American Capitalism - John Kenneth Galbraith

Galbraith basically repeated the same ideas over and over through his academic career, and also as a novelist. American Capitalism is one of John Kenneth Galbraith's first books, and consequently, is not among the best ones. Galbraith would deploy his ideas fully in The New Industrial State, which is actually a very long volume. So, if you need to get a grasp of Galbraith's ideas, American Capitalism is a decent substitute. (actually, quite honestly, the best thing to get a grasp of anyone's ideas is Wikipedia; here is the entry on Galbraith)

The only interesting thing about American Capitalism is the concept of countervailing power, which basically refers to the idea of concentrating buyers or suppliers to counteract the market power of their counterparties (here is a more complete explanation by Christopher M. Snyder from Dartmouth). Countervailing power is an interesting concept from the point of view of competition policy. Galbraith argues that modern markets can never be perfectly competitive, so the solution to monopolies doesn't lie in anti-trust regulations, but in creating  and enforcing all kinds of monopolies so that they check and balance each other. This is a terrible idea. In the end, the people who would end up paying the costs of this scheme are the least organized ones: the customers.

I've reviewed some books by Galbraith over the last months, and I've had enough of him, at least for the medium term. I don't think that reading Galbraith has any value today other than for the economic historian. Galbraith's thoughts have become the creed of the Democratic Party, and his arguments are repeated by people like Krugman in ways that make more sense for the current generation. But The Nation thinks that reading Galbraith is one of the best things you can do with your time. Here's  their review of Galbraith's works.

A Tenured Professor - John Kenneth Galbraith

I've been recently struggling to figure out what is the relevance of John Kenneth Galbraith today. Galbraith reached the highest point of his career with The New Industrial State, and afterwards he repeated himself, albeit elegantly and gently.  His economic ideas have become mantras for the American left and he preferred written arguments over econometric analyses, which goes against mainstream academic economics. While Galbraith is a required reading for the economic historian, it is hard to find a place for him in today's economic debate.

A Tenured Professor, a satyric novel written in the mid 80s, is probably Galbraith's only book that offers something refreshing to today's readers. And this is not because Galbraith writes something that you can't find in any of his other books. If you take literature away, A Tenured Professor presents Galbraith's arguments of all life: critiques against multinationals, consumerism, over-specialization in academia, lobbies, the rational expectations theory, the mainstream left, the Republican Party, the SEC, college students, Ivy League universities, and so on. You can find all that in The New Industrial State, written in the late sixties, or even in The Affluent Society, written in 1957. (One can argue how smart is a person who says the same things over and over for more than 30 years, but that's another discussion).

The reason why A Tenured Professor offers something good for today's readers is its sense of humor and its constant and relentless irony. Humor is usually the first weapon used in autocratic regimes, and probably the most effective one in democracy.The target of irony or mockery is damned if he replies and damned if he doesn't.

There is no single page in A Tenured Professor that doesn't a critique to something, but with humor and reducing everything to the absurd. This is probably more effective than Galbraith's usually bilious critiques: it's well known that honey is more effective than vinegar.

Galbraith wrote this book after being accomplishing everything any American economist dreams of: academic and popular success, involvement in high-level policy making, commercial success. Galbraith could afford writing this book only at that point in his life, once he had nothing to lose because he had succeeded at everything. The main character of A Tenured Professor is actually a professor who would like to get involved in politics actively but only does it once he succeeds as an academic and as a businessman. In a way, the book is a satire of Galbraith himself. And mocking oneself is simply a masterpiece in itself.

The book is also a mockery of himself.

The New Industrial State - John Kenneth Galbraith

The New Industrial State set the analytic foundations of the multinational corporation. Though he didn't name it, John Kenneth Galbraith discovered the principal-agent problem. In this book, Galbraith also dismantled the assumption that markets are composed by small price-taker units, but by large corporations who have interests of their own, including setting prices (quite obviously) but also reaching political power.

Given his style, which might be too formal for today's audiences, it is tempting to say that you can find his ideas on multinationals tempered down for the 21st century in the work of Naomi Klein. However, there is a significant difference between the two of them. Klein believes that the objective of the heads of multinational companies is to control the world, or something. Galbraith, however, makes the case that they just want to defend their vested interests (obviously in detriment of the common citizen). Evidence has been in the side of Galbraith and the same case has been made recently by conservative-turned-to-liberal-turned-to-independent thinkers like Francis Fukuyama and Fareed Zakaria.

The New Industrial State can be too burdensome at times, and is 500 pages long. If you really have to read it, you can save yourself a lot of time by reading the foreword, or even better, this article by Galbraith's son describing what the book is all about and how it is relevant today (the article was written in 2007).

This is the second book by Galbraith that I review, and I don't want to give the impression that Galbraith's work is useless today. He created the ideological framework of the American left; namely, corporations are bad (and small businesses inherently good), education will solve all of our problems, more money and resources should be devoted to liberal arts and public broadcasting (public goods in general), environment degradation is inherent to big-scale capitalism, and demilitarization should be priority number 1 in the U.S. foreign policy agenda. The fact that the American left has made mantras out of these ideas is not Galbraith's fult, but the left's, which has been unable to advance any significant part of the agenda, at least until Obama passed his health care reform.

Here is a 50 minutes interview with Galbraith done in the 80's.

The Affluent Society - John Kenneth Galbraith

He will never accept it, but Paul Krugmans ideas are far from being original. He stole his entire arguments on taxation and public services from John Kenneth Galbraith, one of the few American intellectuals in the twentieth century who has had the balls to advocate openly for the establishment of socialism in the United States. In fact, Krugman loathes Galbraith on the basis that he is not academic enough. (which is actually one of Galbraiths virtue: the idea that economics should depend on torturing data, most of which is unreliable anyway, is simply stupid)

Having said that, and precisely because Krugman has adapted Galbraiths arguments to the 21st century, The Affluent Society is valuable only as an economic theory relic. The Affluent Society makes the case for a sales tax as a means to finance more public goods (specifically, education, environment, and infrastructure). Whether Galbraith refers to a sales tax à la USA or a VAT à la Europe is not clear (the difference between the two is not insignificant, as can be seen here).