James K. Galbraith's John Kenneth Galbraith Lecture

A very good meditation on issues discussed at TPM Cafe, through a family-history lens:

Hips, Heterodoxy, and the Abiding Economics of JKG | TPMCafe: A frequent comparison [of John Kenneth Galbraith] is to Thorstein Veblen, as a brilliant mind, writer and social critic. At one level, who would not be content with that? But I always thought that Galbraith deserved more – and that Veblen also deserves more than he characteristically gets from such comparison to Galbraith. The deficiency lies in the way they tend to be treated as economists....

What are the core propositions of Galbraith’s thought?....

From The Great Crash, we have of course the conviction that financial panics affect real activity. No one in the 19th century or with experience of agriculture ever seriously doubted that the economy runs on credit or that real activity depends on banks. Only in the higher reaches of academic life could such a thing be denied. The denial, nevertheless, took powerful hold. The Great Crash is a wonderful corrective.... Here we have not only mass psychology and vulnerable technology – the panic that outruns the ticker, as it did again in the market break of 1987. But The Great Crash also gives us the subtle interplay of players: How National City bribed the son of Peru’s president $450,000 for the privilege of marketing fifty million dollar loan. As Galbraith notes, “Juan’s services were of a rather negative sort. He was paid for not blocking the deal.”... The Great Crash is built on such stories. Taken together, they teach us that economics, like history, is made at least in part by particular persons. This is a message that the profession has stoutly resisted.... Though the essential precedent for this approach – generalization from example – goes back to Adam Smith, there are not many passages in economics since Smith that illuminate a new subject with such penetration....

The Affluent Society is now remembered for its endearing, enduring phrases, above all the “concept of the conventional wisdom,” and for its evocative passages on private opulence and public squalor, such as the one about the “family which takes its mauve and cerise, air-conditioned, power-steered and power-braked automobile out for a tour [and] passes through cities that are badly paved, made hideous by litter, blighted buildings, and posts for wires that should long since have been put underground...” before going on to “picnic on exquisitely packaged food from a portable icebox by a polluted stream [and spending] the night at a park which is a menace to public health and morals.” But... we find a logical demolition of the orthodox theory of consumer choice. It proceeds from the unassailable observation that stable preferences cannot exist for goods that do not exist. The process of innovation necessarily entails the creation of markets. Thus the Dependence Effect: the dependence of consumption on production and not the other way around....

Then we have the theory of economic organization in The New Industrial State. Here Galbraith built on the foundation of Berle and Means, on Joseph Schumpeter and to some extent on Max Weber, on the behavioral formalisms of Herbert A. Simon, and on his own American Capitalism of 1952 and its concept of countervailing power... conveying understanding not only of the separation of ownership from control but also the significance of the specific bureaucratic processes that generate corporate decision-making and the interplay of company and state. In The New Industrial State, Galbraith challenges us to contemplate rigorously what happens when power passes irrevocably into the organization. He forces us to recognize that the fundamental decision-making process of modern economics – maximization subject to constraint – is untenable in a world of asymmetric information (as Stiglitz has taught us to call it) and negotiated decisions representing the compromised interests of established players.

The New Industrial State did not anticipate later developments in many respects. The incursion of the Japanese technostructure (especially in steel and autos) onto the American scene in the 1970s, eventually stabilized by market sharing deals under President Reagan, wasn’t foreseen in the book. Nor was the return to power of high finance in the 1980s.... Galbraith also did not anticipate that part of the technostructure would spin away from the large industrial corporations in the 1990s, becoming a distinct and independently financed economic force, susceptible (as we learned) to bubble and pop....

One may argue that in the new millennium the large corporation has regained its central position on the American political scene – that we who are south of the border live in what I’ve called the “Corporate Republic.” Indeed one may argue for an understanding of the present American government almost precisely in terms of corporate governance as The Industrial State teaches it to be.

• We have the essentially clientelist character of decision making, unable to deliberate in an extended, goal-seeking way, because of the overriding necessity of deference to players who happen to occupy particular roles. Thus we have the capture of strategic direction – in national security, finance, regulation and other areas – by cliques who (like the Technostructure) can lay claim to expertise not available to outsiders, who can manufacture bogus expertise at will, claiming the privilege of dispensing it without fear of substantial contradiction.
• We have the public relations apparatus with the unique characteristic of a corporate propaganda machine, namely an inability to tell a truthful story that is consistent from one day to the next. Yet like the press releases of large corporations, this apparatus nevertheless expects and receives deferential treatment from the press. Meanwhile challengers and critics are treated as the financial papers handle trade unionists and tort lawyers.
• We had, until the rebellion of 2006, a rubber-stamping Board of Directors, to which in the modern United States we referred by the deferential title of “Congress.”
• We have the shareholders, nominal owners and participants in occasional elections, which the management was determined never under any circumstances to lose. Just how far that determination went, from rationing voting machines, to the “caging” of African-American voters (a felony crime), to the spurious prosecution of voter registration groups as revealed in the present scandal over the dismissal of United States Attorneys, and as many believe to electronic manipulation of the vote count itself, we are only beginning now to learn.
• Above all, we have the Chief Executive Officer as specialist in public relations – the man who spends his time on the golf course (or at the ranch) in order to show that he can, in order to advertise to the world that things are under control. Or more precisely to obscure the fact that they are not....

Where do we go from here? What are we doing here? Are we merely paying tribute to a great man? Or can we muster a deeper purpose? Are we willing to be part of a project of changing the way economics conducts its affairs? And if so, then what should we do about it? The answer will not be found in wit.... It can only be found in research. And one thing my father did not do – one thing that he never seriously attempted – was to build a research tradition that would carry on the spirit of his work.... But if the ideas are to survive, that task is before us now....

Critics of the neoclassical doctrines have penned, over more than a century, millions of words. Our task now is to build the alternative, one that is not merely a variant or a gloss on neoclassical doctrine.... Let me suggest a few key characteristics of what should follow.

1. My father opposed the micro/macro distinction and it should be abolished.... The new classicals have recognized this, and have abolished macro.... We should take the opposite tack: toward a unified economics of human behavior based on principles of organization and a recognition that macroeconomic forces shape personal and group response.
2. Empirical work should be privileged.... In the history of science, new technologies for measurement have often preceded new ideas. Believe it or not, this could happen in economics too.
3. Mathematics should mainly clarify the implications of simple constructs....
4. Our economics should teach the great thinkers, notably Smith, Marx, Keynes, Veblen and Schumpeter – and John Kenneth Galbraith. We need not reinvent the field; nor should we abandon it. Economics over the sweep of history is not mainly about scarcity (which technology overcomes) nor about choice (which is generally neither free nor the defining characteristic of freedom). Rather, economics is about value, distribution, growth, stabilization, evolution, and limits....
5. Pop constructs derived from neoclassical abstractions... are noteworthy as efforts to reconcile neoclassical ideas to real social problems....
6. An economics of modern capitalism should study the actual, existing features of our system....
7. Accounting matters, and counting can be done in many ways....
8. A focus on social structures and the data that record them requires new empirical methods....
9. Likewise the study of social structures.... Numerical taxonomy, discriminant functions, multidimensional scaling, and like techniques are available for studying the phenomena of real economic systems....
10. Finally, our economics is about problems that need to be solved....

Pluralism can and indeed must be combined with discipline and rigor. But let’s be conscious of two fundamental tests. One of them is well captured by a remark of Paul Samuelson’s, quoted by Richard Parker. Samuelson writes: “In the history of ideas, the thinker who creates a new synthesis and speaks in telling fashion to a new age is the one who plays the pivotal role in history.” Galbraith met that test and so should we...

Comments

[Andre Mayer]

This is a very good summary of the case for Galbraith as an academic economist (which of course he was). In a broader perspective, it seems to me, he was a realist and a pragmatist in an age of ideology. Not only did he reject both Marxist theory and the purposive construction of a, uh, countervailing capitalist theory, he argued (and demonstrated) that both undertakings were fatally flawed -- and even that their opposition was to some degree illusory. In this perspective, a name that might be linked with his is Milovan Djilas.

[Barkley Rosser]

Brad,

As this looks like this might be the last posting you are going to do here related to the recent TPM debates on hip heterodoxy and the neoclassical mafia (and I have done no communicating over there), I would like to hit you up with a very bottom line question coming out of that and the original article.

Do you support moving the graduate program at the University of Notre Dame out of where it was into a new department of economics that Solow has dismissed as being "another fourth rate version of the MIT program"? This is definitely the current poster boy for repression of heterodoxy by mainstream orthodoxy.

I fully accept that many mainstream economists are reasonably open-minded in terms of ideas. But then somehow there ends up being this support, or at least lack of opposition to the sort of thing that has happened at Notre Dame, where a clearly heterodox program has been shut down. The reasons given were that the people there were publishing too many books and not enough articles in highly ranked journals. Of course, Phil Mirowski's books have been far more influential and widely cited than 95% of the articles published in the AER, JPE, QJE, and Econometrica, but this does not matter. Doesn't count.

One other matter is the subtle business, not entirely unlinked to the above, whereby economists who have a heterodox reputation do not get cited when mainstreamers take over their ideas. Thus, I do not think Bernanke or Gertler ever cited Hyman P. Minsky when they went publishing about financial fragility in the AER, thereby making the concept "respectable." Minsky had published most of his stuff in books or, ironically enough, in journals put out by regional Fed banks (he was always taken seriously by certain policymakers, despite his Post Keynesian rep). Of course part of this is that one should have a "respectable" bibliography if one wants to publish in a "respectable" journal, so it is best to play it safe and leave out that heterodox economist who preceded you. But this sort of thing just contributes to and reinforces the former.

So, Brad, where do you stand on the Notre Dame case? This really is a big bottom line for a lot of people out there, and a major source of the intensity behind this recent blowup over reputed neoclassical mafias.

[andres]

Bad Barkley, no biscuit. One shouldn't try to put one's host in a tight spot by asking him a difficult question that requires him to commit himself against one group or another. Brad's a blogger, not a politician.

James Galbraith's description of the theoretical reforms that the economics profession needs are spot on, but I find it interesting that he did not mention any possible institutional reforms of the profession itself.

To name just a few from my own biased opinions:

(1) There is a desperate need for economics to abolish altogether publication requirements for tenure, especially in order to raise the overall quality of published research. Academic departments should focus on good teaching and leave the research to university-affiliated research institutions. Research that is undertaken only to meet publication requirements is unlikely to be good research, and so research should be left only to those who care enough about it to publish without being faced with negative incentives.

(2) The ASSA conference has in many ways become too large, and has failed in the job of creating a dialogue between mainstream and heterodox economists. In the past years, ASSA has actually reduced the number of panels hosted by heterodox associations like URPE and IAFFE, and to be fair, mainstream and heterodox research programs have become too varied to be encompassed within a single conference.

So either (a) each and every individual association must introduce a uniform screening process to reduce the number of panels, (b) each association should be required to send one member to attend each relevant panel of other associations, or (c) heterodox associations should seriously consider withdrawing from ASSA--after all, the vast majority of economists who self-identify with the mainstream will in any case not attend heterodox discussion panels.

(3) I don't know how, but there has to be a better dialogue and a more inclusive set of guidelines for textbooks and readings used to teach undergraduates. Not only do undergraduate textbooks lag significantly behind advanced research, but often both advanced mainstream and heterodox research flatly contradicts what textbooks say.

There's more of course, but I see these as the most salient points.

[Barkley Rosser]

Andreas,

Well, I probably am being bad, but really, I think that this one is near to being a no-brainer, especially when such relatively orthodox economists such as Solow have been out there denouncing what was done at Notre Dame. One can be very mainstream and still say, it's OK to let a few heterodox places survive. This is pretty basic, really.

BTW, over the weekend there was a humongous ICAPE conference at the University of Utah, ICAPE being the relatively new umbrella organization for lots of the heterodox groups in the US, the out crowd at the ASSA who were getting interviewed in the Nation article. However, I have not seen a peep in the blogosphere about what went on there. I was off in Italy this past weekend.

So, Brad, maybe I am being bad, but the question still stands.

[dsquared]

[Brad's a blogger, not a politician]

Well he's both, and has certainly taken sides in a number of intra-profession disputes in the past, so I would agree that Barkley's question is fair enough.

[Barkley Rosser]

As a comment on the more general debate between Brad and Jamie Galbraith, since again I am not participating directly in the TPM discussions, I would note as a reply to Brad that, yes, in 1925 Keynes supported a downwardly-sticky wages theory of unemployment in his essay on Churchill. But it is well known that he had major changes in his views in the early 1930s, as also noted by Galbraith. Most of the General Theory does not depend on downwardly sticky wages for its arguments.

[Barkley Rosser]

I'm just sending out a little warning. I have also asked my question of Dani Rodrik. Like Brad, he has also deigned not to answer it. If I don't hear anything from either of them, I shall post on the matter on maxspeak (eeeeeeekkkk!!!!), fun and games.