James Galbraith

 

James K. Galbraith is author of Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe. He is an elected member
of the Accademia Nazionale dei Lincei, the Italian national academy. 

Recent Articles

Self-Fulfilling Prophets: Inflated Zeal at the Federal Reserve

Greenspan's rate increases needlessly threaten to abort the recovery. A more accountable central bank is long overdue.

On February 4, 1994, Federal Reserve Chairman Alan Greenspan announced a quarter-point rise in federal funds rate, which is the overnight interbank lending rate and a basic instrument of monetary policy. It was the first of four interest rate hikes. By late May, the Federal Reserve had driven up short-term interest rates by a percentage point and a quarter. From the beginning, things went badly. Contrary to Greenspan's professed purposes, long-term interest rates soared. Thirty-year fixed-rate home mortgage loans had been available at about 7 percent before the Federal Reserve acted. At this writing they are over 8 1/2 percent. Some medium- and long-term rates actually rose by more than short rates at first: three-year notes jumped a full point and a half; 10-year bonds jumped a point and a quarter before the Board's fourth rate-hike, of a half-point, in May. Four months later, many questions remain. Why did the Federal Reserve act? What went wrong? What can we do? In answering these...

How the Economists Got It Wrong

The American Economic Association (AEA) met January 7-9 in Boston, for a millennial program distinguished by its attention to international policy issues, most particularly financial crises (as in Asia) and the failure of the so-called "economic transition" (as in Russia). And yet, in this odd rush to relevance, something was curiously awry. Apart from a panel including former World Bank chief economist Joseph Stiglitz, the meetings featured almost no one with a record of criticizing the institutions that gave us the Asian crisis or the transition failure. Instead, they were dominated--in session after session--by the architects of the present world order, including Yeltsin advisers Andrei Shleifer and Anders Aslund, the International Monetary Fund's Stanley Fischer, and U.S. Treasury Secretary Lawrence Summers. Even the arch-speculator Myron Scholes appeared. Never, perhaps, has such a luminous crowd gathered to discuss so disastrous a set of its own failings...

Watching Greenspan Grow

Greenspan: The Man Behind Money , Justin Martin. Perseus Publishing, 284 pages, $28.00. Maestro: Greenspan's Fed and the American Boom , Bob Woodward. Simon and Schuster, 270 pages, $25.00. For those seeking a personal portrait of America's maximum economic-policy maker, Justin Martin's biography of Alan Greenspan will serve nicely. Informed and sympathetic, Martin traces Greenspan's personal and professional lives: his early days in jazz and objectivism, his roots as an economist in the Conference Board, his participation in the old-style business-cycle studies of Arthur Burns, his ties to five presidents, and his liaisons and enduring friendships with interesting, intelligent, attractive, and loyal women. Greenspan emerges here as observers usually find him: reserved, dispassionate, thoughtful, not very pretentious--an even-tempered professional with a stable inner self, oddly at home in the outsize trappings of the chairman...

Keynes, Einstein, and Scientific Revolution

Economics follows the wrong model of physics. Keynes appreciated that jobs, savings, and growth are all relative.

O ne of the most intriguing and little-noted facts about John Maynard Keynes's masterwork, The General Theory of Employment Interest and Money , concerns the first three words of its title. These are evidently cribbed from Albert Einstein.* Alone that would be only a curiosum; but there is more. The parallels between Keynes's economics and Einstein's relativity theory are deep enough, and evidently intentional enough, to provide a useful framework for thinking about what Keynes meant to do with his scientific revolution. Keynes and Einstein had met. Keynes traveled to Berlin in 1926 to lecture; Einstein attended. Keynes's impressions were not published until 1972: Wordsworth, who had not seen him, wrote of Newton's statue: "The marble index of a mind for ever Voyaging through strange seas of Thought, alone." I, who have seen Einstein, have to record something apparently--perhaps not really different-- that he is "a naughty boy," a naughty Jew-boy, covered with ink, pulling a long nose...

The Joys of Recession

E conomics as a subject matter and, in its more than slightly fragile way, as a science, has two notable features. There is a plausible characteristic of the economy, well supported by both analysis and experience, that gets relatively little mention. And there is a related aspect of the economic system that is wholly proscribed in all reputable thought and discourse. The little-mentioned feature is the possibility, even the probability, of an underemployment equilibrium--an enduring situation of poor performance. The wholly unmentioned fact is that, for a substantial and politically influential section of the population, this is wholly acceptable, even good, and certainly to be preferred to the relevant remedial actions. It is three years and some months since the United States economy slipped into recession, with other countries of the developed world similarly affected. But popular and professional economic attitudes have rejected the notion that this is how the economy should be...

Pages