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Almost everyone's guide to economics

Some notes from a book, which is an interview between Galbraith and Salinger, covering some basic economic concepts and Galbraith's critique of neo-classical economics.

These are some unusual insights/claims:

Corporations and trade unions blur the distinction between macro- and micro-economics because they're so large. They can effectively set their own prices/wages on a similar scale to a government's fiscal/monetary policy (pp.27-29).

The technostructure is the layer of management that effectively controls a corporation because (a) no individual shareholder or block has enough voting power to realistically be in control; and (b) shareholders and the board aren't sufficiently involved in the day-to-day operations or sufficiently informed to reject most management proposals. Management put proposals to the board and the shareholders, who will almost always go with those proposals. Capitalists (shareholders) have less power than we suppose (pp. 68-74).

Corporations are large enough to resist monetary policy by fixing or raising prices. In most markets there are so few corporations that they effectively form an oligopoly; they all know it's not in their interest to undercut each other too much, so the cut-throat competition that pertains in the SME market is significantly reduced. By passing costs on to customers, or simply firing employees and drawing on stocks rather than producing new products, corporations can finance larger, higher-interest loans from private banks and so escape or soften the impact of monetary policy (pp.98-99).

The effect of monetary policy actions to control inflation is usually continued inflation and high unemployment. Corporations and trade unions will still increase prices and wages, so inflation continues, with unemployment increasing.

Galbraith's proposed alternative to neo-classical economics - the elimination of regulation from a free market - is something he calls the Comprehensive Income and Prices Policy (CIPP). The market is ineffective in the face of trade unions (especially civil service), state subsidies and corporations. So governments negotiate modest wage and price increases with trade unions and corporations to keep inflation down without having to resort to monetary policy (pp. 122-129).