Bellerbys Economics - Mr Stephenson

Wednesday, May 03, 2006

JK Galbraith

Sadly, JK Galbraith has died. He was 97 (Economists live a long time - it's all that thinking.) JK was not one of the great economic theorists of the last century - in some ways, he was more important - a practical economist who combined a daily working knowledge in government administration with mass observation sociology.

When I was 15 and like most intelligent boys of that age feverishly developing my own theory of life, the universe and everything, I read JK's "The New Industrial Age" and it was like a light turning on in my head - I suddenly understood how the world worked!!

What JK was explaining to me in that book, of course, was Keynesianism. Of course, this would be later modified by other economists - but for me at that time, it was a great leap forward in understanding.

During the second world war (the great patriotic war, the war of imperial liberation, depending where you live), JK was given the task of preventing inflation in the US. He did this by adopting a Soviet-style price-setting regime (presumably he didn't tell his bosses he was doing this). Of course, it led to shortages but it did solve the problem. After the war, he was very influential in the Marshall Plan - the plan that rebuilt the economies of western Europe. He had realised that the western economies were sitting in the horizontal plane of the supply curve and it would be possible to increase demand quickly through a combination of donations and printing money - without creating inflation.

It was very important to the Americans to rebuild Europe for a number of reasons. Firstly, there was a genuine altruistic element - at this time America was dominated by the rich liberal families of New England - the Kennedys, Vanderbilts and Roosevelts - long before the heart of America shifted south and west to Texas and California and the more individualistic attitudes that prevailed there. Secondly, Europe was needed as a strong front-line against the growth of the Soviet Empire. Thirdly, the Americans needed people who had some money to buy their products so their industries could continue to grow (which they did - at its peak in 1950, America had 50% of the world's GDP - now it's down to 23%)

Later, JK produced his great work - 'The Affluent Society' in which he argued that we were moving away from a time of scarcity towards a time of plenty when we would all have everything we could wish for. It was poor economics but great sociology. Firstly, he introduced new words into the vocabulary - 'technostructure', 'the conventional wisdom' etc. Secondly, he was the first serious economist to argue worldwide that GDP was not a good measure of living standards. Thirdly, he argued that businesses would reach a stage where they could only grow by creating desires in people through more-and-more advertising and that this would be pointless and dangerous as it would risk creating discontentment and reducing living standards (as opposed to GDP - the standard of living). This was 1958 when there was little serious advertising in Europe but advertising industries were just beginning to emerge in the USA and working for an advertising agency was seen as an exciting and cool job to have. At the time, his ideas were pooh-poohed but now we live in a world where the average person sees 300 adverts a day and 14% of us work in sales, marketing, website design and other advertising fields - after Business Studies, Media Studies is the biggest university course.

Increasingly, there is more emphasis on the image of the product than the product itself - this may also be true of politics!


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