Philip Pilkington: James Galbraith’s ‘The Predator State’ – A Testament to Our Turbulent and Troubled Era

Yves here. I’m a huge fan of Jamie Galbraith’s book The Predator State. Aaron Swartz wrote a good recap. Pilkington, who is also keen about the book, uses it to raise a different set of issues: how it reveals the deep-seated impediments to having well-informed public discussions about economic issues.

By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil. Originally published at Fixing the Economists

I’m currently rereading James Galbraith’s The Predator State and I must say that it is quite a formidable work. There is one issue that I want to tackle — namely, Galbraith’s treatment of the supply-side arguments of the 1970s and 1980s — but before I go into this the reader might indulge me in some literary criticism. I do not do this for fun but rather to bring out what I think to be the essence of the book given its historical content.

In order to do this I want to compare the book to the work of Galbraith’s father JK Galbraith — an economist who, effectively, I grew up reading in a sense. Generally this would be terribly unfair. But in this case I think it is somewhat justified because James Galbraith explicitly states that he wants to move away from writing technical policy work — which is his forte — and instead write something more general and accessible. Given that his father was the master of this particular genre some comparison can bring out the historical context rather well.

The simplest way to approach this is to pose a question: does James Galbraith succeed in producing an accessible work of economics for the lay-reader? Frankly, I don’t think he does. But this is not due to a poverty of erudition or writing ability — his style is as engaging as his father’s, albeit somewhat different. Rather it is due to the nature of the material James Galbraith is dealing with.

When JK Galbraith wrote his classics such as The Affluent Society he was expounding a vision for an economy in the ascent.In the 1950s and 1960s the structure of the US economy was rather stable and a description of system could be expounded rather simply. A policy platform could also be formulated that the lay reader and the policymaker could understand. What’s more, JK Galbraith’s Keynesian language was the political discourse of the day, so there was no problems of translation.

In contrast, The Predator State deals with a US economy in turmoil. Navigating the path of the US economy from the 1970s through to the present day is an arduous task and requires much context and theory. Particularly difficult for the lay reader would be James Galbraith’s discussion of the federal budget deficit and its relationship to the trade and private sector deficits. The picture James Galbraith presents is one in which global changes induce changes in the function of the federal deficit and other economic institutions.

The exposition, frankly, is too difficult for most professional economists to follow — who require some sort of static model which can be applied to any and all heterogeneous historical material. The public, who require something simpler again, would I imagine be lost completely.

This speaks to a very difficult problem that we face today: namely, that we today completely lack a coherent narrative for economic policy. As James Galbraith says in the book, this has moved macroeconomic policy in the US away from anything resembling rational discussion and toward a discourse based wholly in morality. This is where the Democratic (with a capital ‘D’) tendency to view federal budget deficits as a vice and surpluses as a virtue comes in.

Lost in the sea of chaos and change that the US economy has been tossed to and fro in since the early 1970s, it is to soothing moral lessons that policymakers turn to try to navigate the storm.

What does all this say about the contemporary political and economic scene? On this note I must give a rather pessimistic proclamation: I don’t think the policymakers will ever properly grasp what is going on. Nor do I think will the economic profession. Only a few macroeconomists will be able to figure it out and it will be difficult to have their voices heard because the language they speak — the language of dynamic institutional change — will grate so hard on the language policymakers and economists alike are used to — that is, the language of stable relationships and simple rules — that their discourse will only be heard as so much confusing babble.

This is not to say that all is hopeless. A few well-timed interventions could be the key to navigating the storm. But to expect that economists can convince policymakers of a Grand Vision that might once and for all stabilise the world economy and return it to balanced prosperity is a fantasy that is almost as misleading as the fantasy of stable relationships and simple rules. In this regard I speak to some of my Post-Keynesian colleagues whom I shall not bother to name but whose policy prescriptions have to do with international agreements on remedying trade imbalances.

Anyway, that is quite enough of that. The Predator State is truly an important historical document and it displays the powers of a truly skilled economist who is as comfortable navigating the ever-changing historical seas of our present day as he is understanding the essence and, ultimately, the contradictions of highly theoretical economic doctrines when they are applied to empirical reality. Tomorrow, however, I hope to deal with the more specific point of Galbraith’s characterisation and discussion of the supply-siders.

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  1. Hugh

    Economic, political, and social history since 1979 can be explained quite well and quite clearly in terms of kleptocracy, wealth inequality, and class war. Economists, politicians, and policymakers are not trying to stabilize anything. The rich and elites are simply looting us to a crash and then looting the crash. After each crash, they come out relative to the rest of us richer and more powerful. We assume that the foundations of our system have been completely corrupted and criminalized we get a coherent narrative. It is precisely because almost all economists, even the few well meaning ones, start with the assumption that the foundations of our political, economic, and social system are essentially sound that the narrative becomes so convoluted and difficult to follow. The basic problem with these Establishment written narratives is this, how is it that the rich and elites, that is those in the know and those with the wealth and power, keep making the same “mistakes”, despite all the evidence and experience which undercut these choices, and that these “mistakes” just happen to keep benefiting the rich and elites and harming the rest of us?

      1. Chauncey Gardiner

        Thank you Nell and Hugh. In hindsight it is clear that there were powerful and well organized constituencies who anticipated and were prepared to apply Shock Doctrine in the wake of Lehman’s bankruptcy in autumn 2008 to accelerate and consolidate their power and accumulation of a hugely disproportionate share of the nation’s economic production and wealth. Ditto 9-11.

        I don’t buy Complexity arguments. Setting aside considerations regarding their values and those of their gatekeepers, I believe there are some very smart economists who are well aware of the issues and system dynamics. Ditto key policy makers.

        1. Synopticist

          Yes, when the Lehmans SHTF I thought there was noway the oligarchs would be able to game _this crash_. But it turned out The Shock Doctrine was right. The economic history of the last 30 years is perfectly explicable in terms of class warfare, whether in doctrinally correct marxist terms or not.

          The fact is, the oligarchy are quicker, more ruthless, better prepared and more resourceful than everyone else, and there are no other societal castes that are powerful enough to challenge them.

    1. Banger

      What you are saying, essentially, is that economics is political. Economics is a sub-genre of politics and cannot be understood without power-politics. Technology and urbanization, particularly in the past century, caused money to displace other forms of political force so economic activities were seen as paramount and the novelty (from a historical POV) has not had time to be fully assimilated in human culture; thus, we are confused and think “economics” is what drives everything. If you carefully analyze the situation you see the hand of power behind the system. Complexity comes from the greater number of forces contending for power and the growth of systems theory/cybernetics (aka IT).

      1. TimR

        I felt like I had an insight into this, or a new angle on it, from a chart here a few days ago, showing the wealth divide on a macro scale. When you step back at the scale of a 100 years or so, the bottom 90% real income is virtually flat, just a flat-line along the bottom of the chart; the upper reaches show erratic spikes across the whole time-line, following the fortunes of capital itself. It looks clearly Political, not so much about the spoils themselves, as about maintenance of that class structure.

        Suppose productivity of capital had been shared proportionally with the bottom 90, and all quintiles experienced those kinds of erratic fluctuations in fortune, pay rocketing into the relative stratosphere for the lower quintiles; what kind of incredible turmoil in the “social order” would that create? Whatever the 60s was, as the children of a prosperous “middle class” stepped back and took a second look at society, wouldn’t such a division of wealth create something 10 times as “far out” as that… (Then again, there is still a lot of wealth in the 90, and it mostly just goes to defining social status within that part of the pyramid.)
        Anyway, I’m wandering, but just saying that chart suggests it’s about maintenance of class structure and political control, not just (or even primarily) greed on an individual level. Maybe for some of the nouveau riche it is “greed”, but for the born and bred upper class, they must have a sense of urgency about not letting that “natural order” slip apart, and it’s maintained at all costs via the panoply of institutions they control – media, gov, banking, military, oil.
        I think also we are witnessing a slow-motion (at the centuries-scale) reabsorption by the aristocratic class of the bourgeouis entrepreneurial class. Capitalism/ the merchants and industrialists upset the aristocratic apple-cart. Old wealth and new inter-married in the late 19th early 20th, and then formed an ideology that they were the crown jewel of evolution. Eugenics was launched, and institutions created to insure their perpetual reign into eternity — forced schooling to lobotomize the lower orders and insure their docile cooperation, the coalescing of Huxley’s Brave New World. WWI & II perhaps as expression of a struggle between some elites not cooperating with the master plan? Trying to implement their own? Bretton Woods as a regrouping from all that, and now again we are back on track? Back to BNW/1984 territory…

      2. Hugh

        The separation of politics (political science) and economics is of fairly recent origin. In the 1800s, the subject was called political economy. Both state and economy are ultimately social in nature, that is they are there to fulfill social needs, desires, aspirations.

    2. TimR

      Yes, I was going to ask Mr Pilkington, in reply to this part
      But to expect that economists can convince policymakers of a Grand Vision that might once and for all stabilise the world economy and return it to balanced prosperity is a fantasy that is almost as misleading as the fantasy of stable relationships and simple rules.

      what makes him think that the planners are acting in good faith and want a stable world economy of balanced prosperity?
      If you keep up even a little bit with geopolitical intrigues around the globe, it looks like they do nothing but Realpolitik and Machiavellian machinations to dominate other countries. Wasn’t John Perkins’ Diary of an Economic Hitman even a bestseller? According to the intro/gloss, that’s all about the IMF/US getting “developing countries” under its thumb by any means possible — if the “economic hitmen” failed, they would send in the “jackals” IIRC. Regime destabilizers, whatever it takes. But anyway, there’s loads of info about this stuff out there, how can everybody ignore it.

      1. Klassy

        True enough. Look at our foreign policy. The US prefers destabilization of some nations when it favors the economic interests of the elites.

        1. Wayne Reynolds

          General Smedley Butler came to the same conclusion when he reflected back upon his military career.

      2. Schofield

        Indeed didn’t the Chinese Communist Party say somewhere along the line that it would defeat the United States economically not militarily? Since most human cooperation now involves the use of money technology from a transactional viewpoint knowing how money really works ( think Functional Finance in a Chinese context ) better facilitates the tribal imperialism deeply engrained in human nature.

        1. MaroonBulldog

          Did the Chinese Communist Party say when the defeat would materialize? They have a long view of history in China: when someone asked Chou En-lai what influence he thought the French Revolution had one world history, he said it was too soon to tell.

          1. nobody

            “The former premier’s answer has become a frequently deployed cliché, used as evidence of the sage Chinese ability to think long-term – in contrast to impatient westerners.

            “The trouble is that Zhou was not referring to the 1789 storming of the Bastille in a discussion with Richard Nixon during the late US president’s pioneering China visit. Zhou’s answer related to events only three years earlier – the 1968 students’ riots in Paris, according to Nixon’s interpreter at the time.”


          2. Schofield

            I fail to see the point of your remark since Chou-En-Lai’s comment was pre-China’s decision to adopt “Market Capitalism With Chinese Characteristics.” A decision that I am suggesting is based to a high degree on their understanding that Abby Lerner’s Functional Finance was compatible with state capitalism’s creation of money as and when required. Such understanding provided the Party with the confidence to believe that they could defeat the USA by economic and not through the use of military force. This is precisely what they are achieving with China’s volume of trade recently exceeding that of the United States!

    3. Thor's Hammer

      “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Warren Buffett

      What a strange war, where the loosing side is armed like no other civilian population in history. Every man, woman, and family dog owns a AK 47 or Glock, and anybody can buy a sniper rifle capable of reaching out and touching somebody a mile away for the cost of a worn out Ford pickup. Yet all 200+ million on the losing side have not fired a single round at the class enemy even as they watch their family home fraudulently stolen in foreclosure.

      The only conclusion to be drawn is that the war “for hearts and minds” was lost long ago, probably about the time the ownership of television reached critical mass. No victory is as complete as the one that achieves absolute control over the minds of the vanquished enemy. Delusion reigns supreme, and it won’t be abandoned until the last slice of Wonder Bread disappears from the dinner table and the last drop of gas is poured into the SUV tank.

      1. Jess

        If you’d like to read a recent novel that explores what might happen if the masses turned (successfully) to their weaponry, might I suggest you check out the reviews (currently rated 4.5 out of 5 stars) for my book, “Public Enemies”, available in e-book and paperback from Amazon.

      2. ron taylor

        Most Americans are ” woefully ignorant ” ( per Breszinski ) about the capability of financial and other forms of informational warfare to render their 2nd amendment defenses moot . They think they have everything they need in armaments to defend against the totalitarianism of the elites and their often superior knowledge .

  2. Dan Kervick

    But to expect that economists can convince policymakers of a Grand Vision that might once and for all stabilise the world economy and return it to balanced prosperity is a fantasy that is almost as misleading as the fantasy of stable relationships and simple rules.

    Agreed. There is no neutral, technocratic policy formula for social progress. There are many different kinds of economic systems and orders that can “work” in a technical sense, but which of those we might want to live in is a moral and political question that economists can answer.

  3. j gibbs

    There is really nothing new in economics since Marx and Veblen. Everything else is abstraction and disguise. Policy makers are elitist tools in fancy suits, stumbling and bumbling while keeping their eye on the ball, which is personal advancement. This requires acceptable opinions, which anyone can learn to mumble after enough time spent surrounded by other mumblers, whether in the academy, in government, or in business. Those who prefer regular meals in the best restaurants, high class travel, gated compounds, and cushy jobs, not to mention healthy compensation, have every incentive to fall into line, so it is not surprising that they do.

    The question is: what are the people on the outside going to do about it?

  4. financial matters

    “As James Galbraith says in the book, this has moved macroeconomic policy in the US away from anything resembling rational discussion and toward a discourse based wholly in morality.”

    I think this is true that morality is the problem but I also think that it is the solution. I think we need to move from a blaming morality to a forgiving and compassionate morality.

    We need to have rational discussion but also a sense of caring for our environment and fellow citizens.

    From Skidelsky in ‘Keynes: Return of the Master’

    “But the crisis also represents a moral failure: that of a system built on money values. At the heart of the moral failure is the worship of economic growth for its own sake.

    The main moral compass we now have is a thin and degraded notion of economic welfare, measured in terms of quantitative goods. This moral lacuna explains uncritical acceptance of globalization and financial innovation, and the sanctification of those practices which give the pursuit of wealth priority over other human concerns.”

    I also like the Post-Keynesian approach and think it is trying to get us to think of money in different ways and trying to remove negative moral attributes and replace them with thinking about how to use money for the common good.

    I think Pavlina Tcherneva gave us some good insights when she asked people employed under Argentina’s temporary work program what they liked most about their jobs. In order of importance.

    1) I can do something
    2) I work in a good environment
    3) I help the community
    4) I learn
    5) I have an income

  5. Banger

    As I have said too many times economics is a sub-genre of politics, i.e., it is a way of distributing real power. Money is power and is more “democratic” than military power but, whether it is money or military force determining the distribution of power, certain historical tendencies remain. Today, we are witnessing something that the West has dreamed of since the fall of Rome, i.e., a clear path towards a new Roman Empire based no on legions or Roman Law but money-law/economics.

    Our universal religion is now money and, for the most part, even the “religious” will select money over God (at least in the U.S.) when push comes to shove. Religion is a lifestyle choice among many–you can be a Christian, a Wiccan or into S&M or religiously follow silly TV shows but when choices have to be made money and the mentality that created the slogan “it’s the economy, stupid” almost always wins out.

    Money is the final arbiter of all moral values in this system. This concentration on money/economics has been fully enabled by the growth of systems thinking, complexity, and ideas coming out of it like “emergence” and “networks.” Power is not about a bunch of people in smoke-filled rooms negotiating deals but comes through a highly complex series of virtual “negotiations” done through signals mediated by computers. Markets can be controlled and modified through computerized trading and AI-generated protocols that allow politically powerful institutions both governmental, and non-governmental to put together rapid response systems like “plunge protection” schemes that work very well. When they don’t work so well as in 2008 there are systems in place that very quickly stop the bleeding and new arrangements are made to see that the same thing doesn’t happen again which we have seen (the bailout was always a fait accompli). Now, despite six years of gloom and doom predictions the system has maintained a balance and despite a chorus of complaints, no significant political dissent has materialized either in political terms or even intellectual terms and the international system has grown stronger, not weaker.

    Now, the subject at hand, the Galbraith book and his analysis of the “system” may be important but the fact that even economists can’t understand it is important. They can’t understand it because the system is now “mechanical” not human; it is no so complex that it cannot be comprehended easily just as we cannot comprehend how Windows works in detail and as a whole. Our world is becoming and will become machine-mediated. The problems we face are moral. We can program the moral dimension into the system but we forgot to do it and I worry that it may be too late. It isn’t only the economic machinery that is mechanized, culture itself has become increasingly driven by what Jacques Ellul called “technics” or technique. Movies, for example, because they have to make tons of money, must be tested on audiences who will tell us, through instruments, whether the desired brain states are enabled by this or that scene or ending. Music has become, largely, technology-driven and the same techniques that movies use. I believe we are now creating feedback loops–audiences will “desire” those things that are delivered and that are measurable.

    1. JEHR

      In Canada for sure “economics is a sub-genre of politics.” We have an economist Prime Minister and he is wrecking our environment in order to extract resources at a furious pace; he is undermining the public sector with cuts and dismissals; he is muffling the voices of our scientists; he is making trade deals at a furious rate; he has made governing Canada a miscreant activity; he passes omnibus budgets en masse and he is totally in control of government policies. You can now witness how “fascist principles” are slowing being incorporated into our nation.


      1. cnchal

        At least Prime Minister Harper doesn’t have a PHD in economics, and if we are lucky, he avoided the kool-aid spiked with acid.

        We are about to run an economic experiment in Canada. Our smug finance minister has proudly proclaimed that the federal government will be running surpluses starting next year.

        This means, according to my limited understanding of economics, that a government induced recession has become a high probability event in the near future. I wonder how Ontario will fare, with it’s $200 billion + debt hanging around it’s neck? Can crapified be applied here?

        Looking back, what I find interesting with regards to the Canadian political system versus the US political system, is the huge difference in campaign finance law and how political parties are funded.
        In the US anything goes. Politicians are commodified and bought by plutocrats like drill bits for a machine shop. A particularly expensive drill bit is the US presidency with it’s $Billion + price tag, but he or she can make a nice hole.

        In Canada it is different. The political parties are funded by taxes based on the number of votes they get and outright campaign finance bribery as practiced in the US is a criminal offence in Canada. Yes, one can contribute to a party, but the amounts are limited and relatively small.

        In a sense, Canada’s campaign finance law has become a fourth rail of Canadian politics. My recollection is that Prime Minister Harper broached the subject when he achieved his first majority, the other parties went nuts, and I haven’t heard a peep from Harper about it since. He may be trying to pull a fast one that we haven’t heard about, but if Harper comodified himself like US politicians do, there would be a total uproar. We have to give the Liberals of the 90’s credit for that one. It works by elbowing the big money in the mouth. I want it to stay that way.

    2. Chauncey Gardiner

      Re: … “Today, we are witnessing something that the West has dreamed of since the fall of Rome, i.e., a clear path towards a new Roman Empire based no on legions or Roman Law but money-law/economics.”

      Although it may be your dream, it is not mine. The Roman Empire was very autocratic and brutal. May I also remind that there were others who had the same dream in the second quarter of the 20th century in Europe.

      Further, regarding your acknowledgment of the control and manipulation of markets, I profoundly disagree with your observation: … “Now, despite six years of gloom and doom predictions the system has maintained a balance and despite a chorus of complaints, no significant political dissent has materialized either in political terms or even intellectual terms and the international system has grown stronger, not weaker.”

      Finally, your observation regarding the power of money, that “audiences will ‘desire’ those things that are delivered and that are measurable” speaks volumes regarding a particular world view.

      1. William Neil

        Hey Chauncey:
        Loved your role in “Being There” – you kept things simple – banal – with the humble gardener’s words of spring and optimism – and the politicians loved it.
        On a more serious note – I agree – and now with the passage of many decades out of school and government and political science courses – the more I read of Roman history the more horrified I am at how our founders worshipped there…Horrifying and yet in other ways fitting for the impact of humble citizen’s debts, Empire dynamics and collapse of the republic, earlier than most maintained. Richard Hofstadter told us in his marvelous essays in the American Political Tradition – in the one on TR, specifically, that when TR was at Harvard he had an assignment to write about the 2nd century Gracchi brothers revolt, which the Senate oligarchs crushed with physical violence…but TR dodged the assignment and wrote about American naval battles instead.

          1. William Neil

            “In the spring their will be new growth and all our previous weeding and careful preparation, hard work, will bear fruit.” The forerunner of all those “green shoots” that economists were observing after 2008?
            Now I’ll share the advice I’ve given my spring bulbs including the three hardy crocuses who have already bloomed: keep your heads down, winter isn’t over, the signals have been crossed and nature itself is confused. Lay low.
            Here in Maryland, just outside the beltway, the mere suggestion of a $10.10 minimum wage bill has panicked the 1-20% and so the Democratic leadership – Senate President Mike Miller and House Speaker Michael Busch have responded with an expansion of the threshold of MD’s estate tax, lamenting that it is out of step the Republican Right’s federal “reforms” of such…the number of supposedly progressive legislators who have signed on is just now shocking the rank and file…my god they must see tumbrils in their dreams…no wonder the unemployed can’t even see anything poking above ground level.

      2. Banger

        No, I don’t want a Roman Empire and I don’t like the system we have ion place and I have been working to change it. You misunderstand me. I’m just saying how it is. Entertainment is, btw, carefully engineered as are news shows.

    3. MaroonBulldog

      Banger, I agree that the emerging fascist world state you call the “new Roman Empire” looks to be based on money-law economics, but I can’t exclude ideas derived from Roman law from my analysis of what is or looks to be coming down the road.
      The law of civil obligation, a common law notion derived from Roman law, makes us all debtors to each, and each a creditor of all, in case a contingent legal duty to do or not to do a certain thing should be breached. Money is the currency by which such debts are settled. And we are bound to such duties, and therefore are made debtors, whether we have made contracts about the duties in question or not. And these duties are enforced by the power of the state. That, in a nutshell, is my understanding of the relationships involved in money-law economics. It’s just “law”.
      And here’s the punchline. The data processing and communications technologies of information age have empowered the state to multiply the creation of new duties (and therefore new claims against us all) and to keep better track, both of all the resulting claims, and of the assets they might be asserted against.
      About forty years ago, in an essay entitled “The Death of Contract,” Grant Gilmore penned these words:: “In Heaven, there will be no law. In Hell, there will be nothing but law, and due process will be strictly observed.” So now, we know what’s coming.

      1. Banger

        Nice quote, btw and agree with the sentiment.

        As for law and obligation, yes of course. But today’s “law” has become more like conquest rather than a series of mutual obligations.

    4. Gerhard Stoltz

      Now lets get some things clear. What matters is not empire, but whether any structure is capable of maintaining control over certain key aspects.

      1. Power projection.
      2. Resource availability.
      3. Manufacturing capacity.

      Any structure, nation state or not, capable of establishing hegemony over these three aspects will be dominant. Nation states may be used for the purposes of establishing dominance, but are not end goals as such.

      Hegemonic power projection allows the destruction of #2 and #3 and is therefore the root. The inviolability of nuclear weapons states (except Pakistan, apparently), complicates the game, but does not mean that nation states with nuclear weapons are sovereign in their global behaviour.

      Money “law” exists only for as long as a nuclear weapons armed structure is incapable of maintaining internal order caused by the internal (and with an added bonus, external) social shocks instigated by extreme forms of protectionist monetary agendas.

      The US currently controls 1. Which is nice for them. They also control 2, by virtue of being 1, and therefore 3. This will continue to work to their advantage for quite some time. As long as they control the seas every other nation that aspires to 3. can be strangled at a moments notice given the sufficient provocation, (and the US’s continued capacity for internal cohesion at times of international strife, which i still consider to be quite grand indeed).

      If the US allows other inviolable nations to progress further “up the tree” of 3,2 and 1 they run the risk of loosing their foothold. This risk will always be there, and could probably only have been mitigated by letting MacArthur loose in the fifties. “Friendly” competition at the top tiers of manufacturing capacity will be present until the time that a complete lockdown is instigated in global resource flows. Which can, but is not immediately likely, to happen.

      The gist of it is. Competition for hegemony -is- taking place. Competition for capacity -is- taking place. Competition for the ability to dictate terms -is- taking place. All of these competitions are fierce, and a temporary US hegemony is -not- an indication of a given global order.

      What needs to be really acknowledged is that there is no such thing as perfect knowledge about this battlespace, but that there are individuals and structures which have shown themselves more capable than others when it comes to managing them to their advantage, and maintaning their “stake” in the game.

      There is no such thing as “money”, there is only “how can we use money to maintain and develop our dominance at this current juncture in this global competition”. Which a certain superpower is very apt at. Markets are a minor ruse. Who has the greatest capacity for power projection when the market disappears is always the game.

      I’ll stop being this kind of cynical now.

      1. Banger

        I don’t think the struggle is between nations but between various neo-feudal structures dominated by corporations but including nation states, churches, organized crime and so on.

        1. Ulysses

          While the powerful do indeed struggle among themselves for relative advantage, they are all united in the need to oppress the rest of us so as not to be swept from power. They all have much to lose from a truly popular insurrection, we have everything to gain.

          Adam Smith hit the nail on the head more than two centuries ago in his Lectures in Jurisprudence, iv.23
          “Laws and government may be considered in this and indeed in every case as a combination of the rich to oppress the poor, and to preserve to themselves the inequality of the goods which would otherwise be soon destroyed…”

  6. Schofield

    Missed opportunities abound in the task of helping us all to better understand how monetary and economic theory work together. For example, on pages 81 to 86 in the “Predator State” James Galbraith provides us with a real eye-opener concerning the under-pinnings of the Chinese economic success but never goes on to determine that the Chinese Communist Party have knowingly achieved this through the conscious application of Lerner’s Functional Finance. Likewise Dan Kervick’s thinking which I greatly admire as much as James Galbraith’s fails to follow through on his comment on a Paul Meli article that raises three key points that all creation of money is state money including private bank loans and that more government created new money than private bank created money is the operational norm and that a stable economy requires private bank creation of money relative to the overall total of new money created not to exceed 40%.

  7. Klassy

    I actually read this book and I agree with Pilkington’s criticism– I found it kind of difficult. My recollection may be a bit hazy, but the chapters seemed sort of disconnected; that is they did not add up to a “grand narrative” as much as they should have. It is good that Galbraith is turning to popularizing important and under reported ideas, hopefully these shortcomings will be addressed, but writing truthfully about economics and translating the technical for the lay reader is difficult I’m sure.
    Aaron Swartz’s review does make the work much more digestible for me. I have come across his Amazon reviews before and that always is jarring. He was a good writer.

    1. James Levy

      I reviewed on the book Subprime Nation by Herman Schwartz, and basically said the same thing. Brilliant work, but if I hadn’t, many years ago, taken a graduate course in International Political Economy from Schwartz himself, I wouldn’t have been able to follow much of his complex argument. And at the end of the review I hoped that the lessons and the narrative would not be lost but would somehow percolate beyond the confines of IPE. I doubt it will because economists will find it too heterodox and complex with all its feedback loops and policy choice analysis, and Political Scientists and journalists could hardly make heads tales of it, no less translate it for a general audience.

      And even if Schwartz believes “its the kleptocracy, stupid” he’s much too cagey and self-conscious to say it.

    2. Martin Finnucane

      I just read the Swartz review, and like you found it quite clear and helpful. Then I read the comments and was impressed by how they were slimed by libertards.

  8. beene

    I would suggest that static model is the problem. As its’ the political rules (law) that causes whatever static model.

  9. JGordon

    Economics is “difficult” because there is no such thing as economics. Instead there is (often absurd) human psychology and a roiling morass of political factions engaging with various resource surpluses and constraints, the end result being an unfathomable chaotic mess. Occasionally for a few years or decades things may settle around a transient apparent stability, but anyone who builds models around that purporting to predict anything is fooling himself. Or more importantly, fooling the public. Which is the point I suppose.

    Anyway that’s what economists are: fools who have fooled themselves. A large solar flare could fry every electronic circuit on earth, an asteroid could hit, the cooling pool at unit 4 could collapse, or WWIII could break out tomorrow (each of those things are not as unlikely as most of you are probably hoping) and every single monetary theory that all the “intellectuals” spent the last few decades idolizing would go out the window in a heartbeat. Because those theories are all worthless for anything but the shortest of short periods of time.

    There is no theory and there is no system that consistently explains anything with social “sciences”. The only thing we have are vague and uncertain descriptions (that always biased with self-interest and absurd political ideologies) of how things work at the current moment in time. It’s really quite annoying to me that so many out there are willing to step above their pay-grade (going from failable humans to God in one go) and expound upon their intricate and fallacious grand unified theories that propose to authoritatively explain how humans interact with each other, or how they could better interact with each other.

    Anyone who is aiming for a more accurate understanding of reality is going to have to unlearn all the economics crap, and all of the various political ideologies as well. All those things are blinders that only serve to hide the truth. And serve those who want to hide truth from you.

    1. Klassy

      Like I said, writing about economics is difficult because there are so many “truths” floating around there that are part of the general ether that must be addressed before even making your argument. Plus, there is the difficulty of making the technical comprehensible to someone such as myself.

    2. Schofield

      “Anyone who is aiming for a more accurate understanding of reality is going to have to unlearn all the economics crap, and all of the various political ideologies as well. All those things are blinders that only serve to hide the truth. And serve those who want to hide truth from you.”

      As if we’d give up searching for balance with this “ideology”!

    3. MaroonBulldog

      A couple of economics courses never hurt anyone. They teach one us anticipate and comprehend the policy recommendations that economists make to politicians, regulators, and central bankers, the better to understand the mounting danger we are in.

  10. Susan the other

    Philip, I’m glad you are going to give us a post on supply side economics. And just to give you a dose of your own criticism, please make it accessible for us all. That is, do not assume we can follow even the smallest leap of logic, because I for one cannot. So, the reason I’m looking forward to your next post is because I just read a comment by Paul Craig Roberts, who was the architect of supply side and he says he constructed it because Keynesian methods did not work for stagflation. Because if they had applied Keynes to stagflation it would have caused more inflation and they’d have gotten nowhere fast (I’m assuming.). Or so they thought. But PCR also said that supply side was eviscerated by Wall Street and big corporations who took it way too far by offshoring, corporate raiding, etc. Leaving the country with a decimated economy which could not be revived and was then relentlessly plundered and financialized. I’m assuming it was all because, at that point in time it became obvious that capitalism was too quaint, and honest profits far too modest to support our military and our long term goals.

    1. James Levy

      I heard Paul Craig Roberts speak at my university and I think that he is too close to the problem to consider it objectively. The fact is that as far as I can see, never in history has supply been a problem under Capitalism–the issue is always demand. Perhaps someone can point to a counterexample, but it seems to me that capitalist economies always produce goods for the market; that is by definition what a capitalist economy is, commodity production for a monetized market.

      The idea was to freeze or depress wages through massive unemployment and incentivize production to drive prices down, thus breaking the back of inflation while driving down the cost of living for those who kept their jobs. But there was no mechanism, and they couldn’t even conceive of a mechanism, to ensure that increased production and productivity wouldn’t just been turned into super-profits and wealth for the owners of the means of production. It was just axiomatically assumed that “competition will drive down prices.” And yes, I really think that Roberts and Reagan believed that. But the reason they met such limp opposition was that others understood what this new regime allowed and took full advantage of it. Yet another example of how “self-regulating” markets don’t, and how a naïve faith in market mechanisms is used by the powerful and unscrupulous to screw over the rest of us.

      1. susan the other

        What you just said, that capitalism has never had a problem with supply, only demand, makes lightning-bolt sense. So the elite have resolved, more or less, to force an artificially strong dollar and take all measures to prevent “inflation” no matter how spurious their accusation – that is price-wage inflation, in response to their political interference in steady-supply/steady-demand economics. Because it is in the spread and (globally) the “carry” that they always make their money.

      2. Calgacus

        The fact is that as far as I can see, never in history has supply been a problem under Capitalism. Wartime is the standard example. And usually because of unrealistic management of the transition back to a peacetime economy, postwar inflation might be included. The 70s oil crisis years are another candidate. But I agree with you, generally speaking.

  11. John Merryman

    FQXI was an essay contest, normally physics based, but this year it was How Should Humanity Steer the Future. A bit big think, but along the lines I like to ponder, so I offer up my entry;
    Its fairly basic and much more about changing incentives, than policy prescriptions. Nothing anyone would pay attention to now, but after the big bubble pops…

  12. William Neil

    I look forward to your further comments. I made “The Predator State” central to my long essay from April of 2010: “Debt, Deficits & Balanced Budget Bull,” Part II of which was “Austerity, Courtesy of the ‘Best Men’.”

    In particular, I emphasized the argument in Galbraith’s chapter “The Impossible Dream of Budget Balance” and noted how hard it would be for the public to comprehend it, it being so far removed from the “kitchen table” household-government false analogies. I read and re-read his linkage of foreign trade imbalances to domestic deficits, and his insistence that in macro-budgetary accounting, if a nation ran a large external trade deficit, it had to be counter-balanced either by a large governmental debt or private debt. Galbraith asserted that the great Clinton-Rubin “achievement” of a balanced federal budget at the end of the 1990’s – our generations’ “Roaring Twenties” – was done only by the astonishing rise of private debt: financial firms, topside and shadowy, borrowing and leveraging, and citizens milking mortgages for loans, plus credit card debt. In part, it all sounded too mechanical to me, as many “laws” of accounting tend to, so I went to an unlikely ideological ally of Galbraith, Martin Wolfe, of the Financial Times, and his 2008 book “Fixing Global Finance.” And Wolfe did confirm that analysis.

    But here, just outside the Beltway, even “progressive” Democrats, state, local and national, were making “kitchen table” analogies about governmental belt tightening, essentially reinforcing Republican obsessions with debt and deficits. For them, Clinton’s roaring 1990’s and that balanced budget were the master paradigm. They skipped over the part that it didn’t seem to do Al Gore any good. Had no coattails as the pols would say.

    I’m sorry my work is no longer available online as the America’s Future website has purged all of my work and most if not all of the other’s from their “open-ended” publishing venture. Be happy to send it to you though by other means, though.

    1. James Levy

      Yep, money has to get recirculated if the system is to function, and it has to come form somewhere, and that place is here. Herman Schwartz in the book I discussed above explained that the key to understanding the endless issuance of Mortgage Backed Securities was that they formed a crucial conduit for recycling American trade deficits back to the US banking system. America became hooked on MBS’s as a way of papering over our trade deficit. They also provided liquidity that led to a differential growth advantage over Europe and Japan that attracted further capital inflows, and all those jobs and tax revenues from the building boom. In short, by 2006 generating, packaging, and selling mortgages and building real estate developments was the American economy

  13. Schofield

    What a mess! A majority of the US population and the politicians they vote for can’t even figure out that its government can create interest-free money and what the implications are to their belief that government should balance its books like a household or business! Clearly the 21st century belongs to the Chinese whose government has figured this out just like their predecessors Germany’s Nazi Party!

    1. James Levy

      A caveat–Germany was in deep financial trouble by 1938-9, and was again by the second half of 1943 after the plunder dried up. Tooz’s book “The Wages of Destruction” does a great job of laying out the groundwork why. And Paul Kennedy long ago argued, rather persuasively, that the otherwise foolish and inexplicable decision to march into the rump of the Czech state left over after Munich was to gobble up their gold and foreign currency reserves in order to paper over a balance of payments crisis that was imminent. If you need raw materials for other nations, you have to have a convertible currency that others will accept. There are certain global constraints on the policies you advocate especially if you are a country like Germany, Britain, or Japan.

      1. Schofield

        I think you fail to understand the role Mefco certificates played as a parallel currency revealing in a very pragmatic way to the Nazi Party exactly how Lerner’s Functional Finance worked.

        1. EconCCX

          @Schofield I think you fail to understand the role Mefco certificates played as a parallel currency
          That which you surmise Mr. Levy fails to understand, Mr. Google likewise fails to understand.

            1. EconCCX

              @Calgacus I think Mefo Bills were meant.

              Ah, thanks Cal and Schofield. When I think of Nazi finance, it is in terms of enslaved labor, repudiated debts, stolen lands, businesses, family possessions and specie, eventual state control of the commanding heights, and an interlocked industrial hierarchy “merely filling orders.” It’s fruitless to invoke any Nazi innovation of net financial assets, whether in support of such strategies generally or in criticism of them.

  14. allcoppedout

    Anyone not familiar with Galbraith and feels in need of a dose can get one free here –

    Economics is a classic of the positivist set. There were many positivisms. An undergraduate definition is usually ‘applying scientific method to social science’. In fact it would take a long book to discuss the positivisms in Marxism alone, before getting to the mainstream failures of the approach. One understands why anyone would want to bring scientific sense to the bull of our social arrangements. One positivist, Enfantin, even wanted to justify free love by the method. The biochemist in me wants people to know more science in order to understand when we aren’t getting any (science). We can safely assume this to be the case whenever an economist’s lips move, usually for Banger’s reason that the moving lips are excluding the political. The standard method in economics is to proceed by exclusion whilst feigning the rational-objective voice of science. This voice itself is a myth.

    I can find Galbraith’s “critique” down the pub. Sadly, one can posh-up almost any argument, writing reams on, say, Banger’s oft-stated ‘it’s politics stupid’ (call this hegemony after a lot of Gramsci or disciplinary-power after doses of Foucault). The rich keep getting richer as these long supplications are written. Steve Keen might get a bit of time supplicating to our politicians, but really they should be explaining to us under questioning by people like Steve, quite WTF they think they are doing. The power is already in the fix when the decision-makers the supplications go to know less about economics and social science than some poor sod like me teaching the stuff in universities.

    My suspicion is all economic debate obscures facts. How did we rationally triple the human population in my life-time? Why do the rich get richer? Why do we listen to people like Von Mises’ disciples when he said all the old fortunes were being eaten up by competitive capitalism when the converse was true? Why, when we can build and allocate decent housing for all do we do the opposite (UK back to slum landlords)? And so on.

    We need something much more direct and, I suggest, rude. Much of the problem with economics concerns leadership. We could do with booting this out, but the problem is it has a biological default program. I’m glad Philip is reading James’ book. It means I won’t have to waste my own time. I’m convinced we need a new, modular politics that allows us to do some experiments – like building communities based round cheap housing.

  15. Pelham

    If the economic environment today is so damnably complex, maybe the way forward is to ignore economists, who collectively are useless as they can never agree on anything given the fact that none of them ever have enough timely data to render a valid judgment on any matter of substance.

    Given this now undeniable fact, we now simply need to demand results that meet minimum standards — ie, things such as a comfortable income for all, truly full employment, first-rate health care for all, a sustainable environment etc. — and then let the economy be whatever it needs to be once those basics are provided.

    I know this sounds impossible, but consider: American workers today are four times as productive as they were 50 years ago and yet household discretionary income is less than half of what it was back then. Let those two facts sink in. What it means is that there’s plenty of stuff to go around. We just need to get up on our hind legs and demand that it be distributed better to form a base upon which, then, all the boffins, moguls and geniuses can play their billionaire games while ceasing to disturb the rest of humanity.

    But as long as we continue to assign mystical importance and authority to these characters, even apparently well intentioned ones, we simply surrender to a class of people that, as a whole, have anything but the benefit and well-being of mankind on their minds.

    1. Ulysses

      Fantastic comment!! The key verb is “demand.” Frederick Douglass was absolutely right in 1857 when he pointed out that: “Power concedes nothing without a demand. It never did and it never will. Find out just what any people will submit to, and you have found out the exact amount of injustice and wrong which will be imposed upon them; and these will continue till they are resisted with either words or blows, or with both. The limits of tyrants are prescribed by the endurance of those whom they oppress.”

    2. Calgacus

      Great comments, Pelham & Ulysses. Complexity? Shmomplexity.

      Given this now undeniable fact, we now simply need to demand results that meet minimum standards — ie, things such as a comfortable income for all, truly full employment, first-rate health care for all, a sustainable environment etc. — and then let the economy be whatever it needs to be once those basics are provided. Yup, absolutely. None of these things are out of reach. Let the economy be whatever after these just demands are met is very much Minsky’s viewpoint. And of course doing these things, especially after a period of stagnation and neglect of rational public purposes as we have had for decades, will make the economy thrive unprecedentedly even by the narrow measures of the mainstream economic charlatans. (Who can then be expected to find any explanation for unexpected prosperity but the obvious one.)

    3. Schofield

      All very well but the old tyrant Mao is famous for saying that power flows from the barrel of a gun but failed to understand that it also flows from a barrel of money and most particularly how it should flow. If you don’t correctly understand how money is created and used in an economy then you won’t effectively understand how to optimise and balance demand.

  16. Government Troll

    Although many Americans can read (government controlled K-12 education is in the process of solving this problem) the American people should not read books. They should get all of their information from People magazine and MSNBC.

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