A working site for research and writing on the thinkers who developed the system that works.

Monday, June 29, 2009

James K. Galbraith - Links

U Texas faculty site
Toward a New Pragmatism
Minsky Conference speech 3/09
James K. Galbraith website
Interview with Bill Moyers (and transcript)
in the New York Times
Harper's 2008 Six Questions
Google books citations
Complete Links

James K. Galbraith in the series of those who got it right

In our series looking for the perspective of those who got it right, we turn to James K. Galbraith, son of the great economist John Kenneth Galbraith and apparently invisible to those who say nobody saw it coming.

We've promoted Galbraith's book the Predator State ad nauseum here on the podcast. Let's review a few of the anti-orthodox principles that organize that book.

One, and quoting:

Because markets cannot and do not think ahead, the United States needs a capacity to plan. To build such a capacity, we must, first of all, overcome our taboo against planning. Planning is inherently imperfect, but in the absence of planning, disaster is certain.

Two, and continuing to quote:

The setting of wages and control of the distribution of pay and incomes is a social, and not a market, decision. It is not the case that technology dictates what people are worth and should be paid. Rather, society decides what the distribution of pay should be, and the technology adjusts to that configuration. Standards -- for pay but also for product and occupational safety and for the environment -- are a device whereby society fashions technology to its needs. And more egalitarian standards -- those that lead to a more just society -- also promote the most rapid and effective forms of technological change, so that there is no trade-off, in a properly designed economic policy, between efficiency and fairness.

And three, with a final quote:

At this juncture in history, the United States needs to come to grips with its position in the global economy and prepare for the day when the unlimited privilege of issuing never-to-be-paid chits to the rest of the world may come to an end. We should not hasten that day. In fact, if possible, we should delay it. We should take reasonable steps to try to keep the current system intact. But given the rot in the system, we should also be prepared for a crisis that could come up very fast. The fate of the country, and indeed the security and prosperity of the entire world, could depend on whether we are able to deal with such a crisis once it starts.

Galbraith traces the fall of conservativism from the Reagan Revolution into the more or less overt plundering of the society by the politically well-positioned oligarchs of Big Oil, Big Pharma, Insurance, Finance, Agriculture and Media.

Galbraith in 1981 as a young director of the Congressional Goint Economic Committee organized what he called "a largely futile frontline resistance to Reaganomics." The vapid combination of Supply Side pap and Milton Friedman Monetarism resulted in immediate large deficits and the beginning of hte deindustrialization of America. (Whatever might be contested about the causes of the events, the timing is not debatable.) Earlier Galbraith drafted the Humphrey-Hawkins bill, which generated the dual mandate for the Fed, and other mechanisms that focused on full employment.

The bill was created by Representative Augustus Hawkins and Senator Hubert Humphrey and signed into law in 1978. Its full title is the Full Employment and Balanced Growth Act. As written it was a worthy successor to the most important piece of economics legislation, the Full Employment Act of 1946. As implemented, it has been a way to get the Fed Chairman before Congress a couple of times a year, but otherwise has been limited to creative footnotes. Lip service is a strong description.

In particular, the Act requires the President to set numerical goals for the economy of the next fiscal year in the Economic Report of the President and to suggest policies that will achieve these goals and requires the Chairman of the Federal Reserve to connect the monetary policy with the Presidential economic policy.

The Act sets specific numerical goals for the President to attain. By 1983, unemployment rates should be not more than 3% for persons aged 20 or over and not more than 4% for persons aged 16 or over, and inflation rates should not be over 4%. The Act allows Congress to revise these goals as time progresses. If private enterprise is lacking in power to achieve these goals, the Act expressly allows the government to create a "reservoir of public employment." These jobs are required to be in the lower ranges of skill and pay so as to not draw the workforce away from the private sector.

Coordination between fiscal policy and economic policy has not occurred, of course, and it was actually one of the accomplishments of the Reagan Revolution to drive them as far apart as they have become. Unemployment rates of 3 and 4 percent are now considered the stuff of fantasy. A public employment program?

The Reagan Revolution, whatever its tenets, resulted not in principled conservativism, but in a corporate takeover of the state, as Galbraith has described in his book. By the way, this digression on Galbraith's early work is not from the book, but our contribution with an assist from Wikipedia.

The American economic model in Galbraith's view, is not the free rein to the markets and public be damned approach of Reagan and Bush, but is the structure created by the New Deal. The institutions, Galbraith writes, "are neither purely private nor wholly public. They are not like the socialist welfare institutions of Europe, but neither are they private enterprise."

Some are supported by state spending -- entitlements, but also bank credit, credit guaranetees, and implicit guarantees, and -- Galbraith is writing prior to the massive bailouts when he says -- quote --- the expectation of rescue in the event of trouble. Mortgages, health, agriculture, and the military are some of the other areas receiving massive public subsidies.

And Galbraith is also adamant about the need for standards, which rises from the delusion that markets will produce a competitive market price. Quoting

"As economic theorists know, the real world is necessarily devoid of any such thing [as a competitive market price]. If there is one administered, or controlled, or monopolistic price in the system -- an oil price or an interest rate -- then even if all the other markets are perfectly competitive, all of them will be "distorted" by the presence of that one monopolistic price ...


The fact is that monopoly and market power are not only pervasive, they are at the center of economic life. The very purpose of a new technology is, of course, to create a monopoly where none previously existed.



That being so, prices and wages would serve a quite different function in the real world than the market model assigns to them. Instead of being set so as to maximize efficiency in production, they are set essentially by social relations between groups of workers and by the pattern of prices that are explicitly controlled. They express, in other words, the preixisting matrix ...

... Seen in this light, deregulation of wages and prices ... is nothing more than a rearrangement of social power relations. And the consequences have little or nothing to do with the efficiency whereby a good or service is produced...

p. 179-180

Tuesday, June 9, 2009

James K. Galbraith - What! Respect among political differences? Bruce Bartlett and James K. Galbraith 10.19.09

Here James K. Galbraith welcomes Bruce Bartlett into the fold.  This may be overstating the situation.  But it's nice that progressives (and nobody is more progressive than James K.) and conservatives (and nobody is more principled in conservativism than Bruce) can talk without throwing bricks.  Here, from Bartlett's blog.
Galbraith on Bartlett
Last night James K. Galbraith hosted a forum on the firedoglake website about my new book. Jamie is now a professor of economics at the University of Texas at Austin, but back in the early 1980s he and I alternated as executive directors of the Joint Economic Committee of Congress. Following is Jamie's introduction to the forum. BB

In January 1981, Bruce Bartlett and I took over direction of the staff of the Joint Economic Committee -- he on the Republican and I on the Democratic side.  Our situation was unique: a bicameral committee, evenly divided between Democrats and Republicans, no majority either way.  This, at the start of the Reagan revolution, which he favored and I opposed.

Bruce was a resolute supply-sider, having drafted the Kemp-Roth tax cuts. I was a resolute Keynesian, who had helped draft the Humphrey-Hawkins Full Employment Act. His specialty was taxation, mine was monetary policy. We were both twenty-nine years old.

Stalemate would have been possible but we took a different path, creating flexible subcommittees and turning the JEC into an open forum on every economic issue. The result was an exceptionally productive two years, and an enduring friendship - though we agreed on nothing then and not all that much even now.

Bruce's views are, in my view, romantic: he is (or was, until this book) a small-government conservative and a fiscal hawk. But he thinks deeply and writes honestly -- something that is not easy to do without tenure.  For his apostasy in the matter of George W. Bush, some years back, Bruce paid with his job.

It would appear however that apostasy is an acquired taste. In The New American Economy Bruce ladles it out with gusto, and with a message that should cause an entire generation of the American Right true heartburn. The message?  That John Maynard Keynes was really one of their own.

John Maynard Keynes?  The John Maynard Keynes?   How can this possibly be?

Bruce's dark secret, here exposed, is that he is primarily a historian. He has a keen interest in the musty words of thinkers from a past day, and he actually goes off to read them. A good part of The New American Economy concerns itself with the old American economy -- the economy that collapsed in the Depression and that was revived-or, more accurately, rebuilt-in the New Deal.

Though English, Keynes was central to the ferment of New Deal ideas. Bruce here admirably introduces him as, among other things, the greatest enemy communism had in those years.   Why?  Because Keynes understood that if capitalism were not saved, revolution would result -- and because he felt that revolution would be worse.  Drastic measures were therefore justified, whatever the business leaders of the day thought. As Bruce notes, this assessment agrees with one made decades back by my father [John Kenneth Galbraith], who characterized FDR's motives in similar terms.

Bruce takes up JKG on another point, his 1965 testimony to the Joint Economic Committee on the tax cut bill of the previous year, which my father had opposed.  "There was a danger," he said, "that conservatives, once introduced to the delights of tax reduction, would like it too much.  Tax reduction would then become a substitute for increased outlays on urgent social needs.  We would then have a new and reactionary form of Keynesianism with which to contend."

And so it happened.  The Reagan period takes up much of this book.  It  is interesting in large part because of the wars that broke out between conservatives once the postwar American Keynesian liberals had been swept out of the way.  Much of this is highly arcane, and to understand it, it helps to have been there, as monetarists, supply-siders, fiscal conservatives, free-marketeers and pro-business corporatists battled it out.

Bruce is a first-hand witness, and quite a good one -- though not disinterested. In particular he makes a persuasive case (to me) that the leading supply-siders were not charlatans. They were, rather, for the most part idealists, who took their cues from what was then reputable thought in mainstream economics.  (This, of course, raises a question as to whether the mainstream economists were charlatans, but let's leave that one alone here.)

Still, there was an interesting practical convergence between supply-side and Keynesian perspectives. In public the supply-siders reviled the "discredited Keynesians," and insisted that their tax cuts were all about "incentives to work save and invest."  But in private even Reagan's own top economic adviser, Murray Weidenbaum, admitted in 1981 that the tax cuts would provide a powerful economic stimulus, Keynes-style, once the recession was past and the president was gearing up for re-election.

Given that the (Galbraithian) alternative of public investment and a stronger welfare state was not a political possibility, the choice then was between a tax cut-fueled boom and prolonged stagnation. One can argue -- I do argue -- that by reconciling Keynes with the interests of the rich, the supply-siders made the country more prosperous than it would otherwise have been.  They also kept the Republican Party in business. It is true therefore that Reagan's tax cuts replicated Kennedy's success in 1964.

When Bruce turns his eye to the present crisis, he confronts a Republican Party in a near-vegetative state, able at best to blink and mutter "tax cut" in the face of any and all problems. He suggests, sensibly, that the lesson of the debacle of Bush's Social Security privatization scheme be accepted: the welfare state is here to stay. He argues (again as my father once did) in favor of a Value-Added Tax to provide a stable, admittedly regressive, pro-saving funding source. Thus Bruce Bartlett becomes an advocate of the European-style tax-and-welfare state!

Here, we again part company on the merits.  For Bruce, our key economic problem going forward is an insufficiency of saving and the supposed burden of public debt.  For me, it's a lack of investment, and of jobs, brought on by the debacle of private debt and a disastrously deregulated and corrupted financial sector.  I'm not a fan of the European solution -- among other things it leaves savings idle, unemployment high and education (in particular) underfunded.  I like the progressive income tax and even more the estate tax, which spur philanthropy and fuel our vast non-profit sector. I think Social Security is the best part of the American welfare state -- and one of the most successful public pension programs in the world.

Back to the trenches, Bruce?

Note: I wouldn't say that I have become an advocate of a European-style welfare state; I've simply resigned myself to its inevitability. If we are going to have one then I think it should be properly financed. BB