Greenspan and Galbraith
COMMENTARY BY MICHAEL MEEROPOL, SEPTEMBER, 2005 on WAMC RADIO:
What do Federal Reserve Chairman Alan Greenspan and Harvard Professor John Kenneth Galbraith have in common? They are both economists. What do they not have in common? Almost everything else. They are quite far apart -- Greenspan to the right and Galbraith to the left.[1]
The actions, pronouncements and writings of these two economists can tell us a lot about the important philosophical and policy differences that divide both the economics profession and in fact our country in general.[2]
First Greenspan:
He is the hard-to-understand Central Banking wizard who guided the US through the prosperous 1990s and then used the full force of the Federal Reserve to support the economy after the Stock Market bubble burst in 2000 thereby saving us all from a potentially serious depression.[3]
In my view it is more significant that he is a follower of the rugged individualistic philosophy of Ayn Rand.
We can see that philosophical preference when he supported the first round of tax cuts in 2001 and later came out in favor of making President Bush’s tax cuts permanent -- this despite Greenspan’s alleged abhorrence of big budget deficits.
Later he insisted that we have to cut spending on Social Security and Medicare because of that big budget deficit.[4]
Don’t you just love it when policy makers use “we” to describe pain inflicted on others?
But WHY is it essential to cut spending on these programs rather than increase taxes to fully finance them?
The answer is in Greenspans desire to reduce the role of government in society and increase the scope for individual activity – the so-called free market.[5]
John Kenneth Galbraith is less well known than is Greenspan. However, Galbraith has been writing important books for over half a century. He is to the reading public perhaps the most recognized American economist.
His work has been informed by an extremely important insight: That the natural workings of the market that is celebrated by Alan Greenspan acts to create centers of power – particularly in the large corporation. Because of this, something must be done to redress the balance between these new centers of power and the citizenry in general.[6]
In the United States we have relied on a popularly elected government to interfere with the workings of the so-called free market to correct for problems that have arisen. We see this very dramatically in Louisiana today.[7]
Galbraith has denied that government action always is worse than leaving the market alone. In fact he thinks government has at times made things better. In this he stands opposed to the Ayn Rand philosophy of Alan Greenspan.
In Richard Parker’s biography, John Kenneth Galbraith, we see through Galbraith’s eyes the rationale for the Roosevelt New Deal, for Price Controls during World War II, and for keeping the commitment made by the Social Security Act of 1935 and the Medicare Act of 1965—the commitment to making sure that when it comes to necessities like medical care and minimal standards of living, we are in the words of the Book of Genesis “our brothers’ keepers.”[8]
In these short descriptions of the Greenspan vs. Galbraith approach to the balance between individual liberty and cooperative political action to solve economic problems we see all the debates that have engaged and will continue to engage us as we attempt to chart our economic policy course in the 21st century. I am very much looking forward to ongoing and continued dialogue with listeners to this radio station about such issues.
[MICHAEL MEEROPOL: Professor and Chair, Department of Economics, Western New England College, Springfield, MA. Author of SURRENDER, HOW THE CLINTON ADMINISTRATION COMPLETED THE REAGAN REVOLUTION -- U. Michigan Press, 1998, pbk. 2000]
[1] There are two excellent biographical treatments. For Greenspan, see Bob Woodward Maestro: Greenspan's Fed and the American Boom. (NY: Simon & Schuster, 2001) For Galbraith, see Richard Parker, John Kenneth Galbraith, His Life, His Politics, His Economics (NY: Farrar\, Straus and Giroux, 2005).
[2]For a summary of how I see the philosophical differences you can check out my book Surrender, How the Clinton Administration Completed the Reagan Revoltuion, (Ann Arbor, Michigan: University of Michigan Press, 2000 [pbk]), especially chapters 3 and 4. By the way, the summary in the commentary leaves out the “true” left wing of the economics profession, one that is quite marginal in the United States but is a major element in Europe and the Third World. I am referring to the radical economics approach that is intellectually descended from Marx. See Surrender, 56-69, 141-149.
[3]The “conventional wisdom” before 1997 (and even after that) was that the US economy could not “sustain” an unemployment rate below 5 per cent – (sometimes people thought the number was closer to 5.5%) without accelerating inflation. Thus, beginning with the late 1970s, it was the policy of the Federal Reserve System (the US Central Bank which manipulates interest rates in order to slow down or speed up the economy) to strongly restrain the economy in order to vanquish inflation – and even to apply restraints before inflation accelerated to prevent it. (See, for example Surrender: 70-79, 101-105, 210-212, 253-255). In 1997, the unemployment went below 5% and the Federal Reserve raised interest rates. This action failed to slow the economy and uncharacteristically, the Federal Reserve refrained from further rate hikes and even lowered rates in 1998. This reversal of the behavior called for by the conventional wisdom worked and the economy continued to grow through 2000 without accelerating inflation. It is this behavior of Greenspan’s that led to the judgment that he was indeed a “Maestro.” However, this behavior did help create a bubble in the stock market. For details, see Robert Pollin Contours of Descent (NY: Verso, 2003 [pbk, 2004]), especially chs. 1-3.
[4] Greenspan’s area of expertise and his responsibilities relate to Monetary Policy which is the Central Bank activity related to money and credit. He has no official role in setting fiscal policy, the taxing and spending decisions of Congress and the President. Nevertheless, because of the great respect with which he is held, Presidents try very hard to get his approval. According to Bob Woodward’s analysis in Maestro, when Greenspan met President-Elect Clinton in Arkansas in Decemeber of 1992 he gave Clinton a lecture (or “seminar”) on how important it was to reduce the budget deficit. When Clinton proposed his first budget in 1993 to begin reducing the federal budget deficit, he purposely had Greenspan sitting in the balcony next to the First Lady. Later, Greenspan gave the Clinton plan a partial endorsement by admitting the plan represented a serious first step towards confronting the Federal Budget Deficit. In 2001, Greenspan testified before Congress and came out in favor of President Bush’s tax cut proposals because, he said, the Federal budget surplus (surpluses were projected from 2000 as far as the eye could see!) was in danger of being “too big.” After the tax cuts, the recession and the increased spending on defense and homeland security turned those surpluses into deficits once again, Greenspan stated that the tax cuts needed to be made permanent because the private sector decision makers had already begun to “expect” them to be made permanent and if they were disappointed by Congress – that is if Congress were to let the tax cuts expire -- it might damage their incentives. In 2004, he went before Congress to warn that the retirement of the Baby Boom generation would make Social Security and Medicare promises impossible. He suggested raising the retirement age and hinted at the need for even more drastic cuts.
[5] The reason I say “so-called” free market is because in fact there are many elements of the market system that involve a great deal of coercion. Most people, in fact, when they go to work put themselves under the direct control of a supervisor and the way they spend their time is no longer theirs to freely decide. The free market is free for those in control of the institutions that participate in the market. It is not so free for those who work in those institutions. For a good treatment of this, see Samuel Bowles, Richard Edwards and Frank Roosevelt Understanding Capitalism (NY: Oxford University Press, 2005), especially Ch. 3.
[6] He began this analysis with a book called American Capitalism published in 1952 but the two best known works that deal with this issue are The New Industrial State (1966) and Economics and the Public Purpose (1972).
[7] Do a thought experiment – how would the “free market” deal with the situation in post -Katrina Louisiana?? When disasters strike we seem to expect government to play the major role in dealing with the problem – yet intellectually, the supporters of the free market are always arguing that government can never do anything right!
[8] When Cain had murdered Abel and God confronted him, he tried to hide his deed saying, “I don’t know where he is, am I my brother’s keeper?” (See Genesis 4 verse 9). We are supposed to answer, “Yes, you murdering dog!” The story of the Good Samaritan in the New Testament makes a similar point. (Luke 10 verses 30-37) The short version is that we are all responsible to each other – The Ayn Rand philosophy is that we are only responsible for ourselves and those we personally choose to be responsible for.
What do Federal Reserve Chairman Alan Greenspan and Harvard Professor John Kenneth Galbraith have in common? They are both economists. What do they not have in common? Almost everything else. They are quite far apart -- Greenspan to the right and Galbraith to the left.[1]
The actions, pronouncements and writings of these two economists can tell us a lot about the important philosophical and policy differences that divide both the economics profession and in fact our country in general.[2]
First Greenspan:
He is the hard-to-understand Central Banking wizard who guided the US through the prosperous 1990s and then used the full force of the Federal Reserve to support the economy after the Stock Market bubble burst in 2000 thereby saving us all from a potentially serious depression.[3]
In my view it is more significant that he is a follower of the rugged individualistic philosophy of Ayn Rand.
We can see that philosophical preference when he supported the first round of tax cuts in 2001 and later came out in favor of making President Bush’s tax cuts permanent -- this despite Greenspan’s alleged abhorrence of big budget deficits.
Later he insisted that we have to cut spending on Social Security and Medicare because of that big budget deficit.[4]
Don’t you just love it when policy makers use “we” to describe pain inflicted on others?
But WHY is it essential to cut spending on these programs rather than increase taxes to fully finance them?
The answer is in Greenspans desire to reduce the role of government in society and increase the scope for individual activity – the so-called free market.[5]
John Kenneth Galbraith is less well known than is Greenspan. However, Galbraith has been writing important books for over half a century. He is to the reading public perhaps the most recognized American economist.
His work has been informed by an extremely important insight: That the natural workings of the market that is celebrated by Alan Greenspan acts to create centers of power – particularly in the large corporation. Because of this, something must be done to redress the balance between these new centers of power and the citizenry in general.[6]
In the United States we have relied on a popularly elected government to interfere with the workings of the so-called free market to correct for problems that have arisen. We see this very dramatically in Louisiana today.[7]
Galbraith has denied that government action always is worse than leaving the market alone. In fact he thinks government has at times made things better. In this he stands opposed to the Ayn Rand philosophy of Alan Greenspan.
In Richard Parker’s biography, John Kenneth Galbraith, we see through Galbraith’s eyes the rationale for the Roosevelt New Deal, for Price Controls during World War II, and for keeping the commitment made by the Social Security Act of 1935 and the Medicare Act of 1965—the commitment to making sure that when it comes to necessities like medical care and minimal standards of living, we are in the words of the Book of Genesis “our brothers’ keepers.”[8]
In these short descriptions of the Greenspan vs. Galbraith approach to the balance between individual liberty and cooperative political action to solve economic problems we see all the debates that have engaged and will continue to engage us as we attempt to chart our economic policy course in the 21st century. I am very much looking forward to ongoing and continued dialogue with listeners to this radio station about such issues.
[MICHAEL MEEROPOL: Professor and Chair, Department of Economics, Western New England College, Springfield, MA. Author of SURRENDER, HOW THE CLINTON ADMINISTRATION COMPLETED THE REAGAN REVOLUTION -- U. Michigan Press, 1998, pbk. 2000]
[1] There are two excellent biographical treatments. For Greenspan, see Bob Woodward Maestro: Greenspan's Fed and the American Boom. (NY: Simon & Schuster, 2001) For Galbraith, see Richard Parker, John Kenneth Galbraith, His Life, His Politics, His Economics (NY: Farrar\, Straus and Giroux, 2005).
[2]For a summary of how I see the philosophical differences you can check out my book Surrender, How the Clinton Administration Completed the Reagan Revoltuion, (Ann Arbor, Michigan: University of Michigan Press, 2000 [pbk]), especially chapters 3 and 4. By the way, the summary in the commentary leaves out the “true” left wing of the economics profession, one that is quite marginal in the United States but is a major element in Europe and the Third World. I am referring to the radical economics approach that is intellectually descended from Marx. See Surrender, 56-69, 141-149.
[3]The “conventional wisdom” before 1997 (and even after that) was that the US economy could not “sustain” an unemployment rate below 5 per cent – (sometimes people thought the number was closer to 5.5%) without accelerating inflation. Thus, beginning with the late 1970s, it was the policy of the Federal Reserve System (the US Central Bank which manipulates interest rates in order to slow down or speed up the economy) to strongly restrain the economy in order to vanquish inflation – and even to apply restraints before inflation accelerated to prevent it. (See, for example Surrender: 70-79, 101-105, 210-212, 253-255). In 1997, the unemployment went below 5% and the Federal Reserve raised interest rates. This action failed to slow the economy and uncharacteristically, the Federal Reserve refrained from further rate hikes and even lowered rates in 1998. This reversal of the behavior called for by the conventional wisdom worked and the economy continued to grow through 2000 without accelerating inflation. It is this behavior of Greenspan’s that led to the judgment that he was indeed a “Maestro.” However, this behavior did help create a bubble in the stock market. For details, see Robert Pollin Contours of Descent (NY: Verso, 2003 [pbk, 2004]), especially chs. 1-3.
[4] Greenspan’s area of expertise and his responsibilities relate to Monetary Policy which is the Central Bank activity related to money and credit. He has no official role in setting fiscal policy, the taxing and spending decisions of Congress and the President. Nevertheless, because of the great respect with which he is held, Presidents try very hard to get his approval. According to Bob Woodward’s analysis in Maestro, when Greenspan met President-Elect Clinton in Arkansas in Decemeber of 1992 he gave Clinton a lecture (or “seminar”) on how important it was to reduce the budget deficit. When Clinton proposed his first budget in 1993 to begin reducing the federal budget deficit, he purposely had Greenspan sitting in the balcony next to the First Lady. Later, Greenspan gave the Clinton plan a partial endorsement by admitting the plan represented a serious first step towards confronting the Federal Budget Deficit. In 2001, Greenspan testified before Congress and came out in favor of President Bush’s tax cut proposals because, he said, the Federal budget surplus (surpluses were projected from 2000 as far as the eye could see!) was in danger of being “too big.” After the tax cuts, the recession and the increased spending on defense and homeland security turned those surpluses into deficits once again, Greenspan stated that the tax cuts needed to be made permanent because the private sector decision makers had already begun to “expect” them to be made permanent and if they were disappointed by Congress – that is if Congress were to let the tax cuts expire -- it might damage their incentives. In 2004, he went before Congress to warn that the retirement of the Baby Boom generation would make Social Security and Medicare promises impossible. He suggested raising the retirement age and hinted at the need for even more drastic cuts.
[5] The reason I say “so-called” free market is because in fact there are many elements of the market system that involve a great deal of coercion. Most people, in fact, when they go to work put themselves under the direct control of a supervisor and the way they spend their time is no longer theirs to freely decide. The free market is free for those in control of the institutions that participate in the market. It is not so free for those who work in those institutions. For a good treatment of this, see Samuel Bowles, Richard Edwards and Frank Roosevelt Understanding Capitalism (NY: Oxford University Press, 2005), especially Ch. 3.
[6] He began this analysis with a book called American Capitalism published in 1952 but the two best known works that deal with this issue are The New Industrial State (1966) and Economics and the Public Purpose (1972).
[7] Do a thought experiment – how would the “free market” deal with the situation in post -Katrina Louisiana?? When disasters strike we seem to expect government to play the major role in dealing with the problem – yet intellectually, the supporters of the free market are always arguing that government can never do anything right!
[8] When Cain had murdered Abel and God confronted him, he tried to hide his deed saying, “I don’t know where he is, am I my brother’s keeper?” (See Genesis 4 verse 9). We are supposed to answer, “Yes, you murdering dog!” The story of the Good Samaritan in the New Testament makes a similar point. (Luke 10 verses 30-37) The short version is that we are all responsible to each other – The Ayn Rand philosophy is that we are only responsible for ourselves and those we personally choose to be responsible for.
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