Introduction: The Preferences of Economists

In the summer of 1969, Time magazine featured a cover that became a potent symbol for the burgeoning environmental movement: Ohio’s Cuyahoga River, improbably on fire. The picture itself was misleading. While the Cuyahoga did catch fire on June 22nd, as it repeatedly had throughout the twentieth century, the 1969 fire was not especially bad, nor had it been captured so iconically on film. The photo made famous by Time was in fact of a fire that had burned seventeen years earlier.1

But despite this inaccuracy, it was the right image at the right time. Attention to environmental disasters had been building since Rachel Carson published Silent Spring, her jeremiad against pesticide abuse, in 1962. Less than a month after the Cuyahoga fire, the Senate passed the National Environmental Policy Act (NEPA), which required federal agencies to formally consider the environmental effects of their actions; on January 1, 1970, President Richard Nixon signed NEPA into law.2 Later that year, after millions of Americans participated in the first Earth Day, Nixon established the Environmental Protection Agency (EPA) and signed a major expansion of the Clean Air Act; the Clean Water Act would follow in 1972.3 Both Republicans and Democrats supported these changes: NEPA, the Clean Air Act, and the Clean Water Act all passed unanimously in the Senate and overwhelmingly in the House of Representatives.4

Like all policy changes, these were motivated by a complex mix of factors. Ecological concerns were prominent among them, with NEPA declaring it would “encourage productive and enjoyable harmony between man and his environment.”5 Health concerns were also conspicuous, with the Clean Air Act repeatedly emphasizing “the effects of air pollutants on public health and welfare.”6 And—drawing on political scientist Theodore Lowi’s argument for strong, inflexible rules to combat regulatory capture—Congress intentionally wrote these laws to be rigid. The Clean Air and Water Acts in particular required firm standards for pollution control based on what was technologically possible, and limited air pollution to levels that would provide “an ample margin of safety to protect the public health.”7

The environmental legislation of the early 1970s was effective, and pollution trended sharply downward in the years that followed. But a handful of economists, despite sharing the public concern about pollution, were skeptical of Congress’s approach. From an economic perspective, pollution was an externality: a side effect of producing some good or service, whose cost was borne not by the consumer of that product, but by the breathers of air and drinkers of water. It was a real problem, a market failure, but the solution Congress had settled on—rigid limits on how much pollution could be emitted, without any weighing of costs or benefits—created problems of its own.8

For one thing, it made no distinction between pollution reductions that were inexpensive to make and those that would be extremely costly. All polluters were simply expected to achieve the same standard. For another, it took no account of the fact that the more pollution was reduced, the more expensive further cuts would be. At some point, additional reductions might not be worth it. Congress’s approach also failed to acknowledge that

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while pollution itself was unwanted, it was often the byproduct of some otherwise desirable activity, and limiting or banning it would come at a price. These observations seemed relatively obvious to economists, whether liberal or conservative. As one wrote in 1970, the principle of identifying the point at which the marginal cost of reducing pollution equaled the marginal benefit of producing it “is so simple that it is almost embarrassing to admit it is the cornerstone of economics.”9

The Council of Economic Advisers had been suggesting pollution taxes as a solution to environmental problems since at least 1965, and had done so under presidents from both political parties.10 Many policymakers, however, found the idea of pollution taxes morally objectionable. The 1965 proposal was dismissed on the grounds that it “might come to be regarded as ‘a purchased license to pollute,’” and as an observer later noted, environmental groups “had helped draft the Clean Air Act not merely to clean the air, but to punish: to force firms that for decades had used the atmosphere as a free dump to pay the maximum amount for past sins.”11 Economists were represented in the White House and had unprecedented influence over macroeconomic policy, but when it came to environmental laws, their perspective was largely ignored. Indeed, one economist subtitled his retrospective analysis of the Clean Water Act, “Why No One Listened to the Economists.”12

• • •

Two decades later, the Clean Air Act was up for amendment. The political mood was more conservative, but the public still supported environmental protection, and George H. W. Bush had announced his intention to serve as the environmental president.13 Different issues now topped the political agenda, though—acid rain in particular. In response to the Clean Air Act’s requirement that firms limit local concentration of SO2 emissions, electric companies had built multi-hundred-foot smokestacks. This cleaned up the air nearby, but produced acid rain that might fall hundreds of miles from its source.14

Like its predecessor, the Clean Air Act Amendments of 1990 created strong environmental protections with broad bipartisan support.15 But while economists had little influence on the earlier Clean Air Act, this later bill, and especially its centerpiece Acid Rain Program, drew heavily on economic insights. Gone were NEPA’s ecological references to “harmony” and “the interrelations of all components of the natural environment.”16 Instead, acid rain would be cut in half through new means: by “design[ing] mechanisms…which take advantage of the forces of the marketplace in our economy” to protect the environment in “economically efficient” ways.17

The Acid Rain Program did this by creating the first national cap-and-trade program in the United States. Rather than requiring power plants to install “scrubbers” that would remove SO2, it set a limit on SO2 emissions, then gave producers allowances for reductions they made beyond that requirement. These allowances could be sold to other companies for whom reducing emissions was more expensive. A market in emissions allowances would reduce SO2 more efficiently than simply requiring that all plants limit their emissions by the same amount.18 Economists had been writing about the possibility of tradable permits since the late 1960s, and had ensured the proposal’s inclusion in “Project 88”, a bipartisan

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package of market-friendly environmental policies.19 The Acid Rain Program was seen as a major success, and served as a model for cap-and-trade programs around the world.20

The shift toward economic reasoning that took place in environmental policy between the 1970 Clean Air Act and its 1990 amendment is just one example of a broader trend. A wide range of policy domains adopted the language of economics between the 1960s and the 1980s. Analogous changes took place, to a greater or lesser degree, in social policy areas from poverty to healthcare to urban to education policy. Economics also gained influence in antitrust policy and in the governance of regulated industries like transportation, energy, and communications. And it affected not only environmental regulation, but regulation of public health and safety as well. In many of these arenas, economics was almost irrelevant in the early 1960s; by the 1980s, its language shaped the terms of debate in domains once seen as well beyond its scope.

The effects of economic reasoning on environmental policy, as in other areas, were subtle. Both the original Clean Air Act and its later amendments helped to limit pollution. And the integration of economic reasoning into environmental policy did not mean that policy generally came to reflect economists’ preferences. Indeed, Washington’s ongoing failure to meaningfully limit greenhouse gas emissions, despite overwhelming support for such action from economists across the political spectrum, sharply demonstrates the limits of their influence.21

Yet the expansion of economic reasoning that took place in the 1970s and 80s affected the range of environmental policies considered in the decades that followed. Environmental policy shifted away from a moral approach that stigmatized polluters, and toward the position that pollution was simply an externality to be priced. It moved attention away from identifying acceptable levels of pollution and toward identifying the most efficient means to achieve them. It drew focus away from technologies of pollution reduction, and toward technologies of market design.

And a growing expectation that environmental claims be made in economic terms, at least if they were to be taken seriously by federal agencies and the courts, changed the political space for making them. Ecological arguments, so integral to the passage of NEPA, rested on the idea that organisms and their environment depend on one another in complex, unpredictable ways; these did not translate easily into economic terms. Instead, the 1990s saw ecology rethought in terms of “ecosystem services”—priceable contributions the environment made to human well-being, like pollination, water purification, and climate regulation—so that such services could be incorporated into cost-benefit calculations. Yet the ecosystem services concept failed to capture the deep interdependence of the living and nonliving elements in an ecological system, while also lacking the moral appeal ecological thinking had held for many.22

Similarly, as people of color organized in the 1980s to call for environmental justice in response to the disproportionate pollution of their communities, they drew on the language of civil rights to demand political voice and assert “the right to participate [in environmental governance] as equal partners.”23 Yet when the EPA finally responded, it did

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so by turning demands for racial justice into economic calculation of “the relative risk burden borne by low-income and racial minority communities.”24 Gone were the calls to end toxic waste production and references to the sacredness of Mother Earth.25 The power of economic reasoning rests partly in its ability to bring new concerns—whether with the value of pollinators or the siting of landfills in racialized communities—into its framework. But rethinking competing values in the language of economics often comes at the cost of some violence to the originals.

This book tries to understand how an economic style of reasoning came to dominate U.S. policymaking between the 1960s and the 1980s, and what the consequences of that change have been—not only in environmental policy, but across a range of domains, including those focusing on social welfare, market governance, and the regulation of health and safety. It does this in two ways.

First, it shows how two intellectual communities—both initially led by liberal technocrats who thought government could solve social problems and make markets work better—brought a distinctive economic style of reasoning to new parts of the policymaking process. One was a group of systems analysts who came from the RAND Corporation and brought new answers to the question “how should government make decisions?” The other was a loose network of industrial organization economists who came to Washington to ask “how should we govern markets?” It follows the movement of these economists and their fellow-travelers into a variety of policy domains, and shows how they helped to institutionalize an economic style of reasoning through law, regulation, and organizational change.

Second, the book looks at the political effects of this change. Economic reasoning placed a high value on efficiency, incentives, choice, and competition. As its influence became more durable, it became harder for competing claims, grounded in different values and ways of thinking, to gain political purchase. This included concerns with rights, universalism, equity, and corporate power. While economic reasoning has the potential to conflict with conservative as well as liberal values, in practice, its predominant political effect has been to reinforce the conservative turn that began in American politics in the 1970s, in part by undermining Democrats’ traditional arguments for challenging that turn. While for Republicans, economic reasoning remained a means to an end, for Democrats, the values of economics became an end in themselves.

The Puzzle of the 1970s

Understanding how economic reasoning changed the policy process is critical to understanding a much larger set of political developments. The 1970s, once seen as a decade where “nothing happened,” have come to be understood as a historical turning point between two distinct political eras.26 Culturally, the nation was becoming more liberal. Explicitly racist attitudes were declining, and Americans became steadily more accepting of new roles for women, a wider range of sexual behaviors, and different family structures. These attitudinal changes would not reverse, even as politics turned rightward.27 Economically, the nation was changing as well. Whether one dates the turning point to 1973, when the U.S. faced a destabilizing oil crisis, or 1978, when wealth inequality

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began its long steady rise, by the end of the decade corporations had become stronger, unions weaker, median incomes had flattened, and wealth had begun to concentrate.28

The decade also transformed politics. The 1960s had seen a dramatic expansion of government’s ambitions to address problems from civil rights to poverty, health and housing. The 1970s, though, were a more cautious and—following Vietnam and Watergate—more cynical era. By 1980, Americans had elected a new president, Ronald Reagan, who argued that they must have “the courage to bring our government back under control”, and promised to put it “on a diet.”29

But Reagan’s election did not only signal a new national commitment to lower taxes, freer markets, less welfare, and stronger defense. It also intensified an emerging identity crisis on the left, as Democrats struggled to redefine their party in the face of political losses. Here, the 1970s saw them inch away not only from New Deal commitments to strong regulation of markets, a robust safety net, and an alliance with labor, but from Great Society moves toward strengthening civil rights, expanding the welfare state, and extending health, safety and environmental regulations.30 Indeed, it was president Carter, not Reagan, who oversaw the deregulation of the airlines, trucking and railways, and the 1980s would see Democrats focus their social policy efforts on ending welfare “dependency.”31 By the time Bill Clinton brought the Democrats back to the White House in 1992, the party had become more business-friendly, more market-friendly, and had reined in its expectations of what government could, and should, do.32

Historians and social scientists have proposed a number of explanations for this political shift. At the broadest level, global economic changes were pressuring the U.S. in new ways.33 Germany and Japan, having fully recovered from World War II, were becoming major economic competitors, and U.S. corporations were either becoming global in scale, or losing their dominant position. Improvements to transnational shipping and reduced barriers to trade put American workers into competition with their lower-paid peers around the world.34 From one perspective, reducing regulation, encouraging business investment, reining in social spending and promoting labor flexibility were rational adjustments to this new economic reality. But these structural changes also weakened the hand of American labor and shifted the balance of power toward capital, leading to a bipartisan political transformation.35

Another explanation emphasizes the role of ideology in driving this change. While agreeing that global economic developments put pressure on the U.S., even to the point of crisis, the real question was which ideas Americans (and the world) would turn to as they looked for solutions.36 Here, advocates of free markets and smaller government built on arguments developed through the Chicago School of economics and the Mont Pelerin Society.37 As American business, increasingly threatened, became more interested in promoting market-friendly ideas, it supported a new wave of conservative think tanks as well as organizations advancing conservative legal thought.38 By the 1980s, these efforts were coming to fruition, as the Heritage Foundation set the agenda for the Reagan administration and a wave of conservative judges were appointed to the bench.39

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A third approach points to coalition fracture and political realignment. The civil rights movement and the urban uprisings of the 1960s prompted white Democrats in the South, the Sunbelt, and the suburbs to begin defecting to the Republicans.40 Vietnam further fractured the Democratic Party and led to internal reforms that weakened traditional power bases, including unions, and social movement politics worsened these divisions.41 When the dust finally settled from this long-term process of realignment, Republicans had become significantly more conservative—on both social and economic policy. The Democrats’ shift was less dramatic, but after their disastrous presidential loss in 1972 and an extended period of soul-searching, they finally coalesced around the centrist New Democrats represented most visibly by Bill Clinton.42

Finally, a fourth set of explanations focuses on the success of collective action in building a conservative movement and advancing business-friendly policies.43 On the one hand, beleaguered Goldwater youth, Orange County Republicans, and evangelical Christians were developing the grassroots networks that would form a new Republican base.44 On the other, big business, feeling similarly beleaguered, was organizing in new ways, and would present an increasingly unified political face by mid-decade.45 Collectively, these efforts would revitalize the Republican Party and usher in a new conservative era that would pull Democrats as well as Republicans in its direction.

These explanations are not, for the most part, mutually exclusive. All acknowledge the global economic trends that set the stage for U.S. political change. And any complete account must acknowledge a role for new ideas, party realignment, and collective action in driving political developments.

But each of these standard stories is missing an important piece: how a new way of thinking about policy, institutionalized into the policy process in a thousand small ways, helped lock in this change. Between the 1960s and the 1980s “serious” observers of policy settled on a new conventional wisdom—one supportive of regulatory reform, welfare reform, and rationalizing government. It was skeptical of universal social policies as unrealistic and unnecessarily expensive, and generally favored choice and competition. It rejected economic regulation and “political” antitrust, and while it might sometimes be attuned to the problems of poverty, it had less interest in inequality. This emerging conventional wisdom downplayed the distribution of power, did not center racial injustice, and was generally opposed to enshrining new rights in law. The New Democrats would reflect this perspective, as would policy-oriented Republicans. And its taken-for-granted character in policy wonk circles would set the stage for U.S. politics from 1992 to 2016.

The new conventional wisdom went hand in hand with the spread of a new style of reasoning grounded in the academic discipline of economics. This spread is not primarily a story about the Chicago School and the rise of laissez-faire. Nor is it a story of economists as policy advisers—influential academics whispering into the ears to the powerful. Instead, it is a story about a loose style of reasoning—methodologically individualist, valuing efficiency, focused on tradeoffs and incentives, and optimistic about the power of markets—and how it was integrated into the policy process. It is the story of center-left technocrats who wanted to use government to improve people’s lives. And it is a story of bureaucracy

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—of professional schools and obscure government offices; little-known executive orders and regulatory decisions—not the Oval Office and headline-making legislation. It is a story of policy, not politics.

This is a complement to other explanations of the 1970s, not a replacement for them. Each contributes a piece of the puzzle, but collectively they are missing a critical part of the picture. In particular, they miss how the economic style, with its elevation of efficiency as the measure of good policy, competed with political claims grounded in other values. These included values typically associated with conservatives (traditional families, nationalism) as well as liberals (rights, universalism, equality). In practice, however, the effects of the economic style were asymmetrical. Whether Democrats or Republicans were in power, the economic style more often constrained the left than the right. And because the style was not carried just by individuals who might come or go with a particular administration, but institutionalized through legal frameworks, administrative rules, and organizational change, its effects have been lasting.

Politics evolves and the discipline of economics evolves, and neither the economic style of reasoning nor its core commitments are fixed for all time. Yet understanding the political world we’ve created—and why Democrats have found it so hard to articulate a compelling alternative—requires understanding the economic style: both its power and its limitations.

The Spread of the Economic Style of Reasoning

In November 1960, Charles Hitch—head of the RAND Corporation’s economics department, and about to introduce economic reasoning into the Defense Department—gave an address at the Brookings Institution. In it, he explained how to go about finding efficient policy solutions, which were key to applying the economic style:

Our magic way of looking at problems, or of economizing, is deceptively simple. Stripped to its essentials, it consists in arraying alternatives, estimating the utilities and costs of each, and choosing the alternative that yields the greatest excess of utilities over costs. To a well-trained economist, this procedure seems so natural and obvious—so commonsensical—that he is likely to dismiss it as trivial.46

Yet, Hitch continued, “One of the important things I have learned in twenty years of intimate contact with non-economists of all kinds—civil servants, engineers, scientists, and politicians—is that it is not an obvious procedure to other people, and is therefore far from trivial.”47

In practice, those who proposed an economic approach to policy problems in this era often found that their suggestions were not just unobvious to others, but actually provoked hostility. When, in 1959, economist Ronald Coase testified to the Federal Communications Commission (FCC) in favor of selling off rights to use the radio spectrum, he later recalled that FCC commissioner Philip Cross responded, “Are you spoofing us? Is this a big joke?”48 When, that same year, economist John Meyer and colleagues made the economic case for

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removing restrictions on price and entry in the transportation industry to improve allocative efficiency, they noted that their recommendation “departs sufficiently from the emphasis of the solutions usually suggested as to be heretical.”49 And when, several years later, economist Alice Rivlin argued for evaluating federal health and education programs as “human investment programs…designed to increase the income earning capacity…of individuals and families,” she cautioned that, “rightly or wrongly, doctors and teachers and social workers do not think in economic terms and will resent our efforts if we seem to stress the economic aspects of their activities.”50

In each of these cases, however, the “heretical” economic approach to the problem would eventually become taken-for-granted orthodoxy. The transportation industries Meyer wrote about were deregulated in the late 1970s for the reasons he suggested twenty years before. The Federal Communications Commission would, in 1994, begin auctioning off the electromagnetic spectrum just as Coase had recommended decades earlier. And while doctors, teachers, and social workers might still, by the 1990s, resent being evaluated in economic terms, they would no longer be surprised to hear Rivlin describe their work as an investment in human capital. The economic style of reasoning had become dominant in policy circles.

• • •

Philosopher Ian Hacking initially proposed the term “style of reasoning” to capture the distinctive ways of thinking made possible with the emergence of statistics.51 As Daniel Hirschman and I write elsewhere, “styles of reasoning are not scientific paradigms, nor particular theories or models, [but] collections of orienting concepts, ways of thinking about problems, causal assumptions and approaches to methodology.”52 The economic style of reasoning—reflected in Hitch’s approach and the policy recommendations of Coase, Meyer, and Rivlin—starts with basic concepts, like incentives, various forms of efficiency, and externalities. It takes a distinctive approach to policy problems: using models, quantifying, weighing costs and benefits, thinking at the margin.53 And it includes causal policy stories linked to economic theories—that, for example, investing in education will increase human capital and raise incomes.54

The economic style is grounded in PhD-producing economics departments, which reproduce it, certify those credentialed to use it, and, over time, gradually drive its evolution. These departments are at the center of what Ludwik Fleck called an “esoteric circle” of those who publish in top economics journals and create new knowledge in the discipline.55 But a weaker version of the style circulates well beyond the rarified air of elite economics departments. Economics PhDs teach in law, policy, and business schools, where graduate students in other disciplines are exposed to the basics of the style as well. Indeed, as Tim Hallett and Matt Gougherty show in their ethnography of a public affairs program, learning to “think like an economist (without becoming one)” is integral to pursuit of the master’s degree.56

This much larger group of people—lacking PhDs in economics, but familiar with the basic principles of economic reasoning—makes up concentric “exoteric circles” of those

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influenced by the economic style: faculty in professional schools oriented toward it, producers of policy knowledge who apply it, and policymakers and advocates who adopt its approach, sometimes unawares.57 While the inhabitants of these exoteric circles may not be familiar with the cutting edge of the discipline, what’s happening at the frontiers of knowledge may not matter much for policy purposes. As economist Alain Enthoven, one of Robert McNamara’s whiz kids, wrote in 1963—and others have reaffirmed—“the tools of analysis that we use [in policymaking] are the simplest, most fundamental concepts of economic theory [that] most of us learned as sophomores.”58

While economists had long played some role in Washington, it was in the 1960s that the economic style really began to spread, as two intellectual communities rooted in the economics discipline first brought their insights into policymaking. One was a systems analytic group—Hitch and Enthoven were central to it—that came to Washington from the RAND Corporation in 1960 to implement the Planning-Programming-Budgeting System (PPBS) at the Defense Department. The systems analysts—who mostly wanted to improve, not to shrink, government—thought they could provide neutral, technocratic answers to the question, “How should government make decisions?” Their influence spread when, in 1965, President Johnson required nearly all executive agencies to adopt PPBS. Timed just as the Great Society was dramatically expanding social programs, PPBS would introduce the economic style into welfare, health, housing and education policy—domains where it was initially unfamiliar.

The systems analysts were joined by a second, looser network of industrial organization economists who had answers to the question, “How should we govern markets?” This network included a liberal Harvard branch (Meyer was a representative) that was friendlier to government intervention, and a conservative Chicago branch (which included Coase) that was skeptical of it. Both groups, however, thought that the purpose of market governance was promoting allocative efficiency, and that the existing approach to regulation was making markets less efficient. By introducing economic reasoning to law schools, encouraging it at agencies like the Antitrust Division and the Federal Trade Commission, and building hubs in Washington—first at the Brookings Institution and later the American Enterprise Institute—industrial organization economists disseminated economic reasoning into areas like antitrust, transportation, energy, and communications policy.

As the territory of economic reasoning expanded, these two communities would intersect and recombine in sometimes unexpected ways. Industrial organization’s focus on eliminating economic regulation—that is, price and entry controls in various industries—would be married to the systems analysts’ cost-benefit approach to produce “regulatory reform”: cost-benefit analysis of environmental, health and safety regulations. And the systems analytic concern with policy efficiency would meet industrial organization’s interest in market structure to promote ideas like emissions trading—as would be realized in the Acid Raid Program. While these networks were tied to different parts of the economics discipline, and focused on different policy problems, their underlying commitment to the economic style of reasoning made them natural allies.

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As economists and other advocates of economic reasoning became active in new policy domains, the economic style was institutionalized to varying degrees through organizational change, legal frameworks, and administrative rules. In some parts of the federal bureaucracy, entirely new offices oriented toward economics were created; in others, existing offices were expanded and upgraded. In the process, these offices sometimes reshaped how whole agencies thought about policy. Outside government, law and policy schools hired economics PhDs and introduced economic reasoning into their curricula, while new funding streams fed the growth of economics-oriented policy research organizations that also helped set policy agendas. At the same time, economists helped to shrink or close government offices whose orientation directly conflicted with economic reasoning.

Evolving legal frameworks also helped to institutionalize the economic style. At times, economists worked to tear down old frameworks that clashed with economic reasoning, as in their support for legislation removing regulation of airlines, rail and trucking. At other times, they built a constituency for new ones, as in their advocacy of an efficiency-centered vision of antitrust—a long-term project that was realized as the antitrust agencies, law schools, and eventually the Supreme Court came to agree with them. Finally, administrative rules were a third pathway along which the economic style was reproduced. Executive orders and agency rulings, for example, expanded the use of cost-benefit analysis in issuing environment, health and safety regulation. And administrative rules made experiments like the EPA’s “bubble” policy—a precursor to emissions trading—possible.

Institutionalizing the economic style through organizational change, legal frameworks, and administrative rules did not only increase the presence of economists and their allies, or change decision-making so that it took place through an economic lens. Institutionalizing economic reasoning in one location also tended to generated more demand for it in another, as when Congress responded to the executive branch’s growing analytic capacity by creating the Congressional Budget Office (CBO) to provide itself with such capacity. And hiring staff to meet one kind of analytic demand—for example, to conduct cost-benefit analysis—could also create a constituency of enthusiasts for the economic style who would promote its further expansion.

• • •

As the economic style of reasoning pervaded Washington, approaches to policy problems that had once produced widespread antagonism were increasingly naturalized. Economic deregulation stopped being “heretical” and became the conventional wisdom. Taxing emissions and effluents was no longer seen as providing a “license to pollute” but as the most reasonable response to managing environmental quality—unless, even better, it might be possible to create a market for emissions allowances. And social policy decisions were increasingly made through a lens of cost-effectiveness, in which the targeting of public services to those who could not afford to pay was eminently more sensible than providing universal access to them. As some economist said in [1978 to 1992], “Quote

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reflecting economic triumphalism—that others are finally appreciating economic reasoning rather than reacting with knee-jerk hostility.”

This story differs from other accounts of the role of economists in U.S. policymaking. It centers micro- rather than macroeconomics.59 It emphasizes the building of an infrastructure for economic reasoning rather than economists’ policy advice.60 And it suggests that the 1960s mark the start of a rise in economists’ importance, rather than the peak of their influence.61 This account also centers the role of liberal Democrats who wanted to use economics to make government better, and the optimistic moment of the Great Society, in disseminating economic reasoning—even more so than the Chicago School and its free-market idealism, though it too played a role.62

Of course politicians did not always use economic language, challenger groups continued to make other kinds of claims, and economists themselves remained frustrated at the sheer irrationality of much of the policy process. But within the technocratic communities of think tanks, regulators, bureaucrats, and professional schools—communities that played a critical role in setting the policy agenda and laying out political possibilities—“thinking like an economist” had become the new norm.

The Political Effects of the Economic Style

The economic style of reasoning provided an intellectual toolkit for thinking about policy problems. Many of its advocates saw it as value-neutral and technocratic, and were not themselves particularly partisan. Typically, they hoped economic reasoning would promote more rational decision-making in a process that was, most of the time, fundamentally illogical.

But the economic style was more than an approach to thinking about problems. Values were also built into economic reasoning—first and foremost, the value of efficiency. Indeed, Charles Schultze, Johnson’s budget director, chair of Carter’s Council of Economic Advisers, and archetype of the Democratic economist, famously argued that economists’ most important job in Washington was to serve as “partisan efficiency advocates.”63 From welfare to health to housing policy, from regulatory to antitrust to environmental policy, the economic style made efficiency its cardinal virtue.

Yet while efficiency was the yardstick of good policy in a range of domains, it came in multiple forms. In social policy, the economic style typically valued policies that produced the most (measurable) bang for the buck—productive efficiency. In market governance, it aimed to remove restrictions on prices and barriers to entry, but also tried to address market failures—to promote allocative efficiency. And in social regulation, economists sought to maximize the total net benefits of decisions, measured in dollar terms, while setting aside the question of who won and who lost—Kaldor-Hicks efficiency.

All of these varieties of efficiency, though, frequently conflicted with competing values. Advocates for national health insurance, for example, made their case by centering other values: the right to medical care, equality of access, universalism as important either for moral reasons or for political viability. If efficiency were the measure of good policy,

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though, then means-testing and cost-sharing, not universal full coverage, looked like the best approach, as it would provide the maximum amount of medical care at the minimal cost to government. Advocates of robust antitrust enforcement might rail about the political power of big business, or point to the role of small business in the fabric of local communities. But this conflicted with an economic vision that that took no position on the desirability of small businesses or the danger of big ones, so long as prices remained at competitive levels.

And advocates of strict environmental regulation might take that position because of concerns with immeasurable ecological impacts of pollution, because of a belief polluters should be punished, or because they thought rigid standards would make it harder for polluters to weaken environmental protections. Yet all these positions clashed with the economic idea that regulation should prioritize the maximization of (measurable) net benefits, while setting aside the morality of pollution and “political” questions like policies’ practical viability or the issue of gained and who lost.

Economists, of course, were neither monolithic nor monomaniacally committed to efficiency. Many were deeply aware that the values inherent in the economic style conflicted with other values that they, themselves, might hold. Alice Rivlin, later founding director of the CBO, wrestled with these conflicts in 1960s memos to her colleagues as a young economist at the Department of Health, Education, and Welfare.64 Kenneth Boulding, as president of the American Economics Association, addressed them in a 1968 lecture to the discipline titled “Economics as a Moral Science.”65 Arthur Okun, the chair of Johnson’s Council of Economic Advisers, wrote Equality or Efficiency: The Big Tradeoff in 1975 to grapple with exactly these issues.66 In the end, most decided that the benefits conferred by using the economic style—benefits that often had few advocates in the self-interested world of politics—outweighed the risk of squeezing out values less integral to economics.

Yet as the economic style was, in fact, institutionalized in various policy domains, and as centering efficiency was both naturalized and sometimes legally required, these competing arguments did become harder to make. How much harder depended how fully the economic style was institutionalized, which varied across policy domains. Where the language of economics came to dominate, but its use was not built into formal rules, other arguments simply came to seem less legitimate. If one took for granted that good policy was efficient policy, then how could one justify spending taxpayer money to provide healthcare to those who could afford to pay for it themselves?

But where elements of the economic style were integrated into more formal decision-making processes, like legal frameworks, the barriers to challenging it were even higher. A series of Supreme Court decisions, for example, made consumer welfare—understood as allocative efficiency—the sole legitimate goal of antitrust policy.67 This meant that advocates of alternative goals, like limiting forms of corporate power that went beyond the ability to raise prices, would not only have to convince others that their way of thinking was legitimate, but would actually have to change the law. This was a formidable task.

• • •

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Many enthusiasts of the economic style wanted to use government to solve problems, and saw the style as an apolitical way to improve its effectiveness. But the collective effects of the economic style were less liberal than such advocates might have preferred. In particular, centering efficiency often put the economic style into conflict with values frequently associated with the left: rights, universalism, and equality. This, in turn, often placed Democratic economists into opposition with other members of the Democratic party.

For example, Democratic advocates of the economic style typically—on efficiency grounds—preferred giving vouchers to low-income families as a means of housing assistance, rather than funding the production of low-income housing, as advocates of a right to housing often preferred. As one observer noted,

The pro-production forces usually identify themselves as liberal or progressive and are almost always Democrats. The voucherists are predominantly conservative, free-market devotees, who are usually Republican. A noteworthy exception: in respect to the merits of housing allowances, leading economists of traditionally Democratic think tanks were in comfortable alliance with the leading lights of traditionally Republican think tanks, both respecters of market solutions.68

Democratic economists also—in addition to being skeptical of universal full health insurance—advocated against a universal family allowance and thought tuition-free higher education was misguided. Centering efficiency put Democratic advocates of the economic style into conflict with positions—on regulation of various forms, on antitrust, on a wide range of social policy issues—held by those they were otherwise politically aligned with.

The economic style could conflict with conservative values as well as liberal ones. For example, economists’ focus on efficient solutions to poverty, like the negative income tax, made them relatively uninterested in the moral virtue of work, a concern central to conservative welfare reformers. And economists might advocate for public spending on health and education programs on the grounds that the payoffs were likely to exceed the costs, while conservatives might prefer a smaller government role on philosophical, not economic, grounds. On balance, though, the spread of economic reasoning was not as constraining for constraining for conservatives as it was for liberals for several reasons.

First, value conflicts between the economic style and conservative positions were less frequent. Liberal economists of the 1970s, for example, were typically strong supporters of less economic regulation and more limited antitrust enforcement, which aligned with conservatives’ preferences as well.

Second, the economic style prescribed government efficiency, but often implied no clear position on what government should or should not try to do. In practice, this meant that its advocates often argued against specific liberal programs—like the early 1970s push for a universal family allowance—on efficiency grounds.69 But, even if liberal, they did not necessarily have equivalent counterarguments if conservatives made the case for welfare

13

reductions, or other program cuts, on small-government grounds.

Conservatives were also better at using the economic style strategically, in pursuit of non-economic objectives. This was true to some extent as early as the Nixon administration, which supported basic income experiments (favored by economists) in part because experiments defused the push for broader antipoverty programs. But it was particularly visible under Ronald Reagan, who slashed support for economic analysis in social policy areas, where he expected it to prop up the welfare state, while expanding it in areas like antitrust and environmental policy, where he thought it would support his preference for less regulation.

Ultimately, Republicans proved more willing than Democrats to simply ignore economic reasoning when it conflicted with other, more fundamental values or interests. The Carter administration, for example, substantially expanded cost-effectiveness analysis of regulation on efficiency grounds, even though the left wing of the Democratic Party opposed such moves. Reagan, however, shifted the focus to “regulatory relief”—simply removing regulations, regardless of whether their benefits outweighed their costs—out of commitment to small-government ideals and support for business interests. This difference set the stage for how Democrats and Republicans would continue to interact with the economic style over the next thirty years—it would constrain Democrats, while Republican used it strategically.

This book does not claim that the economic style of reasoning directly caused Democrats’ rightward shift, which was driven by many factors. That is, I do not argue that had economists been absent, Democrats would necessarily have remained committed to New Deal ideals or ecological conceptions of the environment or remained more “liberal” in any meaningful sense.

Instead, I make a subtler claim: that the economic style—and in particular its institutionalization through legal frameworks, administrative rules, and organizational change—was the channel through which such a shift was made durable, and that this gave competing claims, grounded in different values and ways of thinking, a much harder time gaining political purchase. Centrist technocrats’ efforts to advance the economic style reinforced the conservative turn in politics by undermining some of Democrats’ most effective language—of universalism, rights, and equality—for challenging it. Understanding how this change occurred and why its effects have been so lasting is critical to understanding the larger political legacy of the 1970s.

Organization of the Book

The book develops this argument through two interlocking narratives, but its claims are grounded in comparative, case-based logic. I draw on historical research in a number of different policy domains, using a wide range of primary, secondary, and archival sources as well as oral histories. Empirically, the book focuses most heavily on the cases of welfare, health, antitrust, transportation, and environmental policy. It also relies on extensive research on other policy areas—particularly education, housing, fiscal, labor, and

14

occupational safety—which is not incorporated into the narrative, but provides evidence consistent with the larger argument. I have chosen to bracket macroeconomic policy domains—particularly fiscal policy and monetary policy—despite the obvious importance of economics in those areas. Macroeconomics built its ties to policy earlier, and these policy domains were already fully “economic” by the 1960s. Instead, I focus on the spread of (micro)economic reasoning to policy domains in which economics—at least neoclassical economics—was not especially influential prior to the 1960s.

The book is organized into three parts. Part I focuses on how the economic style of reasoning entered policymaking into the 1970s. Chapter 2 sets the stage by sketching the relationship between academic economics and policymaking up to the 1960s. Institutional economists were widespread in Washington in the first half of the century, but were being marginalized in economics as early as the 1930s, and after World War II their policy influence was clearly waning as well. Keynesian macroeconomists picked up where the institutionalists left off, playing a major advisory role in the 1960s, but their influence declined after the Kennedy-Johnson years. The new economic style that would become prominent in the 1960s, however, differed from either of these traditions. Microeconomic and broadly neoclassical in orientation, it provided a distinctive—and in many policy domains, unfamiliar—way of thinking about policy problems. Proponents of this new economic style would build on the connections made by prior generations of economists, but their impact would spread well beyond earlier economists’ spheres of influence.

Two different intellectual communities were critical in building ties between the economics discipline and Washington in this period. Chapter 3 follows the development of the systems analytic community at the RAND Corporation and its movement into Washington in the 1960s through implementation of the Planning-Programming-Budgeting System. Closely associated with the Kennedy administration, this group—politically center-left and technocratic—hoped to make government better by improving the tools used to make spending decisions. In the process of implementing PPBS, they created an analytic infrastructure in Washington, establishing economics-centered policy planning offices throughout the executive branch and launching the new academic discipline of public policy. While PPBS itself was a failure, largely abandoned by 1970, it created lasting ties between the discipline of economics and a wide range of policy domains, as well as spreading economic reasoning into many new locations.

Chapter 4 introduces a second community of economists from the subfield of industrial organization, which included a liberal Harvard wing and a conservative Chicago one. The 1960s saw this group—then led by the Harvard branch—launch the first wave of the law & economics movement, expand its role in the Antitrust Division and FTC, and build a new Washington network centered at the Brookings Institution. As the Chicago branch rose to academic dominance in the 1970s, it expanded on these endeavors, while also shifting the network’s center of gravity from liberal Brookings to the conservative American Enterprise Institute. Both branches’ efforts, however, expanded the foothold for economic reasoning in Washington.

15

Part II of the book shows how the economic style was institutionalized in three broad policy areas—social policy, market governance, and social regulation—setting up conflicts between economic values and competing ways of thinking about policy. Chapter 5 shows how the Great Society inadvertently disseminated economic reasoning in social policy by creating new organizations in which the economic style was central. These included policy planning offices, established throughout the executive branch to implement PPBS, and policy research organizations, supported by new funding streams to conduct large-scale evaluations and social experiments. These helped center efficiency as a political value, which often came into conflict with Great Society programs motivated by ideas about universalism, equality, and rights. In welfare policy, proposals for a Negative Income Tax gained ground relative to those centered on community action or social insurance. In health policy, proposals centering cost-sharing and means-testing of health insurance, rather than universal full coverage, became more influential.

Chapter 6 looks at how the industrial organization framework for thinking about market governance helped to institutionalize economic reasoning through new legal frameworks. In antitrust policy, this took place through organizational changes and court decisions that established allocative efficiency as the sole legitimate goal of antitrust, in contrast with previous approaches that also sought to limit corporate power and protect small business. In transportation, advancing the economic style meant deregulation: replacing an old legal framework that prioritized stability and a rough equity with one centered on competition as a means to promote allocative efficiency. Such trends were not limited to antitrust and transportation policy but could be seen in other parts of market governance where economic values were partly institutionalized.

Chapter 7 shows how the dramatic expansion of social regulation—rules governing the environment, health, and safety—that took place starting in the late 1960s had, like the Great Society, the unintended consequence of spreading the economic style—this time, by creating new administrative rules. Environmental policy, for example, had emphasized ecological reasoning, rights, and equity, and favored rigid standard-setting as a means to avoid regulatory capture. But the 1970s saw a steady move toward rules centering efficiency or cost-effectiveness as the appropriate goal of social regulation, and experiments with emissions trading prioritized efficiency even further. By the end of the decade, economic reasoning had been institutionalized not only through the creation of a regulatory oversight office at the Office of Management and Budget, but through its expansion into administrative law, which increasingly defined its purpose as “utilitarianism or wealth maximization with an egalitarian side constraint.”70

Part III of the book turns to examine the political consequence of the economic style’s spread. Chapter 8 shows how the institutionalization of economic reasoning during the 1970s—advanced most visibly by liberal technocrats—made it increasingly hard for Democrats to argue for policies on the basis of rights, universalism, or limiting corporate power. Repeatedly—in health, antitrust, and environmental policy, among other areas—technocratic advocates of the economic style found themselves allied with Republicans against existing Democratic positions. While other forces were also weakening the Democratic left, the institutionalization of economic reasoning was an important path

16

through which that weakening was made durable.

While economic values were becoming increasingly central for Democrats by 1980, Chapter 9 shows how the Reagan administration saw the economic style as a means to an end, not an end in itself. Reagan used the economic style more strategically, strengthening it when it advanced his administration’s policy goals and starving it when it did not. While he slashed support for economic analysis of social policy, where he expected it to prop up the welfare state, he beefed it up in antitrust policy and social regulation, even as agency budgets were being cut. This marked the beginning of a lasting divergence in the two parties’ relationship to the economic style. While Democrats continued to find themselves hamstrung by economic reasoning, Republicans kept the values of economics subservient to more fundamental political commitments.

The book concludes, in Chapter 10, by revisiting the larger argument with an eye to the future. The story told here is a different way of understanding the political turn of the 1970s: one of how centrist technocrats, reacting partly to the expanding ambitions of the state, disseminated a seemingly neutral way of thinking that was incompatible with many older liberal ideals and contributed to their marginalization. The decades that followed would see the pattern established by Carter and Reagan—in which Democrats were constrained by economic reasoning, while Republicans used it strategically—extended. Advocates of once-mainstream liberal positions found themselves forced to rearticulate their claims in economic language and struggled to regain political traction. Today, we are in a new political era—one in which experts are uniquely vulnerable, and the left appears to be resurgent. While we should be cautious not to undermine the value of expertise, it is more important than ever to recognize the values within expertise. When our values align with those of economics, we should embrace the many useful tools it has to offer. But when they conflict, we must be willing to advocate, without apology, for alternatives—rather than allowing our values to be defined by the values of economics.

17

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1 Adler (2002).2 Public Law 91-190.3 Reorganization Plans No. 3 and 4 of 1970; Public Law 91-604; Public Law 92-500.4 Hays (1989); Kline (2007:Chs. 6-7).5 P.L. 91-190 §2; Milazzo (2006).6 P.L. 91-604 §2.7 Lowi (1969); Hoberg (1992:72); P.L. 92-500; P.L. 91-604 §112.8 See Mishan (1971); Solow (1971); Ruff (1970); Kneese and Schultze (1975) for contemporary discussions.9 Ruff (1970:71).10 See, e.g., U.S. President (1965:152; 1966:120-121; 1970:93).11 “Economist Favors” (1966); Levin (1982:65).12 Roberts (1980).13 Kline (2007:117-119).14 Regens and Rycroft (1988).15 P.L. 101-549.16 P.L. 91-190 §2, §101.17 American Presidency Project (1990); Project 88 (1988:vii, 1).18 Bryner (1995); Ellerman et al. (2005).19 Dales (1968); Project 88 (1988); McCauley et al. (2008).20 Schmalensee and Stavins (2013).21 Howard and Sylvan (2015).22 Daily (1997); Costanza et al. (1997); Gómez-Baggethun (2010).23 Bullard (1990); First National (1991).24 Policy, Planning, and Evaluation (1992:1).25 First National (1991).26 Carroll (1982); Berkowitz (2005).27 Courtwright (2010); Bobo et al. (2012).28 Borstelmann (2011); Jacobs (2016); Mizruchi (2013); Waterhouse (2013); Stein (2011); Saez and Zucman (2016).29 American Presidency Project (1980).30 Weaver (1984).31 Derthick and Quirk (1985); Katz (1989).32 See, e.g., the 1992 Democratic Party platform (Pear 1992) and Clinton’s speech accepting the Democratic nomination (The American Presidency Project 1992).33 Jacobs (2016); Levinson (2016).34 Levinson (2006); Chorev (2007).35 There are many variations on this argument. In sociology, see, e.g., Rosenfeld (2014), McCarthy (2017); in history, Cowie (2010), Stein (2011); in geography, Harvey (2005); from political economy, Duménil and Levy (2004); Glyn (2007).36 Blyth (2002).37 Mirowski and Plehwe (2009); Rodgers (2011); Burgin (2012); Stedman Jones (2012); Slobodian (2018).38 Teles (2008); Medvetz (2012); Campbell and Pedersen (2014); Stahl (2016).39 Stahl (2016); Teles (2008).40 Phillips (2014 [1969]); Carter (1999); Lassiter (2007); Kruse (2007); Martin (2008).41 Miroff (2007); Nelson (2014).42 Baer (2000); Mudge (2018); Grossman and Hopkins (2016).43 Schulman and Zelizer (2008).44 Klatch (1999); McGirr (2001); Williams (2010); Dochuk (2011).45 Vogel (1989); Phillips-Fein (2009); Hacker and Pierson (2011); Mizruchi (2013); Waterhouse (2013).46 Hitch (1960:2).47 Hitch (1960:2).48 Coase (1998).49Notes Meyer et al. (1959:vi).50 Departmental History, Office of the Assistant Secretary for Planning and Evaluation, LBJ Presidential Library, p. 6; Alice Rivlin to Robert Grosse, 21 February 1966, folder “Programming,” Box 1, Personal Papers of William Gorham, LBJ Presidential Library.51 Hacking (1992).52 Hirschman and Berman (2014:794)

53 Also see Reay’s (2012:45) discussion of the “‘core’ of relatively simple ideas and techniques” used by practicing economists.54 On policy stories, see Stone (1989).55 Fleck (1979 [1935]). Fleck’s older, more sociological conception of “thought styles” and Hacking’s epistemological “styles of reasoning” overlap considerably (see Sciortino 2017 for a discussion); while I borrow Fleck’s distinction between an esoteric and an exoteric circle, I use Hacking’s terminology elsewhere.56 Hallett and Gougherty (2018).57 Fleck (1979 [1935]).58 Enthoven (1963:422); see also Klein (1988:9), Reay (2012).59 Though see Rodgers (2011).60 Mudge (2018).61 Bernstein (2001), but also see Appelbaum (2019).62 Mirowski and Plehwe (2009); Rodgers (2011); Burgin (2012); Stedman Jones (2012); Slobodian (2018).63 Schultze (1968:96).64 Alice Rivlin to Robert Grosse, 21 February 1966, folder “Programming,” Box 1, Personal Papers of William Gorham, LBJ Presidential Library.65 Boulding (1969).66 Okun (1975).67 Ginsburg (2008).68 Winnick (1995:96).69 Steensland (2008).70 Rose-Ackerman (1988:344).