Galbraith‘s reputation as an economist isn’t what it once was. There are few takers these days for tomes such as American Capitalism, The New Industrial State, or Economics and the Public Purpose, although The Affluent Society retains a readership. But as a writer of popular, accesible economics, he is, in my view, up there with Bastiat. His The Great Crash of 1929 is an excellent bit of descriptive writing and this short book is another riff on its themes.
Are the causes of economic events such as assets bubbles and busts endogenous – originating within the economic system, such as central bank action or new innovations – or exogenous – originating outside it, such as natural disasters? Galbraith comes down very firmly for the latter, rooting his explanation entirely in group psychology. For the same reasons I didn’t much likeAnimal Spirits, I find the total reliance on group psychology unsatisfactory. In the most recent boom and bust, that of sub prime mortgages and their derivatives, there were plenty of endogenous factors which cannot be ignored.
But Galbraith makes some good points. His focus on the repeated presence of leverage in these events is interesting and it is a shame that space does not allow for a more systematic analysis. Also, Galbraith is entirely right to castigate the quest for ‘the’ person to blame after the bust. For all the fuss about bankers since 2008, little popular flak has been directed at central bankers.