Erstellt am: 15. 6. 2012 - 13:29 Uhr

"A spiral of crisis and refinancing"

James K. Galbraith, star-economist and son of even more star-economist John K. Galbraith in an interview.

Besides being one of the most influential economists and being advisor to a number of Democrat administrations, James K. Galbraith is also the son of the economist who helped create Roosevelt´s New Deal after the great depression – John K. Galbraith.

James and his famous father are both regarded as “Keynesians”. That means they believe in the economic strategies proposed by John Maynard Keynes – most importantly, deficit spending to create growth. James Galbraith writes for a number of US newspapers, including the New York Times and the Washington Post, and he is a strong critic members of own profession – economists.

He calls the leading active economists a bunch of men born in the 40s or 50s that joined together in “a kind of politburo for correct economic thinking”, and this has placed them on the wrong side of every important policy issue, he says. Currently, James Galbraith is in Vienna, attending meetings and discussions at the Kreisky Forum; Kreisky was a politician that Galbraith, father and son, respected a great deal. I had the chance to talk to this most outstanding Keynesian economist.

James K. Galbraith

Professor Galbraith, right now people in Europe are witnessing the most severe crisis since World War 2, they also see a kind of “war of economists”. Some want the Central Banks to print more money to create growth, others see that like fighting fire with gasoline. How can everyday, regular, normal people maintain a clear view in this battle?

It´s very difficult to get a clear view, for the reasons you just gave. I think you are right, that this is a very severe crisis, people are correct in feeling that the authorities have done a very poor job of getting in front of it. We are moving to a moment when decisive steps are clearly going to be required.

In some European countries we observe, similar to the US, the decay of middle class. Nevertheless neoliberal politicians state that we live beyond our means – however, wasn´t that a banking crisis after all? Or did we really all live beyond our means?

This is clearly a crisis of the global financial system. And the result of this is a deepening spiral of crisis and refinancing what you might call a Ponzi debt, in those countries of the Eurozone.

Mario Draghi, head of the ECB, mentioned the welfare state to be outdated – others say the distribution of wealth and assets is pretty similar to the 1930ies. How can we settle that mis-misdistribution, is there any way out of the spiral?

Well, there is of course a tendency of those in power to use this crisis to break down the protection, security and insurance that has protected the working populations of Europe and the United States for the last sixty years. This is a terrible mistake. And it may be in fact a deliberate strategy in which case it´s a malicious strategy. If one looks at the history of the great depression in the United States, you find that the solution was not only simply a question of deciding to spend a great deal of public money. What Roosevelt did in 1930ies consisted substantially of two things: First was the reconstruction of the periphery, of what in the United States was the South that has not experienced any economic development since the civil war. The Roosevelt Administration undertook massive investments to bring the South up to the national standards, a process that endured over the entire rest of the 20ieth century. Secondly, and extremely important: The United States in the 1930ies began the creation of a continental program of social insurance. That is to say, it extended the programs which have previously existed only in the richest states, places like New York, to the country as a whole.

That was the function of the social security system. These were programs that directly supported individuals, they did not go through the corrupt and non-functional governments of many states, but they helped stabilize the system as a whole. It seems to me, thinking of the future of Europe, you have many similar problems. You have populations whose living standards are under extreme threat, and who should be supported, who are not themselves “guilty” of anything, who are not the governments of their countries which are deeply problematic, but who require incomes that can only be provided through some kind of continent wide mechanism. This strikes me as being the direction in which one has to go as an alternative to watching the European system simply break up. And we are very close to that point, because a major bank run, some of which is already under way in Greece and possibly also in Spain, would run the risk of overwhelming the capacity of the European governments to cope.