How Liberal Leaders Normalized Conservative Ideas: A History of Economic Policy Shifts

This podcast episode delves into the historical evolution of economic policy in the United States, arguing that liberal leaders played a crucial role in normalizing conservative economic ideas. The discussion, featuring Benjamin Applebaum, author of "The Economist's our false prophets free markets and the fracture of society," traces this shift through three acts: the initial ascent of economists during the Great Depression and World War II, the rise of Keynesianism in the 1960s, and its subsequent decline leading to a new era of market minimalism. It highlights how administrations from Kennedy to Clinton progressively dismantled progressive taxation and economic regulation, ultimately blurring the functional differences between the two major parties on economic policy by the late 1990s.

The episode makes key distinctions between the activist, interventionist Keynesian approach and the later minimalist, free-market ideology that gained traction even before Reagan and Thatcher. It emphasizes the concept of "political economy," arguing that economic institutions are inherently interwoven with politics and involve subjective decision-making, a truth often obscured by the perception of economics as a neutral science. The host and guest discuss the tension between methodological rigor in economics and the necessity of explicit public debate about underlying political choices, suggesting that both aspects are currently under attack.

Practical insights emerge regarding the need for a more transparent and balanced approach to economic governance. The conversation advocates for acknowledging the inherent subjective choices in economic policy while simultaneously respecting the integrity of methodological processes. It also touches upon the critical issue of risk management, particularly the failure of traditional economic discounting to adequately address extreme future outcomes, citing the example of asbestos regulation and its implications for environmental policy.

Broader implications include the post-2008 crisis disillusionment with existing economic paradigms, leading to a deterioration of faith in governance across the political spectrum. The discussion explores whether economists were genuinely misguided or if their arguments conveniently aligned with corporate and moneyed interests, citing examples like the Eli Lilly Corporation's sponsorship of economic research and the University of Chicago's ties to Rockefeller money and the defense of Standard Oil. Ultimately, the episode calls for a re-evaluation of how society confronts complex economic challenges, moving beyond a "false consciousness" to embrace a more integrated and transparent political economy.

it was ultimately liberal leaders in many cases who brought those conservative ideas into the mainstream normalized them by virtue of being from the party that did not naturally it was not the natural home for those ideas

by the end of the 1990s I think there's not too much of a functional difference between the two parties on economic policy

the economists get in there and they say we can make the world a better place we know how to do this we understand how the economy works and we can manage it

a new kind economists and economic idea takes hold a minimalism a concern about government a sense that it would be better if we took our hands off of the economy and let markets make choices unimpeded by regulation

I think today many people have forgotten how much is this preceded Reagan and Thatcher how much this revolution was really underway by the time that they came to power

Benjamin Disraeli the British prime minister in the high Victorian era had a very famous line where he spoke of Tory men and Whig measures meaning that it was often a conservative political leader who was required to bring liberal ideas actually into law and into practice and I think the opposite thing happened at the end of the 20th century when you had conservative ideas being the cutting edge ideas being the the things that the direction of change it was ultimately liberal leaders in many cases who brought those conservative ideas into the mainstream

what we need is to use economics in a way that is methodologically rigorous and simultaneously explicit about those subjective choices

this was a convenient argument for its proponents in the sense that it had allied them with corporate interests and with moneyed interests that were willing to support them

there is a failure to deal with the fact that some things are so bad some outcomes so extreme that just as a matter of risk management you need to deal with the tails of the distribution differently

the question is is it analysis or marketing maybe it's probably something you have to wrestle with in that context and in many others