Gaga Over Galbraith

By Joseph Salerno

Based on his book sales, John Kenneth Galbraith was probably the most read economist of the 20th century. From the publication of his first bestselling book The Great Crash in 1954 through the 1980s, the American left-liberal intelligentsia and media breathlessly anticipated and wildly celebrated the publication of each new book. Nonetheless, most technical economists, regardless of their political orientation, did not take his work seriously. By the 1990s Galbraith's work had been thoroughly discredited among professional economists. Indeed, in his 1994 book, Peddling Prosperity, leftist economist Paul Krugman held up Galbraith as the prototype of a left-wing "policy entrepreneur" who, like his supply-sider counterparts on the Right, sought an audience among policymakers and the educated public, outside the cozy circle of academic economists.

In his book, Krugman ridiculed The New Industrial State, Galbraith's magnum opus. He pointed out its wildly erroneous predictions regarding the evolution of the US economy toward greater dominations by giant corporations that were insulated from market forces, manipulated consumer preferences at will through advertising, and whose interlocking managerial and technological elites (the ominously labeled "Technostructure") could make decisions without regard to the interests of stockholders. With rhetorical understatement, Krugman concurred with the sentiments of earlier academic critics, characterizing the book as one that "could safely be ignored."

But discredited economists, much like disgraced politicians, never remain out of favor for long, especially after they have passed from the earthly scene. So it is that Galbraith's reputation has been undergoing something of a rehabilitation in the past decade. Especially among those mainstream academic economists who are vaguely cognizant of the rapidly accumulating failures of their discipline in explaining economic reality, Galbraith is increasingly perceived as a misunderstood thinker whose insights were ahead of their time and whose work was too hastily dismissed.

For example, Nobel laureate Amartya Sen was positively elegiac in his appraisal of Galbraith, exclaiming that he "doesn't get enough praise." In an interview, Sen opined that Galbraith's work would indeed endure and that his book The Affluent Society exemplified Galbraith's "great insight." The book, Sen effused, "has become so much a part of our understanding of contemporary capitalism that we forget where it began. It's like reading Hamlet and deciding it's full of quotations. You realize where they came from."[1]

J. Bradford DeLong is a Berkeley economist and former Treasury Department functionary during the Clinton administration. He also writes the clumsily titled and soporific blog, Grasping Reality with Both Invisible Hands: Fair, Balanced, and Reality-Based: A Semi-Daily Journal. DeLong is even less restrained and discriminating than Sen in extolling Galbraith's brilliance, declaring that history professors can do no better "than to assign his books The Affluent Society and The New Industrial State to teach students how the midcentury U.S. economy came to dominate the world." Anyone who wants to learn about the Great Depression, according to DeLong, "should start with The Great Crash; there is no other history of the stock-market crash of 1929 that is as short and even half as worthwhile."

DeLong even praises Galbraith's turbulent and ill-fated stint as deputy director in the Office of Price Administration during World War II, where he apparently performed the miracle of "squar[ing] the growth-inflation circle by pushing production far above economists' measures of potential output without sparking runaway price increases that would threaten the economic mobilization."[2]Although the title of the aforementioned blog doubly touts DeLong's intellectual engagement with "reality," his paean to Galbraith's administration of draconian wartime price controls betrays minimal contact with economic reality.

Recently, prominent mainstream economists with strong inclinations toward behavioral economics have also jumped on the Galbraith bandwagon. George Akerlof and Robert Schiller, for example, have favorably cited Galbraith in their bestselling book Animal Spirits. They refer to Galbraith'sGreat Crash as one of the "seminal historical accounts of bubbles and panics," and characterize it as "very much in the same spirit as the analysis in [their own] book." They are quite taken with Galbraith's discovery of an alleged causal relationship between the mysteriously waxing and waning prevalence of "bad faith" — defined as "economic activity that, while technically legal, has sinister motives" — and economic cycles.[3]

Robert Frank is another economist with impeccable mainstream credentials who has a predilection for behavioral economics and a soft spot for Galbraith. He has argued that Galbraith's position that the market economy systematically misallocates resources between private and public sectors "was right for the wrong reasons." If only Galbraith's training had been grounded in modern game theory, Frank contends, he would have been better able to defend himself against his academic critics.[4]

Now there are probably various reasons for the burgeoning Galbraith lovefest among mainstream economists. But, I believe, the primary reason is the growing dissatisfaction within the economics profession with the transmogrification of economics into a hyper-mathematical, model-driven discipline that tells us exactly nothing about the real world, as the financial crisis has plainly revealed. Compared to the arid and mechanistic "theorems" of modern economics, even Galbraith's unsystematic and pedantic musings are a breath of fresh air, because at least they are expressed in English and make reference to real and meaningful phenomena. This is, of course, not an endorsement of Galbraith's approach to economics or his various positions. Indeed far from it: rather it is an attempt to explain the unjustified accolades his work is beginning to receive from professional economists.

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