Galbraith's legacy

[BitWhys]

(1908 – 2006)

John Kenneth Galbraith's remarkable life started not so very far from here, at Iona Station, which is southwest of London, Ont. Raised in a modest farm home, Galbraith went on to become one of the most influential and powerful economists of the 20th century, not just because he advised several American presidents but because he had an ability to express his ideas in a way that non-academic people could appreciate.

Galbraith, who died on the weekend at the age of 97, was more than an economist. He was also a moral observer who knew that market forces could produce great wealth but at a social and environmental cost that didn't appear on a price tag.

One of his most influential books was the Affluent Society. Published in 1958, it drew attention to the fact that the public sector in North America was not as rich as the private lives of many citizens. He wondered what was the point of going in a car to a picnic if the stream where the picnic was held was polluted.

That was a fair question. In fact, looking back now, his point might even seem obvious, but that is only because he and others successfully stressed the importance of seeking what might be called the common good. His point wasn't that companies and individuals shouldn't make profits but that profits were just one goal. The "bottom line" for Galbraith was very broad.

A graduate of the Ontario Agricultural College which became part of the University of Guelph, Galbraith left Canada to study economics in the United States. He stayed there. For Galbraith, America under president Franklin Roosevelt was a more exciting place than Canada under William Lyon Mackenzie King.

Galbraith's perspective on the world is as valid in the 21st century as it was in the 20th. Some of the issues -- such as global warming -- might be more complex, but they relate to the same question: How can an individual live a full life if problems that require public attention are ignored?

Yesterday on the Commons floor...

Mr. Speaker, I rise today to honour the memory of John Kenneth Galbraith, a great liberal economist who passed away two days ago.

He was a great man, a world renowned economist. He advised five presidents and was an Officer of the Order of Canada.

[English]

I had the privilege of having him as a professor. I have vivid memories of sitting at the feet of the great man in a packed Cambridge Union as he debated against William F. Buckley.

The fact that not all economists admired his work reflects the sad evolution of the discipline in the direction of ever more technical, mathematical minutiae. He swam against this tide and throughout his life remained dedicated to the study of the fundamentals of the human condition. He will be sorely missed.

 

[nelk]

Great Guy,
he represented much hope and vision for our generation.

But not shy to warn about what has become apparent today.
He had forsight 20/20 .
No equal around today in his field.

Sad to see him gone; but that is the lot for humans.

PS
Remember the CBC shows with him some years ago ?

 

[Toro]

He was a very intelligent man with interesting ideas whose own profession effectively marginalized him.

 

[BitWhys]

this one is beauty.

From India (he was a VERY popular US ambassador to India)
The good economist
Tuesday May 2 2006 09:05 IST
Jaithirth Rao

He was dead wrong in pretty much all of his economic thinking. He was a votary (albeit a mild one) of central planning, fiscal activism and price controls. If there had been no Reagan-Thatcher revolution (which Galbraith disapproved of), if the Anglo-Saxon economies had listened to Galbraith, they would have become like France today — with a bloated public sector, with a sclerotic economy, with jobs being destroyed, not created, with no venture capital firms, with opportunities available to only folks from the correct “Ecoles”, with no dynamic entries and exits of new firms, with well-educated PhDs at the head of the government and a dismal state hiding behind moats and castle walls.

His fellow economists disdained him. He never even got a Nobel nomination, let alone a prize. His theoretical discourse was just not considered fundamental or seminal enough. Academic economists were in part jealous not only of his social and political success, but the wealth that his bestsellers generated. And to be the victim of the jealousy of academics is not a kind fate for anyone to face.

And yet, it is simply impossible not to think of Galbraith without admiration and even awe. He was a prose stylist par excellence. He was of Scottish descent and there was a touch of the skills of fellow-Scots like Robert Louis Stevenson and Walter Scott in the way he handled the English language with panache and aplomb. He had an intriguing way of getting the reader to walk into Galbraith’s parlour and recognise and admire familiar objects d’art. Galbraith was an old-fashioned writer in the best sense of the term. It is as though he was writing a personal letter to each one of his readers.

He had an uncanny understanding of far-off economic events. I for one will never forget his description of eighteenth century “enclosures” as cruel but inevitable steps in the inexorable course of economic events. Not till I read Galbraith did I begin to understand the full import of Oliver Goldsmith’s “Deserted Village” which makes reference to English villages denuded of their “bold peasantry”. He had an intimate knowledge of people in high places in different situations. If his insights into “corruption in the private sector” (which rarely gets highlighted by the media who constantly pillory public sector vices) had been adequately considered, nobody would have been surprised with l’affaire Enron.

Galbraith’s love and intimate knowledge of India, of course, makes him special for us. He mentions somewhere that in his opinion “the Maharani of Alirajpur was among the most beautiful women in the world”. I was gob smacked. Merely being an “educated” Indian, of course, meant that I had never heard of Alirajpur and had to desperately discover it on the map. In keeping with our traditions of fatuous ignorance, once again it needed a knowledgeable and sensitive foreigner to introduce us to the beauties, or in this case “a beauty” of our own land. I tried hard to find a photograph of the beauteous queen. But alas, to date I have failed and my aesthetic instincts remain unfulfilled. I did find out something about the Maharaja and some Indian Express readers, I assume, may be interested in the erstwhile ruler of that no-doubt beautiful state. He was a member of the Indian Foreign Service for a while. And I am sure he was a credit to that august service.

Galbraith’s intuitive brilliance as a diplomat is that he was able to get beyond the simplistic tunnel-visions of the bureaucrats of that citadel of pusillanimity — the State Department. He understood that the relationships that combine shared values (democracy, sense of humour and so on) with geopolitical congruence have a better long-term chance of success. It has taken long, very long, for Indo-US relations to reach its current sophisticated level of understanding and nuance. And as we celebrate the present denouement, we must remember the foundational contributions of someone like Galbraith.

Galbraith’s prescriptions may have been incorrect, but his diagnoses had an uncanny prescience to them. His descriptions of the possibilities of successful private sectors getting way ahead of under-funded and inefficient public sectors was a classic then and is so apt today. One just has to visit Mumbai or Bangalore to be struck with the centrality of the fact that roads and drains can remain medieval even as offices, malls and campuses rush headlong into the twenty-first century. It is to Galbraith’s credit that he insisted that this state of affairs is not karmically inevitable. Societies make choices when they decide to devalue public assets. Encroachment of public lands leads inevitably to decay of public assets. This encroachment can be by motorists parking cars (with no parking fees) or by slumlords who simply occupy space on behalf of the poor who they both represent and exploit. If we as a society choose not to deal with these issues then we should not be surprised if we have mountains of garbage in pot-holed roads just outside the most elegant buildings!

Galbraith resembles in many ways that other great non-academic American economist, Thorstein Veblen. They both coined expressions which have gone far beyond the vocabulary of academics, expressions that have become part of the texture of the English language, expressions which in one pithy phrase encapsulate so much. Veblen came up with the expression “conspicuous consumption”. Galbraith coined the phrase “affluent society”. It does not matter how many elegant equations in the calculus of differences or how many auto-regressive time series the mathematically gifted economist of today can handle with ease. He or she will never gain the immortality accorded to a Veblen or a Galbraith. They both remained faithful to the tradition that economics gains in stature as it maintains a constructive dialogue with other disciplines — anthropology, history, political science and, above all, moral philosophy. This is a sentiment that would have gone down well with that inspired Scotsman, Adam Smith. Two centuries after Smith, Galbraith stayed faithful to this tradition of the Scottish Enlightenment. Besides, he left us with some delectable prose. This is more than enough for one smiling luminous life.

The writer is chairman and CEO, Mphasis jerryrao@expressindia.com

 

[Toro]

COMMENTARY

The New Industrial Economist
By DAVID R. HENDERSON
May 2, 2006; Page A16

John Kenneth Galbraith, one of America's most famous economists, died on Saturday at the age of 97. His fame came not from his technical accomplishments in academic economics but from his awesome writing ability, evidenced in 33 books and many more articles. He wrote almost all of his books -- certainly the ones that increased his fame -- for a general audience. He honed his writing ability while on the board of editors of Fortune magazine from 1943 to 1948. After that, he never stopped.
* * *

Galbraith competes with Milton Friedman as the most famous American economist. But whereas Mr. Friedman affected not only popular thinking but also the thinking of economists, Galbraith affected only the former. He himself recognized that reality, and often claimed it was due to his having challenged the "conventional wisdom."

He once remarked, at his wittiest and most on-target, that "In the choice between changing one's mind and proving there's no need to do so, most people get busy on the proof." Nevertheless, while mainstream economists were sometimes a little nasty in debating Galbraith, they did point out fundamental problems with his conclusions -- problems that he never seriously grappled with. Galbraith focused too much on the witty epigram. As one critic pointed out, his main form of argument for key assumptions in his model of the economy was "vigorous assertion."

Galbraith's three most important books, measured by sales and influence on popular thinking, were "American Capitalism: The Concept of Countervailing Power" (1952), "The Affluent Society" (1958) and "The New Industrial State" (1967). In "American Capitalism," Galbraith argued that giant firms had replaced small ones to the point where the "perfectly competitive" model no longer applied to much of the American economy. But not to worry, he argued. The power of large firms was offset by the countervailing power of large unions, so that consumers were protected by competing centers of power.

The late Nobel laureate George Stigler gave a pointed response in 1954. Stigler noted that before Roosevelt's cartel-forming National Recovery Administration started giving monopoly power to large businesses, in five of the six industries with the most powerful unions -- building trades, coal mining, printing, clothing and musicians -- there were many small firms rather than, as Galbraith's theory would have predicted, a few large ones. Moreover, noted Stigler, even if powerful labor unions offset the power of large firms, there was no assurance that this would help consumers -- now not only the firms but also the unions would have a desire to limit output and keep prices high and would simply be fighting over the monopoly rents.

In "The Affluent Society," Galbraith contrasted the affluence of the private sector with the "squalor" of the public sector, writing, "our houses are generally clean and our streets generally filthy." He attributed this to our failure to give the government enough of our resources to do its job. He appears never to have considered the more straightforward economic explanation for dirty streets -- one that is based on incentives. The model that applies to the streets is "the tragedy of the commons": No one owns the streets and, therefore, no one has an incentive to take care of them.

Many people liked "The Affluent Society" because of their view that Galbraith, like Thorstein Veblen before him, attacked production that was geared to "conspicuous consumption." But that is not in fact what Galbraith did. He argued, rather, that "an admirable case can still be made" for satisfying even consumer wants that "have bizarre, frivolous or even immoral origins." His argument against satisfying all consumer demands was more subtle than Veblen's. Galbraith wrote: "If the individual's wants are to be urgent, they must be original with himself. They cannot be urgent if they must be contrived for him. And above all, they must not be contrived by the process of production by which they are satisfied. . . . One cannot defend production as satisfying wants if that production creates the wants."

Really? The late Friedrich Hayek, co-winner of the 1974 Nobel Prize in economics, delivered the most fundamental critique of Galbraith's thesis. Hayek conceded that most wants do not originate with the individual; our innate wants, he wrote, "are probably confined to food, shelter and sex." All other wants we learn from what we see around us. Probably all our aesthetic feelings -- our enjoyment of music and literature, for example -- are learned. So, wrote Hayek, "to say that a desire is not important because it is not innate is to say that the whole cultural achievement of man is not important." Hayek could have taken the point further. Few of us, for example, have an innate desire for penicillin. It had to be first produced and then advertised before doctors could know about it. And it's safe to say that we've found it very valuable.

Galbraith's magnum opus was "The New Industrial State," in which he argued that large firms dominate the American economy. "The mature corporation," he wrote, "had readily at hand the means for controlling the prices at which it sells as well as those at which it buys. . . . Since General Motors produces some half of all the automobiles, its designs do not reflect the current mode, but are the current mode. The proper shape of an automobile, for most people, will be what the automobile makers decree the current shape to be." Well, no. Of course, GM failed to "decree" the shape of automobiles in the 1980s and continues to fail today, leading to huge losses of both money and market share. It seems consumers, whom Galbraith regarded as manipulable by Detroit and Madison Avenue, somehow didn't accept GM's "decree."

To his credit, Galbraith admitted some of this. In July 1982, the steel and auto companies he had claimed were immune from competition and recessions were laying off workers in response both to foreign competition and recession. Asked on "Meet the Press" whether he had underestimated the extent of risk that even large corporations face, he paused and replied, "Yeah, I think I did."
* * *

Galbraith was involved in politics early in his professional life. He advised Democrat presidential candidate Adlai Stevenson and, later, Presidents Kennedy and Johnson. He was also Kennedy's ambassador to India in the early 1960s. While there, Galbraith gave a series of speeches on economic development in which he hailed the role of government planning as opposed to economic freedom. In one speech, Galbraith stated, "The market cannot reach forward to take great strides when these are called for. . . . To trust to the market is to take an unacceptable risk that nothing, or too little, will happen." As is well known, the Indian government did not take the "risk" of relying on the market but, instead, stuck with its system of detailed controls over every industry. As is also well known, nothing, or too little, happened. India was mired in poverty which only began to lift after some decontrol started in 1991.

Galbraith was also one of the chief price controllers during World War II, as head of the price section of the government's Office of Price Administration. Unlike other economists involved with price controls, such as George Shultz during the Nixon administration and Frank Taussig during the Wilson administration, Galbraith emerged as an advocate of permanent price controls, an unpopular position among economists.

But there is one price control that John Kenneth Galbraith joined Milton Friedman in opposing in the 1960s: military conscription. He wrote, "The draft survives principally as a device by which we use compulsion to get young men to serve at less than the market rate of pay." For his outstanding leadership on this issue, many young men owe him a lot.

Mr. Henderson is a research fellow with the Hoover Institution and an economics professor at the Naval Postgraduate School's Graduate School of Business and Public Policy.

http://online.wsj.com/article/SB114652913131041003.html?mod=opinion&ojcontent=otep

 

[BitWhys]

I was surprised at the rush in the common economic press to make sure Galbraith was refuted before he was read by those not familiar with his work although by neither the act nor quality but rather the sheer volume of the effort.

"to say that a desire is not important because it is not innate is to say that the whole cultural achievement of man is not important"

Typical crap out of Hayek that both misrepresents and misses Galbraith's point completly. JKG's point was that there are times (many times) when demand needs to be created to meet supply, not the other way around as the conventional wisdom dictates. Galbraith never said desire wasn't important. typical straw man bullshit from the defenders of the faith.

 

[Toro]

Galbraith's conception of the future of manufacturing in his 1967 book The New Industrial State is in sharp contrast to what has actually happened. "High technology and heavy capital use cannot be subordinate to the ebb and flow of market demand,” he said. “They require planning and it is the essence of planning that public behavior be made predictable - that is be subject to control." The British experiment with nationalised industries failed, while we have seen the example of Michael Dell, whose computer company takes orders from the internet and makes custom-built products tailored to each customer's choices, using components and manufacturing facilities around the world. It doesn't produce except according to the ebb and flow of market demand.

He will, perhaps, be best remembered for his infamous praise of the Soviet economy in the 1980s. Writing in The New Yorker, he said: "That the Soviet system has made great material progress in recent years is evident both from the statistics and from the general urban scene... One sees it in the appearance of well-being of the people on the streets...Partly, the Russian system succeeds because, in contrast with the Western industrial economies, it makes full use of its manpower." Separately, he said that that standing on the Berlin Wall: "Looking in either direction it really makes no great difference". But by this point Reagan and Thatcher were both in power who recognised the failure of the state command-and-control economic ideas followed in post-war period. The Soviet economy collapsed, and Galbraith was out of fashion.

http://www.globalisationinstitute.o...hn-kenneth-galbraith-(19082006)-20060430677/

 

[BitWhys]

"Galbraith's conception of the future of manufacturing in his 1967 book The New Industrial State is in sharp contrast to what has actually happened."

you think that's a reliable representation of the book?

 

[Toro]

Actually, I can't give you a well-thought out answer, Bit, because I don't remember. :lol: I read the book nearly 20 years ago as a wide-eyed college freshman but it has sort of sunk into the netherworld of my memory. Also, I think the reason why I don't remember is because, as one of the articles intimated, Galbraith didn't really have much of an impact on mainstream economic thought.

Also, though I studied economics as an undergrad and read extensively for a few years after that, I am not an economist, and my reading has been limited the past decade because I've been focussed on the serious business of my chosen profession. So, its fun debating stuff like this and all on a message board, but most of extra-curricular reading is done to make me better at what I do.

So I can't intelligently answer your question.

 

[BitWhys]

aw jeez

and here I was ready to write you off for trolling.

I'm just making my way through it right now. No, I don't buy what he says hook, line and sinker but that's half the fun and at least he had the experience and the gonads to rage against the storm. What you probably remember about it is his observations and assertions don't sum up in a couple of lines.

For starters on this one, The New Industrial State was not some futurist undertaking. He was describing what things had become. He was bang on about oligarchies (some 20% of manufacturing is swallowed up by tight oligarchies within their respective industries these days, as it was then), the power shift from ownership to management in the mature corporation and the dissonance between the common wisdom about profit maximization in the market and what really motivates organizations when the rubber hits the road. (tire cords and fabrics are one of the oligarchies, btw, heh)

The Russia quotes are pretty cute. I'd love to read the article. He WAS right about guns and butter under Krushchev. What probably gets most economists and corporate cheerleaders goats about The New Industrial State is the parallels between the central planning of the Russian State and project planning of the mature corporation. That's probably what he was talking about. Kind of takes the wow factor out of wearing a suit and tie.

btw, he wasn't particularly fan of EITHER communism or capitalism. ergo one of my favorite quotes by him...

"Under capitalism, man exploits man. Under communism, it's just the opposite." - John Kenneth Galbraith