Galbraith's law
Date: 03/10/98
The great economist believes a global crack-up is a serious possibility. All you can do, he tells HELEN TRINCA, is make sure that the people who are innocently involved do not suffer.
JOHN Kenneth Galbraith sits in the fading light of a New England afternoon and looks back and forward across the 20th century. There is, he suggests, nothing new about our economic problems and nothing novel about the solutions. A global collapse is entirely possible. The end of capitalism is not.
Galbraith, the people's economist, has the advantage of perspective. He is 90 this month. He learnt his Keynesian theory as John Maynard Keynes was writing it. He worked for Franklin Delano Roosevelt. He worked for John Fitzgerald Kennedy. He interrogated Albert Speer, Hitler's architect, after the fall of Berlin. He ran the economies of occupied Germany and Japan after World War II. He led the opposition to American involvement in the Vietnam War from within the Democratic Party. He has authored a score of books and engaged in the public debate for decades via newspaper articles and radio and television interviews. He has kept the faith about the role of the state.
And he is not inclined to retirement: "I think maybe I will write a book about it [age] and how we mistreat the old. What I call the still syndrome - are you still working, still writing, still travelling? The presumption in everyday language that you are in decline. Are you still eating well? Do your eyes still light up when you see a beautiful woman?"
Galbraith likes pretty women but his eyes also light up when he talks about the economy.
The man who wrote the definitive study of the 1929 financial crash says we are at the end of a period of "mindless speculation" on Wall Street. No predictions, "because only my wrong predictions are remembered", but no-one should be in doubt that a global crack-up is a serious possibility.
"The prices of securities have been going up because people expected them to go up and acted accordingly and put them up," he says during an interview at his home in Cambridge, the Massachusetts town that surrounds Harvard University, where he has held a professorial post in economics for 50 years.
"This is the classic speculator bubble ... and as we talk the market has entered into a period of extreme insecurity and this is going to have some effect on the larger economy because so many people are involved in the market.
"In the aftermath of 1929 there was an immediate slump in the purchase of durable goods like radios and automobiles and eventually in real estate. If we have a bad crack-up in the market, which the more insane of market people would call a major correction, it will have the same effect.
"The notion that, given what is happening in South Asia and Japan and Russia, the United States and Europe are bulwarks of strength is subject to serious doubt and that's particularly the case with regard to the United States."
These things are cyclical: "This is a part of the system. For hundreds of years we have had successions of booms and busts and it is partly as a result of a bust that we mark out the banks and the corporations, the bankers and the businessmen, who are meant to be excluded from the system. When you have a boom of this sort, there is no way of stopping it because it is part of the system. All you can do is, after the crack-up comes, make sure that the people who are innocently involved do not suffer.
"I am not for saving bankers - foolish bankers or foolish businessmen - but I am for saving workers from misfortune."
Galbraith has long wrestled with saving workers from the downside of industrial capitalism. He worked on the New Deal of the 1930s and his classic volumes, The Affluent Society (1958) and The New Industrial State (1967), unpacked the links between consumption, capitalism and corporations and the extent to which they result in unequal power within societies.
He has consistently argued for intervention in the market when necessary but he is sceptical of pronouncements of capitalism's imminent decline as the global crisis grows: "In a speculative boom such as we have experienced these last years you always have some people, quasi idiots, who say this is the mark of a new era. But when you hear talk that we have entered into a new era you should take refuge."
He says the great movements of capital around the world cannot be halted. All you can do is move to something like the Tobin tax (promoted by the American economist James Tobin), which would set a 1per cent levy on all foreign currency transactions. This would not stop money sloshing between sovereign nations but it would provide better information about the tides.
As to the micro level, from his considerable height (an astonishing 6ft 8.5in or 2.05 metres) Galbraith looks down on a world where once again the solutions are known but resisted. The essential need - a good minimum income for all Americans - is simply not possible without transferring income from the rich to the poor: "There are no novel answers. There are three courses of action - to keep a strongly progressive income tax [and] a strong safety net so that you don't have people plunged into poverty in a rich country. Some people will relax on the safety net but it is also true that a certain number of people on high-income brackets will also relax. It is even known for college professors on tenure to relax.
"And the other thing is to bring public investment in education, the arts and public works fully abreast of our supply of private goods. The epitome of the modern economy, particularly in the United States, is the rich supply of private goods and the meagre supply of public goods. We have lovely houses and filthy streets and expensive television and lousy schools, and that contrast is pervasive."
The New Deal was supposed to bridge the divide between what Galbraith later labelled "private affluence and public squalor" but 60 years on the great dream has not been realised.
The income gap is greater than ever and is increasing steadily in the United States: a handful of the richest Americans now have more money than several million of the poor, he says.
And nobody wants to shift gear: "As countries develop an affluent class they also develop a psychology which, in effect, holds that anybody can make it and that therefore you look after yourself and not after the others."
In his adopted country of the US (he is Canadian by birth) individualism is a mantra. But Galbraith remains unconvinced about the power of one: "I don't think it [individualism] has served us well. We have an appalling condition in our big cities and we still have a substantial residue of rural poverty in the hills and valleys of the Appalachian plateaus.
"And that is, to repeat, the result of the fact that as people become richer they become more interested in themselves and more inclined to blame the poor for their own misfortune. They also have money and political voice too which is extremely important."
Galbraith's own voice is rooted in class, intellect and education. His bulwark has been a world centred on a university post, an enduring marriage (he celebrated 61 years with his wife, Kitty, last month and says her support has been the truly wonderful part of his existence) and a gracious two-storey house in one of the prettiest streets of Cambridge. From this haven of rationality and theory, Galbraith has sallied forth into the world of policy, politics and practice. He has been the most politically engaged economist of recent times.
Long ago he discovered that if he wrote for academics he would have a small audience. Instead he has written often and simply to collect generations of readers in the general public. Right-wing economists loathed him in the 1980s, but his 1996 work, The Good Society, was extraordinarily topical for a world weary of economic rationalism.
His was a generation which believed in the notion of public duty and contribution and took it for granted it could make a difference - a sort of a noblesse oblige of the Americas. Writing is his special gift. Galbraith at his best is witty and wise. But his political and administrative experience has been significant, allowing him an empirical basis for sharp analysis of the way institutional power is the true basis of economics.
"I came to [an understanding of] power through studying economics and becoming aware of how much of the thrust of economics is associated with the search for power," he says. "It is most clear in the great corporations, where the thrust for power both internally and externally is very strong and quite possibly stronger than the search for economic reward.
"That extends on to politics and it is something that we still don't fully recognise."
He says that there has been a shift away from belief in the executive civil service world, which had a very strong appeal for his generation, to politics.
"The appeal of politics is much stronger now than when I was young," he says. "The presidential elections when I first came to the US in the 1930s were a passing phenomenon - interesting, exciting, but not a central preoccupation, even in the Great Depression. Now they are a constant preoccupation."
THE Lewinsky affair he finds an "enormous bore". Almost 25 years ago he told an interviewer that Watergate was essentially trivial but that if Nixon resigned it would do no great harm. Now he is dismissive of the talk of impeaching the President: "I would not compare what Bill Clinton - the trouble he has - with Watergate. In the first place, he has been a reasonably good president and Nixon was a fundamentally bad one. That's the fundamental difference and Nixon, Watergate and its aftermath was a different order of magnitude."
The Democrats are his people, of course. His biggest job was running price control in the US during World War II - an experience of "soft leather chairs and the endless discussions of what you already knew" that left him with no desire to return to Washington when JFK was elected. Instead Kennedy appointed him Ambassador to India, a country he had fallen for some years earlier as an adviser. From New Delhi he kept up an amusing correspondence with Kennedy, commenting on everything from nuclear fall-out shelters to what the US should do about Laos. Published this year, Letters to Kennedy shows Galbraith's assumption of involvement in the political process, his compassion and his confidence.
His motivation has essentially been the belief that democracy is imperfect and thus requires those with more power and voice (like a Galbraith) to work for those with less power and voice.
But as the light fades in Cambridge, Galbraith admits to the double agenda that has ruled his life: "I would like to think I have sympathy for people who are less fortunate than I am or the affluent in general, but I confess also that I have always enjoyed the sense of annoyance that truth evokes."
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