Galbraith and the Conventional Wisdom of Economics

There have been many reflections on JK Galbraith and his impact on economics over the last few days, of course. They provide some insights into how the course of the economic mainstream is guided, and the role of politics and culture in that guidance.

From this morning’s Globe and Mail appreciation on page B1, B4 (not from the obituary).

But for the last 30 years of his life, Mr. Galbraith was increasingly a voice in the wilderness, as the conventional wisdom grew ever more skeptical of the ability of government to intervene constructively in the economy, and ever more confident in the marketplace.

In a similar vein, here is Brad DeLong in his review of the Galbraith biography [J. Bradford DeLong (2005), "Sisyphus as Social Democrat: The Life and Legacy of John Kenneth Galbraith," Foreign Affairs 84:3 (May/June) ]

The right-wing claim that the most efficient
economy is one in which the gales of perfect competition scour the land
is, in Galbraith’s view, nonsense. Modern industrial and
post-industrial production is a large-scale process, large-scale
processes require planning, and planning requires stability — which
means that the gales of the market must be calmed.

This
political vision, however, has been in retreat since the early 1980s.
Nobody wants to hear about the importance of Big Government, Big
Bureaucracy, or Big Labor (which hardly even exists). Galbraith’s
economic views have undergone an even more distressing eclipse. Among
economists (excluding economic historians), the 70-year-olds have read
Galbraith and think he is very important; the 50-year-olds have read
Galbraith and know that the 70-year-olds think he is important but are
not sure why; and the 30-year-olds have not even read him.

What has survived throughout is the American
myth of rugged individualism, and it is this that Parker’s political
story neglects. The power of this myth has meant that the United States
is not, and never will be, a European-style social democracy. People
may come together for barn raisings, but America is still the land of
upward mobility and opportunity, where the most common questions are,
I’ve done it, so why haven’t you? and Doesn’t this social solidarity
stuff mean that I’ve got to pull more than my share of the weight? In
spirit, it is still a nation of upwardly mobile immigrants blessed with
an abundance of resources (free land) and an absence of government
constraints (free labor).

Galbraith
would say, sardonically, that this national self-image is just another
fraudulent piece of conventional wisdom — nurtured by the delusional,
who cannot see reality, and the rich, who see it all too well but know
that such delusions make them richer and more powerful. And Galbraith
would be more than half right. But this self-image is also a very
powerful social fact, and this more than anything else explains his
waning influence on U.S. politics. It is not that the Democratic
establishment has lost its nerve or been seduced by law firms and
lobbyists; it is that the old Horatio Alger myth has proved
extraordinarily durable.

Amartya Sen, not talking about Galbraith, said some of the same things about the way that economics has changed in the last 30 years:

There was a time — not very long ago – when every young economict "knew" in what respect the market systems had serious limitations: all the textbooks repeated the same list of "defects."  The intellectual rejection of the market mechanism often led to radical proposals for altogether different methods of organizing the world (sometimes involving a powerful bureaucracy and unimagined fiscal burdens), without serious examination of the possibility that the proposed alternatives might involve even bigger failures than the markets were expected to produce. There was, often enough, rather little interest in the new and additional problems that the alternative arrangements may create.

The intellectual climate has changed quite dramatically over the last few decades, and the tables are now turned. The virtues of the market mechanism are now standardly assumed to be so pervasive that qualifications seem unimportant. Any pointer to the defects of the market mechanism appears to be, in the present mood, strangely old-fashioned and contrary to contemporary culture (like playing an old 78 rpm record with music from the 1920s). One set of prejudices has given way to anoother–opposite–set of preconceptions. Yesterday’s unexamined faith has become today’s heresy, and yesterday’s heresy is now the new superstition. [Development as Freedom, p 111].

The role of myth, political outlook, and cultural climate is clear. One would think that in a discipline claiming to be objective that there would be a real effort to challenge its own assumptions, but such efforts appear to an outsider to be peripheral. Until such time as they are central, economics remains unscientific.

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