On science and reform: the parable of the new economics, 1960s–1970s

ABSTRACT

The article considers Paul Samuelson, Robert Solow, James Tobin, Walter Heller, and Arthur Okun qua political economists. The focus is on their combination of a faith in economic science and a passionate public spirit. The article aims to substantiate two related arguments. The first is that these “new economists” were public intellectuals, regularly addressing public opinion, and engaging with the major economic and social issues of the times; the second is that their value judgements gained the upper hand over scientific discourse when they were confronted with the 1970s inflation.

KEYWORDS:

• New economics
• neoclassical synthesis
• Paul Samuelson
• James Tobin
• neo-Keynesianism

JEL:

• B22
• B41

Acknowledgments

I would like to thank Roger Backhouse and three anonymous referees for their helpful comments on the original draft. I have also benefited from several insightful observations on the new economics Irwin Collier offered me during our conversations in Berlin. The usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ Gardner Ackley was chair between Heller and Okun. Tobin advised McGovern during his presidential campaign in 1972, as Samuelson did, informally, with Bobby and Ted Kennedy (see his article in Newsweek, 15 October 1979).

² Backhouse (2017) has documented how the Wunderkind author of Foundations of Economic Analysis gradually acquired a concern with macroeconomic policy.

³ Most recently, two supply-siders in the Laffer tradition have extolled the income tax reduction of 1964, but have ascribed it to the Treasury Secretary Douglas Dillon – a Republican serving under both Kennedy and Johnson – rather than to Heller's CEA (Kudlow and Domitrovic 2016).

⁴ For Samuelson on Johnson's late surcharge, see Financial Times, henceforward FT, 5 November 1965; 31 December 1966; 22 February 1967; 30 December 1967; NWK, 2 January 1967; 29 November 1967; 5 February 1968. To Samuelson the roots of inflation were the dynamic of cost-push, which was an unavoidable feature of the mixed economies, as well as the welfare state, entailing that unemployed resources did not put downward pressure on wages and prices; see Samuelson (1974, 1979).

⁵ Following the usual practice in economics, a value judgement is a belief that neither depends on factual observation nor can be derived from the rules of logic.

⁶ CED was founded in 1942 by a group of liberal businessmen. It advocated prudent macro policies along centrist lines. Herbert Stein, who was CED's Director of Research from 1959 to 1969, was the chief drafter of a paper on federal budget policy (1947).

⁷ But the accusation is made in Stein (1984, 89–99).

⁸ On the economics of the New Left, see Lindbeck (1971) and Mata (2009).

⁹ And Samuelson feared that a worsening of the economic situation could lead to serious unrest, against which the racial riots of the 1960s would pale in comparison. See NWK, 21 June 1971; 2 February 1976; 19 November 1979.

¹⁰ “Inflation: The Big Squeeze”, Business Week, 4 March 1974, 42–45.

¹¹ The words in quotes are from a text by a major neo-Keynesian, Robert Gordon (1975, 873).

¹² See e.g., Bach (1975), to whom the losers were both the very poor (who have few debts because nobody lends to them) and the very rich (who have few debts); to Piachaud (1978), the winners were the middle- and working-class homeowners, while the losers were the better-off pensioners and retired people living on investment income; to Wolff (1979), inflation “acted like a progressive tax”; and to von Hoffman (1979) and Minarik (1979), the mortgage holders and the elderly benefited from inflation, whereas the rich holding assets lost.

¹³ Backhouse (2017, 583) quotes Samuelson writing in the first edition of his manual (1948) that “De gustibus non est disputandum: there is no disputing (scientifically!) tastes”.

¹⁴ But see Heller's oscillating statements (1976, 73–74, 207–208).

¹⁵ See Backhouse (2017, 591–592). Samuelson was for Stevenson, and not for Kennedy, in 1960; see Horn (2009, 51).