I am quite amazed by the similarity and closeness of Galbraith’s analysis and my own. And where we differ, the analyses rather complement each other. But not fully. Though our two analyses run parallel for many pages, he comes out with a somewhat different conclusion.
Galbraith is focussed on the pre-tax earnings distribution and pays less attention to the after-tax net distribution. In this respect he is quite American, where meddling with the income distribution via taxes is somehow quite unpopular.
Galbraith does not use my analysis. Hence he does not use topics like differential indexation, the tax void, tax induced crowding out on the labour market, etcetera. Often the educated reader can see such thoughts glimmering between the lines, but they are not explicit. Galbraith tends to neglect the impact of taxes on the minimum wage, and to downplay the latter’s importance for labour’s competitive position. He actually advocates a rise of the US minimum wage, in terms that suggest that he is thinking of the gross minimum !
Galbraith’s basic argument is that ‘a decent level of equality’ is both a goal in itself and an instrument to control the economy. Looking at causes for the rise in inequality in the US, he finds unemployment the main cause, and economic policy to be the main cause for that again. Hence his next focus on US monetary policy. Galbraith presents a regression analysis to back up this line of reasoning. The relation has a good causal explanation, and the R2 is high, so this is a recommendable result. In my research I am however less motivated by the inequality issue. I consider unemployment itself the main problem. It so happens that the two analyses then merge on the latter. But it also calls to question whether inequality is a useful lever for the debate. The topic of inequality may distract people - and actually repel those who are not interested in that subject per se.
With Krugman, Galbraith rejects the claims for ‘technology’ and ‘globalisation’ as the causes for stagflation. He rightly criticises the role of economists in economic policy advice, where they have suggested such causes. Galbraith’s argument against such ‘skill bias’ is remarkedly similar to mine:
“In periods of high employment, the weak gain ground on the strong; in periods of unemployment, the strong gain ground on the weak. (…) All are best reconciled to a theory of differential power, rather than to a theory of differential skill.” (p266)
Strangely, the notion is missing from the book that taxes could and should be used directly to create a better bargaining position for the lowly productive.