‘The End of Normal: The Great Crisis and the Future of Growth’ reviewed by Hans G Despain

The End of Normal: The Great Crisis and the Future of Growth

Simon & Schuster, New York, 2014. 304pp., $26 / £18.99 hb
ISBN 9781451644920

Reviewed by Hans G Despain

About the reviewer

Hans G Despain is Professor of Economics and Department Chair at Nichols College, Massachusetts. He …


James K Galbraith’s The End of Normal, recently published, is a spectacular achievement in political economy generally, as a philosophical critique of the practice of economics and public policy in particular, and for its comprehensive and totalizing explanation of global monopoly-finance capitalism.

Galbraith’s primary focuses are threefold. Foremost, Galbraith explains the contradictions of the American and global corporate capitalistic system and its deep financial weaknesses. Second, Galbraith develops a critique of the conception of a stable “normal” capitalism. The conception of a “normal” stability according to Galbraith precluded the mainstream economists from foreseeing the radical instability of the financial arrangements prior to 2007. Third, Galbraith contends that the right and left have failed to understand the institutional structural shifts of contemporary corporate-finance capitalism. [My copy of The End of Normal is an advanced electronic copy, thus to avoid page misalignment, I provide chapter citations].

Galbraith contends one reason the Soviet system collapsed was that the system was insufficiently understood by social theorists. Likewise, one reason that the financial collapse of 2007-8 was such a surprise to the majority of economists and politicians is that American corporate capitalism is insufficiently understood (Epilogue).

The primary theoretical blockage is the dogmatic commitment to a sense of “normal” economic performance and the belief by “freshwater economists” (i.e., pro-market economists, many of whom are located around the U.S. great lakes region) that “normality” is achieved by market adjustment of prices, or “saltwater economists” (i.e. pro-market Keynesian-inspired economists, many of whom are located on the ocean coasts of the U.S.) who believe “normality” is achieved with economic management, market adjustment, and proper public policy (Chapter 4).

Galbraith contends that both beliefs are illusionary. The financial collapse of 2007-8 was, according to Galbraith, a “definitive” institutional shift. The models of freshwater economists never applied to the reality of capitalism, and the models of saltwater economists no longer apply. “That [the collapse] was not followed by a normal business cycle upturn on the model of postwar normality should not come as a surprise” (Chapter 9). Keynesian stimulus cannot cure the problems of contemporary corporate capitalism. “The institutional, infrastructure, resource basis, and psychological foundation for a Keynesian revival no longer exist” (Chapter 9). [for more Keynesian failures see Chapters 8, 9 and 14]

The proper metaphor according to Galbraith is the behavior of an engine (Chapter 6). Peak performance is achieved near the limits of an engine. Pushed past their limits, engines overheat, burn out, or melt down, in which case they must be rebuilt before they can be restarted. Our economic car “has suffered a transmission failure. A meltdown. More [Keynesian] gas in the engine will not make it go” (Chapter 9). Jobs cannot be retrieved by spending more money on the existing broken systems. Given more money, consumers pay down debt, businesses invest in technologies that save yet more labor, and banks have been setting on excess reserves. Keynesian stimulus is no longer effective (Chapter 8). “And a financial system is more like a nuclear reactor than it is like a car.” We need to clean up and rebuild.

In spite of the “very strong” notion of “normality” (or systemic balance, or equilibrium), structural institutional shifts have made such notions both obsolete (Prologue) and “dangerous” (Chapter 9). In the post-war economy economic growth became desirable, expected, perpetual, and “normal”. The debates during the “Golden Age” of capitalism were concerned with how much government intervention was needed to achieve “normal” economic growth (Chapter 1).

By the 1970s several “snakes” entered the “growth garden.” The Vietnam War would come to mark an institutional international shift away from the Bretton Woods agreement. The price of oil would rise significantly due to “domestic peak oil” production and the rise of the oil cartel OPEC. Then rose the deep recession of the 1970s. Galbraith contends these are harbingers of real geographical resource and institutional transformations, not merely temporary “shocks,” or “bad management, and policy mistakes” (Chapter 2).

The institutional physiology of the international political economy and American corporate capitalism shifted. Galbraith’s attempt to articulate this to an educated popular audience understates the profound philosophical argument he is lodging. This is an ontological critique. Models of economics, whether they be neo-classical, Keynesian, or Marxian have failed, according to Galbraith, to fully understand the explosive and unstable nature of the new institutional order (Chapter 4). Conservative market fundamentalist theories would come to dominate economic theory and policy (Chapter 3); they fundamentally misunderstand the ontology of contemporary corporate capitalism.

Market fundamentalism predominates largely due to the failures of Keynesian policy to manage the system. But the failures of Keynesianism did not, contrary to mainstream theories, usher in a “great moderation” and an end of crisis (Chapter 3). Instead, globalization, financialization, the fall of the Soviet system, the rise of China, the Iranian revolution, and the massive systemic-generated inequalities were indications of a highly precarious and unstable system.

Galbraith contends that the New New Industrial State (my term, in reference to Galbraith’s institutional development away from, but deeply rooted in, the notion of the New Industrial State of John Kenneth Galbraith 1967) must be understood as primarily financial. Galbraith explains very little of financialization, but instead contends the late Hyman Minsky’s analysis well captures the essence of this new financial system. Minsky is quite (in)famous for his metaphor: “stability generates instability”. “[W]hat is radical about Minsky’s thought is that it begins and ends within the financial system and never ventures outside of it” (Chapter 5). In Minsky’s model there is a specific and clear role of government “financial regulation” (Chapter 5). Galbraith fails to mention that Minsky further strongly supported fiscal and employment policy to end poverty (Minsky 2013). Nonetheless Galbraith’s strong point is that any serious analytical diagnoses must come to terms with the radical financial nature of the New New Industrial State. As Minsky (2013, 177) argued, the capitalist corporate system is “flawed” in that within it “the market mechanisms cannot achieve and maintain full employment” and it is “inherently [financially] myopic and needs to be permanently supplemented by the long view that government alone can have.”

The heart of the argument in The End of Normal is the four chapters constituting Part Two “The Four Horseman of the End of Growth.” If the New New Industrial State begins with the institutional manifestation of financialization, Galbraith contends that not only does financialization generate massive inequality and instability (see Galbraith 2012), but generates opportunities for colossal fraud. Galbraith contends we must “stipulate that the Great Financial Crisis was rooted in a vast scheme of financial fraud” (Chapter 9). Marxists tend to underplay the role of fraud so as to emphasis the systemic instability with or without fraud. Galbraith maintains this to be a mistake. He has an important point. In more Marxian language, fraud is a type of power-relation and allows superexploitation, or exploitation before, during, and after the production process.

Many economists believe technology stands “as our best hope for rescue from economic stagnation” (Chapter 8). Galbraith argues this is very unlikely. This is because technological innovation has tended to be labor-saving technical change and not new modes of jobs and consumption. “The plain result of the new technology is unemployment” (Chapter 8). Worse still, the technological shifts not only displace workers but destabilize business activity. “The great contingent events” of cheap fuel, along with the industrial technology to complement it, household income to consume, consume, consume, and the financial basis to propel it all “happened once. [However] there is no compelling reason to expect [it] to happen again” (Chapter 8). Technological change is now as much a drag on employment, consumption and investment as it was then a boost.

Galbraith further contends that the international balance of power may favor the U.S., but it does not favor capitalistic (megacorporate-dominated) trade. Military generated order can longer be maintained. The global economic stagnation and ubiquitous underdevelopment of hundreds of countries “have no remedy by military means.” Thus, the military maintained global order and war as ‘we knew it’ appear to have ended. “Under modern conditions there is no profit in the game” of war and military global management (Chapter 7).

The essential element of Galbraith’s argument is the first of the four “horseman.” Specifically, resource costs and the global dynamic they generate (in conjunction with financialization) are generating tremendous economic instability and political capriciousness. Galbraith maintains the inflation threat we face does not come from budget deficits or high employment, but from energy prices and costs. Central banks and international economic institutions simply do not have the capacity and competence to effectively manage these ‘wonders of mass destruction’ (WMDs) and instability and crises they generate.

The essential argument is that there is a “high-fixed” cost structure in global mega-corporate capitalism, increasing the demand and prices of economic resources such as oil. Each time there is an increase in aggregate demand (e.g., from China) the prices of resources increase, financial-monopolies and financial speculation begins to anticipate the rise in energy prices, increasing prices of resources and energy still more. In short, an increase in demand (from households, businesses, or governments), excites financial speculation, raises energy prices and production costs. Thus, energy prices are functioning as a “choke-chain” on growth and full-employment by increasing the costs of producing and decreasing business profits (Chapter 6). In more Marxian language: a simple monopoly-finance capital contradiction. This does not necessarily stop prices from rising, corporate monopoly business and monopoly financial activity may proceed in spite of high energy prices, fueling speculation even further. This generates a sequence of spiking prices and the inevitable bursting of the speculation bubble, causing a “whiplash” effect (Chapter 14) and significant instability and uncertainty (Chapter 6).

The policy-way forward has been little understood (Chapter 10), because the institutional shifts of financialization (Chapter 5), resource costs and the “choke-chain” and “whiplash effects” (Chapter 6), along with the tremendous shifts in international political and economic institutions, the inability of military-forced international order (Chapter 7), the labor-saving and business destabilizing nature of modern technological innovation (Chapter 8), and the symbiotic relationship between fraud and financialization (Chapter 9) have not been appreciated as a totality that has structurally manifested a New New Industrial State.

“Crackpot” economic reasoning has misunderstood the crisis and prescribes policy (e.g. austerity) that is sure to fail (Chapter 11). European countries stagnate due to a rigid monetary institutional framework and lack of effective built-in institutions to “automatically” redistribute during a recession. However, it is important to understand Europe is dealing with same “one” crisis (generated in the U.S. Galbraith contends). The PIGS acronym, usually standing for “Portugal, Iceland, Greece, Spain” is more true in meaning as “Principal Instigator Gold Sachs” (Chapter 13, note 1). However, European nations have very different institutional structures that have tended to weaken policy responses (Chapter 13).

Keynesian policy or stimulant spending ultimately will not be effective because of the “four horseman” of Part II of the book and because modern finance is no longer a motor of growth (Chapter 14). Instead we can follow Costas Lapavitsas’s (2013) argument, that banks have become institutions of “financial expropriation” and the deep institutional source of superexploitation (see also Despain 2014).

Galbraith contends we are entering a period of slow growth. The only way forward is economic planning (Epilogue). Currently the “planning” is being performed by corporations for their own enrichment. Planning can be aimed to provide greater benefits to more citizens and communities by being carried out by the public sector (Galbraith 2014 is deeply rooted in Galbraith 1973 and 1967). Galbraith argues public deficits are no constraint on spending in a planned-economy (Chapters 12, 5). Interest rates can be managed to put an upper limit on the growth of deficits (Chapter 12).

Galbraith’s policy prescriptions include support for public banks geared towards public purposes. He insists on the importance of the protection and extension of social insurance programs, including early retirement to make room for young workers. He supports a guaranteed (living) personal income (also once supported by ultra-conservative economist Milton Friedman). He stresses the urgency of “a large increase in minimum wage,” which establishes a real living wage, and tax policies that increase the share of national income going to labor and decreases the share of national income going to capital. Galbraith further insists on a large tax upon predatory rent-seeking activities.

We can certainly support these policies in principle. But conspicuously absent is the recognition that capitalism is no alternative: CINA (Despain 2013a) and Galbraith is certainly aware of, but completely ignores the Existing Alternatives to Start Emancipation: EASE (Despain 2013a). Moreover, there are “pragmatic” employment policies to provide work and dignity to individuals enduring exploitive corporate capital relations and bridging toward EASE (see Despain 2012, written as a critical complement to Galbraith’s policy proposals).

Galbraith’s critique of “The Marxian View” is obtuse and misleading. Galbraith contends that the “Marx-Baran-Sweezy-Bowles-Gintis position [strange conflation!] has been that capitalism is unstable and crisis inevitable. This theme roots the risk of crisis in specific properties of capital, monopoly capital and finance capital. It leaves open, and even encourages, the thought that a different social system might be less unstable and less prone to crisis,” which according to Galbraith is a historical weakness (Chapter 4). If the argument here is Marxian political economy has generally underemphasized institutions, I would concede the point. However, to suggest that Baran and Sweezy, Bowles and Gintis, and Marx underemphasize institutions is strange.

Galbraith’s critique of the Monthly Review tradition is not only strange but misleading. In direct reference to Monthly Review theorists John Foster and Robert McChesney (2012) and also to Despain (2013b), Galbraith asserts: “the crisis that they identify is not, strictly speaking, a financial crisis” (Chapter 4). Elsewhere on this tradition, Galbraith is simply wrong, “The problem for Marxians is that finance explains nothing on its own. In their vision, the role of finance is substantially cosmetic” (Chapter 4). Foster and McChesney (and Baran and Sweezy before them) express the utmost admiration for, and have incorporated the insights of, Minsky. For these theorists financialization is a manifestation of economic stagnation and monopoly capital, but once emergent finance takes on a life and dynamic of its own. It is to Foster’s and McChesney’s, and not Minsky’s, advantage that financialization is theorized to be rooted in social relations of production, rather than never venturing outside of finance (Chapter 5).

Galbraith lacks his own institutional analysis of financialization and the effects it has on households, non-financial enterprises, financial enterprises, public governments, educational institutions, and dialectical relationships between institutions (the latter is the subject of Lapavitsas 2013). The literature here is vast, and the bulk of it is deeply rooted in Marxian political economy. Yet Galbraith provides not one citation, strictly relying on reference to Minsky.

Galbraith’s The End of Normal will be highly esteemed and celebrated for many decades for its penetrating critiques, original theoretical insights, policy-minded orientation, and especially for the urgency of his tone and purpose. 

10 August 2014


  • Despain, Hans G. 2014 Review of Profiting without Producing: How Finance Exploits Us All by Costas Lapavitsas,” Marx and Philosophy Review of Books, February 13. https://marxandphilosophy.org.uk/reviewofbooks/reviews/2014/956
  • Despain, Hans G. 2013a It’s the System Stupid: Structural Crises and the Need for Alternatives to Capitalism Monthly Review 65(6): 39-44 http://monthlyreview.org/2013/11/01/its-the-system-stupid/
  • Despain, Hans G. 2013b Review of The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China by John Bellamy Foster and Robert McChesney, January 30 https://marxandphilosophy.org.uk/reviewofbooks/reviews/2013/694
  • Despain, Hans G. 2012 Pragmatic Employment Policy Post-Keynesian Economics Forum November 16 http://pke-forum.com/2012/11/16/pragmatic-employment-policy/
  • Foster, John Bellamy and McChesney, Robert W. 2012 The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China New York: Monthly Review Press.
  • Galbraith, James K. 2012 Inequality and Instability: A Study of the World Economy Just Before the Great Crisis Oxford University Press, Oxford.
  • Galbraith, John Kenneth. 1973 Economics and the Public Purpose Boston: Houghton Mifflin Company.
  • Galbraith, John Kenneth. 1967 [2007] The Industrial State Princeton and Oxford: Princeton University Press.
  • Lapavitsas, Costas. 2013 Profiting without Producing: How Finance Exploits Us All London and New York: Verso.
  • Minsky, Hyman P. 2013 Ending Poverty: Jobs, Not Welfare Annandale-on-Hudson, NY: Levy Economics Institute.

One comment

  1. A very well written review. As an American and having just finished reading, “The End of Normal”, I am surprisingly more sympathetic to the potential of a Marxian steady-state economic policy for the 21st Century. I would say that the unmentioned undercurrent of Dr. Galbraith’s thesis appears to be Malthusian in nature as an anecdote to the current Darwinian-Capitalistic environment of today. A thought occurred to me while I was reading the book; What if the missing variable to the magic equation used by economists to formulate success is food itself. We take it for granted that the industrial revolution has solved the problem of availability of foodstuffs but what if in a very near future when the people-o-meter reads 10 billion, As was hinted by Dr. Galbraith, that the old environmental, fixed resources of arable land and water and human inability to control weather problems which have plagued farmers since the beginning of agriculture shows up in the 21st Century with a vengeance? I would say as a pessimist that when that day comes, and I am positive it will, a concerted Marxist approach is the only way to save the human race from annihilation.

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