Inequality and Instability – Part 4

Inequality and Instability – Part 4

PAUL JAY: Welcome back to The Real News Network
for the concluding segment of this series of interviews with James K. Galbraith on his
new book Inequality and Instability. Thanks for joining us again, James. JAMES K. GALBRAITH: My pleasure. JAY: So, just to remind everybody, watch the
other parts and then come watch this part if you haven’t seen the other parts, although
to some extent this part will stand on its own. Again, James K. Galbraith teaches economics
at the LBJ School of Public Affairs at the University of Texas, Austin. He’s the author
of the book The Predator State. And his newest book: Inequality and Instability. Thanks for
joining again, James. GALBRAITH: Thank you. JAY: So what public policy conclusions come
from your work? GALBRAITH: Well, I think the first one is
that economic policy should not be under the control of bankers, and any economic team
which is dominated by the financial sector is going to be largely serving that sector’s
interest. Now, that, I think, is a very clear fact and something which everybody should
be prepared to resist and to object to when it occurs and to protest until it changes.
Until that happens, very little else will happen. Second point. I think we’ve learned from this
that the institutions of the New Deal were by and large sound, by and large well conceived,
and they did a good job for a long time. It would–we did ourselves a great deal of damage
by dismantling the regulations that controlled the financial sector up until the mid/late
1990s. We should not compound that damage by dismantling the greatest legacy of the
New Deal, which is Social Security, or Medicare, which is in some sense the culmination of
the New Deal project in Lyndon Johnson’s Great Society. We should defend those programs,
because they are social insurance programs which have been and continue to be a mainstay
of the basic protection against poverty for working Americans, and their enemies are not
people who are motivated by some higher economic wisdom or public purpose, but who are simply
pursuing an agenda of undermining and ultimately dismantling these programs that they have
been pursuing since the 1930s and the 1960s. JAY: Some people have argued that the power
of finance has gotten so profound and so strong and essentially comes down to how finance,
how banks are owned–it’s not just a distribution question, it’s an ownership question–that
the banking sector, first of all, is in so few hands, and second of all, so much of the
economy is in the hands of the finance sector (I know if you dig into what these banks are
doing, it’s not just derivatives and various financial shenanigans; they also directly
own an enormous amount of the commodities in the world directly, or they own ownership
stakes in some of the biggest commodity traders–Goldman Sachs has its fingers into every kind of business
transaction, as do the other big houses), that the way–the power and the concentration
of ownership is such that it gives them such political power that to address that, you
have to start kind of somehow opening up some areas of the economy, either through some
forms of public banking or something else, that challenge the power of that ownership.
What do you make of that? GALBRAITH: Well, I think the function of the
financial sector has been deeply compromised since the crisis. It is not doing a job that
serves the broader public purpose. You have, essentially, very short-term investment–as
you point out, a large part of it in commodities, which have been driving up prices and effectively
acting as a choke chain on the recovery of economic activity. What should have been done in 2009 was for
the government to take control of the most severely damaged, impaired, and dangerous
institutions and to resolve them according to the normal laws that are put into effect
every week when smaller banks are in trouble. That is to say, they go into a receivership
under the control of the regulators, the FDIC, and they are–you have a careful examination
of their practices, of their books, of their assets, and then they are restructured as
appropriate to the situation. That didn’t happen, and as a result, we are saddled with
a small number of massive banking institutions with very highly paid, powerful people at
the top who throw their weight around politically. And that is something which needs to be addressed
directly, and for which the tools not only exist, but to some extent they were enhanced
by the passage of Dodd–Frank, which requires these institutions to have a resolution plan,
a plan what to do if they have to be restructured. So that should be, again, a major political
priority. It is time for that to happen. I was very interested to see a voice coming
from an entirely different political quarter, president Richard Fisher of the Dallas Federal
Reserve, giving a speech a few days ago in which he basically said–made some of the
same arguments. So I think there is in fact a broad sense that this is the moment–that
this is what is needed in the country, that we cannot effectively return to prosperity
if we have allowed the financial sector to be dominated by a very small number of very
large and essentially dysfunctional institutions that are dangerous to the system but also
practically impossible to regulate and monitor effectively. JAY: And as you pointed out earlier, finance
essentially has captured both main political parties. So what should people do? GALBRAITH: Well, they need to recapture one
of the parties, I think, is the answer to that. I don’t see any alternative. JAY: Thanks for joining us, James. GALBRAITH: My pleasure as always. JAY: And thank you for joining us on The Real
News Network.

Author: Kennedi Daugherty

13 thoughts on “Inequality and Instability – Part 4

  1. Yes, I had to do that nearly 20 years ago. It just wasn't working for me in the US. I couldn't see any future there. For all the sour grapes talk about Europe, I'm all for it. It's been a good investment.

  2. Ah yes, the idea that there is, somewhere, someone who is planning all this. Could be, but to me it`s far more likely to be stupidity than malice.

  3. These 4 reports were outstanding! Dr. Galbraith is right, progressives need to take over the Democratic Party. If the Tea Party can make a good start at taking the Republican Party an internetocracy movement can take the Democrats. The primaries are the place to do it. Candidates who pledge to take no money from corporations or large personal donors and plan to run their campaigns on social media for free with the help of an army of volunteers can defeat Democratic incumbents.

  4. But how does inequality make the economy unstable? … I never heard in these interviews the economic process of how exactly inequality destabilizes the economy… I heard the political power connection, but not the economic mechanism.

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