Cover image for The economics of innocent fraud : truth for our time
Title:
The economics of innocent fraud : truth for our time
Author:
Galbraith, John Kenneth, 1908-2006.
Publication Information:
Boston : Houghton Mifflin, 2004.
Physical Description:
xi, 62 pages ; 22 cm
Language:
English
Contents:
Introduction and personal note --The nature of innocent fraud -- The renaming of the system -- The economics of accommodation -- The specious world of work -- The corporation as bureaucracy -- The corporate power -- The myth of the two sectors -- The world of finance -- The elegant escape from reality -- The end to corporate innocence -- Foreign and military policy -- The last word.
ISBN:
9780618013241
Format :
Book

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Summary

Summary

John Kenneth Galbraith has long been at the center of American economics, in key positions of responsibility during the New Deal, World War II, and since, guiding policy and debate. His trenchant new book distills this lifetime of experience in the public and private sectors; it is a scathing critique of matters as they stand today.
Sounding the alarm about the increasing gap between reality and "conventional wisdom" -- a phrase he coined -- Galbraith tells, along with much else, how we have reached a point where the private sector has unprecedented control over the public sector. We have given ourselves over to self-serving belief and "contrived nonsense" or, more simply, fraud. This has come at the expense of the economy, effective government, and the business world.
Particularly noted is the central power of the corporation and the shift in authority from shareholders and board members to management. In an intense exercise of fraud, the pretense of shareholder power is still maintained, even with the immediate participants. In fact, because of the scale and complexity of the modern corporation, decisive power must go to management. From management and its own inevitable self-interest, power extends deeply into government -- the so-called public sector.This is particularly and dangerously the case in such matters as military policy, the environment, and, needless to say, taxation. Nevertheless, there remains the firm reference to the public sector.
How can fraud be innocent? In his inimitable style, Galbraith offers the answer. His taut, wry, and severe comment is essential reading for everyone who cares about America's future. This book is especially relevant in an election year, but it deeply concerns the much longer future.


Author Notes

John Kenneth Galbraith is a Canadian-born American economist who is perhaps the most widely read economist in the world. He taught at Harvard from 1934-1939 and then again from 1949-1975. An adviser to President John F. Kennedy, he served from 1961 to 1963 as U.S. ambassador to India. His style and wit in writing and his frequent media appearances have contributed greatly to his fame as an economist.

Galbraith believes that it is not sufficient for government to manage the level of effective demand; government must manage the market itself. Galbraith stated in American Capitalism (1952) that the market is far from competitive, and governments and labor unions must serve as "countervailing power." He believes that ultimately "producer sovereignty" takes the place of consumer sovereignty and the producer - not the consumer - becomes ruler of the marketplace.

(Bowker Author Biography) John Kenneth Galbraith, born in 1908, is the Paul M. Warburg Professor of Economics Emeritus at Harvard University and a past president of both the American Academy of Arts and Letters and the American Economic Association. He is the author of thirty-one books spanning five decades. He has received honorary degrees from, among others, Harvard University, Oxford University, the University of Paris, the University of Toronto, and Moscow State University. He is Commandeur de la Legion d'Honneur in France, and in 1997 he was inducted into the Order of Canada. In 2000, at a White House ceremony, he was given the Presidential Medal of Freedom.

He lives in Cambridge, Massachusetts.

(Publisher Provided)


Reviews 3

Publisher's Weekly Review

In this thin volume, Galbraith, the noted economist and presidential adviser, serves up a pessimistic view of today's U.S. economy. Drawing on the omnipresent headlines of corporate scandal and greed, Galbraith explains that as the economy suffers, the overall state of American society declines as well. He points to a number of cases of "innocent fraud," or the gap between reality and conventional wisdom. The author bemoans the emphasis on gross domestic production, or GDP, rather than cultural or artistic advances. Companies, not the public, decide what products to make. Galbraith believes that decisions in various corporate arenas are made based on profits, rather than sound business strategies. Furthermore, he says that shareholder meetings, with a few rare exceptions, are pointless because "Shareholders-owners-and their alleged directors in any sizeable enterprise are fully subordinate to the management.... An accepted fraud." He also calls the rapid Internet growth and subsequent bubble another example of fraud as millions of analysts predicted rapid growth for so many companies, but ultimately many employees were laid off. Even more dismaying to Galbraith is the power of the Federal Reserve, which is credited with prompting economic resurgence when, in his view, the institution has limited real power. This brief treatise is a well-written, logical argument about the state of the economy. However, readers may be disappointed because the short concluding chapter offers few realistic solutions. (Apr.) Forecast: Given Galbraith's reputation and the ongoing criminal trials of CEOs, this book should get review attention and early sales could be strong. (c) Copyright PWxyz, LLC. All rights reserved


Choice Review

Eminent economist Galbraith identifies in a dozen brief essays many frauds ("escape from reality," or untruths) in the US economic system: that perfect competition prevails; that the consumer is sovereign (in choice of purchases); that GDP is an adequate measure of economic output; that "work" does not distinguish boring and pleasant; that bureaucracy is limited to governments; that farms and small business are celebrated; that stockholders hold corporate authority; that private and public sectors are separate; that financial predictions are accurate; that the Federal Reserve Bank has damped business cycles; that corporate governance and managerial rewards are effectively regulated; and that war is controlled by civilians rather than the military. His theme is the increasingly dominant role of corporations and their management in American society, and the widening distance between reality and "conventional wisdom." Galbraith is often right and always stimulating, but he exaggerates: economists have written extensively on "reality." Galbraith's 12,500 words, cleverly expressed, will delight the reader. Examples provide illustrations, but this work is observational rather than empirical, more philosophical analysis than economics. For the latter see Paul MacAvoy and Ira Millstein, The Recurrent Crisis in Corporate Governance (CH Jul'04). No index, bibliography, or footnotes. ^BSumming Up: Recommended. Public and academic library collections. R. A. Miller Wesleyan University


Booklist Review

Galbraith, renowned economist, explains how economics and larger economic and political systems cultivate their own version of the truth. These frauds do not connect to reality, and although legal and not criminal, they reflect social and personal beliefs run amuck. He observes the notion that shareholders rule corporations when the power is now with managers. Labeling capitalism a market system makes the consumer appear to have sovereignty, yet the reality is that the market is subject to well-financed, skilled, and comprehensive management of the public response both in politics and consumerism. The economic and social dominance of big business is accepted, and the distinction between the public and private sectors has no meaning as corporate power extends to politics and government. In reality, corporations dominate our military, public finance, and the environment. As a prominent antiwar advocate, Galbraith believes war is a decisive human failure. This thought-provoking book will have wide appeal, including those whose politics and views differ from the author's. --Mary Whaley Copyright 2004 Booklist


Excerpts

Excerpts

Introduction and a Personal NoteFor some seventy years my working life has been concerned with economics, along with not infrequent departures to public and political service that had an economic aspect and one tour in journalism. During that time I have learned that to be right and useful, one must accept a continuing divergence between approved belief-what I have elsewhere called conventional wisdom -and the reality. And in the end, not surprisingly, it is the reality that counts. This small book is the result of many years of encountering, valuing and using this distinction, and it is my conclusion that reality is more obscured by social or habitual preference and personal or group pecuniary advantage in economics and politics than in any other subject. Nothing has more captured my thought, and what follows is a considered view of this difference. A lesser point: Central to my argument here is the dominant role in the modern economic society of the corporation and of the passage of power in that entity from its owners, the stockholders, now more graciously called investors, to the management. Such is the dynamic of corporate life. Management must prevail. As I was working on these pages, there came the great breakout in corporate power and theft with the unanticipated support of cooperative and corrupt accounting. Enron I had noticed as an example of my case; there were to be more in the headlines. Perhaps I should have been grateful; there are few times when an author can have such affirmation of what he or she has written. The corporate scandals, as they are now called, dominated the news because of exceptionally competent and detailed reporting. I forgo repetition here. I do, however, make reference to the restraints to which managerial authority must now be subject, but these are a small part of the story. More to be told is of the longer and larger departure from reality of approved and conditioned belief in the economic world. Dealt with in this essay is how, out of the pecuniary and political pressures and fashions of the time, economics and larger economic and political systems cultivate their own version of truth. This last has no necessary relation to reality. No one is especially at fault; what it is convenient to believe is greatly preferred. This is something of which all who have studied economics, all who are now students and all who have some interest in economic and political life should be aware. It is what serves, or is not adverse to, influential economic, political and social interest. Most progenitors of what I here intend to identify as innocent fraud are not deliberately in its service. They are unaware of how their views are shaped, how they are had. No clear legal question is involved. Response comes not from violation of law but from personal and social belief. There is no serious sense of guilt; more likely, there is self-approval. This essay is not a totally solemn exercise. A marke Excerpted from The Economics of Innocent Fraud: Truth for Our Time by John Kenneth Galbraith All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.

Table of Contents

Introduction and a Personal Notep. ix
I. The Nature of Innocent Fraudp. 1
II. The Renaming of the Systemp. 3
III. The Economics of Accommodationp. 11
IV. The Specious World of Workp. 17
V. The Corporation as Bureaucracyp. 23
VI. The Corporate Powerp. 29
VII. The Myth of the Two Sectorsp. 33
VIII. The World of Financep. 39
IX. The Elegant Escape from Realityp. 43
X. The End to Corporate Innocencep. 49
XI. Foreign and Military Policyp. 53
XII. The Last Wordp. 57