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Thursday, October 8, 2015

Not So Innocent Frauds

A Review of J. K. Galbraith's book "The Economics of Innocent Fraud"

Reading this book by John Kenneth Galbraith is like hearing someone preaching to a choir. In this book about not so "innocent Frauds", Galbraith identifies pretty much most of the shibboleths of the 20th century and tags them as the frauds they were.

While some of the frauds he identifies were identified as frauds before he was born, even so the man deserves a lion's share of credit for the entire 20th century and he fought a rear guard action against those frauds when they were first offered up as "fine new clothe that only a fool can't see how valuable it is". He's actually kind to the Reagan Revolution. He calls what to me were diabolical and almost violent frauds. But by "innocent" Galbraith is referring to the fact that most of the believers in these frauds don't know they've been conned.

Definition of Innocent Fraud

"Most progenitors of innocent fraud are not deliberately in its service. They are unaware of how their views are shaped, how they are had. No clear legal question is involved. Response comes not from violation of law but from personal and social belief. There is no sense of guilt. More likely there is self approval."

Summary of some of Galbraith's Main Points

Renaming the System
Referring to the rebranding of our abusive, monopolist system as Capitalism, "Free Enterprise" and finally as "The Market System" despite all three descriptions either being inaccurate, or coming to have negative connotations due to the behavior of our system. He also notes that the actual system is monopolistic, manipulative, enslaving, bureaucratic and nearly brought down the world several times during the 20th century. He doesn't use the term but an even better term is "newspeak".
Rebranding the System
In his next chapter titled "The Economics of Accommodation", Galbraith points out the continuing fraud in our economics profession as he notes how terms like "monopoly capitalism" have been dropped for the term "market capitalism" and the claim that "markets" benignly rule or are even a form of democracy where folks exercise free choice. He then demolishes this fraud, the absurdity of which is even more obvious in this day and age where the monopolists are once again openly displaying their hands in seeking to take over the government. "One (Million) Dollars One Vote" is not Democracy. And the idea that "the market's should decide" the fate of anything other than the price of goods that markets are appropriate for pricing, is a fraud.
Work as Pleasure, Labor as Bondage, Leisure as for the Leisure Class
In his next chapter he lays out the insanity of our compensation of labor. He notes how people like himself are generally well paid for doing things they already love to do. While those who must sell their bodies and labor for a living find themselves labeled as undeserving and targeted as lazy if they are hurt, can't work, or avail themselves of anything even approaching the leisure of the wealthy. He notes the incongruity of the attitude of the "leisure class" and referring to Thorsten Veblen's work shows how that attitude is schizoid, abusive, incongruous and the notion that both the work of the "leisure class" and that of a common laborer are referred to as work and treated the same policy wise is a fraud. In this day when retirement for people who actually labor is on the cutting block and they are asking folks worn out from a lifetime of labor to work til they are 70, this chapter still resonates.
Corporation as Bureaucracy
I read this and I feel like a choir to his preaching. He demolishes the notion of Superiority for Homo Bureaucratus (my term). and points out how the immense power of Bureaucracy (Empires, Militaries, the East India company all spring to mind when I read this) is what is shaping even the startup companies that claim to be run by genius. He cites Wall Mart and GE as examples of how corporations have become giant (governing) bureaucracies. He concludes that Stockholders are "subject to management" and so he shows that the notion that there are any real democratic controls in modern corporations is a fraud.

The Corporate Power
He also points out how managers (bureaucrats!) have usurped power within even what we thought were once venerable companies and in pursuit of temporary profits, cut corners and recklessly squandered any kind of capital that couldn't be used to fudge a bottom line to justify higher stock options for the managers. He notes how the modern corporation is based on "unrestrained power and self enrichment" of these bureaucrats and that the notion that the Stock Holders were in control is a fraud.
The Myth of a Public Sector Versus a Private Sector
He next conclusively shows the reality that the notion that there is some virtuous "private sector" run by creative supermen versus a public sector run by crony capitalists and officials, is also a fraud. He clearly shows how privateering (privatization) loots the public treasury and protects monopolies which loot private pockets as well. He notes how in budget battles everything is on the chopping block except DoD, Law Enforcement, and other standing army spending; mostly military. He notes how in 2003 close to half of government discretionary spending went explicitly to the DoD. Nothing has really changed. The "two sectors" is just privateering private government versus public government. Things have only gotten worse since he left us.
Financial Fraud
Anyone who might have read this in 2004 shouldn't have been surprised by the meltdown in 2008. He notes how our economic gurus had a predictive record worse than tossing dice. Yet they were treated like they had special mind powers and swindled people out of millions to create startup companies which were often no more than shells.
The Elegant Escape from Reality
In the "Elegant Escape from Reality" Galbraith pretty much lays out the fraud that was Mr. Greenspan, while he was still seen as a Guru. He noted that past history shows that the Fed's actions actually magnify inflation and recessions and do absolutely nothing to stop either.
The End to Corporate Innocence
He goes into detail in his next chapter about how even the staid, secure companies of yesteryear were morphing into vehicles for looting stockholder, customer and workers alike due to the spread of corrupt management practices.
Military Policy dictated by War-Profiteers
This was a brief recounting of Galbraith's experience with the lack of power of air power. He noted how air power failed in both Vietnam and World War II, yet the forces involved painted it as being critical. Corporate Interests dictate our government's policy. As we saw after his death with McCain's drive to bomb Iran.
Conclusion: The Fraud of Trickle Down Economics
In his last word chapter he demolishes the fraud of Trickle down economics. A system that:
  1. Rebrands itself and uses Newspeak to paint vicious behavior as virtuous
  2. rewards power, quick riches, influence and position in hierarchy while punishing and starving labor
  3. Is hierarchical, bureaucratic and run by unaccountable managers
  4. That practices corporate welfare while diverting resources from public good to private coffers and wars
  5. and that is based on loot, with only the pretense that anything trickles down

Is a system that is criminal and unsustainable.

He concludes that "war remains the decisive human failure."

And wars proceed from the use of abusive myths to scapegoat outsiders by folks committing frauds on their fellow man.

The Self annihilation of the "New Industrial State"

The Second to last Chapter of this book must have been painful to write for J. K. Galbraith. His book also acknowledges and explains how things changed from his youth to his old age. That willful corruption and looting of their own companies he describes was almost an opposite strategy from the one I had read about in his earlier book as a young man and teenager. His book The "New Industrial State," in 1967, had pictured the giant oligarchic companies - that dominated our country at the time - in an almost benevolent manner. They had stabilizing even beneficial qualities back then, and the prospect of the average person was that if they could get a job with such a company they could go on to a peaceful and secure old age. It certainly had shaped my expectations for the future. At the time one could at least take refuge, that no matter how turbulent everything else was, that the giant conglomerates would be stable for their own self interest. It must have been galling for him to watch the world and the behemoth companies he'd written about in the 60's morph into international (and Tory) monsters loyal only to their senior management.

Onward and Forward

A number of writers have been influenced by Galbraith's book. And J. K. Galbraith has been blessed with a son, James Galbraith, who continues the work his father started on economics. His son carries on his work.

Sources and Further Reading

Buy The Economics of Innocent Fraud: Truth For Our Time Hardcover – April 26, 2004 From Amazon:
John Kenneth Galbraith summarized his own work here:
Some of it is in this bit-stream:
Further Reading:
Newspeak and the book 1984
John Kenneth Galbraith:
The Great Crash 1929 by John Kenneth Galbraith (Sep 10, 2009)
A Short History of Financial Euphoria (Penguin business) by John Kenneth Galbraith (Jul 1, 1994)
The Affluent Society by John Kenneth Galbraith (Oct 15, 1998)
Example of references to Galbraith's writing:
Galbraith: The Affluent Society & Other Writings, 1952-1967: American Capitalism / The Great Crash, 1929
The New Industrial State (The James Madison Library in American Politics) by John Kenneth Galbraith, Sean Wilentz and James K. Galbraith (Apr 29, 2007)
Money: Whence It Came, Where It Went by John Kenneth Galbraith (Sep 3, 1975)
A theory of price control by John Kenneth Galbraith (1952)
History of Economics: The Past as the Present (Penguin Economics) by John Kenneth Galbraith (Aug 29, 1998)
The Age of Uncertainty by John Kenneth Galbraith (1977)
Full List:
Written 10/8/2015, Updated 10/20/2015
For an example of how Fraud and Plundering works from Rolling Stone's history of the 2008 Bailout fraud:

1 comment:


    "What is called sound economics is very often what mirrors the needs of
    the respectably affluent."

    > Â Economics and the Public Purpose (1973) was, most provocatively, "socialist," in a Galbraith manner of speaking. He defined his brand of
    > socialism in five flavors: public authority over healthcare, public transportation and housing; government ownership of arms manufacturers;
    > government ownership of several hundred of the largest corporations; planning to promote public values and goals like energy conservation
    > and the environment; a market strategy to defend competition by nurturing small businesses and workers' rights against conglomerates.


    Modern Monetary Theory in Canada