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Remembering J.K. Galbraith

Harvard economist and behind-the-scenes presidential adviser John Kenneth Galbraith died Saturday at age 97. NewsHour Economics Correspondent Paul Solman talks with biographer Richard Parker and reviews an earlier interview he had with Galbraith.

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  • RICHARD PARKER, Galbraith Biographer:

    He broke with American conservatism over this idea in the 1930s that free markets could solve their own problems.

    The American economy in the 1930s was in a mess. We were in the middle of the Great Depression. A quarter of the population was out of work; 90 percent of the stock market had disappeared. But conservatives were saying, "Leave it alone. The economy will come back."

    Galbraith was quite worried. He saw Stalin in Moscow; he saw Hitler in Germany; and he wanted to save capitalism from its failure.

  • PAUL SOLMAN:

    So what does he do?

  • RICHARD PARKER:

    So what he does is he is influenced by an English economist named Keynes and devises an idea of how to use government to smooth out the cycles that business normally goes through, the ups and downs of the so-called business cycle. By using government spending at the bottom of these cycles, you can stimulate the economy from the drop, and you can also use government tax policy to clip off the high excesses that would lead to irrational exuberance.

  • PAUL SOLMAN:

    In other words, you'd tax people, take money out of their pocket, and therefore they wouldn't be able to spend. That would dampen the economy.

  • RICHARD PARKER:

    Exactly, at the height. And then what you'd is you pump money in at the bottom using deficit spending by government.

  • PAUL SOLMAN:

    And that was the prescription for the '30s?

  • RICHARD PARKER:

    He's writing about it. He's teaching at Harvard University, but he's also serving as an adviser to the New Deal. And by the start of the Second World War, Roosevelt trusts him enough that, as a 32-year-old, Galbraith is put in charge of the American domestic economy.

    He's the price czar in World War II, the man who's in charge of making sure that the economy can grow quickly to accommodate all the military needs of the Second World War, but that inflation doesn't break out and disrupt the economy and disrupt America's war-making capacities.

  • PAUL SOLMAN:

    Because the idea is that, if you suddenly have lots of orders at certain factories and you have to have lots of people work at those factories, that's going to drive up the prices and the wages?

  • RICHARD PARKER:

    Right, it creates scarcity, it creates extraordinary demand, and just prices will soar if you don't manage the economy.

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