A Tribute to Galbraith

5^th May 2006
The Malta Independent on Sunday

John Kenneth Galbraith, who passed away last Saturady at age 97 was an influential American Economist of the 20th century. He was a Keynesian and a leading proponent of US-style 20th century political liberalism and progressive politics. His books on economic topics were bestsellers in the late 1950s and during the 1960s.

Galbraith was a prolific author, producing four dozen books and over a thousand articles on various subjects. His most famous works were perhaps a popular trilogy of books on economics, “American Capitalism” (1952), “The Affluent Society” (1958), and “The New Industrial State” (1967). He taught at Harvard University for many years. Galbraith was also active in politics, serving in the administrations of Franklin D. Roosevelt, Harry S Truman,John F kennedy and Lyndon B. Johnson, and among other roles served as U.S. ambassador to Inida under Kennedy.

He was one of the few two-time recipients of the Presidiential Medal of Freedom, receiving one from President Truman in 1946 and another from President Clinton in 2000^.

Galbraith is best remebered for his quotable quotes which carry drops of wisdom that would often take lesser mortals a whole book to express themselves with unmatching clarity and impact.

In a speech as Ambassador to President Kennedy in March 1962 Galbraith said “politics is not the art of the possible. It consists of choosing between the disastrous and the unpalatable.”

We have a living experience of how true this is through the works of the present administration. Following several years of irresponsible housekeeping of public finances where the money no problem culture was all persavive and where all problems were avoided, rather than addressed, by simply writing a cheque drawn on the exchequer’s account, this administartion has to choose between the disastrous and the unpalatable. The disastrous in not an option as thankfully the EU is imposing on us external discipline which no longer permits us to continue irresponsibly wasting resources to avoid unpalatable but necessary medicine. The unpaltable is unavoidable; but while this may please economists, financial analysts, credit rating agencies and central bankers, it jars with the electorate who instinctively tend to associate the sour medicine with the stern doctor that has to do the dirty work for predecessors who through lethargy and default to easy solutions, have caused the malady in the first place.

In other counties this works through change of administration where incoming incumbents can administer the medicine in the first half of the legislature free from the guilt of ownership of the inherited problems, and in time to deliver in popularity terms when seeking to refresh the electoral mandate.

Typical of this is President Lula of Brazil who is cruising to reconfirmation on the basis of an economic miracle which seemed impossible four years ago when Brazil was on the brink of defaulting on its foreign obligations.

The fact that remedial action in Malta is being taken by a government from the same political stables that created the problems in the first place, makes it impossible for the administration to esculpate itself from the pain which is being felt through the unpalatable measures. Add to this the fact that the first year of this administartion was lost by preparations to join the EU and by the change of Prime Minister, meaning that crucial time was lost which could well put the gain resulting from the pain well beyond the next electoral dividing line. Top this up with oil at USD 75 per barrel that gives an extra sour dose to the unpalatable measures and one can well understand why this government is unpopular and why there is a growing perception that Labour could well win by default the next time round.

In America also there is building a strong sense of disgust at the extraordinary profits being made by the major oil companies when the consumer is having to pay record high prices for energy and utilities. There is a growing chorus of demand for the government to levy windfall taxes to neutralise these exceptional profits and pass these taxes back to the consumers who are paying them in the first place. There is an equally growing chorus of economists and oil industry lobbyists that say that windfall taxes will reduce the capacity to invest for increased oil supply and will thus lead to more shortages and further higher prices. However this argument is weakened by the excessive pay packages of oil companies executives who are rewarded for profits that the were made by market movements rather than personal initiatives.

John Galbraith once said “ The salary of the chief executive of the large corporation is not reward for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself”. Long live the spirit of Galbraith!