In Issue 19 of The Baffler, James K. Galbraith debunked the notion that the world’s economists were caught unawares by the financial crisis of 2007 and 2008, in a piece that was appropriately titled “We Told You So.” Now, in his new book, The End of Normal: The Great Crisis and the Future of Growth (Simon & Schuster, 291 pages, $26), he widens his scope, laying out an economic theory that begins in the years following World War II and extends to the future.
One central argument of his book explains why we would be mistaken to expect perpetual growth in the American economy. The post-war decades have raised our expectations, Galbraith says, but for the economy to continue to grow at the same pace would be unsustainable. So we need to adjust our idea of “normal” growth—and even change how we measure overall economic success.
Baffler editor-in-chief John Summers and I talked to Galbraith on the phone last week about the premise of his book, and about whether economists really matter, among other things.
You write about a model of “perpetual growth,” which you argue began after World War II. But didn’t it first take root in the 1920s, after World War I?
Actually, I think not. In the broader discourse about the twenties, the twenties were kind of an explosion in the U.S. of post-World War I exuberance. But it was very much a divided society; lots of the country didn’t share in the general prosperity, and it didn’t extend outside the U.S. all that effectively. So no, the general atmosphere of shared growth and perpetual prosperity is a phenomenon of the fifties and sixties.
Can you talk about the relationship between this idea of perpetual growth and the middle-class culture that was developing around that time?
This is important for thinking about the role of technology. If you look over the whole twentieth century, from the time when my father was born on a farm in Ontario, he grew up knowing how to work a plow with a team of horses…vast parts of life were then moved into the marketplace by technological change (transportation being the major example, and food production being another, when people moved from the farms to the cities, and so on). All these activities then became market activities, and that adds to the pace of growth of GDP. GDP does not capture non-market activities, but it does capture transactions that are made in the market. (There are a few exceptions to that, but that’s the basic way the accounting works.)
I would suggest that we ended up in the 1980s and 90s with that process having been taken about as far as it was going to go, with much of what we do being, at some level, counted as economic activity. And then the wave of technology that’s come along since has moved us in the other direction. That is to say, it takes a lot of activity out of the market—including and especially communications and information processing—things that previously required you to hire people to do them are now done at no marginal cost by machines.
Just to take for example, this telephone conversation, which I imagine is taking place over an Internet connection: we have paid our flat rates, and we are conducting it essentially for free. If we were doing this thirty years ago on a long-distance phone connection, it would be metered by the minute, and it would be adding to GDP; but as it is, it’s not. So that’s a difference in the way in which technology interacts with the kinds of accounts that we have, that suggests to me that it’s a factor that’s going to slow down the recorded rates of growth, and the rates at which businesses can enter revenue in their ledgers.
What do you think about the importance of economic thought in U.S. policy now? Simply put, does it matter what economists think?
For some reason it does! What that reason is—why economists have more authority than lawyers or sociologists, or, for that matter, scientists who actually know something about the world—is a mystery. It’s not true in all countries, and I don’t think it’s always been true in the United States. But for some reason, we’ve given economists a special authority in this country—which has been used, in part, to devise ways of defining and limiting thought.
Some of that works through language. Phrases like “The Great Moderation,” succeeded by “The Great Recession,” followed inevitably by “The Recovery,” all condition how we think about how the economy is going to behave. If we were using simply different words—words from different intellectual traditions, words that more accurately describe what we’re seeing in front of us—we might not fall so easily into misleading frames of mind and frames of expectation.
So you’re saying that economic authority proceeds from rhetoric? We thought it was all supposed to be math?
It is math…but in many ways, the rhetoric is the preeminent force. What economists do is, they have a certain rhetorical idea, and then they frame an equation, or a system of equations, that reinforces that idea. And then they spring this on an unsuspecting public, and tell them that the whole thing came from the math in the first place, which just isn’t the case. It really is how it works!
Well, who knows how much the general public cares about economists anyway. But can you say something about the intended audience of economics, which would be the policymakers who are actually listening to this tribe of experts you critique in your book?
Well, I don’t know that it’s only policymakers who are listening; I think there are two ways that this does get to the general public. One way is the financial press, and particularly the television media, which picks up phrases and uses economists as talking heads. That tends to translate into a kind of sound bite view, which comes directly from this type of rhetoric. And the other thing that’s true is, people working at the technical level, in the government and in banks and in other entities, do build this particular cycle of expectation into their forecasts. So you have a kind of automatic expectation that the economy will recover from wherever it is. The people who do this are not hired to be original thinkers; they’re hired to be technicians. But they have to get the ideas from somewhere.
For example, the idea of a “natural rate of unemployment”: it’s a very specific idea, first introduced in the late 1960s. But now it’s built in to the forecasting models. So the presumption is that if you’re above whatever that natural rate is estimated to be, as the result of some slump, that the unemployment rate will return back to that previous, natural rate.
That tends to both frame expectations, and to color our interpretation of what’s happened. It may be that the unemployment in fact has declined—but there’s a world of difference between having an unemployment rate that declines because people are moving back into jobs, and having it decline simply because the population is getting older, or because people can’t find jobs and then they give up on working.
So if mainstream opinion is shaped by the way economists frame their systems for the consumption of the public and policymakers, is this something that economists are doing on purpose? That is, are there “activist economists” who have policy end results in mind?
That’s a good question, but I can’t be privy to everybody’s psychology or motives. I think it’s almost certainly true in a few cases. But I think for the overwhelming majority of economists, these are just habits of thought, and they don’t really reflect on them very much at all.