He also criticises the ‘liberal supply siders’ - i.e. those intellectuals who defined the agenda of ‘progressive’ politics in 1980-2000. Ira Magaziner pops up again. Galbraith recalls that Krugman already criticised these demagogues, but adds the criticism: If education is to be regarded as a tool for competitiveness, then we lose the idea of eduction for eduction’s own sake. And mutatis mutandis for public goods. It is about time that this critique is given.
While Krugman argues “we don’t know” - though recently seems to incline to the ‘technology’ argument - Galbraith provides a clear answer: Policy abandoned the commitment to full employment under a stable price level. Of the 1950-1970 prosperity he says, as I have been argueing for some years too:
“There is no compelling argument that this achievement was anomalous or irreproducible. I believe, on the contrary, that it resulted from a sustained period of sensible policy, later abandoned.” (p267)
The major error that economists made was - in Galbraith’s eyes - the adoption of the NAIRU framework. This requires a longer discussion, some paragraphs below.
Galbraith’s argument has to do with the ‘political’ aspect of political economy. Around 1980 Carter and Volcker considered inflation far too high, and the decision was made to let the Fed go ‘all out’ for inflation control. [128] Galbraith shows that this was a break with the past. In the past more tools were used and many government branches co-operated with the Fed. The 1980 decision changed the economic policy making structure and culture, and it became socially acceptable to have high unemployment as a way to tackle inflation.
I think that Galbraith’s argument is correct in this. And he is quite correct in argueing (e.g. page 233) that this structure should be changed again to the workings of old, if we want full employment under a stable price level again.
I am afraid, though, that this part of Galbraith’s argument will hardly convince the fellow economists. Economists already know about the 1980 switch, and Mankiw (1998) dilligently explains the ‘sacrifice ratio’. The experience does not cause economists to think that ‘full employment and stable inflation’ really can be combined. Economists regard the 1950-1970 period as rather a freak accident, dependent upon some ‘after WW II culture’ (or other ‘amateur sociology’).
Galbraith relies on the ‘equality as goal and tool’ paradigm. Restating on p240-246 what he sees as the old recipe and the lessons from fighting inflation: