Editor's letter: Unconventional wisdom

… and, in this year of all years, it seems entirely appropriate to revisit
one of his most important works, The Great Crash 1929.

Galbraith was a highly unusual economist: for one thing, he could write and
write beautifully. I don’t think I have ever seen an econometric equation, nor
even a single Greek letter, in anything of his that I have had the pleasure of
reading.

For another thing, he was passionately concerned about the impact of the
economy and government policy on ordinary mortals – ­ even extending to
diatribes against the blight of roadside advertising hoardings, as readers of
The Affluent Society may recall.

Galbraith has not, however, been somebody I’ve always agreed with. Very much
a product of his era, Galbraith was lecturing at Harvard when the Crash came and
the Depression followed, and he served in Washington’s department for price
controls under FDR, so he has always had a strong, Keynesian belief in the power
of governments to push and pull the levers.

Admittedly, he had a front-row seat at a time when governments claimed to be
impotent, when what Galbraith scathingly called the “conventional wisdom” was
that it was more important than ever to balance the budget during a depression ­
– with consequences that it took World War II to unwind.

Galbraith sets out five areas where he thought things were wrong,
exacerbating the slump. (You will enjoy his language: whereas today we might
make polite and convoluted references to the interdependencies in the financial
services sector, Galbraith simply talks about “The bad banking structure”.) Some
of these will send a chill down your spine, for it doesn’t require much
imagination to see analogies between what happened 80 years ago and the mess
we’re in today.

He talks about the role of the excessively rich, and I think one can insert
oligarchs and investment bankers into that paragraph today. When he discusses
“the bad corporate structure”, you will learn about how highly geared holding
companies were dependent on dividends from their subsidiaries for survival. I
couldn’t help but think of securitisation vehicles when I read that.

Galbraith wrote, “American enterprise in the twenties had opened its
hospitable arms to an exceptional number of promoters, grafters, swindlers,
imposters, and frauds” ­ and if that sentence doesn’t make you laugh out loud,
then I don’t know anything else in this industry that will.

Of course, there are some circumstances Galbraith wrote of that are quite the
reverse today: the huge American trade surplus is one of them, the gold standard
another – ­ but that should not spoil things for you.

He himself said that he never enjoyed writing a book more than this one. I
can hardly remember reading a better one and I hope you, too, will find it a
true pleasure.

For thoughts on recent rate cuts, read our
blog.