A dead economist has insights for our time – Twin Cities

Sometimes even dead economists have good ideas. Moreover, those who are sneered at by their successors in later intellectual cohorts can have posthumous times of triumph. That’s happening right now, at least briefly, for John Kenneth Galbraith, who lived from 1908 to 2006. He was a rock star of economics for the general public in the 1960s, if not for most other economists. His books have been on bestseller lists for weeks. He was a prominent advisor to President John F. Kennedy and served as US Ambassador to India. He is the author of a widely circulated television series on economic history and issues. Then it largely disappeared into the woodwork and few under 65 would even recognize the name.

Edward Lotterman portrait
Edward Lotterman

However, some of Galbraith’s insights were important and, once again, relevant to our nation’s current situation. At least two themes from recent news may be very familiar to this US-Canadian thinker.

The first would be the brewing storm in cryptocurrencies. “Blockchain technology” could play an important role in the long run, just as “international reply postage coupons” did in communicating between countries in the 1920s. But for both, legitimate uses were soon overwhelmed by their use in Ponzi schemes, where money sent in by later investors is used to pay lavish returns to early investors, creating a widespread sense of highly lucrative returns .

US history students will understand the return coupon reference. Somehow, the idea that huge profits could be made by trading these worldly slips of paper was at the heart of Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi’s gigantic scam. In hindsight, Ponzi schemes always sound ridiculous, but at their peak, tens of thousands of people can become involved. This is especially true when certain constellations of events and public attitudes come together to create situations where caution and common sense are thrown overboard. As interesting as the underlying technology is, crypto soon turned into a giant Ponzi scheme and will not unwind properly.

JK Galbraith was an insightful historian of this whole process. While a small part of his scholarly work, The Great Crash, 1929, a lean, insightful, witty history of the events and socioeconomic processes leading up to the crash of the New York Stock Exchange in the fall of 1929 should be read by everyone, who wants to understand what has happened in the last 20 years and what could happen in the next 10 years. The book is inexpensive and has been in continuous printing for 70 years. If you can find it, Galbraith’s 1994 essay “A Brief History of Financial Euphoria” is a useful supplement.

Another piece of news that brings Galbraith to mind is the proposed merger of Twin Cities-based Fairview Health Services with South Dakota’s Sanford Health. The Harvard professor had no particular expertise in healthcare, but he understood the importance of problems caused by monopolistic concentration in key industries. This is a key challenge facing our nation right now, one that economics has largely resisted for at least three decades.

That’s not to say that Galbraith would necessarily be against the merger. The economic pressure in every healthcare market is great. Fairview is a Twin Cities secondary company. Sanford is a much bigger fish in a slightly smaller pond. The merger could allow Fairview to survive as an independent competitor in our local market, rather than being acquired by a larger Minnesota rival. The planned merger can therefore benefit competition in the longer term.

In addition, there are complications in Fairview’s relationship with the University of Minnesota Medical School and in Sanford’s extensive teaching and research involvement at the University of South Dakota and South Dakota State University.

So there’s a lot of specifics to consider that Galbraith didn’t have particular expertise in. But his general insight that corporate concentration can generate economic power well beyond mere pricing, and that economic power inevitably translates into political power, is important in many contemporary issues, including retail, online business, and many other industries.

In healthcare, all Fairview-Sanford issues are resolved in a timely manner. Finally, we must address the cumulative results of the market power of United, Aetna, Cigna, Humana, and other major health insurers and managers. This is much more important, but a battle that no politician is yet ready to tackle. Yet concentration in healthcare will not go away, nor will the market and political power of Amazon, Facebook, Tesla, or other 21st-century companies of enormous size.

Galbraith was wrong about many things. He assumed that Keynesian government control of the economy would tame the business cycle and that the big and powerful US corporations that flourished in the 1950s would enjoy financial hegemony forever. Now General Motors, General Electric, US Steel, IBM, Kodak and other industrial titans are financially emasculated if not dead half a century ago, belying Galbraith’s assumptions. But the underlying questions he raised about the intersections of financial and political power are perennial questions, and yet almost all economists have long refused to address them. Perhaps there will be more events in the 2020s that will force us to confront the realities that JK Galbraith pondered when jets were the new thing.

St. Paul economist and writer Edward Lotterman can be reached at [email protected]