Irish Liberty Forum

An Article That Explains Neither Boom Nor Bust

with 2 comments

Anyone who’s interested in failings of empiricism should read the article “Bad Distribution of Income Led to Great Depression: History Repeats in 2008“. It refers to John Kenneth Galbraith’s claims that maldistribution of incomes led to the Great Depression, and was a contributing factor to the Great Recession.

Simply becuase the income share of the rich increases during a boom doesn’t mean that it is a trigger for the economic collapse. In fact, they are more likely to be a consequence of the manic boom than anything else. Without a sound economic theory to underpin discussion of real events, we’re simply going to be stabbing in the dark for cause and consequence.

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Written by 20000miles

June 22, 2009 at 4:59 am

Posted in economics, history

2 Responses

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  1. in the version of the Galbraith article I read,it was clear enough that he was making an interesting point. The link you have posted does not faithfully reproduce the original article, always a warning to the wise?

    By having so much income and assets in so few hands, it is clear that there have been malinvestments and that they will not be easily addressed. The idea that an economy requires 70% of it to be in the form of consumption, is repugnant to me. It is another good sign of malinvestment.
    So far it is clear that Galbraith has aided those who encounter similar conditions.They will beware stupidity and fecklessness. And loose credit, based on theft by bankers.
    Bankers are too tight to spend so the depression their rampant greed brings about will not reverse itself, unless other factors intervene. The best they can hope for is a bloodless revolution, normally called an election. Sooner or later the non-bankers will gain control and squeeze those who have to ensure that they have less, as a % of the state’s income and assets. Once the transfers happen, the new capital will restart the economy, eventually to the benefit of the bankers a few decades later.
    He is correct to draw attention to these indicators of mania. He also makes the point that having a concentration of wealth is counter-productive to a quicker restart of a healthy economy, as humans suffer from envy, avarice and pride which act as a disincentive to effort. They crave the illusion or better the reality, of equality so that they an take part in the game of making money, by creating wealth for all. Anti-competitive forces are also more prevalent in an unequal economy, as vested interests seek to protect by closing access. While I might have doubts about the sense of it all, and abhor the waste, it is history and is likely to recur. Theft will be redressed. To say that the victims were stupid will not change their need for housing etc. They can only afford that if they have an income. That will only happen if there is a healthy economy. allowing vast capital and income in the hands of a few does not create a healthy economy. It is a question of perceived balance. The wealthy and stupid will find that their guards will become Praetorian …… the clever rich will spend freely and invest obviously, to fund jobs.
    Galbraith is merely saying that bankers do not create wealth either in a roaring or in a dead economy …..?

    Pat Donnelly

    June 25, 2009 at 10:06 am

  2. Bankers are capable of owning everything in the economy, given the “business cycle”.
    One of the indicators that this is in train, is the collapse of the middle classes. This happens with disparities in income. It is a genuine indicator of an economy that is out of control. Now I think we would mainly agree that the controls in the economy are made by those who run the country. When their interests become those of the bankers, by bribery, intermarriage or however, eventually the economy falls into their lap. The process is always going to be interupted as it would result in a revolution and the bankers etc certainly do not want that. Therefore they assert control again, halting the process. His analysis has merit.
    If we had paid attention to it……

    Pat Donnelly

    August 11, 2009 at 1:02 pm


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