James Galbraith On Economic Theory As A Disgraced Profession

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Sun, 05/16/2010 - 21:26 | 355492 akak
akak's picture

Interesting that this spawn and heir of an even more prominent, outspoken (and discredited) Keynesian witchdoctor should now speak out against the current financial and political criminals and sociopaths, when it was his and his father's very own elitist, statist theories and prescriptions that encouraged, enabled and led us to the grim and degenerating financial, monetary and political quagmires that we are all stuck in today.

Sun, 05/16/2010 - 21:36 | 355514 Rusty_Shackleford
Rusty_Shackleford's picture

Well said.  Especially given this recent depantsing.


Sun, 05/16/2010 - 21:43 | 355525 Fedup
Sun, 05/16/2010 - 21:53 | 355536 akak
akak's picture

Rusty, I saw that mini-debate with Schiff live on CNBC, and I kept waiting for the large hook to come in from stage left and drag that Keynesian quack off before his ludicrous babble and smug arrogance caused Peter Schiff's head to explode and make a mess of the CNBC sound stage.  Unfortunately for Galbraith and CNBC but fortunately for Peter, the crisis was averted.

At least Ghoulbreath managed to drive another large nail into the coffin of whatever shred of credibility he may still have had before this interview.

Sun, 05/16/2010 - 21:54 | 355544 snowball777
snowball777's picture

Meh....a draw...Schiff is as big a quack as JKG.

Sun, 05/16/2010 - 23:28 | 355741 akak
akak's picture

I strongly disagree.

Don't confuse personality with policies. 

Schiff may come across at times as a bit of a blow-hard, but he is right on the ball when it comes to his fundamental beliefs in the free market and the insanity of the current unsustainable governmental policies that are driving this nation and its economy into the ground.

Sun, 05/16/2010 - 23:38 | 355750 Apostate
Apostate's picture

Schiff is an obviously inept hedge fund manager (picking Chinese stocks from a distance is never wise), but he's a great educator.

You must also remember that he's fighting for his father's honor. That's a powerful motivator. 

Sun, 05/16/2010 - 23:53 | 355764 malek
malek's picture

I am very happy with his Chinese stock picks for me (actually "ideas" - I make the decision).

Until very recently, he was never running a fund, much less a hedge fund. Only 5 weeks ago he started his first fund, symbol EPIVX.

(But IMHO it's clearly not the time to go into an equity investment fund right now, no matter who is running it.)

Sun, 05/16/2010 - 22:41 | 355648 three chord sloth
three chord sloth's picture

Yep. You could tell a self-serving hatchet job was on the way from the beginning:

"I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis."

He's just another ideologically blind fool. He thinks this current mess somehow rehabilitates Keynesianism. No, Galbraith, you and yours are still hacks... a few new names were just added to the list. You didn't come off it.

Sun, 05/16/2010 - 22:53 | 355656 DirtySouth
DirtySouth's picture

"When the facts change, I change my mind. What do you do, sir?"

"A study of the history of opinion is a necessary preliminary to the emancipation of the mind."

"I work for a Government I despise for ends I think criminal."

"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals..."

"The destruction of the inducement to invest by an excessive liquidity-preference was the outstanding evil, the prime impediment to the growth of wealth, in the ancient and medieval worlds."

~ John Maynard Keynes


Every single time someone uses the word Keynesian without actually comprehending what it means, you let the State win.  When articles and sites do not explain to you the real facts about Keynesian policies, the State wins. Posting articles like these are emulating the same state policies.  Most of you are being taken for a ride, and have absolutely no clue..

Mon, 05/17/2010 - 00:30 | 355791 Matto
Matto's picture

Here Here!


When i read "keynesian this, keynesian that" i treat it as a reference to unchecked deficit spending rather than a reference to keynesian economics.

Mon, 05/17/2010 - 05:40 | 355991 macroeconomist
macroeconomist's picture

One of the few things I have been unhappy about ZH and its community is the way they understand Keynesian macroeconomics..Matto, your post is a confession of what a lot of people think Keynesianism is..I seriously recommend everyone to read Hyman Minsky, though I know most people here are very familiar with his works..Him and his followers call themselves Post-Keynesian, and explain why Keynesianism in standard textbooks has nothing to do with what Keynes was trying to say..I would also refer to Keynes' 'Treatise on Money' if you really want to know what he thought..I have even been planning to write a lengthy article and send it to ZH so this mis-use of Keynesianism does not torture one of the best economist that has walked the earth in his grave anymore..I bet he's been screaming 'That's not what I'm saying' since Hicks drew those ridiculous IS-LM curves..

Mon, 05/17/2010 - 10:41 | 356234 Pat Hand
Pat Hand's picture

Please do.  Keynes got so much right.  What got labeled "Keynesianism" is a distortion of what Keynes said and meant.  Unfettered markets have their own problems.  The Austrians are wrong.  The Keynesians are wrong.  The neoclassicists of course are really really really wrong.

We need a neo Keynesianism, via Minsky.  It's a fine line - how to account for externalities, and what the proper role of the state is in moderating dynamics. 

Mon, 05/17/2010 - 00:39 | 355800 scaleindependent
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I love ZH and its community, but I am somewhat dissapointed here with those who criticize Galbraith's thesis that fraud was pervasive and that for the financial system, the economy and the US political process and freedoms to survive that fraud must be prosecuted and penalized with extreme prejudice. How can anyone disagree with this? 

Can anyone disagree that fraud was pervasive from the highest to lowest rungs of the subprime fiasco; That the regulators and ratings agencies were neck deep in criminal fraud themselves, that politicians and cops looked the other way, that the whole business was criminally corrupt. No one can.

The truth that it is all a criminal Ponzi fraud is leaking to J6P. Who fails to see that without credibility the financial-economic and political system will fail and our freedoms numerated in the constitution will someday be negated.  


I fail to see how his petition that  "the country faces an existential threat....the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case" is somehow socialist or anti-market because it requires regulation yada yada. 

If Galbraith's petition is ignored by the public, the government and the cops then I  predict that the latent fascist tendencies that our country now has will someday become rampant and one day the US will become a flaming outta the closet fascist limiting freedom of the press, freedom of religion and association etc.

Mon, 05/17/2010 - 01:55 | 355869 Fraud-Esq
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I think most agree with you on fraud. TD posted it after all. Bill Black is one of my favs too. 

Mon, 05/17/2010 - 03:55 | 355885 akak
akak's picture

I do not dispute Galbraith's indictments against the corruption and crimes of the financial (and political!) elites taken at face value, I merely assert that he is a hypocrite in making those indictments given his statist economic "theories" and policy recommendations over the years that enabled, encouraged and (at least until now) excused those very same end results, whether he is willing to acknowledge that his longstanding statist policy prescriptions would have inevitably led to such results or not.

Mon, 05/17/2010 - 03:27 | 355945 jp
jp's picture

They disagree with it because it does not suit their idea of the correct party in power at the time the crimes might have taken place. Nothing short of complete and total B.S.


Mon, 05/17/2010 - 07:53 | 356044 DudleyDoRight
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Agree that fraud must be pursued.  Reverting to discussions re: is keynesianism good or bad diverts from the important task of pursuing fraud.  Meanwhile, Bloomberg is reporting that Greece is considering legal action against various banks that may have contributed to the crisis: http://www.bloomberg.com/apps/news?pid=20601010&sid=aDxF1YfeViEc.  Let the sun shine in!

Mon, 05/17/2010 - 10:34 | 356221 obewon
obewon's picture

Well said, Scale!

There's not one phrase in your commentary that I could have rebutted; nor could I have improved on your phraseology!

Sadly, Galbraith's petition will be ignored by the Senate Judiciary Committee and by the US Congress; none of them, save Ron Paul, have the courage and political will to carry this message forward.

Even more sad is the fact that the American people will remain ignorant, while the US news media continue to pump disinformation and baby pablum.

Mon, 05/17/2010 - 13:19 | 356561 awells
awells's picture

The letter is about the need to eliminate financial fraud. Apparently you disagree.

I gather that you are reluctantly justifying the continuation of the fraud based on your classification of the author as a Keynesian, whom you would oppose at all costs. 

Sun, 05/16/2010 - 21:31 | 355507 the grateful un...
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i'm going to disagree with this fellow, only because i think the market is a self regulating system. the problem arose when the market wasn't allowed to police itself. we don't need more regulators (who watch porno) and we don't need Glass Steagall, if we're willing to let the market players fails, and not bail them out with the invisible hand of government. now that we passed that sign post, draconian laws and corrupt regulators are the solution. sadly

Sun, 05/16/2010 - 21:38 | 355519 snowball777
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Sure, except for the fact that we can't 'let them fail' without taking out the entire world economy in the process.

The point of Glass-Steagall was to keep assholes like Dick Fuld Jr from failing with despositors money. If they can con idiot clients into a tar trap, so be it, but they were creating this credit bubble via Fed largesse and rampant securitization backed by the hard-earned savings of innocents.

Firewalls and transparency are requirements for self-regulation of markets. Not recognizing that makes you as guilty as Greenspan.


Sun, 05/16/2010 - 22:02 | 355562 the grateful un...
the grateful unemployed's picture

myth one that the financial crisis would have destroyed the economy. myth two that somehow the speculators make off with most of the money, in a market crash money simply disappears. without transparency the  market prices risk, but with the invisible had of the Fed keeping rates low, the market wasn't allowed to regulate itself. the fortunes of the oil market, the grain markets, and the stock market all provide the american people with wealth, often taken from labor of third world nations. our government intervenes in these markets, to their detriment, on our behalf, so we doth protest, not much at all, except when we think our ox is gored.

the typical american parasite works for the government, crys loud and long that he is overtaxed, ,myth three, nobody pays taxes, our paid poltical hitmen simply deficit spend at the expense of our trading partners. we are not a good or great people, we are selfish and amoral. we aren't willing to accept the consequences for taking risk, but we want all the rewards.

and in a free and fair market those who held gold, and no debt would survive an economic collapse, but they won't this time.

Sun, 05/16/2010 - 22:33 | 355631 Cognitive Dissonance
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The sole purpose of our public myth keepers is to adjust our public myths to support currently popular lies, which are themselves perpetrated by the powers that be in order to cover their thieving tracks.

The myth keepers are usually well compensated for their efforts and everyone who wishes to believe what they're told are extremely satisfied with the adjusted myths.....that is until they need to be adjusted once again to provide cover for the latest scam.

The public myth keepers are always extremely busy and are usually guaranteed life time employment.

Sun, 05/16/2010 - 23:21 | 355730 hbjork1
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CD, IMO, once again correct, undeniably. Although, I might not be able to call it a deliberate scam.  We have to consider that it was a possible belief, out of flawed logic, just as scientists have ocassionally believed in perpetual motion machines, polywater or cold fusion.  Their reach exceeds their grasp. 

I am sure all know about Dr. Robert C. Merton's involvement in the LTCM afair of the late 90's.  He was a Nobel Prize winner and is still regarded as a distinguished economist.  But he (as well as others) did not grasp the simple fact that standard statistics could not be reliably applied to risk where human communication and emotion was involved.  

We haven't heard much from Dr. Merton during this last decade.  He is, no doubt working hard on new models.

Were his models myths or were the economic equivilient of a perpetual motion machine?

I don't know and I know I don't know.  Some of these learned economists don't know that they don't know.

Enjoy your posts.



Sun, 05/16/2010 - 22:33 | 355632 snowball777
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Myth One may yet finish the job, despite the pretend and extend myth-to-market fantasy world currently inhabited by the prop trading criminals at the Big 5.

Myth Two doesn't mean much when the bonuses and commissions (kick-backs?) pocketed by the assholes from Myth One and the GSEs aren't clawed back.

How is the market supposed to 'price the risk' of several hundred trillion dollars in derivatives without transparency?

No, we're not overtaxed...at least not our corporations or our cap gains and certainly not hedge manager compensation.

As someone who has worked hard (as in months of hundred hour weeks) since I was a teen and has no debt, I sincerely hope you're wrong on that last point, but I'm not standing still and taking it on the other cheek.

Sun, 05/16/2010 - 23:28 | 355742 the grateful un...
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and i continue to suggest that the current president should be impeached for his failure (his parties failure) to impeach the last president, but that sort of circular logic will get me nowhere. money in the mattress was the best investment decision you could have made in 29'.

Sun, 05/16/2010 - 23:57 | 355769 bretondog
bretondog's picture

we are not a good or great people, we are selfish and amoral. we aren't willing to accept the consequences for taking risk, but we want all the rewards.




And the entire Post is dead on.

Thanks for a short bitter elucidation.


Sun, 05/16/2010 - 21:46 | 355531 Matto
Matto's picture

I tend to disagree, as the perpetrators of a fraud could reside in the financial systems institutions and then exit before the system collapses. Therefore the market cant self regulate because the individuals who make the decisions wont be held accountable or pay a price for the collapse, they'll be long gone leaving their mess behind.

I think a clear regulatory framework needs to be in place and enforced, particularly in the banking and financial industries but freedom to operate within that framework should not be limited. A system like: 'these are the rules, they are the boundaries, you can do what you like within the boundaries but if you make the decision to step outside of them and operate agaisnt the public good or agaisnt those who you represent and whose trust is enabled to you, you will be held fully and personably accountable.'

Mon, 05/17/2010 - 08:20 | 356059 Dreamwalker420
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A clear regulatory framework was in place in September 2008.  On September 1, 2008 FASB 157 required that the banks mark their assets to current values ... and then Lehman failed.  The result was the implosion of the international banks which then imploded the entire Federal Reserve System right down to your community banks.  Who does the FDIC sell a failed bank to when they have all failed simultaneously?  And where does the FDIC get the cash to cover the insured deposits?  And how do we avoid war with the nations of the people who lost their un-insured deposits?

These very real questions came to bear when $500 billion was removed from money-market accounts on September 16th, 2008 in the span of just a few hours as those international depositors figured out that their cash wasn't insured by the FDIC.  Electronic fund transfers changed the pace of a bank run: speeding it up to occur within hours instead of weeks.  And our President and representatives made a decision to "save" the current financial system at the expense of the public (more precisely people who have large debt to income ratio's).  Obama furthered this policy by declaring "no bank will fail" during his stress test farce ... essentially a bank holiday like FDR without the bank closures.

Too Big Too Fail happened.  And the system did exactly what one should expect of politicians and police officers ... in a real emergency, all men seek to preserve their own self-interests.  While I dispise what happened, I wonder if there are truly any better solutions?  American society has become completely dependent on the beast of socialism ... very little of our economy exists outside of the wage-tax-debt-inflation slave trade.

As our political system attempts to grapple with this perplexing problem, how do I navigate through it to preserve my own prosperity?

I believe we start with the Rule of Law.  At the core of what makes our national economy work is the public trust that the Rule of Law is applied equitably.  In the wake of massive financial fraud perpetrated by the banking industry, the only solution that will satisfy the public's anger is one they believe in ... what do you think they want?

Most of us believe that we should be responsible for our debt.

Most of us believe that the principals of bankruptcy are essential to the fairness of the system.

Most of us believe that no one should be compensated for failure (including athletes).

Most of us believe that we should retain the wealth we create for ourselves.

Most of us believe that we should put in a good effort and be compensated justly for it.

Most of us believe that all contracts must be executed under the assumption of goodwill.

Some of us don't ... and we need to prosecute those who violated the Rule of Law.  In order to form a more perfect union, we must learn from the mistakes of our past ... and continue forward, building a better society for ourselves and our children.

What most of us believe is not how some of us will act.

Mon, 05/17/2010 - 00:45 | 355807 scaleindependent
scaleindependent's picture

Question:  Do you disagree that CRIMINAL fraud was pervasive and that it should be agressively prosecuted by the DA's?  IMO, that is Galbraiths main thesis. Do you disagree with that or are we splitting hairs here?

Prosecute the criminals. That is a must for credibility to return. It is the best way now to counter act the effects of moral hazard. Otherwise we're doomed.

Mon, 05/17/2010 - 01:53 | 355881 faustian bargain
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'criminals' in this case should include first and foremost members of our own government, elected and unelected, who perpetuate economy-destroying monetary and fiscal policy. First in line, dismantle the Federal Reserve System.

Mon, 05/17/2010 - 15:08 | 356772 hooligan2009
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I heartily agree. The criminals in this case, if so proven, should have their assets impounded to the extent of the harm caused. We know this will not happen though since the fraud perpetrated is equal in scale to the lack of ability to capture the hard drug culture that is similarly pervasive. The social system is in danger of becoming wholly corrupt. Some may argue this is the case. I don't.

I think that we are at a crossroads and agree with Galbraith. If we were to treat this crime as seriously as 9/11 then we would form an equivalent of Homeland Security and prosecute (and be damned short term but benefit with a fair system in the long run). If we do not prosecute then we condone the behaviour and encourage it.

Mon, 05/17/2010 - 01:26 | 355845 Breaker
Breaker's picture

". . . we don't need more regulators (who watch porno) and we don't need Glass Steagall, if we're willing to let the market players fails, and not bail them out with the invisible hand of government."

In principle, I agree. But the root of the problem is that we have to be willing to let bank depositors lose their money to make that work. FDIC and FSLIC guarantees are a fundamental part of the problem. Depositors have no reason to examine the financial health of their bank. Banks do not have to be sound to attract customers. That is a huge gap in what should be a fundamental policing mechanism of the market on what banks do with their depositor's money. To make things worse, large banks get bailed out above and beyond the FDIC and FSLIC guarantees. And, the mortgage origination market is driven entirely by what loans Fannie and Freddie are willing to buy. Those standards are driven by politicians, not market considerations.

As currently constructed, the taxpayer pays for unsound banking practices. And, the government encourages unsound banking practices for whatever reason politicians do stuff. The government encourages unsound personal finances. The government promises to pay public employees unsustainable pensions. The government promises medical care and retirement income far beyond anything it can reasonably be expected to be able to provide. Raising taxes is no solution because, if the politicians have more money, they will just make more unsustainable promises. Of course, the public goes along and elects the fools because it feels good to have stuff and own homes and besides, they just saw that ad on TV where a teacher was almost crying for the children because of "cuts" in education spending or the ad where the old lady has cancer and a mean insurance company that the politician de jour will "fight."

The fundamental problem is that democracy doesn't work unless it is constitutional and the limits on politicians' powers are real. Politicians will almost always make the wrong decision when it comes to regulations that make people happy in their new home they can't afford, or promising stuff in the future, or giving money to people who elect them--and that creates bubbles. The US tossed restraints on politicians' power to do whatever they wanted in the 1930's. The rest of the world never really had any.

But to get back around to the start of this post, if politicians are going to promise that no depositor will ever lose money up to $100,000, then the banks have to have some limits on what they can do with the money. And the politicians will eventually screw up the regulation big time. And here we are.

Mon, 05/17/2010 - 03:12 | 355930 Fraud-Esq
Fraud-Esq's picture

 i think the market is a self regulating system. the problem arose when the market wasn't allowed to police itself.

This was Alan Greenspan's theory, proven wrong. Totally wrong. They do not self-regulate, never did, never will. Especially when you can bank a retirement by 27 and walk away from the carnage. You must have lots of faith in bankers.  

I agree with you on bailouts, but that in no way affected self-regulation. Not all of them knew or relied on a bailout to make their bonus and Q report. Look at Lehman.

Mon, 05/17/2010 - 13:23 | 356573 awells
awells's picture

it is sad to see such a jumble of shallow opinions warring in one head.

Sun, 05/16/2010 - 21:32 | 355508 snowball777
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And, after searching like Diogenes with a lamp in daytime, Wall St is 'cleaned out' and we find there is no one left? What then?

Sun, 05/16/2010 - 21:48 | 355535 Simon Jester
Simon Jester's picture

peace, liberty and justice for all....and all the Belgian ale you can safely consume at my place

Sun, 05/16/2010 - 21:52 | 355540 snowball777
snowball777's picture

Those Trappist monks do know what they're on about...


Sun, 05/16/2010 - 23:14 | 355716 akak
akak's picture

Curious how great minds (and great palates) think alike!

Sun, 05/16/2010 - 22:15 | 355584 Trial of the Pyx
Trial of the Pyx's picture

hear hear


that's the stuff

Mon, 05/17/2010 - 01:55 | 355883 faustian bargain
faustian bargain's picture

If you clean out Wall Street without also cleaning out the government and the Fed, you won't have accomplished much.

Sun, 05/16/2010 - 21:34 | 355511 Carl Marks
Carl Marks's picture

As long as people will accept crap, it will be financially profitable to dispense it.
- Dick Cavett

Sun, 05/16/2010 - 21:35 | 355513 Hulk
Hulk's picture

Its about fucking time. I hope the senate JC reads it and takes it serious. I can dream though.

There is a must watch interview of Jim Rogers on bloomberg over at dollarcollapse.com

Rogers is nervous about all western fiat currencies now. States that we have a massive problem that our children don't have to worry about, we have to worry about it NOW

Sun, 05/16/2010 - 21:37 | 355515 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

They must have one nut claiming the obvious or else TPTB will not be trusted.

Sun, 05/16/2010 - 21:37 | 355518 Apostate
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Can anyone make sense of his arguments? I mean, control fraud, whatever, fine. It's an effect of something much larger. This is the same guy who wants Bernanke to eliminate the deficit by punching a few keys. 

Right. And default on those Treasuries, which are held by plenty of foreign governments, toppling those in the process. The default is happening as we speak, but I suspect that it will need to appear like a crisis to allow the US leadership to save face. 

They let this guy run the show. 

Sun, 05/16/2010 - 21:58 | 355550 Double down
Double down's picture

Agreed this guy may diagnose the problem, but I do not think he, and keynesians in general can grasp how markets work.  It is like they only see two parties in a transaction they do not understand the context or substance within which the transactions occur.

In the end, they do not respect markets, as if the latter are benneith the economist. 

Sun, 05/16/2010 - 22:27 | 355617 Cognitive Dissonance
Cognitive Dissonance's picture

It's not really supposed to make sense. Just think back to Greenspan speak for an example of this. We seem to like it when our geniuses mindlessly babble with little flecks of white spittle hanging off the corner of the mouth.

I'm being almost entirely serious with my comment above. There is no understanding insanity, particularly publicly displayed insanity. This goes back thousands of years. It's just that it's only recently been televised and thus it's mistaken as a recent phenomenon. It has a rich and storied history going back to Egyptian times.

Mon, 05/17/2010 - 01:47 | 355871 Fraud-Esq
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Control fraud is a massive issue at the heart of this crisis. read Bill Black. He invented the Keating Five

Sun, 05/16/2010 - 21:41 | 355521 AN0NYM0US
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the country faces an existential threat"


JG you have been awarded the prize for understatement of the year, congratulations. It is available for pick-up at your convenience.

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