Many economic theories are mere myths, says Galbraith

Discussion in 'Economics' started by harrytrader, May 27, 2005.

  1. From his last book


    The Fed, for all its power and prestige, effectively does nothing, says Galbraith.

    In his view, America's Federal Reserve System (Fed), the central bank and agency to limit recession, unemployment and inflation, is 'our most prestigious form of fraud, our most elegant escape from reality'.

    During a recession, the Fed cuts interest rates to stimulate borrowing and spur on production, consumption and, so, the economy.

    In a boom scenario, on the other hand, the rate is raised to restrain business investment and consumer borrowing to level off excess optimism and prices.

    Highly plausible and wholly agreeable, Galbraith says. But the difficulty, he says, is that this process 'exists only in well-established economic belief and not in real life'.

    Business firms borrow when they can make money and not because interest rates are low.

    And when times are good, higher interest rates do not matter. They do not have the effect of slowing down business investment because what is egging it on is the prospect of profit.

    As he notes, the Fed could provide no remedies for economic ailments during and after World War I and during the Great Depression of the 30s.

    Galbraith himself did have success controlling inflation, which was greatly feared during World War II, while he worked in the Office of Price Administration under president Franklin D. Roosevelt. He says this was because there was no reliance on the Fed.

    But today, such is the faith in the Fed and its chairman, whom Galbraith calls an 'informed, confident and respected figure of no slight theatrical talent', that the Fed will receive credit if and when there is full recovery.

    But please be gentle on the Fed, he says, for its action is 'reputable and well regulated' although nothing perceptible occurs as a result.

    'Perhaps we should let their ineffective role be accepted and forgiven,' he says.
  2. 'Perhaps we should let their ineffective role be accepted and forgiven,' he says.

    This line applies to economists writing textbooks trying to pretend to be competent.
  3. As for galbraith he is not economist writing textbooks he did participate in controlling inflation efficiently, whereas others are intellectual prostitutes for politicians you read in medias for the mass brainwashing to continue the myth. Of course it begins at school. As a famous one said the more big and massive the lie ...
  4. Yea, a 94% marginal tax rate will have a dampening effect on those profiteering capitalist pigs!

    Last of the great central planners....economy slowing....lets check the list of ills the govt can correct with another program....economy booming....increase taxes to pay off all the programs from the last recession....his influence brought us Social Insecurity and Medicare where old people eat, drink, and be merry while Rome gets ready to burn to the ground.

    Can't wait to see how many young people have to eat dog food to get by after the unwinding of this foolishness.
  5. Banks, banks, central banks...

    I think the medullar issue rests on the concept of reserves, or, the fact that banks create credit out of nothing...

    Last I heard, the ratio was 1x9. Or, for every dollar in reserves the banks can lend 9. If I remember well, reserve dollars can also be notes and other instruments, so, to an extent: more nothingness...

    So, it's a neat trick, credit is easy.

    But, as we all know, human endeavors are associated with risks, and not all turn OK, and sometimes a whole area of the economy turns sour.

    So, then, you have a downturn in the economy. But, since there's a lot of uncollateralized credit in the economy, the nothingness just mentioned, two things happen:

    *The Fed have to print more money to rescue banks (if not, you get a '30s situation), and

    * more is lost, than if credit was more conservative: less nothingness.

    Hence, the downturn is steeper...

    I don't like the fact that the Fed are pictured as the saviours of the common guy. They're not, they're there to save banks due to the reserve issue.

    But, I have to recognize, that the evil springs from the RESERVES allowed at any bank, and this is an old story, which I don't really believe is going to change much.