[Marxism] Fwd: The End of Normal - Review by Hans G Despain - Marx & Philosophy Review of Books
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Thu Sep 11 06:31:19 MDT 2014
James K Galbraith
The End of Normal: The Great Crisis and the Future of Growth
Simon & Schuster, New York, 2014. 304pp., $26 / £18.99 hb
Reviewed by Hans G Despain
James K Galbraith’s The End of Normal, recently published, is a
spectacular achievement in political economy generally, as a
philosophical critique of the practice of economics and public policy in
particular, and for its comprehensive and totalizing explanation of
global monopoly-finance capitalism.
Galbraith’s primary focuses are threefold. Foremost, Galbraith explains
the contradictions of the American and global corporate capitalistic
system and its deep financial weaknesses. Second, Galbraith develops a
critique of the conception of a stable “normal” capitalism. The
conception of a “normal” stability according to Galbraith precluded the
mainstream economists from foreseeing the radical instability of the
financial arrangements prior to 2007. Third, Galbraith contends that the
right and left have failed to understand the institutional structural
shifts of contemporary corporate-finance capitalism. [My copy of The End
of Normal is an advanced electronic copy, thus to avoid page
misalignment, I provide chapter citations].
Galbraith contends one reason the Soviet system collapsed was that the
system was insufficiently understood by social theorists. Likewise, one
reason that the financial collapse of 2007-8 was such a surprise to the
majority of economists and politicians is that American corporate
capitalism is insufficiently understood (Epilogue).
The primary theoretical blockage is the dogmatic commitment to a sense
of “normal” economic performance and the belief by “freshwater
economists” (i.e., pro-market economists, many of whom are located
around the U.S. great lakes region) that “normality” is achieved by
market adjustment of prices, or “saltwater economists” (i.e. pro-market
Keynesian-inspired economists, many of whom are located on the ocean
coasts of the U.S.) who believe “normality” is achieved with economic
management, market adjustment, and proper public policy (Chapter 4).
Galbraith contends that both beliefs are illusionary. The financial
collapse of 2007-8 was, according to Galbraith, a “definitive”
institutional shift. The models of freshwater economists never applied
to the reality of capitalism, and the models of saltwater economists no
longer apply. “That [the collapse] was not followed by a normal business
cycle upturn on the model of postwar normality should not come as a
surprise” (Chapter 9). Keynesian stimulus cannot cure the problems of
contemporary corporate capitalism. “The institutional, infrastructure,
resource basis, and psychological foundation for a Keynesian revival no
longer exist” (Chapter 9). [for more Keynesian failures see Chapters 8,
9 and 14]
The proper metaphor according to Galbraith is the behavior of an engine
(Chapter 6). Peak performance is achieved near the limits of an engine.
Pushed past their limits, engines overheat, burn out, or melt down, in
which case they must be rebuilt before they can be restarted. Our
economic car “has suffered a transmission failure. A meltdown. More
[Keynesian] gas in the engine will not make it go” (Chapter 9). Jobs
cannot be retrieved by spending more money on the existing broken
systems. Given more money, consumers pay down debt, businesses invest in
technologies that save yet more labor, and banks have been setting on
excess reserves. Keynesian stimulus is no longer effective (Chapter 8).
“And a financial system is more like a nuclear reactor than it is like a
car.” We need to clean up and rebuild.
In spite of the “very strong” notion of “normality” (or systemic
balance, or equilibrium), structural institutional shifts have made such
notions both obsolete (Prologue) and “dangerous” (Chapter 9). In the
post-war economy economic growth became desirable, expected, perpetual,
and “normal”. The debates during the “Golden Age” of capitalism were
concerned with how much government intervention was needed to achieve
“normal” economic growth (Chapter 1).
By the 1970s several “snakes” entered the “growth garden.” The Vietnam
War would come to mark an institutional international shift away from
the Bretton Woods agreement. The price of oil would rise significantly
due to “domestic peak oil” production and the rise of the oil cartel
OPEC. Then rose the deep recession of the 1970s. Galbraith contends
these are harbingers of real geographical resource and institutional
transformations, not merely temporary “shocks,” or “bad management, and
policy mistakes” (Chapter 2).
The institutional physiology of the international political economy and
American corporate capitalism shifted. Galbraith’s attempt to articulate
this to an educated popular audience understates the profound
philosophical argument he is lodging. This is an ontological critique.
Models of economics, whether they be neo-classical, Keynesian, or
Marxian have failed, according to Galbraith, to fully understand the
explosive and unstable nature of the new institutional order (Chapter
4). Conservative market fundamentalist theories would come to dominate
economic theory and policy (Chapter 3); they fundamentally misunderstand
the ontology of contemporary corporate capitalism.
Market fundamentalism predominates largely due to the failures of
Keynesian policy to manage the system. But the failures of Keynesianism
did not, contrary to mainstream theories, usher in a “great moderation”
and an end of crisis (Chapter 3). Instead, globalization,
financialization, the fall of the Soviet system, the rise of China, the
Iranian revolution, and the massive systemic-generated inequalities were
indications of a highly precarious and unstable system.
Galbraith contends that the New New Industrial State (my term, in
reference to Galbraith’s institutional development away from, but deeply
rooted in, the notion of the New Industrial State of John Kenneth
Galbraith 1967) must be understood as primarily financial. Galbraith
explains very little of financialization, but instead contends the late
Hyman Minsky’s analysis well captures the essence of this new financial
system. Minsky is quite (in)famous for his metaphor: “stability
generates instability”. “[W]hat is radical about Minsky’s thought is
that it begins and ends within the financial system and never ventures
outside of it” (Chapter 5). In Minsky’s model there is a specific and
clear role of government “financial regulation” (Chapter 5). Galbraith
fails to mention that Minsky further strongly supported fiscal and
employment policy to end poverty (Minsky 2013). Nonetheless Galbraith’s
strong point is that any serious analytical diagnoses must come to terms
with the radical financial nature of the New New Industrial State. As
Minsky (2013, 177) argued, the capitalist corporate system is “flawed”
in that within it “the market mechanisms cannot achieve and maintain
full employment” and it is “inherently [financially] myopic and needs to
be permanently supplemented by the long view that government alone can
The heart of the argument in The End of Normal is the four chapters
constituting Part Two “The Four Horseman of the End of Growth.” If the
New New Industrial State begins with the institutional manifestation of
financialization, Galbraith contends that not only does financialization
generate massive inequality and instability (see Galbraith 2012), but
generates opportunities for colossal fraud. Galbraith contends we must
“stipulate that the Great Financial Crisis was rooted in a vast scheme
of financial fraud” (Chapter 9). Marxists tend to underplay the role of
fraud so as to emphasis the systemic instability with or without fraud.
Galbraith maintains this to be a mistake. He has an important point. In
more Marxian language, fraud is a type of power-relation and allows
superexploitation, or exploitation before, during, and after the
Many economists believe technology stands “as our best hope for rescue
from economic stagnation” (Chapter 8). Galbraith argues this is very
unlikely. This is because technological innovation has tended to be
labor-saving technical change and not new modes of jobs and consumption.
“The plain result of the new technology is unemployment” (Chapter 8).
Worse still, the technological shifts not only displace workers but
destabilize business activity. “The great contingent events” of cheap
fuel, along with the industrial technology to complement it, household
income to consume, consume, consume, and the financial basis to propel
it all “happened once. [However] there is no compelling reason to expect
[it] to happen again” (Chapter 8). Technological change is now as much a
drag on employment, consumption and investment as it was then a boost.
Galbraith further contends that the international balance of power may
favor the U.S., but it does not favor capitalistic
(megacorporate-dominated) trade. Military generated order can longer be
maintained. The global economic stagnation and ubiquitous
underdevelopment of hundreds of countries “have no remedy by military
means.” Thus, the military maintained global order and war as ‘we knew
it’ appear to have ended. “Under modern conditions there is no profit in
the game” of war and military global management (Chapter 7).
The essential element of Galbraith’s argument is the first of the four
“horseman.” Specifically, resource costs and the global dynamic they
generate (in conjunction with financialization) are generating
tremendous economic instability and political capriciousness. Galbraith
maintains the inflation threat we face does not come from budget
deficits or high employment, but from energy prices and costs. Central
banks and international economic institutions simply do not have the
capacity and competence to effectively manage these ‘wonders of mass
destruction’ (WMDs) and instability and crises they generate.
The essential argument is that there is a “high-fixed” cost structure in
global mega-corporate capitalism, increasing the demand and prices of
economic resources such as oil. Each time there is an increase in
aggregate demand (e.g., from China) the prices of resources increase,
financial-monopolies and financial speculation begins to anticipate the
rise in energy prices, increasing prices of resources and energy still
more. In short, an increase in demand (from households, businesses, or
governments), excites financial speculation, raises energy prices and
production costs. Thus, energy prices are functioning as a “choke-chain”
on growth and full-employment by increasing the costs of producing and
decreasing business profits (Chapter 6). In more Marxian language: a
simple monopoly-finance capital contradiction. This does not necessarily
stop prices from rising, corporate monopoly business and monopoly
financial activity may proceed in spite of high energy prices, fueling
speculation even further. This generates a sequence of spiking prices
and the inevitable bursting of the speculation bubble, causing a
“whiplash” effect (Chapter 14) and significant instability and
uncertainty (Chapter 6).
The policy-way forward has been little understood (Chapter 10), because
the institutional shifts of financialization (Chapter 5), resource costs
and the “choke-chain” and “whiplash effects” (Chapter 6), along with the
tremendous shifts in international political and economic institutions,
the inability of military-forced international order (Chapter 7), the
labor-saving and business destabilizing nature of modern technological
innovation (Chapter 8), and the symbiotic relationship between fraud and
financialization (Chapter 9) have not been appreciated as a totality
that has structurally manifested a New New Industrial State.
“Crackpot” economic reasoning has misunderstood the crisis and
prescribes policy (e.g. austerity) that is sure to fail (Chapter 11).
European countries stagnate due to a rigid monetary institutional
framework and lack of effective built-in institutions to “automatically”
redistribute during a recession. However, it is important to understand
Europe is dealing with same “one” crisis (generated in the U.S.
Galbraith contends). The PIGS acronym, usually standing for “Portugal,
Iceland, Greece, Spain” is more true in meaning as “Principal Instigator
Gold Sachs” (Chapter 13, note 1). However, European nations have very
different institutional structures that have tended to weaken policy
responses (Chapter 13).
Keynesian policy or stimulant spending ultimately will not be effective
because of the “four horseman” of Part II of the book and because modern
finance is no longer a motor of growth (Chapter 14). Instead we can
follow Costas Lapavitsas’s (2013) argument, that banks have become
institutions of “financial expropriation” and the deep institutional
source of superexploitation (see also Despain 2014).
Galbraith contends we are entering a period of slow growth. The only way
forward is economic planning (Epilogue). Currently the “planning” is
being performed by corporations for their own enrichment. Planning can
be aimed to provide greater benefits to more citizens and communities by
being carried out by the public sector (Galbraith 2014 is deeply rooted
in Galbraith 1973 and 1967). Galbraith argues public deficits are no
constraint on spending in a planned-economy (Chapters 12, 5). Interest
rates can be managed to put an upper limit on the growth of deficits
Galbraith’s policy prescriptions include support for public banks geared
towards public purposes. He insists on the importance of the protection
and extension of social insurance programs, including early retirement
to make room for young workers. He supports a guaranteed (living)
personal income (also once supported by ultra-conservative economist
Milton Friedman). He stresses the urgency of “a large increase in
minimum wage,” which establishes a real living wage, and tax policies
that increase the share of national income going to labor and decreases
the share of national income going to capital. Galbraith further insists
on a large tax upon predatory rent-seeking activities.
We can certainly support these policies in principle. But conspicuously
absent is the recognition that capitalism is no alternative: CINA
(Despain 2013a) and Galbraith is certainly aware of, but completely
ignores the Existing Alternatives to Start Emancipation: EASE (Despain
2013a). Moreover, there are “pragmatic” employment policies to provide
work and dignity to individuals enduring exploitive corporate capital
relations and bridging toward EASE (see Despain 2012, written as a
critical complement to Galbraith’s policy proposals).
Galbraith’s critique of “The Marxian View” is obtuse and misleading.
Galbraith contends that the “Marx-Baran-Sweezy-Bowles-Gintis position
[strange conflation]] has been that capitalism is unstable and crisis
inevitable. This theme roots the risk of crisis in specific properties
of capital, monopoly capital and finance capital. It leaves open, and
even encourages, the thought that a different social system might be
less unstable and less prone to crisis,” which according to Galbraith is
a historical weakness (Chapter 4). If the argument here is Marxian
political economy has generally underemphasized institutions, I would
concede the point. However, to suggest that Baran and Sweezy, Bowles and
Gintis, and Marx underemphasize institutions is strange.
Galbraith’s critique of the Monthly Review tradition is not only strange
but misleading. In direct reference to Monthly Review theorists John
Foster and Robert McChesney (2012) and also to Despain (2013b),
Galbraith asserts: “the crisis that they identify is not, strictly
speaking, a financial crisis” (Chapter 4). Elsewhere on this tradition,
Galbraith is simply wrong, “The problem for Marxians is that finance
explains nothing on its own. In their vision, the role of finance is
substantially cosmetic” (Chapter 4). Foster and McChesney (and Baran and
Sweezy before them) express the utmost admiration for, and have
incorporated the insights of, Minsky. For these theorists
financialization is a manifestation of economic stagnation and monopoly
capital, but once emergent finance takes on a life and dynamic of its
own. It is to Foster’s and McChesney’s, and not Minsky’s, advantage that
financialization is theorized to be rooted in social relations of
production, rather than never venturing outside of finance (Chapter 5).
Galbraith lacks his own institutional analysis of financialization and
the effects it has on households, non-financial enterprises, financial
enterprises, public governments, educational institutions, and
dialectical relationships between institutions (the latter is the
subject of Lapavitsas 2013). The literature here is vast, and the bulk
of it is deeply rooted in Marxian political economy. Yet Galbraith
provides not one citation, strictly relying on reference to Minsky.
Galbraith’s The End of Normal will be highly esteemed and celebrated for
many decades for its penetrating critiques, original theoretical
insights, policy-minded orientation, and especially for the urgency of
his tone and purpose.
Hans G Despain is Professor of Economics and Department Chair at Nichols
College, Massachusetts. He encourages your correspondence:
hans.despain at nichols.edu
10 August 2014
Despain, Hans G. 2014. “Review of Profiting without Producing: How
Finance Exploits Us All, by Costas Lapavitsas,” Marx and Philosophy
Review of Books, February 13.
Despain, Hans G. 2013a. “It’s the System Stupid: Structural Crises and
the Need for Alternatives to Capitalism”. Monthly Review 65(6): 39-44.
Despain, Hans G. 2013b. “Review of The Endless Crisis: How
Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA
to China, by John Bellamy Foster and Robert McChesney,” Marx and
Philosophy Review of Books, January 30.
Despain, Hans G. 2012. “Pragmatic Employment Policy” Post-Keynesian
Economics Forum, November 16.
Foster, John Bellamy and McChesney, Robert W. 2012. The Endless Crisis:
How Monopoly-Finance Capital Produces Stagnation and Upheaval from the
USA to China. New York: Monthly Review Press.
Galbraith, James K. 2012. Inequality and Instability: A Study of the
World Economy Just Before the Great Crisis. Oxford University Press, Oxford.
Galbraith, John Kenneth. 1973. Economics and the Public Purpose. Boston:
Houghton Mifflin Company.
Galbraith, John Kenneth. 1967. The Industrial State. Princeton and
Oxford: Princeton University Press.
Lapavitsas, Costas. 2013. Profiting without Producing: How Finance
Exploits Us All. London and New York: Verso.
Minsky, Hyman P. 2013. Ending Poverty: Jobs, Not Welfare.
Annandale-on-Hudson, NY: Levy Economics Institute.
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