.

The Good Society: The Humane Agenda

Reviewed by Avraham Peltz

The Good Society
by John Kenneth Galbraith, Translated by Drorah Belishah
Astrology Press, 1997, 128 pages, Hebrew.

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From the late 1940s to the 1970s, John Kenneth Galbraith was the most widely read economist in the West. A disciple of John Maynard Keynes and a young firebrand in Franklin Roosevelts New Deal, Galbraith went on to become Americas most eloquent advocate for interventionist economics. Galbraith, as one English observer noted, was the doyen of the American left, a man whose wit, self-assuredness, social connections and imposing physical stature lent respect to radical egalitarian economic policies. Galbraith remains true to his past in The Good Society, a slim and easily accessible volume making the case that government should provide each citizen with “access to a rewarding life.” To give citizens the opportunity to go as far as their talents will allow, Galbraith argues for government spending in areas ranging from inflation and unemployment to the environment, the military and foreign policy.
Published in 1996 on the heels of the Republican takeover of Congress, and in Hebrew in 1997, a year after Prime Minister Netanyahus election in Israel, The Good Society offers a direct challenge to the political triumph of free-market proponents in both countries. Yet the challenge is necessarily a futile one: Both countries, and especially Israel, have already learned through bitter experience just how perilous Galbraiths proposals really are.
 
Mindful that free marketers will dismiss The Good Society as impractical, at best, Galbraith emphasizes that his policies really can be implemented, provided that governments base policies on real-world criteria rather than rigid ideological constructs, whether capitalist or socialist. His ostensibly pragmatic approach gives the reader the sense that The Good Society offers an improvement upon standard socialist thought, or at least a softening of dogma. But Galbraith is no Tony Blair or Bill Clinton: Beneath his rhetoric lie the familiar, albeit discredited, socialist principles and strategies that have given governments a commanding role in national economies, and have left a legacy of economic decline and hardship.
Galbraiths program is bound to fail because it entails massive tax increases. To justify increasing the tax burden, Galbraith relies on the last refuge of pro-spending economists: The cost-benefit chimera, the assertion that the benefit society derives from a dollar levied and expended by the government exceeds the benefit society will derive if it is not collected as tax. The simple truth, now accepted almost universally, is that private spending initiatives, which are decentralized and able to respond rapidly to sudden changes in demand, are far more cost-effective than public outlays of tax dollars.
Implementing The Good Society in the American context—where the failure of such ideas has driven most of their adherents into hiding—would be problematic enough. In Israel, it would be catastrophic. For example, Galbraith maintains that the sole cause of unemployment is insufficient demand resulting from excess speculative demand in the private sector—the practice of holding onto cash assets in the expectation that interest rates will rise. To combat unemployment, he proposes that governments ensure stable growth by increasing demand through increased expenditures. Yet recent experience in Israel belies Galbraiths approach. Israels current unemployment problems are the result of the previous governments failure to reduce, or at least moderate, public expenditures during a period of economic growth. The Rabin governments spending programs, instituted primarily for political reasons, caused the budget deficit to balloon. These increased deficits, in turn, created speculative excesses unrelated to market activity. The result: A long and painful period of economic stagnation and steadily higher rates of unemployment, with recovery nowhere in sight.
Rabins economic failure illustrates Galbraiths central folly: His tendency to ascribe great wisdom and foresight to government. Public officials rarely possess the economic vision that Galbraith imputes to them and, with few exceptions, governments are poor regulators. Worse, they are prone to adopt populist measures—measures which, in turn, exacerbate small-scale economic oscillations and undermine economic and social stability.
 
Israel would face even greater difficulty were it to adopt Galbraiths inflationary policies. Galbraith sees inflation as a necessary and not very painful evil. He rather blithely suggests using inflation to solve the financial difficulties experienced by poorer segments of society, by linking wages and transfer payments to the rate of inflationׁthe classic recipe for hyperinflation. This type of almost irreversible inflationary spiral devastated Israel in the 1970s and early 1980s. What saved the country from economic catastrophe was the cancellation of the automatic cost of living increase in the mid-1980s.
In the United States, inflation has been low for some time, and major segments of economic activity do not depend on inflation to generate income. There, the wealthy prefer low inflation in order to increase real interest gains on their savings. In Israel, where inflation used to be rampant and key aspects of the economy remain linked to prices, the situation is nearly the reverse: Wealthy industrialists regularly demand that the government and the Bank of Israel whip up inflation, because the affluent are shielded from its effects. Acceding to these demands, however, harms most Israelis. An inflationary tax erodes the value of cash-in-hand; this primarily hurts the less wealthy members of society, who rarely have inflation-linked, interest-earning savings accounts of any significance. Their single major investment, if any, is their home. The dramatic drop in inflation in 1985 brought immense relief to average Israelis in the form of greatly reduced mortgage costs.
But the best reason not to implement Galbraiths program in Israel has to do with the role of economic elites. In Israel, an economic oligarchy wields enormous power by virtue of state-sanctioned monopolies on the bulk of transactions in agriculture, land, basic utilities, communications, transportation, energy, and defense. The Israeli public has no share in either the ownership of these huge monopolies or their profits. They are mostly owned and controlled by a handful of people—whose social views, not surprisingly, bear a remarkable similarity to those of Galbraith.
This network of monopolies sprang directly from the good intentions of Israels founding fathers. Through this mechanism they, like Galbraith, sought to create a “good society.” Instead, Israels founders paved the way for a disturbingly unequal distribution of income, overpriced goods and services, and rampant inefficiency. The paradoxical result: The very groups that Galbraith claims to speak for—the lower middle class and the poor—are those who are most opposed to his Good Society, for they have suffered its disastrous consequences.
To those who are able to ignore such economic realities, The Good Society offers an elegantly phrased defense of the indefensible: Israels national monopolies, bloated bureaucracies and failed labor policies. In the final analysis, Israels experience may be the most effective argument against The Good Society. The nations attempt to create that society failed miserably, and considerable effort must now be expended to undo the damage.

Avraham Peltz is a freelance writer who lives in Modiin, Israel.

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