We should be skeptical of grand plans couched in terms of economics. Americans freeze like deer in the headlights when our leaders confront them with fancy economic plans.
For example, Treasury secretary Janet Yellen has begun campaigning for a new experiment, what she calls modern supply-side economics. Such terminology disorients plenty of observers, who until the Treasury secretary spoke were accustomed to hearing Democratic administration officials utter supply-side only as a pejorative.
Supply-side was Ronald Reagan's doctrine, expressed in two simple policies: A further surprise came when Secretary Yellen seemed to be expanding Reagan's defined theory into a sort of massive omnibus. According to the secretary, supply-side policy should include everything from reducing carbon emissions to universal prekindergarten.
It is strategy that is pro-growth but inclusive and green, Yellen told Yale University president Peter Salovey this past spring.
Inclusive and green, indeed, but not supply-side. A second's sober thought would make clear that green spending projects, green regulation, and pre-K support all undermine the old supply-side principle. If you write policy that favors one company over another — the industrial policy embedded in Yellen's argument — you reduce overall productivity of companies (the supply side). If you tighten regulations and spend further billions on projects such as universal pre-K, you distract the supply side (business), destabilize money, and preclude lower tax rates. But deer don't think when they spot the omnibus roaring toward them. They just wait for the inevitable.
How much damage broad new economic theories can wreak becomes clear in evidence from America's past. Before the 1970s, there was an economic law most Americans believed, mainly because economists, especially Democratic economists, told them to. An economy could suffer from either inflation or unemployment, but not both. That tradeoff was part of a series of doctrines inspired by Democrats' favorite economist, John Maynard Keynes. Then President Richard Nixon pulled a Yellen, blithely informing a network moderator that he was now a Keynesian in economics, and was introducing what he grandly called the New Economic Policy.
Since Nixon was a Republican, Americans were befuddled. Weren't Republicans supposed to be for markets, at least some of the time? The title New Economic Policy disconcerted the public further, similar as it was to the original New Economic Policy, Lenin's cynical 1921 scheme to allow certain capitalist freedoms in his empire until that empire became a pure collectivist paradise. The similarity between the names shamed Nixon advisers into dropping the NEP title, but not into dropping the project. Nixon dazzled the public yet further with large spending programs, random efforts to prop up or push down the dollar, and price controls, the last a policy Keynes himself had explicitly rejected.
A half a century earlier, Keynes had written that the presumption of a spurious value for the currency, by the force of law expressed in the regulation of price, contains in itself . . . the seeds of final economic decay.
Decay was indeed what we got in the 1970s.
Before citizens' heads could clear, Nixon's Keynesian policy brought both unemployment and inflation. And, to describe an impossibility that was now reality, yet another economic mystery term: stagflation.
Far worse than the 1970s was that era when economic theorists dominated the most, the 1930s. A violent market crash and heavy unemployment handed a license to Franklin Roosevelt's Brains Trust — and they ran with it. The Brains Trust, a group including a number of social scientists, informed Americans it was time to test all kinds of new theories: that larger companies if promoted through federal policy could lead the economy in recovery, that consumer choice in product slowed recovery, and that low prices hurt recovery. All these principles were duly incorporated in the application of the 1933 law that was the centerpiece of the New Deal, the National Industrial Recovery Act.
When even the Brookings Institution allowed that this Recovery Act was impeding recovery, the Roosevelt administration merely shifted philosophy. In the mid 1930s, fresh official doctrine held that radical labor unions and class war against the rich would bring recovery; in the late 1930s, vigorous antitrust prosecution of large companies was sold as best medicine and the order of the day. Operating on another weird principle, that wealth inequality impedes recovery, the administration also hauled as many business leaders into court for tax violations as it could manage, prosecuting the star of the 1920s, former Treasury secretary Andrew Mellon, for years. These antidotes failed as well, and one in ten workers was still jobless eight years into what was becoming known as the Great Depression.
Two economic eminences who did concede the tragedy in plain English were Keynes and Benjamin Anderson. Keynes warned that the Roosevelt administration's assault on utilities, one of its more brutal, would not restore the economy. It would be less damaging to nationalize utilities outright, which was Keynes's own preference, or to simply leave the utilities alone. But what, asked Keynes, was the use of chasing the utilities around the lot every other week?
The vacillating Roosevelt's preferred mode, experimentation, was itself doing damage. Anderson, of Chase Bank, blamed the initial downturn on the economist-led government's decision to play God. The duration of the Depression Anderson also attributed to a government that, rather than recognizing its own failures and retiring from the role of God, merely determined that it must play God yet more vigorously.
It is no accident that Anderson dropped economics and turned to another lexicon to express the tragedy that was the Depression. In fact, as I found when I pulled together an anthology of critics of the New Deal, some of the Depression's best explainers were, like Keynes, foreigners or, failing that, foreigners to the economics profession.
One of my favorites is Odette Keun, a Dutch journalist who had studied planning in the land of planning, Soviet Russia. In the mid 1930s, Keun came to our shores to inspect the revolution that was the New Deal and, especially, the license for class war the administration's policy of supporting unions had given union leaders.
Keun indeed found that certain spots, notably the enormous industrial and shipping areas, are in violent social convulsions. But these were only certain spots. Whatever the feisty John L. Lewis of the United Mine Workers claimed, and however the New Dealers nudged, the individual American worker had little appetite for revolution.
Broadly speaking, wrote the honest Keun, labor in America is conservative. It is one of the most flabbergasting discoveries I have made. What mattered to Americans — and to their economy's future — was that the average worker clung with intense persistence to the traditional hope of escaping one day — soon — from the ranks of the employee into the ranks of the small entrepreneur, where he would be hampered by the social legislation that would have benefited him as a simple worker.
Yet blunter was Rose Wilder Lane, the daughter of the author who captured the spirit of the prairie in her Little House series, Laura Ingalls Wilder. Lane suggested in the Saturday Evening Post that the government was crafting data to make matters look darker than they were, and to make an impermanent downturn seem permanent.
We look too much at charts and figures. Lane said. Lane lived near a village of 800 people, rated by New Deal authorities a submarginal farming community technically known as rural slums in the Ozarks. Not sixty persons in this town would appear in statistics above the 'line of subsistence.' Nonetheless the people in the village had telephones, radios, automobiles, and even washing machines, all items that had been rarities just 15 years earlier.
The spirit of individualism is still here, Lane, slightly grim, noted in 1936, even though New Deal relief rolls and checks from public funds were challenging that spirit. Around then, Friedrich von Hayek was still thinking over his notion of spontaneous order in London. Yet without higher education, and absent acquaintance with Hayek, Lane captured the Hayekian phenomenon: man's certain instinct of orderliness and of self-preservation which enables multitudes of free human beings to get together.
There was another analyst who could claim even less formal education than Lane: Isabel Paterson, a book reviewer at the Herald Tribune. Paterson, who had attended school for three years, and in a Canadian country school at that, focused on individual productivity, though she called it energy.
All progress for workers was based on the individual; labor legislation, a key part of the New Deal, was worse than useless. No law can give power to private persons; every law transfers power from private persons to government. (Had Paterson lived in the 1990s, she would have seen through conservative economic chatter as well as through progressive jargon, and understood the inherit contradiction in the Reagan-Bush-era slogan of empowerment. ) Known in her set as the Goddess of Common Sense, Paterson put the New Deal in its place by gazing past it. That more Americans could not see this infuriated Ayn Rand, who gave Paterson's ideas life in her novels. Pat is an example of the penalizing of ability. The conservatives actually reject her for being too good, wrote Rand in her journal.
Perhaps the most insightful of all the period's self-taught critics, the columnist Garet Garrett, assailed planners' pragmatism itself. Garrett refused to speak in economic terms, or to rate policy by what worked, or what didn't.
After all, the New Deal worked, in some narrow political way, when it provided a temporary job laying brick to an unemployed apprentice. The launch of Sputnik would work for Nikita Khrushchev in the sense that it suggested to the people of the Soviet Union that the Soviet system was capable of competing with the United States in the space race. Yet later, doping weightlifters or swimmers worked for the Honecker regime in East Germany, in that it secured the regime prestigious medals in international competitions. As Garrett noted, to challenge New Deal economists in their own language was to doom oneself to defeat. It's no use saying this or that won't work, or won't work here. Many things that we hate may work.
The point of all these outsiders was a simple one, with relevance for today. Economics has its uses. But economics, however vast, cannot do all that is necessary for the human soul. Indeed: the broader the economic plan, the more dazzling its name, the more suspect.
What matters, more than markets even, is the individual, the basis for the rest. People are not lab rats. Nor must they freeze like deer. If today, to paraphrase Rose Wilder Lane, the spirit of individualism is still here, then individuals, given a chance, can be relied upon to build and thrive. Call this theory anything you like. Just not economics.
Ramsey, Bruce, Unsanctioned Voice: Garet Garrett, Journalist of the Old Right (Caxton Press, 2008).
Sandefur, Timothy. Freedom's Furies: How Isabel Paterson, Rose Wilder Land, and Ayn Rand Found Liberty in an Age of Darkness (Libertarianism.org, 1922).
Shlaes, Amity, editor. New Deal Rebels: An Anthology of Critics of the New Deal (American Institute of Economic Research, 2023).
Amity Shlaes is the author of Great Society: A New History. She is a fellow at National Review Institute and author of a regular column, The Forgotten Book, on NR Capital Matters.