John Kenneth Galbraith's The Affluent Society is a classic work of economics. Written in 1958, it discusses the changes in American society precipitated by the evolution of capitalism in the post-WWII growth years. Galbraith discusses the effects of the development of advertising, the military-industrial complex, and the increasing affluence of the average American.
Galbraith begins the book with a discussion of what he means by the term “affluent society”. The affluent society is one in which the basic needs of the majority of citizens are met, allowing most people to focus their productive energies on something other than bare subsistence. Later in the book, Galbraith notes that he feels the writings of many classical economists (such as Ricardo and Smith) should be reappraised due to differences in the economic conditions they experienced. Ricardo, Smith and their contemporaries wrote during a time when the average citizen made a meager living. Because of this, Galbraith feels that some of the basic economic assumptions made by these thinkers may no longer apply.
Public Service Funding
Galbraith argues that public infrastructure in the US is chronically underfunded because Americans deplore spending increases. As a result, many politicians face nearly constant pressure to reduce spending at all costs. In the US, the majority of elected officials are not experts in public administration, and most have no specialized knowledge about the services they end up overseeing. Because they lack the knowledge to improve these services, they frequently resort to service reductions, department consolidations, personnel reductions, and other such destructive solutions.
Over the past 50 years, we've seen a gradual reduction in the real services provided by the government. Our public infrastructure, from roads and bridges to public education to regulation enforcement is in dire need of updating. Until recently, most American voters seemed more concerned with the growth of the deficit than with crumbling bridges or understaffed schools. Recently though, voters have been agitating for improved government services. Hopefully, a renewed interest in civic engagement can reverse this trend of decline.
Desire Creation
During the second half of the book, Galbraith explores the role of capitalism in creating desires to be fulfilled.
If the individual's wants are to be urgent they must be original with himself. They cannot be urgent if they must be contrived for him. And above all, they must not be contrived by the process of production by which they are satisfied. For this means that the whole case for the urgency of production, based on the urgency of wants, falls to the ground. One cannot defend production as satisfying wants if that production creates the wants.
Galbraith was writing at the height of American advertising culture. The TV series Mad Men, which portrays the American advertising sector, is set between 1960 and 1970. Galbraith's book was published in 1958, so his discussion of the advertising sector just barely predates the period depicted in the show. Before the advent of advertising, there were simple explanations for why people purchased things: they satisfied a need. Now, instead of purchasing things that they needed or truly wanted, people purchased things that they had been induced to buy through the ads. That being the case, Galbraith thinks that many of our basic economic assumptions are no longer relevant. In recent years, it seems that economic theory has gotten some of the updates Galbraith recommended, but it's doubtful that the role of advertising is fully understood. It would be interesting to read some recent economic theory on the role ads, having read Galbraith.
Corporate Responsibility
A point that Galbraith seems to have misjudged is the myopia of executives and corporate management.
If the prices that maximize profits at the moment will bring wage demands that will threaten the cost position of the company over time; or if there promises to be long-run damage to the competitive position of the company; or if the public reputation will be hurt, then short-run maximization of return does not accord with self-interest even when this is defined in the narrowest of pecuniary terms. The firm will not proceed to maximize its current return unless something happens – an important point – to make this possible without damaging the longer-run interest.
Recent economic history runs counter to Galbraith's expectations. The executives of time and again put massive profits before effective risk-management. The real causes of this are systemic. Executives focused on growth have created incentive structures that encourage middle managers to take risks and inflate their numbers whenever possible. In the 2008 financial crisis, many lenders gave loans to unsound applicants. The eventual cascade of loan defaults led to a domino effect that eventually threatened the entire economy. But the economy is not the greatest victim of corporate executives’ lack of foresight. The environment takes that distinction. Massive corporations have done next to nothing to arrest climate change, and in many instances have even attempted to or succeeded in rolling back environmental protections. I expect that Galbraith would change his tone if he had lived to see some of the recent climate protests, or the heights of the 2008 economic disaster. Unfortunately, he died in 2006, just barely too soon to see it.
Monetarism
A very interesting observation made by Galbraith concerns the favor shown to massive corporations towards monetarism. Business has long been eager to promote the views of economists such as Milton Friedman and his cronies, with some obvious reasons. Friedman and friends promoted deregulation and laissez-faire style capitalism. This part of the story is well-known. What was (at least to me) unclear is the favor shown by businesses to monetarism, the view that the economy should be managed by manipulation of the money supply, a role that is currently filled by the Federal Reserve. Galbraith explains it thusly:
It will be easy to see why monetary policy is regarded with equanimity and even approval by larger and stronger firms. Unless applied with severity over time, it does not appreciably affect them.
Galbraith takes a jab at free-market idealists on the first page of chapter 8, “Economic Security”:
Restraints on competition and the free movement of prices, the greatest source of uncertainty to business firms, have been principally deplored by university professors on lifetime appointments. Their security of tenure is deemed essential for fruitful and unremitting thought.
UBI
Galbraith brings up the idea of a universal basic income (although he doesn't call it that) several times throughout the book. Nearly every time he does, he remarks on the political infeasibility of such an idea. He also brings up other similar proposals, such as a negative income tax. When discussing why such ideas are politically insolvent, Galbraith discusses the American obsession with freeloaders.
And, in fact, nothing has so haunted the discussion of social security legislation as the specter of the worker who lives amiably off his unemployment compensation check and contributes nothing to society in return.
The idea that it is far better to be employed (even in a bullshit or worthless job) is a pervasive American view that must be eradicated. David Graeber discusses this sentiment at some length in his excellent book Bullshit Jobs which I previously reviewed here.
There are several reasons to favor idleness over pointless employment. For one, people who aren't working are rarely doing nothing to contribute to society. Those who do not work often find other employment caring for children or elderly family members, being civically engaged, fulfilling their artistic or recreational desires, or any number of other worthwhile pursuits. And even for the people who do choose to do nothing with their leisure time, what's so wrong with that? To be pointlessly idle is no worse than to be pointlessly employed. In fact, given the enjoyment many people find in being idle, it is altogether quite a lot better to be idle than pointlessly employed. Galbraith makes a pithy observation on this topic:
Over the span of man's history, although a phenomenal amount of education, persuasion, indoctrination and incantation has been devoted to the effort, ordinary people have never been fully persuaded that toil is as agreeable as its alternatives.
The Public Sphere
Galbraith considers the role the government ought to play in society, why some services are typically provided by the state, and why privatizing them may not be ideal.
But to a far greater degree than is commonly supposed, functions accrue to the state because, as a purely technical matter, there is no alternative to public management.
Cities have long swept their streets, helped their people move around, educated them, kept order, and provided horse rails for equipages which sought to pause. That their residents should have a nontoxic supply of air suggests no revolutionary dalliance with socialism.
Not all goods and services are readily subject to sale on the installment plan and to the all but automatic creation of debt that goes therewith. Automobiles, vacuum cleaners, television sets and wall-to-wall carpeting are; the services of schools, hospitals, libraries, museums, police and street-cleaning equipment and rapid transit lines are not.
It's a fact that many requirements in day-to-day life do not lend themselves to procurement through a profit structure. There are several reasons for this. Firstly, for most of the services in question, the populations who benefit from the service and those who actually use it are asymmetric. For example, many cities run public transit systems that serve not only to expediently move people to their destinations but also to reduce congestion and pollution. While the simple service of moving people to a destination is a benefit only to those who use the service, the decreased congestion and reduced pollution provided by such services are beneficial to all citizens. It would be unfair to expect only transit riders to pay for the full cost of a transit system. Besides being unfair, it would likely be impossible. Transit systems are costly things. The cost makes sense considering the benefits; in fact, many cities would cease to function without their elaborate transit systems. Considering these facts, it seems highly unlikely that a private entity could ever run a profitable transit system without some remarkable efficiency increases. Not only would they need to reduce the cost of running the system to a point that it could be affordably divided among the riders, but it would also need to sustain the profit margin of a business.
Another reason some services don't lend themselves to private management is incentive structure. A government has multiple incentives in providing a service, the primary ones being reducing costs (or staying under budget) and fulfilling the goals of the service, usually in that order. Absent from this list is a concern for profit. While the pressure to reduce costs is certainly present, it's not usually as overriding a concern as that of a business with profit. A government agency that exceeds its budget may be reprimanded, and some of its personnel may lose their jobs. This is especially likely during an election year or a period of across the board cost-cutting. A business that fails to be profitable ceases to exist. For this reason, the profit motive of a business entices it to explore cutting costs wherever possible, frequently to the detriment of the services provided. Public services that have been privatized have almost invariably seen reductions in services, frequently in the name of “efficiency”. Post-Thatcher Great Britain is a prime example of this. The sordid history of the privatization of British Rail is a prime example. A short introduction to the topic can be found in this excellent video by Shaun, one of my favorite YouTubers.
The Sales Tax
Near the end of the book, Galbraith makes a surprising recommendation. Galbraith recommends raising the sales tax (mostly at the state and municipal level) to improve local government services. Why would Galbraith recommend this? The sales tax is regressive, in that it disproportionately affects the poor. A family of 4 typically eats the same amount of food regardless of whether they're lower, middle or upper class, excepting the extremes on either end. Therefore, a lower-class family would more keenly feel the effect of a sales tax increase, as a proportion of their income. So why would Galbraith recommend this course of action?
It's important to note that the economic landscape Galbraith was writing in was quite different from our own. In the late 1950s, America was an economic titan, and the average American enjoyed an unprecedented level of material comfort and financial security. Most American families owned a car and a house. Many even owned a television set, at the time quite an expensive item. Most of the jobs that provided this level of financial security required no more than secondary school education. In short, Americans were better off in the middle of the century than they are today. Many Americans today suffer from severe financial precarity, in which a single catastrophic event could wipe out their savings. Because Galbraith saw the Americans of his time getting better and better off and consuming more and more, a sales tax was a reasonable solution to a problem of underfunded government. I do not expect that Galbraith would still hold that view today. Galbraith seems to intimate as much:
But if the income tax is unavailable or in service of other ends, the only alternative is to sacrifice social balance. A poor society rightly adjusts its policy to the poor. An affluent society may properly inquire whether, instead, it shouldn't remove the poverty.
There seem to be two main issues at play here. Undoubtedly the main one is that Galbraith was writing during a time of increasing general prosperity. The tone that Galbraith uses throughout seems to be that of a socially conscious do-gooder chastising his fellow citizens for not doing enough to eradicate poverty and other social ills. Galbraith seems to find it unthinkable that a nation at the US's level of development should still have a semi-permanent underclass. He seems to expect general welfare to increase substantially over time and wants his fellow citizens to take heed of the welfare of the most downtrodden. Unfortunately, things did not play out that way. General economic welfare for the average citizen has remained largely stagnant since the 1980s.
Additionally, Galbraith (like many liberal economists) has been criticized for ignorance about the true extent of American poverty. The first edition of The Affluent Society mistakenly puts the number of Americans in extreme poverty at roughly 5%. After criticism, Galbraith revised this to a figure of roughly 20% in the second edition. So it seems not unlikely that Galbraith may not have considered the impact a sales tax would have on the poorest citizens.
Conclusion
Galbraith's books are some of the most influential liberal economic works out there. After Keynes himself, Galbraith is probably regarded as the most influential Keynesian economist of the 20th century. The Affluent Society is certainly his most influential book. As such, it's important reading for anyone interested in the history of 20th-century liberal economics. Galbraith is the author of almost 50 books, three of which I own.
Being even marginally acquainted with the works of Marx is detrimental to one's view of Galbraith. While The Affluent Society certainly paints a brighter picture than that of our present economic reality, it does very little to address most of the key flaws of capitalism. Galbraith's primary recommendations in the book (a sales tax, a more robust public sector, less focus on production, etc) would do very little to dissipate class distinctions in the US, or even to relieve our present inequality. Reading Galbraith is primarily a great way to fully grasp the bankruptcy of liberalism. Galbraith, as one of the greatest liberal economists of the 20th century, should be one of the strongest representatives of what liberalism has to offer. And even his greatest book falls far short of promising real solutions to our current predicament. That said, it's at least a fun read. I intend to read the other two Galbraith books I own, Name-Dropping and The Great Crash, 1929.
Additional Quotes
The poor have generally been in favor of greater equality. In the United States this support has been tempered by the tendency of some of the poor to react sympathetically to the cries of pain of the rich over their taxes and of others to the hope that one day soon they might be rich themselves.
In the conventional wisdom of conservatives, the modern search for security has long been billed as the greatest single threat to economic progress.
The less dramatic figure, the businessman seeking protection from the vicissitudes of the competitive economy, was much less in his mind. That is unfortunate, for the development of the modern business enterprise can be understood only as a comprehensive effort to reduce risk. It is not going too far to say that it can be understood in no other terms.