Thomas I. Palley's Plenty of Nothing

...At the core of Palley's reasoning lies a very simple, clear, and luminous metaphor...

...Since rational self-interest and the competitive spirit undermine the willingness to share, Palley's argument is, in effect, that institutions, norms, and laws promoting social solidarity, coordination, and regulation are indispensable if Keynesian policy is to be made to work...

...Palley argues that prisoners' dilemmas are everywhere: in the stock bubble, the rat race, the wage-price spiral, the destruction of cities by suburban mall builders, the conduct of monetary policy, and the displacement of small and fuel-efficient cars by Chevrolet Suburbans...

...We are the victims of bad policy, whose brilliantly achieved purpose has been to enrich the few at the expense of the many...

...I fear that the genie of globalization cannot be returned to its bottle— not without ushering in an apocalypse in the developing world if the American market were suddenly shut...

...And by design...

...To function effectively, markets require governments...

...Still, speaking personally, I lack the stomach for this hard game...

...His approach may be described as classically Keynesian, an approach that remains the coherent practical alternative to economic reaction...

...it is instead characterized by "systems competition...

...But Palley goes beyond this core element of Keynesianism, and devotes considerable attention to the coordination problem that justifies government intervention in a much larger spectrum of economic activity...

...It is also, by extension, an argument against the sale of advanced capital equipment to such countries...

...So long as we are pipe dreaming, I'd at least start by reforming the Federal Reserve and the International Monetary Fund...

...It is, instead, the road to a ruin that only communication, coordination, and collective action can prevent...

...Plenty of Nothing presents many vignettes on the relationship between structural reform of policy-making institutions and changes in policy implementation that should be on the progressive agenda...

...Good things could result, in the form of national production of lower-quality products more suitable for domestic consumption...

...Coordination can only work, Palley argues, among parties that are subject to the same large body of law and that share similar objectives...

...Palley seems to be saying that if the United States cuts off Indonesia from access to our markets for, say, Nike shoes, then we will be better off, not because we gain from protection as such but because we will then be able to pursue a full- employment strategy that would otherwise be denied us, and that the loss of sales to Boeing and IBM will be corn116 DISSENT / Summer 1998 pensated by the rebirth of high-wage consumergoods production on American soil...

...rOR EACH OF these disorders, Palley offers suggestions for a cure...

...According to the dominant economic thinking of our time, policy hardly matters...

...In each of these and a million other settings, indeed in the general case, perfect competition between rational individualists, even under ideal conditions, is not the way to the greatest happiness...

...Palley also offers a clear debunking of the hypothesis of "twin deficits"—the notion, rendered entirely naked by recent events, that rising government deficits are necessarily associated with rising trade deficits and vice versa...

...One might note that John Maynard Keynes, a relentless logician, reached the same conclusion during the Great Depression when the paramount objective was to achieve conditions for the success of a demand policy to increase employment...

...Palley fully subscribes to the core Keynesian proposition, which is that adequate effective demand and full employment are the essential commitments government must make to its economic citizens, and that from the achievement of these goals virtually every other progressive policy objective must follow...

...At a time when mediocre economic performance is celebrated as though it were excellent, and when even the ugly consequences of mediocre performance, such as rising inequality, are commonly treated as though they were unavoidable by-products of progress, Plenty of Nothing is for people who are tired of being treated like fools...

...DISSENT / Summer 1998 117...

...Indonesian children might eventually get adequate shoes...

...It is a highbrow version of an ideology that we all recognize for what it is, when we hear it from Rush Limbaugh...

...His next book, Created Unequal: The Crisis in American Pay, will be published in August by the Free Press...

...they don't get them now...

...There is a logic to Palley's argument, contrary though it is to the standard arguments for comparative advantage and specialization through trade...

...It is hard to accept the larger applicability of the prisoners' dilemma, and yet draw the line at the level of interaction between nation-states...

...DISSENT / Summer 1998 115 Governments must set the rules and structure the rewards, so that rational self-interest may produce positive rather than negative results...

...The failure to recognize that widespread prosperity rests on appropriately designed market rules and regulations," he writes with a touch of melodrama, "is the cancer that is killing the American dream...

...The revolutionary thought that policy does matter, for good or evil, is a prime contribution of this book, though it is a mark of the degraded state of economic discourse that this argument is necessary at all...

...markets without governments are no more likely to succeed than governments without markets...

...For this reason, I would rather stay focused on what might be achieved through international policy coordination and global Keynesianism, combined with a fair measure of open trade...

...North-South trade therefore serves to undermine the achievement of collective goals, certainly within the wealthier partners and perhaps on both sides of the transaction...

...The prisoners' dilemma is, in effect, a metaphor for the necessity of government...

...International trade is the most troubling area for the application of the Palley doctrines...

...But often, the presentation takes only its most abstract and hypothetical form: the case of two prisoners, interrogated separately and unable to collude, who are much more likely to implicate each other than to remain silent, in spite of the fact that both know that silence by both is the only way to assure that both defeat the interrogation...

...This, he says, is the case between developed nations, and so trade in the framework of a common market can be free...

...Structural Keynesianism"—a pragmatic blend of rule setting with attention to macroeconomic fundamentals —is Palley's basic formula for achieving this purpose...

...To generalize broadly, Palley argues that successful policy making requires both a commitment to the larger goal of full employment by the policy maker, and a respect by ordinary economic actors for the limits of their own gains from the policy—in other words, a willingness to share...

...Policy...

...Thomas Palley's thesis, meticulously argued, is that we are not doing well...

...Palley's detailed opposition to the deficit fetishism that dominates fiscal policy and to the inflation fetishism that dominates monetary policy are both necessary reading and lead to generally sensible suggestions for reform, especially of the Federal Reserve Board...

...Palley calls this "economic naturalism," and he does not like it...

...Independent causal force is assigned to the impersonal market, the agents behind the market are never mentioned, and the power of the government is, in large measure, denied...

...To the extent that the economics profession denies or downplays the necessary role of government, teaching the prisoners' dilemma to students while never explaining to them the full significance of the idea, it contradicts a central tenet of its own theoretical logic...

...THIS is in effect an argument—going far beyond the more conventional case for international labor standards—for restricting the importation of manufactured products from poor countries...

...JAMES K. GALBRAITH teaches economics at the LBJ School of Public Affairs, the University of Texas at Austin...

...Students of our blighted subject are taught to reason in a counterfactual world, where businesses are competitive, ordinary people omniscient, and consumers sovereign...

...But of course, as Palley reminds us, there is a distinct difference between the economics suitable for undergraduates and the understanding of those who use the ignorance it spreads to obscure their own uses of power...

...MAYBE...

...This is the prisoners' dilemma, a recurring motif for the failure of uncoordinated markets, the simplest demonstration that rational individuals acting separately in pursuit of pure selfinterest can make themselves worse off...

...But, Palley argues, trade between rich and poor countries lacks this character...

...In such a world, societies are self-organizing, and governments are basically unneeded...

...There is a corresponding case that Indonesia might also become better off in a less globalized world...

...And indeed, much of Plenty of Nothing is given over to a discussion of the actual uses of policy in our reactionary time— to preserve and protect the large industrial and financial corporation, to lower wages and obstruct trade unions, to open borders to the coercive migration of capital, and to suppress full employment...

...Every undergraduate in economics encounters the prisoners' dilemma sooner or later...

...Without the protection of foreign capital, the regime and even the army might lose their grip on power...