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Galbraith is considered something of an iconoclast by many economists because he uses non-technical political economy instead of mathematical modeling. Additionally certain economists have alleged that he does not base his conclusions on solid research. In some of his books on economic topics he describes ways in which economic theory does not always mesh with real life.

In American Capitalism: The Concept of Countervailing Power published in 1952, Galbraith outlined how the American economy would be managed by a triumvirate of big business, big labor, and an activist government. He contrasted this with the previous pre-depression era where big business had relatively free rein over the economy.

In his most famous work, The Affluent Society (1958), Galbraith outlined his view that to be successful the United States would need to make large investments in items such as highways and education using funds from general taxation. He also criticized the assumption that continually increasing material production is a sign of economic and societal health. The Affluent Society contributed (given that Galbraith had the ear of President Kennedy) to the «war on poverty», the government spending policy first brought on by the administrations of Kennedy and Johnson.

In The New Industrial State (1967), Galbraith argues that very few industries in the United States fit the model of perfect competition. A third related work was Economics and the Public Purpose (1973), in which he expanded on these themes by discussing, among other issues, the subservient role of women in the unrewarded management of ever-greater consumption, and the role of the technostructure in the large firm in influencing perceptions of sound economic policy aims.

In A Short History of Financial Euphoria (1990), he traces financial bubbles through several centuries, and cautions that what currently seems to be «the next great thing» may not be that great and may have quite irrational factors promoting it.

Source: Wikipedia

Exercise 4*. Fill in the blanks using terms given below.

Milton Friedman

Milton Friedman (born July 31, 1912) is a US economist, known primarily for his work on………………., economic history, statistics, and for his advocacy of…….. capitalism. In 1976, the Royal Swedish Academy of Sciences awarded him the……. Prize in……. «for his achievements in the fields of……. analysis, monetary history and theory and for his demonstration of the complexity of……. policy».

After working for the…….. government and for Columbia University, he received a Ph.D. from that…….. in 1946. He then served as Professor of Economics at the University of Chicago from 1946 to 1976, where he……… significantly to the intellectual tradition of the so-called……. of economics. Since 1977, Friedman has been……. with the Hoover Institution.

Friedman is widely regarded as the leading proponent of the…….. school of economic thought. He maintains that there is a close and stable link between inflation and the………, mainly that the……… of inflation is to be regulated by controlling the amount of money poured into the national economy by the……. He rejects the use of……… as a tool of demand management, and he holds that the government’s role in the guidance of the economy should be severely…….. Friedman wrote extensively on the……… arguing that it had been caused by an ordinary……… whose duration and seriousness were greatly increased by the subsequent…….. of the money supply caused by the misguided policies of the directors of the Federal Reserve. Friedman also argued for the cessation of government………. in currency markets, as well as promoting the practice of………. exchange rates.

Friedman made headlines by proposing a……… to replace the existing…….. system and then opposing the…… to implement it because it merely supplemented the existing system rather than replacing it.

Friedman visited Chile in 1975 during the military dictatorship of Augusto Pinochet. Invited by a private………, he gave a series of lectures on economics. Several professors from the University of Chicago became……… to the Chilean government. Friedman was accused of supporting a regime whose policies included torture and the killing of political opponents.

Critics have remarked that Chile’s dictatorship used its power to implement……., thus contradicting the……. that Friedman claims exists between free markets and political freedom. Friedman defends his role in Chile on the grounds that the move towards open market policies not only improved the……. in Chile but also contributed to the softening of Pinochet’s rule and to its eventual replacement by a democratic government in 1990.

Source: Wikepidia

Terms:

Great Depression, freely floating, advisors, phenomenon, Federal Reserve Bank, bill, stabilization, contraction, intervention, macroeconomics, Nobel, foundation, free market policies, institution, relationship, microeconomics, laissez-faire, Economics, consumption, federal, contributed, affiliated, monetarist, money supply, restricted, financial shock, negative income tax, welfare, economic situation, fiscal policy, Chicago School

Exercise 5. Translate into English.

Уроки экономики: Переделать страну

Разговоры о роли институтов в функционировании экономики сегодня весьма популярны как среди академических экономистов, политиков, реформаторов, так и в широком обывательском сообществе. Если до недавнего времени панацеей от неэффективной работы экономической системы считались «правильные цены» («Установите правильные цены, – говорили неоклассики, – и все сразу начнет работать эффективно»), то теперь практически повсеместно заговорили о «правильных институтах». Но как определить, какой институт «правильный», или, иными словами, эффективный? Имеет ли вообще смысл такое понятие? Действительно ли все дело в правильных институтах? С какими критериями следует подходить к их оценке?

Правильные институты

Институты суть правила, которые дополнены механизмами принуждения к их исполнению. Можно рассматривать институт как структуру, минимизирующую транзакционные издержки (transaction costs), и оценивать его по этому критерию. Однако институт способен обеспечивать локальную минимизацию транзакционных издержек и вместе с тем создавать глобальную неэффективность (подобным свойством обладает, например, институт бартерного обмена). Можно анализировать, сколь эффективно институт помогает решить или по крайней мере смягчить проблему ограниченной рациональности. Так, предприятия с разной формой организации бизнеса по-разному справляются с последствиями ограниченной рациональности своих работников. Аналогично и различные институты с разной степенью эффективности могут добиваться смягчения последствий ограниченной рациональности.

Однако неоднозначность трактовки пользы института имеет место при любых критериях. Скажем, Франклина Рузвельта, который ввел в США систему социального страхования, одни считают гением, спасшим страну, а другие – недалеким злодеем, совершившим гибельный для нее шаг. Институт государственной собственности тоже вызывал и вызывает горячие споры. Может ли государство быть эффективным собственником? Нужно ли ему оставаться владельцем частот вещания и естественных монополий? На эти и многие другие вопросы есть разные ответы и, как следствие, разная государственная политика.

Чем сложнее институт, тем менее однозначен вектор его влияния на общество. Попытки упорядочить всю систему вкупе противоречили бы элементарным законам физики. Если вам кажется, что все довольны нововведением, вы просто учитываете не все факторы. Соответственно, и конкретным институтом не могут быть довольны абсолютно все. Какой бы институт мы ни взяли – систему высшего образования, обязательную вакцинацию новорожденных, Уголовно-процессуальный кодекс или правила дорожного движения, – всегда найдутся люди, которых не устраивает его устройство.

Итак, определить универсальные критерии качества, которые были бы применимы к отдельным институтам, практически невозможно. Необходим анализ экономической системы в целом, и о правильных институтах можно говорить только тогда, когда само общество устроено правильно.

Источник: Ведомости, 13.02.06. (отрывок)

Federal tax revenues relative to the overall economy have reached their lowest level since Dwight Eisenhower was president, while government spending has climbed to the highest point since Bill Clinton declared the era of big government over.

The Congressional Budget Office closed the books on the fiscal year that ended September 30, 2003, by issuing a report that portrayed the federal government as being badly off even as the nation’s economy shows increasing signs of recovery. Bush administration claims that mounting deficits are the result of the economic downturn, and that a recovery would begin to remedy the government’s fiscal imbalance.

The federal budget deficit for fiscal 2003 soared to $374 billion, easily surpassing the previous record of $290 billion in 1992.

The actual 2003 deficit was, however, lower than the $401 billion forecast by CBO in August, and Bolten pointed to other factors that he called «modest good news». Tax receipts, especially corporate taxes, came in stronger than expected this fall, while spending on welfare payments and unemployment benefits were lower than forecast – all signs that the economic recovery is helping the government’s bottom line.

But CBO director Douglas Holtz-Eakin warned there are still far too many questions about the recent jump in tax receipts to conclude the government’s fiscal fortunes have turned.

«We still have the same outlook for the future,» he said, pointing to CBO’s August projections of deficits totaling $1.4 trillion from 2004 to 2013.

As a snapshot of government’s fiscal health, 2003 prompted historic comparisons. A sluggish economy and three successive tax cuts pushed budget receipts to $1.78 trillion, $70 billion below 2002 levels. Expressed as percentage of the economy, the federal tax take contracted to 16.6%, the lowest level since 1959.

Just last year, corporate tax receipts declined by 11.1%, to 1.2% of the nation’s GDP. That is the lowest level since 1983. Since they peaked in 2000, corporate tax payments have plunged nearly 29%.

Individual income taxes fell by 7.5% last year and are off 21% from their 2000 peak. Only Medicare and Social Security taxes have continued to climb since the boom years of the 1990s, and that money is now financing other parts of the government.

«It is revenue collection which dropped off a cliff,» Bolten said.

But federal spending – pumped up by war and rising health care costs – has been on the opposite trajectory. Spending rose by $146 billion over 2002, or 7.3%, to $2.16 trillion. In 2003, spending equaled 20.3% of the economy, the highest level since 1996, when Clinton hailed the end of big government.

And those numbers may actually understate the surge in spending since historically low interest rates have lowered the cost of interest payments on the $3.9 trillion federal debt held by the public, the CBO said. Excluding the fall in interest payments, federal spending rose 8.9% last year.

But the real driver on the spending side was the military, which consumed $389 billion in 2003, a 17.2% increase in a year. That was the fastest growth rate in 20 years, and more than double the average 7% growth in non-defense programs.

With Congress considering an $87 billion spending package for Iraq and Afghanistan, the spending figures are sure to rise. Bolten said he is still expecting the deficit to top $500 billion in 2003, even with a brightening economic picture. Strong economic growth anticipated by 2004 will not produce a surge in tax receipts until the following year, he said.

Critics of the president’s fiscal stewardship are not backing off. Bush’s $1.7 trillion in tax cuts will really begin taking a toll on government finances toward the end of the decade, when forecasters expect the economy to be rolling. By 2010, the vanguard of Baby Boom retirees will have begun driving up Social Security and Medicare expenses by nearly 7% a year.

The 2003 numbers are a «distraction compared to the big story of where this is all heading,» said Kent Conrad, the senior Democrat on the Senate Budget Committee, «a fiscal crisis unlike any we’ve ever seen.»