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Galbraith's legacy

March 06, 2007

Richard Parker of Harvard probes the legacy of John Kenneth Galbraith, perhaps in anticipation of the Progressive Economics Forums soon-to-be-inaugurated John Kenneth Galbraith Prize in Economics (at the Canadian Economics Association meetings in Halifax this June).

From the Post-Autistic Economics Review:

Does John Kenneth Galbraith Have a Legacy?

I think it would behoove all of us today to attend, rather more humbly, to three fundamental objections that Galbraith raised almost a half century ago. The first was that power will always and everywhere be present in both economics and politics, and that economists who thought the natural laws of the market would felicitously trump the use of power by the powerful to gain unnatural market rents were wrong. In this of course he was guided by Berle and Means, by Robinson and Chamberlin, and in a way by Schumpeterto whom he owes much, especially in his first major work, American Capitalism, and in key elements of The Affluent Society and The New Industrial State. At the simplest level, here Galbraith kept reminding us that wage markets behave differently from capital markets and capital markets from technology and natural resource markets, that time is not homogeneous or continuous, that the future is at best imperfectly knownIm putting this as neutrally and in as familiar terms for my colleagues as I can, not precisely in Galbraiths wordsand finally that all this (plus that stubbornly irreducible question of power) bears large implications for the possibilities, real or heuristic, of any equilibrium-based modelas well as for the future of the world.

Especially in The Affluent Society and beyond, he emphasized two features of that reality. Here first was that America had moved by the 1950s into a post-scarcity age (not nearly so transient as an era, noras he reminded us in talking about the role of nuclear weaponsnot so surely permanent either) and that in this new age the parsimonious definition that Lionel Robbins had famously given to economicsa study of allocation under conditions of scarcitytherefore no longer operated with the same force or had the same importance it once had. (Sens work on modern famine as principally a distributive, rather than an absolute scarcity, issue reminds us indirectly of this as wellthough I daresay neither he nor Ambassador Galbraith would consider, say, India an affluent society.) His other point here was that the great corporationthat distinctive institution of modern capitalismthrough advertising, branding, marketing, et ceteranow and hereafter would exercise a major influence over the nature and shape and intensity of consumer demand not wholly subservient to either the consumer nor the market.

The second major argument Galbraith made was that politics was and is universally important to economics. Not just in governments conservatively-imagined role as a night watchman, but in its active manipulation of markets and their behavior for more liberal ends. This was not just to point to the extensive system of legal regulation that was well established by the mid-20th century, but to the unprecedented size of government income and spending relative to post-World War II GDPa third to as much as half of GDP in fact in the modern advanced industrial economies. It was this achievement of an enormous economic scalebeyond its regulatory scopethat, in Kens view, made our world so different from the 19th and early 20th century world Marshall and his colleagues had described.

These facts about our ageand I do think we must call them facts, rather than Galbraithian hypothesesof affluence, of the market power of great corporations, and the giant presence of modern governments in economies, combined to make his final point: that to a great degree, the important decisions about the overarching shape and direction of economiesversus the relatively trivial questions of the price of this good or that service, negotiated in the classic equililbrium-seeking tapping models of Walrasian markets themselveshad become the issue of our times. But this then led, if one stipulated that democratic theory was capable of evolving, to a powerful inference,: that those great decisions were fundamentallywhile capable of being clarified by economistsat the heart of democratic politics, and the informed interplay of democratic citizens.

But what were those key decisions that citizens needed to make? Here I shall conclude by once again citing Braudel on events as the ephemera of history. The large questions for citizens, according to Galbraith, now were how to sustain an essentially equitable prosperity that attended to the private markets habits of distribution of wealth and income; that recognized that public goods in an era of prosperity were quite often more important than private goods, and needed public action sustained by public ideologynot just private marketsto achieve them; and that warwar in an age that had finally discovered how mankind could end all life on the planet itself  made even prosperity and the right allocation of public and private goodsephemeral to mastering the dark forces of Mars in our midst.

Economics today is a very different discipline than it was in those years. In a major study by the American Economics Association a decade ago, nearly two-thirds of American economists openly agreed that the profession had become over-mathematicized and too unrelated to the real world. Today, after thirty post-Golden Age years, it is fair to say that while there is still some agreement about methodologies in economics, larger agreements still elude us about purposes and goals and visions. And that is a tragedy for the world because it has helped validate a kind of new fundamentalism that Keynes, and Galbraith, and Samuelson (and Solow and Arrow and a host of other heroes of my teachers generation) rightly tried to destroy.

We see that new fundamentalism everywhere around usin shape and size of Washingtons most recent tax cuts, in our military actions in the Middle East and South Asia, in the angry assertions that the market whatever that truly might be  always knows best, and that those who would interfere with the market are uselessly acting to hold back the natural tide. And not least in the censorious rebukes hurled at those who would challenge these new truths. Times columnist Tom Friedman has a pungent phrase to describe the market as god core (as Harvey Cox has put it) of this viewbut is more sympathetic than Cox. Friedman argues that we live in a world of golden handcuffs and ought to get used to it, and indeed celebrate our gilt shackles because of the ever more comfortable world to which they are leading us.

Galbraith doesnt think so, and neither did Keynesand in a world today where the economics Nobel was given recently to a psychologist, for gods sake, for investigating the behavioral irrationalities that trump the antique idea of rational maximizing agents, when the promise of game theory has proved greater in nuclear war planning than explaining the ways of markets, when most computer-based forecasting is good for a matter of weeks and months rather than years, and when econometrics, in the words of Lawrence Summers, has never been decisive in settling any economic question of consequence, we ought to at least give pause to think back to the ways in which Prof. Galbraiths work anticipated every one of these facts that have been discovered in the last 20 years about limits of his and my beloved profession.

Paul Samuelson many years ago remarked of Galbraith that he was the eras best-known economist for non-economists. There is a slighting tone in that remarkat least when heard by economiststhat I think we ought to revisit and reexamine. I think too that Samuelson himselfsurveying the post-Golden Age worldwould admit now his words contain a useful, second interpretation: that in fighting to make economics available to non-economists, to make sure that economic questions are understood as political and diplomatic and morally signficant questions that democratic societies must engage at a deeper level, his friend Ken Galbraith has enriched us all.

After 70 years at Harvard, after four dozen books that together have sold more than 7 million copies, let me conclude by suggesting that I think we would all do well to reconsider in this new century what made Ken one of the very wisest economistsnot the smartest or most technically-giftedbut the wisest of the past century. To do so would, I believe, then help us decide what questions we intend to askand what answers we intend to givein a world that spends more on arms than aid, in which two billion people live on less than $2 per day, in which 12 million children die each year from preventable disease and malnutritionthats a Holocaust of children every six monthsand in which power and wealth still seem to hold such unnecessary sway.

Those were his questions. What we owe him is not just our thanks for asking them but our own answers.

by posted by Marc Lee, written by Richard Parker, Relentlessly Progressive Economics Blog