James Galbraith picks up the argument for government intervention where his father left off. His prescription: Spend now, spend a lot, and spend some more.
By Pat Regnier
February 4, 2009
(Fortune Magazine) -- Until about Sept. 20, 2008, the day Henry Paulson asked Congress for a $700 billion blank check, most of us probably thought we had a decent layman's grasp of how the economy works and how it grows.
Something like this: Buyers and sellers meet in the marketplace and strike their best bargains. Those may not always turn out to be perfectly fair or wise, but consumers generally know better than the government. Growth comes from the efforts of savers and entrepreneurs, so taxes on them must be kept low. Few argued about this stuff. Liberals just wanted to put a bigger social safety net underneath the markets; conservatives, not so much.
Now that all hell has broken loose, none of that seems obvious anymore. Consumers and businesses know what's best for them? Allow us to introduce the erstwhile homeowners of San Diego and Las Vegas, and the MBAs of Citigroup (C, Fortune 500) and Lehman Brothers.
The conventional wisdom about economics is up for grabs right now. We're not speaking here of the conventional wisdom in the economics profession - that moves pretty slowly, and is anyway less wedded to a caricature of infallibly rational markets than most people think. We mean the assumptions that lawmakers, businesspeople, journalists, and educated voters use when they talk about economic problems. Ideas that had been banished to the dustbin are suddenly back on the table, and last year's gadflies now seem as if they were ahead of the curve. Exhibit A: James K. Galbraith, go-to economist of Nation magazine-style liberalism, unabashed market skeptic, and rock-ribbed Keynesian since before Keynesianism was cool (again).
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