The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, the book from economist author James Galbraith

The UT professor and son of a famous economist denounces the ‘free market’ that has created a vulture-like capitalist culture

I recently heard on NPR economist James Galbraith speaking about his book The Predator State. To summarize and paraphrase what stands out in my mind of Galbraith’s comments: the U.S. economy since the New Deal has been a blended market with the hand of government playing a critical and useful role along side supply and demand free market forces. However, “the well has been poisoned,” specifically with regard to Freddie Mac and Fannie May, and in order to cure the situation the crucial functions these non-free market institutions play must be restored.

Austin-American Statement review of The Predator State.

Roger Gathman’s excellent review of The Predator State goes through James Galbraith’s explanation of why ‘predatory’ capitalism resurfaced, how it has mutated and what must be done to course-correct. Beginning with John Stuart Mill, who wroteThe Principles of Political Economy, economists have generally believed that free trade and free markets arise universally from the principle that supply and demand eventually meet in an equilibrium, which is why markets are self-correcting, and government action is self-defeating.

Countering this notion Galbraith’s father, John Kenneth Galbraith, in his 1952 book American Capitalism
coined the term “countervailing power” which he defined as a concentration of power that allows an agent to influence prices over and above the “market.” Wal-Mart, for instance, has countervailing power over its suppliers.

The word “predatory” is taken from Thorstein Veblen’s 1899 book, The Theory of the Leisure Class. It was long thought that Veblen’s predatory capitalists and the system of laissez faire that made them possible disappeared after the New Deal was created in the 1930s. But the predatory capitalist culture emerged again at the end of the 1980s. The narrative Galbraith lays out in The Predator State is an explanation of why it resurfaced and how it has mutated. Writes the Statesman’s Gathman:

The narrative takes its bearing not just from Veblen, but from Galbraith’s father’s 1969 best-seller “The New Industrial State,” which argued that the postwar era was defined by a three-way alliance between big business, the government and labor.

Later Rockefeller Republicanism turned to Reagan Republicanism (with tax cuts and small-government rhetoric), the leveraged-buyout crowd besieged corporations, and compensation for tech company leaders skyrocketed leading to similar pay for CEOs managing much less dynamic companies and thus bringing us to the final act of Galbraith’s scenario: although free market rhetoric has ruled American political discourse since the early ’80s, in reality, the old New Deal/Great Society programs have been plugging away all along. Federal and state government programs still “account for nearly 40 percent of total consumption of goods and services in America.” A vast, subsidized market for everything from pills to school tests to weapons. Thus came the rise of the predator state, as Washington lobbyists, politicos and highly placed bureaucrats colluded with predatory capitalists to privatize government functions on the public dime. Galbraith writes:

It is a coalition… that seeks to control the state partly in order to prevent the assertion of public purpose and partly to poach on the lines of activity that past public purpose has established.

The result is a world turned upside down, in which capitalism is discouraged where it can do good and encouraged where it will cause harm. For instance, in 2003, after voting for the most expensive medical drug program in history, Congress forbade the government from using its countervailing power, as a large buyer, to negotiate pill prices down — thus blocking efficiencies and price cuts similar to those that Wal-Mart is able to get out of its suppliers.

After having shown the systematic problems we face, Galbraith lays out his own solutions in the third section of the book such as moves to revive government’s planning role. Galbraith sees the problems of the moment — the crash of the mortgage market, the rise in the price of oil and the all-enveloping environmental crisis — as an opportunity for government activism to direct private initiative.

Read the article in its entirety
08.03.08 » Austin-American Statesman: BOOKS, James Galbraith’s ‘Predator State’: damning, incisive

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The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, James Galbraith
American Capitalism, John Kenneth Galbraith
Principles of Political Economy (Great Mind), John Stuart Mill
The Theory of the Leisure Class, Thorstein Veblen