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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: clochard who wrote (41387)	7/5/1999 5:43:00 PM
From: Haim R. Branisteanu	Respond to of 94695

Sitting out the party with Galbraith William Keegan Sunday July 4, 1999 newsunlimited.co.uk Professor J K Galbraith's The Affluent Society was one of the books that attracted members of my generation to economics. Beautifully written, it contained, among other things, an elegant explanation of the deficiencies of classical economics that prompted the Keynesian revolution. In an interview last week, Galbraith recalled that John Maynard Keynes never actually held a chair in economics - he was too busy rescuing the subject. Galbraith said that when he first read Keynes's General Theory he saw the flaws in a work he himself had just delivered to the publishers (Modern Competition and Business Policy) but it was too late to stop the Oxford University Press from printing it. Galbraith has written more than 30 books, but says: 'I dropped that one from the list. The only time I saw a copy was in Peking University - it was the only copy they had of my books.' Galbraith also recalls that when he was working on US price controls in Washington during the Second World War, he at first told his secretary he was too busy to see an English stranger who had dropped in with some advice for him. 'I think he expects to see you,' said the secretary, and Keynes duly delivered his thoughts. All these years later Galbraith, at 90 and six feet, 8.5 inches tall, retains an upright and commanding presence. When I saw him in the lobby of a London hotel he was having difficulty with his hearing aid and his voice was booming. Far from causing offence to others in the lobby, he seemed to be delighting eavesdroppers. His visit to England last week took in an honorary degree at the London School of Economics; a lecture there was so oversubscribed that it had to be relocated to a nearby theatre; a trip to Cambridge University (where he studied in the late Thirties); and lunch with Gordon Brown, the Chancellor of the Exchequer. In his lecture, Galbraith reminded people that 'the speculative crash, now called a correction, has been a basic feature of the system', and warned: 'We have far more people selling derivatives, index funds and mutual funds [unit trusts] than there is intelligence for the task.' He continued: 'When you hear it being said that we've entered a new era of permanent prosperity with prices of financial instruments reflecting that happy fact, you should take cover.' He later told me his message to Gordon Brown had been that left of centre governments should not be lulled into a position where they are caught napping by a financial crash. Galbraith recently produced a book in the US with a title only someone of his eminence can get away with: Name-dropping - From FDR on. The book contains some messages new Labour might care to dwell on about how to handle businessmen who think they know about running the country. He says that in the New Deal - the real New Deal - Roosevelt's strategy was 'to give seeming authority to the business community' but the decisive power elsewhere. Meeting amid the market fever about the Federal Reserve's next interest rate move, I asked Galbraith to indulge in some up-to-date name dropping. He obliged. 'Alan Greenspan is an old friend. He has devoted unfailing and broadly successful attention to his own career - he's wonderfully avoided any action that might seem to make him responsible for a slump, but that does not rule out the possibility.' Galbraith went on: 'Greenspan's reputation depends on two future facts: one, the discovery once again that interest rates are not that important and the Federal Reserve's powers are greatly exaggerated; two: periods of speculation do come to an end.' He said it was to Greenspan's credit that he had been willing to accept a much lower level of unemployment 'than the orthodox brethren'. But 'the notion that the Fed has an all-important hold on the future of the economy needs to be viewed with reserve'. (There was a twinkle in his eye at this deliberate pun.) What about Lawrence Summers, the US Treasury secretary-designate? 'Larry Summers is an old friend. He's more conservative than I am. He's an extremely well-qualified economist. As an old friend of Larry's, one can only hope he won't preside over the next recession.' Galbraith had wry comments on the so-called 'new paradigm'. 'In the late Twenties it was impossible to read any discussion of the economy without encountering the new paradigm, namely radio and electronic communications. One should read about that before putting too much emphasis on the computer world as the new paradigm.' The Keynesian economics with which Galbraith is so strongly identified are not just about avoiding depression, but also about trying to ensure that booms do not get out of hand. This aspect of policy was famously epitomised by William McChesney Martin, chairman of the Fed for 19 years until his retirement in 1970. Martin said the Fed's duty was 'to take away the punch bowl just when the party gets going'. The almost euphoric reaction to the Fed's small increase of a quarter percentage point in its short-term interest rate (to 5 per cent) last week indicates that the party is still going strong, Great Gatsby style. Galbraith commented: 'Keynes fades when the economy is strong, and emerges when the economy is weak. Keynes and the business cycle run strictly parallel.' As I said goodbye to the great man, he asked me to help him down some steps. 'The doctor has warned me that, from my height, my next fall may be my last.'