Wednesday, March 07, 2007

Galbraith's legacy

Good article in the latest Post-Autistic Economics Review by Richard Parker of Harvard asking Does John Kenneth Galbraith have a legacy? (Galbraith, of course, quite innocently provided the title for this blog.)

Human beings, Galbraith insisted from his own observation and experience, were subject to all sorts of “irrationalities” – passions, miscalculations, misunderstandings, pressures to conform and pressures to obey – that made our models (especially when too tightly drawn) unstable, and our predictions prone to error.
We needed, he said, to understand that in large groups – especially nations – human beings acted out of collective beliefs (“conventional wisdoms,” he called them) that reflected and reenforced both the unequal distributions of power and wealth that everywhere and always exist, and the ideological justifications that groups – especially dominant groups – impose on the rest of a society and era.
That made for a “softer” sort of economics than my generation was being taught at the time – and made it child’s play for us to sneer and dismiss Galbraith then. In middle age, however, I’ve had to rethink (as all of us should, but not all of us do) my youthful confidences. And in that process, I’ve come to believe that Galbraith has proved, in many absolutely important ways, ultimately “wiser” than the “smarter” and “harder-minded” economics inscribed in rigorously-mathematical models – especially when those models treat government and the politics behind governance either as exogenous to primary models of the market, or simply as a beneficent, wise and evenhanded helpmates in realizing the market’s genius, as many of his Keynesian colleagues did, thinking themselves perfectly able to manipulate aggregate demand in order to achieve permanent growth as the solution to ancient problems of inequality.
Today, after thirty post-Golden Age years, it is fair to say that while there is still some agreement about methodologies in economics, larger agreements still elude us about purposes and goals and visions. And that is a tragedy for the world because it has helped validate a kind of new fundamentalism that Keynes, and Galbraith, and Samuelson (and Solow and Arrow and a host of other heroes of my teachers’ generation) rightly tried to destroy.
We see that new fundamentalism everywhere around us – in shape and size of Washington’s most recent tax cuts, in our military actions in the Middle East and South Asia, in the angry assertions that “the market” – whatever that truly might be – “always knows best,” and that those who would interfere with “the market” are uselessly acting to hold back the natural tide. And not least in the censorious rebukes hurled at those who would challenge these “new” truths. Times columnist Tom Friedman has a pungent phrase to describe the “market as god” core (as Harvey Cox has put it) of this view – but is more sympathetic than Cox. Friedman argues that we live in a world of “golden handcuffs” and ought to get used to it, and indeed celebrate our gilt shackles because of the ever more comfortable world to which they are leading us.
Galbraith doesn’t think so, and neither did Keynes – and in a world today where the economics “Nobel” was given recently to a psychologist, for god’s sake, for investigating the behavioral irrationalities that trump the antique idea of rational maximizing agents, when the promise of game theory has proved greater in nuclear war planning than explaining the ways of markets, when most computer-based forecasting is good for a matter of weeks and months rather than years, and when econometrics, in the words of Lawrence Summers, has never been decisive in settling any economic question of consequence, we ought to at least give pause to think back to the ways in which Prof. Galbraith’s work anticipated every one of these facts that have been discovered in the last 20 years about limits of his and my beloved profession.

Full PDF of the article here.



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