Most people buy the fiction that markets are “natural,” inequality is inevitable, and government should step aside — but where did that idea come from?
In this 2019 episode, Nick and Goldy talk with English journalist George Monbiot and American journalist and author Binyamin Appelbaum about how neoliberalism was deliberately built and sold — not stumbled into.
They unpack how economists, funders, and institutions rewrote the rules to favor markets over people, shifted political norms, and made extreme inequality seem inevitable — and what that history means for reclaiming an economy that works for everyone.
George Monbiot is an English journalist, author, and political/environmental activist, Monbiot writes a regular column for The Guardian and has published several books on politics, ecology, and society. He’s known for critiquing corporate power, neoliberal economics, and environmental degradation.
Binyamin Appelbaum is an American journalist and author, Appelbaum is a lead writer on business and economics for The New York Times editorial board. He previously covered the Federal Reserve and economic policy for the Times and has written widely on how markets and policy shape society.
Social Media:
Further Reading:
The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society
Website: http://pitchforkeconomics.com
Facebook: Pitchfork Economics Podcast
Bluesky: @pitchforkeconomics.bsky.social
Instagram: @pitchforkeconomics
Threads: pitchforkeconomics
TikTok: @pitchfork_econ
YouTube: @pitchforkeconomics
LinkedIn: Pitchfork Economics
Twitter: @PitchforkEcon, @NickHanauer
Substack: The Pitch
Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
Goldy:
The last five decades of trickle-down economics haven’t worked, but what’s the alternative?
Nick Hanauer:
Middle out economics is the answer because the middle class is the source of growth, not its consequence. That’s right.
Speaker 3:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Freddy Doss:
Hey, Pitchfork listeners. I’m Freddy, producer at Pitchfork Economics. If you opened your podcast app expecting a new episode today, don’t worry. You didn’t miss one. As we kick off a new year, I wanted to take a moment to talk directly to the people who make this show possible, you. Pitchfork Economics exists for a simple reason. For decades, we’ve been told a story about the economy, that if we just cut taxes for the wealthy, deregulate markets, and get out of the way, prosperity will magically trickle down. And time and again, that story has failed working people. This podcast is our attempt to tell a more honest story about how the economy actually works and how it could work better. One, that centers workers, families, and communities instead of abstract models and corporate talking points.
And quick side note, the reason we can do that without ad breaks, sponsored segments, or someone trying to sell you a mattress halfway through a conversation about inequality is because of the incredible following this show has developed. Pitchfork Economics is proudly ad-free, and that’s very much by design. If that resonates with you, or if this show has helped you make sense of the economy, given you better language to push back on shitty ideas, or simply made you feel a little less alone in your frustration, I have a small ask. Please take a minute to rate and review Pitchfork Economics wherever you get your podcasts, especially you Apple and Spotify listeners who make up 60% of our audience. It may not feel like much, but those reviews are one of the biggest ways new listeners discover the show.
And if you’ve already left a review or you’d rather support the show in another way, consider sharing your favorite episode, quote, or takeaway on the social media platform of your choice. Seeing what resonates with you helps shape where the show goes next and helps deliver new ideas to more listeners.
Pitchfork Economics isn’t just a podcast. It’s part of a broader effort to challenge a failed economic paradigm and imagine something better. Thanks for listening and for helping us tell a better story about who gets what and why in our economy.
This week, we’re revisiting an episode from 2019 called How Neoliberalism Happened, a thoughtful conversation that explains where the economic story we’ve all been living inside actually came from and why it didn’t have to be this way.
Goldy:
So Nick, in your recent TED Talk, you used the word neoliberalism a lot.
Nick Hanauer:
Yes.
Goldy:
And this was a point of contention. We kept removing that word from the speech.
Nick Hanauer:
We argued about it a lot.
Goldy:
And you kept putting that word back in.
Nick Hanauer:
Right.
Goldy:
Why was it so important to you?
Nick Hanauer:
Well, we have to find a way to describe what we’re pushing off against if you can’t fight something unless you can name it. And neoliberalism, as imperfect a word as it is, is the best thing we’ve been able to come up with to describe where economic policy and political economy went wrong over the last 40 or 50 years. And so there’s definitely, among insiders, a big argument over whether we should be using the word liberal or market fundamentalist or neoclassical, we go back and forth, but we landed on neoliberalism and I think for a lot of reasons it makes good sense.
Goldy:
So really throughout this podcast, this has been the elephant in the room. That neoliberal elephant has been there lurking behind us the whole time.
Nick Hanauer:
Right. We’ve used the word and referred to this meaning system a million times.
Goldy:
And we’ve gotten some criticism for it because some people say it’s meaningless, usually the neoliberals. It’s often tossed as an epithet against Democrats by more left-leaning Democrats. It’s a way to kind of discredit-
Nick Hanauer:
I’ve been known to do that.
Goldy:
… try to discredit. But it actually has meaning and it’s important because, and this gets to a core point of our theory of change, which is we believe that the most effective narrative is a counter narrative. And what we’ve been building in this office and what we’ve been trying to explain throughout the series of this podcast is a new narrative, a counter narrative, which we are constructing consciously and intentionally in opposition to this neoliberal narrative.
Nick Hanauer:
Which was consciously and intentionally created. And in this episode, we’re going to talk to two really interesting people, George Monbiot, about what neoliberalism is.
Goldy:
And where it came from.
Nick Hanauer:
And where it came from. And also Binya Appelbaum, whose new book, The Economist Hour, details a lot of the intentionality of it and the history of that, but also the impacts, the real world impacts on tax policy, on wage policy, on a variety of other things. And the pair of those interviews, I think, paint a really good picture of the history of neoliberalism and what it is and where it came from.
Goldy:
Right. And how it helped create the world we have today.
Nick Hanauer:
Exactly. I’m super excited today to talk to my new friend, George Monbiot, who I got to meet in Europe last summer at the TED Conference where he gave a speech on neoliberalism. I’ve always been an admirer of his because his writing is so sharp and interesting, but when you get to know the guy, you’re really blown away. I mean, he’s just a remarkable character with an amazing history and has done some crazy shit in his life. He snuck into Erianjai as a young man to report on the atrocities there and almost got killed. He’s been beaten up, thrown in jail. I mean, he is a warrior and has written a ton of really interesting books about political economy issues, about environment and so on and so forth. In his newest book, Out of the Wreckage, A New Politics For an Age of Crisis, is really pointed very sharply at this issue of neoliberalism.
But when he’s not writing books, of course, he’s a very important reporter and commentator for The Guardian in marry Old England.
George Monbiot:
I’m George Monbiot. I’m a journalist and campaigner, professional troublemaker also I’m told. I write about a wide range of subjects, particularly environmental, political, economic subjects, really all the stuff which I find fascinating and I think it’s important. I write a few books. The latest one is called Out of the Wreckage, which as the name suggests, tries to navigate a way out of the multiple messes and chaos that we currently find ourselves in.
Goldy:
So I actually came across your writing helping Nick with a book he’s working on and we had a chapter on narrative, and a piece of yours, you had the best definition of neoliberalism that we’d come across, this idea of reducing everything to competition. If you could go in, I guess starting point, tell us from your perspective what neoliberalism is, and then we want to get into where it came from.
George Monbiot:
It’s an extraordinary thing. The cleverest trick the devil ever plays is pretending he doesn’t exist, and this is what neoliberalism has done to great effect over many years. When the doctrine was first hatched, particularly in the 1930s and ’40s and ’50s, people were quite happy to call themselves neoliberals, but gradually that name disappeared and they almost pretend that there is no such thing. And yet it has become the dominant doctrine that governs our lives.
And we call it other things. We call it Reaganomics or we call it Thatcherism, depending which country we live in. We just think that it’s sort of spontaneously emerged, but it’s not. It’s a very deliberate and well-crafted ideology that’s been worked on by many people over a long period. Started with the work of people like Friedrich Hayek and Ludwig Von Mises. And pointedly, it’s a doctrine which says that competition is the defining feature of human life and that we are fundamentally selfish and greedy, that these are good things because our selfishness and greed can be harnessed to make us all richer, that society should really be governed by buying and selling and our interactions should more or less be reduced to commercial interactions.
And by that means we can, it claims, make the best decisions, because what buying and selling does is to create a hierarchy of human worth. We can determine who are the best and most worthy people. And there’s a very easy way of determining that because they are the richest people. And the people at the bottom of the heat, the poor, well, they are inherently undeserving. How do you know? Because they are poor, because they have failed in the great human competition. And anything that tries to interfere with the discovery of that natural order through buying and selling, such as government intervention, regulation, taxation, trade unions, that must be stamped out to allow the whole of society to become a kind of market.
That’s the theory, that’s how it’s supposed to work, and apparently that is supposed to deliver us from bureaucracy, from red tape, from chaos, and create a kind of utopia in which the invisible hand of the market ensures that we live in the best of all possible worlds. The reality is that it doesn’t quite work out like that.
Goldy:
And to be clear, this is not a narrative that emerged organically. It was intentionally designed as a counter narrative to what they feared was this scourge of socialism, either the kind in Stalinist Russia or the democratic socialism that we were seeing in Europe.
George Monbiot:
Yes, that’s correct. I mean, when Friedrich Hayek wrote his book, The Road to Serfdom in 1944, he basically considered any attempt to intervene in markets or to create welfare systems, social security systems was a slippery slope towards totalitarianism, and that even such apparently mild interventions as the U.S. New Deal or the beginnings of a social democratic welfare state in the UK would inevitably lead to Stalinism or Nazism or other forms of totalitarianism. And this sort of slightly extreme and crazy belief, which was really very marginal to begin with, attracted a lot of extremely rich people because they thought, well, a world in which there’s hardly any tax, hardly any regulation, no trade unions, that’s a great world for millionaires.
Nick Hanauer:
Yeah.
George Monbiot:
That’s a great world for corporations, because we can be free. So they started talking about freedom, but they were very careful not to specify freedom for whom.
Now, there are many kinds of freedom which we can exercise without intruding on anyone else’s freedom, freedom of speech being a classic example. If I speak freely, it doesn’t stop you from speaking freely. Well, at least if I ever shut up, it doesn’t. But there are other freedoms which intrude on other people’s freedoms. So for instance, if I say I want to be free from labor regulations, I don’t want my workers to impose on me with their demands for holidays, for sick pay, for weekends, for contracts, for pensions, then that freedom which I’ve acquired is actually a massive cost and an imposition upon my workers who then find themselves without economic freedom, without security, without a lot of the good things in life. Their freedoms have been restricted.
If I’m free to pollute the river or to pollute the atmosphere, other people are not free from the impacts of that pollution. In fact, that pollution can be a terrible imposition on the lives of other people. If you pour your toxins into the groundwater, we are not free from poisoned water. So your freedom detracts from our freedom, and it’s a zero sum game in cases like that. But they were very careful not to say whose freedoms they were talking about. They were just saying, freedom as if it makes us all free.
And so with the support of some of the world’s richest people, Hayek and Von Mises and many others started to get together to form what has been described as a sort of neoliberal international. The Mont Pelerin Society in 1947 was where it began, but it quickly proliferated into a massive network of think tanks, of academic departments, of journalists, all sponsored by these immensely rich people to promote these rather wacky ideas and to bring them slowly towards the mainstream. And not only were they promoting them, they were refining them and finding new ways to tell the story so that it became more acceptable to people, it sounded more like common sense and less like something completely crazy.
And gradually this completely wacky idea becomes more and more accepted within mainstream media, within mainstream society until people say, “Oh, well, yes, maybe that’s sensible.” And then when Keynesian social democracy starts to run into big trouble in the 1970s, the neoliberals were able to come forward with this massive network they’d created, this sort of international network and say, “We’ve got the answer. We’ve got this whole new story which you can adopt.” And people like Margaret Thatcher and Ronald Reagan immediately pounced on this and said, “Yes, this is the answer.”
And by then, it wasn’t called neoliberalism. It wasn’t really called anything. It was as if it were a description of a natural process like Darwinian evolution. This is just how society works and that explains its great power. They make it sound as if it’s not a doctrine at all, as if it’s not an ideology at all, as if it’s a description of society.
Goldy:
Yeah. It’s Econ 101. That’s what they tell us here.
Nick Hanauer:
Our friend Yuval Harari has I think quite rightly pointed out that the iron law of history is that these meaning systems, these narratives, what he calls these intersubjective realities are always anchored by one of two claims, either God says or it’s a law of nature.
George Monbiot:
Yes.
Nick Hanauer:
And neoliberalism and neoclassical economics adopt the latter. They basically assert that these are immutable natural laws, that this is just the way it is.
George Monbiot:
And it’s highly misleading. I mean, they take a basically Hobbesian view of humanity, which is that we are fundamentally selfish and greedy. But what we’ve had in recent years has been a vast amount of science investigating just those questions. What are our fundamental values? What are our dominant values? And it’s been in neuroscience, in social psychology, in anthropology, in evolutionary biology.
And remarkably, all those different disciplines have come to very similar conclusions that while the majority of people do have some selfishness and greed in us, those are not, for most of us, our dominant values. Our more dominant values, our community feeling, our empathy, altruism, kindness towards others, kindness towards our family, kindness towards our neighbors, kindness towards people in general. And actually, we think very poorly of people whose values are primarily selfishness and greed. But there are outliers. There are some people whose values are dominated by selfishness and greed, and unfortunately, a lot of them are in charge, broadly speaking.
Nick Hanauer:
Yeah.
George Monbiot:
Broadly speaking, we are a society of altruists governed by psychopaths.
Goldy:
Yeah. Sociopaths make up about 3% of the general population. About what percent of corporate boardrooms Nick?
Nick Hanauer:
I think it was like 25%, wasn’t it? It’s just so depressing. George, let’s turn to narrative. You have this amazing new TED Talk out where I think you do this wonderful job of characterizing the existing narrative and suggest a new one. And maybe for our listeners, can you do that?
Goldy:
Well, I guess start with the importance of narrative.
Nick Hanauer:
Yeah.
George Monbiot:
The first thing to say is that we are fundamentally creatures of narrative. When we try to interpret the world, we don’t do so as scientists. We like to think of ourselves as having these rational, empirical minds and we analyze the data and use it to try to work out what’s happening, but you can’t actually live like that. I’m speaking as someone who tries to be an empiricist. I’ve got a science degree, I love science. I love facts and figures, but I recognize that I don’t live by them, nor does anyone else, because if we tried to do so, the complexity of the world would simply overwhelm us.
So instead, we use shortcuts and those shortcuts are what we call stories. We tell ourselves stories and we listen out for other people telling stories, which tell us where we are, how we got here, where we might be going, which give us a sort of rough approximation of what’s going on in the world, because otherwise it’s just like these massive data streams coming at us every moment of the day and our brains cannot process the amount that’s coming at us.
We have a sort of predisposition to listen for stories, but not just any story. There are a number of basic plots that appeal to our minds with particular force. And remarkably there is one that has worked again and again in politics and religion, to the extent that I think you can quite comfortably say that a political or religious transformation is unlikely to happen unless it can tell a new and gripping story with this narrative structure, with this basic plot line. And the plot line is what I call the restoration story and it goes like this. Disorder afflicts the land caused by powerful and nefarious forces working against the interests of humanity, but the hero or heroes confronts those powerful and nefarious forces, against the odds overthrows them and restores harmony to the land. That’s a basic structure of the restoration story.
And we all know these stories. If you read the Bible, if you’ve read Harry Potter, if you’ve read the Lord of the Rings, Narnia, again and again, that plot line comes up. It’s a very powerful and very common plot line. But it’s also the plot line of just about every successful political or religious transformation there has been across millennia and it’s a plot line which was used extremely effectively by the neoliberals. And that was a big key, I believe, to their success in dominating so much of the world’s thought and action.
The story the neoliberals told, it went like this, “Disorder reflects the land caused by the powerful and nefarious forces of the overwhelming state, which by intruding into our lives and taxing and regulating crushes individualism and opportunity and therefore diminishing the scope of our lives. But the hero of the story, the freedom seeking entrepreneur, confronts those powerful and nefarious forces and against the odds by creating markets where none existed before, rolls back the state, overthrows those forces and restores harmony to the land in the form of the universal free market. We’re creating opportunity and freedom where there was none before.”
That’s the story. And it’s very effectively told in many different forms, in long form, in short form, in books, in pamphlets, in videos, in political speeches, again and again and again, it’s that narrative which comes up. So when people were listening for a new story after the Keynesian narrative began falling apart, after the [inaudible 00:22:30], as the French call it, from 1945 to 1975, when everything seemed to be going right, there was high rates of economic growth and everyone had a job, and there was lots of investment in public services and this sense of no one being left behind. And then after 30 years of that, it all started to fall apart a bit, things went badly wrong. Inflation and capital leakage and many other issues afflicting that Keynesian model, people started listening out for another story.
And the neoliberals had spent that 30 years working up their story until it was ready to be told very simply, very powerfully. They knew exactly what they were doing and they almost created a sort of algorithm for political transformation. Because they had those vast resources, they had so many people working on it who were paid to work on it through the think tanks, through the academic departments, within the neoliberal newspapers, they refined it and refined it until they knew that they were going to succeed.
Then neoliberalism hit the buffers big time in 2008, where it basically just collapsed intellectually. It was exposed as intellectually bankrupt, as socially bankrupt, environmentally bankrupt, and above all plain bankrupt. And you would have thought, right, this is the moment at which a new narrative takes over. So we all said, “Right, we need something completely new and it is, oh dear, we don’t have a new story.” And so we face this extraordinary situation where it’s now 11 years since the collapse of Lehman Brothers and we’re still stuck with that failed catastrophic ideology and we’re stuck with it because we haven’t replaced it with a new story.
Nick Hanauer:
Yeah. And the best alternatives are either a kinder and gentler form of neoliberalism or trying to go back to Marxism or-
George Monbiot:
Or Keynesian.
Nick Hanauer:
Right, exactly.
George Monbiot:
And one of the rules of politics is, unless you’re a fascist, you can’t go back. For some reason, the fascists can keep reinventing fascism. [inaudible 00:24:56]. But you can’t excite and galvanize people unless you’ve got a new story to tell.
Goldy:
Well, we got half the story. They’ve identified the villains. I mean, I think that’s why Occupy Wall Street captured the imagination. It’s where Bernie Sanders has gotten a lot of his support, to some extent, even Trump when he ran. You’re identifying the villains, they just don’t have the second part of the story, which is how we’re going-
George Monbiot:
There’s another party of the story, you are right. But of course, it is meant to be a restoration story. It is meant to put things right. It is meant to bring restore harmony to the land, but in a new way, in a way which hasn’t been done before.
And in fact, I think we’ve got more than half. We’ve got other little fragments of that story. There’s been so much fascinating new work on economics, mostly critique, but also some good new ideas, really interesting stuff on social transformation, on rebuilding community, some really great deep thinking about how we frame the way we live, the metaphors we live by, amazing work, above all, I think by Jeremy Lent in his book, The Patterning Instinct. So we’ve got sort of fragments of the story. We’re sort of part of the way there.
Nick Hanauer:
Yeah. I mean, I think the heart of the new story, and George, I think you rightly identify this is, a re-imagination around the fundamental nature of human behavior. But the new story has to start with an acknowledgement that the defining feature of human beings and human society is cooperation, not selfishness.
George Monbiot:
Yeah, that’s right.
Nick Hanauer:
Well, George, thank you so much.
Goldy:
We have our final question. We always have to ask this. Okay, we ask this of all our guests. Why do you do what you do?
George Monbiot:
That’s a very good question. I couldn’t live any other way. A few years ago, I wrote down what I felt were the activities that made life meaningful and purposeful and they were to love and be loved. That of course is fundamental to a good life. They were to learn and to teach, to create, and to try to do good. And you can do all that for entirely selfish reasons. Now, I don’t know which of my reasons are selfish and which might be altruistic, but all of those things make me feel like I’ve got a fulfilling life. So it’s a sort of selfish, hedonic reason for that.
But it feels fulfilling because it happens to align with what I think is sort of a map for creating a better world. If I were to stop doing what I do, I would be miserable because I would feel that my life had lost much of its meaning and much of its purpose and much of its delight. And actually doing all those things fills my life with meaning every day, because I have to basically roll in the shit of humanity. I mean, that’s my job. I write a column for the guardian about all the terrible things that we’re doing and what we might do about it. My life could be really miserable. I have to confront a lot of things that other people can turn their faces away from.
But actually, my life is quite wonderful. It’s fulfilling and rich and delightful because I’m engaged every day in these questions.
Nick Hanauer:
That’s a fantastic answer. We’re going to give you an A for that answer.
Goldy:
Yeah. Thank you for being so engaged.
Nick Hanauer:
Yeah. George, it was wonderful to catch up with you. Thank you again. Take good care and we’ll talk soon.
George Monbiot:
Thanks, Nick. Thanks, Goldy. Real pleasure to talk to both of you. Really brilliant.
Nick Hanauer:
Thank you. Bye-bye.
George Monbiot:
Bye-bye then.
Nick Hanauer:
So Goldy, what have we learned from our friend, George Monbiot?
Goldy:
It was all a plot, Nick.
Nick Hanauer:
It was all a plot.
Goldy:
It was. It was really all a plot. I mean, it was a bunch of rich men and economists in a room together, basically devising a strategy and a narrative for changing the world in a way that served rich men and economists.
Nick Hanauer:
Yes, correct. That’s true. It is so true. In my more generous moments, I like to remind myself that this was happening at a time when there were legitimate outside threats to an open society.
Goldy:
Right. You have to understand this as being formulated in the years immediately following World War II, where we had this confrontation with totalitarianism in Germany and we’re in the midst of the Stalinist era, in the middle of a Cold War.
Nick Hanauer:
And Mao’s China, and so they were reacting to that. But they did end up sort of building a meaning system, an ideology that benefited the few and-
Goldy:
And was funded by billionaires and-
Nick Hanauer:
They didn’t have billions back then.
Goldy:
The equivalent of billionaires. Right. And conveniently served the interest of billionaires. Because a lot of what they were looking for practically on the ground in the United States was to overturn the New Deal, was to reduce taxes, reduce regulation and reduce the social safety net, which was paid for by taxes.
Nick Hanauer:
Yes, on them.
Goldy:
Right.
Nick Hanauer:
And in our next conversation, we get to talk to this amazing author and journalist Binya Appelbaum, about his new book, The Economist’s Hour. And this is a really interesting book because it highlights not just neoliberalism-
Goldy:
He doesn’t actually use the word in the book.
Nick Hanauer:
He does not. But what he shows, I think really, really clearly and persuasively is the rising role of economists in public life.
Goldy:
Right.
Nick Hanauer:
That one of the really insidious things that neoliberalism represents is this idea that these are just the facts, that this is not a deliberately created ideology. This is science. This is a description of the way the world is, not an effort to remake it in a particular way. And if you can persuade people that it’s just a description of reality, that is a very powerful way of getting people to comply with the circumstances that you create for them. And it’ll be really interesting to tie Binya’s thinking and work back to George’s.
Binyamin is also the lead writer on business and economics for the editorial board of the New York Times.
Binyamin Appelbaum:
My name is Binya Appelbaum. I’m a member of the New York Times editorial board. I’m the lead writer on business and economic issues. And I’m the author of a new book called The Economist’s Hour.
Goldy:
It’s a pleasure to talk to an editorial board member I’m not angry at. We’re not as fortunate in Seattle as folks are in New York.
Nick Hanauer:
So Binya, why don’t you start off by telling us a little bit about how you chose to write the book, The Economist’s Hour? What was the ideas that came together to persuade you to do that?
Binyamin Appelbaum:
Yeah. So the book is the story of a revolution that begins in the late 1960s and the early 1970s when economists begin to play a much larger role in shaping public policy, and fundamentally reshaping public policy and as a consequence really changing all of our lives. And I hadn’t known too much about that story. I cover economic policy in the here and now, and I became interested in the history of how we came to be here. And I found it to be a fascinating story and I wanted to share it with people.
Nick Hanauer:
Yeah. Well, it is a fascinating and incredibly consequential story. And so to the best of your abilities for our listeners, can you just sort of describe the arc of the argument in your book?
Binyamin Appelbaum:
So basically the idea is that beginning in the late 1960s and the early 1970s, economists begin to reshape public policy, specifically by arguing that the government’s hands-on approach to managing the economy is misguided and that it will be better for the economy and better for everyone if the government steps back and basically allows market forces to play a larger role.
So an example of this, which may be helpful, really the first place that public policy has transformed is that economists convince President Nixon that instead of drafting young men to fill out the ranks of the army, the federal government should instead pay young men. It should offer a wage that is sufficient to convince people to enter the armed forces and in that way, decide who goes into battle.
And that same idea then informs changes in regulation, changes in tax policy, changes in trade policy. Really across the board, the way that the government manages the economy shifts fundamentally.
Nick Hanauer:
Can you elaborate a little bit more on the dimensions of the changes in policy? Like what changed over that 40 years?
Binyamin Appelbaum:
So it really is kind of incredible how much changes. So if you go back to the mid 1960s and think about how the government operated at that time, there was a group of bureaucrats in Washington who literally decided where airlines could fly, how much they could charge, what kinds of sandwiches could be served during the flight. There was a different board. If a truck carried undeveloped film across a state line, they needed a license from a board in Washington. If it carried that same role of film after it was exposed, so back across that state line, it needed a totally different license from a board in Washington.
The government tightly controlled the financial industry. The government regulated the exchange value of the dollar. So today exchange rates are set by currency traders in an open marketplace. Back then, they were governed by an international set of agreements called the Bretton Woods system. Tax rates were much higher at that time. The government took more than half of the annual income of the wealthiest Americans, was paid to the government in the form of various taxes. And so throughout American life, the government just played a much larger and more hands-on role in managing the economic affairs of the country.
And over this period, this 40 year period that I call the economist hour, that all changes. The government fairly systematically pulls back from that role. So it allows the dollar to float and for markets to determine the exchange value of the dollar. Tax rates are sharply reduced. Economic regulation substantially comes to an end. We still have health and safety regulation, but this idea that the government is setting prices in the marketplace really goes out of favor. The government stops enforcing antitrust laws and so it allows corporations to grow big and strong. It stops trying to raise the minimum wage, so it allows the marketplace to decide how much workers will be earning.
And so across all of these areas, basically the same pattern takes hold, which is that the government is pulling back and saying, “We’re going to let market forces sort this stuff out. ” And Americans are to a greater extent thrown on the mercy of the marketplace, and that determines how they fare.
Goldy:
And it’s no coincidence that this is the same 40 years that we’ve seen this dramatic rise in inequality?
Binyamin Appelbaum:
Yeah, indeed. So one of the main arguments I make in my book is that economists really came in and said to the government, “You shouldn’t worry about inequality. You shouldn’t worry about it in the first place because trying to prevent inequality is bad for economic growth.” They argued that if you tried to level the playing field, if you tried to redistribute the rewards, the economy would grow more slowly as a consequence and government should instead focus on making the economy grow as quickly as possible and everyone would benefit. And secondly, they argued that inequality wasn’t that big a deal. As long as you were eradicating poverty in absolute terms, as long as everyone’s boat was rising, you shouldn’t worry about how much more some people were making than others.
And the government indeed stopped worrying about that. And the result was that inequality absolutely exploded. There were other factors driving the trend, but I think one really important factor was the indifference of public policy to the rise of inequality.
Nick Hanauer:
If I can just tease out a couple of, I think, important strands of your argument. It was not just that economists suggested that the government should reseed and the market should replace it as sort of the institutional cornerstone of the economy and the society. The bigger part of the argument was, and if we do that, all citizens will be better off, right? That was the basic argument. Obviously, it’s easy to make that argument from the point of view of a business plutocrat, but that wasn’t the argument. They weren’t saying make the rich richer for the richest sake. They basically argued-
Goldy:
A rising tide lifts all boats.
Nick Hanauer:
That’s right. If the rich got richer, everyone would benefit.
Binyamin Appelbaum:
Yeah, that’s right. They argued that the best way to do that, right, was just to focus on maximizing growth and that would be best for everyone. Absolutely.
Goldy:
Was there ever any empirical evidence to support the rising tide argument?
Binyamin Appelbaum:
So it’s really interesting, economics was a much more theoretical enterprise in the mid-century. They had some data, but nothing like the data that economists have to work with today. And so when the Great Depression happens in the United States, the Senate looks around and says, “Well, how big is the economy?” And it turns out that no one knows. At that point in time, no one is measuring the size of the economy. And so the federal government actually commissions an economist, a guy named Simon Kuznets, to measure the American economy for the first time. And he comes back two years later and says, “Well, it used to be a lot bigger, and here’s how large it is now.” And that’s the beginning of what we call GDP, the formal measurement of the size of the economy.
So data on the macro economy was very new. There wasn’t that much of it. And there were people, including Kuznets himself, quite famously, who thought that they could see patterns in the data. And Kuznets specifically argued that what you saw is that as societies reached economic maturity, the level of inequality tended to decline. His basis for saying that was just that inequality was declining in America in the mid-century, but he sort of drew a grand theory out of a very specific set of facts. And then as time moved on, and it turned out that that wasn’t actually any kind of natural law or rule or pattern, he was proved wrong.
But yeah, these theories, to the extent that they had evidence at their foundations, it tended not to be a lot of evidence. And one of the things that’s now fundamentally transforming economics is the availability of more data.
Goldy:
Right. So the difference is back then, economics was theoretical and had very little evidence. Today, it’s theoretical and they ignore all the evidence. I guess my question for you about these economists is, were they self-aware of the power they had?
Binyamin Appelbaum:
So the main character, probably the most important character in my book is Milton Friedman, who I think had a greater influence on American life than any other economist, certainly in the 20th century. He’s the guy who sort of most powerfully and successfully argues for a lot of these turns toward free market policy. And Friedman was famous for insisting that his economic work was apolitical, and indeed that you couldn’t tell the politics of an economist by looking at their work. And it amuses me that his wife, who also was a trained economist, always insisted that this was nonsense, and that she could absolutely predict the politics of an economist just by knowing what kind of work they did. And this is at best a blindspot of Friedman’s, because obviously you really can predict the politics of an economist by looking at the work that they do.
And I do think that Friedman, it’s hard to know whether he understood that he was misleading people or whether he genuinely believed what he was saying, but there was this insistence among Friedman and among many of his allies that they had found the truth and that the truth happened to lead them in this direction and it was consistent with their politics. It wasn’t that wonderful and it was nonsense.
And so you had guys like Friedman’s best friend was a Chicago economist named George Stigler, who spent years insisting that regulation didn’t work, and then went out and did a series of studies in which he purported to prove that regulation didn’t work. He looked at electric regulation and found that it didn’t hold down prices. He looked at the SEC and found they weren’t preventing fraud. And then sort of looked surprised and said, “Wow, isn’t this amazing that I’ve found evidence for my beliefs?” Well, it turned out his math was wrong, for one thing, but for another, these papers were obviously in the service of his beliefs. And that’s true of a lot of economic work.
Nick Hanauer:
Yeah. And anecdotally, a bunch of economists at Oxford in an effort to memorialize Milton Friedman’s work for a project, went back and looked at his math recently and discovered that he had fudged it.
Goldy:
This was on his monetary?
Nick Hanauer:
That’s right. Yeah, that some of his most impactful findings were based on statistical approaches that he had derided and disproved in other places, that he had essentially fudged the math to make the arguments work. It’s absolutely fascinating.
But I do think it’s really important to underscore how profoundly effective and important this bit of intellectual jiu-jitsu was, this way of persuading people that economics is a science like physics and that a proposition like the principle of marginal utility is somehow this immutable description of the objective world and you are absolutely paid what you’re worth and that’s that. And when you peel back the layers of the onion, as we have on the podcast before and discover that this is just a ruse to keep people docile, it is sort of shocking. But it has been monstrously effective as essentially an intellectual protection racket to make the rich richer over the last 40 years.
Binyamin Appelbaum:
And it’s important to understand why it’s been so successful. A great example of this, I think, is in the antitrust space, the economists advanced this argument that the government should focus solely on the issue of whether a given corporate activity was causing prices to go up or down. And if you couldn’t prove that consumer prices were rising, then you shouldn’t get in the way. You should just assume that everything was okay. And so they threw out older concerns with the political power of business, with the loss of small businesses, with the impact on workers who had fewer choices of employers, and they just said, “This is all about consumer prices.”
And when they brought this reasoning into the courts, judges found it tremendously appealing. And there’s this amazing quote from Stephen Breyer, who at the time was a district court judge and later became a Supreme Court judge, where he said basically that what he liked about it was that it provided certainty. It provided a clear means of judging cases. And so you basically had the substitution of, reality is uncertain and complex and here was this alternative that gave clear answers and that just proved irresistible.
Nick Hanauer:
Absolutely. And another thing, it’s not just that it makes it simpler, it also makes it psychologically and emotionally easier to decide, because if-
Goldy:
Well, it absolves the courts of making these very difficult decisions.
Nick Hanauer:
Balancing competing interests, right? But if there’s just an objective fact, which is the less you do, the better off everyone will be, well then it’s quite clear and easy and everybody can just go home and feel good about themselves. And that has been very, very corrosive.
Binyamin Appelbaum:
Yeah, I absolutely agree.
Goldy:
Yeah, so you wrote a detailed economic history here. I’m wondering if you’ve considered an alternative history, what our current economy might look like had Milton Friedman and his theories not become ascendant? What would this world look like today if we’ve continued more in the Keynesian realm?
Binyamin Appelbaum:
So I think that that obviously is always a difficult question to answer, but I’d say a couple of things about it. The first is that I think it is important to understand that there were real problems with the prevailing approach to economic policy by the late 1960s and the early 1970s. The Keynesians, for example, had placed a lot of faith in their ability to control inflation by raising taxes when the economy overheated. And when President Johnson’s economic advisors actually walked into the Oval Office and told him it was time to raise taxes in the late 1960s, they discovered that the politics of that system were going to not work as well as they had hoped.
Nick Hanauer:
Yeah, he was like, “No, thank you.”
Binyamin Appelbaum:
Yeah, exactly. Exactly. And similarly, airline deregulation brought some real benefits with it. I think people are flying a lot more often, it’s cheaper.
So I always tell the story, there’s a woman who worked, Jimmy Carter’s commerce secretary was a woman named Juanita Kreps, and she was also a professor of economics at Duke University. And she resigned from the administration in the late 1970s because she’d become really frustrated with their inability to confront the nation’s economic problems. And she also resigned as a professor at Duke University because she said she no longer knew what to teach her students. And she was a Keynesian, and like other Keynesians, she had reached a point of sort of, she was at a loss. There was this real frustration with the way things were.
And so I don’t think that should get lost. There’s a nostalgia for that era that, I don’t think it can be as simple as just going back to the things we were doing back then. There were problems and they needed to be fixed.
But with that said, I think that the rise of inequality has happened in large parts simply because we weren’t trying to prevent it. The absence from public policy of a discussion of the distribution of economic gains, of making sure that people have the opportunity to prosper in this country, that we’re taking seriously these issues, has had enormous consequences. And it’s easy to imagine an alternate history in which those issues have remained at the forefront of public policy, and we were in a different place today.
And you don’t even need to imagine. You can actually just look at other countries that are struggling with the same issues of globalization and mechanization that are confronting the U.S., but still have done better on these metrics. And the one that I always find striking is France, because every American knows that our economy grows faster than France, and we find it very validating that that’s true. It’s the victory of our economic system. But if you exclude the top 1% of people in each country and just look at income growth for the 99%, income growth has been much faster in France for the 99%. They have less growth overall, but they’re doing a much better job of distributing it.
Nick Hanauer:
I do believe that markets and capitalism is the greatest social technology ever invented for creating prosperity in human societies, but it comes in as many flavors as pie and dirt pie tastes terrible and cherry pie tastes great. And you can have a market economy that is structured to reasonably distribute the value created within it, and that won’t be bad for that market economy. It actually will be good for it.
The real pernicious part of neoliberalism was persuading people that anything that moderated the accumulation of capital by the few or the concentration of power at the top harmed the system overall. And that turned out to be the opposite of true, that in fact, raising the minimum wage isn’t bad for capitalism, it’s good for it. Reasonable regulation of industries doesn’t preclude competition, it increases it in constructive ways. That raising taxes on rich people doesn’t kill economic growth, it actually creates economic growth by providing the capital necessary to make the investments that make real economies actually thrive.
I don’t think we should be less committed to markets, but we should be unambiguously committed to constraining them in ways that benefit the broad majority of citizens and enable and provide the enfranchisement that creates the social cohesion that democracy depends on.
Binyamin Appelbaum:
The only bone I pick with that is I just think sometimes the language we use when we’re talking about this set of very important ideas tends to suggest like government is intervening in markets and it’s an outside force that’s coming into the market to constrain. Governments create markets. Markets don’t exist without government. They don’t exist without human rules. That got lost track of in the mid-century. People started to talk about markets as if they were these organic entities and government was some foreign substance that was intruding on their operations for the worst.
And we’ve got to get that premise out of our dialogue. It needs to be understood. It’s so important that people understand that markets are created by people and governed by rules created by people and those rules are really important. And what we need to be talking about is how to write better rules so that our markets produce the kind of results that you’re talking about.
Goldy:
It’s okay for us to focus on outcomes rather than output.
Binyamin Appelbaum:
Absolutely.
Goldy:
Yeah. So what should we do now?
Binyamin Appelbaum:
I mean, I don’t want to sound too simple, but I really do think on some very basic level, the problem is that we were not attempting to treat inequality as a first order concern of public policy and the solution or a big part of the solution is to start treating inequality, the reduction of inequality as a primary goal of public policy. It ought to be the case that in evaluating our economic policies, we are actively seeking policies that are going to reduce inequality.
Goldy:
I’m wondering what the reaction has been to the book. Have you gotten a lot of pushback?
Nick Hanauer:
Yeah, a lot of Love letters from economists?
Binyamin Appelbaum:
There definitely are economists who are upset about it, for a couple of big reasons. One argument I’ve heard frequently, and that I don’t really take all that seriously is the sort of protest that economists weren’t actually that influential and that I’m blaming the weatherman for the weather. If policymakers had only listened more carefully to their advice, things would have worked out better. Listen-
Goldy:
Wrong.
Binyamin Appelbaum:
… if anybody doesn’t believe me that economists were influential, they should read the book, which is 300 pages long and had 100 pages of footnotes and I think documents that pretty clearly.
The place where I take the criticism more seriously is economics is a really diverse profession. Carl Marx was an economist, Milton Friedman was an economist. Any group that includes both of those people, you’re going to struggle to define it ideologically. And it is true that there were economists who never subscribed to these views, who were criticizing and opposing them from the outset. There were always heterodox thinkers on the fringes of the mainstream. And it is true that many economists had legitimate beefs to various aspects of public policy over the last half century.
So there certainly are economists whose critique is basically like, “Not all economists. That wasn’t me. I didn’t believe that.” Okay. The mainstream of economics in the United States substantially did. That’s the thrust of this book and I stand by that part.
And then the final critique I just mentioned quickly is they’re economists who insist that they always did care about inequality. It’s just that their approach to inequality was to just pursue maximum growth. Well, fine, that’s fine. We’ve run a half century of that experiment. It didn’t work, so we need to do something else.
Nick Hanauer:
This is why your book is so important, why these issues are so important, is that the country has been captured by the set of ideas that have massively constrained what it felt common sense to do. And as those ideas change, the consensus around policy and politics is going to change radically with it, I think for the better.
Binyamin Appelbaum:
Yeah. The New York Times editorial page, my employer, editorialized in the mid 1980s that we should get rid of minimum wage laws because, and this is what it said, economists agreed that it was bad. And that was indeed the consensus and it’s remarkable to watch that changing and to see people grappling with real evidence and real data and arriving at different conclusions.
Goldy:
Yeah. So I guess our final question for you is, why do you do this work?
Binyamin Appelbaum:
I just think that economics plays a really important role in our lives. Economic policy really shapes our lives and people don’t understand it. They don’t understand how it works. They don’t understand how important it is. And I just think of my job as being to try and illuminate that for people, to try and help them understand how these decisions are made and by whom, because that is what we need to be doing, is to shift some of this power from technocrats back into the political process to empower voters to participate in these decisions, to understand these decisions. That’s how we get better outcomes.
Goldy:
Yeah. You make an argument, it seems, for democratizing the economy a bit.
Binyamin Appelbaum:
I would like to see that happen.
Goldy:
Will that save democracy?
Binyamin Appelbaum:
Oh, I don’t know. Those are big questions. But it can’t hurt, I’ll tell you that. I mean, the way I end my book is by saying, “Listen, we’re straining the system. Our use of markets, our dependence on markets is straining our ability to operate as a democracy.” I don’t know how long it holds, but I’m confident that if we can do a better job, it will reduce the strain and increase our chances.
Nick Hanauer:
I agree with that. Well, Binya, thank you so much for taking the time to talk to us.
Goldy:
And thanks for doing all the work to write that book.
Nick Hanauer:
Yeah. It’s a fantastic book and everyone should read it. Anyway, thanks a lot. It was great to meet you on the phone and we’ll talk soon.
Binyamin Appelbaum:
Great. Thank you.
Goldy:
I think one of the core takeaways from our conversation with Binya is the way economists over the past 40 years have told us, “Hey, don’t worry about inequality. It’s not a problem.”
Nick Hanauer:
Exactly. You don’t have to worry about inequality because the world is getting unequal, that’s creating incentives for everybody to work harder and it’ll make the economy grow faster and a rising tide will float all boats.
Goldy:
Right. A rising tide lifts all boats.
Nick Hanauer:
Lifts all boats. The fundamental tenet of neoliberalism, that inequality is fine and it doesn’t matter and you should just shut up about it turns out just to have been deeply, deeply wrong. And so this is not to say that we should all be equal, we shouldn’t be equal, but we should all feel like, or the majority of us should feel like we have an economic arrangement where people are reasonably rewarded for their contributions. And it simply cannot be true that a person who trades bonds on Wall Street should be worth a thousand times what a person who teaches algebra should, high school kids.
Goldy:
Or that you should make a thousand times more than me. Exactly. That’s just not fair.
Nick Hanauer:
It isn’t fair. But we are learning to live with it around here.
Goldy:
The other takeaway from this book is kind of the pushback that Binya got, which is from economists, kind of denying their power saying, “Oh, it’s like blaming the weatherman for the weather.” And I got two responses to that. First of all, unlike economics, meteorology is actually a science. And second of all, predicting the weather doesn’t change it.
Nick Hanauer:
It does not. This is a really, really important point that the weather is an objective system based on physics and the economy is a reflexive system based on beliefs. And so when you tell someone that raising wages kills jobs, you definitely affect their behavior and the outcomes of the system. And this is the fundamental difference and something that most professional economists that I have met struggle to either comprehend or admit. They simply don’t want to admit that when they do economics, they are shaping the economy, right? They want to believe that they are describing the economy. They’re not describing the economy. They are shaping it.
Goldy:
Right. And that gets, Paul Samuelson’s great quote about, “I don’t care who writes the laws as long as I get to write the economics textbooks.” He understood it.
Nick Hanauer:
Yes.
Goldy:
He understood the role of economists in shaping norms and law. And this all gets back to our conversation with George about narrative, because in the end, economics is a narrative which affects much more than just economic policy, and it shapes society itself. And that’s why it’s so important not just to understand the role of economists in all this, but also to tell a better, more compelling story.
Nick Hanauer:
Yep. And that’s what we’re trying to do on the podcast.
Freddy Doss:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to follow, rate, and review us wherever you get your podcasts. Find us on other platforms like Twitter, Facebook, Instagram, and Threads @pitchforkeconomics. Nick’s on Facebook as well, @NickHanauer.
For more content from us, you can subscribe to our weekly newsletter, The Pitch, over on Substack. And for links to everything we just mentioned, plus transcripts and more,
visit our website pitchforkeconomics.com. As always, from our team at Civic Ventures, thanks for listening. See you next week.