Mccain should have taken Galbraith over Palin... But honestly, he should have picked Romney...

Galbraith has some tremendous points throughout his book. His sections on inflation and the monetary illusion are interesting to look at given our current economic situation. An interesting point he makes is that inflation is essentially necessary for economic growth to occur. While this may be common knowledge, I had never heard it put the way Galbraith did. Galbraith states, “We are impelled for reasons of economic security, to operate the economy at a level of output where it is not stable—where persistent advances in prices are not only probable but normal”(156). I guess to some degree this is the premise of every boom and every recession. Perhaps, this is actually the reason why we have pattern like booms followed by recessions. The United States generally has prosperous periods of 5-10 years followed by economic problems for about half the time. The economy booms as we are spending at unstable amounts, but then it is followed by a temporary crash, so the economy can stabilize and do it all over again. Galbraith is right; the way our economy is forced to work, is perhaps the only way the country could continue to have great economic strength and the unfortunate downturns are simply inevitabilities of our system.

Currently the stock market in the US seems to be more volatile than Howard Dean after the Iowa primaries. In the last week the DJI has seen the largest drop in points in the history of the DJI and has seen one of the largest upswings as well. These issues seem to be the result of the cumulative damage laid out by Galbraith in his critique about or financial system. For the United States to keep growing we need to keep spending money as we are a consumer driven economy. Just as Galbraith was alluding to, we need to, in most cases, spend more money than we produce in order to keep growing. This inevitably leads us to the credit based economy we have become. At first look, there is nothing wrong with a consumer society based on credit. Galbraith in addition to every Macro economics book that was ever made mentions how an increased amount of credit spending leads to inflation due to the excess cash flow in the economy, naturally overvaluing goods and bidding up the prices. Just as Mankiw told us last year (and I will say it again as finishing a Mankiw book is harder than finishing the Iditarod), if we want to slow down or stop inflation, interest rates need to be raised to discourage lending and encourage saving, in order to slow down spending and bid down or stabilize prices. However, while inflation seems scary and raising the interest rate might feel like a good idea to protect the value of the dollar, it pretty much halts all growth as our consumer based economy is no longer consuming at the rapid rates that Galbraith was talking about.

People act shocked that our economy is in shambles. People blame the subprime lending, but in reality it was going to be one thing or another that tanked our economy at some point. With our system being so delicate with finding a balance between production and inflation combined with leaders of businesses trying to find brilliant ways to turn profits so they can feel like Gordon Gekko… problems are abound to occur, at least every once in a while. Major companies will do something highly unethical and get caught. Major companies will do something highly risky and it will not go according to plan. The bottom line is with an economy that is prone losing major producers and major consumers, while simultaneously spending more money than we are producing, economic fallouts are bound to occur.