We Cannot Build An Economy On Lies

The magazine is not satisfied with false claims about what happens with free markets, electing to shill for the economic plans of the Biden administration, which make the irresponsible economic policies of Donald Trump look almost Misesian in comparison. Not surprisingly, Time gives its readers a rather crabbed (and false) history of what has happened in the last forty years regarding government and the economy. While I cannot repeat everything Chris Hughes has written on the recent history of “free market” economics, what I can say is that his account makes even Paul Krugman look honest. Here are a few vignettes:

A crisis in confidence in government triggered the last paradigm shift, making way for the rise of free market thinking. In the 1970s, the Vietnam War and Watergate challenged America’s faith in their leaders at the start of the decade. Meanwhile, the gains of the Civil Rights Movement and the introduction of affirmative action profoundly threatened the American racial order of the time, facilitating a narrative that government was putting its thumb on the scale for “undeserving” Black and poor folks.

Geopolitical tensions in the Middle East flared, causing oil prices to spike and creating long gas lines. Inflation was out of control, reaching as high as 20% on an annualized basis in 1978. Americans stopped spending, and inflation and unemployment kept rising. Presidents Gerald Ford and Jimmy Carter, Congress, the Federal Reserve all failed to develop any coherent program to help.

Far-right economists and policymakers were waiting in the wings with an explanation for the social and economic instability and a way out: government created our problems, and markets will solve them.

It gets even better:

Inside the academy, they aimed to demolish the intellectual paradigm that predated free market orthodoxy, the Keynesian consensus. Before the 1970s, most economists and lawyers believed that we needed robust government action—countercyclical fiscal spending, management of the currency, tactical protectionism—to create long-term prosperity. The free market apostles wanted to erase the role of the state.

Their ideas rapidly caught on more broadly, in large part because of a shift in the country’s racial politics. Their supposedly “values neutral” economic framework justified an end to race conscious policymaking.

Until the 1960s, numerous government policies were explicitly racist. Black Americans were unable to take advantage of the Homestead Act or the GI Bill, and they were effectively barred from purchasing homes, limiting their ability to build household wealth. But the 1960s saw a historic shift with government moving to support racial equality, through the Civil Rights Acts, Voting Rights Act, and integrated schools.

Free market orthodoxy made an intellectual case that government should stop pursuing policies that might disproportionately help Black Americans, like investments in public housing or affordable health care. Any state program—even those focused on reducing poverty, providing healthcare access, or banning discrimination in the workplace—was an “intervention” in the natural economy, no matter how virtuous the intent. Political leaders cast the logic in unthreatening language, arguing that hard working Americans, whatever their race, should simply work their way to the top. But limiting government’s role in public investment and regulation only entrenched and deepened the racial inequities in the American economy.

Reagan and George H.W. Bush used the same rhetoric of the free market to demolish programs that reined in private corporations and supported the middle class and poor. Their successors, Democrats and Republicans alike, continued to cut spending, pursue deregulation, and privatize swaths of the government.

The scenario Hughes has presented does not exactly square with what happened since the 1970s. First, and perhaps most important, the first meaningful steps toward reversing the inflation and economic instability of that time did not come from Milton Friedman, James Buchanan, or others who might fall into the “free market” category. Instead, they came from President Jimmy Carter, Cornell University economist Alfred Kahn, and Senator Edward Kennedy, names that are not exactly synonymous with free market economics. These men were the architects of massive deregulation that effectively repealed many New Deal–era regulatory measures of railroads, trucking, passenger airlines, and finance, and they also began steps to undo the regulatory measures shackling telecommunications. Furthermore, it was Jimmy Carter who appointed Paul Volcker, who at least brought some discipline to the Federal Reserve, certainly more discipline than what we saw from Republican appointments. (Yes, these facts do disturb the modern progressive narratives that Hughes presents, which is why they didn’t make it into the Time article.)

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