Whatever ever happened to the ‘Affluent Society’?
With economic markets in turmoil the world over, do we need a fresh rethink on the economy of the 'West'? Martin Hickes reports.
Just over 50 years ago, the renowned American economist and liberalist J K Galbraith published his seminal work ‘The Affluent Society’.
Canadian-born Galbraith, lionised in some quarters as the ‘Einstein’ of the sometimes arcane world of economics, envisioned a new post-war liberalism, calling for a ‘new economics’ to reflect the rise of a war-torn world out of austerity and poverty.
With the direction of the US and the world economies at perhaps their biggest post-war crossroads ever, and at a time when the very nature of capitalism is being questioned, it is time for an economic re-think?
With many struggling to repay mortgages, and the global credit crunch biting hard, have we finally come to the end of the 50-year bubble of the US-led economy and Galbraith’s socio-economic utopia?
With the collapse of major banks only just avoided recently, some dyed-in-the-wool stock market traders are considering the efficacy of the 'system'.
Economists at home and abroad are beginning to consider whether a new ‘Galbraithian’ ‘re-boot’ is needed.
Dr Stephen Dunn, author of the forthcoming book 'The Economics of John Kenneth Galbraith' (Cambridge University Press, pub. 2009), formerly at Leeds University, and an influential strategy director for the NHS, says it would do no harm to
revisit Galbraith's philosophies.
He says: “Galbraith was considered an iconoclast by many economists and a hugely successful bestseller both in the US and Britain, reaching into the homes of the discerning reader on both sides of the Atlantic.
“He rejected the technical complex models of classical economics as being too remote from an economic reality and believed national and global economies could not be dictated by ‘written in stone’ laws.
“Rather he thought the big picture of world economics was a complex product of the cultural and political mix in which it existed, which defied ‘conventional wisdom’ - the phrase he coined - or typical economic models.
“In 'The Affluent Society (1958)', and also The Great Crash (1954) he opined, to become successful, post-World War II America should make large investments in items such as highways and education using funds from general taxation among other theories.
“But first and foremost he said economics must have a social relevance to the man on the street.
“Given he had the ear of more than one US president, the book became a best-seller and contributed to Kennedy and Johnson’s ‘war on poverty’ and subsequent government-led public spending programme.”
Harvard-educated Galbraith worked on the book while in Switzerland, and had originally titled it The Opulent Society but changed it to The Affluent Society at his wife's suggestion.
In such he wrote: 'The world is a newly affluent place. Economic growth has brought enormous changes to the ways in which the populations of the Western world live.
'Society's perceptions are highly conservative. People invest heavily in these ideas, and so are heavily resistant to changing them.
'They are only finally overturned by new ideas when new events occur which make the conventional wisdom appear so absurd as to be impalpable.
'Then the conventional wisdom quietly dies with its most staunch proponents, to be replaced with a new conventional wisdom.... it is armed with the evidence of recent events which make the current conventional wisdom increasingly untenable.'
Dr Dunn adds: “Galbraith was a hugely influential figure on shaping and influencing the course of events and intellectual debate over the long twentieth century.
“Those seeking to develop a realist vision of the economy would be wise to further consider his economic and social theory.
“At 6' 8”, both in style and physical appearance, he did not conform to the caricature of an ivory tower academic.
“He is principally associated with writing a series of intellectually demanding yet rewarding books aimed at a general readership in order to alert the public to the social consequences of the major transformations in economic structure that were occurring.
“His disdain and sarcastic wit targeted abuses of business power and the sometimes unjust accumulation of private wealth, in the context of poor and underfunded public services.
“Nevertheless many of the tributes and obituaries that followed his death in 2006 identified him principally with a vision of the Post War economy dominated by large bureaucratic corporations, unfettered by the demands of consumers and financiers alike – something unthinkable today.
“In the days that followed his death little serious reflection was given to Galbraith’s enduring contributions to economic theorizing and many continue to write him off as a product of his age.
“The conventional reflection noted his colourful life, celebrated his mordant wit and prose, yet generally castigated his obsolete theorizing as without lasting merit.
“But for Galbraith the aim of a socially relevant economics was to be in touch with the great problems of our time. And as times change and history moves on, so must our analysis.”
“Galbraith’s monetary and financial analysis recognises the ‘dark forces of time and uncertainty’ and the euphoria and speculation that accompanies institutional evolution.
“Easier credit checks, lower down payments, longer repayment terms, and other inducements for people to go further and further into debt are permanent are necessary fixtures of the consumer society described in The Affluent Society.”
“He recognized the significant economic power held by large firms, and that such power was one of the main reasons for the success of the US economy in the post World War II era.
“But he also saw that this concentration of power also created a range of unintended problems – social and environmental.
“For these reasons he suggested society must counter the power of the large firm and the wealthy, and ensure the provision of those essential goods and services that are underprovided. The state must also use its power to mitigate macroeconomic problems such as financial instability, unemployment, inflation and poverty.
“Especially today, Galbraith's philosophies remain relevant. Individuals do not always act in ways that fulfil their happiness, challenging one of the basic building blocks in conventional economics.
“The recent Nobel Prize winner in economics Daniel Kahneman has shown that individuals do not conform to the rules of economic rationality and make systematic mistakes.
“Likewise, it has become more widely remarked that financial markets are driven by “irrational exuberance” and are not as efficient or rational as the conventional wisdom would have us believe.
“Many are concerned that large firms dominate the setting of prices and wages and shape consumer desires through advertising and marketing and that public goods such as transportation and universal access to health care are essential to social welfare and to economic growth.
“Increasingly in the popular press it is argued that fiscal policy – using government spending and changes in tax rates to stimulate growth – can be effective, but must be channelled to those that need it.
“For all these reasons, the economic contributions of J.K. Galbraith deserve lasting attention.”