Thursday, October 22, 2009

Why Oh Why Can't Jamie Galbraith Be More Like His Dad?

by the Sandwichman

Back in May, John Kay wrote on "A boom based on little more than a bezzle" in his Financial Times column:
Modern accountants... have been taught modern finance theory in which markets are efficient. They handle uncertainty by assuming that the market has already discovered and assessed all relevant information. They have also been taught the skills of pleasing clients....

If a question has no right answer in principle, then people will argue for the answer they want in practice.
"The 'bezzle'," Kay explained, "is one of John Kenneth Galbraith’s best inventions." Here is what Galbraith pere wrote,
To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in - or more precisely not in - the country's business and banks. This inventory - it should be called the bezzle. It also varies in size with the business cycle.
Karl Denninger also offered further definition of the bezzle in a March blog post. Note especially that in Galbraith's discussion that there is a period of time in which there is a net increase in psychic wealth. During this time, the bezzle is the measure of this (temporary) increase in (psychic) wealth. Might not even an imaginary increase of temporary wealth be a good thing?

John Maynard Keynes certainly thought so. His view had to do with "animal spirits" and the notion that too much uncertainty leads people to hoard money and thus depress economic activity. So if people thought they were wealthier, perhaps they would spend as if they were wealthier and... voila... they would become so! This is also sometimes known as the Coué method or "the power of positive thinking".

But Keynes wouldn't have been so blunt as to call it embezzlement, would he? Yup. True, he didn't use the word "embezzlement", but he explained his prescription in terms of telling people that green cheese is "practically" the same thing as the moon and using the central bank as a green cheese factory. But let's let JMK tell it:
Unemployment develops, that is to say, because people want the moon;--men cannot be employed when the object of desire (i.e. money) is something which cannot be produced and the demand for which cannot be readily choked off. There is no remedy but to persuade the public that green cheese is practically the same thing and to have a green cheese factory (i.e. a central bank) under public control.
What do you call it when you sell people green cheese and tell them its the moon? In Keynes's defense, he elsewhere explained that this green cheese prescription was meant to be a temporary fix, "first aid". Modern "post-Keynesians" simply don't acknowledge this limitation on the stimulus idea. It is as if the bezzle can go on for ever and when it gets discovered, can simply be replaced with a new and larger bezzle. The second and third applications of Keynes's intellectual theorem -- that is to say income redistribution and work time reduction -- don't exist for thick-as-a-post-Keynesianism.

The moral to this story is that when economic growth is fueled exclusively by debt expansion -- as it has been for the last 30 years -- that growth itself IS the bezzle. Why oh why can't Jamie Galbraith be more like his dad?

5 comments: said...


This is one of the least defensible posts I have ever seen on this blog.

1) Jamie Galbraith has been actively pushing into the public arena Bill Black of UMKC, the whistleblower on the Keating Five case. Black says that the crisis last fall was all about fraud and criminality and practically nothing else. A more general story, told by Kindleberger, says that fraud and scams tend to increase as bubbles proceed. If anything, I think Black, and implicitly Jamie, are overstating the role of fraud as a causative factor in what went on, although there was certainly plenty of it.

2) Like his dad, and pretty much every Post Keynesian that I know of, Jamie thinks income and wealth are way too unequally distributed in the US. There is a lot of disagreement about what is the best way to deal with it. I am not aware of many (heck, any, which I guess is your gripe with the PKs) who have advocated shortening work weeks as a way to overcome income and wealth inequality (or to stop bubbles or reduce financial fraud either).

3) The claim that Jamie is somehow unlike his dad in his views at least is especially bizarre. Whatever one thinks of the message in the flame, Jamie is a very faithful keeper of his father's flame. I am unaware of any specific issue on which Jamie has some major disagreement with his late dad. This includes your favorite pet peeve, shortening the work week. Don't think the old man had that high on his agenda, although maybe he was for it somewhere or other (and I don't think Jamie is necessarily against it, just not seeing it as important as you clearly do).

I suppose one can pick on Jamie for not being as famous or selling as many books as his dad, but this is a pretty cheap shot. Really, Sandwichman, you are over an ugly line with this post (and I am still waiting to hear about all the wonders shortening the work week did for the French economy, please, preferably before you engage in any further cheap shots at others).

Sandwichman said...


If you are "waiting to hear about all the wonders..." why don't you just do the search I told you about in my last reply and follow the link? What good does it to for me to spell it out if you don't read it?

As for Jamie, he's a big boy and I'm sure he can take care of himself. Frankly, my beef is not with Jamie Galbraith personally. And if you must know the father/son thing is symbolic and what I'm really alluding to is the discrepancy between Keynes and the Keynesians. I actually don't think Jamie Galbraith has any more obligation to be "like his father" than I do to be like mine. If you'll read the blog post carefully, you might notice that I only mention Jamie's name, in the same question, in the title and at the very end. And... look carefully... it's a QUESTION!

More precisely, it's a rhetorical question and the form that it takes is imitative of Brad DeLong's signature, "Why Oh Why Can't We Have A Better Press Corps" plaints.

As for my being "over an ugly line" with this blog post, if Jamie Galbraith tells me he finds the use of his name in the post's subject line deeply, personally offensive, I will remove it. No problem.

Sandwichman said...

Barkley: "I am unaware of any specific issue on which Jamie has some major disagreement with his late dad. This includes your favorite pet peeve, shortening the work week."

Correction, Barkley, In his most famous book, The Affluent Society, Galbraith I called the economists' obsession with industrial output -- their "conventional wisdom" -- illogical, meretricious and dangerous. Those were his words. Now I should point out that "meretricious" means whoreish. Probably 75% of the people who read that word would have thought it had something to do with "merit". No, it's "meret..." with an "e". To put it more bluntly, economists prostitute their analysis for the sake of career advancement. Got that? And that's not like some kind of a snarky remark in passing. It's a prominent part of his argument in the book. Economists act like whores.

Or, to be more precise, I should use the term "courtesan" instead of "whore" because economists are not selling themselves to just anybody but rather to the rich and powerful.

As for shortening the workweek, Galbraith was ever the puckish contrarian. Since both sides in the working time debate clung to the banner of "productivity!", Galbraith took a third course. Why not, he asked, instead of reducing working time simply make work less focused on producing stuff? Go to work and have a good time and don't worry too much about how much crap gets extruded at the end of the day! Personally, I think it is a brilliant analysis and throws a great deal of illumination on what the debate is all about: quality of life versus numbers on a balance sheet. I repeat, that's "versus" not "resulting from". said...


And where exactly does Jamie Galbraith openly differ with this? These remarks of the senior Galbraith do not put him in the same camp with you that shortening the work week is the key to stabilizing business cycles and so on, and the senior Galbraith certainly did support "Keynesian" style policies for short run stabilization.

Again, much of this is short run vs long run analysis. Shorter work weeks may be good in the longer run for quality of life issues, but not so much for short run macro stabilization. I see no differences between father and son on this. And some of your subsequent remarks, including your latest post, do not contribute positively to this, indeed amount to, um, meretricious name calling.

Sandwichman said...

Come to think of it, John Kenneth Galbraith's answer could also be interpreted as EITHER a parody or a 'lite' version of Rexford Tugwell's messianic vision of New Work.

In Work Without End (1988), historian Ben Hunnicutt tells the story of a sort of unholy coupling that emerged in the 1930s -- in opposition to the 30-hour workweek -- between New Dealer Tugwell's wet dream of self-chosen, fulfilling, non-dog-eat-dog "careers" for all and the employers' associations' gospel of (insatiable, imperative dog-eat-dog) consumption.

Oh yessss, boys and girls, do have a peak at Doctor Tugwell's Marvelous Utopia & Ceaseless Toil Medicine Show if you want to come face-to-face with the original hallucinations behind all the government job creation baloney. "We ought to be working long hours and many days..." yea, thanks for nothing, fella.