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University Of Texas Economist James K. Galbraith

The comment that a loss of 11,000 is better than a loss of 700,000 almost reaches the depth of insight achieved by President Coolidge, when he said that ‘when men are out of work, unemployment results.’  In the real world, we will need between 250,000 and 300,000 new jobs every month for five years—sixty months in a row—to return to full employment.  I would like to know whether anyone in the administration believes that anything presently in the pipeline will achieve this.  I do not.

James K. Galbraith

Washington

America’s Financial Future:  A Conversation With James Galbraith

Economist James K. Galbraith holds the Lloyd M. Bentsen, Jr. Chair in Government/Business Relations, and is Professor of Government at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.

He earned his B.A. in economics, magna cum laude, from Harvard in 1974, and his Ph.D. in economics, from Yale in 1981.

He pursued economics studies as a Marshall Scholar at King’s College, Cambridge ( 1974-1975 ), after which he accepted several staff positions in the U.S. Congress, where he served as Executive Director of the Joint Economic Committee.

He is the son of renowned Canadian-American economist John Kenneth Galbraith ( 1908-2006 ).

Economist James K. Galbraith addressed the independent Irish think tank TASC in Dublin last June.  He spoke to the issues of income inequality and failed institutional reform in Western nations.

Galbraith appeared on Bill Moyers Journal in October, where he spoke about the problems facing the Obama administration at home, and the implications of high risk banking to the G20 major economies.  Newsroom Magazine published a transcript of Bill Moyers’ interview with Galbraith on December 11th, 2009:  In Search Of Presidential Leadership.

To follow up on what Galbraith may have learned while in China, I began our conversation with questions about two issues of immense importance to two immense nations:  the stability of the United States dollar, and the balance of trade.

China And The U.S. Dollar

WAMARA MWINE: How do the Chinese view the present world economic situation — from the stability of the U.S. dollar to their dependence on exports to the United States?

JAMES GALBRAITH: The Chinese see no advantage to destroying present financial relationships, and they are aware that investing in an overvalued euro is likely to expose them to losses if the dollar rises and the euro falls.  So I do not expect rapid changes in that department.  As for imports, China already imports what it wants and needs from the rest of the world, as any observer there can see.  Chinese imports from the rest of the world will rise more or less rapidly with the domestic growth rate, and do not depend on any policy decision that the government might make.  Contrary to what many think, an appreciation of the renminbi [ RMB ], would not matter much.

The fact that Chinese hold a large quantity of United States treasury bonds does not in any material sense put us in their debt, in any sense of dependency or any sense of leverage.  The pretense that it does serves a lot of mischievous purposes including the impulse of Secretary Clinton, Secretary Geithner and to some extent the president trotting over there, as Secretary Clinton did, thanking the Chinese for lending us all that money. Or somehow how we conduct our economic policy is a matter that we should be concerned about their views on.  They are not concerned about our views with respect of how China pursues its economic development policies.  What we need to do in this country is to focus on our own economic objectives.  This should be rapid restoration on high unemployment and achieving progress on huge social, energy and environmental challenges that we face.  Getting those things done in no way depends upon the good opinion of the government in Beijing.

Stimulus Spending

Wamara Mwine is the White House Correspondent for PoliticsInColor.com.  His passion for social issues was explored in his USA Today Letters to the Editor, and while writing for United Press International, NBC, and CNN.

Mwine’s eight years in Washington afford deep insight into election related stories, as well as political and business issues.

Mwine can be reached at PoliticsInColor@gmail.com

WAMARA MWINE: The U.S. economic stimulus package [ American Recovery and Reinvestment Act of 2009 ] has helped support emergency services in several states, but has not generated millions of projected jobs.  Can government effectively stimulate jobs in this recession?

JAMES GALBRAITH: Yes.  The stimulus package has helped maintain jobs.  A larger, more open-ended package, with an aggressive public jobs component, would have done even more.  The planning error last January was a failure to understand just how deep this slump would become.  It was a forecasting error — a failure to recognize that in an extreme situation, the consensus view is always wrong.

WAMARA MWINE: President Barack Obama has boasted about how his tax breaks helped Liz Claiborne by potentially opening 25 additional stores.  If merchants can achieve this kind of short-term growth, who in a recession is going to spend money to maintain these new stores when the financial future is so unclear?

JAMES GALBRAITH: “Potentially” is the key word here.  I’ll believe the story about those stores when I see them.  But in any event, far more stores have closed in the recession than the tax breaks can bring into existence.  The problem for retail is the fall in demand.

U.S. Employment

WAMARA MWINE: At the White House Briefing on On Wednesday, December 9th, Press Secretary Robert Gibbs said since the beginning of the year the country has gone from a loss of 700,000 jobs to a loss of 11,000 jobs.  He said, and I quote:  “So obviously what happened in the beginning of the year — we’re seeing progress,” referencing the president’s efforts.  What do you make of these numbers?  Does solely reducing the job loss suggest  that the recession is actually ending?

JAMES GALBRAITH: The comment that a loss of 11,000 is better than a loss of 700,000 almost reaches the depth of insight achieved by President Coolidge, when he ( is said to have ) said that “when men are out of work, unemployment results.” In the real world, we will need between 250,000 and 300,000 new jobs every month for five years — sixty months in a row — to return to full employment.  I would like to know whether anyone in the administration believes that anything presently in the pipeline will achieve this.  I do not.

U.S. Banking Policy

WAMARA MWINE: I’ve written about CDOs [ Collateral Debt Obligations ], and how they raised havoc in the mortgage industry, which ultimately damaged Wall Street.  In some cases, like Lehman Brothers, the damage caused bankruptcy. In March, you wrote in Firedoglake.com that “the cost will be continued vast overcapacity in banking, and a consequent weakening of the remaining, smaller, better managed banks who didn’t participate in the garbage loan frenzy.”  You have described the banking industry as a “poisoned well.” How can the the Department of the Treasury successfully deal with the defaulted loans and millions of people caught in this crisis?

JAMES GALBRAITH: There are ways. Dean Baker’s “right to rent” proposal would help defaulting homeowners stay in their houses after foreclosure — stabilizing neighborhoods and creating a strong incentive for loan servicers to offer serious modifications. The structure of the banking sector should be handled by the bridge bank facility and the FDIC’s professional staff, who should be tasked with resolving the zombie banks.

WAMARA MWINE: The rise of no-bid contracts is often synonymous with excessive government spending.  According to The New York Times, a Department of Defense contract paid AEY, ( a company run by 20-something entrepreneurs in Florida ), $300 million to buy arms for soldiers in Afghanistan. This deal had very little oversight and the money was squandered on 40-year-old arms that were unusable. Shouldn’t the administration have a full accounting of these contracts to prevent these kinds of bad deals? In your estimate, did these kinds of contracts contribute significantly to our national debt?

JAMES GALBRAITH: That story once again reminds me that I have been a chump to become a professor. These are minor factors; the overwhelming influence behind the rising deficits of the past year is, in general, the condition of the economy. The Pentagon has never, in the 14 to 15 years since they’ve been subjected to regular audits, had a clean audit.  Its books are not auditable.  There are material irregularities throughout the process. That is something which the public should be much more aware of and much more troubled by than they are.

K Street Lobbyists

WAMARA MWINE: One of President Obama’s campaign pledges was to change business as usual in Washington.  I’ve written about how Mark Penn’s firm Burson-Marsteller has played both sides of the aisle during the past presidential election. As Hillary Clinton’s chief strategist, Penn was paid $3 million for one quarter and owed $2.3 million more. Obama’s campaign was urged to pay this debt:  a big charge for an inevitable loss. On the other side of the aisle, political strategist Charlie Black, through another Burson-Marsteller company ( Black, Kelly, Scruggs and Healey ), worked on John McCain’s campaign. Now, Penn’s firm is set to receive almost $6 million in a contract from stimulus money, according to TheHill.com. Are these not excellent examples of the behavior that hurts Washington and sets the wrong example? Should one lobbying and communications firm be able to make millions of dollars running both national campaigns for Democrats and Republicans? Is there not a serious conflict of interest here?

JAMES GALBRAITH: There are obvious difficulties with this.  I would say that the Washington lobby culture is very bipartisan in nature. It’s emblematic of the culture of influence peddling which has become endemic in Washington and everyone knows it.