Ouch

By Ian

Via Newmark the Elder, I read this rather pointed review of the late John Kenneth Galbraith.

Exerpts:

In one of countless well-turned pronouncements, he said, "Economics is extremely useful as a form of employment for economists." He disdained the scientific pretensions and formal apparatus of modern economics -- all that math and numbers-crunching -- believing that it missed the point. This view did not spring from mastery of the techniques: Galbraith disdained them from the outset, which saved time.

...

During the Second World War, Galbraith worked at the Office of Price Administration, fixing prices as part of that era's semiplanned economy. Unlike every other former central planner I have ever come across, in person or in print -- whether it be from India's old Planning Commission (which Galbraith once advised), the Soviet Union's pre-perestroika Gosplan and its East European equivalents, Africa's agricultural marketing boards, Britain's assorted pre-1979 prices and incomes boards, you name it -- Galbraith brought from that experience the view that there was much to be said for having bureaucrats fix prices. The experience seemed to dismay everybody else and to convert them to the view that markets do the job better. Galbraith thought, no, he had done pretty well.

The author, Clive Crook, goes on to discuss the affinity the political left has for JKG. I would only add that, as we can see in the dramatic rise in spending, it seems that people on both sides of the spectrum seem to be attracted to the notion that centralized control is useful, if only it's "done correctly." Maybe that makes more sense when you get to set your own bar for "correctly".

-- May 18, 2006 12:33 PM |

Comments

Kevin Brancato wrote:

Donald Rumsfeld, in a tribute to Milton Friedman, talked about his time as price controller :

Later, life turned down, and George Shultz came to me and asked me if I would run the wage price controls for the United States of America. (laughter) It was the country’s first peacetime experiment. As I recall, it was not Milton Friedman, but H. L. Mencken who once said, "For every human problem there is a solution that is simple, neat and wrong." Richard Nixon found it.

(laughter and applause)

Early on, I figured out that the key to success was not to even try to manage wages and prices. Senator Proxmire’s law, I think written on the back of an envelope, was only a paragraph or two, and it embarrassed the President because inflation was coming along and the President wasn’t stopping it. So he passed a law saying that the president shall have the right to control wages and prices. I put the law on the floor in my office, next to my desk. And then every time The Wage Board, or The Price Commission, or The Health Services Board, or The Rent Board, or The Construction Stabilization Industries Board, any one of those alphabet boards that were spawned by this Economic Stabilization Act – every time they issued a regulation, we stuck on top. Before too long it started working its way up to the ceiling. As a reminder for everybody for the potential damage we were doing.

He’s not here and I hate to talk behind people’s back, but I think the record should show that Vice President (Richard) Cheney, of course, was part of that operation, (laughter) and I have never once seen it on his resume. (laughter) But he was there.

There was one other thing we did early on was to get agreement that any employee of the wage price controls could be fired within 30 days. The goal was to not allow a permanent bureaucracy to self-perpetuate, and it worked. So we worked and we worked we kept letting out everybody, we kept freeing up all of these categories. We had tiers and we would let this group free at wages and controls, and this group free at price controls, because it was an option or because of something else, or because it was food and the answer to (inaudible) prices is high prices.

And after a while, Milton Friedman called me up and he said, "You have got to stop doing what you are doing." And I said, "Why? Inflation used to be up at around 6 or 7, it’s now down to about 4 or 5. We’re freeing up all kinds of activities. We’re not doing much damage the economy." He said, "I know, I know that. But you’re not the reason inflation is coming down, and YOU know that! (laughter) I said "That’s true." And he said the problem is that people are going to think that you’re doing it, and you’re not – you’re letting everybody out and Inflation’s coming down and they’re going to learn the going to learn the wrong lesson. And it’s important he did not quite go as far as to say that I should start damaging the economy, but that was right underneath what he was telling me. (laughter) And of course he was correct.

-- May 18, 2006 3:28 PM ∞

Jim wrote:

"Galbraith thought, no, he had done pretty well."

Arguably, he was right - AFAIK, inflation stayed relatively low during the war despite huge growth in employment and output.

-- May 18, 2006 5:19 PM ∞

Lee wrote:

Output of what, Jim? War goods are drained out of the economy. War bonds drained away money that couldn't be spent on consumer goods that didn't exist. Rationing and price controls did the rest. In effect, there wasn't an economy where there could be inflation.

Germany, Japan, Russia, et.al. also showed no inflation. Is a perpetual war economy the answer to inflation? The economy of Orwell's 1984?

-- May 18, 2006 7:34 PM ∞

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