Auditing

"Created Unequal" is an impressive work of economic analysis of wage and wealth inequality. Although the book occasionally gets into some relatively rigorous economics, it should be accessible to the determined lay reader.

Professor Galbraith's central thesis is that the amount of wage inequality (the difference between what the wealthiest make and what the poorest make) is tied directly to a number of key factors: the unemployment rate, the interest rate, the strength of the dollar, and so on. Essentially, the lower the unemployment rate, the less the degree of wage inequality. I am simplifying his thesis considerably here, but this is the essence of it. There is a considerable amount of technical research presented that supports the thesis and demonstrating a strong correlation between wage inequality and unemployment.

So, Professor Galbraith makes a persuasive case that the government can affect wage inequality by making certain policy decisions, such as lowering unemployment, raising the minimum wage, weakening the dollar against international currencies, and so on.

But, what is missing from the book is a serious justification of why the free market should not dictate the value of labor. In other words, from a normative standpoint, why should workers be paid two or three or more times the value of their labor? There are egalitarian arguments to be made, of course, but at the same time, if the value of Bill Gates' labor is, say, 100 times more valuable than the work of a custodian, why should Gates' wages be limited to, say, 30 times that of custodian? (At one point, Professor Galbraith suggests a 30-1 limitation.)

In the end, this is an impressive and valuable work. You may or may not agree with the policy decisions that Professor Galbraith supports, but his analysis must be reckoned with.

Created Unequal, by James K. Galbraith, is an increadible book. In a time when most economists stick to the supply-side economic mantra, Galbraith breaks free. He gives a leftist view of the new economic order and the exploitation it has caused. He observes that the point of Welfare as it was concieved was never a safety net, as it should have been, but rather a way to insure a constant flow of low wage workers. He points to the growing wage disparities between the top 1% and the bottom 55%. He knocks down popular misconceptions about the growing inequality, including the technology myth. Galbraith tactfully explains that there has always been changing technology and new skills needed, yet the severity of inequality has never been so great. Galbraith also shows how the Fed's policy to keep unemployment at an artificially high, and immoral, level in order to scare off inflation has hurt a great number of people. Galbraith writes in the same progressive vien that his father, John Kenneth Galbraith, perfected. If you want to know why there have been striking economic inequalities in recent years, buy this book!

Jamie has all of his father's flair for writing plus James K. Galbraith, like his idol John Maynard Keynes, seems to be defying the law of regression. Jamie has all of his father's flair for writing plus the modern statistical tools of his trade. Many economists consider the market as the chief producer of inequality, a major pillar of his father's thinking and the need for state expenditures to reverse this tendency. Jamie blames policy-makers after 1970 since this seems to be the dividing line between stability in the distribution of U.S. wages and the subsequent increase in wage inequality. Students of economic doctrines tend to emphasize Alfred Marshall's belief that the evolution of capitalist markets would produce greater equality in income (and presumably wage) distribution. This idea was reinforced by Nobel prize-winner Simon Kuznets' work in the early fifties in the U.S. which claimed that recent statistics showed increased equality in income distribution. What Kuznets was measuring, however, was the temporary influence of full employment during World War II on U.S. income distribution, something that Jamie argues was reproduced by "New Economics" policy-makers in the 60s and for a couple of years under Reaganomics in the mid-80s. The ultimate source of this power to create less-than-full employment and increased inequality lies at the door of Paul Volcker and his successor Alan Greenspan, Chairmen of the Fed from 1979 until today..Jamie, in contrast to the conventional wisdom, is relentless in his criticism of Greenspan feeling that we might have to go back to the drawing board in changing the thrust of our macroeconomic policy. Having opted for balanced budgets and neutral fiscal policy, monetary policy has become the only game in town under President Clinton. Whereas Greenspan cut the federal funds rate in half in early 1992 in a futile attempt to reelect President Bush, he reversed course under Clinton by almost doubling the rate beginning in February 1994 ina totally unnecessary attempt to control phantom inflation. With the continued disinflation under Clinton, real (inflation-adjusted) interest rates have risen and produced what Jamie feels is an overvalued dollar especially with respect to Japan and Germany. But the dollar is undervalued with respect to Latin America. This dichotomy reflects the dirty float of the past three decades and helps explain the relative stagnation of Latin America. I am totally in agreement with Galbraith's conclusions on the need to return to the low real interest rates before Volcker's biting of the proverbial bullet and tend to subscribe to the casual attitude towards controlling inflation. If we ever get back to a demand-pull inflationary situation, there would be time to act. As it is, the principal problem of the millenium would appear to be the deflation and deflationary expectations . As Galbraith admits,"the extreme proto-Keynesian position, that the risk of inflation ought simply to be ignored, should not be dismissed entirely out-of-hand."