Monday, May 15, 2006

I Write Letters

When people write nasty columns about great economists.

To the Editors of National Journal:

If one is bold enough to speak ill of the dead, it helps to know what one is talking about. Clive Crook's pan of John Kenneth Galbraith is a case in point ("John Kenneth Galbraith, Revisited," May 13). Crook finds Galbraith an intellectual failure for his "reluctance to concede the ethical and material superiority of the capitalist system." Mr. Crook may be surprised to learn that modern economic theory--which earned many recent Nobel prizes--does not support this view.

Owing to what economists call "information problems" and "incomplete contracts," the very foundations of the capitalist economy are inherently inefficient, that is materially inferior. The markets for labor and credit and the separation of ownership from management in large corporations at the heart of our economic system all suffer this plague. Thus, people who want to work are unemployed even though they could be employed profitably. Less well off people cannot get loans though they have profitable investments to make. And corporate owners and managers face conflicting interests that result in underperformance of the firm.

Inefficiency arises not from burdensome government regulation, but from the structure of social interactions (and not coincidentally afflicts both capitalism and central planning). Some efficiency problems may be solved by one person wielding power over others--a fact that raises questions of “ethical superiority.” Other inefficiencies could be solved if bosses simply redistributed some profits to workers' wages.

Though eschewing mathematical formalization (and so did Adam Smith), many of these ideas in contemporary economics flow naturally from Galbraith's contributions to theories of power and social behavior. Crook derides Galbraith's elitism, but it was Galbraith's expository approach that brought these important ideas into public and policy debates long before they adorned the pages of academic journals on dusty library shelves.

Sincerely,

Globalize This!

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