Battle of the Titans: Grant vs. Galbraith

by: Steven Bavaria

Jim Grant was right in a recent Wall Street Journal piece (“The Non-Economist’s Economist,” September 25-26; see link below) that John Kenneth Galbraith got a lot wrong about the direction of stocks and the economy.

But Galbraith had it dead right in his best-selling “New Industrial State,” which every college student in the late 1960s had to read while not out protesting, or abusing illegal substances. The book’s main theme was that major corporations would become captive to the management class who would eschew free enterprise and what was best for shareholders and focus instead on maintaining their power and perks.

This is precisely where we have evolved to, both in the corporate executive suite and in politics. It is also a major reason why so many Americans, of all stripes, have lost faith in their leadership elite – political and corporate – and its willingness and/or desire to put the nation first and try to solve our problems.

Galbraith would not have been surprised to see a legion of “spreadsheet entrepreneurs” arise to replace old-fashioned capitalists who made their fortunes actually building businesses. Who can now deny – post crash – that the major impetus for thousands of merger and acquisition deals, as well as complex structured finance transactions, was simply to “get a deal done” and earn fees, bonuses, stock options and other compensation for the executives, bankers and other “enablers” of the transactions, and not for any rational underlying economic purpose?

Indeed, if what economists call the “external costs” of so many of these deals – local economies destroyed, jobs lost when plants are closed, federal and state tax revenues lost, stress on families affected, etc. – were offset against the pure accounting gains, there might not even be any real economic profits to spend on mansions in Greenwich, Saddle River, and similar locales.

Unfortunately Galbraith’s predictions apply equally well to the political arena, where it is now widely perceived to be the rule rather than the exception for incumbents of both parties to put virtually all their efforts into staying in office rather than to try to accomplish whatever motivated them (one hopes) to seek public office to begin with.

Disclosure: No positions