Source of book: I own this
Like virtually every teenager in America, I took an economics class my senior year of high school. Because I was homeschooled, options were limited. I took video classes my last three years of primary schooling, from A Beka, which meant a fairly good academic education (particularly in math and English), but some highly questionable ideological indoctrination.
For the economics course, this meant complete and utter worship of laissez faire economic theory, and venomous hatred for John Maynard Keynes, FDR, the New Deal, and every form of government intervention in the economy.
Even when I was taking the class, I had my skepticism about the propaganda, but that was also my embarrassing Rush Limbaugh era, so I believed a lot of things that make me cringe now.
Ironically, one of the things that made me change my mind about right wing economics was reading The Wealth of Nations by Adam Smith.
Because Adam Smith would be considered a total flaming socialist by today’s right wing.
I mention all of this because that economics course required some sort of a paper - I can’t even remember what the specified topic was or what I wrote about it, because it was boring and stupid, like many high school assignments are. You write them because you have to and because learning to write is a necessary skill.
This paper required me to find sources, and not just the textbook. I don’t recall exactly what I got from the library, other than that I picked up a book by John Kenneth Galbraith. I think it was a collection or something, but I cannot recall the title or what I read in it. Other than that, at that time, it went WAY over my head.
I do remember that it sounded interesting, even if I didn’t understand it, and appeared to be an alternative to the propaganda I was learning.
Fast forward to today, and I was able to find a used copy of the Library of America edition of four of his works. Out of that, I decided to read the first, American Capitalism. Now that I have, I really want to read the others, particularly The Affluent Society, which sounds very relevant to today. Stay tuned.
By global and the standards of his time, Galbraith was center-right, a proponent of capitalism, but with regulation and restraints. This, of course, means that today’s American right wing would consider him a flaming communist, because he advocated for building a better society rather than giving everything away to the ultra-rich.
American Capitalism, written in 1951, starts with a bold assertion: Free markets do not really exist in most industries, so a new explanation of economic activity, particularly the setting of prices, is needed.
For Galbraith, his theory is what he calls “Countervailing Power.” Because most industries naturally tend to become oligarchies (more on that later), they have - in theory - monopoly price-setting power, and wage-setting power. However, industry clearly does not have these powers in full, so there must be power that is opposed to these pricing powers. Galbraith insists that these arise naturally, because anywhere there is power to make money, there is incentive to grab a share of that power.
Galbraith talks about specific forms of countervailing power. For example, unions exist to counter the wage-setting power of large corporations. This is why they tend to be healthiest when there is a lot of money to be made, and of limited power against smaller companies. Likewise, government is countervailing power. On the pricing side, giant retailers counter the power of giant producers.
The power of this book is in Galbraith’s clarity of writing and thought, and in his ability to focus on the reality of what actually exists, not what economic theory says should exist.
I will note a few things at the outset that I think are spot on, and supremely relevant today.
First is that right wing economic theory is a religion, and it is ideologically based, not fact based. The belief in “free markets” is like a belief in the passenger pigeon - they don’t actually exist anymore, or behave the way that theory says they will.
Second is that because of this religious belief, right wing economics conflates corporate power with “freedom,” and anything that challenges that power to be “socialism.”
This is nothing new. Galbraith quotes business leaders from the 1940s sounding just like they do now, complaining that any regulation is the slippery slope to communism.
What is ironic - as Galbraith points out - is that industry actually thrives when there is countervailing power. Regulation leads to trust that products won’t kill us, unions keep wages up so that workers are able to buy stuff, government management of facets of the economy prevents depressions where everyone loses, and social programs raise the standard of living. The very bedrock of corporate moneymaking is the existence of countervailing power.
This shouldn’t be controversial anymore. But this fear of “socialism” is still driving elections. This sounds familiar, right?
The principal, and apart from treason, the all but exclusive issue in elections since the war has been whether America is being transformed from a capitalist into a welfare state, a status state, or a socialist one.
This faith, though, has crumbled for many over the years. The first big hit was the Great Depression, where it became clear that “the market” could easily find equilibrium with one quarter of workers unemployed. In effect, this was the failure of capitalism - it happened before the failure of communism, actually - and what succeeded it is an economy that has a mix of elements.
It wasn’t just the public, however, that lost faith. Business too, despite its continued fearmongering about “socialism,” actually feared another failure.
The businessman shares with many others yet another fear which, unlike his political doubts, he leaves largely unexpressed. It is that private capitalism is inherently unstable.
And indeed, to a degree it is. Which is why the New Deal policies were necessary - and, in retrospect, highly effective at preventing a catastrophic crash.
I want to mention at this point as well, another factor that has led to resistance to government action.
The well-to-do and the wealthy man will normally be mistrustful of change. This has been so, in the past, in nearly all times and places. It is a simple matter of arithmetic that change may be costly to the man who has something; it cannot be so to the man who has nothing. There is always, accordingly, a high correlation between conservatism and personal well-being.
It has been fascinating (and not in a pleasant way) to watch my parents as they changed over the years. As they moved from poor enough to utilize government clinics (welfare!) to rich enough to own a vacation home, their politics moved accordingly. The more wealthy they became, the more they mistrusted any policy to help others. This is, generally, a pattern, and the best explanation for why younger people are not getting more conservative as they have gotten older is that they have not gotten richer.
Galbraith notes that “classical” economics - based on market competition - probably did lead to efficient outcomes in the past, when both buyers and sellers were small, and when unemployment was virtually unheard of. But as industry has become more advanced, and society as a whole more complicated - and dependent on jobs for survival with few alternatives - competition no longer is able to be effective - hence the periods of significant unemployment.
Since economic efficiency is clearly not served with portions of the workforce idle, then why is the myth of competition so powerful?
Galbraith’s theory is that the belief in competition allows the economically
powerful to believe that they do not have power.
The role of power in American life is a curious one. The privilege of controlling the actions or of affecting the income and property of other persons is something that no one of us can profess to seek or admit to possessing.
But of course there is power, and businessmen, as he calls them, seek it. They just can’t openly admit it.
Power obviously presents awkward problems for a community which abhors its existence, disavows its possession, but values its exercise. In the nature of man, the alarm over the exercise of such power runs to its use by second persons. The businessman is not disturbed about the use of authority of which, by hard work and merit, he has become the custodian; he is alarmed about its misuse by government. The liberal naturally views the exercise of private business power with concern. On acquiring public office he is not likely to be persuaded of the danger of misusing his own righteously won authority. This tendency to alarm over the possession of power by other people is greatly enhanced by the convention of denying that one possesses power. The conventional assertion that one has none is readily translated into belief.
This is also manifested, although Galbraith doesn’t go there in this book, by the belief by white males that they are the least powerful people in our country, despite overwhelming evidence to the contrary. They, like businesspeople, cannot see their own power or how they exercise it.
This is where the myth of competition comes in. Because business doesn’t have power, then there is no need for government to restrain it. If business lacks the power to set prices, then there is no possible risk that customers will be gouged. If business lacks the power to set wages, then there is no risk of workers being exploited. It all sounds great on paper, right?
Everything is perfect, right? The market will cure any problem, just give it time and keep hands off.
But the problem is that power does exist, and in industries with oligarchies, there is power both to raise prices and to set wages.
The system of ideas just outlined - the theory of capitalism and the solution of the problem of power it provided - was vulnerable at two points. In the realm of ideas there was its pivotal dependence on competition, on a definition of competition that had tended to become increasingly precise and hence increasingly brittle. Even the staunchest defenders of the doctrine required a rigorous form of competition - with Professor Hayek they held that it had to be the competition in which “the individual producer has to adapt himself to price changes and cannot control them.” There was also, in the world of reality, the need for performance. The system had to work. Were the assumption of competition to be undermined, it would be a devastating blow. So, equally, would be a failure in performance. Both blows fell simultaneously in the decade of the thirties.
Galbraith then dives into the reality. I am going to summarize this discussion, but I really encourage anyone who wants to understand our current economy better to read the whole chapter.
The reality of what we actually see is this: as any industry becomes mature, it will tend to shrink to a few giant firms, with a few smaller ones around the periphery.
This is not the result of nefarious scheming or vast conspiracy (and definitely not a Jewish one), but as the result of the inherent rules of the game.
It is easy for a firm to go out of business, but very hard for new firms to enter - there is a high entry cost. Firms may also choose to merge, but there is no inherent incentive to break apart.
So, over time, the number of firms declines, until there are few enough that their mutual survival becomes more important than competition with each other.
Let me give a few examples. I have been thinking about these a lot lately, and particularly while reading this book.
Take, for example, the industry that manufactures commercial aircraft. (I’m a plane geek, so buckle up for a rabbit trail…)
Right now, there are two giant firms which manufacture commercial aircraft: Boeing, and Airbus. Boeing is the only manufacturer in the United States, the world’s largest economy. Airbus is a joint venture between multiple European nations. These two manufacture the overwhelming majority of commercial aircraft - and all of the larger aircraft.
There are a few other firms that have found niches making smaller jets: Bombardier in Canada, Embraer in Brazil. You can probably now add Comac in China, but its production numbers are far lower than the other four at this time. Mitsubishi in Japan made an attempt, but that never got off the ground. (Sorry.)
There used to be more, of course. The US alone had Lockheed and McDonnell Douglas back when I was a kid, and Europe had a whole handful of firms.
What happened? Well, mergers and bankruptcies mostly.
Firms disappeared, and they were not replaced. Just like Galbraith predicted.
At this point, it is unlikely that there will be increased competition coming any time soon. Comac is the most likely to eventually join the party, but it has challenges. Despite being backed by the second largest economy in the world, Comac is making planes at a slow rate, and its aircraft are dependent on Western suppliers for everything from engines to avionics. At this time, it is limited to the Chinese domestic market, and getting certification from either Europe (EASA) or the US (FAA) is at least 10 years away, if Comac even decides to apply.
The barrier to entry is so high that even the world’s second largest economy, China, with full government backing, is finding it difficult to compete.
There is a non-zero chance that, due to mismanagement, profiteering, and lack of development, that Boeing could go out of business in the next few years. That would leave just one firm. Boeing will not be replaced, because there is nothing to replace it with. The barriers to entry are just too great.
Again, predicted by Galbraith.
Let’s move instead to the automobile industry. When the industry began, there were dozens of firms in the US alone, and many more in other countries. Over time, firms have gone bankrupt or merged, leaving fewer and fewer over time.
Right wing economists love to point to the competition from Toyota and Honda as proof that there can be new entries to the field, but they leave out that these firms are actually very old. They just expanded to new markets, which is not the same thing.
Right now, there is a huge opportunity to shake up the industry: electric vehicles. And yet, the secondary players - even the most successful like Tesla - are struggling to actually break in permanently.
Tesla, mind you, has the financial backing of one of the five richest humans in the world. Yes, he isn’t really helping things right now, but he has the money. But Tesla’s flagship vehicle (Model S) is now 12 years old - ancient by automotive industry standards - and there is no apparent expected replacement. Production has also struggled - Tesla makes nowhere near the numbers of the major manufacturers. And Tesla is essentially a success story in comparison with the other startups.
Galbraith points out that the issue isn’t merely capital: it is expertise. The business of building cars is incredibly complex, and merely hiring a few engineers isn’t going to get you everything you need, from design to supply chains. It is an incredibly high barrier to entry.
I could go on with other industries, of course, because the pattern of consolidation leading to oligarchy is everywhere - even in industries that Galbraith thought were exempt, such as farming.
And again, this isn’t nEfaRiOus CoNSpIrAcY: it is the predictable result of market forces in a mature and complex industry.
This then leads to the question of power. Oligarchies should in theory be able both to set prices AND to suppress wages. But….they don’t always. (And they particularly didn’t in the 1950s, when wages rose and prices fell.)
What is true is that in these industries - increasingly in all of them - there is no incentive to compete. It is in the best interest of all the firms to keep prices similar, and wages similar, and so on. If a firm attempts to compete, it could very easily drive the entire industry into bankruptcy.
If there is only a handful of producers, there is a chance that none will assume the initiative. There is at least the possibility that all will prefer and concur in choosing profitable and comfortable stagnation.
We both see this and don’t see this, depending on the situation. There are, I think, industries where things have stagnated, but there are others where countervailing power of various kinds keeps the pressure on. Later in the book, Galbraith looks at how this works.
What he does highlight at this point is that the ideal of perfect competition doesn’t exist in most industries (even less so now than in 1951), and that therefore the classic model of economics simply cannot be useful in real life.
After talking about the depression earlier, Galbraith eventually spends an entire chapter on the “depression psychosis,” as he refers to it - the fear of another depression, and the attempts to prevent another one. There are some great lines here.
The competitive model of a capitalist economy allowed, as noted, for rhythmic increases and decreases in prices and production and even for occasional bouts of unemployment. It did not contemplate the possibility of a catastrophic and enduring depression. Economists, and through them politicians, businessmen and the public, were insulated from the need to think of such a tragedy by the benign theorem that the act of production provided the purchasing power for all that was produced at approximate full employment.
This is the great myth of capitalism: that it is economically efficient and leads to full employment. Even the businessmen, though, have doubts deep down. Perhaps unmanaged capitalism actually leads to periodic catastrophes.
These, in their mature form, made depression, or its counterpart inflation, the normal behavior pattern of uninhibited and unmanaged capitalism.
This was in fact the point that Keynes made: that depression and mass unemployment are not abnormal in unregulated capitalism.
On the contrary, the economy can find its equilibrium at any level of performance. The chance that production in the United States will be at that level where all, or nearly all, willing workers can find jobs is no greater than the chance that four, six, eight, or ten million workers will be unemployed. Alternatively the demand for goods may exceed what the economy can supply even when everyone is employed. Accordingly there can be, even under peacetime conditions, a persistent upward pressure on prices, i.e. more or less serious inflation.
Behold the post-pandemic global inflation. The US has actually had lower inflation than the rest of the first world - this isn’t something that can be blamed on President Biden, who has actually taken steps to cool the inflation here, and done better than much of the rest of the world. (Side note: presidents have little control over global economic patterns, but governments do have the ability to prevent catastrophe to their citizens in many cases. Just something to think about in light of the New Deal and other remedies that have kept people from starving in the past.)
After the Great Depression, the ideas of Keynes pretty much won out. By spending during slowdowns, governments could prevent catastrophic depressions - something that all of the first world has done since that time. Galbraith notes, however, that conservatives have opposed this, despite the fact that it actually benefits business a lot.
Liberals almost spontaneously adopted the Keynesian formula. They were also puzzled by the reluctance of conservatives, especially businessmen, to embrace it. Here was protection from the overwhelming threat of depression, the only threat of potentially revolutionary proportions seemingly faced by capitalism. The businessman remained undisturbed in his prerogatives as an owner and manatee and had the promise of better business to boot. What could he lose?
Galbraith answers the question with a psychological barrier.
However, as often happens, it encountered the sharp cleavage which exists in our attitude toward technological and social change. If a man seeks to design a better mousetrap, he is the soul of enterprise; if he seeks to design a better society he is a crackpot. For those who mistrust social change it was not an argument that profits might be increase, even that disaster might be avoided. They were opposed to change and they could not be bought. They were men of principle.
God, this is what I find when discussing - or trying to discuss - anything about economics with right wingers. The opposition to change of any sort is so strong, even in the face of evidence that everyone is better off with change.
There are other reasons too: businessmen like the prestige of being the most important people in the economy. Government action would diminish that prestige. And, there was also the philosophical problem caused by the belief in the myth of competitive markets.
If the normal tendency of the economy is toward full employment, then the use of labor and other economic resources by government is at the expense of their use by the private economy. Dams and post offices are built at the cost of private consumption or investment. If there is full employment in the first place, something must be given up. But if unemployment is chronic, the dams and post offices require no sacrifice of private production or consumption.
Leaving aside the obvious issue of whether making more widgets for consumption is inherently better than creating public infrastructure, this is where reality matters. Particularly when unemployment is high, it is no loss to the private sector for government to utilize labor to create infrastructure.
Galbraith is loathed by right wing thinkers, but in reality, he is actually quite pro-capitalism - managed and regulated capitalism with countervailing power. It is a sign of just how far to the extreme right our right wing has drifted over the last 45 years that this is so. When the book was written, Galbraith was able to honestly say that neither side fully liked him or Keynes. But despite everyone being unhappy, the economy was….really good.
In principle, the economy pleased no one; in practice, it satisfied most. Social inefficiency, unrationalized power, intrusive government and depression were all matters for deep concern. But neither liberals nor conservatives, neither the rich nor all but the very poor, found the consequences intolerable.
The 1950s certainly had its faults - Jim Crow, for one thing. The inequality of women for another. Unfortunately, Galbraith doesn’t address these, which is in my opinion the main fault of the book. (The other part that hasn’t aged well is that he failed to predict some things that happened later - the backlash to the Civil Rights Movement that led to working-class white people voting against their economic interest rather than accept equality for minorities - but it is hard to fault Galbraith for failing to predict the future accurately in all respects - no one can do that.)
Galbraith’s point though remains: for all the whinging about the New Deal, about banking regulations, about unions, and so on, the 1950s were actually a time of prosperity and growth that created a larger middle class than we have seen before or since. And, at the same time, business did quite well. This is a lesson we still refuse to learn, which is that if the bottom 50% do well, everyone else does fine as well. It isn’t a zero-sum game for business at all.
The book next tackles another myth that we Americans in particular cling to.
There is no more pleasant fiction than that technical change is the product of the matchless ingenuity of the small man forced by competition to employ his wits to better his neighbor. Unhappily, it is a fiction. Technical development has long since become the preserve of the scientist and the engineer. Most of the cheap and simple inventions have, to put it bluntly and unpersuasively, been made. Not only is development now sophisticated and costly but it must be on a sufficient scale so that successes and failures will in some measure average out.
This is so obviously true yet so widely disbelieved by the average American. We LOVE our myths - and the myth of the self-made man most of all. But guess what? Neither you nor I is capable of making a revolutionary discover that will make us rich and change the world. It takes resources - and scientific knowledge and engineering ability - to do that.
Just as one example: the greatest innovation of the last 5 years has been the rapid development of vaccines for Covid. This includes the mRNA delivery system which is already revolutionizing the prevention of disease.
You or I could not do this. This isn’t just smearing some pus from a cow into a cut to prevent smallpox. One needs the equipment to create nanoparticles of oil to protect the mRNA, the equipment to copy the mRNA in the first place, and the knowledge of molecular biology to do everything involved. It took large companies with support from government to do it.
Not only that, but the groundwork was started two decades ago, and relied on knowledge gained about mRNA from decades before that. It is a whole process, much of which did not immediately lead to something that could be sold for profit.
And yet, the Covid vaccines are estimated to have saved 14.4 million lives per year, per the NIH.
This is where we are at with science and technology: the low hanging fruit has been plucked, and continued development requires immense resources, and the patience to wait out decades before a new technology becomes economically rewarding.
It should be obvious that this too is a reason why a few large firms dominate industries, and why so many of our most beneficial inventions are done with government funding and support. This is the future, if we are to have one.
Next up, the book talks about the existence of advertising. Apparently, Galbraith goes into more detail in The Affluent Society, but he touches on it here. Basically, in a society that meets the basic needs of its people and has excess to spare, will tend to need advertising to sell the excess economic capacity.
It is not necessary to advertise food to hungry people, fuel to cold people or houses to the homeless. No one could make a living doing so. The need and the opportunity to persuade people arise only as people have the income to satisfy relatively unimportant wants, of the urgency of which they are not automatically aware. In other words the social inefficiency of a wealthy community grows with the growth in wealth that goes far to make this inefficiency inconsequential.
Galbraith also looks at the problems of income inequality. The money is to be made in selling unnecessary goods to the wealthy, and providing basic needs for the poor tends to be neglected. In this, Galbraith anticipates the greatest problem facing my home state of California.
[T]here are still many poor people in the United States. They bear the higher prices associated with monopoly power and the higher costs of distribution along with those who can afford them and who, as the result of their escape from physical to psychological standards of consumption, actually encourage such expenditure. There are still many who would live fuller and better lives if elementary goods were produced more abundantly and more cheaply. Housing is a case in point.
I just saw this week that the median price for a house in California is now over $900,000. That’s insane - and clearly unaffordable for most people. A significant driver in this is that it is more lucrative to build large McMansions for the rich than to build modest housing that the working poor can afford. This, combined with tax laws that incentivise rent-seeking over development, and zoning that prevents density in most of our urban areas, has predictably led to an explosion in homelessness. The rent is too damn high compared to wages, and especially to Social Security and disability payments.
Another example of this is the near-disappearance of affordable cars. It is more lucrative to build giant trucks and SUVs for the rich than to build basic transportation. (And that’s before we get into the resistance to building public transportation, which really should be the infrastructure most of us use for basic commuting.)
Income inequality, like monopoly, distorts the use of resources. It diverts them from the wants of the many to the esoteric desires of the few - if not from bread to cake at least from Chevrolets to Cadillacs. Unnecessary inequality in income - unnecessary in the sense that it does not reward differences in intelligence, application or willingness to take risks - may also impair economic stability. The saving or spending of income that accrues in large chunks to relatively few people is subject to far more erratic impulses than the saving or spending of income of wage and salary earners.
After all of this essentially background information, Galbraith finally presents his theory of Countervailing Power, and it starts with the observation that the theory does not match the reality. Here are the key ideas:
As with social efficiency, and its neglect of technical dynamics, the paradox of the unexercised power of the large corporation begins with an important oversight in the underlying economic theory. In the competitive model - the economy of many sellers each with a small share of the total market - the restraint on the private exercise of economic power was provided by other firms on the same side of the market.
…
In fact, new restraints on private power did appear to replace competition. They were nurtured by the same process of concentration which impaired or destroyed competition. But they appeared not on the same side of the market but on the opposite side, not with competitors byt with customers or suppliers. It will be convenient to have a name for this counterpart of competition and I shall call it countervailing power.
…
The fact that a seller enjoys a measure of monopoly power, and is reaping a measure of monopoly return as a result, means that there is an inducement to those firms from whom he buys or those to whom he sells to develop the power with which they can defend themselves against exploitation. It means that there is a reward to them, in the form of a share of the gains of their opponents’ market power, if they are able to do so. In this way the existence of market power creates an incentive to the organization of another position of power that neutralizes it.
It shouldn’t be too hard to recognize what Galbraith is talking about. We see it in the natural world, and call it evolution. Any organism which gains a large advantage will see others fill that niche, not so much by competition, but by developing countermeasures. An explosion in mice will lead to more predators eating them. Mice eating too many seeds will lead to countermeasures among plants to survive. The power attracts countervailing power in society as in nature.
I’m not going to try to get into all the details, but Galbraith anticipates that inflation is a specific scenario in which countervailing power causes problems. There is an incentive in such a situation for the various factions to collude to raise prices in what can become a vicious cycle (and destabilize nations and their economies.) Galbraith looks at this scenario, and concludes that, as in the case of a depression, a period of excess inflation needs to be addressed, not by market forces, which lead to a feedback loop, but with government intervention. The problem is that the primary tools government has regarding inflation are either weak (in the case of interest rates, which are better for fine tuning than stopping an inflationary feedback loop) or unpopular (in the case of raising taxes, particularly on the wealthy.) Again, I recommend reading the entire chapter, because Galbraith’s analysis is excellent and detailed.
Galbraith spends several chapters talking about the role of government in the economy. First up, he posits that the “major domestic peacetime function of the federal government” was - and should be - supporting countervailing power. In other words, the government should recognize where monopolistic power exists, and support and encourage the development of countervailing power to oppose it. So, the Wagner Act helped union organizing.
(Side note here: one of the most damaging things Ronald Reagan did was to cripple unions. While my dad benefited from being hired by the FAA after the strike, the harm to less fortunate people over the last 40 years has far outweighed that advantage our family gained.)
There are other examples Galbraith cites, from the price supports to agriculture to minimum wage laws. The most important point that Galbraith makes is that the best thing for society is for disadvantaged groups improve their lots. A rising tide lifts all boats, so to speak, but the water that rises is the lower strata of society.
It must surely be agreed that, during the present century, American economic and political life have gained in strength as the result of the improved position of workers and farmers - two important and once disadvantaged groups. A scant fifty years ago American labor relations were characterized by sullenness, anger and fear. Farmer attitudes were marked by a deep sense of insecurity and inferiority. There can be little question that these attitudes were an aspect of economic inferiority. Workers and farmers lived in the knowledge that they were subject, in one way or another, to the power of others. It was inevitable, therefore, that with the development of countervailing power these attitudes would change and they have. In place of the inferiority and insecurity has come a well-developed sense of equality and confidence. It would seem difficult, indeed, to argue that the American economy and polity is anything but stronger as a result.
Unfortunately, many of these gains have been erased by Reaganomics and the use of government to weaken countervailing power over my lifetime. But the lesson to take here is that when government supports countervailing power, the economy and our political system benefit as well.
This applies to so many of our challenges right now. Want to eliminate racial unrest? Give minorities equality and confidence. Want Trump-voting white men to stop expressing their feelings of insecurity and inferiority in anti-social ways? Well, one part of that is to address the declining fortunes of rural workers. (Something the Biden Administration has worked hard to do, by the way…) Solving the problem of income inequality would take pressure off of a lot of other areas - all of us humans are less generous and less loving when we feel threatened - it’s human nature. Give people a sense of security and confidence, and they are more able to be generous.
On the whole, the appearance of countervailing power as a political issue cannot be considered especially unhealthy although it will almost certainly be so regarded. At first glance, there is something odious about the notion that the poor and the excluded improve their lot in a democracy only by winning power. But so far there has been much less reason to regret than to approve the results. The position of great groups in the community has been notably strengthened and improved.
This is a discussion I have had with some of my friends - the ones I admire the most: on the one hand, as a Christian, I admire the teachings of Christ about not seeking power for one’s self. On the other, for those who are in poor or excluded groups, the cure is surely not to expect them to reject countervailing power. The goal needs to be, not to make them feel better about being oppressed, but to equalize the power. In the end, everyone benefits from the existence of countervailing power.
At the end of the book, Galbraith examines the respective roles of “decentralized” decisions - those made by private actors - and those made by the government. He envisions roles for each - and indeed that is how all first-world economies function in our time. Galbraith found that this position led to criticism from both left and right. The left (of the time) wanted to find the existence of large corporations to be nefarious rather than the result of predictable market forces, while the right resented the call for government regulation. The idea that countervailing power exists and should be encouraged by government satisfied neither side.
I venture to suggest that this rationale of private authority over production - or of private enterprise - will be almost equally unpalatable to liberals and conservatives. This is often the case with reality.
This is a good time to remember that the United States at present does not have a viable leftist movement. The Democratic Party is center-right by global standards, while the GOP is at best extreme-right laissez faire libertarianism and at worst open Fascism in its Trumpist form. No viable party is calling for anything approaching true socialism - or even for the universal healthcare that the rest of the first world enjoys. The “liberals” of Galbraith’s time have nearly disappeared as a viable political force in our time.
But the point still stands: both the far left (see: communism) and the far right (see: social darwinist libertarianism) dislike reality. It conflicts with the ideology.
Galbraith spends much of the book defending government, but he also notes that for the production side of consumer goods, there is no “administratively feasible alternative” to capitalism. These days, even nominally “communist” countries like China rely substantially on regulated capitalism for production - hence its giant corporations, income inequality, high housing costs, and other things we see in the United States.
For Galbraith, there are categories of industry that end up, for practical reasons, using different forms of economic organization.
There is basic infrastructure, which must be provided largely by government. This includes everything from the court system to roads to schools. If something is a necessity, and the market will tend to exclude people from access, then government involvement is necessary.
Other industries like utilities are natural monopolies: it is grossly inefficient to have two competing sets of power or water lines running everywhere. These are regulated by government, even when provided by private companies. Galbraith argues that for low-income housing, this is probably the logical direction it should go. He takes a position that I find entirely logical: the private sector is fine for many things, but it has limitations. If the basic needs of lower income people are not being met by the private sector, then the public sector needs to step in.
I’ll end with a fascinating observation from the chapter on the public sector. Galbraith strongly defends the progressive income tax, with a number of compelling arguments.
One is that when taxes are progressive (higher rates as your income goes up), it tends to serve as a natural and automatic damper on both depression and inflation. When the economy gets too hot, more people pay higher tax rates. When the economy goes down, people pay less.
It is doubtful, incidentally, if any single device has done so much to secure the future of capitalism as this tax. It is regarded, in our time, as the great leveler of incomes. But the income tax is also - a much neglected point - the great buttress of income inequality. The rich man no longer has the embarrassing task of justifying his higher income on grounds of superior morals, ability or higher natural right. He need only point to the tax he has to pay. And the man of modest income now reflects that his relative poverty saves him a terrifying tax bill. As an added dividend, the tax works silently and automatically on the side of economic stability. Conservatives should build a statue to it and to its inspired progenitor, President William Howard Taft.
If you want to understand why our democracy - and indeed capitalism itself - is on the brink, look no further than Reaganomics, which has led to the rich paying lower rates than the middle class - and indeed, even than the working poor. This shift of the tax burden has eliminated the role of taxation in creating economic stability, shifted the burden to those less able to afford it, led to the massive shift of wealth and income upwards, and created resentment by those who see this increasing inequality.
Conservatism has killed its golden goose. Something is going to give. Either we are going to return to appropriate taxation, or the rich are going to find themselves in a revolution like those of the past, where they lost about 8 inches in height very suddenly. That’s the lesson of history, ultimately.
This is why I believe that conservatives would do well to read authors like Galbraith, and remember that inequality hurts everyone, creates economic inefficiency, and eventually brings down entire economies.
I also find this book rather hopeful: the existence of power incentivises the rise of countervailing power. Society evolves like it always has, and we are well due for a clawing-back of the ill-gotten gains of the last 40 years. How that will happen is not known - in the 1930s, communism was a genuine possibility for the United States, but we ended up instead with the New Deal, and the rise of new forms of countervailing power.
I would definitely recommend this book for anyone interested in economics and politics, particularly if they have an open mind to look beyond ideology to a pragmatic examination of reality.
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Related books I have blogged about:
Part of Our Time: Some Ruins and Monuments of the Thirties by Murray Kempton
This book is all about the history of the communist movement in the 1930s and beyond, and the way that the New Deal headed off a revolution in America. Kempton was part of that movement, and offers a lot of insider stories that are a fascinating read.
American Amnesia: How the War on Government Led Us to Forget What Made America Prosper by Jacob Hacker and Paul Pierson
For a comprehensive look at how government regulation, countervailing power, and other New Deal ideas created prosperity, which has been undermined by the right wing war on government, this is the book. One I recommend to everyone.
Nickel and Dimed by Barbara Ehrenreich
A inside look at the impossible position we place our working poor in: they essentially subsidize the lifestyles of the rich at the expense of their own well being and survival.
The Paranoid Style in American Politics by Richard Hofstadter
The origins of today’s bat-shit crazy right wing. If you want to understand the Trump phenomenon, look back to Barry Goldwater, who likewise weaponized racism to make working and middle class white voters vote against their economic interests.
Our Common Wealth by Jonathan Rowe
One of the great mistakes the right wing has made during my lifetime is to reduce society and the economy to the parts that can be monetized. In reality, the foundation of both is what we hold in common, from infrastructure to the environment. Whereas capitalism seeks profits in the short term, the commons are something to be passed to succeeding generations for the benefit of all.
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