I hope everyone has enjoyed our Independence Day holiday. Since this is my first column, I thought I would share a few of my goals for the coming year. One of the new board’s first goals is to update the bylaws to insure that we operate according to the rules that have been passed. Following that, we must work to ensure a successful conference in October. As a board, we will also be considering the development of an annual conference; please feel free to contact me with your thoughts. We will continue to provide quality lunches each month. Jonathan Schwabish is working to bring in some great speakers this year; I hope to see many of you in attendance over the course of the year.
I also wish to thank Thornton Matheson for her wonderful work as president last year and for agreeing to organize our upcoming SGE Conference.
Please plan to join us this month at our monthly luncheon with Roger Betancourt. There are no SGE events in August, but look for new events in September.
Also in the SGE Bulletin this month:
See you soon at an SGE event!
Bill Lawhorn
SGE President
Wednesday, July 19, 2006
Noon to 1:30
Speaker: Roger Betancourt, Professor of Economics Department of Economics Affiliation: University of Maryland
Title: “The Economics of Retailing and Distribution”
Dr. Betancourt will discuss his book on retailing and distribution. This will include the fundamentals of demand and supply. He will also discuss the evolution of retail formats and the integrative process in distribution services.
Chinatown Garden Restaurant
618 H St., NW, Washington
Metro: Gallery Place (Red, Green, and Yellow Lines).
Restaurant is 1/2 block east of the Metro station's northern (H Street) exit.
Reservations by 11:30 am July 18th, to Jonathan Schwabish Jonathan.Schwabish@cbo.gov or 202-226-5667.
$15 for SGE and NEC members
$20 for non-members
Reminder: There is no August luncheon.
by John Kenneth Galbraith, Mariner Books; 40th Anniversary edition (October 15, 1998). 336 pp. $9.75. ISBN 0395925002.
Kenneth Galbraith, the author of the influential work 'The Affluent Society' passed away on April 29, 2006. SGE presents a review of this book as a memorial to his groundbreaking work in the field of Economics.
By Brian W. Sloboda, U.S. Department of Transportation, Bureau of Transportation Statistics
John Kenneth Galbraith, one of America’s most prominent Keynesian and institutionalist economists, died in April 2006. Galbraith was a prolific author and scholar, and in his best-selling 1958 book, The Affluent Society, Galbraith described the condition of the United States after the Second World War. The motivation for this review is to honor his achievements and influence on modern economic thought. The motif of the Affluent Society was that the US was rich in private resources but poor in public ones because of a misplaced priority on increasing production in the private sector. Galbraith argued that industrial production was being devoted to satisfying trivial consumer needs, in part to maintain employment. Consequently, he recommended, the United States should shift resources from the private to the government sphere in order to increase mobility, improve schools, infrastructure, recreational resources, and social services as a means of providing a better quality of life instead of creating an abundance of consumer goods to satisfy mass consumption. Put succinctly, Galbraith believed that the affluent society would be balanced because giant corporations would control the markets while the unions would protect and provide job stability to workers. The main role of government would then be to regulate business cycles. The Affluent Society was one in a series of his works which comprised of American Capitalism (1952), The New Industrial State (1967), and Economics and the Public Purpose (1972), which offered a theoretical justification for government intervention and various proposals for implementing his ideas.
The Affluent Society asserts that classical economic theory was more relevant in the years when poverty was more widespread. Over time, America has moved from that state into an age of greater affluence, and the standard, neoclassical economic theory seems to fall short.
In the first part of the book, Galbraith discusses the influence of Social Darwinism and Marxism on people during the 19th and early 20th centuries. In fact, he chronicles the evolution of economic thinking starting with the early belief that the average worker would always earn just enough to survive and perhaps raise a family. However, he contends that the issue of inequality in the distribution of wealth has drawn less attention over time. As America moved into the 20th century, Galbraith argued, production became a dominant theme in economic thought since people no longer viewed economic inequality as a major issue. Despite this paradigm shift from economic inequality to production, Galbraith asserted that the emphasis on production was irrational. More specifically, this new paradigm stressed that the private sector was best equipped to meet society’s wants and that the benefit from expanding government services was small.
Consumerism was a major theme in The Affluent Society. Galbraith contends that with the steady increase in wages in the United States, luxury items have become the new standard, replacing the basics of food and shelter. Targeted advertising has been responsible for creating both the increase in consumption and the purchase of more luxury goods. He states that contemporary economic theory does not take into account what he dubbed the ‘‘dependence effect” – i.e., that the ever-increasing desire for additional consumption is in a sense “manufactured” by advertising – of advertising and purchasing. Gailbraith contends that the massive growth in consumption has resulted in the steady increase of consumer debt from the 1920s to 1958. He warned that the accumulation of consumer debt is harmful to the economy, but the new paradigm believes that amassing consumer debt is acceptable if it brings high rates of production and consumption.
Since the Second World War, Galbraith believes that the supply side or the cost push element attributed to inflation, and more direct government intervention was needed to keep inflation under control without reducing employment. Economists during this time often disagreed on the cause of inflation and the best policy to combat it. Galbraith was influenced by Keynesian economics, especially in the application of government policy. By initiating government spending at the bottom of business cycles, policy-makers could stimulate the economy. On the other hand, government tax policy could also be used reduce the high excesses during periods of expansions as a means to reduce excess consumption.
Galbraith further addresses the role of monetary policy as conducted by the Federal Reserve System as a tool to control inflation. He strongly believes that the Federal Reserve’s method of raising interest rates does more to harm small businesses than it protects the consumer against inflation. Thus, contractionary monetary policy should be avoided. Galbraith contends that Americans mistakenly place too much emphasis on production in the private sector and often conclude that private sector production is the most important measure of the economy’s strength; he adds that the dominant thought places too little value on government services. As he sees it, there should be a balance between private and public expenditures. Because of this polarization, he coined the term ‘‘social balance’’ to describe an acceptable relationship between private and public expenditure. An affluent society is dependent on public goods such as law enforcement, education, sanitation, transportation, highways, and the transportation infrastructure. Galbraith dedicated an entire chapter in The Affluent Society to discussing the underinvestment in public education. Public education, he suggested, is a public expenditure that really represents an investment because it provides an educated and trained labor force for the private sector. Society, however, seems unable to recognize that public education is a worthwhile investment for promoting economic prosperity. Galbraith discussed the importance of investment in individuals, which is a precursor of the concept of human capital as espoused by Schultz (1961) and Becker (1962).
Galbraith placed a greater emphasis on sales taxes than income taxes because it achieves an improved social balance between private and public sector production. That is, increasing sales taxes would reduce consumption of goods and make those who consume pay more in taxes. This increase in sales taxes would provide greater funds at the state level, which would in turn allow government to provide the necessary public services such as education, health, and human service programs. He also advocated greater government spending as the most effective approach for reducing poverty.
The Affluent Society sparked a serious intellectual debate with its publication in 1958, and many of the themes are still relevant in today. In recent years, the national economy’s showing has been impressive: 4.7 percent unemployment rate, 5.3 percent growth of GDP, increases in productivity as well as improvements in other economic indicators. However, opinion polls have indicated that people are not satisfied with economic conditions, despite the positive statistics. These data indicate that people are amassing wealth and consuming goods, two effects that can lead to greater happiness and an improved quality of life. Increased happiness, however, is not flow from the growth of luxury goods and disposable income.
Each successive generation has faced somewhat different economic issues, driven by different circumstances. For the current generation, rapid advances in technology, economic globalization, the need for coexistence with rogue nations, corporate malfeasance of companies like Enron, and other events affect today’s economy. For some policymakers and intellectuals, the underlying themes of The Affluent Society could be applicable to the contemporary debate about how to improve the quality of life for all. In brief, the feeling that corporations were not always the most noble of institutions and a deepening dichotomy between the wealthy and less wealthy form the core beliefs of Galbraith and are still relevant today.
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The views expressed in this review are those of the author and should not be interpreted as those of the Department of Transportation.
References:
Becker, G.S. (1962) "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy LXX, 9-49.
Schultz, T.W. (1961). “Investment in Human Capital,” American Economic Review, 1-17.
The rappoteur report will be coming later
Reservations are preferred one business day before an event. Walk-ins are welcome.
Thursday, July 13, Chinatown Gardens, Dr. Edward Lazear, Chairman Council of Economic Advisers "A Success Story: American Productivity
Thursday, July 27, Chinatown Gardens, Bob Carroll, DAS Tax Analysis, U.S. Treasury
Thursday, September 7, Chinatown Gardens, Donald Marron, Acting Director, Congressional Budget Office
Listed below are scheduled events, most of which are open to the public. Click on an event title to view more information.
Save the Date: Footing the Tuition Bill 
New Developments in the Student-Loan Industry and How They’re Changing the Way We Pay for Higher Education 
Monday, September 25, 2006