James K. Galbraith: How Our Inequality Happened


James K. Galbraith — out on the uneven playing field of American wealth and power — is pointing out the 30-year drift of tax policy and political power, all of it made possible by the decontrol of campaign spending and the big-money capture of both major parties. Galbraith is an economic eminence in his own right by now at the University of Texas and on the left wing of the Democratic party, and the author most recently of Inequality and Instability.

Jamie Galbraith is also of course the son of the late Sun God of mid-century liberalism, the witty scourge of “private affluence and public squalor” as of innocent old 1958! Papa John Kenneth Galbraith‘s evergreen warning about The Affluent Society arrived in the post-Sputnik moment of the long postwar expansion not just of the US economy but of public investments in education, science and space. But even then Galbraith Sr. was worried about a widening gap between rich and poor as a risk to American stability — imagine it! — in what we remember as the rock-solid Eisenhower years.

I’m asking Jamie Galbraith to account for the split of the 1 percent and the 99 today. Shorter Galbraith: these things don’t develop by accident.

From the second World War up to the early 1980s we had a fairly balanced economic expansion in the United States. It had a very strong component of wage-led growth. After the 1980s all of that was gone, and we’ve basically expanded only on the strength of our credit markets — the strength of bank lending and the strength of stock market bubbles. And this has been wave after wave, which have now come to grief….

Let’s go back to the 1980s when we sharply reduced tax rates on upper-income people. Even in 1986 a tax reform that had some progressive aspects to it continued this process. What happened then? I think two things happened. One is that there was a very strong tax incentive to put your money in housing because mortgage interest remained deductible and no other form of interest did. So people who wanted to take out loans did so through housing; and people who got windfalls from the tax cuts also invested in mansion building, and there’s been a great deal of that ever since. A second thing is that when you reduce the tax rates on personal incomes, people who controlled corporations and controlled their own compensation as executives had a strong incentive that wasn’t there before to transfer income from the company to themselves; and so you had the executive compensation boom…

In the 1960s when we were young and into the early ’70s we had a strong momentum for building stronger, more egalitarian, more progressive social institutions. In the 1980s the initiative passed to the other side and for the last 25 or 30 years progressives have been very much on the defensive. Not that we have nothing to defend… As soon as this election is over, no matter who wins it, we are going to start hearing of a need for a bi-partisan compromise to cut Social Security benefits. This is as sure as anything I can tell you. And it will be presented as some kind of modest proposal to protect the fiscal solvency and so forth of the Social Security program. It’s utter nonsense. The purpose and effect of the cuts that are coming will be to reduce the living standard of the future elderly by very substantial amounts over time. If we allow this to happen, and in particular if we allow the Democratic Party to concede the necessity oif it happening, we’ll be committing a crime, really, against the future. We’ll be returning tomorrow’s elderly to a state of distress that they have to a very substantial extent been able to avoid…

What has happened is that our political structure is now entirely dependent upon small numbers of people with large amounts of money. That’s true of both parties. And the kinds of “countervailing forces,” to use one of my father’s phrases, are no longer nearly as strong as they were — trade unions and other kinds of civic organizations. That is a consequence of allowing inequality of wealth and power, in this case, to get out of hand. It should be at the top of any civic agenda.

James Galbraith with Chris Lydon in Boston, May 2012

Coming next: Vanessa Williamson‘s close encounter with the Tea Party grass roots. “Think of them as your Aunt Olive at Thanksgiving dinner,” she begins, prompting me to wonder: shouldn’t we see the Occupy mobs as the angry kids, literally, of those furious old tax rebels. Different wardrobes, in short, one breakdown?

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  • orangescissor

    Since the government backstopped the banks in 2008, the financial sector should now provide low interest loans to the govenrnment so that the U.S. can create needed public works that will stimulate the economy, put people to work and create new infrastructure for economic growth. As the finance sector contracts maybe it can remake itself working on financial models for public investment projects.

  • Clinton Gallagher @virtualCableTV

    I taught some courses in the college classroom myself and will never forget a young Chinese woman who explained how the Communist Chinese are the 1% and the rest of the Chinese people the 99% so to speak.

    The 1% Chinese who think of themselves as intellectual elitists equivalent to America’s Democrats “wear” colored pens in the otherwise similar tunics worn by all –equals– the number and color of which representing their place in the Communist hierarchy, a strata of the human experience which has been common to each race of people during any given period of time in history.

    Next time –you– happen to be in the presence of one of these Communist Democrats look for such signs. They are there for the astute observer.

  • Potter

    Do they usually hide (except for Paul Krugman) but now things are so bad that progressive thinkers (please keep them coming) have been speaking out lately, or being sought out to talk, and are out with books? The outsized inequality, the alarming dysfunction of our political system, the history we should know (some of us remember) starting in the 70’s or 80’s, the very troubling direction in which we have been going. It started, I think with Reaganism. Reagan is still a god. Even Obama invokes Reagan. He has to. But it was Reagan who began the anti- tax (it’s your money you should have it) anti-big government mantras while at the same time signing tax increases and spending enormous sums on the military (taking credit for the break up of the Soviet Union). It was Reagan who began class warfare as well.

    Somehow we have to get out of our corners and have this out. The coming presidential election campaigns should do it but there is precious little time and we need a huge change in direction. I don’t see it.

    Romney just yesterday called for an education voucher system which would be disastrous to public education. He does not cease to horrify me especially with his delivery, so smooth.

  • This point is crucial, and lost during the election season’s peak:
    “our political structure is now entirely dependent upon small numbers of people with large amounts of money. **That’s true of both parties.**”