There ought to be a term for the sort of book that starts from a simple concept and completely shakes the cobwebs loose from your brain. The most recent two books by Francis Fukuyama are in that category for me — and shame on me for reviewing neither of them yet. 
Galbraith’s idea is simple, yet profound: economics arose in an era when humanity had just barely emerged from the problem of scarcity, and it bears the expected scars. From the beginning of time until about 1800, humanity’s main problem was ensuring sufficient supply — getting enough food in enough mouths. Now we’ve arrived at an era when exactly the reverse is the problem: we have insufficient demand. The whole problem of depressions is a problem of insufficient aggregate demand.
Depressions are one particularly bad manifestation of the problem of insufficient demand. There are more trivial ones: it was either in Chandler’s The Visible Hand or Cronon’s Nature’s Metropolis that the author mentions the birth of breakfast cereals purely as a way to clear out inventories of unsold grain. Much of economic history since the mid-19th century has been the history of getting us to buy things that we don’t need.
Galbraith argues that economics still hasn’t caught up with this new world. Economics is obsessed with production, and with producing things more efficiently. Why the obsession with efficiency? Because when the main problem in life is scarcity, we’re very concerned that we produce everything with the minimum of wasted resources. What if, instead, we realize that much of what we produce is unnecessary? This is not in any way controversial; an economy has reached the apex of its sophistication when it develops an entire industry devoted to, literally, shoving more food down our throats than we need. (See Marion Nestle: food availability, measured as food produced within the United States, minus food exported, plus food imported, minus food waste, grew from 3200 calories per person in 1980 to 3900 in 2011. And we weren’t starving in 1980.)
Contrast this situation with the decline in public services:
The competition is especially unequal for new products and services. Every corner of the public psyche is canvassed by some of the nation’s most talented citizens to see if the desire for more merchantable product can be cultivated. No similar process operates on behalf of the nonmerchantable services of the state. Indeed, while we take the cultivation of new private wants for granted, we would be measurably shocked to see it applied to public services. The scientist or engineer or advertising man who devotes himself to developing a new carburetor, cleanser or depilatory for which the public recognize no need and will feel none until an advertising campaign arouses it, is one of the valued members of our society. A politician or a public servant who sees need for a new public service may be called a wastrel. Few public offenses are more reprehensible.
Then there are those products that derive some or all of their value, not from their intrinsic merit, but from the fact that others also own them. My fancy car derives some of its value from the fact that it’s larger than all my neighbors’ cars. A university education has some intrinsic value, but it seems clear that a college degree would lose much of its value if everyone had one. Or rather, at that point the fight would move to a higher level: now having an MIT degree, or a graduate degree, would set you apart from the pack. The supply of the product, in other words, creates its own demand. To use the term of art: many of the goods that we produce are “positional.”
Between positional goods, and products that we don’t need, much of what we produce is simply unnecessary. Deciding what to do with this observation is the central question in The Affluent Society.
Obviously we can argue over these central contentions. Not least, there’s the empirical question of how much of our economy is worthless. Is my iPhone worthless? Is the Internet worthless? We don’t have to believe that all of the supply side is worthless to agree that much of economics takes as its starting point the scarcity of supply in the face of unlimited demands. That’s simply not the problem that the industrial world faces anymore.
Galbraith notes also that economics is based on a blinkered view of human agency, according to which my own free will leads me to choose a larger car and 700 more calories rather than better subways and public schools. It seems obvious that that’s wrong: my “free will” here is dictated in no small part by advertising. Again, we don’t need to believe that advertising completely controls us to believe that economics as a profession has the wrong idea about how to judge what people want. It’s not as simple as a naïve “revealed preference” story would have it: if I choose to buy a larger car, and I also choose to vote for lower property taxes, and if in consequence the public schools in my town suffer, it’s not possible to read directly off this that I prefer cars to schools.
All Galbraith is after is a little balance between public and private goods. Even without any change in balance, the need for public goods is likely to increase in lockstep with demand for private goods: all those extra cars need parking spaces; all that extra wealth needs police officers to secure it; all that extra food needs reliable roads to carry it to market. Yet we as a society have not chosen to increase our spending on public goods, so we end up in what Galbraith famously called “an atmosphere of private opulence and public squalor.” Indeed, we end up with public squalor because of our private affluence. The situation today remains sadly unchanged from when Galbraith first described it more than half a century ago.
We can follow where Galbraith is going here and ask simply: what is the point of all this economic production? Why bother producing more? Is it so that we can produce and consume more and larger televisions? Eat more breakfast cereal every morning? To John Maynard Keynes, one answer was that economic growth would free us to be more fully human: we’d have time to learn, and think, and create, and play outside in beautiful parks, and swim in clean water, and live long lives, and develop meaningful friendships. After taxes, Americans are six times as wealthy as we were when John F. Kennedy was president, yet can we say that economic growth has made us better people? We’ve chosen to convert those gains in economic production into a greater supply of possessions rather than a better society or more leisure. Galbraith would say that the root of this failure is deeply rooted in the way we’ve thought about economics since the time of Adam Smith.
It takes a mind like Galbraith’s to chase down this problem. Another mind, in some ways similar, whom I’ve likewise been derelict in reviewing, is Lewis Mumford; his The City In History reoriented the whole way that I think about why cities matter. If asked what the point of cities is, most of us would probably define them as centers of commerce and industry: San Francisco is the city of software; Boston is the city of universities; New York is the city of theatre and finance. We might go a step further and say that that concentration of people is the wellspring of greatness: put people near one another and watch as they create beautiful things together. Mumford goes well beyond that: the city, he says, is where humanity can fully flower; the city exists for the enlargement of mankind itself. He imparts an inspiring moral greatness to cities. I maybe take some of the piss from this if I tell you that Mumford thinks it’s all been downhill since Ancient Greece.
Like Mumford, Galbraith sees modern economies as distracted from the goal of ennobling man. Again because of the focus on increasing GDP and using resources most efficiently, Galbraith notes that finance is very good at directing material goods to where they can be optimally used, but not nearly so good at increasing human capital. An economic system geared at the betterment of humans would look a lot different than one aimed at the betterment of SUVs.
This goes quite deep, I think. First, what’s the point of improving “human capital” if the point isn’t to just produce more stuff in the next generation? We usually think of human capital as something that universities provide, and that poor neighborhoods lack. A liberal education can expand our minds, but we’re often in the trap of thinking that human capital is like real capital: it’s an investment on which we spend a lot up front, from which we then draw over many years. Do we want human capital that allows us to appreciate great literature? Or do we only care about the kind of human capital that slots us each nicely into the machine?
Our most fervent hope is that our kids will live a better life than we do. Do we only want them to be wealthier than we are? Or do we also want them to be smarter, more generous, more curious, happier, more creative, better companions? I’m sure we’d say that we want all these things. But there’s a danger that our preoccupation with production, which springs from some of our most unquestioned intellectual roots, will lead us to define our children’s success in only the most vulgar terms.
Of course, many of us are born with little and die with less. Our obsession with maximizing production has led us to believe that the only solution to widespread poverty is the rising tide that lifts all boats. Another answer is to produce less unnecessary crap and share some of the bounty with our neighbors. Rather than guarantee a larger car to everyone, we’d each take a smaller but perfectly lovely automobile and instead insure that our neighbors get decent health care. First we need to stop thinking about production and start thinking about distribution.
From both Mumford and Galbraith, there’s a real urgency coupled with great clarity about where the problems lie. You can see the outlines of a moral revolution in both of their visions.
 — Short version of Fukuyama: humans will always tend to favor their kin more than they favor others; the evolution of human government has been the evolution away from government that favors kin, which Fukuyama calls “patrimonialism”, to government by impartial rulers chosen on the basis of merit. The danger is always that government will revert to the less-impartial form, which Fukuyama refers to by the wholly infelicitous term “repatrimonialization.” (In keeping with “i18n” and “l10n”, perhaps we ought to refer to this as “r19n.”) Human self-government is essentially the unending struggle to break free of the bonds of kin favoritism and arrive at the kind of government that China had mastered a millennium or two before Christ.
I have always held Gailbraith and Gailbraithian thinking (like many geniuses, his biggest contribution was capturing ideas in the air clearly) as responsible for the death of Detroit. Rising efficiency meant we had to pivot out of manufacturing, but the Gailbraithians didn’t prepare us for that. If you follow this line of thought (advertising creates its own demand), one can easily see why the morons in charge of manufacturing TVs in the U.S. thought they had to have metal frames, wood paneling, etc. in their TVs. What a shock that Sony, Panasonic, etc. were able to capture such a market.
There were two political wings of this thought, the right-wing pro-bosses view and the left-wing Company Union view. Nobody thought “What if the company dies?”. What was the result? Well, remember when Detroit was the thriving Motor City and New York was an infamous hellhole?
Sorry if this seems overly critical. You’re review was a very penetrating into the core of Gailbraithianism!