Author: James K Galbraith
This is political economy at its best, in the tradition of Veblen’s Theory of the Leisure Class, or J.K. Galbraith’s The New Industrial State. The comparators are chosen carefully, for not only is The Predator State an update, it is equally as deserving of status as a classic. The issues are carefully examined, the prose is delightful, the arguments appear unassailable, and the choir—including this reviewer and presumably most of the readers of this journal—shouts “Amen!”. But will the book be read? Can any book today capture the attention accorded to Veblen a century ago, or to Galbraith, senior, nearly fifty years ago? Still, one must applaud Jamie for trying. This is an amazing effort...
The general theses can be simply stated. First, while conservatives toyed with laissez-faire, they quickly abandoned it in all important areas of policy-making. For them, it now serves as nothing more than an enabling myth, used to hide the true nature of our world. Ironically, only the progressive still takes the call for “market solutions” seriously, and this is the major barrier to formulating sensible policy. Second, the “industrial state” has been replaced by a predator state, a coalition of relentless opponents of the very idea of a “public interest”, whose purpose is to master the state structure in order to empower a high plutocracy with nothing more than vile and rapacious goals. Finally, the “corporate republic” created by the likes of Dick Cheney is highly unstable, a formula for national failure. Progressives must wrest control from the reactionaries before it is too late for restoration of America as the world’s financial anchor, technological leader, and promoter of collective security.
Jamie thus resurrects both the extreme pessimism of Veblen’s notion of predation (by the conspicuously consuming leisure class in Veblen’s day, but by the corporate elite and Cheney’s imperial court today) as well as his only partially defined but optimistic vision of a world dominated by the engineers. As Jamie argues, his father admired Veblen but was most influenced by the New Deal, the mobilization during WWII, and the rise of the modern corporation that cooperated with government and labor to create the planned economy of the postwar period. Hence, Veblen’s opposition of the business enterprise versus the public interest was replaced by countervailing powers that compromised a largely acceptable truce. Jamie insists that his father’s analysis was correct, however, it was already becoming outdated by the early 1970s as the Bretton Woods system fell apart.
The free market reactionaries promised that some combination of monetarism, supply side economics, balanced budgets, and free trade was the solution to America’s woes. The mantra “free markets” provided an easy antidote to “planning” that was said to constrain recovery and growth. As each conservative policy was tried, however, it resulted in obvious and even spectacular failure. In truth, all economies are always and everywhere planned—for the simple reason that planning is the use of today’s resources to meet tomorrow’s needs, something that all societies must do if they are going to survive—so the only question is who is going to do the planning, and to whom are the benefits going to flow? There are still a few true believers (principled conservatives that Jamie compares to noble savages in the political wilderness), but most conservatives realized that there is no conflict between “big government” and “the market” as they abandoned the myth but usurped the “free market” label. All we are left with is the liberal who embraces the myth out of fear of being exposed as a heretic, a socialist, or a fool. Thus, the liberal pines to “make the market work better”, never challenging the view (abandoned by all but the most foolish conservatives) that government is the problem.
Economic freedom is reduced to the freedom to shop, including the freedom to buy elections, and anything that interferes is a threat. “Market” means nothing more than “nonstate”, a negation of use of policy in the public interest. Jamie provides a careful analysis of the frontline battles on many of the most important issues--Social Security, health care, inequality, immigration, security after 9-11, trade and outsourcing, and global warming—showing how “market solutions” are designed to enrich a favored oligarchy through a spoils system administered through the state’s structure. The policy “mistakes” in Iraq or New Orleans or at Bear-Stearns do not result from incompetence—indeed they only appear to be failures because we apply inappropriate measures of success. There is no common good, no public purpose, no shareholder’s interest; we are the prey and governments as well as corporations are run by and for predators. The “failures” enrich the proper beneficiaries even as they “prove” government is no solution.
There is a way out, but it is not easy. Historically, regulation and standards have required acceptance by progressive business—those firms that recognized they would lose in races to the bottom. Today, corporate and public policy alike are run by the most reactionary elements, well-paid rogues that suck capacity. Wherever one finds a sector that still operates reasonably well, one finds remnants of New Deal institutions that support, guarantee, regulate, and leverage private activities, in spheres as diverse as higher education, housing, pensions, healthcare, the military-industrial complex (and the prison-industrial complex). Naturally, even these sectors are endangered as they represent potential riches (witness subprimes, a privatization mess that Wall Street would love to repeat with Social Security). Still, Jamie is hopeful. The ideology of free markets is bankrupt, but the US is not. The path is clear: re-regulation, planning, standards (including wage controls), and coming to grips with the nation’s global responsibilities.
L. Randall Wray University of Missouri—Kansas City The reviewer is Professor of Economics, and Senior Scholar at the Levy Economics Institute.
n "The Predator State" Galbraith argues that the Reagan revolution and all that followed was essentially a fraud. What remains of it? Nothing. Who still believes in it? Outside academia: no one.Galbraith says that Reaganism was founded on three policies: deregulation, monetarism and low taxes. He declares that the first was an artifice so that lobbyists could extract "more money from those who can afford to pay - and sometimes from those who cannot."
Monetarism (the tactic used, successfully, by the Federal Reserve in the 1980s to nip inflation) he depicts as a tool to kill off labor unions and elevate the power of Wall Street. And low taxes failed to achieve their supposed purpose - encouraging saving. They were merely a sop to the wealthy.
The author, whose prose is reminiscent of that of his famous father, John Kenneth Galbraith, is as wickedly biting as he is over the top. He writes, "It is fair to say that there will never again be any U.S. government for which a truly principled conservative might work." Fair to say? How about biased, vengeful and short-sighted to say?
I have a sneaky feeling Galbraith would take those fighting words as a compliment. He admits this is a "personal" work, since the conservative tide "devalued my Keynesian education, obstructed my career and deprived me and my few comrades on Capitol Hill of purchase on the levers of power." He mourns the assault on his father's legacy. (Milton Friedman, the Nobel Prize-winning monetarist most responsible for toppling Galbraith from a revered place in the economist's pantheon, is likened to George Wallace.)
Touching as his filial devotion is, Galbraith seems to believe we are still living in an economic ecosystem dominated by industrial behemoths - which is to say, the world described in the elder Galbraith's 1967 masterpiece, "The New Industrial State." When he observes of CEOs, citing Veblen, that their "wives and servants are therefore fed and decorated to reflect the stature of their masters," he is dialing back to the 1950s, or maybe to the '20s.
Still, the gusto with which he repeatedly challenges tired conventions is refreshing. Did inflation really go up in the '70s because the Fed printed too much money - or as Galbraith says, did big companies, big unions and OPEC simply have too much pricing power? Does too much employment really lead to inflation, as conservatives tell us - or is the very notion absurd? And if low taxes haven't promoted savings, Galbraith asks, why not raise them?
Galbraith delights in tweaking conservatives, but some of his surest arrows are aimed at liberals, whom he charges with cowering in a "protective crouch." As a Keynesian, Galbraith does honor to deficit spending; he harpoons liberals for adopting the ideal of balanced budgets just when the right has abandoned it. Budget balancers are "not merely parroting conservatives," he says; "they are parroting dead conservatives." And he debunks the liberal approach to trade protection, which is often to insist that developing nations agree to reforms in their home economies. "You cannot impose a wage standard on China or Vietnam," Galbraith points out. But you can do it at home.
Aiming, he says, "to free up the liberal mind," he fearlessly endorses long since abandoned, and now generally discredited, liberal policies, from price controls to state planning. "You want higher wages?" he asks. "Raise them. You want more and better jobs? Create them."
There is much in this book that strikes me as wrong. Most CEOs are neither "functionaries" nor are they "idle." It is not true that the market never ferrets out scandal; Enron was spotted by hedge funds and undone by short-sellers. Hurricane Katrina exposed a failure not of markets but of government. And contrary to Galbraith, economic freedom as interpreted by market proponents is more than just "the freedom to shop."
He writes so well, you have to pinch yourself to remember that, yes, the free market has produced robust growth and central planning has usually failed. Galbraith acknowledges that the United States has mostly enjoyed prosperity in recent years; his glib explanation is that hold-over New Deal institutions (government mortgage agencies, subsidized health care, student loans) have come to the rescue of misguided conservative policies. In other words, if it works, it's the residue of Franklin Roosevelt and Galbraith's dad; if it fails, it's the market's fault. That seemed preposterous when I first read it; but in the wake of the collapse of Fannie Mae and Freddie Mac, when all of Wall Street could be headed for a bailout, one wonders.
Galbraith admits neither ambiguity nor doubt; indeed, his prose is absolutist in proportion to the extent to which his assertions are unprovable. For Galbraith, the market as its apostles describe it does not really exist. It is a "vaporous" idea, a "cosmic and ethereal space," a "negation," a "nonstate." Finally, it is "another god that failed." This is brilliant rhetoric. It is not brilliant economics, but give him his due: He has raised trenchant questions about a system in crisis.
What remains of the Reagan revolution? Galbraith asks. Nothing, he answers.
Roger Lowenstein is a contributor to The New York Times Magazine. His latest book is "While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis."
