Quote of the Day (John Kenneth Galbraith, on an Ironclad Rule of Diplomacy)

“There are few ironclad rules of diplomacy, but to one there is no exception. When an official reports that talks were useful, it can safely be concluded that nothing was accomplished.”—Canadian-American economist and diplomat John Kenneth Galbraith (1908-2006), “The American Ambassador,” Foreign Service Journal (June 1969)

In December 1960, President-elect John F. Kennedy sounded out John Kenneth Galbraith on chairing the Council of Economic Advisors in the new administration. The Harvard professor rejected that offer ("I didn't wish to come every day to the same discussion of the same questions around the same table mostly with the same people, not all of whom I wish to see").

But another position intrigued him: US Ambassador to India, where he could see firsthand how the principles of international development he had taught for the past decade might work in an emerging nation. And so, 65 years ago today, the economist was appointed to the post.

I was all set to include a quote from Galbraith’s 1969 book Ambassador’s Journal about the embassy staff in India, as well as the Nehru government’s suspicions of the U.S. assistance program.

In addition to the diary entries and letters to JFK published in that volume, he was still passing on what he learned in his two years on the subcontinent in The Nature of Mass Poverty (1979), which cautioned that the international economy could inadvertently maintain large populations in conditions of want.

But as soon as I saw the above quote, it resonated with me, as I think it might with so many other Americans today.

Over the last month, the public has grown accustomed to the White House offering assessments of the Iranian War that—how shall I say this?—may be prematurely optimistic, including President Trump’s claim that “very good and productive” talks have been held with Tehran over at least ending the regime’s stoppage at the Strait of Hormuz, and maybe even bringing the conflict as a whole to a close.

More and more people are experiencing nightmares of long, inconclusive conflicts that drain American money and lives—the kind associated with Iraq, the kind that candidate Trump vowed never to begin.

Ambassador Galbraith was a caustic critic of such adventurism. Within a month of his appointment, he was explaining to JFK how the Bay of Pigs fiasco appeared to his Indian hosts (not good), and before long he was warning, in no uncertain terms, that conditions in Vietnam were "far more complex, far less controllable, far more varied in the factors involved, far more susceptible to misunderstanding" than his military advisers were saying.

It’s nice to think of a time when a President had the patience to read an adviser’s memos on matters like improving the US Information Service rather than emasculating it; why it would be a good idea to avoid military involvement in a land that posed no security threat to America; and how an administration would be more inclined to cajole and persuade other countries to our positions rather than bullying them, springing from what the Declaration of Independence called “a decent respect to the opinions of mankind.”

Quote of the Day (John Maynard Keynes, on the Fallout From WWI and The Failed Treaty of Versailles)

“If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation.”— English economist John Maynard Keynes (1883-1946), The Economic Consequences of the Peace (1919)

John Maynard Keynes, who died of a heart attack 75 years ago today, may be best known for the school of economics named after him, which holds that, because free markets lack the self-balancing mechanisms to produce full employment, state intervention is necessary to stimulate demand and stabilize the economy.

That notion, in its different forms, guided mainstream U.S. economic thinking from the New Deal to the rise of Reaganism, and has been enjoying something of a revival not only in the Biden administration’s economic program but even the tax cut passed under Donald Trump (as noted by David J. Berger in a May 2019 article for The Hill).

Keynes’ American disciple John Kenneth Galbraith, in a 1984 essay for The New York Review of Books, called him “by far the most influential economist of this century and, with [Adam] Smith, [Karl] Marx, and possibly [David] Ricardo, one of the three or four greatest economists who ever lived.”

But long before he formulated this influential theory, Keynes had become famous for immediately grasping how the vengeful and power-obsessed victors of WWI were sowing the seeds for an even more devastating conflict. He had attended the peace conference at Versailles for ending World War I as the senior Treasury member of the British delegation. 

But the more he watched, the more appalled he became at the blindness of the “Big Four” allied victors in imposing punitive war reparations on Germany.

Having failed to scale back this insistence on what he termed a “Carthaginean peace,” Keynes departed the proceedings in disgust, then worked furiously in a farmhouse for two months on what became the bestselling The Economic Consequences of the Peace.

Time has not dimmed the power of his fury at the madness of the allies’ four leaders—Britain’s David Lloyd George, America’s Woodrow Wilson, France’s Georges Clemenceau, and Italy’s Vittorio Emanuele Orlando—for not recognizing “the fundamental problems of a Europe starving and disintegrating before their eyes.”

Virginia Woolf’s husband Leonard wittily but aptly dubbed the economist “Keynessandra.” The problems of the following two decades after his manifesto—hyperinflation (“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency”), periodic economic failures, nationalist resentment, political extremism, and another war—proved the wisdom of his vision.

It is also worth remembering Keynes’ unheeded call for an America that would resist the urge to retreat into postwar isolationism:

“But if America recalls for a moment what Europe has meant to her and still means to her, what Europe, the mother of art and of knowledge, in spite of everything, still is and still will be, will she not reject these counsels of indifference and isolation, and interest herself in what may prove decisive issues for the progress and civilization of all mankind?”

Keynes is the bane of libertarian economists for his belief in activist government. (You can find a succinct, and sometimes on-target, summary of such skepticism in Madsen Pirie's June 5, 2019 blog post on the Web site of the Adam Smith Institute.) 

But the economist was hardly opposed to investing in markets. At the time of his death, his assets totaled $30 million in today’s money, with much of that derived not from his decent-selling books but through value investing.

As noted in Philip Delves Broughton’s recent Wall Street Journal review of Justyn Walsh’s Investing With Keynes, Keynes was “a kind of proto-Warren Buffett, a diligent savant who could crunch the numbers, discern the qualitative aspects of a toothsome investment and remain unflustered by the churn of the markets.” Not a bad prescription for surviving a bubble prosperity.

Quote of the Day (John Kenneth Galbraith, on Leaders and ‘The Major Anxiety’ of Their Time)

"All of the great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time. This, and not much else, is the essence of leadership."—John Kenneth Galbraith, The Age of Uncertainty (1977) 

Quote of the Day (Galbraith, on the Crash of ’29)

“The cliché that by 1929 every one ‘was in the market’ is far from the literal truth…. In later years, a Senate committee investigating the securities market undertook to ascertain the number of people who were involved in securities speculation in 1929. Only one and a half million people out of a population of approximately 120 million…had an active association of any sort with the stock market.”—John Kenneth Galbraith, The Great Crash: 1929

(Today marks the centennial of the birth of economist John Kenneth Galbraith in Iona Station, Ontario, Canada. This year also marks the 50th anniversary of a book whose title became a catchphrase: The Affluent Society. The quote here is an example of how he was unafraid to challenge “conventional wisdom”—another phrase, incidentally, that he popularized.

Federal Reserve chair Ben Bernanke is supposed to be a noted scholar on the Great Depression. Presumably, he’s boning up on his reading of Galbraith—and the lessons and myths of the Great Crash—right now.)