Home > Uncategorized > James Galbraith castigates a "disgraced profession [that] failed miserably to understand the forces behind the financial crisis."

James Galbraith castigates a "disgraced profession [that] failed miserably to understand the forces behind the financial crisis."

I thought I would bring to readers’ attention this concession/semi-confession by James K. Galbraith in testimony to the US Senate Judiciary Committee earlier this month.

Galbraith’s testimony is interesting and useful, but nevertheless shallow – he completely misses the role of government regulkation and money manipulation in fostering moral hazard run rampant, or the insights of Austrians, who generally had a great idea of the problems – for decades 

Galbraith focusses solely on financial fraud, and ignores the deeper failures of Keynesianism. His litany of failures is sobering, but he provides zero insights into why those failures occurred – other than the greed understandably manifested when those who govern are busy playing with OPM – Other People’s Money. Still, I can’t argue with his closing(emphasis added):

Some appear to believe that “confidence in the banks” can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.

In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case. Thank you.

Readers might also enjoy this interview/debate Galbraith did on the Scott Horton Show/Anti-War Radio with Robert Higgs, Senior Fellow in Political Economy at the Independent Institute.

Galbraith is Professor of Economics at The University of Texas at Austin, and is author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.


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