Friday, January 17, 2020

Great Society Review

I just finished Amity Shlaes' Great Society. It's a great book. I warmly recommend it.

The US is debating a fourth great wave of US government expansion. Theodore Roosevelt to Wilson the original progressive era and WWI; Frankin Roosevelt's new deal; and the Kennedy-Johnson-Nixon "great society" of this book came before us.

Plus ça change, plus c'est la même chose, is in many ways the theme of the book. The Great Society offers lots of parallels to our time, and a cautionary tale that it will all end badly once again. But not all is the same, and the many ways our time is different from the 1960s is also good to ponder -- for better and for worse.

Amity is a gifted writer and storyteller. Pay attention to her books also for how they are written. How do you tell the story of an era in a way that is comprehensible and memorable? Amity picks a few central (and now often overlooked) people, a few programs, and a few benchmarks (the Dow, the price of gold), and tells the story of the era through their eyes. It's the Game of Thrones approach to the Great Society.  Do not expect even a comprehensive list of all great society programs, diff in diff regression discontinuity estimates of their causal effects, or even charts and graphs (all curiously packed in an appendix and never referred to in the text) or the customary eyeball-glazing recitations of statistics. This was her approach to the Great Depression in Forgotten Man, equally effective. It complements, but does not substitute for that more structural work.


In case you don't get the point, Amity starts right off in the introduction with Michael Harrington who wrote "a then-famous bestseller called The Other America" and who worked for Sargent Shriver, which is one of the main characters of the book (Daenerys Targaryen?)
Why not socialism? The president had been in office three months, and he wanted new ideas to distinguish himself from his predecessor. Could the author bring up socialism at the lunch? The very word “socialism” had been toxic until recently. ... The taboo was weakening, though.
..“socialism” might sound too controversial for the White House. The writer could, however, pitch ideas that took the country toward socialism. ... Laws that backed up organized labor so it might represent a greater portion of the American workforce... Higher minimum wages... Minimum wages that covered more workers, even those who did not work in an office or full-time. A dramatic change in the training of bigoted policemen in the big cities. ... The money was simply in the wrong hands. ... a tax system that captured the elusive wealth of the superrich. The moment had come to level incomes in a systematic fashion. 
..The story sounds like something that could happen today."
The 1960s and early 1970s included a huge expansion of programs. And the results were in the end mostly abject failure.

progressive proposals that bear a strong resemblance to Michael Harrington’s, from redistribution via taxation to student debt relief to a universal guaranteed income, are becoming popular again. Once again, many Americans rate socialism as the generous philosophy. But the results of our socialism were not generous. May this book serve as a cautionary tale of lovable people who, despite themselves, hurt those they loved. Nothing is new. It is just forgotten.
It is also a refreshing reminder of just how old most of the "new" ideas we are being bombarded from on the left are -- and a warning of how long they will pester us, at least as long as we are unwilling to learn.

From an SDS (students for democratic society) manifesto:
"The wealthiest 1 percent of Americans own more than 80 percent of all personal shares of stock"
The capsule stories of the 1960s focus on the civil rights triumph, the remaining politically successul programs such as medicare and medicaid, the vietnam war, and a vague hippy nostalgia. Shales' story, and the central roles of the forgotten (largely)  men she tracks are a novel tonic.


Walter Reuther, head of United Auto Workers, is a central figure, and the fight between the old-left unions and the new-left students epitomized by Tom Hayden, for the soul of the Democratic party.

Sargent Shriver, and the Office of Economic Opportunity are the stand-in for many ill fated programs. It starts with the predictable story of chaos that results from a flood of federal money.   The flood of federal money  did not stop the cities from burning.  The OEO is the beginning of Federal support for "community action" programs, including political activity.
"Community action programs, the authors [of the Community Action Program Workbook—262 pages on how to apply for and run a federally funded program] wrote, should provide the “stimulation of change.” One marker of a successful community action group was that it “increased competence in protest activities.” The OEO ... welcomed experiments, including those where community action organizers paid by Washington were “facilitating the opportunities for the poor to participate in protest actions.”
That kind of language was enough to send mayors like Dick Daley through the roof.
In the end, the cities went up in flames. The OEO morphed in many ways. One interesting almost afterthought of the original program, legal aid to the poor -- who can obect to that, helping poor people who can't afford lawyers? -- ballooned the way all such programs do,
"the governor [Reagan] was after the lawyers again, assailing California Rural Legal Assistance. The nonprofit should have stuck to individual legal aid cases for rural indigents, Reagan said, but instead had “converted itself into a vehicle for class action lawsuits against various government agencies.” Reagan told the crowd that his staff had reckoned that if the CRLA won all its suits in California, the cost of welfare there would increase by $1 billion—the same amount Johnson and Shriver had first set as the budget for the entire War on Poverty."
Here was where the government started paying lawyers to sue the government for more government.

Amity tracks disastrous housing policies through the life of the Pruitt-Igoe housing project in St. Louis, begun in earnest but remote social-planner hope, though destroying the community where it sat, and ending in controlled demolition.
"In some cases, only welfare families were entitled to the lowest rents at Pruitt-Igoe. And to receive welfare under Missouri’s rules, a family could have only one parent—the mother. So families considering life in the towers had to make a terrible choice: stay together or take the apartment. ..Families who moved into Pruitt-Igoe often lost a father. ...The social workers even policed apartments at night, checking to see if fathers had secretly returned, grounds for eviction. "
The consequences of which are predictable.
"Pruitt-Igoe elevators, which stopped only every few floors, were muggers’ traps. Poor maintenance meant the elevators often jammed, leaving gangs’ victims in with them for long extra minutes. The gangs lurked in the halls and made tenants “run the gantlet” to get to their doors. Young men threw bricks and rocks at windows and streetlamps; the activity was a regular sport..... Because there were no toilets on the ground floor, children had accidents there and in the elevators, and the elevators gradually became public toilets. The community area was a sorry joke... No one seemed able to stop the decay. "
I love this:
"Social scientists were descending on the complex to conduct multiyear investigations, and that irritated the tenants further."
we've been at it a long time, missing the ends of our noses.
"At Pruitt-Igoe, rents were scaled to income. Every time the Straughters’ wages went up, their rent went up, a tax on striving"
Income-capped rent subsidies are with us today.
"After tens of millions and decades of urban renewal spending, Detroit did not look renewed. Detroit looked, Mayor Cavanagh said, like a city that now did need a Marshall Plan, like “Berlin in 1945.” Almost three thousand businesses had been sacked, with damage many times greater than in Watts just two years before. "
In the end
"There was hypocrisy [and I would say a great deal of paternalistic disdain] in the  different treatment of the middle class and poor. For the middle class, the government had aimed to re-create and sustain the world of Alexis de Tocqueville, subsidizing home purchasers for suburban settlers. For the poor, however, the government had operated in the world of Karl Marx: government-sponsored housing blocks with tenants, not owners. Black citizens—Pruitt-Igoe was now all black—had been ripped from their roots when they moved North, uprooted again when they were moved for urban renewal, and then placed in high-rise rentals where putting down new roots was impossible."
"How might neighborhoods like this one have turned out if local companies, local authorities, and local individuals had led in the 1950s and 1960s, building their own Great Society? How might St. Louis have looked if the jobs had stayed? No one knew.  But here in the shadow of
Pruitt-Igoe, Father Shocklee and Pruitt-Igoe tenants had discovered one possibility. With his small housing program, Father Shocklee had shown that “the poor” were more like the middle class than people supposed. They gained from something only when they had a chance to own it."

Daniel Patrick Moynihan is a second central character in Amity's story (Tyrion Lannister?) Moynihan was a Democrat, but wrote the important and controversial "The Negro Family: The Case For National Action," pointing out, among many other things, the perverse incentives of welfare.
"From his work at Harvard and in Washington, Moynihan thought he had learned what was wrong with American welfare. The first trouble was that poverty funding tended to flow to bureaucrats—social workers, not poor people. “Feeding the horses to feed the sparrows,” Moynihan called it.  In many states, those social workers spent their time in perverse endeavors: inspecting apartments at Pruitt-Igoe to make sure no fathers were present, for example. Taxes hit people when they entered the workforce, reducing the appeal of working just as Eartha Kitt said. ...In some states, for example, a welfare mother working at the same job as a family father not on welfare took in 50 percent more than the man, because she was entitled to keep a portion of her welfare. Why not bypass the bureaucrats and send the money to families, regardless of whether fathers were present?"
And then he took a job with Nixon, and became one of Nixon's main advisers. He nearly got passed a negative income tax, the equivalent of today's universal basic income. In his grudging New York Times review, Binyamin Applebaum finds this story "curious," because it did not pass in the end. But it nearly did, which makes it important. Amity covers well the failed attempt to over rule right to work laws, which also nearly passed. Near failures good and bad are equally instructive to our current situation, no matter the flap of butterfly wings that determines their fate.  (The quick review of the UK's longer experience starting p. 335 is well worth it too.)

I found this amusing
"The crowd at Harvard had held even Hubert Humphrey, and at times Robert Kennedy, in contempt. Any interest in Nixon Harvard rated worse than reprehensible
The schoolmates of Moynihan’s children stopped talking to them. Alan Rabinowitz, a fellow academic, wrote a satirical poem chiding Moynihan for his betrayal, “The Knight Before Nixon.”
Plus ça change in academia, and much Trump-deranged society.

Fairchild semiconductor plays a small but significant role. It's good to remember how different the US economy of the 1950s was. There really were a few very large companies in most industries, and most technology came out of defense. The emergence of an innovative private tech sector is one of those many ways we are not replaying exactly the same song. The slow emergence of Toyota and VW, selling better cars and forcing change in Detroit is another.

Money and gold

A minor story for the book caught my eye, and I pass it on first as many blog readers are interested in monetary issues. One of the themes of the book --  the snow level on the great white wall -- is the price of gold, and the US continuing problems of gold outflow, the emergence of inflation, and the eventual collapse of the Bretton Woods system. This is an event much too little studied by macroeconomists, though my international and economic history friends tell me that shows just how parochial we are and we should start reading their papers.

In macroeconomics perhaps we are too influenced by Milton Friedman's great called home run, the 1968 presidential address, where he forecast inflation would emerge along with unemployment. But Friedman's story was told entirely in terms of the money supply and to a lesser extent interest rate targets, the one too large and the other too low. And that is how the stylized history has come down to us: Fiscal deficits from the Great Society and Vietnam war, combined with too loose monetary policy, set off inflation.

That story leads to the puzzle of our age: If the (by current standards) comparatively minor Johnson-Nixon deficits set off a grand inflation why do our huge deficits have no such effect now, despite many officials stated desire for more inflation?

The story of the book reminds us that the mechanics were quite different then, and leads me to the speculative thought that the gold standard mechanism brought on inflation much more quickly than our current arrangements. In part, it may have been designed to do so -- to force governments to make fiscal adjustments quickly rather than let the problem get so big the fiscal adjustment will be immense, much as Doug Diamond and Raghu Rajan model short term debt and its runs as a disciplining device to managers.

The world was different then. We had fixed exchange rates, and it was difficult to move capital from country to country -- to buy foreign stocks, for example. Bretton Woods was not really set up to handle today's large trade deficits financed by large capital account surpluses. When the US started running trade deficits, other countries piled up dollars, and the main thing they could do with those dollars was to turn them in to their central banks, who in turn used them to drain gold from the Fed. So, it strikes me that open capital markets that allow us to finance large trade deficits are an important reason our system has held up so long.

Amity tells the sad tale of stopgap measures -- bans on using dollars for foreign travel, half-hearted interest rate increases, looney schemes for the Federal Government to mine gold, and of course the tragedy of price controls.

In any case, the remaining gold standard between central banks, not very open capital markets, not very open currency markets and fixed exchange rates were a crucial part of the inflation dynamics in this period, not just bad money supply or interest rate rules.

The episode also raises the counterfactual question why the US did not use the many devices used to defend the gold standard through the centuries. Borrow gold. Temporarily suspend convertibility.


At the end of a review that had to be negative, though he had to admit the quality of the book, New York Times review, Binyamin Applebaum writes
"Half a century later, in the midst of a revival of interest in ideas like Moynihan’s basic income proposal, readers may find themselves wondering whether the nation’s problem is really too much government — or, perhaps, not enough."
One wonders just what it would take to ever change his mind on that one. Were the 60s riots, the 70s economy, and the evident pathologies of the welfare system not bad enough, or do we have to go full Venezuela first? After all these years, and with the same policies on agenda, with the same predictable disincentives and unintended consequences, could not his call be at least for smarter government, not just more? For a larger government that learns from rather than repeats this sad history?


  1. I probably agree with the bulk of this post.

    I'm a pro-business sort of guy. I admire successful businesses, or even business people who try and
    "fail" at business. All good.

    So, I want to vote for the "right-wing," in America, broadly speaking.

    But here is the thing:

    Really, we can bash the Great Society programs...and go mute on Vietnam, Afghanistan and Iraq, and other seemingly perpetual but fantastically expensive overseas military expeditions and occupations? Let alone a "national security" establishment that consumes $1.2 trillion a year (DoD, VA, black budget, pro-rated interest on the national debt)?

    Is this not true: The US will spend $12 trillion in the next decade on "national security," despite there being not the slightest chance any nation even plans to invade US shores?

    I appreciated the recent six-part master-blogging by John Cochrane on the faulty premises of wealth taxes.

    But is taxing wages, through both income and payroll levies, any better or worse for the economy?

    I get uneasy about a right wing that is evidently unconcerned about federal government excesses and intrusions in some areas, but so finely attuned to excesses in other sectors.

    Perhaps John Cochrane will also come out fighting against wage taxes and perpetual and fruitless wars and military occupations. With his fine mind, I am sure he has a lot to offer.

    As a side note, federal outlays as a fraction of GDP have been remarkably constant for decades and decades. I contend federal outlays as percent of GDP should have been declining. But in fact, the federal government is not growing in relation to GDP.

    So, we are not being taxed out of our homes by federal welfare and warfare.

    Still, it would be nice to lower the lid on both.

    1. We have dozens of major outlets constantly reminding us how terrible and how much of a waste the Vietnam, Afghanistan, and Iraq wars were/are. People don't need to hear that for the 30th time. Relatively few people understand that social workers were literally knocking on doors to make sure that fathers weren't being fathers. Few people are aware of how perverse the incentives are for many of these government programs.

      Military spending is excessive. But, compared to the unfunded federal and state SSN and pension liabilities it is a rounding error.

  2. Again, much talk about the specter of socialism, but little talk about the other side of the problem which is, and always has been, crony capitalism. The scare of socialism is to often used to let people accept a pseudo-free-market form of capitalism which largely benefits the rich thanks also to their influence on government. So when one talks about large or small government, that is not more or less socialism, but it is also and primarily less or more crony capitalism.
    National defense spending is one such example where an industry lobbies very effectively for an insanely bloated budget equivalent to the defense spending of the next 10 nations. And yet, the US has not decidedly won a war since WWI, rather preferring a 'forever war' state that helps support a never ending increase in defense spending.

    1. Quite revealing to compare Cochrane's review of the new Shlaes work with Applebaum's. Of the two, who is the partisan and who is the honest broker?

      Bizarre to characterize Applebaum's review as snarky. It is in fact polite and respectful from beginning to end, if pointed in its criticism.

    2. The quotes about wealth taxes suggest there motivations are agnostic to how the wealth has accrued. Damn them all...suggesting crony capitalism is not the reason why the left is pushing for this agenda. Socialism is an ideal that appeals to them. Strange cuz Warren is a multi millionaire.

    3. apologies: Of course, we've never heard of Crony Socialism!

  3. Thanks for the review. You mentioned Legal Aid -- here is a recent paper showing its effect on family structure:
    Publicly Provided Legal Services Affected Family Structure

  4. This gave me a chuckle:

    "One of the themes of the book -- the snow level on the great white wall -- is the price of gold, and the US continuing problems of gold outflow, the emergence of inflation, and the eventual collapse of the Bretton Woods system. This is an event much too little studied by macroeconomists, though my international and economic history friends tell me that shows just how parochial we are and *we should start reading their papers.*"


  5. “Were the 60s riots, the 70s economy, and the evident pathologies of the welfare system not bad enough, or do we have to go full Venezuela first? After all these years, and with the same policies on agenda, with the same predictable disincentives and unintended consequences, could not his call be at least for smarter government, not just more? For a larger government that learns from rather than repeats this sad history?” - Dr. C.

    Nay, nay! It will be different this time, like it wasn't last time nor will it be next time. One must judge by intentions, never by the results. It is the warm and fuzzy intention not the cascading negative unintended consequences that matter. Wonderful non-empiric notional propositions, you know, those fool-proof plans that can't possibly fail, are of paramount importance. It is not a matter of benighted, it is a matter of “be-clowned”.


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