The Crisis of the "Mixed Economy"

Econ 210a: Introduction to Economic History: February 28 Class: The Crisis of the Mixed Economy

In the mid-1960s economists thought that they had it right. Bretton Woods. Keynesian domestic demand management. Progressive tax and transfer systems. And perhaps a bit of public ownership of the "commanding heights" and of "indicative planning." The problems of economic management seemed--to some at least, in the first world at least--to be broadly solved. And people were looking forward to future eras in which the "economic problem" would not be allocating scarce resources among various productive uses but allocating abundant products in the interest of human well-being. What is the economic problem in an era in which we have enough food not to be hungry, enough clothing not to be cold, enough shelter not to be wet, and certainly enough diversions not to be bored?

But as a result of the 1970s and 1980s, consideration of these problems was pushed into the far future, because it became clear that economists did not have it right:

Readings:

• J. Bradford DeLong (1997), "America's Peacetime Inflation: The 1970s," in Christina Romer and David Romer. eds., Reducing Inflation: Motivation and Strategy (Chicago: University of Chicago Press) http://www.j-bradford-delong.net/pdf_files/Peacetime_Inflation.pdf.
• William Nordhaus (2004), "A Retrospective on the 1970s Productivity Slowdown" http://mirror.nber.org/cgi-bin/sendWP.cgi/311459297/w10950.pdf.
• Olivier Blanchard "European Unemployment: The Evolution of Facts and Ideas," unpublished manuscript, MIT (October 2005), http://www.nber.org/papers/w11750
• Richard Ericson, "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspectives 5 (Fall 1991), pp. 11-28, http://uclibs.org/PID/1011.
• J. Bradford DeLong and Barry J. Eichengreen (2001), "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy" http://www.j-bradford-delong.net/Econ_Articles/CIEP/CIEP_revision06102001.PDF

The embarrassing question is: "What is this class doing in an economic history course?" I say: "Some ask 'why?' I say 'why not!'!"

Barry Eichengreen says that when he was on the job market, Zvi Griliches asked him: "You say you're an economic historian, and you study the 1920s and 1930s. How can that be? I lived through the 1920s and 1930s."

And after today (except for special fill-in and guest lectures, except for dissertation and thesis supervising, except for talking to students about their class papers and then grading them, except for seminars--but I don't have organizational responsibility for any this semester) I am off the teaching line...

Comments

[Josh G.]

Brad DeLong: "In the mid-1960s economists thought that they had it right. Bretton Woods. Keynesian domestic demand management. Progressive tax and transfer systems. And perhaps a bit of public ownership of the "commanding heights" and of "indicative planning." The problems of economic management seemed--to some at least, in the first world at least--to be broadly solved. [...] But as a result of the 1970s and 1980s, consideration of these problems was pushed into the far future, because it became clear that economists did not have it right..."

Actually, they did have it right. Greedy conservatives destroyed the New Deal consensus not because of any flaws, but because, for them, too much would never be enough. It was a decades-long campaign by liars, hacks, and fascists who never accepted FDR's actions as legitimate. They seized upon the temporary economic problems of the late 1970s (which had largely been caused by Nixon's political manipulations, America's support for Israel, and the Vietnam War) and used this as an excuse to once again declare brutal war on the working class, behind the smiling facade of Ronald Reagan.

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