The economic consensus seems to suggest the recession is over. But professor James K. Galbraith, one of the country’s most prominent economists, has limited faith in his colleagues’ predictions.
In an extreme situation, the economic consensus is always wrong, Galbraith told a group of Indiana University-Purdue University Fort Wayne students Wednesday. I think we would be very ill-advised to jump to the conclusion that the recession is over.
Galbraith, a Harvard- and Yale-educated author and economist, spoke Wednesday night at Auer Auditorium in IPFW’s John and Ruth Rhinehart Music Center that was filled with students, faculty and visitors. His lecture, The Great Financial Crisis at Two Years, was the second presentation in IPFW’s Omnibus Lecture Series.
Before his talk, Galbraith talked to a group of students participating in the Fed Challenge, a national competition sponsored by the Federal Reserve Board.
Galbraith told the students it would take at least a year to rebound from the economic crisis, which he said was caused by speculative activity in housing and abetted by failures of public regulation and an enormous wave of fraudulent and abusive behavior in the financial sector.
In the meantime, he said, the economy might appear to improve before again taking a downturn.
We’re likely to see a couple quarters of good news that then trails off.
Galbraith applauded the Obama administration’s stimulus spending and its efforts to help banks but said the administration was also operating under the false premise that the flow of credit will start up again.
This combination of policies, keeping the banks on life support and stabilizing the real economy is not going to be sufficient to produce jobs and the revival of incomes in the private sector, he said. To have a sustained growth of the economy, the broad American middle class needs to get back into the game of consuming.
It needs to be building houses and buying cars, and everything else that made for the last cycles of prosperity in this country.
Galbraith said Americans, who had grown accustomed to spending in the past few years, have started to save as they’ve witnessed their assets go upside down.
People cannot borrow from houses anymore, he said. And that’s not a problem that is going to be resolved anytime soon.
Galbraith called for a new round of action to revive the economy and a more strategic response to the crisis.
To create more jobs, he suggested rebuilding U.S. infrastructure, largely through rethinking, redesigning and rebuilding the transportation system. He said he believes addressing climate change and energy habits could lead to more employment. Transforming the way the country cares for the elderly, he said, could also create more jobs.
Galbraith, son of renowned economist John Kenneth Galbraith, is a professor at the Lyndon B. Johnson School of Public Affairs and in the Department of Government at the University of Texas in Austin and an economics correspondent for Salon, an online magazine.
He had several positions on the staff of the U.S. Congress, spent time as a guest scholar at the Brookings Institution and advised the United Nations Development Program on macroeconomic reform in China. He is the author of several books. His most recent is The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too (Free Press, 2008).