John Kenneth Galbraith has been immersed in economics for most of his long and remarkable life. The purpose of this extended essay is to illuminate examples of "innocent fraud" or the gulf between perception and reality in the modern American economic system--a system he had a hand in creating during his tenure in FDR's administration. Though tackling serious subjects, the book sparkles with wit and sly understatement. "A marked enjoyment can be found in identifying self-serving belief and contrived nonsense," he writes, clearly enjoying himself.
The dominant role of the corporation in modern society is one such form of innocent fraud, and he explains how managers hold the real power in our system, not consumers or shareholders as the image would suggest. Despite the "appearance of relevance for owners," capitalism has given way to corporate bureaucracy--"a bureaucracy in control of its task and its compensation. Rewards that verge on larceny."
He also explains how the public realm is effectively controlled by the private sector. The arms industry is but one example of this: "While the Pentagon is still billed as being of the public sector, few doubt the influence of corporate power in its decisions." He also looks at the financial world which "sustains a large, active, well-rewarded community based on compelled but seemingly sophisticated ignorance," and in particular the Federal Reserve System, "our most prestigious form of fraud, our most elegant escape from reality." In essence, Galbraith says that the Fed, for all of its power and prestige, effectively does nothing. And he has little problem with this: "Let their ineffective role be accepted and forgiven."
Both a guide to the present and an aid to shaping the future, this slim, satisfying book is a font of wisdom, conventional and otherwise, from a respected elder statesman in the twilight of his life. --Shawn Carkonen
From Publishers Weekly
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.
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