*The End of Normal*

That is the new James K. Galbraith book, subtitled The Great Crisis and the Future of Growth.  It covers a lot of ground and everyone will find something to object to in here.  Still, I found it a good example of some fresh thinking, though it is not a tract which sees through its arguments with a lot of detail.  I am glad to have read it.

I especially enjoyed the integration of high resource costs with Keynesian economics, as Galbraith has become more of a pessimist about long-run growth and he now sees the energy price shocks as essential to the economic history of the last forty years.  The analysis of the Soviet Union as an economic regime with super-high fixed costs, heavily reliant on (supposed) economies of scale, was my favorite part of the book.  Here is one excerpt from that:

The Soviet economy was a deeply integrated system, with little redundancy, little internal competition, weak capacity for introducing new technologies, and vulnerable to breakdowns in transportation and distribution.  This did not matter all that much for bulk items such as oil or steel, but it was a serious problem for perishables like food.  Fresh produce usually did not survive the trip from farm to market, which is why Russia’s urbanites so prized their dachas…

One way to sum up the Soviet system is to say that it operated with very high fixed costs.  It had high overheads.  To produce anything at all  (or, for that matter, even to produce nothing), those fixed costs had to be paid.  And they had to be paid whether or not output reached the consumer, and whether or not the consumer wanted that output when it did.

Galbraith also makes the important point that stagnant or falling median incomes need not imply growing envy or growing class warfare or growing frustration and the like.  Very often wage profiles fall by having the new labor market entrants start at lower rates.  Individuals still make steady wage progress over the major part of their working lives and feel they are “getting somewhere.”  Furthermore the gap between them and their most noticeable peers — those right above them — may not be growing at all.  Other discussions of median wages often serve up a good deal of sloppiness on this point.