“Is This the American Genius?”: John Kenneth Galbraith’s “The Affluent Society” and Private-Choice Theory

Back to Galbraith! In spite of the best efforts of Transport for London and British Rail to keep me sequestered in the London metro area (multiple car accidents that halted my bus ride, broken tube lines, engineering work that necessitated bus rides through southeast England to Oxford), I’m back in one piece from a sojourn to Paris, where I was visiting the Université de Paris-8 (Saint-Denis) for a conference on Afghanistan and the Anglophone world since 1979. It was a great time, where I was able to listen to presentations from scholars like Carl Mirra and Artemy Kalinovsky on their work, when not indulging my weaknesses for chocolate croissants, roast duck, and red wine. That said, it’s nice to be back in Oxford, chilling out, meeting up with friends who are in town for graduation ceremonies, and walks in the parks.

Between presentations, museums, and gorging myself, however, I was able to continue, and indeed finish reading, John Kenneth Galbraith’s The Affluent Society, which I have been jointly reading with two close friends, John Raimo and William Wachter. (Most of their commentary can be found over at John’s blog, Tandem Reading.) In this contribution to that conversation, I’d like to focus on what I saw as some of the key points from the last two-thirds of Galbraith’s presentation. I was surprised to see how little the book focused on the need for a “New Class” of teachers, public servants, park rangers, etc., which is how the book was known to me; instead, I found myself reading a critical engagement with how the discipline of economics problematically developed in 20th century America. Given the amount of scrutiny the discipline has received in recent years and in wake of the financial crisis, it is especially exciting to read Galbraith as we search for new ideas to replace the old ones.

So much choice ...

What seemed to be to be the central part of Galbraith’s argument comes in Chapter X, “The Imperatives of Consumer Demand.” As established in some of the earlier chapters, by Galbraith’s time the American economy had made the remarkable achievement of creating for the masses a standard of living whereby most actual needs could really be satisfied. Poverty still existed, of course. But significant portions of the population had, for the first time in human history, really, the ability to acquire sufficient food, shelter, clothing, and warmth. But the perceived imperative for more and more production and industrial output as the goal of the nation (promoted by businessmen) meant that new goods and new markets (not just wheat crackers, but highly differentiated markets; not just Model Ts, but hugely differentiated cars with luxury features) had to be developed. Correspondingly, the advertising industry had to step up its game to convince consumers that they actually needed the new goods, work harder, and spend more of their newly-acquired income on these goods. This is a point that libertarian friends of mine will gleefully point out: American capitalism for much of the latter 20th century has seen greater and greater market specialization. New technologies, especially in medicine and information technology, created entire new markets (like that for smartphones, MP3 players, or the computer that I’m typing this on) that consumers then became obsessed with. Many of these new goods (Mercedes S-Classes) were simply comfortable and were nice to have as luxuries, but other new goods (computers) significantly boosted American productivity, thus allowing consumers to buy and consume even more. Sounds like a good deal, no?

... but does the choice between Triscuit and Chicken in a Biskit really promote welfare?

Galbraith criticizes this line of argument that seems to back so many defenders of orthodox “free-market economics” today in the United States. In Chapter X, he makes the observation that economics was traditionally never in the business of making value judgments about how consumers or individuals chose between products. In the words of Alfred Marshall, a hugely influential early 20th-century British economist, “the economist studies mental states rather through their manifestations than in themselves; and if he finds they afford evenly balanced incentives to action, he treats them prima facie as for his purposes equal.” In other words, economists are trained not to export their own value judgments about different choices under scarce resources when they examine third parties. As Galbraith says, “nothing in economics so quickly marks an individual as incompetently trained as a disposition to remark on the legitimacy of the desire for more food and the frivolity of the desire for a more expensive automobile.”

On a more sophisticated level, scholars of intertemporal consumption (i.e. explaining why people spend money for education at age 20 but not at age 90) certainly recognized that people’s preferences changed over time. As Galbraith notes, “yesterday the man with a minimal but increasing real income was reaping the satisfactions which came from a decent diet and a roof that no longer leaked water on his face. Today, after a large increase in his income, he has extended his consumption to include color television and eccentric loafers. But,” Galbraith emphasizes, paraphrasing orthodox economics, “to say that his satisfactions from these latter amenities are less than from the additional calories and the freedom from rain is wholly improper. Things have changed; he is a different man; there is no real standard for comparison.” And in a world where obtaining more goods was actually a matter of survival, adopting this value-neutrality towards private choice was probably legitimate. But Galbraith raises the concern: if in the affluent society consumer urges are themselves are always-expanding (due to advertising and the drive for more acquisition), do we not at some point need to begin to make a distinction between more necessary and less necessary goods? Should it not be the job of economics – especially in a world of limited resources – to make scientific judgments about the desirability of more eccentric loafers versus money for a new school in a community? The answer, Galbraith suggests, is no. Striving to remain a “science” and to stay away from “fuzzy” judgements, economists stayed clear of criticizing consumer choice.

What made this such a disastrous turn when economics interacted with policy was that economics did turn an increasingly critical eye towards public expenditures. Beginning in the 1960s but starting at the same time as Galbraith’s The Affluent Society, economists like Anne Krueger and James Buchanan began to develop what became known as “public choice theory.” At the risk of over-simplifying a complex scholarly tradition that does not deserve to be dismissed out of hand, public choice scholars began to apply traditional models used in microeconomic analysis – game theory, rational actor theory – to the study of public institutions. Instead of looking at parliamentarians or Congressional Representatives as Weberians trying to balance between their ultimate ends and responsibility in public office, scholars like Buchanan and Krueger looked at representatives as “rent-seeking” actors, seeking to exploit the rules of political institutions as effectively as possible to benefit their interest groups. Of course, politicians still spoke a language of idealism during the campaigns; but once elected, their goal was to merely form temporary coalitions and garner as much pork and prestige for themselves to extract wealth from the state and ensure their own re-election. Unsurprisingly, this tradition of analysis (whether it intended to do so or not) engendered massive distrust in government and public investment. After all, if the theories predicted that so-called “public servants” would only extract “rents” that did not benefit the public, why earmark more taxpayer money for education spending or national parks? If you bought the entire argument, these funds would be more efficiently appropriate to charter schools or private clubs that were disciplined by “the market” and hence less likely to engage in abuses of the public purse. In other words, the public choice tradition supported the view that all government spending or investment be viewed skeptically.

Even as Cheap Credit Fueled Eccentric Consumer Desires, Economic "Conservatives" Were Too Scared to Offer Up Private Choice Theory

There might have been plenty of issues with public choice theory as such, but the real problem was that it didn’t come married to what we might call a “private choice theory” that furthered a critical attitude towards consumers bombarded with advertising that promoted new “needs.” Many conservatives whom I debate with today can be remarkably cynical about the integrity of public institutions, or of public sector unions. But the tradition in economics of not criticizing private consumer choice meant that they do not extend such rancor to consumers who spend their paychecks on frivolous gadgets or eccentric food items, while at the same time significant cities in America increasingly resemble Third World countries and could benefit from reinvestment. Individual consumer choice, even when fueled by abusive and underregulated credit policies (credit cards for consumption, student loans for education, mortgages for housing) was not the object of criticism that legislatures and legislators became under public choice theory. In short, conservatives considered it presumptuous for anyone, but especially policymakers, to criticize individual consumer choice. The market would work things out, and it was not the place of policy mandarins or “social engineers” to intervene with that consumer choice. Bizarrely, as Galbraith underlines, the same observers who deplored government “interference” in rational markets had almost nothing to say on the interference that advertising (a $300 billion industry in the USA) had on consumer demand.

Fracking: The American Genius in Pennsylvania?

The result of unrestricted cynicism towards public spending and unrestricted optimism towards consumer choice and the acquisition of private goods was an America that under-invested in its own people and over-spent on consumer goods. At one point in The Affluent Society, Galbraith writes, movingly, I think, the portrait of the society that devotes extensive scrutiny towards public spending while at the same time remaining obsessed with advertising, production, and consumption as goods:

The contrast was and remains evident not alone to those who read. The family which takes its mauve and cerise, air-conditioned, power-steered and power-braked automobile out for a tour passes through cities that are badly paved, made hideous by litter, blighted buildings, billboards and posts for wires that should long since have been put underground. They pass on into a countryside that has been rendered largely invisible by commercial art. (The goods which the latter advertise have an absolute priority in our value system. Such aesthetic considerations as a view of the countryside accordingly come second. On such matters, we are consistent.) They picnic on exquisitely packaged food from a portable icebox by a polluted stream and go on to spend the night at a park which is a menace to public health and morals. Just before dozing off on an air mattress, beneath a nylon tent, amid the stench of decaying refuse, they may reflect vaguely on the curious unevenness of their blessings. Is this, indeed, the American genius?

Galbraith’s reflections are, of course, hugely relevant to the predicament America finds itself in today – at the end of a “lost decade” and searching for new policy paradigms to get people back to work and move away from the rage that characterizes the Tea Party and the hopelessness that motivates 99 Percenters. In Pennsylvania, the new natural gas capital of the world with significant shale gas deposits, the practice of “fracking” (shooting highly-pressurized water jets into groundrock to release natural gas for extraction) has obliterated significant portions of the Pennsylvania countryside, and is suspected to lead to the contamination of groundwater, making tap water undrinkable (and flammable) in many parts of the state. Tapping these gas supplies might make us energy independent from regimes like that of Saudi Arabia or Iran, but Galbraith makes us ask ourselves: is a world of more tightly-packed megacities fueled by the gas of a ravaged Pennsylvania and the coal of a strip-mined West Virginia “the American genius”? Many school districts across the country have instituted four-day school weeks, and Colorado Springs has sold its police helicopters and turned off its street lights in the face of funding cuts.

Times are tough, of course, for many American households, but traveling to the USA from, say, the UK or certainly Russia, one is struck seeing hordes of middle class families at suburban Costcos buying meat for every meal, flat screen televisions, or the latest iPhones. This imbalance between consumer indulgence and lack of public investment persists even at a time when interest rates on US Treasury bonds are near an all-time low. Foreign investors are willing to fling money at the United States for investment security, and yet the emphasis on austerity plans, and an avoidance of public investment, remains dominant.

Now We're Talking

“The day,” Galbraith closes his essay eloquently, “will not come soon when the problems of either the world or our own polity are solved. Since we do not know the shape of the problems, we do not know the requirements for solution. But one thing is tolerably certain. Whether the problem be that of a burgeoning population and of space in which to live with peace and grace, or whether it be the depletion of the materials which nature has stocked in the earth’s crust and which have been drawn on more heavily in this century than in all previous time together, or whether it be that of occupying minds no longer committed to the stockpiling of consumer goods, the basic demand on America will be on its resources of ability, intelligence and education. The test will be less the effectiveness of our material investment than the effectiveness of our investment in men. We live in a day of grandiose generalization. This one can be made with confidence.”

I look forward to John’s and Will’s thoughts on Galbraith.

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