The End of Normal James K Galbraith - Book Report/Review Example

 The End of Normal, James K. Galbraith Executive Summary The End of Normal presents a challenge to the common views and analyses concerning the economic patterns of the world. The economic scene experienced a crisis in 2008. The result was high unemployment, slow growth, chronic deficits, falling home values. In Europe, the disaster was deepening, resulting in an argument for which two solutions were presented; austerity and stimulus. In both solutions and the crisis’ various analyses, it is assumed that past economic growth between the periods 1950 to 2000 had a normal performance, except for the interruption by troubles of the 1970s. The argument is that the crisis was an interruption occasioned by bad policy, full recovery of which could be expected with correction of the same policies. Galbraith challenges the above view, and focusing on the crisis he argues that the easy-growth age had ended in the 1970s. Through 1980s and 1990s, uneven growth was experienced resulting in increased inequality between and within countries. The 2000s saw this come to an end, with frantic efforts aimed at keeping growth going with financial deregulation, war spending and tax cuts. The coming of the crisis saw automatic stabilization and stimulus placing a floor beneath economic collapse. The two could, however, not bring back full employment and high growth. In the book, four factors are presented as impediments to the return to normalcy. They include the increasing cost of real resources, the digital revolution’s labor-saving consequences, the law and ethics breakdown in financial sectors and the military power’s futility. The crisis is argued to be a turning point and as a barometer to gauge the rising of unstable fiscal conditions, that can be regarded as normal. Galbraith’s proposition that institutions and policies going forward be designed modestly in order to guarantee a good life under difficult times is hard to adopt given the dynamic nature of the world economy that calls for varied strategies to steer. Critique The End of Normal presents a great philosophical critique of economic practice and public policing, comprehensively explaining the global monopoly-finance capitalism. Galbraith primarily focuses on three main things. First he explains the global and the American corporate capitalistic system together with its financial weaknesses. Secondly, he comes up with a critique of stable “normal” capitalism. According to Galbraith, “normal” stability concept precluded mainstream economists from projecting radical instabilities of financial arrangements leading to 2007. Thirdly, Galbraith contends the failure of the two sides to the coin to comprehend the contemporary corporate-finance capitalism’s institutional structural shifts. Galbraith contends that the one reason leading to collapse of the Soviet system was that social theorists had not sufficiently understood it. On the same note, the 2007-8 financial collapse came as a surprise for many economists and politicians due to their insufficient understanding of American corporate capitalism. The basic theoretical blockage resides in the dogmatic commitment by a section of economists to the “normal” sense of economic performance. They believe that “normality” is attained by market price adjustment. Another section of economists believe “normality” comes with economic management, proper public policy and market adjustment. Galbraith argues that the two beliefs are illusionary. According to him, the 2007-8 financial collapse was an institutional shift that was “definitive” in nature. The models of the first group of the above economists never related to the realities of capitalism, those of the second group no longer apply too. “That [the collapse] was not followed by a normal business cycle upturn on the model of postwar normality should not come as a surprise” (Galbraith, 2012) Galbraith adopts the metaphor of an engine’s behavior where peak performance is attained near the engines limits. The engine overheats when pushed beyond its limits then burns out or melts down, and must be rebuilt before restarting. He says the economic car “has suffered a transmission failure. A meltdown. More [Keynesian] gas in the engine will not make it go”. Jobs retrieval cannot be achieved by pumping cash into existing broken systems. With more money, consumers would pay down debts, businesses would invest in labor saving technologies and banks would continue setting more reserves. The Keynesian stimulus can no longer be effective. There is need to clean the system and rebuild it. Also, Galbraith argues that the new New Industrial state has to be understood primarily as financial. He does not explain much of financialization, instead he contends that the analysis by Hyman Minsky captures well the essence of the new financial system. Minsky’s model shows that there is a clear and specific role for the government in financial regulation. Galbraith does not mention that Minsky strongly supported employment and fiscal policy to eradicate poverty (Minsky 2013). Galbraith’s strong point nonetheless is that serious analytical diagnoses have to agree with the new New Industrial State radical financial nature. The corporate system of a capitalist is flawed (Minsky, 2013, 177), within it, “the market mechanisms cannot achieve and maintain full employment.” Also, it is “inherently [financially] myopic and needs to be permanently supplemented by the long view that government alone can have.” The policy prescription that Galbraith gives in his book includes supporting public banks that are geared toward public purposes. He advocates for the extension and protection of programs in social insurance including early retirement in order to create room for upcoming young workers. He is in support of a guaranteed personal income and stresses on the urgency for “a large increase in minimum wage,” that would establish real living wages and tax policies which increase labor’s share of national income and decrease national income share going to capital. Further, he insists on large taxes on predatory rent seeking activities. The policies can certainly be supported in principle. However, the recognition that there is not an alternative in capitalism is conspicuously missing (Despain, 2014). Also, “pragmatic” employment policies exist to provide dignity to individuals facing exploitative corporate relations (Despain, 2012). All in all, Galbraith’s original theoretical insights, penetrating critiques and policy-minded orientation, more so for his tone’s agency and purpose in The End of Normal will continue to be celebrated for a long time to come. Works Cited 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. 2012. “Pragmatic Employment Policy” Post-Keynesian Economics Forum, November 16. Minsky, Hyman P. 2013. Ending Poverty: Jobs, Not Welfare. Annandale-on-Hudson, NY: Levy Economics Institute. Galbraith, John Kenneth. 1967[2007]. The Industrial State. Princeton and Oxford: Princeton University Press. Galbraith, James K. 2012. Inequality and Instability: A Study of the World Economy Just Before the Great Crisis. Oxford University Press, Oxford. Read More