SYNOPSIS: John Kenneth Galbraith has apparently not been briefed on new developments in macreconomic theory since 1950.
To be both a liberal and a good economist you must have a certain sense of the tragic--that is, you must understand that not all goals can be attained, that life is a matter of painful tradeoffs. You must want to help the poor, but understand that welfare can encourage dependency. You must want to protect those who lose their jobs, but admit that generous unemployment benefits can raise the long-term rate of unemployment. You must be willing to tax the affluent to help those in need, but accept that too high a rate of taxation can discourage investment and innovation. To the free-market conservative, these are all arguments for government to do nothing, to accept whatever level of poverty and insecurity the market happens to produce. A serious liberal does not reply to such conservatives by denying that there are any trade-offs at all; he insists, rather, that some trade-offs are worth making, that helping the poor and protecting the unlucky may have costs but will ultimately make for a better society.
The revelation one gets from reading John Kenneth Galbraith's The Good Society is that Galbraith--who is one of the world's most celebrated intellectuals, and whom one would expect to have a deeper appreciation of the complexity of the human condition than a mere technical economist would--lacks this tragic sense. Galbraith's vision of the economy is one without shadows, in which what is good for social justice always turns out to have no unfavorable side effects. If this vision is typical of liberal intellectuals, the ineffectuality of the tribe is not an accident: It stems from a deep-seated unwillingness to face up to uncomfortable reality.
Admittedly, Galbraith did at one time have a distinctive economic theory that might perhaps have justified his disbelief in painful choices. A generation ago, in The New Industrial State, he offered an image of an economy that was becoming increasingly dominated by General Motors-type corporations--giant firms, freed by their size and power from the rigors of competition, run by technocrats who pursued bureaucratic imperatives rather than serving the interests of the stockholders. In effect, he argued that capitalism would soon cease to be a market system in any meaningful sense, and that the trade-offs inherent in such a system would therefore soon be irrelevant.
But time has not been kind to that theory. We have not become an economy of GM-sized corporations; in fact, large corporations play a considerably smaller role in the economy now than they did when he wrote his book, and for that matter GM itself is a lot less immune from market pressures than it used to be. Rather than evolving away from a market economy and the constraints it imposes, we are now more firmly ruled by the Invisible Hand than ever before. And indeed one wonders if Galbraith himself is still a Galbraithian; while a few turns of phrase from The Affluent Society and The New Industrial State resurface in The Good Society, for the most part the book is very old-fashioned Keynesianism. Again and again, the book espouses views that had a strong following in the 1950s but have since been abandoned by nearly all researchers in the face of logic, evidence, and experience. Galbraith does not bother to argue that the old conventional wisdom was right and that the new conventional wisdom is wrong; often it seems that he is simply unaware that other people's ideas have changed.
One key example among many: In the chapter on inflation he mentions the "clear choice--the trade-off--between high employment and inflation as against unemployment and relatively stable prices," then adds, "This trade-off is present in all accepted thought." The fact is that it has been a long time since any substantial number of economists believed in a significant long-run trade-off between unemployment and inflation.
This archaism matters, because Galbraith's continuing adherence to the primitive macroeconomics of his youth leaves him unprepared to confront the real dilemmas facing modern liberalism. Consider, for example, what he has to say about the interlinked issues of monetary policy, saving, and budget deficits. Galbraith, remarkably, regards the Federal Reserve as a largely powerless institution; he dismisses the idea that the Fed can end a recession by cutting interest rates as a "[q]uasi-religious conviction" that "triumphs over conflicting experience." Really? Skepticism about the effectiveness of monetary policy was common 40 years ago, but the Fed's role in sparking recoveries in 1971, 1975, 1982, and 1992--together with impressive demonstrations of the power of monetary policy in many other countries--has put such doubts to rest. Because Galbraith believes monetary policy cannot increase demand, however, he has a sort of Depression-era vision of an economy[cont. on p.58] in which anything that increases spending is good. Should we worry about America's low savings rate or its government deficits? Of course not: These are good things, because they increase demand.
And so Galbraith is oblivious to the most serious problem facing modern liberalism: reconciling social justice with full employment. In the real world this is a terrible dilemma; even Sweden, with its powerful sense of community and overwhelming consensus for the welfare state, has found itself suffering from an acute case of Eurosclerosis. But in Galbraith's world there is no dilemma at all: Unemployment is merely a problem of inadequate demand, to be cured by New Deal-type public works programs and redistribution of income away from rich people who save too much.
There is no issue more painful for the serious liberal than immigration, which inevitably pits the interests of poorly paid workers in advanced countries against those of even worse-paid workers in the Third World. Yet Galbraith waves it all away with the airy remark that "admission must, no doubt, be related to the availability of jobs"--as if the number of jobs for low-skill workers were a fixed number, not something that depends on their wage rate. Suppose the United States were to allow $2-an-hour sweatshops to operate freely on our soil; undoubtedly, we could then gainfully employ tens of millions of immigrants, who would be eager to take those jobs. Our decision not to allow such sweatshops, to deny those potential immigrants that opportunity because we want to protect the wages of those already here, is a harsh choice that involves valuing some people's economic interests over others.
The truth is that constructing and maintaining a good society has turned out to be far more difficult than anyone imagined a generation ago. To be a serious liberal, one must confront that difficulty, make hard choices, and persuade others to do the same. It is therefore a cause for sadness that America's most famous liberal economist has produced a manifesto that simply assumes most of the difficulties away.
Originally published, 9.96