Bryan Caplan  

Nostalgianomics, A Cato Gem

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My Analysis Is...... What Happened to American Unio...
I enthusiastically recommend Brink Lindsey's "Nostalgianomics."  It's just plain interesting, well-written, and edifying.  In a just world, it would have appeared in The New Yorker.  The springboard of the piece is Krugman's recent love letters to the 1950s.  Brink grants that the values of the 50s were different than today's and had important economic effects.  He denies, though, is that the values of the 50s were better than today's or had good overall economic effects.

Paul Krugman and his fellow proponents of nostalgianomics deserve credit for calling attention to the role that changes in economic policies and social norms may have played in the rise of income inequality. They fail, however, to offer a full accounting of the relevant changes; instead, they have cherry-picked particular policies and norms from the past that allow them to portray the early postwar decades as a model of enlightened social order. 

Brink has a fascinating psychological reinterpretation of the "crisis theory" of the growth of government.  Instead of blaming interest groups for "the tyranny of the status quo," he blames a generation of experiences that cemented a collectivist group identify:

The heavy emphasis on group cohesion was further strengthened by the experiences of the Great Depression and World War II.  According to social psychologists, our sense of group identity is heightened when membership in that particular group is especially salient--as it is when, say, the group is faced with an external threat.

[...]

The successive cataclysms of economic collapse and total war engendered a strong sense of shared national identity and resulting group cohesion. We experienced something similar in the wake of the 9/11 terrorist attacks: for weeks and months thereafter the visceral feelings of patriotism and "we're all in this together" were both powerful and widespread. In the 1930s and '40s, circumstances conspired to keep national solidarity highly salient, not just for weeks or months, but for 15 years.  Thus, the young office workers and suburbanites of the early postwar years were facing novel social challenges that put a premium on group-mindedness.
How does Brink defend his "cherry-picking" charge?
[W]hat made the Treaty of Detroit distinctive was its pervasive restrictions on competition in product, capital, and labor markets. Consider high trade barriers, farm price supports and production limits, price and entry regulations in transportation and energy, interest rate caps and branching restrictions, national-origin immigration quotas -- does Paul Krugman really wish to defend such things? Yet all of those policies--along with the labor laws, high minimum wage, and progressive tax rates that Krugman does celebrate--were constituent elements of the postwar economic order. All shared the same bias in favor of producer welfare at the expense of consumer welfare. And it was that pro-producer, anti-competition bias that served to promote income convergence: first, by limiting competition among less skilled workers; and second, by limiting competition for the highest-skilled workers.
Along the way, Brink treats the reader to many fascinating asides inspired by his voluminous reading list.  Enjoy.


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COMMENTS (6 to date)
David writes:

I believe Sen. Goldwater said in the late '50s: "I'd rather have Jimmy Hoffa steal my money than Walter Reuther steal my freedom". Maybe Prof. Krugman can go back to the '50's, and take along his kind to their own country clubs, law firms, MIT and CCNY, etc.

liberty writes:

I haven't read the whole thing carefully yet, but this strikes me as odd, coming from Cato:

"The political economy of the early postwar decades, while it generated impressive results under the peculiar conditions of the time, is totally unsuited to serve as a model for 21st-century policymakers."

Which impressive results were created under which "peculiar conditions"? I guess perhaps it is this:

"Institutions that do not hinder catch-up growth, or that are even conducive to it, can nonetheless become problematic as a country approaches the
technological frontier."

Still seems like a strange way to phrase it...Brink Lindsey is great though. I love his book Against The Dead Hand.

Felix writes:

Has there been a rise in economic disparity since 1970? Or a flattening of the historical curve toward less disparity?

Does one who argues that there is a rise in disparity get to count that recently a mere handful of people have effectively taken ownership of several trillions of dollars and are moving that money around to new locations on a monthly basis? This does seem a dramatic move toward economic disparity.

On the other side of the argument, how can the US be separated from the rest of the world and considered to be apples and apples, 1970 and 2009?

Nostalgia?

The truly scary nostalgia is that of those who yearn to return to those halcyon days of the 30's. Such yearnings have been clear for years.

Too, imagine the chaos that could be created if such a nostalgia were combined with, say, a desire to do better than those poor, ignorant saps who botched the 30's. Oh, what a glorious opportunity! Now, there's also a once-in-a-lifetime chance to correctly handle the problems Japan faced in the 80's. Gosh, this could be just like a war. So much fun!

But scary, yes, to the rest of us.

MHodak writes:

I don't think Krugman saw "Mad Men." The treatment of non-WASP, non-hetero males in that show should have cured him of 50s nostalgia. (I know it takes place in 1960, but close enough, culturally.)

yosephus writes:

Thank you, Felix, for reminding the gentlemen of Cato that their continued demonization of socially responsible economics has led to nothing more productive than the siphoning of buying power from wage earners. And for what? For the sake of high numbers flashing around the NYSE and lovely but hollow portfolios for a class of people who believe in getting money for nothing. Apparently they require such reminding on an hourly basis.

The USA is bankrupt thanks to policies the Cato Institute championed. And the bankruptcy of Cato's economic "philosophy" is now so plain that only those with a great will to be ignorant can remain so.

But these are men with strong wills. Bush's trillions of dollars in tax cuts are now completely worthless. But why should Cato reexamine its pseudo-libertarian ideology when what they're really good at is ignoring the evidence of their senses, preferring instead to live in the reality they've fabricated in their heads?

That money could have been employed intelligently. What Cato should be doing is figuring out what intelligent distribution of those trillions should have looked like. You got it wrong, Cato. Admit it, analyze it, understand it, and then rebuild your thinking accordingly.

That's how you move forward. The three stooges on this website have no leg to stand on in accusing others of looking backwards. Then again, it might behoove the Norquist-Cato-Limbaugh contingent to learn from their own past before darting out into traffic again. The adults have to get to work, guys. Last thing we need is another pile-up caused by bumbling idiots staggering around in the road.

Felix writes:

yosephus writes:
Thank you, Felix, for reminding the gentlemen of Cato that their continued demonization of socially responsible economics has led to nothing more productive than the siphoning of buying power from wage earners.

You're welcome. But I'm not sure for what I am to be thanked. I had not known that Cato demonized socially responsible economics. Seems rather the opposite, as I would expect of anyone with economic opinions.

Hmmm. Ah. Unless by "socially responsible economics" you mean "sociallyresponsibleconomics", all one word, used as a symbol for something. In that case, well, I don't know the symbol's meaning.

yosephus writes:
What Cato should be doing is figuring out what intelligent distribution of those trillions should have looked like.

No Cato expert, I, but I do get the impression that Cato does not claim to know the "intelligent distribution of those trillions". I don't. Surely you don't, do you?!? As I understand it, Cato touts mechanisms whereby others, many others, efficiently, if not "intelligently," distribute trillions. Given that it would appear that Cato's opinions on such matters have been ignored by those few plutocrats (well, currently not plutocrats but rather politicians, political appointees and staff) who do have the power to distribute trillions, I really don't know why you even bring up Cato as a subject.

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