Sometimes even dead economists have good ideas. Moreover, ones sneered at by their successors in later intellectual cohorts may have posthumous periods of triumph. That is happening right now, at least briefly, for John Kenneth Galbraith, who lived from 1908 to 2006. He was a rock star of economics among the general public in the 1960s, although not to most other economists. His books spent weeks on bestseller lists. He was a prominent adviser to President John F. Kennedy and served as U.S. ambassador to India. He authored a widely-aired TV series on economic history and issues. Then he largely faded into the woodwork and few under age 65 would even recognize the name.
However, some of Galbraith’s insights were important and once again are relevant to the our nation’s present situation. At least two topics in recent news would be very familiar to this U.S.-Canadian thinker.
The first would be the slowly brewing storm in cryptocurrencies. “Block-chain technology” may well play an important role over the long run, just as “international-reply postage coupons” did in communicating between countries in the 1920s. But for both, legitimate uses soon were overwhelmed by their use in Ponzi investment schemes, in which money sent in by later investors is used to pay lavish returns to early ones, creating a widespread sense of highly lucrative returns.
Students of U.S. history will understand the return postage coupon reference. Somehow, the idea that huge profits could be made by trading in these mundane slips of paper was at the core of Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi’s gigantic scam. In retrospect, Ponzi schemes always sound ridiculous, but tens of thousands of people can get caught up in them at their height. This is especially true when certain constellations of events and public attitudes come into conjunction to create situations where caution and good sense are thrown to the wind. However interesting the underlying technology, crypto soon morphed into an enormous Ponzi scheme and it will not unwind neatly.
J.K. Galbraith was an insightful historian of these whole processes. While it was a small part of his scholarly work, “The Great Crash, 1929,” a slim, insightful, witty history of the events and socioeconomic processes leading up to the crash of the New York stock market in the fall of 1929, should be read by anyone who wants to understand what has happened in the last 20 years and what may happen in the coming 10. The book is inexpensive and has been in print continuously for 70 years. If you can find it, Galbraith’s 1994 essay, “A Short History of Financial Euphoria,” is a useful supplement.
Other recent news that brings Galbraith to mind is the proposed merger of Twin Cities-based Fairview Health Services with Sanford Health from South Dakota. The Harvard prof had no special expertise in health care, but he did understand the importance of problems caused by monopolistic concentration in important industries. That is a key challenge for our nation right now and one on which the discipline of economics largely turned its back for at least three decades.
This is not to say that Galbraith necessarily would oppose the merger. Economic pressures in any health care market are great. Fairview is a second-ranked Twin Cities entity. Sanford is a much bigger fish in a somewhat smaller pond. The merger might enable Fairview to survive as an independent competitor in our local market rather than being absorbed by a bigger Minnesota rival. So the proposed merger may benefit competition in the longer-run.
Moreover, there are complications in Fairview’s relationship with the University of Minnesota Medical School and Sanford’s deep involvement with teaching and research by the University of South Dakota and South Dakota State University.
So there are a lot of specifics to be considered, ones on which Galbraith had no particular expertise. But his general insights that business concentration can bring about economic power going far beyond mere pricing and that economic power inevitably translates into political power are important in many current issues, including retailing, online business and many other sectors.
In health care, any Fairview-Sanford issues will be settled in due time. We eventually must address the cumulative results of the market power of United, Aetna, Cigna, Humana and other large health insurers and managers. This is far more important, but is a fight which no politician yet is willing to address. Nevertheless, health-care concentration won’t go away any more than the market and political power of Amazon, Facebook, Tesla or other 21st-century businesses of enormous size.
Galbraith was wrong on lots of things. He assumed that Keynesian management of the economy by government would tame the business cycle and that the large and powerful U.S. corporations enjoying their heyday in the 1950s would enjoy financial hegemony in perpetuity. Now, General Motors, General Electric, U.S. Steel, IBM, Kodak and other industrial titans a half-century ago are financially emasculated, if not dead, confounding Galbraith’s assumptions. But the underlying questions he raised about the intersections of financial and political power are eternal ones, yet ones nearly all economists long refused to address. Perhaps the 2020s will have more events that force us to face realities, ones that J.K. Galbraith mused over when jet planes were the new thing.
St. Paul economist and writer Edward Lotterman can be reached at [email protected]