“The 1970s were not an interlude brought on by shocks, bad management, and policy mistakes – but instead, in certain respects, a harbinger of the world conditions that we now face and from which we will not, on this occasion, so easily escape.”
“There remains one alternative. It is to engineer the economy to grow at a low, stable, positive rate for a long time, and to adjust ourselves materially and psychologically to that prospect. It is to pursue slow growth: a rate above zero but below what cheap energy and climate indifference once made possible.”
For all the books on the financial crisis, I think most people struggle to understand what happened, or even differentiate it from the European sovereign debt crisis or related issues. James Galbraith, as befits the son of one of the best known economic historians of earlier in the century, John Kenneth Galbraith (a Canadian!), takes a long view of it, looking at broad trends of demography, world finance, and technology.
Galbraith emphasizes the oft-ignored role of resource prices in driving – and slowing – economic growth. At root, he argues, we rely on resources to fuel our economies and our bodies. When they become scarce or expensive, we must give up our resource-intensive activities and accept a lower intensity of civilization, or face destruction. When the meteor hit, and sunlight became scarce, the dinosaurs gave up space to smaller mammals that were less resource intensive: he suggests we should think of our society from a similar frame, and choose a level of resource intensity appropriate to resource availability. The financial crisis isn’t a deviation from the mean, but rather a signal of things to come.
The book addresses an important issue, and from a relatively novel perspective. Predicting the future is always hard, and Galbraith wisely spends more time on first principles than on trying to predict future conditions, other than saying they won’t be great. The book’s weakness is in structure: non-economists may find it difficult to follow. Galbraith leaps around from idea to idea and engages with things he disagrees with rather than advancing his own ideas, so some ideas can be hard to keep track of unless you already know the literature. In his attempts to make it accessible, it also feels a bit superficial at points: criticizing economists for finding their models beautiful seems a bit irrelevant. Not the last word on the subject, but definitely a start, and very much an underdiscussed issue.