James K. Galbraith Says More… (Project Syndicate Nov 17, 2020)

Jan 2, 2021

J This week in Say More, PS talks with James K. Galbraith, Professor of Government and Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.

Project Syndicate: In March, when the COVID-19 crisis was just beginning in the United States, you noted that, when the Japanese attacked Pearl Harbor, the country responded quickly and resolutely. You argued that, when it came to the pandemic, “there [was] not a moment to lose” in mounting a similar all-of-society response. By the time Joe Biden takes office, the US will have lost nearly ten months. Will it be too late for an effective response?

James K. Galbraith: The success of public-health policies in curbing COVID-19 infections and deaths depended on advance preparation and immediate action. A range of governments – including New Zealand, South Korea, Vietnam, Singapore, Cuba, and Taiwan – reacted to the news about the initial outbreak in Wuhan, China, in early January, in most cases mobilizing existing state structures, such as special ministry-level task forces. China itself was only a few weeks behind, and when it mobilized, it did so forcefully, essentially eliminating the virus within a few months. A few European countries – notably Slovakia and Greece – also had a strong initial response.

The worst performers tended to be large, decentralized, politically polarized countries and regions, including Brazil, the European Union as a whole, Russia, the United Kingdom, India, and the United States. In these places, the pandemic will continue to take a serious toll, pending effective vaccines and therapies. With safer individual behaviors, such as social distancing and mask wearing, it can be slowed, but not stopped.

As for the economic effects, the US has experienced the partial rebound I predicted in March. But I believe now, as then, that this will be followed by a long struggle, for three fundamental reasons, beyond the pandemic itself. First, there is the collapse in global investment, which affects the economy’s advanced sectors. Second, the impulse to save in the face of economic anxiety will devastate services providers, and the jobs and incomes they provide, affecting millions of workers. And, third, unpayable debts are piling up, affecting the entire system.

Trump may have lost the election, but truly effective responses still lie outside the scope of the current political debate. One may safely predict, therefore, that they will not be pursued – at least not until facts force ideas to change.

PS: In January, you examined the economic-policy program of Bernie Sanders, the democratic socialist senator from Vermont who was then vying for the Democratic presidential nomination. Biden derided many of Sanders’s ideas as unrealistic during the primaries. But he also has a track record of adjusting his position to the Democratic mainstream, and the pandemic has shifted political discourse to the left, especially with regard to social safety nets and state economic support. Beyond the immediate COVID-19 response, which aspects of Sanders’s economic-policy agenda is the Biden administration most likely to embrace?

JG: Though Biden won in the end, the election was a poor showing for the donor-dominated Democratic Party, and the prospects for effective economic policy are bleak.

The progressive goal now should be to define a wide-ranging agenda. Beyond measures to address COVID-19, this should include an energy transformation, improved infrastructure, a job guarantee, universal health care, a $15 minimum wage, union rights, and mechanisms for debt restructuring that prevent families from losing their homes. Progressives should ignore the tired chatter about “excessive” deficits and public debt, and, to tackle inequality, they should vote to increase the top income tax rates and restore the bite of the estate and gift taxes.

Progressives should also work to end America’s wars, eliminate nuclear weapons, and cut the military budget. They should reject pressure to pose as “getting tough” with Russia and China – exercises in futility, at best – let alone to start new wars against Iran or Venezuela. A strategy of initiative and imagination, of peace and reconstruction, is the best politics now. It will foster a new generation of political activists, help rejuvenate the Democratic Party, and lay the foundation for gains at the polls in two years, and perhaps for a progressive victory in four.

PS: In September, you criticized three recent studies of the sources of Americans’ discontent, writing that while there was “something to each,” all had major weaknesses and blind spots, and fell short when it came to offering solutions. If you wrote a book on this topic, which under-recognized forces and trends would you be most keen to investigate, and which theories and concepts would be most useful to the task?

JG: The weakness shared by all three of those books was that they pulled their punches on policy. The US economy is not an equilibrium engine (or system) that needs only a bit of tinkering and some fuel (stimulus) to keep it going. We are in serious trouble, and nothing is guaranteed. The only way to address the sources of discontent is with far-reaching changes that recognize the severity of the health crisis, the poor state of economic and environmental conditions, and the country’s declining relative power. This is why today’s rhetoric – which depicts “recovery” as inevitable – is so misleading.

The recourse to economic experts compounds the problem. I have been teaching about the pandemic this semester. One big lesson I’ve learned through discussions with my students is how much this crisis runs against the ethos of our learned approach to policy. We have made a cult of research and “evidence-based decision-making,” and so, in this situation, of calculating imaginary “trade-offs” between the epidemic and the economy. But at the moment – just as in the situation President Franklin D. Roosevelt and the New Dealers confronted in 1933 – there is not much definitive evidence to go on, beyond the basics of epidemiology, and what matters most is how people respond to guidance and leadership. Decisions and actions must therefore be based on judgment, passion, conviction, belief, and hope.

PS: In your 2016 book Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe, you reflected on what you consider one of the great avoidable economic disasters of the modern era, in which economic policy was a “moral abomination.” As COVID-19 infections and deaths spike across Europe and countries impose new lockdowns, where has the European Union fallen short this time?

JG: The EU left the pandemic response to its member states, much as the US left the response to state governors and even to city mayors. This worked for a while in certain cases – the more easily a population could be isolated, the better. But COVID-19’s resurgence is a depressing reminder that viruses don’t respect borders. And it may be even harder to respond effectively this time around, as many Europeans have now lost faith in their authorities, as shown by demonstrations in Germany, Italy, and Spain, as well as the mass exodus from the Paris lockdown.

But one cannot really blame Brussels for failed COVID-19 responses. The EU is decentralized by nature, and responsibility for public health still rests with nation-states. It is hard to imagine Europeans taking seriously a centralized EU response last spring. Indeed, Brussels will never supplant the nation-state in Europe, or be effective against crises of this kind.

PS: Your 2012 book Inequality and Instability: A Study of the World Economy Just Before the Great Crisis, and your 2016 follow-up work, Inequality: What Everyone Needs to Know, aim to identify and correct the flaws in mainstream analysis of inequality in the economics literature. Is our shared understanding of inequality improving? More concretely, what must leaders recognize if we are to avoid a surge in inequality caused by the COVID-19 crisis?

JG: The University of Texas Inequality Project has shown that consistent, dense, accurate measures are necessary to understand the phenomenon of economic inequality. It has also shown that, by those measures, the global financial regime plays an important role.

The rise of global inequality began with the onset of the era of neoliberalism and the debt crises of the 1980s. It continued through the collapse of state socialism in Eastern Europe, and through economic liberalizations in Asia.

Since 2000, the picture has been more mixed, though political discussions about inequality have become more heated. Unfortunately, the mainstream myths about education and technology persist, and I fear that our shared understanding of inequality has not improved. To paraphrase Upton Sinclair, it is difficult to get a person to understand something when their academic respectability depends on not understanding it.

As for the COVID-19 crisis, the central point is that it will lead to a reckoning over unpayable debts. Unless they are written down, there will be an additional epidemic – of evictions, foreclosures, homelessness, and social upheaval.

PS: Your father, John Kenneth Galbraith, was a highly influential economist, public intellectual, and Harvard’s longest-serving professor. Would any of that be true if he were starting out in economics today? Which of his ideas deserves more attention, and, to turn that question around, which current issues in the field do you think he would be most interested in tackling?

JG: The economics profession has organized itself to exclude original thinkers, such as my father and many of his friends and colleagues, including Wassily Leontief, Joan Robinson, Nicholas Kaldor, Paul Sweezy, and Paul Baran (to name a few). John Maynard Keynes himself could not secure an appointment in a “leading” economics department these days.

As for ideas, I think my father (rightly) felt that he had made his economic contribution with his great works, especially The Affluent Society and The New Industrial State. Today, his big concern would be the dreadful tendency toward confrontation and war, especially the deluded notion that the US can subjugate Russia or China, let alone both at the same time.

PS: When accepting the Veblen-Commons Award of the Association for Evolutionary Economics, you said that your father’s “lasting gift” to you “has been a solid sense that an economist is either a practical player in policy battles or nothing at all.” How has this wisdom shaped your career, and your quest to “make economics a force for good”

JG: Oh, in every way. While still in graduate school, I went to work on Capitol Hill. First, I worked on the House Banking Committee, where I was plunged into monetary-policy oversight, the New York City crisis, drafting the “dual mandate” in the Humphrey-Hawkins Full Employment Act, and other adventures. Then I moved to the Joint Economic Committee, where we battled against monetarism, supply-side economics, and other fantasies of the early Ronald Reagan years.

Since moving to Texas in 1985, I’ve had a hand in policymaking in China, where I held the improbable title of “Chief Technical Adviser to the State Planning Commission for Macroeconomic Reform” for four years (1993-1997). In Greece, I provided some help and moral support to my friend Yanis Varoufakis while he was serving as finance minister in 2015.

Sometimes – in extreme circumstances, such as the 2008 financial crisis – I’m even called on in the US. My work on inequality has increased awareness of the need for global democratic systems for controlling finance, without which the pathologies of neoliberal capitalism simply get reproduced, time and again.

As for making economics a force for good, I’d like to see the re-emergence of an integrated, historical, evolutionary discipline that is rooted in the same biophysical principles that underpin all real science, and uses eclectic statistical techniques on real-world data, thereby bringing the subject out of the eighteenth century, where it now languishes. This would require that universities shift funding and positions from economics departments to policy schools and to innovative, specialized academic units with their own standards, budgets, and career paths. Defund the economists! There’s a slogan for you.

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