In 1970, during my apprenticeship as a securities analyst, I studied office equipment stocks for a bank. One day a portfolio manager asked me for the name of the best Wall Street analyst who tracked Xerox. "The one who most agrees with me is so-and-so," I answered. My point was that the people we think are the smartest usually share our views. When people disagree with us, we tend to write them off as misinformed.
Ten years ago, I read John Kenneth Galbraith's slim volume, "A Short History of Financial Euphoria." On page after page he expounded with great clarity and conciseness on some things I believe in most strongly: the inevitability of cycles, their tendency to go to extremes and the roles of complacency and shortness of memory in the reaching of those extremes. I thought, "This guy's brilliant. His views are right on target. And he states them so elegantly." In other words, he agreed with me.
Then, within sight of the finish line, he turned critical of "bonds with a high risk and thus carrying a high interest rate. Their novelty, as noted, resided only in their deeply valid name -- junk bonds." All of a sudden, when pillorying the financial instruments that were the foundation for my money management career, Galbraith was no longer so smart.
That brings me to his latest, even slimmer effort, "The Economics of Innocent Fraud: Truth for Our Time." In it, he expresses some of the idiosyncratic views produced by his distinctive combination of education, experience and political viewpoint and developed in his 95 years on this planet. And idiosyncratic is the word. Galbraith sees fraud -- some of it innocent and some less so -- when the claims made for our economy and the terms used to describe its workings are less than accurate. Or as he puts it, "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 the truth."
It is Galbraith's view that many of the "frauds" of which he writes are the result of conforming description to desire. Certainly it seems reasonable that we see what we want to see in many phenomena, and we describe them in ways that will hew to our theories and help us profit. The result, as he puts it, is "self-serving belief and contrived nonsense."
Galbraith's observations will feel like newfound truths to some readers and minor cavils to others, profound observations or purposeless wordplay. Reaction to his ideas will say at least as much about the reader's views as they will about the author's.
The starkest distinctions, I think, will relate to the complaints stemming from Galbraith's social and political views. He quibbles, for example, with the use of the single word "work" to describe both what I do every day and what a factory worker does. I love my work; Galbraith thinks the man on a factory floor hates his. My enjoyment starts when I reach the workplace; the factory worker's begins when he leaves. The factory worker is celebrated for his physical exertions, Galbraith says, mostly by those who can get through the day without any. "Though often repetitive, exhausting, without any mental challenge, [work] is endured to have the necessities and some of the pleasures of living." How then, Galbraith asks, can that word apply equally to the nonexertions of the executive class? But I wonder whether these are really two different things, or two versions of the same thing, and whether these questions matter.
After making his distinction -- an obvious but not necessarily productive one -- Galbraith goes on to take exception to the fact that "those who most enjoy work ... are all but universally the best paid.... Low wage scales are for those in repetitive, tedious, painful toil. Those who least need compensation for their effort, could best survive without it, are paid the most.... That the most generous pay should be for those most enjoying their work has been fully accepted."
Aha! So this isn't idle wordplay after all, but instead a tendentious expression of social philosophy. Yes, our system doesn't render "from each according to his abilities, to each according to his needs." Karl Marx's line of thought seems to have been left behind. Fair-minded though I think I am, I have no problem with the general workings of a free-market system in which people are able to extract payment for their labor that presumably is proportional to its "worth."
But do the best paid really earn their compensation through performance? Generally yes, I think. But is the chief executive really worth 1,000 times as much as his rank-and-file employee (a not unheard-of ratio)? Is his pay the result of a smoothly functioning system of laissez faire? Or is it the result of management's having wrested control of the corporation from its owners (fraud!) and the fiction of directors who supervise management on behalf of those owners (fraud!)?