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October 30, 2009

The headlines are trumpeting recovery — some are even proclaiming an end to the recession in the United States (unofficially, that is). The US economy grew in the third quarter for the first time in a year. But there are some caveats — although jobless claims dipped slightly, many analysts still warn of a "jobless recovery." for a number of years to come.

And then there's the small print — will this recovery be permanent or is it a function of the stimulus masking bigger problems? THE WALL STREET JOURNAL warned: "The recovery thus far has been heavily supported by federal money, casting a question mark over the economy's underlying strength as government support dwindles." That unease is echoed by JOURNAL guest James K. Galbraith:
The fact is, the economy — production is going to turn around, has started to recover. But it will be six months in before a strong growth of production leads to new employment. And the question is, will that growth of production continue, after six months? The problem here is that we have a stimulus package, which is helping now, but it will be over with at the end of next year. Will there be a basis for another strong, privately financed expansion at that point? I don't see the evidence for that now. And that seems to me to be something we should be worrying about.
Another Crash, Another Galbraith

The announcement of the possible end to recession came on the anniversary of "Black Tuesday," of the great Wall Street crash of 1929 which ushered in The Great Depression. James K. Galbraith's famous economist father, John Kenneth Galbraith, wrote his classic study THE GREAT CRASH in 1955. The senior Galbraith noted that both the willingness of the American people to get caught up in speculative bubbles and the close ties between big business and politics led to the crash — and might well do so again.
Even in such a time of madness as the late '20s, a great many men in Wall Street remained quite sane. But they also remained very quiet. The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them.
-John Kenneth Galbraith, THE GREAT CRASH: 1929, 1955.
More than 50 years later the younger Galbraith reiterated his father's warning. "That's the point about the crisis, is that it could have been prevented. The people in authority two, three, five years ago, knew how to prevent it. They chose not to act, because they were getting a political and an economic benefit out of the speculative explosion that was occurring."

Additionally, Galbraith voiced similar worries about what might happen in Wall Street and Washington go back to business as usual:
The overwhelming emphasis, in the administration's program, I think, has been to return things to a condition of normalcy, to use a 1920s word, that prevailed five and ten years ago. That is to say, we're back to a world in which Wall Street and the major banks are leading and setting the path... Do you want to have a financial sector dominated by a small number of very large institutions, very difficult to manage, practically impossible to regulate and ruled by, essentially, the same people and the same culture that caused the crisis in the first place.
James K. Galbraith
James K. Galbraith is currently the Lloyd M. Bentsen Chair in government and business relations and professor of economics at the LBJ School of Public Affairs at the University of Texas at Austin. He holds degrees from Harvard (B.A. magna cum laude, 1974) and Yale (Ph.D. in economics, 1981). He studied economics as a Marshall Scholar at King's College, Cambridge in 1974-1975, and then served in several positions on the staff of the U.S. Congress, including as the Executive Director of the Joint Economic Committee. He was a guest scholar at the Brookings Institution in 1985 before joining the faculty at the University of Texas. From 1995 to 1997 he directed the LBJ School's Ph.D. Program in Public Policy. He held a Fulbright Distinguished Visiting Lectureship in China in the summer of 2001 and was named a Carnegie Scholar in 2003. His recent research has focused on the measurement and understanding of inequality in the world economy, and leads an informal research group called the University of Texas Inequality Project with several of the school's distinguished graduate students.

Photo by Robin Holland Professor Galbraith has co-authored several books including: BALANCING ACTS: TECHNOLOGY, FINANCE AND THE AMERICAN FUTURE (1989), CREATED UNEQUAL: THE CRISIS IN AMERICAN PAY (1998), INEQUALITY AND INDUSTRIAL CHANGE: A GLOBAL VIEW (Cambridge University Press, 2001), which was co-edited with Maureen Berner and features contributions from six LBJ School Ph.D. students, UNBEARABLE COST: BUSH, GREENSPAN AND THE ECONOMICS OF EMPIRE (2006) and his latest book THE PREDATOR STATE: HOW CONSERVATIVES ABANDONED THE FREE MARKET AND WHY LIBERALS SHOULD TOO (2008).

Professor Galbraith maintains several outside connections, including serving as a senior scholar of the Levy Economics Institute and as chair of the board of Economists for Peace and Security. He writes a column called "Econoclast" for MOTHER JONES, and occasional commentary in many other publications, including The TEXAS OBSERVER, THE AMERICAN PROSPECT, and THE NATION. He is an occasional commentator for Public Radio International's MARKETPLACE.

Guest photos by Robin Holland.

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Economist Simon Johnson and US Rep. Marcy Kaptur
Just over a year after economic calamity brought promises of reform from Washington, has Wall Street really changed? Former International Monetary Fund chief economist Simon Johnson and US Rep. Marcy Kaptur (D-OH) report on the state of the economy. (October 9, 2009)

The Crash of 1929 captures the unbounded optimism of the age, a time when the stock market epitomized the false promise of permanent prosperity.

William K. Black
The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout. (April 3, 2009)

Simon Johnson, photo by Robin HollandSimon Johnson
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References and Reading:
"No Return to Normal: Why the economic crisis, and its solution, are bigger than you think," WAHINGTON MONTHLY, September 3, 2009.

by James K. Galbraith, HARPER'S, November, 2008.
"The problem is not how to save capitalism but how to save the unique and successful mixed economy built in the United States over the 85 years since the New Deal."

"A Bailout We Don't Need"
by James K. Galbraith, WASHINGTON POST, September 25, 2008.

"Why Populists Need to Re-think Trade"
by James K. Galbraith, THE AMERICAN PROSPECT, May 10, 2007.

"The Predator State"
by James K. Galbraith, MOTHER JONES, May/June 2006.

TIMES TOPICS: James K. Galbraith

"From Free Markets to $4 Gas "
by Roger Lowenstein, THE NEW YORK TIMES, September 26, 2008.

"James Galbraith's 'Predator State': damning, incisive"
by By Roger Gathman, AUSTIN AMERICAN-STATESMAN, August 03, 2008.

"'Predator' urges change in definition of 'free market'"
by Steve Weinberg, USA TODAY, September 7, 2008.

James K. Galbraith
"Remembering J.K. Galbraith," ONLINE NEWSHOUR, May 1, 2006
NewsHour Economics Correspondent Paul Solman talks with biographer Richard Parker and reviews an earlier interview he had with Galbraith.

Richard Parker on John Kenneth Galbraith NOW on PBS, March 25, 2005
Richard Parker is Lecturer in Public Policy and Senior Fellow of the Shorenstein Center at Harvard's Kennedy School of Government and author of JOHN KENNETH GALBRAITH: THE MAKING OF AMERICAN ECONOMICS. View the interview online.

John Kenneth Galbraith discusses the lessons of the Great Depression.

Extracts from "THE GREAT CRASH: 1929

FDR's Second Bill of Rights
1944 State of the Union Address
FDR's Second Bill of Rights or Economic Bill of Rights Speech. View archival materials and read the complete speech.

Also This Week:
Economic recovery in review. The Dow's up, but why are Main Street Americans still reeling from last year's economic collapse? With Americans still facing rising unemployment, foreclosures, and declining property values, renowned economist James K. Galbraith on whether we've averted another crisis and how to get help for the middle class.

NATIONAL REVIEW senior editor Richard Brookhiser talks about his mentor William F. Buckley, Jr. and today's conservative movement.

View the JOURNAL's complete coverage of the financial crisis.

Bill Moyers talks with legal scholar and blogger Glenn Greenwald about Afghanistan, government secrecy and more.

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