Thread by @oliverbeige

There is so much going on in @BCAppelbaum's book "The Economists' Hour" that I'm having a hard time writing a review which isn't as long as the book itself. So instead I use it to line up a few shorthands I've developed to help me sort through the some of questions the book asks.

@BCAppelbaum The first shorthand is "Gibreel's two questions" which underpin Salman Ruhdie's Satanic Verses:
1. What kind of an idea are you: one that compromises or one that changes the world?
2. What will you do after you win?

@BCAppelbaum Appelbaum's book can seen as a successor to Robert Heibroner's "Worldly Philosophers" for the post-War era: a narrative history of ideas and protagonists in the world of "high economics" — the (US-centric) arena where academia and global politics clash.

@BCAppelbaum So it shouldn't be seen as a history of post-War economics per se. Too many luminaries of the field (von Neumann, Arrow, Simon, Becker,...) don't make an appearance or are relegated to the footnotes.

@BCAppelbaum Heilbroner's story arc built on economic history as a history of brilliant but flawed individuals - even those who shaped the world could look only so far ahead and were eventually undone by their own success, and by a successor who recognized the flaws in their theory.

@BCAppelbaum Appelbaum's storytelling resembles Heilbroner's, but his tone is more ominous, and his field of protagonists is more crowded. Even the first part, which might be called "economics ascending", offers a sense of foreboding, already implicitly raising Gibreel's second question.

@BCAppelbaum The one name that stands out in the book is Milton Friedman's. Otherwise, the story leads us through an often bewildering lineup of sharp character sketches for the economists who contributed some of the pieces that make up the puzzle.

@BCAppelbaum This gives the book the feel of a modern counterpart of Heilbroner's chapter on the utopian socialists and its ensemble cast — the utopian capitalists so to speak — who carried forward the (in Rushdie's words) ramrod-backed notion that markets should not be fiddled with.

@BCAppelbaum In the first part, Friedman and his phalanx of mostly Chicago-based combatants take on a team of incumbents made up of politicians, lawyers, and Keynesian economists, to score point after point with hardly a reversal (monetarism being a notably exception).

@BCAppelbaum The first surprise to the reader might be that the critical juncture of market deregulation didn't coincide with the ascendancy of Thatcher and Reagan, but with the Carter administration.

@BCAppelbaum While the 1970s are still the era of Keynesian dominance running full-on into a Malthusian check, the inauguration of Ronald Reagan heralds the era of Friedman and Chicago — the Economists' Hour as Appelbaum calls it. The time to ask Gibreel's second question.

@BCAppelbaum The beauty of Gibreel's questions is that the skills needed for an idea to succeed with the first question, the ramrod-backed bloody-mindedness, are also the skills that lead to the idea's undoing in the second question. No longer an outsider idea, unwillingness to yield kills.

@BCAppelbaum Which brings me to my second shorthand: the drunk bicyclist's progress.

@BCAppelbaum Our hope that we possess the skills to reduce the complexity of human coexistence into a succinct formula is eternally frustrated, so that we never just move straightforward into a prosperous future, but veer from side to side like a bicyclist — violently so when drunk.

@BCAppelbaum As I pointed out before, the Western template of democratic capitalism depends on our collective ability to move forard by swaying from side to side with a modicum of soberness, and not to get drunk and ride into the ditch — be it the one on the left or the one on the right.

@BCAppelbaum Markets are remarkable mechanisms to create prosperity under certain conditions, one of them being that we are able to reign in externalities — the blessings and injuries our actions bestow on others. Another one being that we are able to reward contributions, and not endowments.

@BCAppelbaum The first part of the book might have driven the point home that markets are almost certainly better than the often cartoonish regulations of the post-War era, but the wider question becomes if it is ever wise to interfere in the inexorable mechanics of market allocations.

@BCAppelbaum Note that this hypothesis does not presume that markets are perfect, just less imperfect that the many attempts to interfere with the interplay of supply and demand.

@BCAppelbaum In the second part, which also moves beyond the Anglo-American battleground into countries in dire need of economic development, Appelbaum asks the question whether the bitter medicine of markets, administered in a shock therapy, proves ultimately healing.

@BCAppelbaum The results are ambiguous, especially in the examined cases of Chile and Taiwan, and in a rare deviation from his overall tone Appelbaum offers two personal observations on the contrasting trajectories of the two countries.

@BCAppelbaum 1. Today's prosperity might be more a result of the redistribution of feudal lands than the interplay of market forces, and 
2. Taiwan's engineering approach to the economy might've been more conducive to bringing prosperity for all than Chile's economic approach.

@BCAppelbaum The corollary is that sober interference can out-succeed the hope that the market-bicycle rights itself no matter how drunk the rider, and that endowments matter much more than standard economic theory lets on.

@BCAppelbaum If the OPEC crisis marked the end of the Keynesian age, the collapse of Bear Stearns and Lehman Brothers might've posed a Malthusian check to the age of Friedman.

@BCAppelbaum This is problematic on two counts. For one, while financial markets might be less regulated and corporate malfeasance less frequently checked, we are still not in a perfect free market world. Like with true Scotsmen, there might be no such thing.

@BCAppelbaum For two, while the 1970s still allowed for the Heilbroner model of a clean succession of economic doctrines, we are now at a point where even if we are willing to discard the old doctrine, it is very unclear how the new doctrine should look like.

@BCAppelbaum But 2007 didn't come out of nowhere. The aftermath of the collapse of the Soviet Union should've taught us that markets work only within supporting institutions. Enron and LTCM should've taught us that markets aren't good cops against corporate malfeasance.

@BCAppelbaum And finally, the interconnected, long-looming crises of persistent and increasing inequality, migration, and global warming should've made the point more forcefully that externalities matter and that endowments matter.

@BCAppelbaum Which brings me to my third shorthand: that the defining conflict of humankind is the conflict between staying together and venturing out.

@BCAppelbaum There is a Hollywood trope reflected in Appelbaum's story of the struggle between the enlightened outsider and the calcified establishment, and we instinctively like to see ourselves on the side of the outsider. But the story isn't that simple.

@BCAppelbaum Indeed we all have fairly complex ideas about on which things we like to hold the tribe together and on which things we want to push it forward. And if we align everyone within our tribe along these ideas, we might discover the hidden underpinnings of ideology.

@BCAppelbaum A major topic of the book is whether inequality matters. And indeed if we decide that it doesn't, the case of Chile's prosperity looks much better than if we decide that it does.

@BCAppelbaum Prosperity to some might be considered progress, but the bitter medicine of austerity turns into poison if it is not followed by the healing effect of prosperity for all. And for most Western countries, the verdict on this count over the last decades is damning.

@BCAppelbaum It's to be expected that The Economists' Hour will be subjected to much insider criticism which will certainly point out how his retelling of the "Top 50 moments in post-War economics" is foreshortened, gets details wrong, misses important insights, and draws wrong conclusions.

@BCAppelbaum This kind of criticism should be ignored even on the points where it is factually correct. Appelbaum is not an academic economist, and the story reflects an erudite outsider's well-researched perspective. As such it's an important, much-needed contribution.

@BCAppelbaum From a personal perspective, I had heard most of the stories in the book in some form before, from various angles with heroes and villains reflecting the narrators' leanings. It's still important to see the whole puzzle, even if brevity mandates that many pieces are still missing

@BCAppelbaum To me, the overall point of the book is also not that "Friedman was wrong in the end", that's something we should've anticipated from Heilbroner (and Kuhn). It is that with some twenty years of advance warning, economics has made too little progress on defining what comes after.

@BCAppelbaum This is about a third of what I wanted to write about the book. If I ever add the other two thirds, it will be here:
medium.com/@oliverbeige/r…