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The Tyranny of Economists

In 1984, a two-year-old named Joy Griffith climbed onto her grandfather's reclining sofa chair to watch cartoons. At one point, she fell between the collapsible footrest and the seat. The footrest trapped her head, and she began to suffocate. When she was finally found, she was blue and lifeless. Police officers extracted her body from the chair and resuscitated her. They were successful, but she had been deprived of oxygen for too long. The toddler had permanent brain damage. From then on out, she lay in a vegetative state in a hospital. 

In June of 1985, the Consumer Product Safety Commission issued a "national consumer alert" about the type of sofa chair that strangled Griffith. But the commission still needed to decide if they would require design changes. So Warren Prunella, the chief economist for the Commission, did some calculations. He figured that 40 million chairs were in use, each of which lasted ten years. Estimates said modifications likely would save about one life per year, and since the commission had decided in 1980 that the value of a life was one million dollars, the benefit of the requirement would be only ten million. This was far below the cost to the manufacturers. So in December, the commission decided that they didn't need to require chair manufacturers to modify their products. If this seems odd today, it was then too—so odd, in fact, that the chair manufacturers voluntarily changed their designs.

Prunella's calculations were the result of a growing reliance on cost-benefit analysis, something that the Reagan administration had recently made mandatory for all new government regulations. It signaled the rise of economists to the top of the federal regulatory apparatus. "Economists effectively were deciding whether armchairs should be allowed to crush children," Binyamin Appelbaum writes in his new book The Economists' Hour. "The government's growing reliance on cost-benefit meant that economists like Prunella were exercising significant influence over life and death decisions." Economics had become a primary language of politics.

The title of the book refers to a period that Appelbaum defines as being between 1969 and 2008. For him, this was a time when the policies that economists almost universally endorsed—tax breaks, austerity, deregulation, free trade, monetarism, floating exchange rates, reduced antitrust enforcement, low inflation, among others—were enacted. It is a period when market fundamentalism triumphed. Appelbaum tells the story of each of these economic ideas in turn, often starting in the 1940s or 1950s and tracing its creation and enactment to the present day. This structure causes the book to feel like a recurring nightmare that differs only slightly upon each retelling. First, everything is fine in the sunny fields of the booming post-war era and then somehow you're back in today's fetid austerity swamps.

Each story begins in the mid-century when the New Deal created a new need for economists. The New Deal inflated the size of the federal government, and politicians turned to economists to make sense of their new complicated initiatives and help rationalize their policies to constituents. Even Milton Friedman, the dark apostle of market fundamentalism, admitted that "ironically, the New Deal was a lifesaver." Without it, he said, he may have never been employed as an economist. From the mid-1950s to the late 1970s the number of economists in the federal government swelled from about 2,000 to 6,000.

The New Deal also gave rise to cost-benefit analysis. Large projects, like dam building or rural electrification, needed to be budgeted and constrained. In 1939, Cambridge economist Nicholas Kaldor asserted that the political problem with cost-benefit analysis—that someone always loses out—wasn't a problem. This was because the government could theoretically redirect a little money from the winners to the losers, to even things out: For example, if a policy caused corn consumption to drop, the government could redirect the savings to aggrieved farmers. However, it didn't provide any reason why the government would rebalance the scale, just that it was possible. What is now called the Kaldor-Hicks principle, "is a theory, " Appelbaum says, "to gladden the hearts of winners: it is less clear that losers will be comforted by the possession of theoretical benefits." The principle remains the theoretical core of cost-benefit analysis, Appelbaum says. It's an approach that sweeps the political problems of any policy—what to do about the losers—under the rug.