John Buell

Economics for a Slow Growth World

In two recent works, The Predator State and The End of Normal, James Galbraith argues convincingly that the growth rates of the immediate post WWII period will not be restored even by robust stimulus packages or any Federal Reserve QEs. Resource costs remain high and unpredictable. In addition even if increased government spending stimulates new investment, that investment is likely to eliminate more jobs.

In Galbraith’s analysis crashes are not merely the products of events outside the system, like a meteor from outer space. Instability is built into the very core of the system, primarily through the role of the large investment banks. Bank loans were crucial to the development and spread of new technologies. Nonetheless, initial success, the deregulatory climate, and the desperate quest for new targets to inflate led to loans to a clientele that should never have been served and then the bundling, hiding, and dispersal of these toxic instruments.

A true Ponzi economy, but one that has left its mark, the modern investment bank now makes its money in comparable ways. It has lost the incentive and the talent to engage in the legitimate function of underwriting new business ventures and technology. It takes low-interest loans from the Fed and invests in longer-term bonds or in more speculative derivatives. Nonetheless. their continuing status as too big to fail insures them preferential access to capital markets.

American capitalism is very fragile, not in the sense that it is soon to be replaced by some other system but that its growth is contingent on costly and unpredictable resource base, is increasingly dominated by stock and financial market casinos, and produces a few big winners and many losers. Galbraith advocates a set of reforms that go well beyond the relatively narrow liberal agenda. These include measures to reduce the fixed costs of our resource base, including especially dramatic scaling back of the scope and high tech weaponry of the military.

Finance, debt, and banking regulation take on more significance in his work than is the case for Paul Krugman. The banking function for most citizens — deposits, credit and debit cards — could be handled by low cost public facilities at state or municipal level. Regional and cooperative banks could provide business and mortgage loans. Since smaller regional banks pay officers less there would be a savings. But even small banks can engage in herd behavior that endangers progress. Thus, banking regulation is tricky. Banks have played a positive role in funding beneficial capital investment. Nonetheless, ”Unpunished fraud is one type of threat …Too much zeal and you may undermine confidence in a mostly sound system.”

Since sustainable growth will be weak and often job destroying, mechanisms to protect and absorb the most vulnerable are vital. A higher minimum wage must protect the unskilled jobs that remain. Business can afford it and it might even stimulate more demand at the bottom of the market. He would at least temporarily allow workers to retire on full Social Security at 59, thereby creating opportunities for younger workers currently excluded from the workforce.

He downplays guaranteed income proposals by wondering “how it interacts with the general social expectation that one should work in order to live.”

One of the very few inadequacies in Galbraith’s analysis is the discussion of shorter working hours. Though supportive of efforts to shorten the workweek, he worries about the problem of imposing more complicated work schedules on employers. Galbraith advocates a slow-growth rather than a no-growth economy because the former is the best we can achieve and the latter leads to a zero sum competition in which winners are likely to be few and at the expense of many losers: “In such a world predators dominate.”

But growth, as Juliet Schor points out in Plenitude: The New Economics of True Wealth, could take the form of producing more hours of leisure time. Businesses do not have to grow in size or produce more and more goods in order to survive. “Producing” more leisure time would improve the quality of life and do much to mitigate the zero sum competition Galbraith fears.

Regular reductions in working hours pegged to productivity increases do not increase the unit labor costs for any good. These reductions would impose a predictable burden on employers. History also argues on behalf of such an approach. Schor has pointed out that about half of 19th century productivity gains took the form of reductions in working hours rather than higher pay. Unfortunately post World War II labor movement, partly in response to Cold War and McCarthyite pressures, abandoned the goal of more free time. The time is especially ripe to resume this goal. With markets and formal employment so unreliable friends for reasons Galbraith has so well elaborated, ways must be found to meet needs through non- market means. More time outside of work is an opportunity not only for leisure but also for collaborative ventures that can sustain community and may be increasingly necessary as climate change imposes more pressing emergencies. Galbraith’s work represents a welcome challenge both to academic economics and to liberal politics. As the effects of the financial crisis linger here and bring the European Union to the brink of collapse, it is hard to take seriously theory or policy that postulates smooth sailing markets.

John Buell lives in Southwest Harbor, Maine, and writes on labor and environmental issues. His books include Politics, Religion, and Culture in an Anxious Age (Palgrave MacMillan, 2011). Email

From The Progressive Populist, December 15, 2014

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