Wage and price controls:

Keynesian economic policies are inherently inflationary, and they must lead to rates of inflation that will be politically unacceptable.

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  Of course, they didn't work all that well even during wartime, as everyone that acquired things "under the counter" well knew. And the longer they lasted, the worse they worked. Today, no serious economists doubt the inherent incompetence of administered pricing schemes.
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  As we have since found out from our experiences with rent control, and with energy price controls, wage and price controls serve only to allocate scarcity, and they don't even do that very well. Only market mechanisms provide the abundance that the American electorate rightfully expects. Only profit driven market directed economies provide the abundance that permits Galbraith to write about "The Affluent Society," and "The Culture of Contentment."

  Socialist megalomania:

A public planning authority of adequate power

Individuals will have to surrender to the goals of the organization.

All surface transportation should reside in one monopoly entity covering the entire Eastern Seaboard.

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  An amazing revival of the "benevolent despotism" argument!

  This authority would have complete autonomy over its own staffing, plans and budget. Writing ten years later, he figured that this chore would require that about 50 percent of the area's GDP be taxed away or otherwise appropriated.

  After regular federal and state taxes, individuals might actually be allowed to keep a few shekels for themselves. Of course, such a tax proposal would be very popular with any electorate.

  Proposal: All surface transportation should reside in one monopoly entity for each of the large regions of the nation, such as the entire Eastern Seaboard east of the Allegheny Mountains. Galbraith pointed out that the nation's telecommunications system was best provided by the AT&T monopoly, which had total control over its market.

  This last point is very instructive, since, indeed, the AT&T monopoly had given the U.S. the best telecommunications system, by some margin, of any major nation (and perhaps of any nation) in the world. Nevertheless, when a little bit of competition - still grossly "imperfect" - was introduced into the telecommunications market, old Ma Bell was forced to pick up her skirts and really hustle, providing substantially lower rates for consumers and a flood of innovative technology and new services.
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  The same experience occurred when some admittedly far from perfect competition was permitted in retail stock brokerage, airlines, trucking, and other heavily regulated basic industries. These huge corporations obviously had some influence over their markets, but if they actually control their markets as Galbraith asserts, recent economic history is impossible.
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  It has become apparent that even grossly imperfect market mechanisms can provide a cornucopia of benefits for consumers and the economy - over and above what is provided by even the best monopolies, such as that of AT&T before deregulation.

 Convergence:

The evolution of the free enterprise system will lead it to resemble socialism.

The shareholder in the modern large corporation is without power and without function.

Government should pay off such functionless stockholders in bonds and have the dividends and capital gains accrue to the public.

Stockholders are "anomalous" and should be dispensed with. Equity markets play no role in the guidance and productive efficiency of the modern industrial system.

It is illogical - part of a peculiar technocratic secular religion - that CEOs and other corporate officials routinely work six day, 60 hour weeks for the benefit of such powerless, useless shareholders.

The role of "shareholder value."

The role of "profit centers."

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  The wishful thinking of a committed ideologue! The whole world persists in moving towards capitalism - towards privatization and profit driven market mechanisms - despite widespread political reluctance to surrender levers of economic power.

  Contention: Stockholders are "anomalous" and should be dispensed with. Equity markets play no role in the guidance and productive efficiency of the modern industrial system. Investment gains involve no work and little risk.

  He's bought the Marxist propaganda myth! A few years after this statement was written, American equity markets entered a 12 year period of stagflation, with substantial losses in equity values in inflation adjusted terms. Now, lack of shareholder influence is seen as one of the most profound weaknesses of the Japanese and European economic systems.

  In 1972, he asserted that shareholders and even the top management of the larger and most important capitalist corporations had lost effective control. Fortunately, this did not happen at GE or Microsoft.
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  "The shareholder in the modern large corporation is without power and without function."
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  With this view, Galbraith advocated that government "pay off such functionless stockholders in bonds and have the dividends and capital gains accrue to the public."

  This is a faithful restatement of the Marxist view that - once capitalism had developed a nation's productive assets - they could be managed just as well without the capitalists - and the profits could be allocated for the general welfare. He apparently agrees with the Marxist propaganda myth that: "All profit is theft."

  Galbraith argued that the modern large corporation is governed by its wide array of technocrats, who collectively have the information and skills needed for problem solving and decision making. They can ignore market signals because they control their markets. Their rewards and incentives flow from advancement and job security within their organization rather than from the profits of the corporation, which go mainly to those "functionless" shareholders. As long as those profits are adequate and show some modest growth, the technocrat's real interests in job security and advancement are taken care of.
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  He finds it illogical - part of a peculiar technocratic secular religion - that CEOs and other corporate officials routinely work six day, 60 hour weeks for the benefit of such powerless, useless shareholders.

  Either corporate officers and technicians are too crazy to understand their own interests, or Galbraith was wrong. Galbraith would never even consider the possibility that it was he who might be wrong.
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  Galbraith was aware that shareholders can always vote with their feet, by selling their shares. However, he never went further into the implications of that power. Successful management concern for "shareholder value" is rewarded by rising share prices, high price/earnings multiples, safety against takeover threats, and enhanced financial powers for acquisitions and expansion. Failure to enhance shareholder value leads to low share prices, low price/earnings multiples, a loss of financial power, and vulnerability to takeovers.
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  Lack of concern for shareholder value has been widely identified as a primary cause for myriad economic ills in the economic systems of Europe and Asia. The equity capital provided by shareholders through the equity markets provides financial stability, especially in times of recession. An over reliance on debt capital is another primary cause for the myriad economic ills in the economic systems of Asia and Latin America, and is a problem even in Europe.
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  Also, Galbraith never mentions substantially autonomous "profit centers" - the key organizational factor that permits large capitalist entities to organize efficiently and retain entrepreneurial vigor. Every technocrat either reports to, or provides services to, profit center managers, whose careers hang on the performance of their sales charts and profit and loss statements. Organization by profit center exists because it serves shareholder interests - and it doesn't exist where there is no private ownership interest.
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  Thus, Galbraith's expectations have not come to pass. He must have been amazed at the worldwide rush to develop equity markets - and the spread of concern for shareholder value as a guiding principal for corporate governance - and the continuing tendency for large foreign corporations to strive to qualify for listing on America's securities markets. Why would all this be happening if Galbraith's analysis was correct? If Galbraith is right, the rest of the commercial world must be crazy.

  Prediction: "Increasingly, it will be recognized that the mature corporation, as it develops, becomes part of the larger administrative complex associated with the state. In time, the line between the two will disappear. Men will look back in amusement at the pretense that once caused people to refer to General Dynamics and North American Aviation and AT&T as private business."

  It's actually amusing how energetically these, and so many other similar, "powerful" corporations have had to hustle under the lash of competition, or have succumbed to market pressures, since Galbraith wrote these words. Market pressures have humbled them in spite of favors granted to them by their governments.

 Ideological blinders:

Soviet socialism worked "very well" for basic industries.

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  Even in the 1990s, Galbraith refused total surrender.
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  In 1992, with socialist systems crumbling all over the world, he provided a petulant, one sentence concession that socialism had indeed failed for the diverse mass of rapidly changing consumer industries. However, he still persisted in insisting that it had worked "very well" in the Soviet Union for basic industries such as steel, transportation, electric utilities, weapons, and space exploration.
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  Galbraith doesn't tell us what he thinks of:

• the way those Soviet electric utilities managed their nuclear power plants;
• why the Soviet oil industry couldn't maintain production from its rich oil fields, or maintain its leaky pipelines;
• why Moscow housing projects became known as "instant slums;"
• why Soviet industry failed to substitute lighter, more efficient modern materials for steel;
• why even the Soviet defense and space efforts failed to keep up with modern technology;
• why the Russian people don't have a decent road net or automobile industry;
• why Soviet industry couldn't provide spare parts for the cars it did make, or for its thousands of tractors;
• and, why all of its basic industries failed to meet even the most rudimentary environmental standards.

  These are just some of the highlights. There is much more absurdity than this in Galbraith's prolific writing career.

Volcker's tight money policies will fail to cure inflation.

Industrial policies in Europe and Japan will assure the superior performance of those economic systems, as compared to the United States.

The willingness of Japanese firms to ignore immediate profits in efforts to gain market share will earn them monopoly profits after competitors are driven out.

We will suffer for lack of engineers.

We will suffer for lack of enough savings.

Government policy should be directed at supporting our largest corporations, even at the expense of smaller competitors.

Banks should take ownership interests in their major borrowers and allocate credit accordingly.

Dividends are a capitalist rip-off.

Profits should not be the primary objective of the corporation.

Corporate employees should have tenure and be paid seniority based wages.

Since labor costs cannot be readily reduced, the economy will remain biased towards high unemployment or inflation.

  But, of course, it did cure inflation, despite huge budget deficits, and while accompanied after 1982 by a solid two decades of economic expansion.

  The fight against inflation will be too painful for the public to tolerate.

The public would tolerate quite a bit - and be suitably grateful - to escape from the double digit miseries of the Carter Administration stagflation.

  Prediction: Industrial policies in Europe and Japan will assure the superior performance of those economic systems, as compared to the United States, during the 1990s.

  Here, again, events have perversely refused to conform to ideological expectations.

  Prediction: The willingness of Japanese firms to ignore immediate profits in efforts to gain market share will earn them monopoly profits after competitors are driven out.

  Unfortunately - by ignoring profits - Japanese corporations expanded unwisely - enmeshing themselves in low profit convergent and commodity manufacturing practices in overcapacity industries involving desperate cutthroat competition with other Asian corporations.

  Prediction: The greater number of engineers being produced in Japan will put the U.S. at a competitive disadvantage.

  Ten years earlier, it was the greater number of engineers being produced in the Soviet Union that was viewed as the problem. However, it's not just the number of engineers or other talented people that matters. What counts most is the ability of the economic system to make efficient use of them. Here, the U.S. entrepreneurial capitalist system excels.

  Prediction: A low savings rate will put the U.S. at a competitive disadvantage.

  Here, too, it's the efficiency of use, rather than the absolute amount, that counts most. Here, again, the U.S. excels.

  Contention: We should accept the elimination of small business as a major factor in the American economy. It is "far better that small business be crushed by big American companies than that they be crushed by big foreign companies."

  Social engineers are like socialists. They prefer dealing with large corporations that can more readily be regulated or controlled by government. However, Thurow thus demonstrates total ignorance of the flexibility and creativity of small business, and the importance of small business in the expansion of new industries and job opportunities.

  Contention: Banks in the United States should have equity ties with their corporate borrowers, just like they do in Europe and Asia.

  So why are the banks in Europe and Asia slowly trying to untangle themselves from their equity ties with their corporate borrowers? By taking such equity positions, American banks would get into the same trouble as the Asian and European banks, with vast holdings of bad and under performing loans. It would also increase the difficulties that vibrant small businesses have in obtaining financing.

  Contention: Dividends are "a capitalist rip-off," and are unnecessary.

  Another economist who has bought into the Marxist propaganda myth. This man is teaching economics at MIT? What's going on up there in Massachusetts, anyway?
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  Dividends are a COST of equity capital, like capital gains, and like interest payments for debt capital. If our tax policies were at all logical, dividends would be deductible as a cost, just like interest expense. They provide economic justification for the raising and maintenance of the vital equity capital that gives corporations their basic financial strength and stability. As a matter of economics, they are a much more efficient method of paying for equity capital than capital gains.

  Contention: Corporations should not be evaluated by their profitability, but by their "value added" efforts.

  Yet another derivative of Marxist propaganda mythology. Obviously, if you're going to encourage and support huge, monopolistic entities, efficiency becomes unnecessary, and the higher their costs, the more "value-added" they can claim.

  Contention: Workers should be entitled to tenure and wages based on seniority instead of merit.

  Great! Then the most important economic entities would be as efficient as the civil service.

  Prediction: Since labor costs cannot be readily reduced, the economy will remain biased towards high unemployment or inflation.

  Again, the market outsmarts the brilliant academic. He, of course, could never foresee the development of all the recent creative ways of regaining labor market flexibility - such as downsizing, the aggressive use of temporary employees, and out sourcing.

Government "industrial policy:"

Adam Smith was wrong. Mercantilist policies are best.

The government knows best which corporations should be the winners and which the losers.

We should reject the "just in time" inventory management practices that modern technology makes possible.

We must buy enough oil at 1980 prices to fill our oil reserves.

Government knows best about union and management practices.

We should expend our resources in subsidy trade wars.

The independence of the Federal Reserve Bank should be eliminated and its decisions politicized.

•   Mimic the results of Japanese industrial policy. Thurow asserts that Japan has changed the rules of international commerce, and their rules are superior. "Japan may go on to rule the waves for the next 25 years or longer."

  Thurow judges the success of Japan's mercantilist policies by their effect on the industries that they apparently favor, while ignoring their impact on the rest of the Japanese economy. Japan, and other Asian economies, are burdened by agricultural subsidies, overstaffed industries, inflexible mega firms, and all the sins of crony capitalism and mercantilist trade policies. Of course, the U.S. government is not exactly free from these sins, either.

•   Encourage the establishment of huge, increasingly formalized and stable economic entities.

  How perverse of our markets to force restructuring in the opposite direction since that time. We have, in fact, accepted those Japanese management techniques that made sense, but the markets have dictated downsizing and increased flexibility. Our "industrial policy" has stressed deregulation and the breakup of utility monopolies wherever possible. I guess this has all been some terrible mistake.

•   Concentrate resources on our industry leaders. "The industries that are going to be important players in the next two decades are already here."

  Thank goodness that Bill Gates and the other Silicon Valley geeks didn't learn their economics from Thurow.

•   Require the maintenance of ample inventories, and make sure we have a full oil reserve. "Every inventory control model shows that if one tries to run a business without inventories the result is very erratic prices and occasional shortages."

  Thurow believes that econometric models actually reflect reality. Here he chooses to ignore Japanese "just in time" inventory management practices.
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  How perverse of those maligned and ineffectual capitalist markets. They actually somehow found the strength to apply competitive pressures and force substantial reductions in the expense of carrying large inventories. After they were released from energy price controls, the energy markets were somehow able to overwhelm OPEC and flood us with an abundance of oil at constantly declining prices for the next two decades - much to the surprise and amazement of the government energy warriors.

•   Eliminate management and union practices and organizations that aren't working. "The current social organizations don't work and aren't going to automatically collapse simply because they don't work."

  But, of course, they did. The ruthless destruction of economic entities that don't work is exactly what free markets do -- and they do it automatically, without Rube Goldberg government procedures and politically slanted government policies.

•   Equal the worst subsidy practices of any nation that U.S. firms compete with.

  The United States should pour resources into the competition for the markets of perennially low-profit, surplus capacity, commodity manufacturing industries. Of course, to some extent the U.S. government does this, for such industries as textiles and sugar and other agricultural crops.

•   Require the Federal Reserve Bank to respond to political pressures and sustain economic growth despite inflation. Thurow believed that the deceleration of inflation between 1979 and 1983 was just "luck." He predicted that it would be unsustainable, and would surge again, accompanied by an interest rate surge back to double digit levels, as soon as the recession of that period ended.

  Of course, events again perversely failed to conform to his expectations, and the independent Fed went on to slay inflation and provide the monetary basis for sustained prosperity.

 The Rube Goldberg of social engineers:

Government banks to allocate credit:

 Government Restructuring Board to influence corporate restructuring decisions:

Industrial Policy Board to establish industrial policy:

  Government should pick the winners and losers among competitive business entities - just like in Asia.

  Proposal: There should be a Government Restructuring Board, which would "negotiate" with firms as to which facilities they would be permitted to close down, and which should be restructured.

  The application of political imperatives, bureaucratic imperatives, and due process decision-making procedures would make the U.S. economy even less flexible than that of India.

  Proposal: There should be an Industrial Policy Board to direct broad economic policies.

And Lester Thurow or similarly perceptive intellectuals should be placed in control - of course.