The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too

When I first picked up this book, I did so because the title and sub-title was threatening and abusive to my own thinking. I had to find out what an accomplished economist knew that I didn't know about my deeply held beliefs about capitalism and economics. What an interesting book. The American Economy was in a much different state when I began reading this book (early Sep 2008) than when I finished it (late Oct 2008). I think what I learned from this book has helped me think about possible solutions for our economic meltdown. Here are some points from Galbraith's (yes, Kenneth's son) book. I'll give indication of my opinions on his ideas as well. I have a full review on my blog (do a Google Blog Search for Predator State). Galbraith says that liberals who are for the following things should reverse their thinking: balanced budgets, free trade, open markets / monetary policy, tax cuts and the importance of savings. (Hey, that's me!!) He attacks each idea with an obvious depth of economic prowess and an even more obvious bias towards true-blue liberal thinking. His argument against balanced federal government budgets is perhaps his most compelling. He provides a simple equation that shows that the U.S. federal government (unlike all other countries) is positively incapable of balancing its budget and should not even try. To do so results in pain for consumers and business in the U.S. Galbraith actually won me over on this point. The equation is that the U.S. must run a budget deficit each and every year or else private industry and consumer will have to run deficits themselves. The deficits we run collectively (government plus industry plus consumer) MUST equal our countries total trade deficit. And the U.S. will always have a trade deficit as long as the U.S. Dollar is the currency of choice for emerging market countries to hold as their reserve currency (which is it). On free trade, Galbraith isn't exactly against free trade itself, but against the unfettered access we seem to have as a goal where environmental and labor regulations aren't part of our agreements. He seems to have a fairly typical liberal view on this point, and I agree as well. He aggressively debunks the notion that the free trade agreements are even remotely linked to job loss in the U.S. Instead, he blames deregulation and union-busting for the job losses. Galbraith deftly points out the failures of the "open market" and, in many ways, foreshadows what happened in the weeks and months after his book was published in August 2008. He was right on almost every account on this point. Just this past week we saw Alan Greenspan admitting to the "flaw" in his own thinking about markets and monetary policy. Galbraith must have had a giggle about that. He points out that the countries where open markets were most vigorously applied were dramatic failures (Argentina, Brazil, Chile). He says that Milton Friedman's motto of "freedom to choose" is actually just "freedom to shop."

I must say that this book turned what I believe about the economy on its head, but it also enlightened me about how the economy is connected to fairness and equality. I used to think that our biggest problem was deficit spending, but now I see the biggest problem is fairness. Galbraith, who is the son of the famous John K. Galbraith who wrote The Modern Industrial State, which I read 40 years ago and gave me my first insights into how the economy works, describes how inequity in wages has distorted the market and created an environment not unlike Alice in Wonderland where people disenfranchise themselves by believing that free markets are somehow all-seeing and lead to the greatest possible good. Galbraith makes a case against this hands-off approach to markets and argues that unregulated markets will lurch from one bubble to the next. Crises like global warming will never be dealth with because there is no financial incentive to do so. Planning is the only thing that can save us and will have to involve a serious political battle because the corporations have saturated the media with the belief that the markets work best when left alone, which prescription leaves most of us on the bottom level of the next pyramid scheme while the corporate executives accumulate vast fortunes for themselves at our expense. The writing isn't bad, but it can be a bit hard to see what he's driving at at times. The resolutions he offers at the end make the read worth while. This book came out in Spring of 2008. Given the financial meltdown here in the Fall, the warnings in this book are eerily prescient.

Galbraith began the book after Hurricane Katrina, which he called the "Chernobyl of the American System" - a disaster that exposed and laid bare the fallacies of an entire governing creed. Galbraith's first objective is to describe the Republican myth and its consequent set of rules for policy. Katrina exposed first an erosion of capability, and more seriously, predation (the systematic abuse of public institutions for private profit, turning regulatory agencies over to business lobbies, privatization of Social Security, and creating initiatives in Medicare to benefit drug companies and trade agreements to benefit corporate agriculture at the expense of subsistence farmers in the Third World). Reaganites offered a reduction of taxes on wealth to increase savings and investment, tight money to end inflation, and an assault on government, regulation, and unions to let market forces (private capitalists) rule. They promised an end to redistribution and catering to the needs of minorities and the poor - compassion would be redundant. Free market devotees prefer to avoid discussions of the fate of airlines, and the S & L industry under deregulation. They have no realistic alternative to our oil addiction, imperial commitment, global warming, New Orleans recovery, fall in confidence in the dollar, or health care - merely opposition to others. "Freedom" has become "freedom to shop" (cheap goods from China, cheap fuel), "freedom of election" (those who have money are free to buy them), "market freedom" is for business alone to command labor, price products, manage the environment. Practically all gross investment is accounted for by depreciation and retained earnings of corporations, and by the savings of those who sell to us from overseas. Ergo, personal tax rate cuts don't matter. The main effect of tax cuts on capital income encourages firms to pay out a larger share of net income. On Free Trade, Galbraith takes a mixed position - recognizing that great technological industries such as aviation and telecommunications require global markets for efficient operation (internal markets are too small and insufficiently demanding); however, he also sees the potential for damage from too much free trade, and offers no guidelines on where to draw the line.

With The Predator State James K. Galbraith brings the insightful analysis of The New Industrial State and The Affluent Society to bear on the shambles of the 21st century US economy. In part one Galbraith demolishes the standard arguments about deficits, free trade, shopping, interest rates, tax cuts, and inflation.The rest of the book builds an alternative ... a long needed alternative. I called this review The Approved Contradiction in homage to the classic The New Industrial State; in the 21st century economic freedom (the freedom to shop) is actually it's opposite. It is unfreedom. But no one dares admit it. Great book Jamie!

Searing insights into neoclassical economics (the academic standard),past conservative economic policies, and liberal acquiesence to the conservative mantra of free markets. This book is a must (so are all good commentaries)even for those that profess ignorance of economics in companionship with McCain. If you want to know why the U. S. is terribly awry and needs attention and sweat and great effort to come about to some semblance of normalcy but you didn't have the metaphors or knowledge to tackle the contortions of the past and present, read this even if you are not an economist. This is about the enslavement of our government to the will of the wealthy and the corporations and how and what can be done. Most who pay attention know this, but do they understand it quite as well as elucidated by this great economist? An long ago graduate in economics,and, institutional economist from, U. of Texas,Austin