Thursday 25 January 2018

Galbraith and Freedland unfold the corruption of capitalism

"Private affluence and public squalor"  is perhaps the most famous phrase culled from James K Galbraith's seminal book, The Affluent Society.   It's a long time since I read it and can't remember whether Galbraith was describing the situation as it already existed in 1958when the book was first published,  or whether he was simply making a prediction if economics and politics were to continue of their established course.  As a prediction, we can see observe its accuracy  in spades when we compare, say, Grenfell Tower and the gated enclaves of such as Sutton Dittton.

A friend who keeps a backlog of newspaper cuttings has just passed on to me a review of  a later book by Galbraith, The Economics of Innocent Fraud, published in 2004.  The reviewer is Howard Davies, sometime director of the employers' organisation, the CBI, so no raving leftie, (nor a raving Liberal).  I haven't read the book but these are extracts from the review, which I assume are a fair reflection.

  1. Davies reminds us of Galbraith's long held theme that major corporations are run by their management, largely for their [the management's] own benefit and without effective public control or oversight. (Remains  a fair description of Carillion et al).
  2. The collapse of Enron [2001 ]and the related and unrelated stories of corporate fraud, unbridled greed and negligent auditing have given much support to [this] Galbraith thesis. (Now add Carillion, especially re negligent auditing)
  3. The phrase "the market system" [is] a meaningless construct coined primarily  to avoid use of the term "capitalism", widely seen as a weak brand in the political market. .(An illuminating point of which I hadn't thought, but then, I'm not Galbraith)
  4. Galbraith  complains of the blurring of the line between the public and private sectors and believes that much of the US's Treasury and Department of Defense have been under corporate control for some years.  Davies suspect that much the same is true of the UK, especially in relation to defence.procurement.
  5. Galbraith deplores the explosion of senior executive pay (and so say all of us) since these executives achieve their positions not by entrepreneurial skill but through success in climbing bureaucratic greasy poles.
It is clear that this situation has existed for all of this century, and a great chunk of the last, but nothing much has been done about it, in spite of 13 years of a Labour government with an unassailable majority in this country.  Rather, New Labour was conned into accepting the neo-liberal deception, as were we Liberal Democrats when we formed the Coalition in 2010

 More recently these two paragraphs for an article by Jonathan Freedland in last Saturday's Guardian confirm all that this blog has been banging on about for the past seven years:

....David Cameron and George Osborne  won and held power [from 2010]chiefly be declaring Labour unfit for government  becasue the deficit had increased on their watch. It was the Tories' success in searing this argument into the public consciousness  - "Labour crashed the car"; "a country must live within its means";"if we don't balance the books Britain will be the next Greece"- that cleared the ground for austerity.

That policy was as economically illiterate as it was morally unsustainable, insisting that the best way to breath life  into an economy gasping for air  was to strangle it tighter.  It failed to understand the basic, if counterintuitative, Keynesian truth  that it's in the tough times that you need to spend  to kisckstart the economy - in the sound expectation  that restored growth will bring in the revenues  to pay back the money you've borrowed. 

Opposition parties, and, it would be nice to think, the Tory government as well, should be getting their teeth into educating the public about the true state of economic affairs and publicising plans to put things right.  Sadly 90% of political effort goes into the details of self-harming Brexit.  and the dysfunctional  economic system staggers on to the benefit of an undeserving few rather than the rest of us, deserving or otherwise. f


  1. declaring Labour unfit for government becasue the deficit had increased on their watch

    it's in the tough times that you need to spend to kisckstart the economy - in the sound expectation that restored growth will bring in the revenues to pay back the money you've borrowed

    But… but… but…

    The decade from 1997-2007 wasn't 'tough times'. It was the exact opposite of 'tough times': it was a period of boom.

    Therefore, according to Keynesian logic it was not the time not borrow: it was the time to repay. You borrow in bad times, repay in good, right? That's the basic Keynesian idea. And if there was ever a time to repay, then it must have been 1997-2007. Has the economy ever gone better than in that decade? If that wasn't the time to repay, is there ever a time to repay?

    But Labour did exactly the wrong thing — exactly the opposite of the Keynesian thing — by increasing borrowing in the good times, by borrowing instead of repaying in the boom.

    So surely you, as a Keynesian, should be joining in with Cameron and Osborne's criticism of Labour, because according to you, Labour under Blair did exactly the wrong thing with the economy: the borrwed when, according to Keynes, they should have been repaying. Right?

    1. (To be fair to them, they did repay some of the debt in their first three years, when they were committed to matching Conservative spending targets. But once freed of that promise, Brown went on a debt-fuelled spending spree that more than made up for it, so in total over the boom times he increased the debt: exactly what Kenyes says you shouldn't do).

    2. I wish I could transfer a picture of a graph onto this reply but the "copy" and "paste" trick doesn't seem to work for pictures. See if you can find it from this:

      If you look at the graph you will see that the Debt: GDP ratio for the period, say 1990 to 2011 was nothing much to worry about. It seems to have reached a peak under Major, fallen under the early Labour years from 1997 (as you concede) to around 2000, then started creeping upwards again but not reaching or passing the Major peak until the financial crisis.

      Even then it was modest by both historical and international comparisons.

      So the Tory propaganda, which they put about so successfully (and still do), that "Labour [was] unfit for government becasue the deficit had increased on their watch" is rubbish.

      Where you have a point is that governments of all stripes have, since say the 1960s, been more enthusiastic about borrowing in the tough times than they were about paying back in the good times. Another fault was to use Keynesian techniques to win elections (spend in the run-up, cut afterwards) rather than use the techniques to steer the economy on an even course.

      Nevertheless, in my time as a teacher of economics it was conventional wisdom, even thought desirable, to run a current deficit of up to 3% in the long run, and to maintain a National Debt of up to 60% of GDP.

    3. I'm sorry, I must have misunderstood. I thought Keynes's recommendation was 'borrow in the bad times, repay in the good', not 'borrow in the bad times, borrow even more in the good times but disguise it by quoting debt as ratio of a growing GDP' (because of course when GDP is growing, for the ratio to increase must mean you actually increased borrowing by more than the rate of GDP growth; if you had merely held it steady then the ratio would have decreased as GDP grew, as from 1997-2000).

      So Keynes actually said, 'Borrow, just borrow, all the time, borrow, repaying is for chumps.'

      My bad.

    4. governments of all stripes have, since say the 1960s, been more enthusiastic about borrowing in the tough times

      True: and of course the government from 2010-2015 didn't actually cut borrowing, for all their rhetoric. There was no actual austerity in those years; the only cuts were in planned spending, actual spending kept going up (albeit not as fast as had been planned) and so the debt kept rising.