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Brad DeLong’s 20th century

Yesterday, I flew back home from Europe. On the flight, I read Brad DeLong’s Slouching Toward Utopia, a narrative of the political economy of the period…

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This article was originally published by EconLog

Yesterday, I flew back home from Europe. On the flight, I read Brad DeLong’s Slouching Toward Utopia, a narrative of the political economy of the period from 1870 to 2010. DeLong views this period as a sort of extended 20th century, during which accelerated economic growth had all sorts of unforeseen effects.

Flying to the west, I had an extended October 12th, with 9 extra hours. I am a slow reader and I was dead tired on the final leg of the trip. Yet I somehow managed to finish the entire 540-page book just as I landed in Orange County, which wouldn’t have been possible if DeLong hadn’t written an unusually absorbing account of this period. Everyone else seemed to be watching inflight movies.

From reviews, I had assumed the book would be an account of how three major factors supercharged growth after 1870: globalization, the industrial research lab, and the rise of the modern corporation. Those ideas are certainly discussed, but DeLong’s real interest is in the way that ideology helped to shape the events of the past 150 years. I’ll focus on areas where I disagree with DeLong, but I agree with most of his analysis.  Don’t let my quibbles dissuade you from reading this engrossing narrative. 

DeLong sees many of the problems of the 20th century as being caused by people having blind faith in ideologies.  While individuals have committed crimes in all times and places, only ideology can motivate the sort of mass crimes committed by communist and fascist regimes during the 20th century.  DeLong actually sees three ideologies that people adhere to despite the evidence being overwhelming against them; communism, fascism and extreme laissez-faire.  I think he’s right about the first two, but mostly (not entirely) wrong about the third.  Most of my reservations boil down to one issue.  I am a libertarian economic historian and DeLong is a center-left economic historian with a deep skepticism of libertarian ideology.  

Throughout the book, DeLong frequently refers to “really-existing socialism” in order to distinguish regimes such as the Soviet Union and Mao’s China from idealized versions of socialism dreamed up by intellectuals.  Of course it’s easy to find examples of really-existing socialism and really-existing fascism.  It’s also easy to show how these ideologies led to fanatical political movements that caused great destruction.  Indeed, the examples are so obvious I don’t even need to recount them here.  But what about the third ideology—libertarianism?  Presumably, DeLong also believes there are lots of examples of libertarianism run amok, but I’m not so sure that’s right.  Who are the Stalins and Hitlers of libertarianism?  Which countries are the spectacular failures of libertarianism?

To be clear, I accept that the real world is messy and that “true libertarianism” has never been tried.  I am perfectly willing to consider partly libertarian cases.  For example, let’s think about the most libertarian economic models in the world today, keeping in mind that all countries have large and intrusive governments, at least to some extent.  How do those relatively extreme cases compare to their neighbors?  Do they go too far?

In Europe, most economic freedom rankings view Switzerland as the most free market economy.  In the Western Hemisphere, the US, Chile, and Canada generally top the rankings.  In the Asia-Pacific region it’s usually Hong Kong, Singapore, New Zealand, Australia, and Taiwan.

I’m certainly not suggesting that these countries don’t have problems, or even that they don’t have problems that are in some sense due to right wing economic ideologies.  At the same time, these are clearly some of the most successful countries in their region, by almost any measure. 

If you wanted to draw a picture of the evils of communism, it would be easy.  Show the concentration camps.  Show the victims of famine.  The same is true of fascism, but replace famine with bombed out cities.  Libertarianism run amok?  What does that even look like?  A Swiss village?

This doesn’t mean that DeLong is wrong about libertarianism, just that a critique requires a more nuanced argument than in the case of communism and fascism.  There are no obvious cases of failed libertarian countries to point to.

Many center left people would disagree, arguing that there are two obvious examples of libertarian failure.  One is historical.  Prior to WWII, free market ideologies led many nations to reject government programs like unemployment compensation, disability insurance, universal health care and old age pensions.  In addition, regulatory agencies such as the EPA, FDA and OSHA did not exist.  The second seemingly obvious example of libertarian failure is financial crises that are widely attributed to deregulation and/or, and unwillingness of governments to adopt appropriate fiscal stimulus after the damage is done.  These are the examples that DeLong focuses on.

Once again, this anti-libertarian argument is not as strong as it looks.  Yes, governments were much smaller in the 19th century. And yes, living conditions were much worse.  But to draw any causal connection between those two facts you’d need to do some cross sectional comparisons.  DeLong does a good job of showing that the entire world was much poorer in the 19th century.  If excess libertarianism was the problem, then you might have expected a mass migration of people from free market dystopias to the less laissez-faire parts of world.  Just the opposite occurred.  The migration was primarily to the relatively capitalist countries such as the US, despite our lack of welfare programs.

[As an analogy, it’s awkward for intellectuals on the center left to watch large numbers of working class Americans moving each year from blue states to places like Texas and Florida.  Indeed, this fact explains their sudden interest in zoning reform, which is (ironically) a longstanding cause for libertarians like me.]

That’s not to say that the US might not have been better off with more welfare spending in the 19th century, just that it’s not an obvious example of the failure of  extreme libertarianism. Indeed, I’d go even further.  At the (cross sectional) level, I don’t believe world history offers any obvious examples of the failure of libertarian ideology.  Not one.  If I am wrong, which country is the failed libertarian model?

On the other hand, from a time series perspective there are some seemingly obvious examples of libertarian excess, including the Great Depression of the 1930s and the more recent Great Recession that followed the 2008 banking crisis.  While those events certainly look like failures of libertarian ideology, on closer inspection they are both examples of the failure of government monetary policy.  Nonetheless, here I believe DeLong is partly correct, as while I see these events as representing government policy failure, I accept DeLong’s view that they largely reflect government policy failures caused by ideas popular among many libertarians, such as opposition to stimulus when NGDP has fallen.  So I certainly don’t wish to suggest that our hands are clean.  Libertarians are like anyone else; they often hold incorrect and even morally objectionable views.  

[BTW, throughout the book DeLong sprinkles in a few embarrassing quotes from libertarians like George Stigler and Friedrich Hayek.  In contrast, one finds almost no examples of embarrassing quotes from intellectuals on the center-left, even though if you go back in history you can find plenty of such examples on issues ranging from race to gay rights.  Whole books have been written documenting the left’s embarrassing excuse making regarding communist regimes.]

DeLong views Herbert Hoover as an example of how laissez-faire ideology can lead to disaster.  The truth is more complicated.  At the time, Hoover was regarded as being much more interventionist than Coolidge.  DeLong correctly lists some of Hoover’s mistakes, but only those that would be viewed as mistakes by a center-left economist.  Thus Hoover favored high tariffs and opposed devaluing the dollar.  But DeLong doesn’t discuss the many (ineffective) actions that Hoover took to ameliorate the Depression.  Nor does he discuss Hoover’s decision to dramatically raise income taxes on the rich (from 25% to 63%), or his success in jawboning corporations to avoid the sort of deep nominal wage cuts that allowed for a fast recovery from the 1921 deflation.  That’s not laissez-faire.  I’m not one of those libertarians that believe these policy errors caused the Great Depression—tight money was the main problem—but these mistakes made it somewhat worse.  (As did FDR’s NIRA wage shock.)  I suspect that most center-left economists support higher taxes on the rich and oppose nominal wage cuts in a depression, so perhaps this explains DeLong’s oversight.

Like most Keynesian economists, DeLong sees the collapse of aggregate demand as an example of the inherent instability of unregulated capitalism, although in my view the decline in AD was caused by a tight money policy adopted by the Fed in 1929 (and also the Bank of France.)  Again, at the time many right wing intellectuals supported this policy, so I’m not trying to let them off the hook.  But given what we know now, the cause of the Great Depression was clearly government failure.

Many libertarians oppose central banking.  I find many of their arguments to be quite weak, as I’ve explained in previous posts.  But even if it were true that abolishing the Fed would be a policy disaster, I don’t see how any center-left economist can claim that mistakes made by actual real world government central banks constitute a failure of laissez-faire.  Maybe we need a central bank.  Maybe laissez-faire in money won’t work.  But if we have a central bank and it screws up, that’s not a failure of laissez-faire.  Show me the Great Depression of the pre-Fed era.

The counterargument from mainstream Keynesians is that the Fed didn’t cause the Depression; it merely failed to prevent it.  That issue gets bogged down in two areas–semantics and counterfactuals.  It’s not even clear what the term “cause” means in macroeconomics.  If a central bank could have prevented disaster X with policy Y, does not doing policy Y mean it caused disaster X?  I’d say yes, but others might say no. 

In practice, not much is at stake on the semantics question.  I imagine that DeLong and I mostly agree on how Fed policy during the 1930s and 2010s could have been much better, even if we disagree as to how much good that would have done.

Similarly, we both agree that the housing bust did not cause the Great Recession.  DeLong makes the same sort of argument that I made in my book on the Great Recession.  Here’s DeLong:

By November 2008, there was no sense in which construction employment “needed” to fall.  It had managed to make its adjustment from its boom-bubble 2005 high back to normal and even subnormal levels in 2006 and 2007 without a recession.  By November 2008, employment in construction nationwide—and in Nevada— was well below its normal and average share of the US workforce.

Take out the term “bubble” and that’s exactly my view.

But whereas I then pivot to the view that it was tight money (not housing) that caused NGDP growth to collapse, DeLong thinks it was a Minsky issue; too much demand for safe assets.  And swapping bank reserves for T-bills would not solve that problem.  I address the myth of central banks running out of ammunition in the book I have coming out later this year, but let’s step back and consider what’s at stake in this debate.  Basically, I believe the Great Recession was much worse than otherwise because the Fed did the wrong monetary policy, whereas DeLong thinks it reflected the fact that an unregulated economy is unstable and the government did the wrong fiscal policy. 

By the intellectual rules of the game, monetary policy rules such as the gold standard, money supply targeting, price level targeting, NGDP targeting, etc., are viewed as being consistent with libertarianism, whereas activist fiscal policy is not.  And yet from 64,000 feet up, if that’s the only distinction between libertarianism and pragmatic center-left ideology, it’s a fairly minor one.  Especially given that one can have an activist fiscal policy without making government any bigger at all; you merely need to make the budget more countercyclical (without altering the average ratio of G/GDP.)

The world is very complex, so people can interpret facts in different ways.  DeLong focuses on how industrial policies helped East Asian countries grow fast, whereas I see East Asia as a free market success story, with institutions such as Japan’s MITI being a net drag on growth. This is partly because the more free trading examples of East Asia (Singapore, Hong Kong) actually did a bit better than the East Asia countries with more subsidies and tariffs.  And it’s partly because export subsidies and import tariffs tend to partly neutralize each other, leaving overall East Asian trade regimes more open than they might appear when looking at one sector at a time.  And it’s partly because East Asia did better than Latin American countries that relied more heavily on import substitution.  But I can see how others might view the picture differently—the world is messy.

I am not interested in defending libertarianism in all its forms.  For instance, I am disgusted with the new leadership of the Libertarian Party.  I strongly disagree with many libertarians on monetary policy issues. I favor carbon taxes and progressive consumption taxes.  But I cannot accept DeLong lumping libertarianism in with communism and fascism as being one of three fanatic ideologies that ignore the evidence provided by the real world.  He’s right about communism and fascism, but wrong about libertarianism.  Yes, we make mistakes, but no more than the typical center-left or center-right economist.

The best parts of the book are the sections looking at ideologies such as nationalism, communism and fascism.  On those issues, I am in complete agreement with DeLong. 

His chapter on “inclusion” discusses issues such as race and gender, mostly from an American (moderate woke) perspective.  My views are somewhere between DeLong’s and those of American conservatives.  On the one hand, I think many conservatives underestimate how much things like tighter voting rules are aimed at suppressing African-American turnout.   On the other hand, while the left is correct about the pernicious effects of racism (residential zoning is another example), they underestimate the extent to which differences in pay between ethnic groups and genders (both in the US and in other countries) is caused by factors other than current discrimination–particularly cultural differences.  So I found the chapter on race and gender to be less persuasive than other parts of the political analysis–too much of the overly simplistic progressive “victims and villains” perspective.  DeLong also takes a few jabs at critics of the welfare state, but I think he underestimates the disincentive effects of social welfare programs.   The programs may be worth doing, but it’s disingenuous to dismiss libertarian concerns about work incentives.  Marty Feldstein was at least partly correct.  (Indeed, DeLong himself used to be a bit of a supply-sider.)

The book has a rather sad ending.  DeLong sees the neoliberal era as ending around 2010 and mentions the recent rise of illiberal ideologies such as populist nationalism.  My sense is that his views have shifted somewhat to left since 2007, for two reasons:

1. The Great Recession looks like it was caused by laissez-faire, and many laissez-faire proponents advocated bad policy responses. 

2. In recent years, we’ve seen an increasing number of dangerous right wing demagogues in various countries.

 My views are:

1. The Great Recession was caused by bad monetary policy, and many laissez-faire proponents advocated bad policy responses. 

2. In recent years, we’ve seen an increasing number of dangerous right wing demagogues in various countries.

Unlike DeLong, my economic policy views have not shifted to the left.  But regarding the political changes now happening all over the world, I increasingly align with the left. 

In my view, DeLong recent pessimism about neoliberalism puts too much weight on time series evidence.  Yes, growth often failed to improve during the neoliberal era, and even slowed in some cases.  (I’d argue that’s for reasons explained by Robert Gordon–fewer promising new technologies.)  But from a cross sectional perspective, neoliberalism looks much better.   The countries that did more neoliberal reforms tended to do better than the more statist models.  Few people in the UK, Sweden, Estonia, Chile, Australia or New Zealand wish to go back to their 1970s economic model.

Slouching Toward Utopia is a hard book to describe.  The subtitle is An Economic History of the 20th Century.  But it’s much more than that.  Some of the best parts cover areas such as political ideology, diplomacy and military history.  By conventional standards, DeLong probably tries to do too many things.  But he has an extraordinarily wide range of knowledge, a sharp analytical mind, and an engaging style.  So whatever the book is, I’m very glad I went along for the ride.


money supply

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