The Making of a Public Economist
Walter Lippman (1889-1974) is usually remembered, if at all, as a journalist and political commentator, and certainly not as an economist. But that is exactly how we should understand him, so argues Craufurd Goodwin, in his last book Walter Lippman, Public Economist. The reason we don’t see him as an economist is that our understanding of what it means to be an economist has changed so much, indeed narrowed so much, from what it was in the pre-WWII context of Lippman’s mature work.
Seen in context, Lippman appears like an American version of the British John Maynard Keynes, whom Lippman first met at the 1919 Versailles peace conference and with whom he maintained a warm friendship thereafter. “Despite their later engagement with economics, neither was attracted to the subject at first. Their initial interests were in philosophy, literature, and the arts. They took little economics as undergraduates and found the prospect of postgraduate study and a full-time career in academe unappealing. They both wanted to act on a wider stage and to speak to a larger audience with a longer list of topics than they could envisage at even one of the best universities.” (48) “The life that appealed most to Lippman was that of his British Fabian friends, a life that combined serious scholarly endeavor with civic engagement, public education, politics at a distance, and to some degree with creative literature and the arts. The best way to achieve this life in America, he concluded, was as a newspaper columnist.” (75)
From this perspective, Lippman’s column “Today and Tomorrow”, published initially three and then two times a week from 1931-1949, offers a real time record of one man’s effort to make sense of the economic turmoil of those years of Depression and then War. And his 1934 book The Method of Freedom stands as an American analogue to Keynes 1936 General Theory of Employment, Interest and Money, pointing the way to a new economic model—“free collectivism” or “a compensated free market”—and a regenerated form of political liberalism. Lippman: “It is collectivist because it acknowledges the obligation of the state for the standard of life and the operation of the economic order as a whole. It is free because it preserves within very wide limits the liberty of private transactions. Its object is not to direct private enterprise and choice according to an official plan but to put them and keep them in a working equilibrium. Its method is to redress the balance of private actions by compensating public actions. The system of free collectivism originates not in military necessity but in an effort to correct the abuses and overcome the disorders of capitalism” (138).
But Lippman goes even further than Keynes, according to Goodwin. As a journalist, he had already developed a sophisticated sense of mass psychology (in effect a theory of Keynes’ “animal spirits”). Lippman again: “Imitation, the herd instinct, the contagion of numbers, fashions, moods, rather than a truly enlightened self-interest, have tended to govern the economy. The submerging of individualism in mass behavior is a consequence of the increasing complexity of the economic order…It follows that if individuals are to continue to decide when they will buy and sell, spend and save, borrow and lend, expand and contract their enterprises, some kind of compensatory mechanism to redress their liability to error must be set up by public authority.” (139)
Roosevelt’s New Deal was very much behind the curve in this respect, at least during the first years which were dominated by the National Recovery Act. Lippman 1936: “We cannot subscribe to the view of those New Dealers who claim that their experiments in monopoly, restriction, and centralized political power are in the interests of the abundant life. We believe that the New Era and the New Deal are two streams from the same source. The one fostered private monopoly in the name of national prosperity. The other has fostered state controlled monopolies in the name of national welfare. We believe that both are an aberration…” (375). Only in 1938, with the Temporary National Economic Committee, did the New Deal begin seriously to engage the macroeconomic dimension of the problem, and shortly thereafter that initial engagement was overwhelmed by war preparations.
The picture Goodwin paints of the Keynesian revolution in economic policy thus downplays the role of academia—the usual story that Galbraith, for example, tells of Keynes coming to America through Harvard—and instead emphasizes the role of Lippman, as public intellectual and indeed public economist, but most importantly as best selling author whose columns reached an audience of eight million. The Keynesian revolution in America was first a revolution in public consciousness, with academia and policy circles following after. “There were those who criticized Roosevelt for creating a Brain Trust and encouraging creative thinking in government. Lippmann was not among them. His complaint was that members of this Brain Trust did not have enough brains.” (312)
Inadequate economic education was part of the problem. One of the most fascinating chapters in the book recounts Lippman’s efforts, as chair of the economics visiting committee, to reform teaching of economics at Harvard, his alma mater (56-73). The other part of the problem was ensuring that government service was open to the best and brightest. Lippman: “The cult of mediocrity, which is a form of inverted snobbery, is not democracy.” (313) What we need, according to Lippman, is a kind of Council of Economic Advisors—here arguably is the origin of the Council we actually got as part of the postwar 1946 Employment Act.
But what kind of economics do we need? “He worried that the methods of the engineer, seemingly creeping into economics, were dangerous in constructing public policy…A continuing problem was the large number of well-meaning and enterprising bureaucrats, such as Roosevelt’s Brain Trust, who kept on generating ill-thought-out schemes supposedly to improve the economy and who used the excuse of the depression to put them in place. Since these schemes were the bureaucrats’ babies, they found for them tenaciously.” (229-230) “He regretted especially the isolation of economics from political science, history, psychology, and philosophy; the result had been that those trained in economics paid so little attention to values and to the determinants of human motivation that they were ill equipped to deal with the real world.” (253)
Writing at a time when the Great Depression led many to embrace totalitarian alternatives to the market system, Lippman imagined an alternative future and urged it on his readers. Today, our own Great Recession challenges us similarly, not only as economists but also as citizens. Today, as then, “moderate, sensible, public-spirited behavior seem[s] absent everywhere.” (224) For us, Lippman provides a model of what nevertheless can be done, doggedly writing his columns in an effort to shift public opinion in the direction of the rule of reason, even in the darkest days.