Saturday, February 20, 2010

Bill Moyers Journal: James K. Galbraith -- Economic Recovery in Review

James K. Galbraith
Bil Moyers Journal (PBS)

The headlines are trumpeting recovery — some are even proclaiming an end to the recession in the United States (unofficially, that is). The US economy grew in the third quarter for the first time in a year. But there are some caveats — although jobless claims dipped slightly, many analysts still warn of a "jobless recovery." for a number of years to come.

And then there's the small print — will this recovery be permanent or is it a function of the stimulus masking bigger problems? THE WALL STREET JOURNAL warned: "The recovery thus far has been heavily supported by federal money, casting a question mark over the economy's underlying strength as government support dwindles." That unease is echoed by JOURNAL guest James K. Galbraith:

The fact is, the economy — production is going to turn around, has started to recover. But it will be six months in before a strong growth of production leads to new employment. And the question is, will that growth of production continue, after six months? The problem here is that we have a stimulus package, which is helping now, but it will be over with at the end of next year. Will there be a basis for another strong, privately financed expansion at that point? I don't see the evidence for that now. And that seems to me to be something we should be worrying about.

Another Crash, Another Galbraith

The announcement of the possible end to recession came on the anniversary of "Black Tuesday," of the great Wall Street crash of 1929 which ushered in The Great Depression. James K. Galbraith's famous economist father, John Kenneth Galbraith, wrote his classic study THE GREAT CRASH in 1955. The senior Galbraith noted that both the willingness of the American people to get caught up in speculative bubbles and the close ties between big business and politics led to the crash — and might well do so again.

Even in such a time of madness as the late '20s, a great many men in Wall Street remained quite sane. But they also remained very quiet. The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them.
-John Kenneth Galbraith, THE GREAT CRASH: 1929, 1955.

More than 50 years later the younger Galbraith reiterated his father's warning. "That's the point about the crisis, is that it could have been prevented. The people in authority two, three, five years ago, knew how to prevent it. They chose not to act, because they were getting a political and an economic benefit out of the speculative explosion that was occurring."

Additionally, Galbraith voiced similar worries about what might happen in Wall Street and Washington go back to business as usual:

The overwhelming emphasis, in the administration's program, I think, has been to return things to a condition of normalcy, to use a 1920s word, that prevailed five and ten years ago. That is to say, we're back to a world in which Wall Street and the major banks are leading and setting the path... Do you want to have a financial sector dominated by a small number of very large institutions, very difficult to manage, practically impossible to regulate and ruled by, essentially, the same people and the same culture that caused the crisis in the first place.

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