Galbraith is Back

I'm not sure tech start-ups are a good counterexample. In large part what start-ups do is allow the oligopolistic firms to shed some risk. If a large firm starts a new venture and it fails, they have to pay all the bills. If a start-up fails, it goes through bankruptcy; if it succeeds, a large firm buys it. The large firm gives up a little possible reward (the premium it has to pay the start-up owners) but in return it gives up all the risk; that sounds exactly like JKG's insight that large firms are willing to give up profit to get stability.

There's the occasional start-up that doesn't fail or get bought; they often become one of the next round of large oligopolies (Google, Yahoo!, Amazon, eBay, Apple, Dell...)

To follow on what Rlch McA wrote, I think Galbraith was describing an end result--all large companies (or most anyway) started off as small companies. However, in the absence of controls, consolidation within a submarket leads to large firms that behave as Galbraith described.

Thanks for pointing out the link.

[The assumption that the economy will necessarily produce "large, bureaucratic, oligopolistic firms," is probably wrong -- witness tech start-ups.]

Not necessarily wrong IMO.

Remember that the tech boom was made possible by the combination of IBM being forced to allow others to produce compatable hardware, the breakup of the Bell Telephone system and certain votes that allowed the internet to go from a network linking government research labs and universities to a largely unregulated medium of mass communications used by business and individual consumers.

There were also many other smaller government actions but those are the three that leap to mind.

Failing all three of those universities would be still humping away on huge mainframes that weren't connected to much outside the university. The majority of PCs would be made by IBM that would only accept IBM components. Other makers would also use proprietary components so no interchangeability and fewer small start ups making hardware and fighting for compatibility. PCs would not be interconnected very often. It would be like the pre-internet days where people shared information by trading disks. Other than university networks there were very few real-time interactions and the internet as destination wouldn't exist.

In each case the huge corporations wanted consistency, just like Galbraith predicted, and in each case it was the government that stepped in to beak up the huge corporation and/or to keep the vested interests from stifling innovation by throwing its weight around, buying up innovation to kill it and prevent any changes that might threaten the status quot.

I don't really know much economics nor writings of John Galbraith. But here is how someone who knows a little bit about economics described people like Galbraith:

But the economist's idea that economic theory for the most part consists of models has by no means been accepted by intellectuals outside our field. In fact, if one looks at the favorite economic writers of the non-economist intellectual -- Robert Reich, Lester Thurow, John Kenneth Galbraith -- one realizes that they have in common an aversion to or ignorance of modeling. There are model-oriented economists, like Alan Blinder, who also write for a broader audience, and they don't put their equations in their books and articles; but the skeleton of the models that structure their thought is visible under the surface to those who know how to look. By contrast, in the writings of Reich or Galbraith what you read is what you get -- there is no hidden mathematical structure to the argument, no diagram one might draw on a blackboard or simulation one might run on a computer to clarify the point.

This was by Paul Krugman. I don't like to make an argument by authority and I don't know who Barry Gewen is. But when it comes to economics and economists, Paul Krugman is likely to have a good judgment just like evolutionary biologists are likely to be better judges on evolution than non-biologists. (Krugman also has an interesting thing to say about Stephen Jay Gould and John Maynard Smith in the same essay.) And it is striking that Krugman does not consider Galbraith much of a serious economist. I won't be surprised if Krugman, being liberal, has many disagreements with Friedman, too. But Krugman acknowledges Friedman as a great economist.

I also didn't like the way Gewen framed the economic discussion as a fight between Galbraith and Friedman. It may be more entertaining to think it as a fight between two personalities with a clear winner and a loser. But I think it is misleading. It is misleading because it makes it difficult to separate the specific economical idea from the character who offered it and from the ideology and politics of him or her. It is also misleading because in reality there are rarely clear-cut winners and losers. In particular, I think it is likely that Gewen is being unfair to Friedman for portraying him as so utterly wrong. I don't agree with people who believe that free-market solves everything, either. But was it all that Friedman offered?

We scientists are often frustrated by inaccurate portrayal of science by non-scientists. As I started to read blogs by economists, I started to notice how frustrated economists are, too. In a way, the situation is even worse for economists because there are so many people with little economics backgrounds who think that they are qualified to write about economics. In fact, there are people who make living by writing opinions that are clearly wrong in the eyes of trained economists. As an expert in a scientific field, I would like to have a respect for experts in other fields. And when someone makes some bold statement about a subject outside of his or her expertise, I have to be skeptical about it.