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Wednesday, September 09, 2009

Galbraith

Now that Rajendra K. Pachauri, some IPCC hotshot, is marketing John Kenneth Galbraith, an economist who died some years back, it's quite fitting to post here something I wrote as part of an academic writing course last spring:

Galbraithian Ideas - a Renaissance

John Kenneth Galbraith, an American-Canadian economist who died in 2006, was and is better known for his books than for any actual research on economic matters. This is why his reputation is two-sided: On the one hand his ideas are popular especially on the left of the political spectrum but on the other hand as an economist he was not very remarkable. Paul Krugman, a Nobel-winning economist, was not happy with Galbraith’s apparent mainstream influence, calling Galbraith a “policy entrepreneur”. This, however, was in 1994 and anyone who has been reading Krugman’s NYTimes blog lately has surely noticed how Krugman now seems to have a more favorable opinion of Galbraith or at least of his opinions. The initial friction never seemed to make much sense: after all, both Galbraith and Krugman are Keynesian economists.

An interesting paper by L.A. Duhs poses a relevant question: Did Krugman come to accept Galbraith’s views as an economist or as a columnist with a political agenda? After all, Krugman had criticized Galbraith for offering “easy solutions where there are likely to be none” (Duhs 2). Is Krugman now imitating Galbraith by offering simple solutions to complex problems? A particularly interesting section in the paper explores how Krugman first criticized Galbraith’s vision of a future America in The New Industrial State where big corporations exercise monopoly power and act as price makers, i.e. are able to set prices due to the absence of competition. However, based on Krugman’s NYTimes columns it seems that he would now agree with Galbraith on issues of corporate power. We are left with an interesting question: Has Krugman progressed or regressed into a Galbraithian? (Duhs 4–6)

Economists, such as Milton Friedman, who have traditionally been associated with the political right, did not think much of Galbraith’s economic views either (Lockett 3). In a NYTimes blog post Barry Gewen observes that “When Milton Friedman’s stock is high, John Kenneth Galbraith’s is low, and vice versa.” At the moment it seems that Friedman’s (who once called Galbraith “a missionary seeking converts”) stock is low and Galbraith’s name is experiencing a renaissance. A new school of economics called behavioral economics which attempts to take a more “realistic” approach toward consumer behavior, expresses the view that consumers are not rational and that it should be up to economists to study how consumers actually behave (Duhs 18). This is in contrast with some neoclassical models which assume that utility-maximizing individuals are rational. Galbraith, a Keynesian, argued against this neoclassical assumption and against the assumption that, left to their own devices, markets would always strike a balance. In The New Industrial State he explained how market failures (which often result from government action) can lead to disproportionate corporate power. In The Great Crash, 1929 Galbraith criticized businesses for speculative, short-sighted behavior.

All these ideas are now resurfacing in a way that appears more populist than scientific. This is why it is important to remember that not much of Galbraith’s writings were based on hard research.

Dush, L.A. "From Galbraith to Krugman and Back." University of Queensland.
Galbraith, J.K. "Countervailing Power." The American Economic Review 44.2 (1954): 1-6.
Gewen, Barry. "The Return of John Kennety Galbraith." The New York Times. 17 December 2008.
Lockett, Peter. "Milton Friedman and Economic Policy." University of Adelaide.

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