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Inequality and Instability: A Study of the World Economy Just Before the Great Crisis Hardcover – 3 May 2012


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Product details

  • Hardcover: 336 pages
  • Publisher: OUP USA (3 May 2012)
  • Language: English
  • ISBN-10: 019985565X
  • ISBN-13: 978-0199855650
  • Product Dimensions: 23.6 x 2.5 x 16.3 cm
  • Average Customer Review: 2.0 out of 5 stars  See all reviews (2 customer reviews)
  • Amazon Bestsellers Rank: 495,885 in Books (See Top 100 in Books)
  • See Complete Table of Contents

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an astoundingly broad, illuminating, and detailed examination of the global rise in income inequality between 1980 to the dawn of the financial crisis in 2008...Galbraith boldly brings the problem of radical inequality from the margins to the centre of economic analysis. (Imani Perry, London School of Economics)

A truly pathbreaking work of scholarship. (Barry Eichengreen)

A must-read for anyone who wishes to understand our political and economic era. (Joseph E. Stiglitz)

James K. Galbraiths (Marco Passarella, Economic Issues)

About the Author

James K. Galbraith is the Lloyd M. Bentsen Jr. Chair in Government/Business Relations and Professor of Government at the LBJ School of Public Affairs at the University of Texas. He is the author most recently of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too

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1 of 10 people found the following review helpful By Mr. Neil Thomason on 21 Jan. 2013
Format: Hardcover Verified Purchase
Anyone hoping this book would provide a history of how inequality gave rise to social or economic instability over the ages will be hugely disappointed. Fully two thirds of the book is devoted to apologising for how difficult the data is to work with; only a dozen or so pages of conclusions attempt to provide insight into what the data reveal. And it isn't much.
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Sadly, I have difficulty in following this economist's arguments sufficiently to appreciate his undoubted genius!! The weakness is mine alone!!
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Amazon.com: 13 reviews
72 of 73 people found the following review helpful
Revolutionary 19 April 2012
By Hans G. Despain - Published on Amazon.com
Format: Hardcover
James Galbraith deserves the Nobel Prize in Economics for his several decades of work on economic inequality. _Inequality and Instability_ attempts to summarize, synthesis, and further develop this phenomenal research. Galbraith has redefined the study of economic inequality; for Galbraith inequality is not merely an ethical issue, but inequality radically determines a society's level of unemployment, growth and development, and frequency and depth of economic crises.

Galbraith's research argues and convincingly demonstrates inequality largely determines (1) the relative stability of a macroeconomy, (2) market economies generate inequality, and inequality destabilizes the economic system, i.e. generates economic crises, (3) the primary industry responsible for inequality is finance and the institutional structure of finance within a society, this implies (4) technology is not the primary cause of inequality, nor even a significant cause of inequality at a national level, and (5) outsourcing and international competition has not been a significant cause of inequality, instead (6) macroeconomic policy (both monetary and fiscal, but more accurately especially monetary policy, but also fiscal policy determine the degree of inequality and inequality determines the level of stability or instability of an economy) and political ideology, i.e. political economy radically determine the degree of inequality.

Now for the less happy analysis.

In a three sentence evaluation of the book, Nobel Prize winner economist Joseph E. Stiglitz writes: "In _Inequality and Instability_, James K. Galbraith examines one the most pressing issues of our time. In this accessible and far-reaching volume he investigates not only the depth and breadth of inequality in Europe, America, and elsewhere, but also its implications for politics and society. It is a must-read, for anyone who wishes to understand our political and economic era."

I fully endorse the first and third sentences. Indeed, I fully endorse the second sentence, save one single word, i.e. accessible. If you are a Ph.D., or a Ph.D. student, this book is accessible. Moreover, if you have a mentor or you are in an upper division undergraduate college economic course with an instructor to explain regression equations, Theil statistics, Gini coefficients, etc. this book will be accessible. However, if you are unacquainted with these phenomena, this book will be less then accessible.

Nonetheless, this book is too important to be ignored by a popular audience, every engaged citizen should absorb the basic argument. I have a suggestion. First, pick up a copy of Galbraith's _Predator State_ (2006), and read chapter 7, titled "What the Rise of Inequality is Really About", as a preface to _Inequality and Instability_. Second, read an abridged version of _Inequality and Instability_, before attempting to tackle the entire book. My suggested abridged version (for an U.S. audience) is, chapter 1, pp. 47-50 of chapter 3, (and possibly pp. 50-62 of chapter 3), then chapters 6, 7 and 13.

What will be learned can be summarized as follows:

(1) Inequality generates unemployment, and unemployment generates inequality, this I dub `Galbraith's Law.' Unemployment was not much of a problem post-Reagan (post-1984-5), but inequality has been on the rise. What Galbraith's Law suggests is if inequality is on the rise, unemployment is to follow. This is what happened in 2007-8, inequality destabilized the economy, a crisis manifested, and generated unemployment. Since the Great Recession of 2007-8, the Obama administration has failed to address inequality; consequently Galbraith's Law suggests the "Jobless recovery" will continue until inequality is reduced.

(2) The financial industry, and its regulation or lack of regulation, is the primary determinant of the degree of inequality in an economy.

(3) The level of inequality radically determines the stability (low inequality) and instability (high inequality) of a macroeconomy.

(4) Economic policy can reduce or increase inequality in a society. Because of the importance of finance, monetary policy and interest rate changes can be argued to be the most important policy as both culprit and mediator of inequality.

(5) Although free-market labor market and wage policy does not necessarily cause severe income inequality, progressive labor market and wage policy is important policy to combat income inequality caused by the functioning (and dysfunction) of the financial industry which generates income inequality.
7 of 9 people found the following review helpful
Very interesting 13 Aug. 2012
By George Hariton - Published on Amazon.com
Format: Hardcover Verified Purchase
Research on income inequality has been plagued by a lack of good data on inequality within countries. The World Bank put together a data base in 1996 (updated and extended since), based on surveys in various countries, but the data are sparse and seldom really comparable. The University of Texas Inequality Program (UTIP) has built a new data base which they hope is better. This book is a description of that new data base (the first third of the book). As well it describes uses of the data base to explore voting patterns and other political impacts of inequality (most of the second third of the book) and some economic consequences of inequality (the rest of the book).

UTIP uses inequality in manufacturing wages (i.e. pay rates in the manufacturing sector) as a proxy for income inequality. If the proxy is good enough, that vastly improves the quality of the data, and so the range of questions that can be addressed. Galbraith spends Chapters 2 and 3 arguing that the proxy is good enough -- that manufacturing wage disparities do reflect income disparities closely enough for his analyses.

The rest of the book depends on whether the reader accepts these assertions or not. The problem, of course, is that the services sector is changing very rapidly, and any inferences from manufacturing to services may quickly be out of date. In any case, even the numerical analyses that Galbraith presents are not very convincing. For example, he uses the UTIP data to replicate the World Bank data. While the correspondence is good, it is not very good. (He fits a linear regression and gets R-square statistics of about 0.6, i.e. the UTIP data explains about 60% of the World Bank data.) While that is good enough to show that the two measures are related, I don't think that it is good enough for the applications later in the book. But then Galbraith says that the World Bank data are flawed anyway, so the point of the comparison is lost on me.

Anyway, if one accepts use of UTIP data, a few interesting conclusions followe. For example, while individual European countries show less income inequality than the U.S., Europe taken as a single entity shows more income inequality. Given Europe's higher unemployment rates (at least until recently) that suggests that greater income inequality correlates with greater unemployment, not the reverse. (I note that Galbraith isn't always careful to distinguish correlation and causation. His results fall far short of showing that inequality causes unemployment -- the causation could run the other way, or a third factor might be at play).

Another very interesting result is that global factors, including international financial credit, securities markets and so on, account for almost all the changes in inequality. Economic institutions also atre important. But that leaves very little scope for political interventions or indeed for a government role. Or at least that's how I read the last third of the book.

A comment on the book's accessibility: I found the book very readable. Yes, there are a few equations, but the reader can skip over those with no loss. Yes, there are some regression analyses, but their results are described in words in the text, so they can be skipped too. Galbraith is a good writer, and if you skip the tables, what he has to say flows nicely.
11 of 15 people found the following review helpful
Overly Technical - 28 May 2012
By Loyd E. Eskildson - Published on Amazon.com
Format: Hardcover
Galbraith's book is chock full of esoteric equations and explanations built up over 15-some years, definitely not light reading, undoubtedly intended for serious econometricians only. It presents evidence that the rise of inequality mirrors the stock market in the U.S. and the rise of finance and free-market policies elsewhere. The data purport to show that more equal societies enjoy lower unemployment.

Galbraith has concluded from his research that waht has driven rising inequalities of income in the U.S. has been rising stock prices, asset valuations, and income drawn from stock option realizations, as well as wages and salaries paid in sectors financed by new equity. (Think Instagram, acquired after about seven years' of their work for $1 billion, and with only 27 employees.) These incomes at the very top were highly concentrated into 15 counties, and five in particular - the NYC area, three associated with Silicon Valley, and King Co. Washington. States with higher levels of inequality tend to have lower voter turnout rates - consistent with the idea the wealthier voters have a strong interest in restricting access to voting by poor people. (Yet, none of Galbraith's examples of the highest income counties - California, New York, and Washington, do so.)

Within Europe, Galbraith reports that countries with less pay inequality systematically enjoy less unemployment, other things being equal. He also asserts that Europe overall has more income inequality than the U.S., something that does not fit with my understanding that the U.S. and China lead in this dimension. Continuing, Galbraith tells us there is strong evidence that inequality rose through most of the world during globalization, and that recent winning sectors in the U.S. have not generated many jobs - (eg. Facebook's initial $100 billion valuation is linked to only 3,200 jobs).
2 of 2 people found the following review helpful
A must for decision makers 4 May 2013
By Luis Maldonado Lince - Published on Amazon.com
Format: Kindle Edition Verified Purchase
Decision makers , policy designers and strategists of all sorts should read James Galbraiths book. Reproducing the pre-crisis conditions, via faulty policies and strategies, will only lead the world economy to the begining of the same tragis vicious circle. A must read without doubt.
1 of 1 people found the following review helpful
It's not as simple as some would argue... 6 Jan. 2014
By David Last - Published on Amazon.com
Format: Hardcover
Inequality is one of the major themes in Galbraith's work, as in his father's. In this fairly dense tome, he provides a pretty convincing description of the empirical relationship between the bubbles of concentrated wealth that are chasing better returns, and the tendency of the bubbles to burst, causing economic crises. But there’s a lot more to this. His Ch. 5, on economic inequality and political regimes, is a much more globally comparative take than Bartels (2008) focused only on the US. While Bartels is clear about the widening gap under Republicans, Galbraith is more circumspect. In general social democracies and democracies are associated with lower inequality, using UTIP-UNIDO data, but a narrower range of more complete data is less conclusive. Other political classification schemes are more contradictory still: the Chibub-Ghandi index shows democracy associated with lower inequality, but the Polity/Freedom House and World Bank indices show democracy significantly related to greater inequality. Galbraith concludes that economists need to redefine the nature of inequality in order to study it more effectively. Inequality is largely driven by financial factors, rather than wages, productivity or non-investment income. The 1980-2006 super-bubble had a disproportionate impact on poor countries and poor people, as a direct consequence of aggressive high interest rate policies. National experiences tend to parallel global statistics on concentration of wealth and inequality. The ability or willingness of market states to affect inequality is limited, and there aren’t many alternatives (communism has all but disappeared and Islamic republics aren’t mature systems). In social democracies (mainly Northern Europe), it is economic structures rather than political systems that preserve equality. More egalitarian states tend to have lower unemployment, discrediting advocates of ‘labour market flexibility’. There’s a neat connection to Morton Jerven’s Poor Numbers, at a more general level: “The mysteries and puzzles in the literature do owe something to the desire, often noted among economists to cling to a point favoured by prior theory, but they also owe a great deal to the efforts of researchers, operating in perfect good faith, to draw more information from inadequate records than those records are willing or able to disgorge.”

Perhaps the reason that Galbraith sounds like a voice crying in the wilderness lies in sponsorship of mainstream economics; there’s a wonderful scene at the end of the movie “inside job” in which advocates of free-market laissez-faire are asked why they didn’t disclose sponsorship by major financial institutions and banks; they didn’t see it as relevant.
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