MODERN ADVOCACY SCHOLARS

Galbraith and Thurow

FUTURECASTS online magazine
www.futurecasts.com
Vol. 3, No. 11, 11/1/01.

Homepage

Ideological scholarship:

  This is a cautionary tale for those who persist in the exercise of advocacy scholarship twisted to support an ideological belief. As the pace of events continues to accelerate during the 21st century, events will deal with such advocacy scholarship with increasing brutality. Events will not be kind to those who sell their intellectual souls for a mess of ideological pottage.
 ?

  Two of the premier advocacy scholars of the last half of the 20th century were John Kenneth Galbraith and Lester C. Thurow. These academic luminaries intentionally twisted their scholarship to support their ideological predilections in favor of government management of major economic functions. They remained in determined denial concerning the obvious weaknesses of such government management. The stupidity of their substantial literary outputs has now been clearly proven by events, which have invariably refused to conform to their expectations.
 ?
  Indeed, the levels of stupidity contained in their many books is probably (hopefully) unparalleled in the annals of the major academic institutions where they taught. It is staggering to realize that the best and brightest students went to Harvard and MIT to learn how the world works -  and instead - at a substantial waste of time, effort and funds - were treated like acolytes to be indoctrinated in such obvious and absurd mythology.
 ?

 A preternatural trust in government economic management:

  Competition between capitalism and socialism became a feature of intellectual discourse and the ideological foundation of the Cold War after WW II. Profit driven, market directed capitalism is not an utopian system and does not promise utopian results. It is merely - clearly - the best system for the production and distribution of goods and services. The economic freedom of capitalism provides a rich, creative, but messy brew which many intellectuals find disquieting. In their desire to find a better, kinder, more orderly way, they inevitably fall prey to concepts that would substitute government economic management for the management mechanisms of profit driven capitalist markets.
 ?

Many scholars turn a blind eye to the obvious inherent limitations of government maangement

  To sustain their ideology, they must turn a blind eye to the obvious inherent limitations of government management. This they often do with a broad brush writing style, influencing the credulous, but ultimately - inevitably - suffering from the perverse refusal of events to conform to their expectations.
 ?

 Galbraith:

 

 

 

 

?

  Harvard economics Prof. John Kenneth Galbraith's efforts to disparage capitalism and boost socialism produced a steady flow of absurdities that - accumulating over the course of about half a century - now fill entire library shelves. He pursued his ideological agenda with great intelligence and style, and an acerbic wit with which he unsparingly skewered his ideological rivals. 
 ?
  Humility is not one of his intellectual traits. Nor was he ever unduly disturbed that events persisted in refuting his logic and moving in the exact opposite direction of most of his predictions. Ultimately, he was forced to admit that it was the rivals he had disparaged who turned out to be right. Here are some samples of his typical absurdities.
 ?

In the 1960s:

 

 

 

Large corporations control their markets and need not respond to market signals.

 

 

 

?

  Contention: Large, vertically integrated and conglomerated corporations have decisive advantages that allow them to control sources of supply and, through advertising, to control their markets and eliminate uncertainty.

  There are a select few - like GE - which has by keen and disciplined responsiveness to market signals been able to maintain entrepreneurial vigor in all its myriad profit centers. However, most large corporations have been forced by market pressures to out source their supplies and shed profit centers outside their core competencies. Outside the diamond industry, it is difficult to find any large corporations that have been able to control their markets in the manner envisioned by Galbraith.

  Contention: "Technology and companion commitments of capital and time have forced the firm to emancipate itself from the uncertainties of the market."

  Only those corporations that have been most responsive to market pressures and signals have since that time continued to prosper.

  In 1992, after the fall of communism and the worldwide retreat from socialism:

The high real interest rates of the 1980s discourage investment for improved economic performance and for housing construction. In the longer run, less efficient, less competitive industry, a shortage of housing, and homelessness, are (and have been) the inevitable result.

 

 

 

 

Corporate bureaucracies will grow relentlessly.

 

 

 

 

 

The ladder of upward mobility is now broken.

 

 

 

 

 

 

 

The military establishment, public and private, will continue on its own authority to resist substantial reduction.

 

American manufacturing industry and the economy generally will concede to superior economic performance of other nations, principally Japan, Germany and the other countries of the Pacific Rim.

 

?

  Prediction: The high real interest rates of the 1980s, "discourage investment for improved economic performance and for housing construction. In the longer run, less efficient, less competitive industry, a shortage of housing, and homelessness, are (and have been) the inevitable result."

  Why don't events work the way he expects them to? Could Galbraith actually be wrong in his understanding of capitalist economics? Somehow, those high real interest rates successfully reduced inflation rates in spite of vast budget deficits.
 ?
  During the 1990s, real interest rates stayed high, and:

  • inflation accordingly disappeared;
  • investment boomed;
  • the American economy regained its position as the standard for economic competitiveness;

  • home ownership reached all time highs; and,

  • inexpensive apartments remained available wherever the market was not encumbered with rent controls or restrictive zoning and permitting laws.

  Apparently, Galbraith doesn't understand the obvious fact that the only monetary way to move interest rates down is to push them up -- and the surest way to suffer from high interest rates is to push them down. In the end, the market ALWAYS wins - and always punishes those who push it around.

  Contention: The corporate bureaucracy "is relentlessly dynamic in the multiplication of personnel." There is "an intrinsic dynamic acting to increase what, by definition, is called managerial personnel."

  This contention was being proven wrong before the ink dried on his page proofs. The downsizing and restructuring movement of the 1990s was already well under way.
 ?
  Parkinson's Law does indeed work - in both government and private bureaucracies - but there are never any market checks to limit or force the reversal of government bureaucratic growth. Contrary to Galbraith, the government appropriations system is simply nowhere near as effective as a check on overstaffing as the markets he persists in maligning.

  Prediction: The "underclass" in inner cities is now permanent. The ladder of upward mobility is now broken. When this is realized, there will be riots in the streets again.

  Scare tactics are a standard tactic for advocacy scholars. Here, he was trying to scare society into greater welfare expenditures, just when society was - correctly - about to move in the exact opposite direction. Upward mobility, of course, remains a spectacular feature of America's capitalist economic system, and continues to attract immigrants from around the world.

  Prediction: "That the military establishment, public and private, will continue on its own authority [FUTURECASTS' emphasis] to claim a large share of its past financial support is not, however, seriously in doubt."  The "military - industrial complex" problem will continue even after the elimination of the military threat.

  The U.S. has ALWAYS disarmed after conflicts, and now is no different. Before the current crisis, defense outlays as a percent of GDP fell to pre-WW II levels - numerous defense contractors left the business - and preparedness levels in all but elite units were allowed to fall precipitously - in the face of a still dangerous world.

  Prediction: Galbraith's "higher probability" forecast for the U.S. economy after 1992 was not extended depression or even extended recession, but "more gradual but more definitive stasis. This is already well under way as American manufacturing industry and the economy generally concede to superior economic performance of other nations, principally Japan, Germany and the other countries of the Pacific Rim. - - - [I]n the economically more aggressive countries [macroeconomic policies] serve business investment more positively. - - - [O]ver all, [in those countries], there are attitudes and policies that serve aspirations as opposed to contentment."

  Galbraith actually believed that our vibrant and profit driven economy had fallen into a malaise of middle class contentment. Again, events perversely refused to conform to Galbraith's expectations. It is Japan and Germany whose policies caused economic malaise, while the Asian Tigers proceeded on their debt-fueled boom and bust trajectory.

 Wage and price controls:

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

 

 

 

 

?

  Galbraith has gotten one point spectacularly right, but predictably drew the wrong conclusion from it. He was one of the first Keynesian economists to recognize and publicly admit that Keynesian economic policies are inherently inflationary, and that they must lead to rates of inflation that will be politically unacceptable. However, rather than abandon these remedies, he proposed price and wage controls. He insisted that they worked during wartime and would work for indefinite periods during peacetime, too.

  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.
 ?
  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.

 

 

 

 

 

 

 

 

 

 

 

?

  Like Karl Marx, Galbraith loves large economic entities. It is easier to envision centralized control of individual large economic entities than of myriads of lesser entities. In 1967 he offered the following proposals:
 ?
  Proposal: A public "planning authority of adequate power" should be developed to make livable the modern city and its surroundings by buying up all land wherever it considers market influences "palpably adverse." It would be responsible for the provision of adequate housing, health care, and transportation, as well as current city services.
 ?
  "[I]ndividuals will have to surrender to the goals of the organization."

  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.
 ?
  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.
 ?
  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."

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

?

  However, the most absurd of Galbraith's many absurdities - a true classic - is his prediction concerning "convergence." What separates it from his other absurdities - and makes it a classic - is the favorable response that it received amongst a substantial number of supposedly intelligent and learned economists and other intellectuals. The prediction was, of course, patently irrational and could only be seriously entertained by those who didn't really understand economics or what makes capitalism work.
 ?
  Galbraith strongly asserted that socialist and capitalist systems were inevitably converging with respect to their larger and most important economic entities.
 ?
  Prediction: The evolution of the free enterprise system is in a direction that will lead it to resemble socialism.

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

Delusions of intellectual grandeur:

  But that is not all. Galbraith had delusions of grandeur for himself and his fellow academic intellectuals.
 ?
  Galbraith has many good things to say about the propaganda myth created by Karl Marx - treating much of it as profound economic truth. His strongest criticism of Marx was that Communism is not the end of the line of economic evolution.
 ?
  Since the technocracy is dependent on educators and scientists for the training of additional technocrats and the provision of scientific advances, Galbraith expected the academic and scientific community to unite and eventually wrest substantial economic control from shareholders in the capitalist nations, and from the apparatchiks in the Soviet Union. This development would thus provide a "convergence" in the further development of the two economic systems.

  INTELLECTUALS OF THE WORLD UNITE! YOU HAVE NOTHING TO LOSE BUT YOUR UTOPIAN FRUSTRATIONS. The hand that grants the academic degree will rule the economic world!
 ?
  Of course, like other interest groups, intellectual groups continue to occasionally influence legislation of commercial significance. However, Galbraith's expectation that intellectual interests will displace shareholder interests as the controlling factor in corporate policy is yet another of his unfulfilled - and  incredibly absurd - expectations.
 ?
  It's amazing how many supposedly intelligent and learned people actually took this guy's writings seriously

 Ideological blinders:

Soviet socialism worked "very well" for basic industries.

 

 

 

 

 

 

 

 

?

  Even in the 1990s, Galbraith refused total surrender.
 ?
  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.
 ?
  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.

Thurow:

  But we must leave room for MIT economics Prof. Lester C. Thurow.
 ?
  In the 1980s, Thurow, in a string of authoritative books, directed his ideological passions towards support for government "industrial policy." He expressed very favorable views of those industries nationalized or otherwise controlled by foreign governments that could thereby be directed to fulfill various societal needs.
 ?
  Thurow clearly intended to achieve the same results as socialism through his industrial policy program. The privatization movement must have come as a shock to Thurow. Here's a breathtaking example of his reasoning:
 ?
  "[J]ust as an army can move only as fast as its slowest unit, so the economy can only be as good as its poorest motivated, least cooperative component." Clearly, if Thurow were a general, his tactics would be as disastrous as his proposed economic policies.
 ?
  Unlike Galbraith, Thurow did accept market mechanisms, albeit suitably altered by all-knowing, all-wise government policies. His elaboration on the methods and content of his industrial policy program produced a string of classic absurdities. The pace of events by the end of the 20th century highlighted these absurdities with distressing rapidity.
 ?

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.

 

  Among his most absurd predictions and contentions:
 ?
  Prediction: Monetary policy at the Federal Reserve Bank went wrong in 1979 (when Paul Volcker started to reign in monetary expansion). Tight money alone will fail to cure 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?
 ?
  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.

  And what type of foresight and wisdom does Thurow believe "industrial policy" would provide us?
 ?
  Industrial policy would:
  •   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.
 ?
  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:

  It's when Thurow starts to explain his system for government "industrial planning" that we get a good idea why we must never allow Government - with or without the assistance of intellectuals like Thurow - to direct economic development. He advocates a Rube Goldberg reorganization to establish political control of U.S. business organizations and commercial arrangements.
 ?
  Proposal: There should be Government banks to allocate credit.

  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.

  Please return to our Homepage and e-mail your name and comments.
  Copyright 2001 Dan Blatt