The Affluent Society

"Galbraith didn’t invent the role of public intellectual/social critic but he certainly occupied it incredibly effectively. He’s making the point – about the US in the 1950s, but it’s even more true today – that at the same time as we have this incredible array of consumer goods, the goods which we rely on the public to provide are decaying. Private affluence and public squalor is the great catchphrase of that book. It’s in a vein of literature from the 1950s and going into the 1960s. In a different way, Betty Friedan’s Feminine Mystique made a similar point. Here is a society that has achieved material wealth beyond the imaginings of any previous society, and with a relatively high degree of equality. (The US at the time Galbraith was writing in 1960 was more equal than it had been at any time before or was to be any time since.) And, yet, it seemed as if, in important respects, the quality of life was well below what you might hope for. His diagnosis was that while the machine was doing a great job in producing market goods and services, the really valuable things – those which for a bunch of reasons have typically been left to the public to provide – were far less well supported than was needed for a good life. We were having an erosion of public space in all sorts of ways, so the quality of our public lives, the increasing ugliness of cities, the growth of air pollution, along with chronically inadequate health services for a large proportion of the population and an education system which only served part of the population adequately – all of those things were the kinds of lacks that Galbraith was pointing to. If you think about the gleaming 1950s kitchen, with all its labour-saving devices, and compare it to the hard physical labour involved in getting a house going with the technology of even 30-40 years before, it’s unsurprising that, in some ways, it seemed like we were living in a utopia. We’re used to that technology now, but it’s still a real achievement and one that’s largely to the credit of capitalism. But both Betty Friedan and Galbraith were saying, “That’s all fine, but it hasn’t actually delivered us the kind of freedom we really need.” I’m sympathetic, though people possibly get too hung up on the fact we’re mismeasuring things. There’s no doubt we are. Whether getting the measurements right would then lead to better outcomes is less clear. In important respects they would. I have a bunch of technical work on ways we could improve those measurements, but the point is to actually do it, rather than to measure it right. GDP, which is the classic target, is a really terrible measure. There are better measures even within the official national accounts. For example, there is something called Net National Income in the official accounts which is rarely headlined. That would overcome a bunch of the criticisms made of GDP. But I suspect the answer is that even though GDP appears as this important thing, most people don’t have a clue what the GDP of their country is, or what GDP per capita is. I’m not sure even policymakers are as distracted by GDP as some of the critics think. It’s much more the spell of market liberal dogma than the measurement issues that’s the biggest problem. Neoliberalism had a fairly plausible promise, coming out of the chaos of the 1970s and 1980s. It said: “Forget about all these utopian ideas, those things don’t work and never will. The only freedom that can be delivered is the freedom of market choices, and if we give those to everyone, even if the outcomes initially aren’t equal, everybody will be better off in the long-run.” A large part of my work is about pulling that down, saying, “Now we’ve had 30 years of this stuff, let’s look at what’s actually happened.” The answer is that in the US the average person is very little better off, in material terms, than they were 30-40 years ago. Real wages for high-school educated workers haven’t risen since the 1970s. There are more people below the poverty line now than there were in 1960. The model – in its most sophisticated and well-developed form – hasn’t delivered the goods. The people who are being paid incredible fortunes to manage it have shown themselves to be a bunch of incompetent screw-ups who continue to be rewarded. But we need more than critique. To overcome this intellectual capture, we need a plausible alternative. I find Mises pretty unreadable. Hayek is kind of slippery – you never quite know where you are with him. Look at The Road to Serfdom , a book which is most naturally read as predicting that the policies of the British Labour Party – which were, of course, actually implemented – were going to lead to a communist dictatorship. Obviously that didn’t happen. Then Hayek spends the next 40-50 years – the rest of his life and his successors going even further – trying to duck and weave whether they really were saying that, or whether, in the manner of prophets, they’d warned about something and it was their warning that averted it and produced moderate social democracy. Hayek is a clever writer, appealing in some ways. I guess, at the end of the day, I don’t trust him. But yes, one point I would concede to Hayek and von Mises is their critique of central planning. I’m actually about halfway through Red Plenty , a semi-fictional account of the Soviet Union in the heyday of planning. I haven’t finished it yet, but the idea that we could really achieve great gains by centrally coordinating everything is something which Hayek and von Mises criticised very effectively and that certainly has influenced my thinking about it. I don’t think there’s a mystery as to why countries rapidly catch up. The mystery, historically, is more why they failed to. The surprise coming out of World War II is how unsuccessful development was. Here was all this modern technology that these countries didn’t have but which was now easily accessible and any person could be trained to use. They could use money that they either saved and invested themselves or they could import foreign capital, depending on the system. Granted, these countries were starting from a long way back, but we ought to have seen a very rapid catch-up of the poor countries to the rich ones, at least in the space of a couple of generations. That didn’t happen. Particularly in the generation after World War II, many of the poor countries went backwards in relative terms. Paul Collier’s book The Bottom Billion is a good one to look at for this. He’s looking at the very poorest group, who if they’ve had a take-off, it’s only happened in the last 10 years. It turns out that there’s a trap there – that at a certain low level of development, studying hard, or setting up a business isn’t the right thing to do. The right thing to do is to go into the army, become a sergeant and sooner or later stage a military coup so you can just take what you want. So it’s getting out of that trap that’s really proved crucial. The appeal of just taking stuff is much greater than we imagine. So there are a wide range of institutions that are important, but the evidence shows that having a substantial role for government doesn’t stop you experiencing very rapid and strong economic growth, and certainly elements of it – for example a high quality education system – are essential. But I don’t think there are lessons for the countries that are already developed to learn from this, unless it is to disabuse you of the notion that unless you stick within the golden straitjacket, the fashionable prescriptions of the Washington consensus, you can’t possibly achieve strong growth. The evidence shows you need to have a decent education system and a society where the way for people to achieve things is to work and produce things. Achieving that is hard, but once you’ve achieved it, growth is actually pretty easy. Yes, it’s a great phrase. He was a social critic who did it with great panache. The word “affluent” was also a word that was in the dictionary but he brought it back into popular use. And my favourite, which hasn’t made it out of very limited circles, is the bezzle. The bezzle is the amount of money in the financial system that people have surreptitiously stopped away in hidden accounts. It grows and grows and grows until a crisis comes, at which point the accounts are inspected and everyone is caught and the bezzle shrinks to zero – it’s a big contraction of embezzlement. As an economist, Galbraith had some interesting ideas but ultimately didn’t have a lot of influence on the way the profession developed. But as a writer and a critic he was incredibly good. What’s really striking about the most recent crisis is that, on the one hand, the illegal bezzle was huge. Bernie Madoff’s came to $60 billion. Ponzi himself, adjusted for inflation, was but a tiny fraction of this. There were also a whole bunch of smaller Bernie Madoffs, who, because their thefts ran only in the tens of millions barely made it to the front pages of the newspaper. But all the Madoffs put together pale into insignificance when compared to what Goldman Sachs, Royal Bank of Scotland and so forth did – all of whom have been rewarded and promoted for their role in the disaster."