclusions. They talk about rising tides, lifting all boats. They measure things like advances in real wages, unemployment, rates of GDP growth. Yet, in the past 30 years if we go by empirical data, we have seen practically zero growth in real median household incomes. We have seen an explosive and widening wealth gap predicted by many to be the logical consequence of what happens when you entertain quantitative easing and things like that.

And a massive income gap too and of course, fairly large federal debt loads unfunded or underfunded entitlement programs. All of that. But perhaps most challengingly at this point in time is the idea that these programs and policies of the U.S. Federal Reserve took a generation, the millennials and really they got kind of tossed under the boss. Ben Bernanke said specifically we want to target house prices, we are going to buy mortgage backed securities. We are going to lower the interest costs; therefore we are going to create a wealth effect by making house prices go up. Great policy for people who own houses. Not a good policy for people who have yet to buy a house because, of course, buying an expensive house is tough.

Now, we are a decade into that and houses are out of reach for people in say major metropolitan areas, San Francisco. These are real social consequences to things and yet, I don't have any sense from any public statements by any Federal Reserve official that they feel even slightly responsible for that.

Binyamin Appelbaum: So, I guess I want to say three things. The first is that the Fed is a great example of an institution that came under the dominance of economists and actually start my book with a story about Paul Volker working as a young man at the Federal Reserve Bank of New York and feeling that as an economist he had to opportunities three. And he wasn't wrong at the time. There was no economists on the Fed board. The guy who ran the fed a guy named William Machesney Martin has this amazing quote where he says, we keep the economists in the basement because you know, they ask good questions. So that is how you keep them in the building at all. But we keep them in the basement because they don't give good answers. That's where the Fed was in the 1960's. They weren't at all sure that economists had much to add to the conversation. Martin was a financier and that was the kind of person who tended to run the central bank.

And as you say, during the course of the 1970's the Fed comes under the dominion of economists and economists focus on a much more narrow mission which is basically controlling inflation. And Paul Volker himself becomes the agent of that transformation. He's the guy who gives the Fed its clearest sense of new purpose. The idea that you just minimize inflation and everything else will work out okay.

Now, as you say that has some very clear distributional consequences. If you just focus on minimizing inflation you end up doing it at the expense of unemployment. You end up doing it at the expense of wage growth. You are constantly cutting off economic revivals because you are worried things are going to get out of control and the effects is to punish minorities, to punish the young, to punish the working class. And you see that really clearly, that the Fed over the last three decades really contributed to economic inequality through the single minded focus on controlling inflation. And I think that's been hugely problematic and I think it's a clear result of the dominance of economists and this tendency they have to reduce things to a simple formula and then rely on it.

But the final thing I want to say is that I think you have seen a change at the Fed. I think there is an awareness of this history. I do hear the Fed leaders talking about the distributional consequences of policy, placing a much greater emphasis on unemployment. Bernanke start--Ben Bernanke was the Chairman of the Fed during the financial crisis. You know, sort of started this shift. Janet Yellen, his successor, really placed a very heavy emphasis on employment and the Fed's responsibility to improve the rise of ordinary people.

And even under Jay Powell, her successor, the Fed has continued in that direction. And he was actually the first non-economist to lead the institution in modern times. We really are seeing, I think, a broadening of its sense of purpose and of the way that it understands the world.

I guess the final thing I would add however, is that I think that there is far too much focus on the Fed and that is actually a consequence of this economists' hour as well. Milton Freidman, who we haven't talked much about yet who is really the central character in my book was enormously successful. Perhaps his greatest triumph against the Keynesians. The Keynesians, the disciples of John Maynard Keynesians were the people who came out of the Great Depression convinced that government needed to play a larger role in the economy and specifically that government should spend money during downturns--that fiscal policy was the great answer to economic cataclysm. And that when things got bad the government should throw money at the problem.

And Freidman was enormously successful in convincing economists and then policymakers that fiscal policy was essentially impotent and that monetary policy was essentially everything. And that you should just focus on regulating the supply of money and that was the best government could do. Anything more than that would be terribly damaging and that minimal government - that doing the least was also the most you could do.

And that has really become rather pervasive as a mentality this understanding that the Fed holds the answer to our problems and that the Fed is in charge and that we need to rely on the Fed to answer for these problems. And I think it's fundamentally wrong. Fiscal policy is tremendously underrated and underutilized and if there is a villain in this story of the loss of a generation which I feel is very much what we are seeing - that villain is Congress and not the Fed. It is the failure of our fiscal authorities to invest in this economy, to ensure that we are spending enough money and spending it on education and infrastructure and research - that is causing our economy to sputter.

The Fed, I think, has power clearly and there is no doubt the degree to which it hasn't used that power effectively. But these discussions about the Fed, this unrelenting focus on the Fed is itself a product of this economist's view of the world that I think is far too narrow and an important aspect--misleading.

Chris Martenson: Well, I love this battle between Friedman and Keynes, as if they were literally in the tug of war. This idea that it is monetarism that is what you need to focus on and control and that had its day in the sun. It looks like Keynes is coming back to his day in the sun and of course this leads us to where we are. And there are huge political consequences to this. I think you rightly noted that it was against the backdrop that we were talking about that Trump was elected. At least in part by promising to be different to the working classes, right? He was at least saying something that working people could be like I at least hear myself in that story. That's new. Because it had been missing for a little while.

And now we have in this election cycle actually a fairly interesting drumbeat for this idea of modern monetary theory or MMT, which is the idea of the government spending money and that if it does so there are very few consequences to be had because of course, it can print its own money when you strip away a few layers.

That idea has gained a lot of traction and at least in part that is because under the former guise of financialization and how the Fed had conducted itself it was very clear that capital won, workers lost. That was a pretty clear thing, maybe you don't agree with that but that's how I'm seeing it you know, because the Federal Reserve would lower rates and you would see capital start to flood into the markets and it would show up. And you know, as long as stocks were rising and corporations were doing well the Fed didn't care. But as soon as wages started to rise, as soon as labor started to share they would say that's too far. That is where inflation comes in we are going to target that and then would club that back down again of course, by raising rates.

In that long sweep of things over time the scales tilted. Labor ended up with less and less that shows up in their median household wage data and things like that. And capital sort of won. MMT seems to be a pushback against that at least in part. Is that fair and do you think Keynes coming back now?

Binyamin Appelbaum: So I think "capital won" is a perfectly good summary of the modern era. But again, I just want to broaden the lens and say while the Fed played a role in that, so did government policies that disempowered unions, so did the failure of the government to substitute itself of the union movement and, for example, to make sure that minimum wage laws or workplace safety laws kept pace with the economy. So did, you know, the emphasis on globalization and free trade with developing nations. So did the failure to invest in education or research or infrastructure.

The economy failed workers in many ways. The Fed is one of them but I'm not even convinced it is the most important.I think that we really want to take a broad view of all of the ways in which public policy has favored capital at the expense of labor. Because it is a long list and the solution surely lies in addressing those issues across that broad water front. If you just focus on monetary policy you are not going to get the changes that you need because you are not going to address the many other ways that the system has been tilted against workers.

The only other thing I would add--I think MMT is a great example of, you know, the effervescence of new ideas in the wake of a crisis. And it is one of those new approaches to economics that has gained a lot of traction in public debate and is being talked about and considered and I think that that sort of--that process is really healthy and gives people an opportunity to examine those ideas and think about them and decide which ones to move forward.

I wish I shared your confidence that Keynes is ascendant again. I think that there certainly are people who subscribe to those ideas some of which have proved more durable than others. And the United States in particular, one great Keynesian legacy is a substitution--a bastardization of Keynes but the idea that tax cuts are the best form of economic stimulus sort of the American version of Keynes and it remains in good favor. Other Keynesian ideas have been less successful over time. And maybe we will see them coming back. I think that probably would be a good thing on the whole.

Chris Martenson: Well, tax cuts, of course, depending on where they are targeted the most recent corporate tax cuts tracking them seems to have resulted in share buybacks a dubious or arguable benefit to the broad society in terms of what we are talking about here. So, it would be interesting to see where to have a spirited tax debate again that would talk about where that can really come. Because tax cuts really do come at the expense of spending if you--

Binyamin Appelbaum: That's right and that's really the most important. That's why I refer to it as a bastard Keynesian approach. This has been obvious. This begins in the 1960's under John Kennedy. And at that time, his liberal advisors were very divided on it. Some see it as the only plausible approach to fiscal stimulus because you can't convince conservatives to increase government spending. But others warn quite presciently, that if you start down that road what you are going to do is restrict government spending over time. And I think that has proved to be right. The United States has failed to develop the sort of fiscal capacity that other western democracies have to provide social services and investment in the economy because of this reliance on tax cuts. And it has really been constraining and problematic.

So, even if you are targeting, I mean you are clearly right but the recent tax cuts are a disaster on multiple levels, and one of those levels is that they gave all of the money to the wealthy. But even beyond that I have real misgivings about tax cuts for the middle class, too because I think that the balance is out of whack. We are not in the position to make the societal investments that we need to make.

Chris Martenson: Well, in Chapter 40 which is representation without taxation. You start that with a quote from one of my all-time favorites John Kenneth Galbraith who said, "What is called sound economics is very often what mirrors the needs of the respectively affluent." I just love the way he puts things very pithy--pithy quotable guy. This idea, though, that the title of the book The Economist's Hour suggests that they had their hour. And where do you use this --the ascendancy of this profession of economics? Has it really--has it done what it is going to do at this point in time? Has it hit its peak or is it does it continue from here?

Binyamin Appelbaum: Well, I think it's in crisis, for sure, right? I mean you've seen in the United States certainly you have seen the election of a man who holds--economics and economists in lower regard than any other American president you have seen. His Vice President, Mike Pence said even before taking office you know, markets have had their day. They didn't deliver the results we wanted. You know, we are going to try a new approach. It's inconceivable to imagine a Republican elected official saying that even a decade ago.

So, it's clear that economists are at least temporarily out of favor in this White House. But not just here. You've had British officials saying during the Brexit process we don't need any advice from economists. You know, those guys are idiots. We are done listening to them. You have seen a real turn away from the varieties in economics about free trade, about balanced budgets about even--even this is from the liberal side as well this rejection for years economists of all stripes have basically warn against minimum wage laws. Well, you know, a lot of people have decided that they were wrong. I think with considerable justification. So, we are seeing states and local governments increasing minimum wages in defiance of what was conventional wisdom among economists until very recently.

You are seeing renewed fervor around anti-trust both on the left and on the right. I think in a lot of areas of public policy there are there is a new willingness to question economic laws, economic principals. And it will be interesting to see whether economics evolves in ways that maintain its utility. I think it is fundamentally a useful way of thinking about the world. It imposes a discipline on thought that I find useful. It forces an articulation of costs and benefits. It makes you think about what you know and what you don't know. It is a useful set of tools. I think that it was mistaken for a religion and that was hugely unfortunate. But it think it would be a mistake to throw it out altogether. And the challenge now is whether we can get to a better place.

I said about Trump once already, but I think he's asking a lot of good questions about the way things are. I think his answers are for the most part, terribly unfortunate. So, the question is whether we can find the politics that offers better answers.

Chris Martenson: I will tell you, one of the more instrumental books in shaping my understanding of economics was called The Origin of Wealth by Eric Beinhocker. And he tells his fascinating story about this meeting at the Santa Fe Institute. They bring in you know, Nobel Prize winning chemists, physicists, economists all that and they are all sitting around the table and the economists are laying out, you know, their formulas. They got all these fancy formulas they are talking about equilibrium and all that stuff. And the physicists and chemists are all just sitting back in shock because they are using closed form equations that were in--derived by Walrus back in the 1700's before the second law of thermodynamics had come about.

So, they were seeking an equilibrium in an open system that is an impossibility. So, they were just shocked that economists had a fairly dogmatic religious approach to how they were viewing the world. And this brings me to my actual largest critique of economics profession. And this is my work in the world. It's a, I think they confused correlation with causation. The true driver of economic growth is actually expansion and use of energy. I'm a biologist by training underneath all this. So, I mean that's a period full stop. That energy, fossil fuel, 400 million years of ancient sunlight that's being unlocked in a brief explosion of about 200 years--everything is a derivative of that. So instead of even noting that or working into their models or even being aware of it at all, as far as I can tell, except for the biophysical economists. The economists have fashioned an entire dogma around this idea that infinite exponential growth is not only possible on a finite planet but it's desirable, right? That's the goal.

The undesirable consequences of that are now becoming clear, right? We got species loss, we got climate change, we got strip-mined ocean, Midwest soils--growth cannot continue forever. That's a hypothesis and I have not read a single line in a single paper from a single central bank that has even bothered to explore that idea. It is like off limits. If it is a topic than they have studiously ignored it or kept it buried. Did you run across any sense of the--of that maybe collision between our economic approaches and desire for growth and what's happening in our natural world. Did that come up?

Binyamin Appelbaum: So, I think that you know, in the economics profession generally, so first off, I really agree that sort of a core fundamental problem with economics is that it is claiming to be a science that didn't notice that the world tends toward entropy and you just have to wonder about how a discipline has arrived at those set of principles based on the notion that there is an equilibrium and the world will return to it naturally.

On a broader question, I think that central banks may be the wrong place to look for that type of work because by their nature they tend to be focused on the short term. And I accept--I think you're right that that is probably not sufficient and they need to incorporate -the long term is comprised of a whole bunch of short terms and they need to start thinking about what that means. I do see economists wrestling with natural resource constraints and they have actually been doing it for a long time. And there is a whole field, you know, I have to me one of the most interesting chapters in this book is about cost benefit analysis. The rise of the idea that economics should be used to assess public policy by quantifying the costs of the policy and quantifying the benefits of the policy and moving ahead with the policies that on balance are beneficial.

And this idea is really one of the powerful ways in which the economics has transformed policy making. It has become part of a vast range of government functions, particularly in the regulatory space.

And that work, at least one of its sort of points of origin, is in a concern about finite natural resources. There was a government commission sponsored by the Ford Foundation in the 1950's during one of these periods of occasional concern that fossil fuels were about to run out that went and looked at the availability of natural resources around the world. And in addition to offering terribly inaccurate estimates of how much stuff was left, arrived at the more useful conclusion that that question ought to be part of public policy making and that it ought to guide the government's approach to various kinds of decisions. And that was one of the forerunners of cost benefit analysis of public policies. And I think you have seen that insight integrated into the work of a long line of economists who have sought to think about what it means that we live in a world with finite resources.

So, I think that you are right that that strain of thinking has not had any evident influence on central banking and it needs to and it should. But it does exist as a line of work.

Chris Martenson: Well, and outside of central banking it's clearly something that ought to be considered as a longer range part of public policy. And, you know, one of the things that I get to do is interact with people who are very thoughtful about the direction of things. These people at NASA, the millennials, whomever. And one of the critiques out there is where is the sense of direction? Where are we going? I think we had a sense of that in the 50's. In the 60's even as turbulent as they were, there was a sense of where we are going. But if all of a sudden you see that we can't have economic growth forever the question of where we are going gets lost under the sea of well F150 sales were pretty good this last quarter, so we are doing pretty good.

And so, what I really admire about your book is the way in which it races these different parts out and all these different threads that get us to where we are. And as we look back at all these different pieces that you pulled in--where do you see things going forward, as if you just not--not as Yogi Berra said. I don't want you to make predictions about the future because those are difficult. But if you just extrapolate the trends, where are we headed?

Binyamin Appelbaum: So, you know, one reason we like bragging about history is that it is easier to understand what has happened to predict what is going to happen. But I guess I feel like we are at a real fork in the road and there is a very plausible path ahead of us in which our ability to grapple with our problems continues to deteriorate. I think we haven't talked much about inequality today but one of the most important consequences of the embrace of economic policies has been the huge rise in economic inequality in this country. And one of the debilitating consequences of inequality, which I think is terribly underappreciated, is that it makes it very difficult to have a functional democracy. It really limits the shared space in which people can get together and agree on policies that serve all of their interests because their interests have become so diverse.

So, I think that inequality itself threatens our ability to constructively confront our societal problems and challenges, and I worry immensely about that. And I think economics is very much to blame for us having reached that past--that state in our affairs.

So, that's the bleak version, is that we are in a kind of crisis and not just a kind of crisis. I think we are in crisis. We are in crisis in terms of our ability to confront problems, in terms of our ability to make good choices, our ability to build public consensus around positive public policy. And it's not clear how we escape from it.

The more positive version is that I do think many people are aware that we are confronting this problem. I do sense a renewed urgency among at least some political leaders to at least confront these issues. I think it comes not just from one side of the political spectrum which is probably necessary for us to move forward. I think you know, finding common ground remains very difficult. But step one is surely for us to agree about the nature of the problem, and I hear more and more of that. And so, I'm optimistic that we will find you know, a way to begin to address some of these problems. But, you know, I don't want to suggest that I'm wholly optimistic.

I think these are big issues and we have caused ourselves a lot of problems by the way we have dealt with public policy over the last century. And if we don't start doing things differently and soon, it is hard to see how this all ends well.

Chris Martenson: Indeed. One of the more fascinating parts of your book for me was the way you track the rise of corporations and corporate power and the--I just had the sense of the social obligation and the role of corporations. It just really shifted over time. That whole brilliant story about AT&T developing and patenting the transistor and then saying hey, we need to share this. With a little encouragement from the government, but you know, they didn't fight that tooth and nail. They had a sense of this is an important development and we are all going to share in this, which may be missing today and it reminds me of that quote from Plutarch way back when that said that the oldest and most fatal ailment of all republics is a gap between the rich and the poor. And so that widening wealth gap feels like one of the urgent sort of things we need to think about and tackle here.

But it is encouraging that at least it is becoming part of the conversation now, and that's why I truly think that your book is really important for people to read. I am going to give it a double thumbs up. Everybody who is listening, I would highly encourage this because it is just such a great background and gives you a sense of how we got here. And that arch is really important to understand. We didn't just arrive here accidentally as you sometimes will maybe be forgiven for believing happened. If you just read the news and watch it on TV sometimes it presents things as if they just occurred. They didn't. There's a long story behind how we got here. And it is an absolutely fascinating one.

So, Binyamin, thank you for writing that book. Congratulations. It's really fantastic.

Binyamin Appelbaum: Thank you. I really enjoyed the conversation.

Chris Martenson: And thank you so much for your time today. We've been talking with Binyamin Appelbaum. He wrote The Economist's Hour. Please, find it and read it and we'll continue this conversation at our website around that. Thanks for listening, everybody and we'll talk to you next time.

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  • Fri, Sep 13, 2019 - 6:24am



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    Best podcast you’ve done.


    Just bought the book.  I’m gonna message you on LinkedIn and see about getting a dinner/book signing together next time you are in Chicago.  I’ve got a handful of smart folks that would love to rehash this live.

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  • Fri, Sep 13, 2019 - 7:48am



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    I believe “Capital One” should be “capital won” and in the first case of its use followed by “, workers lost”.

    Admin: Thx. Corrected.

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  • Fri, Sep 13, 2019 - 8:05am



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    It's Ironic

    ..that the less anti-trust they have, the less trust I have

    Very interesting piece. Thanks Chris. Maybe I missed his point, but in the end, it seemed that despite his take on the evolution (or devolution), he put a little too much faith in the financial institutions and laid more of our situation on the politicians. Chris seemed to push him on that, and for good reason. It’s a chicken and egg problem to me… or perhaps a feedback loop. Did the philosophy change or did good old criminal greed rot the system again. Then again, it could also be a modern problem too – that the global nature of everything, along with the technology to rapidly make corporations global was merely inevitable along with their inevitable problems. As Chris and other historians remind us, when system failure and empire problems start to balloon, so do their their financial tricks and structures.

    It is a great exercise to look back at how passionate we used to be in protecting ourselves from this corruption. I wonder where that went.

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  • Fri, Sep 13, 2019 - 8:29am



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    Great podcast

    It was clear that there were some disagreements between the two of you, but the way you both addressed and disagreed with one another was respectful, informative, and civil, which is frankly one of the many things that keeps me coming back here.


    I’m going to get his book for sure.

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  • Fri, Sep 13, 2019 - 12:00pm



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    Mr. Appelbaum is obviously wicked smart.  Way smarter than me.  Yes, I will buy his book to have for posterity.  The problem is …He says…..

    “I think these are big issues and we have caused ourselves a lot of problems by the way we have dealt with public policy over the last century. And if we don’t start doing things differently and soon, it is hard to see how this all ends well.

    Ugh,  another, nice, smart person contributing to paralysis by analysis. Oh dear the decisions have not been optimal.  How unfortunate.  How about screaming from the roof top, if the greedy idiots in charge don’t change we are all doomed.  Violence, war, starvation, and disease.  You know the four horsemen of the apocalypse.  But its okay because we will all have detailed books to read on how we got there.

    Cranky Granny

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  • Fri, Sep 13, 2019 - 1:46pm

    Reply to #5


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    Some are trying Granny

    You should read The new economies,and how it can create a more just America by Jared Bernstein at also reviewed the book.I wont link it because it is a tinge political…

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  • Fri, Sep 13, 2019 - 1:54pm



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    Additional analysis from Jack Rasmus: Central Banks, Negative Rates & Helicopter Money

    With all due respect to Mr Appelbaum, here is Prof Rasmus speaking to Trump’s neo-liberalism 2.0 in a more granular manner focusing on the recent decision by the European Central Bank to re-introduce QE and drive Europe’s more than $7 trillion in interest rates further into negative territory. Another $22b per month in QE and rate reduction to -0.5% when, over the past 5 yrs QE and negative rates have not stimulated the European economy. Reasons why QE and neg rates have little effect. How $17 trillion in negative rates worldwide is a growing problem and won’t stimulate the Euro economy. Lower rates as exchange rate currency/ trade move. Why Trump is now calling for US negative rates. Why central banks (including Fed) now secretly discussing new tools and tactics for the next recession, including ‘bail ins’ and calls are growing by high level capitalists for the Fed and central  banks to expand their authority into fiscal policy areas (as predicted in my 2017 book, ‘Central Bankers at the End of Their Ropes’). Consequences of such for US Constitution and fiction of ‘central bank independence’.  Rasmus discusses US deficit now officially projected to exceed $1 trillion a yr. The Democrat Party latest debate and opposition to Medicare for All. And what’s behind the recent ‘softening’ of US & China trade war (and why a deal may now be closer with ‘decoupling’ of technology issue). Rasmus introduces the show with brief outline of his forthcoming book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, October 2019, and shares its main themes.


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  • Fri, Sep 13, 2019 - 2:24pm



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    Thanks Edwardlinski, my preference is blunt, direct, and as Richard Wolf says “bottom line”.  In-your-face messengers like Ralph Nader, Richard Wolf, and Chris Hedges give people pause create discomfort and are a catalyst for change.  However, we do need the brainy intellectuals to debate the subjects and write the books.

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  • Fri, Sep 13, 2019 - 9:48pm



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    Really enjoyed this one – will give it a second listen.  I’d love to hear this conversation continued in a longer format, or perhaps over multiple podcasts.  So many interesting thoughts that I’d like to hear explored in more depth.

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  • Sun, Sep 15, 2019 - 2:06pm



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    So much to think about

    Majorly enlightening podcast. 

    For me, the highlight was the incident at the Santa Fe Institute where it was revealed that the economists thought it possible to achieve equilibrium — in an open system. That’s crazy decades behind the times.

    Along with the comment by Fed chair Wm McChesney Martin that economists were kept in the basement because, while they come up with good questions, they don’t give good answers. See above about equilibrium in an open system. Also Chris’s previous reference to Ben Hunt’s essay, “The Three Body Problem” on appropriate and inappropriate ways of making predictions in a chaotic system:  Chaos theory, complexity, systems theory with it’s challenging boundary issues… 

    Along with the comment that maybe central banks aren’t the place to deal with issues regarding such things as resources because, by their nature, they have a short-term focus. Also, see above about inappropriate understanding of the nature of the world. Interesting comments about the roles of Congress (policy makers) and the Fed.


    Also a highlight – the change in the perceived purpose of anti-trust laws from protecting democracy against excesses of corporations to ensuring economic efficiency, which has resulted in enormous challenges to addressing excesses. Efficiency being measurable, democracy, not so much. That is sickening and infuriating. 

    I appreciate that Binyamin Appelbaum’s take doesn’t always agree with Chris Martenson’s – That enriches the context for all that is said here on Peak Prosperity.

    I, too, am looking forward to reading this book.

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