University of Texas economist James K. Galbraith engages in a wide-ranging discussion of the many ways in which conventional economics has failed us, ranging from how to manage the post-pandemic economy, the role of finance, to the problems of inequality and climate change.
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Transcript:
Rob Johnson:
Welcome to Economics & Beyond. I’m Rob Johnson, president of the Institute for New Economic Thinking. I’m here today with an old friend and mentor, colleague on congressional staff, Jamie Galbraith, who has been a professor for many years at the LBJ School at the University of Texas and Austin, done tremendous amount of work on inequality on the role of the state, modern monetary theory, you name it. He’s got a perspective on it and usually a very fresh and innovative one. As you know, the Institute for New Economic Thinking is meant to foment critical discourse and he’s a key ingredient always has been since our inception. Jamie, welcome.
James Galbraith:
Thank you very much, Rob. It’s good to be with you.
Rob Johnson:
So here we are pandemic, all kinds of craziness, climate change on the horizon. Last week I walked my dog and you were freezing while I was doing fine at New York. All kinds of things are upside down, all kinds of things, not surprising to people like you and I who are out of balance and disoriented. But what has surprised you? What have you been pleasantly surprised by? What have you been haunted by? What do you wish you were seeing in light of all the challenges that sit before us now?
James Galbraith:
Well, an economist is not normally pleasantly surprised by anything because the discipline focuses one’s attention on the real problems. And this is a very interesting time to be an economist, if you have your eyes open and if your brain is still functioning, which is unfortunately a minority situation in the field. But if you go back a dozen years of the period that we’re living through that we started living through really with the onset of the great financial crisis in 2007, as one which ought to be revolutionizing finally the entire field because it’s a series of developments for which the approaches that have been dominant for a generation or more are completely inadequate.
They were inadequate to either anticipate or to deal with the financial meltdown as they didn’t incorporate their critical perspectives that go back to Keynes and Minsky on those questions. They did not and have not been effective or useful in confronting climate change because they do not incorporate the kinds of… Basically, the basic physics and biophysics of resources and the capacity of the environment to absorb emissions, which are fundamental which are raised in the early 1970s by Nicholas Shozisky Reagan, but simply never penetrated into mainstream economic discourse.
They have, I think to utterly misrepresented the role of markets as against organizations and regulation in the society. So this is an area where my father’s work over many years is relevant. Again, we have an economics profession, which has basically laid aside the work of almost all of the truly important people of the previous period and finds itself and capable of dealing with the crucial questions that we actually faced.
Rob Johnson:
Yeah. So vis-a-vis, how would I say, the Trump administration and then the fall on the Biden administration here in the United States, do you see Trump as a coincidence, an aberration, or did he somehow organically arise from the pressures and the despair that were going on in the economy?
James Galbraith:
Well, I think it’s clear that Trump himself was a symptom of developments that have been a long time in the works. One way to look at this is that at the start of our careers, when we were both on Capitol Hill mid ’70s to the mid ’80s, in my case. This was a crucial moment when the United States made a decision through the implementation of monetary policy through what Paul Volcker and Ronald Reagan did to sacrifice its industrial heartland to its financial sector.
What grew up out of that was an economy which has prosperous on the East Coast, as a result of basically the global power of the financial sector, prosperous on the West Coast as a result of the development of advanced technology and a number of other things, aerospace and information aerospace and entertainment and the West Coast. In between in grave difficulty in particularly the Midwest, the Upper Midwest, the heartland has simply not effectively recovered from that transition in the early 1980s. The result of that is of course, people who were once working in that part of the country are now probably mostly fairly elderly and many others are very, very disenchanted and they were open.
They were open to Donald Trump’s appeal, which had an enormous amount of myth associated with it. But the reason Trump was elected was that he was able to bring over a fair number of people who said to themselves, “Well, at least he’s saying things that we understand that the Democratic Party is not saying, and he is rejecting things that the Democratic Party has perpetrated, including of course, trading agreements and then everything else from this [inaudible 00:06:55]. It’s not entirely fair to the Democrats because it really goes back to Reagan. But it was a real phenomenon and Trump was the outcome of it, not the progenitor.
Rob Johnson:
And he, I remember saying, “The system is rude.” It was like his mantra. The system is rigged and everybody said, “Oh, I haven’t heard that in a long time.” People forget he beat 15 Republicans before he could beat-
James Galbraith:
I haven’t forgotten that, but-
Rob Johnson:
I’ll never forget a gentleman who has the Dilbert cartoon, Scott Adams wrote a blog post and gave a speech one time about how I took all these classes on hypnosis and learning and communications, and he and Steve Jobs were friends and watch out for this guy, Trump. And about a month after finding that quizzical kind of wow, Donald Trumpers. This guy really thinks he’s serious.
I watched him in Florida, panel of 16 guys sitting next to Jeb Bush and Jeb Bush said something to criticize Trump and everybody cheered and Trump said something back and everybody booed. And Trump looked at the TV camera and he said, “Ladies and gentlemen, you may think Jeb Bush was a popular governor here, and he was and that’s for some of the cheering. But what you got to understand is those people cheering and booing that this debate, they are the donors. Those are the people who are rigging the game here. Those are the Republicans who are getting paid for their support in politics. Those are the people you and I have to defeat.”
Now, you’ve sat back and I said, “Wow, this guy wants the nomination for president and he just took on the RNC about the donors.” I said, “This is a different cut of fish. He is breaking away from-“
James Galbraith:
Well, there was no question they did.
Rob Johnson:
… for me.
James Galbraith:
We’re now in 2021 and I think Donald Trump my view was a spent political force-
Rob Johnson:
Yes.
James Galbraith:
… that the general collapse that occurred over the last year have drained the aura that surrounded him and-
Rob Johnson:
That’s right. That’s right.
James Galbraith:
… the extraordinary upheaval in January has got to have caused reflection, even amongst some of the most dedicated backers. But the underlying issues there are, we’re real and of course, we took a certain amount of political talent, which was authentic to exploit them. We’re now in a new phase. All right?
Rob Johnson:
Well,] certainly.
James Galbraith:
Now, we’re in-
Rob Johnson:
Well, climate change was coming on stream as he was deregulating and define the Paris Accord. And secondly, his tax cuts and deregulation were really, which my I call it a seduced and abandoned, a bait and switch vis-a-vis the people he inspired to vote for him.
James Galbraith:
Oh yeah, I’m not so sure. I think what happened if you look at the broad aggravates, it was that there was a slow steady, highly inertial expansion that began after the financial crisis on 2009 and it continued at about that same pace. If it was losing steam early in the Trump term, it was probably sustained to a degree by the tax cuts. And that carried on until the early part of 2020 when the pandemic crushed it.
The important thing though is not there. It’s that the formula that Trump offered no longer carries any conviction. And nobody believes that we were going to have a successful development of the economy from that foundation. And nobody believes that we’re going to have a successful development from what came before. All right?
Everybody understands that the reason we got Trump was that in the Obama administration there was a kind of half-hearted, insufficient approach to a serious problem that was not a structural approach. And of course, if there had been, it would have been. There wasn’t the political capacity to get it enacted. So the fact that the Obama people pulled their punches has created a situation which surprises me in which President Biden has a margin of maneuver and a conviction about what needs to be done.
That shows that he really did live through this period and remembers it, which to me is very much to his credit. Because we’re now seeing, even from some of the same people, a very different approach. They’re saying in effect, we have put forward a program, which is adequate to the challenges that we face. And we’ll do it in two phases. We will get people through the pandemic with a very substantial program of income support and support for state and local governments and this kind of thing. And then we’ll move in and we’ll try and deal with larger structural questions, which we’re going to face.
This to me is it’s a major breakthrough in thinking, at least for Democrats. One of the things one remembers, again it’s good to be on this with a fellow geezer because we’re old enough to remember that in 1981 when Ronald Reagan and his crew came in, they demanded the moon. They put forward a tax cut, which was their major agenda. That was one third of the income tax, roughly.
Rob Johnson:
And then Ski and company the other right side
James Galbraith:
That was froth. Murray Wheaton Bauman was Reagan’s chief economic advisor said there were two friends, that’s liberal friend. He said, “Well, we’re really clever. We’ve got our Keynesian stimulus in place looking for our reelection. They knew what they were doing, but the point was they got a very big program through the Congress, plus a very big increase in the military budget. So Keynesianism on both sides. And when it proved to be more than they needed, well, they were able to make some concessions and you got tax increases in ‘82 and ‘84 were actually very large plans to work with [crosstalk 00:13:29]-
Rob Johnson:
Real modeling
James Galbraith:
Well, there are these two tax bills and then ultimately the tax reform of 86, but the things that they did and before he was reelected were substantial and they could give that back. So they look one coming and going. That’s a political lesson which Joe Biden is old enough and has been around long enough to have recognized. And it really transformed things to have the Democrats playing this game saying, we’re going to go and put the kitchen sink into this. We’re going to put everything we have on the table.
When we get it, if it turns out that I don’t think there will be a problem, frankly because the whole notion that there were in some kind of inflation prone situation is absurd to my mind. But if there were such a problem, you can deal with it when the problem comes up. Deal with the problem that’s in front of you and don’t anticipate ones that might or might not emerge in three or four years.\
Rob Johnson:
Especially when the pendulum of distribution, meaning profit share relative to labor share. The pendulum was rocked so far in one direction that if you compressed profit with wages coming up, it wouldn’t necessarily lead to inflation for quite some time.
James Galbraith:
Well, inflation is when prices are now set and as they were not in the 1970s on a worldwide basis. Energy prices, prices for consumer goods come in from an importer from the rest of the world of food prices are low. This is a world market. So the ability of the United States to generate inflation, that’s just much less.
Then back in the day we had what was the dynamic of wages and prices as a result of union wage settlements and the price of things like automobiles that were affected by union wage settlements, and those things are no longer major factors in the U.S. economy. And then there’s the fact that almost all of our jobs are services jobs, and until service workers don’t have any or very much wage setting power.
It’s a non-inflationary situation. The one price that can go up is land, but land is not counted as in the price and so it’s not complete land and stock values and so forth. But those things, they don’t show up as part of the consumer price index anyway. So it’s very silly to be holding onto a model of the so-called Phillips curve that was generated 1960, an entirely different world that as a basis for thinking about how things are going to happen now.
Rob Johnson:
Well, you’ve been doing work, systematic work for a very long time now on the questions of inequality and I know it’s very evidence-based, very empirical. What kind of things have you seen change say, since the time Bill Clinton came into power in 1992 to the present, which is 28 years>? What are the structures? Like you mentioned more service workers, more… How would say price setting in the world economy, globalization, probably the deterioration of unions, but paint a picture for us. So what’s going on with inequality?
James Galbraith:
Let’s start with the United States and the turning point that you mentioned as a pretty good place to start. So what happened in that period was a bifurcation of the American economy. You can see it very clearly if you look at the data as we do by region or by sector that the stratospheric incomes that define American income inequality were generated in banking.
They were generated in finance, generally speaking, and they were generated in the technology sector, which was a creature of the financial sector. Then how was that done, and is done through IPOs and basically through capital asset valuations. And you look at this and you say, “God, this is a small number of people with an amazing amount of income,” and that’s what inequality is.
We did a calculation for the late 1990s using income recorded by County, that’s tax data. And we found that if you took out five counties from the data and pretended that what had happened there hadn’t happened, the inequality across counties from those last years of the 1990s would have fallen by half, on those five counties, big surprise.
Well, what were they? You may be sitting New York, New York and then three counties in Northern California, San Francisco, Santa Clarence, and the tail, and one County in Washington state, King County, which is Microsoft. It’s just extremely straightforward, what was happening. And so that’s-
Rob Johnson:
Probably Fairfield County in Connecticut, which was a commuter to New York.
James Galbraith:
Yeah, that’s in the top 15 I’m sure, but at least five, he took out 15. It was basically the whole of it. You didn’t get any increase in income. Most of what was happening was enormous, lead concentrated capital asset, inflation, if you like and then you can look at the pattern in later years. It differs defense contractors and real estate and so forth, depending on what’s going on.
But, okay, so that’s the United States, by and large. A tremendous bifurcation as a result of the structural change in the economy with most people working in the service sector, just not seeing anything, not seeing much change, really, not seeing any great increases. Maybe not seeing enormous decreases either, but there are certainly the level of inequality went up dramatically.
Okay. The bigger story is the world as a whole and what we were able to establish, and this is the real, I think innovation and important aspect of our work is that they… You look at this, the pattern of evidence for the four countries around the world, and we have about 150 countries in the data set, going back to the ’60s.
And you can see that the pattern of rise of inequality is driven by global finance. You can see this in the early 1980s, inequality goes up in the countries that are hit by the debt crisis. Late 1980s, early 1990s, it’s the countries of this formerly socialist block that were collapsing. Of course, inequality went up like a rocket there and then in the 1990s onwards it’s in Asia which they’re going liberalization.
So where countries liberalized, where they were exposed to international finance, where they were hit by debt crisis, inequality goes up and the after 2000, there’s a at least a pause of 12, 15 years because a lot of countries retreated from the neoliberal model and they had strong commodity prices. So you can see this as basically a global macro economic phenomenon.
And that’s the interesting thing, because if you ask what the literature says about inequality, it’s all about labor markets. It’s all about technology, education, trade in one specific place and some other specific place, and they never tie the story together to show a pattern that’s determined across large regions, continents, of the world as a whole. But frankly inequality is generated at the level of the world as a whole.
That then comes back to my basic view, which is that if you don’t start your analysis of the world from a standpoint of essentially monetary analysis rooted in canes, you’re not going to understand very much.
Rob Johnson:
And Hyman Minsky, how would I say, it had been prescient in that Keynesian kind of way, innovative himself? It wasn’t really recognized until it had fully blossomed, then people acknowledged his brilliance much more -
James Galbraith:
They’ve acknowledged it, but the question I would ask is again, going back to the financial crisis has been 13 years. How many of the people who were right about this, who had the right, methodological perspective and who weren’t warned in advance that the financial system was unstable? How many of them have been given appointments at the so-called top economics departments? The answer is zero. They haven’t done it.
A few people who are already there occasionally give kind of a lip service nod, but frankly, the jobs still go to people who were wrong before and who are essentially clueless about what’s going on now. And that, to me tells me that the profession is still in profound native reform.
Rob Johnson:
I experienced some of that tension as an undergraduate at MIT because I started out wanting to be a naval architect and was inspired to send out a second major by a man named Charles Kindleberger. And I watched as he went to America status and so forth, how much resistance there was to him. He was a very vital cheerful man. He was vivacious. A lot of fun took all of us out to breakfast and music performances and he was a kind of a pied Piper like personal-
James Galbraith:
Oh, he was an absolutely wonderful man and a very profound scholar and someone who had done something in the world. He had been involved in intelligence activities in the war-
Rob Johnson:
And the Marshall plan and the Marshall fed and all that. Yeah, yeah.
James Galbraith:
Now, I have to just tell you that Elspeth Rostow. Elspeth Rostow whom I dearly loved was very fond of recounting an encounter with Kindleberger just outside of a faculty meeting at MIT in the ’50s. At that point, Walt Rostow was doing some consulting for the government and Charlie came out and said, “Elspeth, they’re saying terrible things about your husband. They’re saying he’s putting country above party.”
Rob Johnson:
Yeah. Yeah, man.
James Galbraith:
But yes, this of course happened at Harvard which was in a period that was very disillusioning for all of the original and minds who were in the economics department in the late ’60s early ’70s. My father, Wassily LeontiefF, Albert Hirschman, and people left and what they left in the institutions in the hands of were people who were narrow, fairly dull, conventional, and who enforced a kind of conventional thinking on the whole profession. And that’s where we are.
Fundamentally, I don’t think it can be fixed. I think that what universities have to do is to start new departments and set up separate career paths for people who can actually organize things. But of course, they’re during the reverse. I just got this in the UK. I just got an appeal from the University of Leicester, which is losing where it has a critical studies division in this business school and they’re all made redundant in favor of some conventional grips.
This is what we’re dealing with. Space needs to be made for free thought and new analysis or it will simply be… It will go on until the few of us who are around who still believe these things are no longer active.
Rob Johnson:
Though it seems quite sterile and it seems in looking at the history of ideas, it’s often the case that when things do not cohere and therefore the paradigm is suspect, people circle the wagons and become more militantly defensive about the orthodoxy.
James Galbraith:
They do. Yes, they do.
Rob Johnson:
They don’t evolve, they move backwards. The famous philosopher, Stephen Toulmin talked about after the 30 years war, everybody went to this Cartesian enlightenment abstraction to avoid combat that would get their heads cut off. And he said, “Eventually they applied it to the social science and then it didn’t work. But when we had World War I, the Great Depression, then start of World War II, these people all went backwards in the ’60s.” Civil rights and the various different progressive movements and so forth started forward, and then the reaction that would I’ll call the nostalgic reaction associated with Ronald Reagan took hold in-
James Galbraith:
Right. Right. Although, in academic life, it was settling in a decade before that, before Reagan. It was early ’70s. I like to say that there’s a kind of pseudo distinction in the mainstream between freshwater economics and saltwater economics. Freshwater economics of University of Chicago, the market purists, saltwater economics which has flaws and frictions kind of.
They’re basically the same theory, but with a little bit of sand thrown in the gears so that you can have policy leverage on it. But both freshwater and saltwater are basically sterile and the evolution occurs in the backwaters. So I consider that it’s real a lot of people who want to think freshly, they say that we live in the backwaters of economics.
Rob Johnson:
Yeah. The notion of multidisciplinary thinking seems to be something they guard against. I’m always reminded of the famous article in the 1920s by H.L. Mencken called the Dismal Science. And he said, “The only people I trust less than theologians are economists.”
James Galbraith:
No, I don’t know what distinction he was drawing between theologians and economists but yeah, that’s definitely the case. And for the thought on the reason why they don’t like multidisciplinarity is that, and it’s precisely related to this affinity, but with between theology and economics, is that other social sciences and real sciences they all share a certain common perspective, which is rooted in physical laws.
It’s rooted in thermodynamics and the biological theory of evolution. It’s rooted in real time. It’s rooted in processes of change, that’s what people study and economists don’t do that. They study equilibrium systems, which is the idea that they can actually tell how the world is, what direction it’s going in, and where it’s going to end up. And the people who think that way are theologians.
That’s an 18th century viewpoint, which went out in the middle of the 19th century with Darwin and everybody else hasn’t looked back. So if you let other disciplines interact with economics, first of all, it’s very confrontational and secondly, it’s really corrosive to the stability of the economics profession, because it just can’t withstand comparison with real sciences.
Rob Johnson:
I always tell the story of when I showed up at college at MIT, I had grown up in Detroit, which was a cauldron. Had him how he say civil rights, riots, the death of Martin Luther King, all kinds of labor management turbulence, Walter Reuther was plain being blown Up, all kinds of very, very hostile things. The Port Huron statement was written in Ann Arbor.
So I’m watching that and I come to college in the guys to who’s teaching my first micro course is talking about equilibrium. And I wasn’t trying to be a smart or snarky or anything, I was green. I was 18 years old. I raised my hand and I said, “Isn’t that like assuming a happy ending.” And it was so foreign to me that that would be the basis for understanding the economics, because growing up in Detroit, it didn’t get better
James Galbraith:
All right.
Rob Johnson:
… It was on its way down.
James Galbraith:
I’m surprised they let you continue in that class.
Rob Johnson:
Well, they thought I was a major in naval architecture. They didn’t think I was going to come with it, so that was just brushed aside.
James Galbraith:
Yeah, that was of course, the experience. The first year class was therefore to weed out people who found this cognitive dissonance of I avoided this obviously partly because of family background and partly because I meant minced my way through undergraduate education and social studies at Harvard and only took the applied advanced economics classes, which by the way, is something I recommend to anybody who wants to actually study the field. Stick to the low prestige activities, economic history, economic policy, economics statistics. There are many interesting things to be done in those fields. The problem is, of course, they’re not the ones that are going to get you the high-
Rob Johnson:
The high church of game theory
James Galbraith:
High church jobs. Exactly. But still that’s where the real scientific work and the real advances are going to come from in my view.
Rob Johnson:
Where are you probably can understand the, which you might call the anthropology of the profession is studying the list of John Bates Clark and Nobel Prize winners at any given time. And it’s been very what I’ll call game theoretic and abstract for quite some time now.
James Galbraith:
Oh, sure. That’s a yes. I wouldn’t spend a lot of time on that activity, but a little bit will lead you to a very clear conclusion.
Rob Johnson:
Well, it can tell you what you don’t want to be and what you do want to be and so you can make your choices there. So in Texas, you just been through what you might call a vivid breakdown in the infrastructure, the social system, and how would I put it? I bet you guys had a big run to the Sporting Goods store to buy hockey skates and things like that. What happened in Texas? What really broke the electrical system and the hospitals and everything?
James Galbraith:
What broke the system was the structure of the electricity market as established by free market economists, including one in particular who took credit for the design could go under the name of Professor William Hogan of the Kennedy School at Harvard who was quoted in the New York Times reportedly saying, that the system was working as designed and I think he was right. It was working exactly as it was designed.
It was designed to the benefit of the generating companies, to the benefit of the fossil fuel companies, and to the benefit of the politicians that they funded. We had a mythology of free market competition and what Texans learned was, what does that mean in practice? What it means in practice is that without regulatory standards the generating companies try to do everything on the cheap. And so they don’t weatherize because after all Texas is warm, most of the time and a hard freeze like this maybe happens once a decade.
So the nine years and 51 weeks out of that decade, they got away with it, but then that one week happens when they don’t. And when they don’t two things happened. One is you get an increase in demand because demand is extremely inelastic. It doesn’t respond to price, but it does respond to weather. And secondly, you’ve got a collapse of supply because the equipment froze up.
What was mostly net natural gas, some renewables as well, but mostly natural gas, all of which could and should have been weatherized because obviously most of the country knows how to weatherize electrical equipment. Chicago doesn’t freeze up in a bad storm. So it’s not like it’s rocket science, it just wasn’t done because the companies didn’t want to do it and they weren’t made to. The result of the sense of electrical demand and supply have to balance. It’s not a question of the prices making them balance, they have to balance. When the supply falls off, they had to cut everybody out.
Then there’s another problem. Then you go over to what is essentially necessarily kind of socialist allocation of the supplies. That tells you have critical infrastructure, critic, hospitals in particular, and they tend to be concentrated. I happen to live right amongst a bunch of hospitals and so my electric lines stayed live. I didn’t lose power because I share lines with hospitals. But the fact that I had a good fortune meant that many people in the city didn’t get power back at all for days, days, and days, 60 hours from four days, sometimes.
And if you don’t do that and the temperatures between 10 and 20 degrees or below 10 degrees Fahrenheit, your pipes freeze. And so in enormous costs, destruction of people’s homes and just damage, water damage as well as the psychological damage. And in some cases, the physical damage is simply being dark and cold and hungry was inflicted on people as a result of this system. It was an absolute takes good case and how free markets break down if there’s not adequate regulation.
Rob Johnson:
The context of the lockdown in the pandemic what you might call the anxiety is already at the top of the charts. That makes it very, very disorienting and-
James Galbraith:
The pandemic certainly complicated things to a degree and I’m sure that’s true. But I have to say, I was impressed by the extent to which people were prepared to step out and take risks. The response of ordinary people was really, really remarkable, but you are just talking about a lot of people who have no place to go and huddle in the door.
Rob Johnson:
Now, we talked a little bit earlier just about the themes related to inequality in their cause, but the inequality in the excess or the quality of healthcare is another theme that we hear a lot about these days. And is that just he who has money can buy or what’s the nature of the challenge, especially when, how would I say, you being infected harms me? There’s a profound externality in this system. What do we need to do to put things on a better platform, both from a humanistic point of view and a recognition of our interdependence?
James Galbraith:
Well, one way to look at this is to ask about which countries handled this pandemic effectively and which did not. And what you find of course, is that the countries that did and some of them are socialists and some of them are capitalists. Well, what they had in common was that they had maintained public health capacity. So they were ready on the first day, which was like the 3rd of January when the first reports came in.
They were ready to close their airports. They were ready to mobilize cabinet committees and to set up protocols for acting on this. That was true and it was true in Korea. It was true in Taiwan. It was true in Singapore, Hong Kong, was true within a few days and then in Mainland China itself. It’s true in Vietnam and those countries actually suppressed the virus, and New Zealand did too.
Then you have the countries which are wealthier by and large, like ourselves, the British, some of the Europeans where our health care system is highly structured to the kinds of ailments that rich people, rich populations have. Chronic diseases, diabetes, heart diseases, and so forth, and does not then where the public health element was very, very rundown people.
Public health was a very minor piece of medical education. That funding for it was cut, the Preparatory Committee and the White House had been dissolved. And so they had nothing to offer except, turn it over to very decentralized system of governors and mayors to try manage and call on private corporations to do what they could and the thing fell apart.
That’s how we got clobbered and the best we could do was to keep it but from being, keep it from going to the whole population all at once. But we could only slow the spread and lost a half a million people so far waiting for the vaccines to come and put an end to it. A terrible example. So what were you I need to do is to realize that we’re not immune from public health crisis, and we need to have a public health service.
Now the other issue that you were talking about is paying for people’s health care that’s of course, another separate issue. And obviously we need to have the whole business of private health insurance is not up to dealing with the kinds of problems that we have. So I’m all in favor of a single payer system, but a single of payer system is not as self adequate to deal with a public health crisis.
You need to have the capacity to mobilize the population to handle all of the kinds of behavioral changes and protective measures that are necessary. Yeah, some countries did. We see that some countries did it and what they got was fatality rates that were in the hundreds or the low thousands, not 500,000. And for population
Rob Johnson:
If in the event that you were what we call a fiscal hawk, they lockdown and their economies came back sooner.
James Galbraith:
Correct.
Rob Johnson:
And so the need for fiscal stimulus was of less depth and shorter duration.
James Galbraith:
That’s absolutely correct. They realized that if you dealt with a public health problem, you can get the economy back. We got the worst. We stalled and it’s an exponential process. The thing multiplies it, so a few days, a few weeks, and you are in very deep trouble because it moves very fast on you. So you have to move quickly, you have to move in an uncompromising way, and then you’ve got the benefit that you grow out of it much sooner. I think that’s a clear lesson that even an economist can kind of absorb.
Rob Johnson:
Yes. Almost every time I talk to people in the context of a podcast or research webinar now, climate change has moved to the fore. And some were concerned that the fiscal spending on the pandemic would somehow obviate or obstruct addressing the climate issue. Others have said, now that we see everything’s broken, we gotta fix everything, so we got to get down to it.
But the kind of which you might call coordination, collaboration, collective action within nations and across nations, and taking on invested interests in a world of money politics, some of the themes you and I have touched on like as we’ve been skipping across the stones today. If you were walking into Joe Biden’s office tonight, what would you say? How are we going to deal with climate change? How are we going to make sure our sons and daughters and grandchildren have a place to live?
James Galbraith:
Okay, the first thing is that this is not a problem that is constrained or can be constrained by the short-term economic issues. One has to find the resources and one has to deploy those resources in orderly way. The second thing is, and even more important, is this a global issue? It’s a global issue, which has to be dealt with by the large economies that have the capacity to act. And some of those economies, some of those countries we need to work out a way to live with them. This is a foreign policy question. It flies fundamentally in the face of a lot of talk going around about how we need to confront of China and confront Russia and circle them and aim for the defeat of China, the way aim for the defeat of the Soviet Union.
This is a dangerous form of nonsense. First of all, it’s unachievable and secondly, it is of no importance as an objective in comparison with getting the world on a track to mitigate and deal with the climate crisis. So we’re faced with a physical imperative that we have to forge a path forward with countries that we don’t like and countries that we do like with allies and with what we’re describing as adversaries. We have a common interest in this that’s an important. That should be the first priority of our foreign policy.
If I were advising President Biden, I would say, watch out for some of the people around you because they’re building their careers on, I don’t know, basically scare talk and warmongering and building up a military budget, which is actually taking real resources from the issues you need to deal with. Because many of these resources are in fact, advanced technologies. They are specialists in their materials, which need to be deployed to deal massively with the problem we have and not to go down, what are essentially into budget categories that have been around since the Second World War and since the Cold War were no longer relevant to national security.
Rob Johnson:
I just did a three-part video for my young scholars initiative with Daniel Ellsberg, who was talking about the enormous stocks of weapons that still exist on both sides and around the world. And what has been discovered, I believe in the 1980s is something they called the nuclear winter, which is the… If a large number of these bombs blow up the fires that they cause, destroy the upper atmosphere and send us into an ICH . And while the bombs would kill 600 million to a billion people violent conflict, 6 billion people would die from the nuclear winter. And he’s saying-
James Galbraith:
And not just the people, but all the other-
Rob Johnson:
All the animals-
James Galbraith:
… all the animals and most of the plants too. Yeah. Now you’re looking at-
Rob Johnson:
Everything except in the ocean and some parts of the ocean would be the only thing that would survive. And what he said was essentially, “We’ve got to do this to remove this risk from mankind. But the second thing is we can use the savings by denuding the military industrial complex, at least in this dimension, so the resources can be used to deal with climate change and that’s double health.”
James Galbraith:
Right now, we’re spending upwards of a trillion dollars on the over 10 years or more on so-called modernization of the nuclear arsenal. You don’t need a modernized nuclear arsenal, you need to get rid of the damn nuclear arsenal. All right? Countries keep a few of them around for psychological effect. That’s not the worst thing, but the idea that you should be designing weapons that you think you might use, these are weapons, which can not be used.
Here one has to again, I don’t know about you Rob, but in many respects, I’ve softened a lot on the memory of Ronald Reagan. Reagan was prepared to say that these are weapons with nuclear war. It cannot be won and must never be fought. And other people had said that before, but when Reagan said it, he’d carried the authority of someone who had had followers who believe differently. This is crucial and that we need to get control of this process in this country as well.
Rob Johnson:
I heard a story recently about a private airplane flight, where Gorbachev and Reagan were flying together with a handful of other people. And they were betting each other about the flaws of capitalism and the flaws of communism and so forth. Then Reagan stood up and he let out like a yell, like a scream and he said, “This isn’t working.” And he went up into the restroom, shut the door, turned right around, came back out and he said, “Hi, Mikhail, I’m Ronald Reagan. I think we could work together to reduce nuclear weapons on earth and we’ll both be proud of that.” And everybody laughed and cheered, and then they sat down and went to work. But-
James Galbraith:
Reagan had been sending handwritten letters to Gorbachev, which were published by Martin and Annalisa Anderson some years ago and actually it was the 2010. I picked up a copy on the way out of Dallas Airport to go meet with Gorbachev and took it to him, which was very interesting. But I’ll tell you for the benefit of the audience, how I opened my presentation of a little paper, I was giving at this small seminar that he was chairing.
I said, “Mr. President, when Homer returns to write the story of our time, he will say that the Russian mathematicians sailed set forth for Muscovy in 1991 and presented themselves before the gates of Wall Street bearing the gift of quantitative risk management models. And they were welcomed with joy and they set to work and within a dozen years or so in 20 years, they had destroyed the whole thing. And then Homer will write that this is the greatest Trojan Horse operation since Troy’s city. Mr. President, you will get credit, not only for the destruction of Soviet communism, but also for the demise of Western financial capitalism.” And he looked back to me and said, “I’ve been accused of worse.”
Rob Johnson:
That’s fantastic. What was the name of the organization that you headed up on security related-
James Galbraith:
Economics for Peace and Security. It’s a professional organization, which tries to put a roof over the head of those kind of missed we’re working on these issues. It’s had a bit of a dormant period is coming back now under the chairmanship of Linda Bilmes at Harvard and-
Rob Johnson:
Yeah, she’s a grantee of INET. I’ve done some work with her.
James Galbraith:
She has worked a lot on the cost of war with Joe Stiglitz. So I’m hopeful that APS we’ll be in the thick of things on these issues as well in the future.
Rob Johnson:
Yeah, that’s unbelievable. But I’d loved your story of the Trojan Horse there and the Homer’s next act. It has nothing to brag about in comparison to Gorbachev. So Jamie, when you look right now, there’s a lot of fear, there’s a lot of despondency. People like John W Garber in his book, The Recovery of Confidence talked about how, when people are afraid, they pull back. We talked about that in another context related to ideas.
What can the leaders of the G-20, what can the Biden administration, what can they put down right now that makes sure we don’t go back to the dreadful anxiety and fear that has been present in the last, say the 18 months before the last presidential election in America? What’s your recipe for healing?
James Galbraith:
Well, I think first of all, the leaders of the G-20 and all of us need to recognize that the world is different from what it was, that the political formulas that worked in the Cold War aren’t gonna work and that nobody’s going to go along with them anymore. This is primarily a problem of adjusting the viewpoint in the United States, because if you go to Europe you go to Asia, people will tell you this. It’s not news to them.
It is news in our elite circles and people need to wake up. In terms of the your listeners and people who are engaged, to me this is a moment when there are real possibilities, because it’s just at the time when you recognize that what we have before isn’t working and begin to understand the reasons why it wasn’t working when that whole neoliberal confection was a fraud, and the kind of coordination and the kind of dealing with both the insecurity and precarity that people face, and dealing with the technical problems of… the environmental problems that we all face, dealing with the need to rebuild our cities, our infrastructure. Restore a of life in a way that is sustainable.
All these things have to be thought through fresh, and so we’d go back and say, “Okay, what do we study? Well, let’s study the new deal.” The new deal, actually this was a period when this happened before. You can say, okay, what kinds of initiatives do we need? It’s not going to be the same, but it’s not unprecedented in human history to deal with catastrophic problems.
Most important even before all of them, we just need to consolidate our thinking. This is what INET is there for, the Institute for New Economic Thinking. We need new economic thinking or at least different economic thinking than the dominant economic thinking. If we have that and it spreads around a bit, then the leadership will begin to have to respond to it. Or perhaps the leadership will be replaced by people who have a better understanding.
But as I say, at least so far in this administration, the opening of ideas on the economic front has been, I think, quite impressive. Here, the chairman of the Federal Reserve Board speak so emphatically about the need to go back to both full employment and price stability. Tells me that when we wrote the Humphrey-Hawkins bill in 1976, passed in 1978, that put that mandate on the fed and I was in the drafting group that did that.
We were on the right track and the economics professions tutted and tried to ignore this for so many decades. But now people recognize it was the right thing to do. That gives me some hope that you can in fact change the general consensus of the general view of how to approach things and move to a much more activist and pragmatic approach to the whole range of problems that we have.
Okay, I’m being the optimist. I’m not normally this optimistic, but once every, I don’t know, 15 or 20 years, I allow myself a brief moment when I think, well, maybe they finally get it and we’ll start making some progress.
Rob Johnson:
I think you knew in my mutual friend, Tom Ferguson, who’s the Research Director, would say that… How would I say? The impetus to create broader based prosperity and so forth is there, but will the money system in politics allow people to survive who have, which you might call more noble motives.
On the other side, given the outrage, will the system not just break down if they continue to fortify that narrow constellation of product rates and allow them to keep their money off shore and then tell everybody they can’t afford it?
James Galbraith:
It’s hard to maintain an optimistic friend of mine when you have to deal with Tom Ferguson. I don’t know how you would do it, Robert, but I’ve had this experience. Almost anything you can say, he’s capable of deflating. But you and I somehow maintain our equilibrium and our forward motion, in spite of Tom’s wisdom on these matters, which is unfortunately…
Rob Johnson:
Tom seems to lose all his [crosstalk 00:55:52]-
James Galbraith:
Unfortunately, he has a pretty good track record but we keep hoping that he’ll be proven wrong.
Rob Johnson:
He says, “If you want a happy ending, go watch a Disney movie.” But I think his diagnosis of the maladies, going back to seeing the book, The Hidden Election, or Right Turn or whatever has been quite lucid and I do think-
James Galbraith:
Tom has had a profound effect on political scientists who are actually paying attention. Because of course, this is a game played by people with money who formed coalitions and some respects that [inaudible 00:56:30] what you have to do. But also moments when you have to kick everybody in the shins and see if you can make any of it.
My mantra goes back to William of Orange, that it is not necessary to hope in order to persevere. Working on these problems is in some respects you don’t expect to reward and then you’re not disappointed when you’re not rewarded. You’ll just carry on and do what you can.
Rob Johnson:
What do they say? I’m hopeful but I’m not optimistic?
James Galbraith:
Right. That was William of Orange in a nutshell, yes.
Rob Johnson:
That’s right there. Well, any final thoughts? I have really enjoyed talking with you, as always. I wondered if there are any closing thoughts you want to share with our audience before we sign off?
James Galbraith:
To my mind, just to come back to the role of economics and economic thinking, if you want to get a grip on what needs to be done now, there is a tradition in economics of… which was what brought me into the field actually, of critical inquiry and very broad spectrum analysis. Of course, this is Smith, this is Marx, this is Schumpeter, this is Keynes, this is Thorstein Veblen, this is my father, John Kenneth Galbraith.
We don’t have to be insecure about the foundation of the ideas that we have. They were put forward in very effective ways by passed generations and reading them can give strength to the arguments that we need to make now.
Rob Johnson:
Well, my Young Scholars Initiative, I guarantee you, I’m going to show them that passage, what you just said. Because I think they’re looking for direction, they can feel things are wrong. They want to be, which you might call contributing to a change of course in a different way of seeing.
I think you advice, grounded in the history of economic thought and the relationship between institutions, challenges, events and the evolution of ideas, something your father wrote about quite a lot, is very, very much… How would I say that? I think that’s where the nourishment, where the nutrition is in becoming an economist today.
James Galbraith:
Sure. Let’s hope that that’s not the case.
Rob Johnson:
Well, thank you. Let’s sign off and we’ll come back again in a few months and take the temperature again.
James Galbraith:
Okay, great.
Rob Johnson:
I appreciate your time today and try to stay warm down there in Texas.
James Galbraith:
It’s not hard to stay warm at the moment. I checked my outdoor thermometer with the sun on it, it was over 100 degrees a second ago, an hour ago. But of course it’s not that hot outside. It’s about 80. And 80-degree Fahrenheit swing in the course of the last week.
Rob Johnson:
Thank you, Jamie.
James Galbraith:
Okay, very good. Good to see around me. Nice to chat with you.
Rob Johnson:
Check out more from the Institute for New Economic Thinking at ineteconomics.org.
