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The End of Normal: The Great Crisis and the Future of Growth
The years since the Great Crisis of 2008 have seen slow growth, high unemployment, falling home values, chronic deficits, a deepening disaster in Europe—and a stale argument between two false solutions, “austerity” on one side and “stimulus” on the other.
Both sides and practically all analyses of the crisis so far take for granted that the economic growth from the early 1950s until 2000—interrupted only by the troubled 1970s—represented a normal performance. From this perspective the crisis was an interruption, caused by bad policy or bad people, and full recovery is to be expected if the cause is corrected.
The End of Normal challenges this view. Placing the crisis in perspective, Galbraith argues that the 1970s already ended the age of easy growth. The 1980s and 1990s saw only uneven growth, with rising inequality within and between countries. And the 2000s saw the end even of that—despite frantic efforts to keep growth going with tax cuts, war spending, and financial deregulation. When the crisis finally came, stimulus and automatic stabilization were able to place a floor under economic collapse. But they are not able to bring about a return to high growth and full employment.
Today, four factors impede a return to normal. They are the rising costs of real resources, the now-evident futility of military power, the labor-saving consequences of the digital revolution, and the breakdown of law and ethics in the financial sector. The Great Crisis should be seen as a turning point, a barometer of the rise of unstable economic conditions, which should be regarded as the new normal. Policies and institutions going forward should be designed, above all, modestly, to cope with this fact, maintaining conditions for a good life in difficult times.
Both sides and practically all analyses of the crisis so far take for granted that the economic growth from the early 1950s until 2000—interrupted only by the troubled 1970s—represented a normal performance. From this perspective the crisis was an interruption, caused by bad policy or bad people, and full recovery is to be expected if the cause is corrected.
The End of Normal challenges this view. Placing the crisis in perspective, Galbraith argues that the 1970s already ended the age of easy growth. The 1980s and 1990s saw only uneven growth, with rising inequality within and between countries. And the 2000s saw the end even of that—despite frantic efforts to keep growth going with tax cuts, war spending, and financial deregulation. When the crisis finally came, stimulus and automatic stabilization were able to place a floor under economic collapse. But they are not able to bring about a return to high growth and full employment.
Today, four factors impede a return to normal. They are the rising costs of real resources, the now-evident futility of military power, the labor-saving consequences of the digital revolution, and the breakdown of law and ethics in the financial sector. The Great Crisis should be seen as a turning point, a barometer of the rise of unstable economic conditions, which should be regarded as the new normal. Policies and institutions going forward should be designed, above all, modestly, to cope with this fact, maintaining conditions for a good life in difficult times.
305 pages, Kindle Edition
First published February 18, 2014
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July 24, 2015
Galbraith divides his book into three parts. In the first part, The Optimists’ Garden, he shows that mainstream economists after World War II thought they that had learned the secrets—high population growth, technological change, and savings—to maintain the American economy in a pattern of high growth with only a tweak necessary here and there to nudge the economy out of recessions. Their confidence was such that the American government undertook the responsibility of managing the economy, assuming that the correct dose of fiscal and monetary policies would continue trends that became regarded as “normal”. Governments were judged as successful or unsuccessful based on the performance of the economy, and the best thing for government to do was to get out of the way and leave the economy alone.
This worked so long as costs of natural resources, especially those necessary to produce energy such as oil, remained low and stable. The idea that economic growth could be largely managed by government getting out of the way was severely compromised by subsequent events. One was the Vietnam War, whose costs contributed to increasing inflation and the trade deficit. This crisis was met by President Richard Nixon by cutting the link between the dollar and the price of gold, and imposing wage and price controls which were temporary and insufficient to solve the underlying issues. More damaging was the huge price jump of a crucial natural resource necessary for the efficient operation of the economy: oil. The obvious solution to rising energy costs was conservation and the more efficient use of energy as promoted by President Jimmy Carter. But the preferred solution by President Ronald Reagan was to put “oil on a credit card that would never by paid”, leading to ever-rising trade deficits.
So how did the US continue to get oil relatively cheaply? It began when Reagan appointed Paul Volcker chair of the Federal Reserve System. He is ordinarily thought of as the man who halted the rampant inflation of the 1970s by raising the Fed’s interest rates. Ending easy credit that resulted in a serious recession in the early 1980s explains part of the lowering of inflation. But it only begins there. The value of the dollar also rose 60% relative to other currencies, especially those of poorer and indebted nations. Paying back their debt became more expensive, and that took them off the market for many commodities, including oil. Minerals and oil became less expensive for the US as their prices collapsed, further depressing the economies of poor resource-rich nations. What the Fed’s high interest rates accomplished was the lowering price of the natural resources needed to make inexpensive products people in the US wanted to buy. This was really how the Fed’s high interest rates managed to help inflation collapse.
Thus began what has become known as the Great Moderation. Inflation was kept in check, unemployment kept low, long-term interest rates fell, and lifestyles maintained, although unions were busted and women had to enter the workforce to maintain middle class incomes. By the 1990s the neoclassical economists took credit for engineering this age of growth. Their policies, including deregulating the economy, had restored equilibrium to the economy. Only policy errors by the Fed could derail continuing growth, and now those mistakes could be avoided so long as the right people were running the Fed. So when the crisis of 2008 hit it was totally unexpected by orthodox economists, though not by many investors who bet on the coming disaster.
Galbraith discusses three groups of heterodox economists who got it right. The pragmatic and statistical economists who base their analysis on bubbles (such as Dean Baker, who predicted the 2008 crisis based on the real estate bubble; problem: discovering bubbles is hard, and since it is ad hoc, there exists the possibility that the method will fail.).
The Wynne Godley and National Income Identities approach which analyzes accounting relationships that state facts about the world. This is similar to Baker’s approach without the ad hoc element since its choice of variables is based on the total expenditures in the economy—income equals the sum of consumption, investment, government spending, exports minus imports. This is the National Income Identity. The flow of these expenditures is the economy. Economic growth occurs when the flow of expenditures increases. A fact revealed by this formula is that every dollar of the public deficit is matched by a dollar of private saving. This is a bookkeeping fact. Increasing the deficit increases private savings, as does increasing the trade surplus. Increasing savings, conversely, increases the deficit because there is less consumption, less income, and less economic activity to tax. This explains the prosperity of the late ‘90s, and the dot com slump and the 2008 crisis. It becomes a macroeconomic question about whether a particular state of the accounts is sustainable and what would happen if it stopped. Budget deficits are inevitable when the economy goes south because people focus more on saving instead of spending. As private spending declines, budget deficits must increase. It’s simple accounting.
The third approach is Hyman Minsky and Nonlinear Financial Dynamics. It shares with Godley’s approach the idea of not prejudging the intrinsic instability of the economic system.
Minsky’s core insight is that stability breeds instability. While this is an abstract way of thinking about the economy, this model implies that the role of government is to regulate, to prevent a potentially unstable system from slipping into instability as much as possible. Managing this is difficult and imprecise. Getting too close to the boundaries should be avoided. Once the boundary has been crossed, the rule of thumb is play it safe, stay away from the boundaries, “even when pressured to move to the edge.” Orthodox economists are only concerned with the “safe zone”. They don’t know what to do during a crash, and often inadvertently push the system into a crash, as we’ve experienced in the last several decades.
Part two of the book, The Four Horsemen of the End of Growth, explains why the return to “normal growth” is impossible. The first of the horsemen deals with natural resources within the context of a concept from thermodynamics: entropy. As noted earlier, natural resources did not figure into the equations of orthodox economists. Part of the reason for this seemed to be that the costs of oil, coal, copper, bananas, coffee was too low to make much of a difference. Yet much of United States postwar foreign policy was devoted to maintaining access to cheap minerals and food from developing countries. Oil was cheap because the US supplied enough for most of its own needs. Many of the clandestine activities undertaken by the US government was to ensure that governments favorable to supplying American consumers with cheap goods remained in power. One of the effects was that the US consumed a great deal of the world's resources at the expense of those countries producing them. When resources are added to the equation, a different analysis emerges that not even “he Keynesian alternative to mainstream economics—in the traditions of Godley and Minsky—had little to say.
This is where the analysis provided by Nicholas Georgescu-Roegen’s book, The Entropy Law and the Economic Process, enters the argument. The second law of thermodynamics, entropy, applies as much to economic processes as to physical processes. To oversimplify, the idea in the economic context is that as resources become depleted they cannot be replaced; once a barrel of oil is pumped out of the ground, it can never be pumped out again; when a ton of copper is mined, it cannot be mined again. Eventually there will be no more oil to pump, no more copper to mine. The consequent scarcity either raises the price of the resource and the products it helps produce or another resource replaces it. Galbraith discusses various consequences of this, but the bottom line is that without including the cost of natural resources, especially oil, our account of what brought about the 2008 crisis is incomplete because not only did the cost of oil retard economic growth, it also contributed to the growth and influence of the financial sector.
The second horseman is the limits of American power. The low cost of resources for the US has been guaranteed by its immense military power as well as the nation containing many valuable resources within its borders. As a result, the United States managed to impose an order on much of world. Sometimes it has done this by force, sometimes by bringing compliant nations under its protective umbrella.
For several reasons the imposition of the US’s will by force has become much harder recently. One reason is the increase in urbanization in most countries in the world. Iraq, for example, is not a nation of small farmers and nomadic herders. If it were, it would have been easier to subdue. Weapons have also evolved so that a relatively small number of dedicated insurgents can do an immense amount of damage with explosives cheaply acquired. Modern communications also play a role in publicizing the brutal acts of war raising question of morality and introducing doubt into the enterprise. Modern occupation is limited in time, and occupying armies are also much more expensive to pay, house, train, and each soldier more precious as a result.
The cost of modern warfare is so high it is unlikely that major nations will fight with one another. It also means they will be less likely to forcefully impose their wills on smaller nations. The US is learning that lesson with it wars in the Middle East. The upshot is that the US military might, powerful as it is, can no longer help keep resource costs low.
The fourth horseman is the role fraud played in the 2008 crisis, the millions of mortgages that could only be repaid on the assumption on the perennial rise of home prices. Economists rarely bring up the topic of fraud.
Institutions function under certain conditions, some of which result in prosperous survival, and different conditions result in the institutions’ failure. Failure need not come as the result of being unable to compete in the marketplace; internal factors within a firm alone can also be involved: mismanagement, corruption, greed, corporate infighting, and looting of corporate assets for personal gain. As resource scarcity increased and it became more difficult for corporations to meet the financial and economic expectations established during the immediate postwar period, regulations on corporations loosened to the extent that fraudulent activities, within corporations and in the way they dealt with their customers, became accepted business practices. It’s no wonder the system collapsed.
Galbraith is pessimistic that the collapse can be “cured by the application of Keynesian stimulus. … The institutional, infrastructure, resource basis, and psychological foundation for a Keynesian revival no longer exist”.(168)
Part three is entitle No Return to Normal. In chapter twelve, Galbraith debunks myths about Federal budget deficits, trade deficits, and interest rates. Specifically, that the US is in no danger of bankruptcy, which is impossible given that the Fed can always print money to pay the country’s debts. Given the realities of the world’s financial system, trade imbalances and federal deficits are bound to occur. The reason that these imbalances—which appear so large in the US—are necessary for the global economic system can be explained by simple double entry accounting.
The view that ongoing and rising budget and trade deficits are unsustainable and will bring our grandchildren to ruin due to the inability to pay off those debts is simply mistaken. Galbraith’s argument is something like this: The US is a wealthy nation and can not only afford deficits, but these deficits are helpful and, in fact, necessary for US economic growth. The reason is simple: When US exports exceed imports, the money from those imports end up in the banks of the oil countries, China, and other net exporters. Now what happens to all that money? If there aren’t enough projects available to invest that money, what can these countries do to keep their money safe and earn a little bit of interest? Why, buy US Treasury bonds. Of course, bonds are debt instruments; buyers of the bonds collect interest that the US government has pay. Why should the US government do these other sometimes morally dubious governments such a favor? The US needs to sell these bonds to finance the annual deficits necessary to pay for all the government goods and services. In a sense, it’s a virtuous feedback loop: the US government needs money for expenses and is willing to issue bonds to raise the extra money; other countries have excess dollars earned from selling goods or resources, and they don’t know what to do with the money so they buy the Treasury bonds; foreign countries could invest in other countries’ bonds or more lucrative investments, but they choose to invest in Treasury bonds because they are the safest investment in the world, and because there is so little financial risk, the interest rates paid by the US are incredibly low. So low that the real interest rate is below the rate of inflation. What this means is that this is a good deal for the US: money is cheap. Making it even a better deal is the dollar is the currency used to grease international trade, so foreigners have to hold dollars either in their hands or in the form of Treasury bonds.
So how does this help US economic growth? If Congress were to try to balance the budget by cutting spending and/or increasing taxes paid by the poor and the middle class, this will result in less money spent by Americans on cars, homes, furniture, clothes, electronic equipment, attending football games, pesticide service, gym memberships, eating out, hanging out in bars and coffee shops, college education, etc., etc., etc. Less money circulating in the economy will contract the economy; in other words, a recession.
What about the debt in the future? Because real interest rates on the debt is below inflation, it should also be less than the overall growth of the economy over time. Because of that, the ratio of the debt to the economy (GDP) will remain at manageable levels. Meanwhile, the US can pay its bills, and the rest of the world has a safe place to park its money. Where else can they do that? For at least a few more decades, there ain’t no other place.
So what do we do in the face of what appear to be permanent structural changes in the economy? Galbraith has tried to show that recreating the conditions that produced the “normal” status of the 1950s and 1960s is impossible. It is also difficult to predict what the New Normal might look like—or even whether anything like normal is possible—but it will be undoubtedly a period of low growth. Given that will be the case, what policies to help mitigate the low growth should the government follow?
First of all, we will need a drastic adjustment on our material expectations. People can still live well in a low-growth environment as long as they adopt economic and financial goals that fit within its constraints.
As far as government policies, one would be a drastic cut back in military spending. Galbraith isn’t suggesting that the United States should weaken its military as much as re-allocating money in such a way that redundancies and unnecessary or ineffective military systems are eliminated. He also argues that instead of reducing entitlements, they should be expanded. Rather than raising the age when people become eligible for social security, the eligibility age should be lowered to open up more jobs available to young people. The estate tax should be raised not so much for the purpose of increasing government revenues as to decrease the degree of wealth inequality. To ensure that everyone who works is earning a livable wage, the minimum wage should be higher. Taxes on labor should be lower, and taxes on capital, especially on income earned by capitalizing on scarce resources, higher.
Galbraith’s arguments favoring these changes are more detailed than space allows me to repeat. His book is persuasive in pointing out some sort of adjustment in our economic thinking is necessary, and also persuasive in showing how mainstream, orthodox economic thinking that got us into this mess will end up getting us mired deeper in the economic muck.
This worked so long as costs of natural resources, especially those necessary to produce energy such as oil, remained low and stable. The idea that economic growth could be largely managed by government getting out of the way was severely compromised by subsequent events. One was the Vietnam War, whose costs contributed to increasing inflation and the trade deficit. This crisis was met by President Richard Nixon by cutting the link between the dollar and the price of gold, and imposing wage and price controls which were temporary and insufficient to solve the underlying issues. More damaging was the huge price jump of a crucial natural resource necessary for the efficient operation of the economy: oil. The obvious solution to rising energy costs was conservation and the more efficient use of energy as promoted by President Jimmy Carter. But the preferred solution by President Ronald Reagan was to put “oil on a credit card that would never by paid”, leading to ever-rising trade deficits.
So how did the US continue to get oil relatively cheaply? It began when Reagan appointed Paul Volcker chair of the Federal Reserve System. He is ordinarily thought of as the man who halted the rampant inflation of the 1970s by raising the Fed’s interest rates. Ending easy credit that resulted in a serious recession in the early 1980s explains part of the lowering of inflation. But it only begins there. The value of the dollar also rose 60% relative to other currencies, especially those of poorer and indebted nations. Paying back their debt became more expensive, and that took them off the market for many commodities, including oil. Minerals and oil became less expensive for the US as their prices collapsed, further depressing the economies of poor resource-rich nations. What the Fed’s high interest rates accomplished was the lowering price of the natural resources needed to make inexpensive products people in the US wanted to buy. This was really how the Fed’s high interest rates managed to help inflation collapse.
Thus began what has become known as the Great Moderation. Inflation was kept in check, unemployment kept low, long-term interest rates fell, and lifestyles maintained, although unions were busted and women had to enter the workforce to maintain middle class incomes. By the 1990s the neoclassical economists took credit for engineering this age of growth. Their policies, including deregulating the economy, had restored equilibrium to the economy. Only policy errors by the Fed could derail continuing growth, and now those mistakes could be avoided so long as the right people were running the Fed. So when the crisis of 2008 hit it was totally unexpected by orthodox economists, though not by many investors who bet on the coming disaster.
Galbraith discusses three groups of heterodox economists who got it right. The pragmatic and statistical economists who base their analysis on bubbles (such as Dean Baker, who predicted the 2008 crisis based on the real estate bubble; problem: discovering bubbles is hard, and since it is ad hoc, there exists the possibility that the method will fail.).
The Wynne Godley and National Income Identities approach which analyzes accounting relationships that state facts about the world. This is similar to Baker’s approach without the ad hoc element since its choice of variables is based on the total expenditures in the economy—income equals the sum of consumption, investment, government spending, exports minus imports. This is the National Income Identity. The flow of these expenditures is the economy. Economic growth occurs when the flow of expenditures increases. A fact revealed by this formula is that every dollar of the public deficit is matched by a dollar of private saving. This is a bookkeeping fact. Increasing the deficit increases private savings, as does increasing the trade surplus. Increasing savings, conversely, increases the deficit because there is less consumption, less income, and less economic activity to tax. This explains the prosperity of the late ‘90s, and the dot com slump and the 2008 crisis. It becomes a macroeconomic question about whether a particular state of the accounts is sustainable and what would happen if it stopped. Budget deficits are inevitable when the economy goes south because people focus more on saving instead of spending. As private spending declines, budget deficits must increase. It’s simple accounting.
The third approach is Hyman Minsky and Nonlinear Financial Dynamics. It shares with Godley’s approach the idea of not prejudging the intrinsic instability of the economic system.
Minsky’s core insight is that stability breeds instability. While this is an abstract way of thinking about the economy, this model implies that the role of government is to regulate, to prevent a potentially unstable system from slipping into instability as much as possible. Managing this is difficult and imprecise. Getting too close to the boundaries should be avoided. Once the boundary has been crossed, the rule of thumb is play it safe, stay away from the boundaries, “even when pressured to move to the edge.” Orthodox economists are only concerned with the “safe zone”. They don’t know what to do during a crash, and often inadvertently push the system into a crash, as we’ve experienced in the last several decades.
Part two of the book, The Four Horsemen of the End of Growth, explains why the return to “normal growth” is impossible. The first of the horsemen deals with natural resources within the context of a concept from thermodynamics: entropy. As noted earlier, natural resources did not figure into the equations of orthodox economists. Part of the reason for this seemed to be that the costs of oil, coal, copper, bananas, coffee was too low to make much of a difference. Yet much of United States postwar foreign policy was devoted to maintaining access to cheap minerals and food from developing countries. Oil was cheap because the US supplied enough for most of its own needs. Many of the clandestine activities undertaken by the US government was to ensure that governments favorable to supplying American consumers with cheap goods remained in power. One of the effects was that the US consumed a great deal of the world's resources at the expense of those countries producing them. When resources are added to the equation, a different analysis emerges that not even “he Keynesian alternative to mainstream economics—in the traditions of Godley and Minsky—had little to say.
This is where the analysis provided by Nicholas Georgescu-Roegen’s book, The Entropy Law and the Economic Process, enters the argument. The second law of thermodynamics, entropy, applies as much to economic processes as to physical processes. To oversimplify, the idea in the economic context is that as resources become depleted they cannot be replaced; once a barrel of oil is pumped out of the ground, it can never be pumped out again; when a ton of copper is mined, it cannot be mined again. Eventually there will be no more oil to pump, no more copper to mine. The consequent scarcity either raises the price of the resource and the products it helps produce or another resource replaces it. Galbraith discusses various consequences of this, but the bottom line is that without including the cost of natural resources, especially oil, our account of what brought about the 2008 crisis is incomplete because not only did the cost of oil retard economic growth, it also contributed to the growth and influence of the financial sector.
The second horseman is the limits of American power. The low cost of resources for the US has been guaranteed by its immense military power as well as the nation containing many valuable resources within its borders. As a result, the United States managed to impose an order on much of world. Sometimes it has done this by force, sometimes by bringing compliant nations under its protective umbrella.
For several reasons the imposition of the US’s will by force has become much harder recently. One reason is the increase in urbanization in most countries in the world. Iraq, for example, is not a nation of small farmers and nomadic herders. If it were, it would have been easier to subdue. Weapons have also evolved so that a relatively small number of dedicated insurgents can do an immense amount of damage with explosives cheaply acquired. Modern communications also play a role in publicizing the brutal acts of war raising question of morality and introducing doubt into the enterprise. Modern occupation is limited in time, and occupying armies are also much more expensive to pay, house, train, and each soldier more precious as a result.
The cost of modern warfare is so high it is unlikely that major nations will fight with one another. It also means they will be less likely to forcefully impose their wills on smaller nations. The US is learning that lesson with it wars in the Middle East. The upshot is that the US military might, powerful as it is, can no longer help keep resource costs low.
The fourth horseman is the role fraud played in the 2008 crisis, the millions of mortgages that could only be repaid on the assumption on the perennial rise of home prices. Economists rarely bring up the topic of fraud.
Institutions function under certain conditions, some of which result in prosperous survival, and different conditions result in the institutions’ failure. Failure need not come as the result of being unable to compete in the marketplace; internal factors within a firm alone can also be involved: mismanagement, corruption, greed, corporate infighting, and looting of corporate assets for personal gain. As resource scarcity increased and it became more difficult for corporations to meet the financial and economic expectations established during the immediate postwar period, regulations on corporations loosened to the extent that fraudulent activities, within corporations and in the way they dealt with their customers, became accepted business practices. It’s no wonder the system collapsed.
Galbraith is pessimistic that the collapse can be “cured by the application of Keynesian stimulus. … The institutional, infrastructure, resource basis, and psychological foundation for a Keynesian revival no longer exist”.(168)
Part three is entitle No Return to Normal. In chapter twelve, Galbraith debunks myths about Federal budget deficits, trade deficits, and interest rates. Specifically, that the US is in no danger of bankruptcy, which is impossible given that the Fed can always print money to pay the country’s debts. Given the realities of the world’s financial system, trade imbalances and federal deficits are bound to occur. The reason that these imbalances—which appear so large in the US—are necessary for the global economic system can be explained by simple double entry accounting.
The view that ongoing and rising budget and trade deficits are unsustainable and will bring our grandchildren to ruin due to the inability to pay off those debts is simply mistaken. Galbraith’s argument is something like this: The US is a wealthy nation and can not only afford deficits, but these deficits are helpful and, in fact, necessary for US economic growth. The reason is simple: When US exports exceed imports, the money from those imports end up in the banks of the oil countries, China, and other net exporters. Now what happens to all that money? If there aren’t enough projects available to invest that money, what can these countries do to keep their money safe and earn a little bit of interest? Why, buy US Treasury bonds. Of course, bonds are debt instruments; buyers of the bonds collect interest that the US government has pay. Why should the US government do these other sometimes morally dubious governments such a favor? The US needs to sell these bonds to finance the annual deficits necessary to pay for all the government goods and services. In a sense, it’s a virtuous feedback loop: the US government needs money for expenses and is willing to issue bonds to raise the extra money; other countries have excess dollars earned from selling goods or resources, and they don’t know what to do with the money so they buy the Treasury bonds; foreign countries could invest in other countries’ bonds or more lucrative investments, but they choose to invest in Treasury bonds because they are the safest investment in the world, and because there is so little financial risk, the interest rates paid by the US are incredibly low. So low that the real interest rate is below the rate of inflation. What this means is that this is a good deal for the US: money is cheap. Making it even a better deal is the dollar is the currency used to grease international trade, so foreigners have to hold dollars either in their hands or in the form of Treasury bonds.
So how does this help US economic growth? If Congress were to try to balance the budget by cutting spending and/or increasing taxes paid by the poor and the middle class, this will result in less money spent by Americans on cars, homes, furniture, clothes, electronic equipment, attending football games, pesticide service, gym memberships, eating out, hanging out in bars and coffee shops, college education, etc., etc., etc. Less money circulating in the economy will contract the economy; in other words, a recession.
What about the debt in the future? Because real interest rates on the debt is below inflation, it should also be less than the overall growth of the economy over time. Because of that, the ratio of the debt to the economy (GDP) will remain at manageable levels. Meanwhile, the US can pay its bills, and the rest of the world has a safe place to park its money. Where else can they do that? For at least a few more decades, there ain’t no other place.
So what do we do in the face of what appear to be permanent structural changes in the economy? Galbraith has tried to show that recreating the conditions that produced the “normal” status of the 1950s and 1960s is impossible. It is also difficult to predict what the New Normal might look like—or even whether anything like normal is possible—but it will be undoubtedly a period of low growth. Given that will be the case, what policies to help mitigate the low growth should the government follow?
First of all, we will need a drastic adjustment on our material expectations. People can still live well in a low-growth environment as long as they adopt economic and financial goals that fit within its constraints.
As far as government policies, one would be a drastic cut back in military spending. Galbraith isn’t suggesting that the United States should weaken its military as much as re-allocating money in such a way that redundancies and unnecessary or ineffective military systems are eliminated. He also argues that instead of reducing entitlements, they should be expanded. Rather than raising the age when people become eligible for social security, the eligibility age should be lowered to open up more jobs available to young people. The estate tax should be raised not so much for the purpose of increasing government revenues as to decrease the degree of wealth inequality. To ensure that everyone who works is earning a livable wage, the minimum wage should be higher. Taxes on labor should be lower, and taxes on capital, especially on income earned by capitalizing on scarce resources, higher.
Galbraith’s arguments favoring these changes are more detailed than space allows me to repeat. His book is persuasive in pointing out some sort of adjustment in our economic thinking is necessary, and also persuasive in showing how mainstream, orthodox economic thinking that got us into this mess will end up getting us mired deeper in the economic muck.
March 10, 2015
The is a very readable and thoughtful book.
The facts are clear, and the tendency is also,
but the future is still up for grabs.
Can we agree on our problems and begin a fix,
or will greed and politics prevail?
Notes while reading:
Prologue
- Themes: Black Swans, Fat Tails, Bubbles, Big Gov., Inequality.
- The first 3 imply a return to normal.
- Big Gov. implies bad incentives.
- Inequality leads to "Luxury Envy", which leads to more private debt,
which gets worse with more inequality. Average wages stagnate,
but this does not imply that wages stagnate for an individual worker.
- One-note narratives are not a sufficient explanation.
Part 1. The Optimists' Garden
1. Growth now and forever.
- Growth has not always been the objective, esp. pre-WW2.
- Now it is doubtful.
- The idea that post WW2, the US gov could manage the economy.
2. A Decade of Disruption
- the 1970s
- Oil shocks
- Big inflation
- Off-shore manufacturing
3. The Great Delusion
- Reagan and Volcker get inflation under control.
- Clinton rides the wave of prosperity.
- Hey!, it's OK now. We're back to normal.
4. Tweedledum and Tweedledee
- Beautiful models vs. real world models.
- Saltwater vs. Freshwater economists.
- Flaws and frictions are largely ignored.
- Capitalism vs. Marxism, different causes for same results.
5. The Backwater Prophets
- Not freshwater, not saltwater, not Marx: Backwater economists. 3 groups:
-- pragmatic and statistical.
-- national income identities.
-- nonlinear financial dynamics.
Part 2. The Four Horsemen of the End of Growth
6. The Choke-Chain Effect
1970's oil shock hit business profits, created business uncertainty, declining profits.
Then investments, employment, and output declined.
7. The Futility of Force
- Urbanization, evolution of weapons, media, tour of duty, limited time occupation, expensive soldiers.
- War is simply more difficult and expensive that before.
- GDP boost from war is very limited.
8. The Digital Storm
- Creative destruction
- More efficiency and market share
- Less jobs
- Old fixes - wait for the slump to wain, increase consumer spending - are not as effective.
9. The Fallout of Financial Fraud
Part 3. No Return to Normal
10. Broken Baselines and Failed Forecasts
- Financial models are based on past experience.
- The models had hard-coded recovery times.
- But, why wasn't it worse, as it should have been?
-- Health security payments rose 25%
-- Medicare: ~15%
-- Social Security: 16%
-- Other income security programs: 45%
-- Tax receipts fell 8%
- "...the very scale of government created over the previous century meant that the public sector could step up to meet the needs of the population when the private sector no longer did so."
11. The Crackpot Counterrevolution
- Counter theories are presented, evaluated, and dismissed.
- These theories are based on "their assertion of a universal standard of normality."
- "This time may be different, after all."
12. The Pivot, the Cliff, and the Brink of Default
- What is sustainability? Is it "balance", ie, the deviation from "normal"?
- How to measure sustainability?
-- Ratio of US federal debt to GDP.
-- With some assumptions, debt-to-GDP might be 300% by mid-century.
-- With more reasonable assumptions: debt-to-GDP would level off below 130%.
-- Highest previous ratio was 122%
- Gov. interest rate is important here.
-- The Fed. has total control of short-term interest rates.
-- Which influences mid and long-term interest rates.
- Must the federal gov. balance its books?
-- Not possible or desirable.
-- World financial position of US requires national debt.
13. Is There a European Crisis?
- No, it's global. Credit dried up more in some places and less in others.
14. Beyond Pangloss and Cassandra
- meaning, where is the middle ground?, I guess.
- Bring resource costs and rents back into the analysis.
- Obstacles to renewed growth:
-- Energy prices are high and unstable.
-- World economy no longer under US control.
-- Tech reduces jobs or slows job growth.
-- Private financial sector has stopped being a growth aid.
- No-growth does not work.
- Slow-growth is more stable.
-- Military cut-backs.
-- Better social insurance.
-- Increase min. wages.
-- Tax policy can reduce estate transfers on death.
-- Cut payroll and sales tax.
Epilogue
When Homer Returns
- Some of the problems that led to the collapse of the USSR are present today in the US.
- Why don't we talk about these problems, and fix them?
The facts are clear, and the tendency is also,
but the future is still up for grabs.
Can we agree on our problems and begin a fix,
or will greed and politics prevail?
Notes while reading:
Prologue
- Themes: Black Swans, Fat Tails, Bubbles, Big Gov., Inequality.
- The first 3 imply a return to normal.
- Big Gov. implies bad incentives.
- Inequality leads to "Luxury Envy", which leads to more private debt,
which gets worse with more inequality. Average wages stagnate,
but this does not imply that wages stagnate for an individual worker.
- One-note narratives are not a sufficient explanation.
Part 1. The Optimists' Garden
1. Growth now and forever.
- Growth has not always been the objective, esp. pre-WW2.
- Now it is doubtful.
- The idea that post WW2, the US gov could manage the economy.
2. A Decade of Disruption
- the 1970s
- Oil shocks
- Big inflation
- Off-shore manufacturing
3. The Great Delusion
- Reagan and Volcker get inflation under control.
- Clinton rides the wave of prosperity.
- Hey!, it's OK now. We're back to normal.
4. Tweedledum and Tweedledee
- Beautiful models vs. real world models.
- Saltwater vs. Freshwater economists.
- Flaws and frictions are largely ignored.
- Capitalism vs. Marxism, different causes for same results.
5. The Backwater Prophets
- Not freshwater, not saltwater, not Marx: Backwater economists. 3 groups:
-- pragmatic and statistical.
-- national income identities.
-- nonlinear financial dynamics.
Part 2. The Four Horsemen of the End of Growth
6. The Choke-Chain Effect
1970's oil shock hit business profits, created business uncertainty, declining profits.
Then investments, employment, and output declined.
7. The Futility of Force
- Urbanization, evolution of weapons, media, tour of duty, limited time occupation, expensive soldiers.
- War is simply more difficult and expensive that before.
- GDP boost from war is very limited.
8. The Digital Storm
- Creative destruction
- More efficiency and market share
- Less jobs
- Old fixes - wait for the slump to wain, increase consumer spending - are not as effective.
9. The Fallout of Financial Fraud
Part 3. No Return to Normal
10. Broken Baselines and Failed Forecasts
- Financial models are based on past experience.
- The models had hard-coded recovery times.
- But, why wasn't it worse, as it should have been?
-- Health security payments rose 25%
-- Medicare: ~15%
-- Social Security: 16%
-- Other income security programs: 45%
-- Tax receipts fell 8%
- "...the very scale of government created over the previous century meant that the public sector could step up to meet the needs of the population when the private sector no longer did so."
11. The Crackpot Counterrevolution
- Counter theories are presented, evaluated, and dismissed.
- These theories are based on "their assertion of a universal standard of normality."
- "This time may be different, after all."
12. The Pivot, the Cliff, and the Brink of Default
- What is sustainability? Is it "balance", ie, the deviation from "normal"?
- How to measure sustainability?
-- Ratio of US federal debt to GDP.
-- With some assumptions, debt-to-GDP might be 300% by mid-century.
-- With more reasonable assumptions: debt-to-GDP would level off below 130%.
-- Highest previous ratio was 122%
- Gov. interest rate is important here.
-- The Fed. has total control of short-term interest rates.
-- Which influences mid and long-term interest rates.
- Must the federal gov. balance its books?
-- Not possible or desirable.
-- World financial position of US requires national debt.
13. Is There a European Crisis?
- No, it's global. Credit dried up more in some places and less in others.
14. Beyond Pangloss and Cassandra
- meaning, where is the middle ground?, I guess.
- Bring resource costs and rents back into the analysis.
- Obstacles to renewed growth:
-- Energy prices are high and unstable.
-- World economy no longer under US control.
-- Tech reduces jobs or slows job growth.
-- Private financial sector has stopped being a growth aid.
- No-growth does not work.
- Slow-growth is more stable.
-- Military cut-backs.
-- Better social insurance.
-- Increase min. wages.
-- Tax policy can reduce estate transfers on death.
-- Cut payroll and sales tax.
Epilogue
When Homer Returns
- Some of the problems that led to the collapse of the USSR are present today in the US.
- Why don't we talk about these problems, and fix them?
December 14, 2016
This is a fascinating book that came awfully close to endorsing ecological economics and degrowth — without, however, quite getting there, so he lost me at the end.
Galbraith clearly understands that resources fuel economic growth, and this is the fundamental insight of the book. He even has heard of Nicholas Georgescu-Roegen and Kenneth Boulding. What a concept! And it’s a concept which economists badly need to understand. He traces the history of the reliance on growth through high-growth periods up until recently, when suddenly resources became just a tad harder to acquire, and so growth stumbled as well.
He traces the four horsemen of the end of growth: the “choke chain effect” (rising energy costs, chapter 6), the futility of force (Iraq, Vietnam, etc., chapter 7), the digital storm (chapter 8), and the fallout of financial fraud (chapter 9). The digital storm did create some new business opportunities, but also unemployment — it’s going to throw someone out of work, just like the “petroleum revolution” of the 1930's created unemployment.
Most interesting was his discussion of fraud. The dynamic of fraud was the real cause of the 2008 financial crisis. Honest paths to economic growth were closed off due to resource limits, but the times seemed to demand economic growth, so dishonest paths were used instead, in the form of fraudulent mortgages. Fraud is caused by people expecting lots of growth, and looking hopefully to people promising it, and refusing “lower growth” alternatives. Thus we have people like Madoff, and people like the dishonest bankers who caused the financial crisis. He then traces the fallout of the crisis surrounding the Great Recession, the increase in the federal budget deficit (p. 186), tea-party misrepresentations of basic economic realities (chapter 11), and so forth.
What is the future of growth? At one point, he seems to think that growth is over. He says that [p. 168] “. . . the collapse is definitive. . . . The car does not have magneto trouble . . . it has suffered a transmission failure. A meltdown. More gas in the engine will not make it go.” But in the end (“Beyond Pangloss and Cassandra,” chapter 14) he rejects degrowth and no-growth alternatives. He doesn’t give substantial justifications or much of a justification at all, which is disappointing. His reasoning seems to be: without growth, we would have predator economics, and that’s bad, but we don’t have the resources for fast growth, so I guess we’re stuck with slow growth.
Well, aren’t there laws of physics in here somewhere? Isn’t there a physical limit to the economy, regardless of how unattractive the no-growth or degrowth alternatives are? He even asks the right question: “Can we even afford to grow, given the carbon-loading and environmental damage?” (p. 241).
But in the end he does not answer his own question. Instead of boldly declaring that we are entering a new era of degrowth, he trails off with “well, we can’t afford not to grow.” So instead of writing a great book about the fundamental changes needed for degrowth, he has written an uninspiring defense of muddling through.
Galbraith clearly understands that resources fuel economic growth, and this is the fundamental insight of the book. He even has heard of Nicholas Georgescu-Roegen and Kenneth Boulding. What a concept! And it’s a concept which economists badly need to understand. He traces the history of the reliance on growth through high-growth periods up until recently, when suddenly resources became just a tad harder to acquire, and so growth stumbled as well.
He traces the four horsemen of the end of growth: the “choke chain effect” (rising energy costs, chapter 6), the futility of force (Iraq, Vietnam, etc., chapter 7), the digital storm (chapter 8), and the fallout of financial fraud (chapter 9). The digital storm did create some new business opportunities, but also unemployment — it’s going to throw someone out of work, just like the “petroleum revolution” of the 1930's created unemployment.
Most interesting was his discussion of fraud. The dynamic of fraud was the real cause of the 2008 financial crisis. Honest paths to economic growth were closed off due to resource limits, but the times seemed to demand economic growth, so dishonest paths were used instead, in the form of fraudulent mortgages. Fraud is caused by people expecting lots of growth, and looking hopefully to people promising it, and refusing “lower growth” alternatives. Thus we have people like Madoff, and people like the dishonest bankers who caused the financial crisis. He then traces the fallout of the crisis surrounding the Great Recession, the increase in the federal budget deficit (p. 186), tea-party misrepresentations of basic economic realities (chapter 11), and so forth.
What is the future of growth? At one point, he seems to think that growth is over. He says that [p. 168] “. . . the collapse is definitive. . . . The car does not have magneto trouble . . . it has suffered a transmission failure. A meltdown. More gas in the engine will not make it go.” But in the end (“Beyond Pangloss and Cassandra,” chapter 14) he rejects degrowth and no-growth alternatives. He doesn’t give substantial justifications or much of a justification at all, which is disappointing. His reasoning seems to be: without growth, we would have predator economics, and that’s bad, but we don’t have the resources for fast growth, so I guess we’re stuck with slow growth.
Well, aren’t there laws of physics in here somewhere? Isn’t there a physical limit to the economy, regardless of how unattractive the no-growth or degrowth alternatives are? He even asks the right question: “Can we even afford to grow, given the carbon-loading and environmental damage?” (p. 241).
But in the end he does not answer his own question. Instead of boldly declaring that we are entering a new era of degrowth, he trails off with “well, we can’t afford not to grow.” So instead of writing a great book about the fundamental changes needed for degrowth, he has written an uninspiring defense of muddling through.
April 27, 2019
Galbraith slams the mainstream economics profession; systematically dismantling neoclassical economics and dispelling the myth that no one saw the crisis coming, which lingers to this day. Galbraith calls out the bad behaviour and lending practices of the banks for what it is: criminal fraud; pure and simple.
Galbraith offers some useful insights into economic and technical progress over the last 80 years and some reasonable sounding and practical policy responses to address the current mess. He tackles the oversight and enforcement issues related to the shocking behaviour in the finance sector and proposes some potential solutions to the wealth distribution problem.
Galbraith also provides an interesting and convincing take on why the US will not go bust anytime soon and that it can continue to kick the can down the road for a while yet. Though it could be argued that his theory is based on a few specious assumptions including an over-reliance on the 'official' statistics to demonstrate his premise. The analysis also fails to seriously address the impact of the private debt trap as a drag on the economy. However, this is probably being a touch pedantic as Galbraith is a truth sayer along the lines of his friend and kindred spirit, Yanis Varoufakis who he refers to throughout the book. The world needs more of this type of honesty and analysis as opposed to the unhelpful claptrap and mistruths we're fed in the lame-stream business media. Four stars.
Galbraith offers some useful insights into economic and technical progress over the last 80 years and some reasonable sounding and practical policy responses to address the current mess. He tackles the oversight and enforcement issues related to the shocking behaviour in the finance sector and proposes some potential solutions to the wealth distribution problem.
Galbraith also provides an interesting and convincing take on why the US will not go bust anytime soon and that it can continue to kick the can down the road for a while yet. Though it could be argued that his theory is based on a few specious assumptions including an over-reliance on the 'official' statistics to demonstrate his premise. The analysis also fails to seriously address the impact of the private debt trap as a drag on the economy. However, this is probably being a touch pedantic as Galbraith is a truth sayer along the lines of his friend and kindred spirit, Yanis Varoufakis who he refers to throughout the book. The world needs more of this type of honesty and analysis as opposed to the unhelpful claptrap and mistruths we're fed in the lame-stream business media. Four stars.
April 1, 2020
Muy bueno. Empecé a leerlo pensando de casualidad que iba de más sobre la crisis europea y me he encontrado un gran libro de reflexión sobre la economía actual, las consecuencias de los recursos, la digitalización, la crisis del 2008. Muy recomendable.
December 19, 2014
This book was loaded with information. In fact, that may have been it's fault. Galbraith covered so many theories of growth, and presented so much information, pro and con, on each one, that it essentially was information overload. Almost every sentence was loaded with information and ideas, hardly a stray word it seemed. And he explained things reasonably well for someone who's not a professional economist - I understood most of what he said and found myself nodding my head to much of it. Yet by the end I could hardly tell what his conclusion was, much less how he got there. It was dense stuff, and it was just too much (at least for my meager little brain).
December 5, 2015
This book really annoyed me, and I loved it. I have long understood the Chicago School of Econ to be utterly bankrupt of ideas about the real world, and while I felt that Galbraith made strawmen out of other complex ideas with which he disagrees, I fundamentally agree with the arguments here.
The book is an easy read and should be read by anyone that cares about the present and future state of the US economy.
The book is an easy read and should be read by anyone that cares about the present and future state of the US economy.
November 8, 2023
This a good book ....in fact Ray Dallio the legendary hedge fund manager allegedly called it a great book and he knows more about economics than I do. It is however a fairly complicated discussion that flows quickly in some places and is more dry (difficult) to read in others. I struggled with some chapters based upon my lack of understanding of some of the topics discussed but other chapters I found easier to understand and gained some solid insight into the world of macro economics. Galbraith argues that the GFC was a turning point in the US economy that has marked the start of unstable economic conditions, which he regards as the new normal. He argues that policies and institutions going forward should be designed to cope with this fact, maintaining conditions for a good life for the average person in difficult times. There are some excellent chapters that many will find interesting including the cause of the GFC which was directly related to fraudulent creation of CDOs and credit default swaps as investment banks tried to tap the poor quality secondary mortgage market (read people who should not have qualified for mortgages). The importance of cheap energy to solid economic growth, the cause of the collapse of Communist Russia and the cause of the European crisis (PIIGS credit crisis). For those interested in the GFC and its causes and where the US is headed will find this book a worthwhile investment of their time.
January 26, 2022
"The analysis of resource costs and rents was well known to classical political economy but obliterated by growth theory in the postwar era. It must return. We must also restore the understanding achieved by Keynes and Minsky, and under the New Deal, of unstable speculation and financial fraud, later effaced by the doctrine of efficient markets. A new economics must rest on a biophysical and institutional framework, recognizing that fixed capital and embedded technology are essential for efficient productive operations, but that resource costs can render any fixed system fragile, and that corruption can destroy any human institution" (p.237).
December 26, 2017
a little bit all over the place.
i probably need to understand money and macroeconomics better to understand and enjoy it
However, very clear that galbraith goes against the grain of traditional economists who contribute little of relevance. Galbraith is unafraid to be highly critical of the profession and advocates his positions well.
i probably need to understand money and macroeconomics better to understand and enjoy it
However, very clear that galbraith goes against the grain of traditional economists who contribute little of relevance. Galbraith is unafraid to be highly critical of the profession and advocates his positions well.
December 1, 2016
Some (ok lots) of the economic jargon put me to sleep. Too much historical stuff, not enough of what he thinks lies ahead. He makes the case that economists are just making everything up, and then expects you to believe what he says. That threw me for a loop.
February 4, 2018
Good readable historiography, but I kept losing the narrative -- the point of the book, its main thesis, wasn't clear until the very end. Not my ideal model of good social-science-for-the-public writing.
February 18, 2018
Galbraith is, as always, a clear guide to the weaknesses of economics as a discipline and to what that means for economic analysis.
While I might quibble with some of this policy prescriptions, he remains the economist I most rely upon to understand our present and possible future.
While I might quibble with some of this policy prescriptions, he remains the economist I most rely upon to understand our present and possible future.
December 31, 2018
Not very flattering to the economics profession. Generally agree with the positions taken by the author versus other factions of economic theory.
Promotes the idea that growth is needed, but "slow growth" is preferred.
Promotes the idea that growth is needed, but "slow growth" is preferred.
December 31, 2023
A different way of looking at economics
This is an excellent book that explores the flaws in our existing economic ideas. It has many suggested remedies for these flaws which are becoming increasingly essential to be implemented..
This is an excellent book that explores the flaws in our existing economic ideas. It has many suggested remedies for these flaws which are becoming increasingly essential to be implemented..
May 13, 2017
The amount of current day economic theory that takes for granted that eternal growth exists is mind-boggling.
February 6, 2022
Refreshing and precise.
July 27, 2022
Wow was this ahead of it’s time. Explanation of economic trends in particular make this worth looking back at. Plus, Galbraith’s a expert on politics and economy, and the mistakes of the past.
May 14, 2015
I received a copy of this book from Goodreads and would have given it 5 stars except for 2 minor points which I will get to later in the review. First, this book does a great job surveying some of the literature that has emanated from the most recent financial crisis and goes on to say how none of them really captured why the financial crisis occurred. He subsequently goes on to write as if he is speaking to an intelligent layperson how the crisis occurred and why we may have difficulty returning to a high growth economy. It is opinionated but fascinating. He goes on to censure (some more than others) some of the prominent economists who have been opining about the cause and potential solutions to the most recent crisis, including those who he feels a political kinship toward (liberals like Joseph Stiglitz and Paul Krugman) and eviscerates those who think the economy should be left alone and remain lightly regulated (Alan Greenspan). His generally elegant but crystalline writing also comprehensively mocks economists who come bearing mathematical Greek symbols into a world that doesn't exist but in theory. Like Martin Wolf''s recent book, he also pays homage to Hyman Minsky's insight that "stability breed instability," and that "capitalist financial instability is intrinsic...However, a provisional contingent form of stability is possible. It consists of keeping the system going forward on a steady keel for as long as possible. The public responsibility is to regulate financial behavior, limiting speculation and stretching out the expansionary phase." Toward the end of the book he goes on to cite four themes that will confound our ability to achieve high economic growth and full employment moving forward: High cost and uncertain energy markets, the loss of financial and energy domination of the US, radical labor-saving technological change and the lack of the private financial sector to drive growth. Despite the general pessimism of Galbraith, he doesn't imply that we should stock up on canned goods and learn survivalist skills, it just means that the economic assumptions that we will automatically return to our country's normal rate of historical economic growth is not likely to occur.
I like the provocative commentary that this book publishes because it should force us to work backwards from failure and reverse engineer our policies to see if we can overcome Galbraith's hypothesis of why our economy is not going to continue to grow as in the past. However, the two minor shortcomings of the book is first, his comments about the military. He asks why does the US need an Air Force except for troop and cargo transport; what is the use of an army; we should have a smaller navy, but the Marines and the Coast Guard could be "left alone." This superficial level of reasoning is jarring coming from an otherwise sure-footed and knowledgeable narrative. Second, he himself doesn't address how he can be wrong. Ever since Malthus wrote, "An Essay on the Principle of Population," there have political and policy pronouncements proclaiming the end of something...a country's prominence, a civilization, etc., and yet human ingenuity has overcome these obstacles. I wouldn't be so sure that can't overcome the current malaise the afflicts our economy, especially one looks worldwide at the reductions in poverty and increase life-expectancy. That said, Galbraith's book is a welcome one as it provides analysis and provokes thought in those who are interested in the ongoing economic development of our country.
I like the provocative commentary that this book publishes because it should force us to work backwards from failure and reverse engineer our policies to see if we can overcome Galbraith's hypothesis of why our economy is not going to continue to grow as in the past. However, the two minor shortcomings of the book is first, his comments about the military. He asks why does the US need an Air Force except for troop and cargo transport; what is the use of an army; we should have a smaller navy, but the Marines and the Coast Guard could be "left alone." This superficial level of reasoning is jarring coming from an otherwise sure-footed and knowledgeable narrative. Second, he himself doesn't address how he can be wrong. Ever since Malthus wrote, "An Essay on the Principle of Population," there have political and policy pronouncements proclaiming the end of something...a country's prominence, a civilization, etc., and yet human ingenuity has overcome these obstacles. I wouldn't be so sure that can't overcome the current malaise the afflicts our economy, especially one looks worldwide at the reductions in poverty and increase life-expectancy. That said, Galbraith's book is a welcome one as it provides analysis and provokes thought in those who are interested in the ongoing economic development of our country.
January 31, 2016
This book felt very old-school, from the typeface on the cover all the way to the format and writing style. It is not really a "big idea" book, like I would have hoped for. Rather, at its heart it is a long-form contribution to the public debate, not unlike the numerous treatises his father wrote from the 50s to the 80s. So naturally you get Galbraith's views on the issues dominating the public discourse of 2013-2014, like austerity/debt hawkishness, the European Debt Crisis and rising energy prices (now a long-gone concern).
A concerning number of pages relate only loosely to the book's central thesis. Galbraith often misses Mt. Everest for ephemeral academic debates that will be lost like dust to the wind in a few years. He mentions climate change, arguably the most fundamental problem facing humanity, only in brief asides. Most notably, he pulls it in as dramatic punctuation for one of the chapters in the book ("And then finally, there is the question of climate change."). And after that, proceeds to say nothing more about it!
Most likely, Galbraith had not fully synthezised his ideas prior to writing the book and so the reader is not left with the kind of clarity he/she would get after reading something like, say Piketty's Capital in the Twenty-First Century
A pity, because the sheer density of ideas here is enormous. The book succeeds in a roundabout fashion as a springboard for further reading and counter-intuitive ways to understand the economy. It triggered my interest in the ideas of Minsky and Georgescu-Roegen. I find it interesting how Galbraith arrives (I assume) independently at the concept of a more decentralized society as an answer to our current challenges. This gave me associations to what Naomi Klein describes in This Changes Everything, and Paul Mason does in Postcapitalism: A Guide to Our Future, even if these authors' visions of what such a society may look like are probably very different.
Sort of recommended, for the avid reader who is macroeconomically literate.
A concerning number of pages relate only loosely to the book's central thesis. Galbraith often misses Mt. Everest for ephemeral academic debates that will be lost like dust to the wind in a few years. He mentions climate change, arguably the most fundamental problem facing humanity, only in brief asides. Most notably, he pulls it in as dramatic punctuation for one of the chapters in the book ("And then finally, there is the question of climate change."). And after that, proceeds to say nothing more about it!
Most likely, Galbraith had not fully synthezised his ideas prior to writing the book and so the reader is not left with the kind of clarity he/she would get after reading something like, say Piketty's Capital in the Twenty-First Century
A pity, because the sheer density of ideas here is enormous. The book succeeds in a roundabout fashion as a springboard for further reading and counter-intuitive ways to understand the economy. It triggered my interest in the ideas of Minsky and Georgescu-Roegen. I find it interesting how Galbraith arrives (I assume) independently at the concept of a more decentralized society as an answer to our current challenges. This gave me associations to what Naomi Klein describes in This Changes Everything, and Paul Mason does in Postcapitalism: A Guide to Our Future, even if these authors' visions of what such a society may look like are probably very different.
Sort of recommended, for the avid reader who is macroeconomically literate.
January 12, 2016
The son of John Kenneth has given us an interesting Jeremiad for our turbulent economic times. The first section is devoted to accusing almost the entire profession of economists of wearing blinders for more than fifty years. Fascinated by Growth theory, coupled with peculiar events not to be repeated in history, such as American industrial/financial world dominance after World War 2 and cheap resources available on the domestic market, economists enthroned an universal law legitimated by a uniqueness of the times which would dissolve by the seventies. Galbraith makes few friends as he excoriates economists from the left, as well as right. Even Marxists are considered to be members of the growth club, albeit uncouth arrivals to the party predicting inevitable crisis after crisis amidst growth. Galbraith appears to be an economic Humean who feels that each specific economic situation requires an independent interpretation to obviate prejudice. Carrying forward a theory that might be a relevant description of the past can muddle or cause fiscal and financial shenanigans in the present, leaving future remedies shackled to a tradition not just devoid of practical attachment to impending circumstances, but open to exploitation and predatory behavior by unscrupulous actors, such as big banks. Controversially, Galbraith thinks that big banks could be done away with, as well as the army & Air Force, without loss to the economic and political community. Galbraith's answer to America's obsession with growth is to wean the public from its get-rich-quick fantasies and embrace a slow growth economy. Hard to have a spectacular financial crash if the economy is merely driving along at a proper federally regulated speed limit, I guess. Galbraith favors big government and thusly embraces social net programs that'll keep all members of the economic community as actors, albeit perhaps restricted to the role of consumers. Hard to imagine, though, that even a large percentage of the public will accept Galbraith's economic/political ideas, as average Americans have always kept the love portion alive in their love/hate relationship with their robber barons; but Galbraith's book is a very interesting, if not more than somewhat unsettling read.
January 8, 2019
This was my first read book ever on economics. I liked the deep study and strong arguments to convince anyone that the dominant forces and thoughts driving world's financial systems aren't trying to build a better place for most of us.
The historical facts and data also helps to keep memory fresh about cloudy meters of a distant past, now pretty obvious facts known and ignored by several.
A downside to me was the lack of same level details on suggestions for what is, or should happen, next. I guess this is up to me now, to keep reading about this.
Esse foi o primeiro livro sobre economia que li. Eu gostei do profundo estudo and fortes argumentos para convencer qualquer um que as forças dominantes e pensamentos guiando o sistema financeiro mundial não estão tentando construir um mundo melhor para a maioria de nós.
Os fatos históricos e dados também ajudam a manter a memória fresca sobre assuntos nebulosos de um passado distante, agora fatos conhecidos bem óbvios e ignorados por muitos.
O ponto negativo pra mim foi a falta do mesmo nível de detalhes nas sugestões do que vai, ou deveria acontecer, em seguida. Eu acho que isso depende de mim agora, continuar lendo sobre isso.
The historical facts and data also helps to keep memory fresh about cloudy meters of a distant past, now pretty obvious facts known and ignored by several.
A downside to me was the lack of same level details on suggestions for what is, or should happen, next. I guess this is up to me now, to keep reading about this.
Esse foi o primeiro livro sobre economia que li. Eu gostei do profundo estudo and fortes argumentos para convencer qualquer um que as forças dominantes e pensamentos guiando o sistema financeiro mundial não estão tentando construir um mundo melhor para a maioria de nós.
Os fatos históricos e dados também ajudam a manter a memória fresca sobre assuntos nebulosos de um passado distante, agora fatos conhecidos bem óbvios e ignorados por muitos.
O ponto negativo pra mim foi a falta do mesmo nível de detalhes nas sugestões do que vai, ou deveria acontecer, em seguida. Eu acho que isso depende de mim agora, continuar lendo sobre isso.
December 14, 2015
A tour of the last century of economic thought in which the author chastises his profession for many of it's simplifying assumptions. In particular he criticises the total absence of resources like raw materials from models of economic growth. Instead he urges us to think about the fixed up-front costs when engaging in large scale production, and the structural problems we then face when the availability of the required resources suddenly change. He posits that the growth experienced in the mid/late twentieth century were due primarily to the new exploitation of fossil fuels, that the infrastructure of our society heavily depends on them, and that their price is too volatile to be relied upon. In the same terms he argues that financial growth is limited by the availability of sound investments, and that an acute shortage of reliable debtors is a principal cause of financial fraud. In an atmosphere of high demand for investments that yield profit, the tendency will be toward systematic mis-represtation of financial risk. To sum it up: we have assumed that growth is the normal state of an economy. We must realise that we face the end of normal.
March 29, 2021
Surprisingly an excellent read. It flows and covers everything we need to know even in 2021. It's all about money and economies; risk taking, financial fraud and economic growth, the information technology bust and deregulations in the Financial Industry.
The ancients had their normal and as changes take place at each 'age', with new developments, whether the railroad or the smartphone, a normal is no longer as it is and it is replaced by a new normal. And, humanity adjusts.
It is possible that a crisis just an interruption of the normal. Usually the economy is affected but sooner or later, the economy will always right itself.
A slow expansion followed by a rapid collapse, the bubble pops, and eventually, things go back to the underlying equilibrium and people analyze what went wrong.
The ancients had their normal and as changes take place at each 'age', with new developments, whether the railroad or the smartphone, a normal is no longer as it is and it is replaced by a new normal. And, humanity adjusts.
It is possible that a crisis just an interruption of the normal. Usually the economy is affected but sooner or later, the economy will always right itself.
A slow expansion followed by a rapid collapse, the bubble pops, and eventually, things go back to the underlying equilibrium and people analyze what went wrong.
November 16, 2014
Galbraith has written a thought-provoking treatise on the causes of the 2007-2008 financial meltdown, and posits that fundamental shifts in business, technology and international economics will prevent a return to what we Americans perceive as "normal". I particularly enjoyed his thoughts on how technology (automation) and the reluctant-to-retire boomer generation are impacting wage stagnation. Frankly, I was shocked by the final chapter, wherein the author offers solutions for stimulating economic growth. The ideas are, in a word, outrageous. In a footnote, Galbraith (son of John Kenneth Galbraith), notes that: "These suggestions are (I trust obviously) meant to provoke." But their inclusion tarnishes an otherwise sterling narrative.
February 6, 2017
Lucid, nuanced, and very intelligent. Galbraith is certainly one of the brightest economists of our day. I am not 100% sure his thesis is really driven home completely, he skims over a lot of details to keep the book short, but his analysis always considers many points of view and informatively displays their short comings or strengths.
September 28, 2014
This is another book that says that our world economy can't and won't continue to grow. I have heard and read that so many times, that I am starting to believe it. I am sure it is true, and I -as so many others, I am sure- am very happy that I have spent already more than 50% of my life in a buoyant economy, and if there are bad times to come, I am not cut out to last long in them. So, one way or the other I am saved, and I feel very bad for those babies and toddlers who are just starting to live. Poor guys...
July 20, 2015
“Great companies flourish when resources are cheap and conditions are stable for a long time. Small companies come and go.”
“economic growth depended on three factors: population growth, technological change, and saving.”
I think the last quote is a summary of Greece issue. Many sentences in this book are related to today's economic and politic world. You can also find such analysis. Have a good reads..
“economic growth depended on three factors: population growth, technological change, and saving.”
I think the last quote is a summary of Greece issue. Many sentences in this book are related to today's economic and politic world. You can also find such analysis. Have a good reads..
August 16, 2016
I thoroughly enjoyed the uncomfortable feeling I got when my engrained views were shown to be demonstrably weak. My Uni swots (1993-1998) needed refreshing and much has happened since, so the very readable style Galbraith puts forward facilitates the process. I sincerely invite all friends passionate about economics - liberals or Keynesians alike - to read and question. A must. Food for thought.
February 28, 2015
This book was packed full of information. It was research very thoroughly.You will definitely gain a more comprehensive understanding of the economic history of the US. However, parts of the book were dry and boring. Read like a textbook in places.
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