James K. Galbraith on his study of the world economy just before the great crisis
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network for the concluding segment of this series of interviews with James K. Galbraith on his new book Inequality and Instability. Thanks for joining us again, James.
JAMES K. GALBRAITH, LBJ SCHOOL OF PUBLIC AFFAIRS, UT AUSTIN: My pleasure.
JAY: So, just to remind everybody, watch the other parts and then come watch this part if you haven’t seen the other parts, although to some extent this part will stand on its own. Again, James K. Galbraith teaches economics at the LBJ School of Public Affairs at the University of Texas, Austin. He’s the author of the book The Predator State. And his newest book: Inequality and Instability. Thanks for joining again, James.
GALBRAITH: Thank you.
JAY: So what public policy conclusions come from your work?
GALBRAITH: Well, I think the first one is that economic policy should not be under the control of bankers, and any economic team which is dominated by the financial sector is going to be largely serving that sector’s interest. Now, that, I think, is a very clear fact and something which everybody should be prepared to resist and to object to when it occurs and to protest until it changes. Until that happens, very little else will happen.
Second point. I think we’ve learned from this that the institutions of the New Deal were by and large sound, by and large well conceived, and they did a good job for a long time. It wouldâ€”we did ourselves a great deal of damage by dismantling the regulations that controlled the financial sector up until the mid/late 1990s. We should not compound that damage by dismantling the greatest legacy of the New Deal, which is Social Security, or Medicare, which is in some sense the culmination of the New Deal project in Lyndon Johnson’s Great Society. We should defend those programs, because they are social insurance programs which have been and continue to be a mainstay of the basic protection against poverty for working Americans, and their enemies are not people who are motivated by some higher economic wisdom or public purpose, but who are simply pursuing an agenda of undermining and ultimately dismantling these programs that they have been pursuing since the 1930s and the 1960s.
JAY: Some people have argued that the power of finance has gotten so profound and so strong and essentially comes down to how finance, how banks are ownedâ€”it’s not just a distribution question, it’s an ownership questionâ€”that the banking sector, first of all, is in so few hands, and second of all, so much of the economy is in the hands of the finance sector (I know if you dig into what these banks are doing, it’s not just derivatives and various financial shenanigans; they also directly own an enormous amount of the commodities in the world directly, or they own ownership stakes in some of the biggest commodity tradersâ€”Goldman Sachs has its fingers into every kind of business transaction, as do the other big houses), that the wayâ€”the power and the concentration of ownership is such that it gives them such political power that to address that, you have to start kind of somehow opening up some areas of the economy, either through some forms of public banking or something else, that challenge the power of that ownership. What do you make of that?
GALBRAITH: Well, I think the function of the financial sector has been deeply compromised since the crisis. It is not doing a job that serves the broader public purpose. You have, essentially, very short-term investmentâ€”as you point out, a large part of it in commodities, which have been driving up prices and effectively acting as a choke chain on the recovery of economic activity.
What should have been done in 2009 was for the government to take control of the most severely damaged, impaired, and dangerous institutions and to resolve them according to the normal laws that are put into effect every week when smaller banks are in trouble. That is to say, they go into a receivership under the control of the regulators, the FDIC, and they areâ€”you have a careful examination of their practices, of their books, of their assets, and then they are restructured as appropriate to the situation. That didn’t happen, and as a result, we are saddled with a small number of massive banking institutions with very highly paid, powerful people at the top who throw their weight around politically. And that is something which needs to be addressed directly, and for which the tools not only exist, but to some extent they were enhanced by the passage of Doddâ€“Frank, which requires these institutions to have a resolution plan, a plan what to do if they have to be restructured. So that should be, again, a major political priority. It is time for that to happen.
I was very interested to see a voice coming from an entirely different political quarter, president Richard Fisher of the Dallas Federal Reserve, giving a speech a few days ago in which he basically saidâ€”made some of the same arguments. So I think there is in fact a broad sense that this is the momentâ€”that this is what is needed in the country, that we cannot effectively return to prosperity if we have allowed the financial sector to be dominated by a very small number of very large and essentially dysfunctional institutions that are dangerous to the system but also practically impossible to regulate and monitor effectively.
JAY: And as you pointed out earlier, finance essentially has captured both main political parties. So what should people do?
GALBRAITH: Well, they need to recapture one of the parties, I think, is the answer to that. I don’t see any alternative.
JAY: Thanks for joining us, James.
GALBRAITH: My pleasure as always.
JAY: And thank you for joining us on The Real News Network.
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