What’s “Normal” in Economics?
Galbraith, James K “The End of Normal. The Great Crisis and the Future of Growth.” Simon & Schuster, New York, 2014. Dallas library 330.90511 G148E 2014
Some economists, and certainly those dominating the thinking in the labor movement, believe that the period 1945-1973 was “normal” and that our subsequent problems came about because of bad policies. Most notably, we blame Reagan, Reaganomics, and “trickle down” economics. Our intentions are the best, but our economic analysis is way wrong according to the last few economics books I’ve read, especially this one.
The postwar boom was not normal. It was an extremely unusual period of capitalist history during which the United States dominated the economic world. Capitalists reluctantly shared some of their largesse with a powerful and demanding labor movement. By 1973, it was pretty well over. What happened before and what is now happening afterward is normal capitalism: slow growth, rising inequality, international competition, and inevitable crises.
Some economists treat their discipline like a religion. In religion, God has a purpose for everything. He/She tends to restore balance in a world that makes sense. When things seem to go terribly wrong, God is just moving a few things around with balance and purpose His/Her ultimate goal. Religious people think that the universe has some kind of stasis, and everything within it has a natural balance that we will understand someday after we’re dead. “Farther along, we’ll know all about it. Farther along, we’ll understand why” as the song says.
This religious commitment to balance and purpose is contradicted by everything that happens. The universe has no balance: some stars collide with others, planets come and go. Our lives have no balance: we may be growing cancer cells right alongside the healthy ones.
Things aren’t balanced and purposeful. In fact, things aren’t even whatever we think they are. Everything is changing from one type of thing to another. The only “normal” is change. That’s true of economic systems as well. It’s not a religion, and there is no balance and purpose to be “restored.”
Galbraith seems to know that, and he lashes the many conventional economists whose conclusions are tailored to suit the desires of their employers. You really have to appreciate Galbraith for that.
The author teaches at UT Austin. He’s a wonderful writer. Whether or not he’s a great economist, I suppose, will be revealed over the next few years because, unlike most, he does not believe that America will ever return to the growth period from around 1945 to the 1970s. He recommends that we adjust our policies for an extended period of slow growth. His recommendations are a lot like those of Bernie Sanders.
I wonder what he said two weeks ago when President Trump announced that growth in the 2nd quarter of 2018 had exceeded 4%? If they are able to sustain that kind of growth, then Galbraith was simply wrong, but that one quarter could easily be a fluke. I wrote him an email to ask.
Some of his more contemporary remarks, from January 2018, are on-line:
https://www.marketwatch.com/story/economist-james-k-galbraith-isnt-celebrating-dow-25000-2018-01-08 He correctly predicted that corporations would not invest their ill-gotten gains from the December, 2017 tax giveaway. He says they will just buy back their own stock and drive up stock prices, and that is certainly what happened over the next 8 months.
This is a good book well worth reading.
Reviewed by Hans G Despainent
James K Galbraith’s The End of Normal, recently published, is a spectacular achievement in political economy generally, as a philosophical critique of the practice of economics and public policy in particular, and for its comprehensive and totalizing explanation of global monopoly-finance capitalism.
…Galbraith contends that not only does financialization generate massive inequality and instability (see Galbraith 2012), but generates opportunities for colossal fraud. Galbraith contends we must “stipulate that the Great Financial Crisis was rooted in a vast scheme of financial fraud”
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.
Pg10: That bastard Richard Fisher
17 He begins his tale in 1945
21 Effect of communism. At the last chapter, he gives an interesting summary of the economic collapse of the Soviet Union from being a great power to being a total bust
64 Economists are like monks in a monastery. He handles metaphors very adeptly
67 Capitalism = perfection
68 Stochastic – it means “random”
99 Could this be an error? He says that no gain results from variable costs. Does he think profit comes from fixed costs?
100: Does he think surplus value is produced from energy? Business cycles are caused by technology. Tractors basically caused the great depression by supplanting all the farmers, mules, and horses. Anyway, he thinks resource costs are a big problem. He thinks technology is not going to save us.
164 Explaining the Great Recession: “…fraud took over the financial system because it was expedient to allow it.” The basis for growth ended in the 1970s.
Somewhere in here, he mentions that nobody cares if people move from California to Colorado. I think he’s pointing out that immigration within the Economic Union is a really big problem, but it’s easy within the United States.
222 Cutting Social Security would not help the economy, as they are just transfer payments redistributing wealth but not creating or destroying any
238 There are four obstacles to achieving high growth and full employment:
- Energy markets remain high cost and uncertain (this was 2014)
- World economy is no longer under the effective financial and military control of the United States and its allies.
- Digital technology replaces a lot more jobs than it creates
- The private financial sector has ceased to serve as a motor of growth
Pg 241: Why not live in a “no growth” world? He says that our store of capital would not get replenished so productivity would fall continuously
The Soviets were a great powerhouse by the 1960s, but they did not rebuild and replenish their productive abilities and, eventually, lost the technology race. Their production got more and more costly and less and less quality. After the government collapses, the economy really went to hell. GNP dropped by half, life expectancy dropped from 72 down to 58 (pg 259).
He doesn’t think cutting the working hours would be as good as just letting people retire earlier.