A Perilous Progress: Economists and Public Purpose in Twentieth Century America. (Econ Artists).

A PERILOUS PROGRESS: Economists and Public Purpose in Twentieth Century America by Michael A. Bernstein Princeton University Press, $39.50

AT THIS EXTRAORDINARY MOMENT in history, as we enter what many expect to be a long, deep, and intractable recession, and face a war of unknown scope, duration, and cost, one might expect American economists to be hard at work, absorbed in the practical measures required to sustain full employment, to prevent inflation, and to face the failures of worldwide development on which terrorism has been nourished. There is no sign of it.

Consider the so-called stimulus package: Plainly not a line of any draft reflects the thinking of any competent professional in economics. The Republicans have simply resurfaced their tax-cut agenda, cobbled together months back to serve their never-satisfied clientele. Meanwhile the Democrats offer useful relief on too small a scale, alongside pieties about ensuring that all measures be "temporary" and "responsible." Lobbyists in one trench, bookkeepers in the other. Though everyone is fighting, in some loose sense, under the banner of John Maynard Keynes, no one reads him anymore. The fault, dear economists, lies not in our politicians, but in ourselves. This Michael Bernstein makes clear in A Perilous Progress, a history of economics and public policy in the century past. For American economists were raised, above all, to be useful: in war, depression, and in war again, and then, through the 1960s in the management of peacetime prosperity.

Bernstein, a trained economist and professor in history at the University of California at San Diego, details a largely unknown and even unsuspected history of how our professional associations and journals strove from the beginning to engage the important questions, and of how they in the end lost the ability to do so. Bernstein is especially good on wartime planning, and on the high Keynesianism of the 1960s. (Oddly, he passes over the important story of price control, and also, later on, of peacetime incomes policy.) The planners, he demonstrates, knew their business. It was no process of supply and demand that brought 50,000 aircraft a year into production, but the fast and incisive calculations of Simon Kuznets and Robert Nathan and their ability to find resources by, for instance, extending work hours, adding shifts and limiting overtime pay. Bernstein writes: "Born of an intellectual legacy tied to the investigations of scholars predisposed to privilege individualism and democratic ideals ... neoclassical economics was requited in the historical accident of a command economy."

Twenty years on, Kennedy and Johnson's economists took a no less serious view of their duty. The Council of Economic Advisers of those years worked with the President closely and intervened with authority on his behalf both within government and with the private sector. Full employment without inflation was achieved and maintained. In the words of Senator William Proxmire, Kennedy's CEA chief Walter Heller and his colleagues "ha[d] almost singlehandedly made the profession both respectable and useful in the eyes of government." And then, as though these achievements had not occurred, the profession suffered a nervous breakdown. It was part of the larger crisis of American liberalism faced with Vietnam and the twin challenges of radical and reactionary protest. The New Economists might maintain that the fault was Lyndon Johnson's, for failing to raise taxes to pay for the war (a position this reviewer has never found entirely satisfactory). But however the merits of that may be, their position with the profession and the public crumbled, first because of inflation, and then with the return of classical doctrines, which airbrushed the government from American economic history more completely than the Soviets erased Trotsky.

"Feel-good economics" took over. As Bernstein relates, in 1997 Greg Mankiw of Harvard received $1.25 million for a text. book in which the name of John Maynard Keynes "barely appeared once." Under President Clinton, Alan Greenspan took control of policy, while members of the CEA disappeared from view. Privatization and deregulation advanced on all fronts, abetted by cheerleading economists who in earlier times would have been in powerful dissent. Instead of public servants, the pros became consultants and expert witnesses, for hire like lawyers. Ultimately, their credibility was lost, while talented academics retreated into opaque formalism without practical content. Bernstein concludes: "At century's end, the discipline ... was confronted with a remarkable paradox. On the one side, the very prestige and influence of economics as a social science had been built upon statist agendas. Yet on the other, the contemporary profession had turned inward, spurning the fiscal activism and frank political engagement of its forebears, preferring a more withdrawn posture that ostensibly depoliticized its work while at the same time it made more and more practitioners mere shills for particular corporate elites eager to seize upon public assets now increasingly `privatized.'"

And so we end where we started. Of the American Economic Association meetings in 1915, the President of the New York Federal Reserve Bank (no less) wrote that the participants were a "`rather impractical lot. Here is a world crisis, the greatest in a half a thousand years, or more,' and economists did not even deign to discuss it." No present day observer would be surprised.

JAMES K. GALBRAITH's latest book is Inequality and Industrial Change: A Global View, co-edited with Maureen Berner.