A Recap of Economic History
Back in 2007 James K. Galbraith wrote a book called "The Predator State." In chapter 11, titled "The inadequacy of Making Markets Work" he starts out with a pithy recap of where we are:
"Marxism used to be the hard-boiled left-wing dissident's creed, a doctrine founded on class conflict and the romance of working-class revolution. Unfortunately there were actual Marxist countries; "real existing socialism" took care of that romance. Meanwhile, Keynes and his allies in the progressive movement offered ways to reconcile the capitalists and the workers to avoid the calamity of revolution and the tyrannies that follow, through regulation and the management of total demand."
And Keynesianism worked, much to the consternation of the cons who had gotten used to impunity, immunity and looting everybody.
"But the price of Keynesianism was big government; establishing countervailing power against the authority of private business. Free-market conservatives, once they recovered from the Great Depression, were inclined to reject that gift, preferring to take their chances with class conflict, and Keynesianism lost its leverage when the threat of Marxism disappeared."
Thus Galbraith sets the stage for the present moment. There is no question that the reckless behavior of free market conservatives has managed to undue the progress of Keynesian reforms.
The Fraud of Third Way
He next turns his attention to Groups that dominate us Democrats:
"Now we have a new liberalism, sometimes called the Third Way, which consists of hewing as closely as possible to market solutions. If the presumption of modern conservatives is simple -- that markets work best when left alone -- this new breed of domesticated liberals puts a simple gloss on it: government can help. But the well-brought up modern liberal cautiously insists that in making the omelette, no eggs need be broken."
At least no eggs belonging to the powerful, connected and wealthy.
"The government should work unobtrusively, distorting as little as possible the outcomes that markets would otherwise achieve."
He notes that these Third Way "Liberals" might pooh pooh poverty, low wages or income inequity but they insist that:
"Grand Schemes for employment, distribution, infrastructure or the environment are off the table; nothing is possible or permitted that would undermine the authority of the market in a fundamental way."
Thus these so-called Liberals share the same, or even worse illusions as the other con artists, their "conservative" brothers. Now this was written in 2008 and some of those liberal have had second thoughts, but he's talking about the architects of the great recession and the folks who prevented the recovery that followed from even trickling down to most people in the country. This Third Way movement reifies and reinforces the myths that protect inequity in our economy. They shared the same blind (and unwarranted faith) in markets. In their ideology, all these myths are shared with the actual conservatives:
"Everyone in the system has a social role; there are not class enemies, no parasites, no leisure class, and not even everyone whose economic role is superfluous and unneeded."
But worst of all, was the bald faced assertion, repeated during the great Swindle Bubble Collapse in 2008 that:
"The market system is not open to fundamental reform; power relations cannot be changed. The system is already engineered for the best; new architects and new planners are not required."
This thinking hobbled efforts to deal sanely and equitably with the Wall Street collapse in 2008. It led to them allowing the same banksters who had swindled people into accepting abusive loans and reverse redlining, to foreclose on their victims, pay themselves bonuses out of Public money, and all the while tell the general public that they "couldn't prosecute Wall Street Executives because they it would de-stabilize the economy. The Third Way still promotes this ideology despite the complete collapse of every single one of the assumptions skewered by Galbraith just before the Housing Crash in 2008.
Making Markets Work where they Can't
He concludes that modern "liberal" cons had become little different from the Right Wing Cons except:
"Unlike conservatives, [these] liberals permit themselves to admit that market mechanisms may fail from time to time. Price and wages may be rigid, information may be asymmetric, and the costs of doing business may be too high."
They admit that markets don't always work as they should. Yet the solution for everything is to "design" "efficient market[s]". The conservatives don't believe that government can design efficient markets. But us "liberals" get conned into going along with privateering on the assumption that somehow:
"market-friendly" policy solutions
...are somehow superior to simply solving problems directly. Galbraith is writing before the Affordable Care Act was passed, but he was essentially foreshadowing why the Democratic majority would eschew New Deal style single payer solutions in favor of trying to keep markets where either the market was impossible (doctor care), "barely exists" (drugs) or when created is perfect market failure. After explaining the "will-o'-the-wisp" nature of most of the areas that these "Market Solution" "liberals" try to apply their ideas to, he gives some examples:
"Job Training" which is premised on the notion of a perfect "labor market" where jobs match demand, which comes from "business" [now called "Job Creators"] and if there is unemployment it is somehow due to individuals lacking the minimal schools that business requires and so "they cannot compete for jobs". The assumption is that job training will move those individuals into a position from which they can "compete for available employment."
Galbraith notes that the individual details of the argument are "correct", but that the argument is still a non sequitur. Job training helps but it doesn't create a single job. And anyone in industries where they spent years getting training for a job position only to find themselves training Chinese, Vietnamese or Indian workers to take their place -- knows that this is a cruel lie when hard times come. He notes that the reality is that employment depends on the demand for labor and that demands on sales. He goes on to show that job training doesn't solve the problem. The "job creators" don't create jobs unless someone is buying goods and services.
The Right Policy
On the contrary the right policy in both health care and job creation is to ensure that people have the resources to purchase goods and services. Putting monopoly goods and services; vital goods, or public goods into a "market" just provides opportunities for monopolists or other privateers to make a lot of money. On the contrary in health care, general welfare, retirement, and other areas sometimes the optimal solution:
"requires limiting, restricting, disciplining, defeating or bypassing markets, or even shutting them down. This is not the same thing as making them work."
Indeed referring to his example of labor markets. The "ultimate labor market" was the slave market where folks were bought and sold. If now people are "people capital" and the owners only technically own all of their labor, it still often amounts to a kind of virtual slavery. Left to it's own devices 'labor markets' revert to that origin.
When war is waged by private actors, it is called "Privateering". The real reason these people push market solutions is that when you put government of a public service like schooling, medicine, or similar in the hands of a private business the result is an opportunity to loot. The right policy is to use markets where they make sense, but not where they don't.
- The Predator State
- Ezra Klein's Brad Plummer interview with James Galbraith:
- How economists have misunderstood inequality: An interview with James Galbraith [http://www.washingtonpost.com/blogs/ezra-klein/post/how-economists-have-misunderstood-inequality/2012/05/03/gIQAOZf5yT_blog.html]
- Galbraith got involved with the Greek Rescue:
- References and further readings: