Beware Dr. Galbraith’s Snake Oil
As the Greek welfare state collapses, citizens there have been rioting over cutbacks in social spending necessitated by mounting government debt. The rioters apparently fail to recognize that whenever a government routinely promises to spend more money than it has, then eventually it will be unable to fulfill those promises. Many Americans worry that we will soon be facing similar troubles at either the state (e.g., California) or national levels.
Yet some renowned economists, such as Professor James Galbraith of the University of Texas, are trying to convince us that the U.S. government should ignore our massive federal budget deficit and instead spend even more. Galbraith argues that calls for fiscal responsibility are “misguided” and that greater deficit spending will create greater prosperity.
Galbraith’s proposals are dangerous because they are based on the notion that you can get something for nothing. Unless we want to see a Greek-style collapse here in America, we must reject those ideas as economic “snake oil” and instead demand an end to our government’s fiscally irresponsible deficit spending.
James Galbraith is no street corner crank. Instead, he has a BA from Harvard and a Ph.D. from Yale, both in economics. He is a professor of economics at the University of Texas, Austin, and son of famous Keynesian economist John Kenneth Galbraith. Because of his impressive academic and intellectual pedigree, many Washington politicians and pundits take his ideas seriously. Hence, so must we.
In his recent article in The Nation, “In Defense of Deficits,” Galbraith argues the following points:
- The political push to reduce government deficits is economically misguided, based on an irrational “phobia” of deficits.
- If we want economic growth, we need more spending. Only banks and governments can stimulate spending because (in his words): “Governments and banks are the two entities with the power to create something from nothing.”
- We shouldn’t worry about the alleged impending bankruptcy of Social Security or Medicare — or of the U.S. government itself. Why? Because the government is the source of money and therefore can’t run out.
- Government debt is not really a “burden on future generations,” because it never has to be repaid. Each generation can just pass that debt onto the next generation, so there’s no problem.
Similarly, in his May 12, 2010, Washington Post interview with Ezra Klein, Galbraith repeats the mantra that the federal deficit poses “zero” danger to our country. Why? Because the government can’t ever run out of money, “just as a bowling alley does not run out of points.”
“Galbraith’s consistent theme is his demand that we suspend our reason and instead defer to his alleged economics expertise. Our voluntary suspension of reason is precisely what men like Galbraith need for their schemes to work. In essence, they are saying, “Don’t worry if our plan doesn’t make sense. Let us do your thinking for you — and we promise that you’ll magically get something for nothing!””
This is exactly what the Eurocratic elite have been saying for years. Obviously, the European betters crashed their own economies largely based on the simple truth that entitlements wins votes because, hey, “free money.” Unfortunately, fiscal sanity doesn’t have deep roots over here and usually doesn’t win elections. We are witnessing the failure of “shock and awe” Keynsianism on a massive scale but few seem to notice.
“…but few seem to notice.”
I would also like to lie to myself and believe my spending habits don’t depend on the money in my bank account. The sad thing is that James Galbraith is a “public intellectual” and taken seriously by large numbers of Democrats. He truly does speak on their behalf! One would be naive to think Galbraith is a marginalized individual. Republicans are not perfect—but they are the only game in town. The Democratic Party is dominated by intellectually insane people.
I couldn’t agree more. The failure of collectivist policies is best explained by an analogy I read once. If you go to a restaurant and eat by yourself, you order what you want and what you can afford, pay the bill, and leave. If you go with a small group of close friends with whom you decide to evenly split the bill, you won’t order two separate lobster dishes but may be inclined to go in on a bottle of wine you ordinarily wouldn’t have had. You each contribute your share, and leave. When 200 people go to a restaurant and decide to split the bill evenly, there is no reason to consume less than average. Of course you have the lobster, a couple of glasses of wine, and dessert. When the bill arrives, there may not be enough money in some wallets and the others will undoubtedly come out worse for wear.
The problem with the Galbraiths of the world is that they are not spending “their” money exclusively; they are spending “our” collective money which insures binges and an eventual need to wash dishes to pay for all of that welfare lobster.
I recently said that purple state voters would be appalled if they realized that Barack Obama cares less about the deficits. He probably does not spend ten minutes a week worrying about them. And I am not exaggerating! This was a calm, well thought out assertion. Obama is existentially convinced that he is both wise and benevolent—and will eventually find a solution. His administration listens to madmen like Galbraith. These folks truly do not believe our economic situation is in awful shape.
I think he is out to fundamentally alter America and any bills coming due in the future are going to be ignored. (My guess is that’s why we get the Obamacare bill years down the road.) As far as the Galbraiths and people in this administration, many of them are fundamentally disconnected from reality economically and politically. Exactly what kind of economic experience did Obama get while organizing communities in Chicago? Europe should serve as a warning to us that these people keep saying “just a little more” until the wheels fall off the wagon completely. Then they keep pushing. Great analysis!
This is just the moneymasters finally going public with what their plan has been all along. The world plus 10%. Money is now debt, therefore of course debt is good, for them it’s the same as saying money is good. Debts are now the “reserves” that the international monetary system operates on. Ridiculous? Audit Fort Knox and see how much gold is there. Answer: none that we know of.
Here is the simplest of all possible refutations of Galbraith and his hereditarily stupid ideas: If money were really as imaginary (and created ex nihilo) as he says it is, then they wouldn’t need to take taxes in the first place, would they?
LOL! Excellent comeback line if on TV.
Taxation is necessary, as it is what give a fiat currency, like the dollar, value – by creating demand for the dollar. Galbraith’s article makes sense, unlike Hsieh’s thoughtless screed appealing to half-understood, half-baked prejudices.
Frankly, I think that this Galbraith guy is simply on drugs! Nuff said!
I think I’ve finally found a lib I like with this James Galbraith.
Since it is his philosophy there is an irrational fear of “debt phobia”, then it follows there must be an equally irrational fear of “tax cuts.” In fact, if I follow Galbraith’s philosophy to its logical conclusion, there should be no further need of any individual federal taxes, and we can now eliminate the IRS.
Now that is “Change WE can believe in!”
James Galbraith is the son of John Kenneth Galbraith who was one of the most destructive economic thinkers of the last some sixty years. In 1958 the father wrote The Affluent Society. He absurdly declared that America was so affluent that it no longer had to primarily focus on the creation of wealth. Our country should instead concentrate on redistributing wealth. This cart before the horse thinking seduced countless citizens—especially those who were members of the Democratic Party. The damage caused by the Galbraith family is mind boggling. Only a mad person would take them seriously.
Ha!
Jacob, I swear I’m not just following you around the blogosphere. When I start typing, your comments aren’t moderated and visible yet!
That’s o.k. Everybody needs the ego boost a good stalking can bring occasionally.
Ahhhh-hahahahahaha,I can’t wait for all the parasites on the Government tit to get cut off & have to go out & find REAL JOB’S :p
And why wouldn’t Prof. Galbraith suppose that his sermons should be heeded. He is cleric in the church of “intellectuals” from Harvard,Yale and Columbia, and now Austin, etc (beginning with FDR) who having been accepted as “expert”, “led” the USA for the last half of the 20th century. Of which the present Chief Executive is shining example. Perhaps this mess the nation has been led into is some secret plan these superior minds /elite are keeping up their sleeves to spring on us, the common tax-paying non-intellectual, morons-serfs. Or perhaps a “higher” good to show us the error of our ways? While we wait for the “rabbit from the hat”. In the meantime kneel to their magic in “leading” the nation into the pit of bankruptcy. Common people who must PAY THEIR, and THOSE set up by THESE INTELLECTUALS, bills might be excused their scepticism, now they are witness to the failure of these nostrums forced on the populations of Europe by “intellectuals” / politicians. Who, never having had a “real job”, are experts at how and where the money earned by the “workers” ought to be dispensed, for the “good of the People”.
I think Galbraith’s article went over your heads.
Sorry but most of you sound like a bunch of simple minded ideologues here.
No, we understood it.
Too bad it went out of your butt hole.
Just wait for the grand finale!
Once it all implodes, the snake oil vendors will immediately set about their next course of business. Namely, that it wasn’t their fault! It was the fault of…..capitalism!
Wait and see.
The Keynsians have a very poor record of producing economic recoveries and growing private capital the engine of growth and job creation. Current events in the European macro economy are proving Galbraith and Krugman are incorrect in the application of the government spending policy they advocate. The long standing application of their fallacies will cause an additional buffeting of economies world wide. The Democrats in our country are going to pay a dear price for the spending that has occured in a misguided attempt to turn things around. The pork and waste are angering American conservatives and independents. Those constituents will be out in force on November 2, 2010. Obama will have a much harder time pushing Keynes policies at us in January 2011.
Ok lets just take the guy at his word. I would like to know exactly when and where the test of his theory has been tried and been successful? by all accounts there MUST be tangible evidence to support his theory. Surely there had to have been field tests on a smaller scale where this has worked. Where are these places? What were the circumstances? Either thats the case or he is just another socialist progressive who wants to ignore ALL data that supports the opposite of what he claims, because he thinks that somehow he is special, and this time the same foolish actions will end with a different result. that by definition is insanity!
Paul,
Superb piece, in content and writing. You have demolished in a common-sense way the snake oil that government deficit spending can create wealth. We can blame the original manufacturer of this snake oil for its widespread consumption. That person was John Maynard Keynes (and a number of predecessor economists). Dress it up in a neat package of theorems and argument to confuse and sell the product, as he did and generations of his followers, it is still snake oil.
If the government is the source of all money then why do they need mine?
Thank you for the column, Dr. Hsieh.
Unfortunately for the American people, our current President, a Berzelius Windrip admirer, has surrounded himself with economic charlatans of the same order as Galbraith.
What’s more, while Mr. Windrip’s economic czars are busy spewing their deficits-don’t-matter smokescreen to help cover up the mass looting of the American taxpayer, his regulatory czars are proposing endless new regulations and controls on the premise that production can and will continue regardless of how much they tighten their noose around the neck of industry.
Whether or not the American people have sufficient spine left to deliver a desperately needed knee-capping of this regime of gangsters in November remains to be seen. The stakes are enormous — we either stop these looters in their tracks or they will go on extinguishing individual liberty until an actual Windrip administration becomes a possibility.
Galbraith is an emabarassment to the University of Texas in Austin. Get rid of this moron. Every technical/science/business student, and former student, should take note. This guy is out there presenting his credentials in the world as a UT professor. The more he does so, the lessor your own credentials will have merit. Pull an obama, and throw this turd under the bus.
He is the anti-Texan.
“Governments and banks are the two entities with the power to create something from nothing.”
How the hell did he ever pass Econ 101, much less get a PhD and a faculty post? He apparently has no clue that money and wealth are two different things- and, while governments can indeed create money from nothing, money is just a scorecard for wealth that has nothing to do with creating wealth itself, just creating increasingly worthless money- you get Weimar Germany or Zimbabwe.
The good news in all of this is its complete obsurdity. Although I took economics at a better graduate school than Galbriath (Texas A&M)so perhaps am better equipped to deal with reality. But I am sure there are a few sane economic instructors at UT; maybe Galbraith was sleeping that day.
With a few short months left before the biggest election in our days, I am glad the clowns have come out, and I wish them great success. The more extreme the better. Readers & viewers of the MSM will lick it up, vomit, and then the adults can come back in and clean up.
Thanks for the article.
The truly remarkable thing is that Galbraith actually was awarded both degrees and positions based upon this arrant nonsense.
The most difficult part of this project (unwinding Medicare and Social Security) is the unwinding of Social Security. Medicare could probably be taken up by the private sector without much fuss. The more difficult side of the equation is the phase out Social Security. Millions have not saved money in reliance upon the government promise of funded (partially to be sure) retirement. If those cash flows were abruptly terminated serious disruptions would occur. A phase out should take about 30-50 years in order to allow people to adjust their goals to the new reality.
I know Jamie. He is a fool. Dr. Hsieh has been misled by his so called credentials. Yes he has those degrees but the only reason he is on the UT faculty is that his father spend some time at UT and he pulled some strings in the LBJ School to get Jamie a job after Jamie was canned from Carnegie Mellon.
Jamie introduces himself as the son of J Ken Galbraith. He did it to me and he did it to my one of my friends.
Great article! One of the best things about the whole tea party movement (as evidenced by the comments here) is that charlatans like Galbraith are no longer given a free pass. The country is ripe for better ideas.
While there may be no risk of default, there is most certainly a risk of hyperinflation, which could be just as bad or worse.
AzA – my comment parroted yours – #2 & #4; great minds think alike, or something like that.
However, I wanted you to know when I submitted that rant, I swear to you that the comment board was a blank slate.
Ha! It keeps happening to me too! Of course, what is truly scary is that an idea that simple wouldn’t occur to Galbraith in the first place.
Here, following his logic, is my solution for rendering Social Security permanently solvent (not to mention repaying the foreign debt): “type a few zeros” in quantative easing. Send Checks. Repeat.
We could start tomorrow. Granny will get her check every month. The fact that inflation has eroded the value to the point that she can’t even buy a can of soup is her problem.
Again, Dr. Hsieh makes some excellent points.
If government borrows and spends today, it must loot from people tomorrow to repay that money. That loot – a future claim (tax) on your effort – is one big reason to oppose government spending. What Galbraith and other Keynesians fail to recognize is that creative minds cannot continue to work under such conditions. That is why prolonged deficit spending always leads to shrinkage in businesses. Consequently, projected revenue (from taxation) decrease to the extent that government is unable to pay its debt, resulting in a Greek-style collapse.
Good Lord! They’re handing out Ivy League doctorates for this sort of reasoning? Governments can never run out of money? Mr. Galbraith just confirms the old saw that “Some ideas are so stupid that only an intellectual can believe them.”
Yet it’s clear that Mr. Galbraith’s views represent a large slice of modern “progressive” economic thought. They certainly seems to be the lodestar of the Obama administration. In this view wealth is created by “government and banks” through some sort of alchemaic process that has nothing to do with the production of goods, cost of capital, conditions of exchange etc. If Mr. Galbraith does indeed represent mainstream economic thought then economics will no longer be the “dismal science” but the “absurd science.”
According to Galbraith, as AzA and others wrote, we don’t need taxes. We don’t need debt either. Dr. Galbraith hit the nail on the head. Governments create money out of thin air. Let’s all start our own country.
Another excellent article by Paul Hsieh. The fact that an academic economist educated at Harvard and Yale is deeply disturbing though I suppose, given everything we know that goes on in academia, not particularly surprising. It is a big mistake to assume that governments can continue to print and spend money without end. As Dr. Hsieh writes, “wealth is something created by the thought and labor of people … there’s no such thing as a free lunch.”
I’m beginning to suspect that articles like these, no matter how correct, simply misunderstand the opposition, i.e., progressives. Because of the nature of progressivism, this madness is not going to end anytime soon. Banksters are in bed with progressives both in Europe and the US, aided and abetted by intellectual elites like Galbraith peddling the latest Keynesian nonsense.
They don’t really give a damn about debt, about printing money, about bailouts, about increased taxes, about real investment and the cost of capital, or about anything that was once perceived to be standard economic theory. They don’t think of money as representative of any real value, they consider it to be simply a psychological ploy with which to herd the sheeple. Since money is fungible, progressives can continue to debate endlessly with you about where any one item of it comes from, where it goes to, and the ultimate effects. They will just keep on kicking the economic can down the road forever, in support of their overarching goal of equality via control of everyone’s lives. This is a religion to them, and they are religious zealots that will let nothing get in their way.
The insurmountable problem here is that progressivism is a totalitarian belief system. It cannot allow other philosophies, other religions (especially the Judeo-Christian kind) to peacefully coexist. I only hope that a massive voting effort in November will be enough to begin to reverse this madness.
Galbraith is just another in a long line of central economic planners that believes that the intellectual elites know what’s best for you. If you want a good laugh, Google “galbraith schiff” to see him get destroyed in a debate with Peter Schiff, an eminent free market economist on CNBC.
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Gilligan … the Skipper too … the millionaire, and his wife … the movie star … the professor and Mary Ann: Remember them? They all knew better. When the SS Minnow ship-wrecked on that uninhabited island off of Hawaii in 1964, I don’t recall the hapless crew’s first thoughts being: Let’s see, how can we create food and shelter out of nothing, without any effort on our part?
I don’t recall the wealthy passenger Thurston B. Howell, III passing out stimulus checks to his fellow travelers so that they could rush out and spend their way to a vibrant island economy.
They understood that before consumption, you must have production. They understood that to have production, you need real people doing real thinking and real labor – i.e., they needed to act, themselves, which is exactly what they did. That silly little 1960s sitcom that as a teenager I loved so much was way to serious a show to allow the writers to run an episode that portrayed Mr. Howell assuming the role of banker, and telling everyone: “Stand still, and watch my millions shower you with prosperity!” It would have failed after one episode. They understood that money is not wealth.
Gilligan’s Island is a monument to economic common sense compared with much of what comes out of Washington and the academic ivory towers today.
But, let no one think that I am making light of James Galbraith’s mental garbage here. To the contrary, I agree wholeheartedly with Mr. Hsieh that this nonsense must be taken very seriously. I’m finding it very difficult to get my arms around the notion that Galbraith actually believes this stuff, which makes me question his motives. But whatever they may be, “The uncontested absurdities of today are the accepted slogans of tomorrow” is another warning we must heed from Ayn Rand.
Many Americans prefer to think that James Galbraith simply hasn’t fully explained his economic views. There must be more to them then what is presented in these articles. He can’t be that weird. We might be taking him out of context. This is regrettably not the case. Galbraith genuinely argues for more government spending to “stimulate” the economy. The man is not joking—and that should scare the hell out of the common folk. Allowing Galbraith and his cronies to run government economic policy is similar to providing an immature and already drunk teenager with a bottle of whiskey and the keys to the family car.
I think that you are right about that. They really do believe that all of the old rules and lessons don’t apply.
After the fall of the Soviet Union, a whole lot of people assumed that socialism was finally discredited. Even the left paid lip service to that.
But I talk to a lot of liberals. And I’ve started to realize that the don’t really think it was discredited. Instead, they think that it only failed because it wasn’t universal. That if it hadn’t been undermined by the capitalists, then it wouldn’t wouldn’t have failed. Therefore, if it can finally go world-wide, then this time it won’t fail.
I have literally had lefties tell me, for example, that if California businesses couldn’t flee to other states, then the state wouldn’t be going bankrupt. Their backwards explanation is not that California needs to become like Texas or Georgia, it is instead that Texas and Georgia need not to exist.
Transfer that to the world scale, and suddenly the antics at the UN, the EU, and the various international “get with the program” confabs start to make a whole lot of sense.
That last comment was supposed to be a reply to Charles at #27. I don’t know why it didn’t post that way.
If government can just print money, then why do we still have to pay taxes?
“If government can just print money, then why do we still have to pay taxes?”
Good point.
Because the taxes we pay represent real wealth which they are taking. Money printed by the government represent nothing backed by nothing except the real wealth we create next week.
Nice article, Dr. Hsieh.
It is good to see you writing about economics. Keep up the good work.
Great article.
A pertinent quote from the Ayn Rand Lexicon (http://aynrandlexicon.com/lexicon/philosophy.html):
“If, in the course of philosophical detection, you find yourself, at times, stopped by the indignantly bewildered question: ‘How could anyone arrive at such nonsense?’— you will begin to understand it when you discover that evil philosophies are systems of rationalization.”
i agree with doc g…..and in his spirit I have decided to fill everyones bank acct with money…a million dollars to be precise. Go out and spend and enjoy life..when you run out ill put some more in…I like you all soo much….now its there. But when you check your account you may see it the same as you last left it…I didn’t forget to give u the money….its there don’t worry…its just invisible.
This is an article about economics? Jeez.
Most Americans don’t have a clue: the USA’s real problem is private debt not public debt.
http://www.debtdeflation.com/blogs/2010/06/13/empirical-and-theoretical-reasons-why-the-gfc-is-not-behind-us/
I guess The General Theory of Money is as reviled in the States as the Origin of Species. Both being widely read of course. Which is a pity because it does stand up compared to the voodoo economics that is currently given more credence:
http://www.dimensional.com/famafrench/2009/01/bailouts-and-stimulus-plans.html
I see a lot of praise for this article but I can’t find any substantive content in it. Galbraith at least lays out some economic theory to bolster his case. All Hsieh article is is an ad hominem attack on the evil Keynesian. Please people, get over the smell of your own farts.