James Galbraith on the Predator State, Government Solvency

James Galbraith is a particularly effective communicator for an economist, so I thought readers would enjoy seeing him on the RT show Boom & Bust (although the theme song strikes me as designed to generate a headache).

Galbraith reviews some of his arguments from his early 2000s book The Predator State, which has proven to be prescient on many fronts (for instance, his must-read discussion of higher education). He also covers the issue of national solvency and under what circumstances countries can suffer. The short form is that a country that issues its own currency can’t become insolvent internally, but small countries are at risk that its trade partners will regard it with less enthusiasm, meaning its price falls, which results in inflation. Wealthy locals can also become disaffected and invest in foreign currency assets.

This segment would serve as a good primer for friends and colleagues who wonder whether to believe scary talk about US deficits and the future of the dollar.

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  1. Banger

    Certainly there is no reason to fear deficits to the extent that Republicans have raised the alarm from, mainly, fraudulent reasons. As I’ve tried to say to people who are generally on the right the U.S. is not the same as a household budget. But, sadly, most of the American public is ignorant of economics which is mainly not taught in El/Sec education in this country. Ironic since people claim “the economy” is the central concern of our lives etc.

    I take issue with Dr. Galbraith on the matter of public spending and those who feast on the government budget. I believe the problem is much more serious than G. claims. Con games, corruption has flourished in the past few decades in Washington due to the efforts of lobbyists, revolving door careerists who populate Congressional staff and the regulatory agencies. That is not to say that there are not many agencies who do a pretty good job like Social Security. But we only have to see the fiasco of the Obamacare website to understand that something isn’t quite right in IT contracting (again, a community I was a part of).

    I also know something about national security that has, increasingly, become (in my view) a protection racket riddled with corruption and “privatization.” Galbraith vaguely talks about security as if we knew the threats we are facing–the government largely manufactures or exaggerates “threats” that few people take the time to actually analyze from a realpolitik point of view.

    Galbraith’s main points are pretty good and imply a continuation and expansion of social democracy that may no longer be possible. We’ll see.

    1. Moneta

      Malinvestment and wealth concentration go hand in hand with big deficits.

      Maybe theoretically we can argue that it does not have to be, but in practice, big deficits have led to the same results time and time again.

      Because the US has the reserve currency, it seems like deficits don’t matter but they do. These deficits are making other countries implode and destroying the middle class. They will seem to not matter until they do.

      “How did you go bankrupt?” Two ways. Gradually, then suddenly.” ― Ernest Hemingway, The Sun Also Rises

      1. Moneta

        Many people argue that America has managed to deficit spend its way to prosperity quite a few times. But I will ask at what human costs? Every time, it required that a large group sacrifice itself for the good of America.

      2. Calgacus

        What a horrible picture you paint, Moneta. Thankfully, it is based in no logical or theoretical arguments, and completely disagrees with observation. Most horror movies are more plausible.

        Malinvestment and wealth concentration go hand in hand with big deficits.

        Maybe theoretically we can argue that it does not have to be, but in practice, big deficits have led to the same results time and time again.

        Reverses and omits causes and effects. The decision for malinvestment and wealth concentration is the problem, the cause. This tends to lead to ameliorating “bad deficits” which partially alleviate the damage of austerity. These “bad deficits” do tend to be larger than good deficits incurred by the state supporting high employment at good wages.

        These deficits are making other countries implode and destroying the middle class. They will seem to not matter until they do. Where are these imploding countries? Economies are demand constrained. Bigger US deficits lead to more middle class prosperity everywhere in current conditions. US budget surpluses could cause countries to “implode” – e.g. the Clinton surpluses and the Asian crises. Not vice versa. All US deficits might do is increase the value of other countries’ currencies. And this is a problem for them? If you have a steady job, are grocery prices going down a problem too? Makes as much sense, is saying the exact same thing.

        Many people argue that America has managed to deficit spend its way to prosperity quite a few times. But I will ask at what human costs? Every time, it required that a large group sacrifice itself for the good of America. The complete reverse of the truth. Austerity usually requires large group sacrifice. There is no theoretical argument for such a human cost. In the real world, deficit spending has never required any group sacrifice itself for the good of America. Such unreasoning fear of deficit spending or anything else is the problem.

        1. skippy

          Well said Calgacus… You can spot the classical hard money types in an instant. When will they learn that its just numbers and the biggest causality in all economic boom – bust cycles is plain old fraud.

          skippy… pleas to old timey morality’s (human nature stuff) is also a massive tell.

          1. Calgacus

            Thanks for the kind words. Fraud: Yes. There should be a Federal (or UN) Bureau devoted to measurement of the Bezzle.

        2. Moneta

          There is a difference between deficits and BIG deficits that don’t generate much GDP growth or velocity. Deficits where money stays stuck at the top.

          The more extreme the measure, the more suffering there will be whether it’s austerity or BIG deficits.

  2. Steven Greenberg

    Having a good control of your computer mute control is important if you want to watch this.

    I don’t know about Erin Ade. She seemed to show a reasonable command of the subject when she interviewed Yves Smith. However, in the unrelated segment that followed when answering viewer questions with her producer, they both showed the typical misunderstanding of economics that one would expect out of the lame stream media.

    I am not too sure I would be so quick to feature “Boom and Bust” on this web site.

    1. EconCCX

      Erin Ade interviewed Michael Hudson a few days ago on wealth stratification. No, she’s not at Lauren Lyster’s level by any stretch.


      The producers put a “Kansas City, MO” slide over Hudson’s video link, the origin of which looked suspiciously like a certain kitchen in Forest Hills. Ah, but Hudson, in his link to the video, identified Erin as “Lira of Boom Bust”. Lira was actually Erin’s second guest. None other than Gonzalo Lira, who had that spectacular dust-up with Steve Keen over their failed partnership in the Debunking Economics site:


      Awkward all around.

      1. Charles Fasola

        If you can suggest that Lyster possesses any real knowledge of or understands economics and modern money then you sir possess even less.

    2. Yves Smith Post author

      I like Galbraith but yes, the show seems to pander to day trader types, who tend to skew libertarian, which means neoliberal. So it veers from progressive to orthodox commentary with nary a beat in between.

  3. Susan the other

    Good points on the national security hysteria. It is very lucrative. Sent me into suspicious paranoid mode and I began to think that when Bandar told Putin that if Russia didn’t betray Syria the Saudis were gonna terrorize Sochi. Well… Russia has kept a low profile on Syria and the Saudis have still facilitated 3 separate bombings so far. Maybe with a little help from John McCain and Lindsay Graham. Who knows. So I’m just wondering how Russia now benefits from its own new anti-terrorism imperative. How else can Russia impose more state predation without terrorism? So when Bandar was reported as extorting Putin, it begins to sound more like a willing buyer and seller.
    This Boom Bust was interesting. Lots of stuff that looks to be interrelated. Nigel Farage scolding the Greek PM and demanding Greek Sovereignty and an EU based on collective sovereignty; Galbraith making it clear that fiat is very useful and not very risky; a brief blurb on the realitly of an oil glut which presages a growing global economy (except for the fact HA that oil is every nations prize export) which could be bad news for the environment but making a profit at the expense of the environment is what still passes for strong currencies so go figure; and etc. I’m raving.

    1. PaulArt

      Bandar is a little pipsqueak who will get bumped off pretty soon by his own 16th cousin or someone like that or some Al Qaeda foot soldier and the reason for this is, he pretty much lost every pal he had here in the USA a long time back. No amount of money is ever going to win him any favor from anyone GOP or Dem here. I am really amazed at these House of Saud morons. Who do they think they are?

  4. Jim

    James Galbraith’s theory of the predator state is not an adequate framework for grasping our present situation.

    His theory of the state seems to revolve around the idea that since American capitalism has turned increasingly predatory (feasting on us) than it is not surprising that our government should also be predatory.

    Such a conceptualization fits nicely into a long failed history of tradition left, neo-Marxist left, and progressive left non-thinking about a political theory of the state. When Marx foresaw the almost automatic withering away/abolishment of the state, his erroneous assumption also seemed to guarantee an underdeveloped political theory of the state as the inevitable future. of leftist/progressive thought.

    Did the economic/financial crisis of 2008 and the way it was resolved have anything to do with the assumptions/behavior of the bureaucratic/technocratic network of experts within the Treasury department and the Federal Reserve as well as the more well-know machinations of private/financial capital.?

    Did the massive NSA surveillance crisis involving the NSA and other intelligence agencies have anything to do with a largely unaccountable network of bureaucratic/technocratic experts embedded with the national security apparatus that has grown dramatically since 1947?

    By failing to pay much attention to the modern U.S. state and how it actually operates, progressive thinking has largely missed the emergence of powerful technocratic experts within the Federal Government who have predominant power over Congress, the Courts and the President and increasingly intimate links with the private sector.

    Such a public/private network of experts runs financial/economic policy and national security policy and continues to consolidate its control right under our noses–and it is, of course, such a network which has also provided for the amazing economic/financial and foreign policy./surveillance continuity between the Bush and Obama administrations.

    1. j gibbs

      Everything government does makes perfect sense once it is understood as the servant of corporate business and absentee ownership. Whatever trickles down to people from government is a result of historical accident, and determined effort is relentlessly expended to ending the trickle. Privatization of social security and medicare are probably only a question of time. I would write more but the NBA is celebrating military appreciation day with some great games.

  5. okie farmer

    The predator sate is much worse in Europe. It may be irreversible.
    Constitutionalized Neoliberalism

    Second, neoliberalism has been constitutionalized as the economic system of the European Union through the Treaty of Lisbon and former treaties. Capital’s freedom of movement and right of establishment are carved in stone, and all other considerations are subordinated to this principle, which we clearly have seen in the labor market (see below). Free competition is another basic principle in the EU treaties. In recent years this has also increasingly been applied to the services market, which differs from the commodity market in the way that trade in services mainly deals with the buying and selling of mobile labor power.

    It has long been a common saying on the European political left that socialism is prohibited by the EU treaties. With the stability criteria, and the new sanction regime to force member states’ structural budget deficit below 0.5 percent and government debt below 60 percent of GDP, we can conclude that traditional Keynesianism, or what we may call traditional social-democratic economic policy of the post-war period, is not allowed. This represents a dramatic curtailment of democracy in the EU member states and represents a major step towards a more authoritarian, neoliberal European Union.

  6. Ralph

    Re: Gonzalo Lira. He’s a real mutt. I have no idea why Steve Keen would have entertained the idea of an association with him. Stupid, ill-tempered, conceited, an ideologue, and a know-it-all, with a point of view on economics that certainly isn’t shared in depth with Steve’s. Good riddance to the guy, he is bad news. Why RT thought they should interview him is beyond me. He is consistently wrong, like dear Peter Schiff. What is wrong with RT?

  7. Peter Pan

    I was amused by the statement of Ed Harrison in regard to government spending on “penis” pumps and how the “sausage” is made. Delivered straight man dead pan style!

  8. bulfinch

    Good piece. I enjoy Galbraith’s take on things, and I liked his old man, too. A couple of great thinkers. What would be even better would be to watch Yves in the same room with someone like James, further discussing some of these themes. Why is it we never get to see team-ups like that? Shows like this should do something like a quarterly hour-long special for showcasing a few of their more standout guests.

    And you’re right about that opening theme — sounds like a pack of malfunctioning robots falling down an elevator shaft.

  9. Gaylord

    It would be helpful and would save readers’ time by directing us to the appropriate time stamp in the video where the segment begins. Thank you.

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