Bill Moyers and James Galbraith: Our Free Market Makes Economic Collapse Inevitable

Editor's note: In the following segment of Bill Moyers' Journal, Moyers interviews economist James K. Galbraith about the tragic impact of the recession on ordinary people and steps we must take to avoid future meltdowns.

BILL MOYERS: Americans are mad at bankers. Just Google the three words "I hate banks," and see what comes up. But nowhere has the anger been more palpable than outside the annual convention of the American Bankers Association in Chicago this week.

FOOTAGE OF PROTESTERS: We're fired up, can't take no more! We're fired up, can't take no more!

BILL MOYERS: These demonstrators wanted to know why regular folks are facing foreclosures, rising credit card and checking fees, while bankers are laughing all the way-- well, all the way to the bank.

FOOTAGE OF PROTESTERS: We're fired up, can't take no more! We're fired up, can't take no more!

BILL MOYERS: They protested Wall Street's outrageous bonuses, subsidized with trillions -- and I do mean trillions -- of taxpayer dollars, after their reckless gambling with other people's money brought down the economy a year ago.

There's some historical irony in the timing of this meeting and the protests. 80 years ago this week, on October 29, 1929, the stock market crashed, bringing the Roaring Twenties to a screeching halt. The Roaring Twenties -- that era of flappers, bathtub gin, and dancing 'til dawn, of reckless speculation and living it up while raking in money from the stock market and buying on credit as if there were no tomorrow.

The ultimate judgment came from Al Capone, the city's celebrated gangster. The market's "a racket," he said. "Those stock market guys are crooked."

Black Tuesday, as the crash was called, saw already-shaky shares plunge twenty-five percent in just two days. Fortunes were wiped out in minutes and small investors saw dreams of prosperity, even security, disappear. As the weeks and months went by, the nation slipped deeper and deeper into the abyss of the Great Depression.

All these years later we're still arguing over what brought on the hard times. If you want to join the argument, you need to start with this classic: THE GREAT CRASH, 1929 by the noted economist John Kenneth Galbraith. First published in 1955, it has never been out of print, in part because its analysis is so prescient and, excuse the expression, on the money.

A new edition is out, as timely as today's headlines. And it comes with a new introduction by another noteworthy economist, James K. Galbraith. That's right, the son of John Kenneth.

James K. Galbraith, onetime executive director of Congress' Joint Economic Committee, teaches economics at the University of Texas, where he holds the Lloyd M. Bentsen Chair at the LBJ School of Public Affairs. He also directs the university's Inequality Project, which analyzes wages and industrial change around the world. His own seven books include this one, THE PREDATOR STATE: HOW CONSERVATIVES ABANDONED THE FREE MARKET AND WHY LIBERALS SHOULD TOO.

James Galbraith, welcome back to the Journal.

JAMES GALBRAITH: Thank you very much.

BILL MOYERS: How does this last year compare with what happened after the Great Crash in '29?

JAMES GALBRAITH: It's similar in important respects and different in others. If you look at the trends in world trade and manufacturing, they're very similar. There's been a massive collapse, a collapse which is comparable in scale to 1930. The overall economy hasn't come down nearly as much, and the reason for that is that we have the institutions that were created in the New Deal and the Great Society, institutions of the welfare state, social security. And, of course, there has been the influence of John Maynard Keynes, which gave us the very quick reaction in the form of the expansion bill of the stimulus package. And that also has kept the damage from being as large as it was in 1930 to '32.