THIS FALL, as the Asian financial crisis threatened to cross the Pacific, economists in Washington, D.C.—including Alan Greenspan, the chairman of the Federal Reserve—suddenly started echoing the words of James K. Galbraith, an economist who teaches at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. For more than two decades, against the prevailing opinion of others in his field, Galbraith has chided the Fed every time it has raised interest rates in the name of preventing inflation. In a host of publications—most recently his second book, Created Unequal: The Crisis in American Pay (Free Press), which was published in August—he has accused the Fed of paying far too much attention to inflation and not enough to unemployment, which he believes has created a yawning chasm between the rich and the poor that imperils our democracy. His point has been that we can have our cake and eat it too: We can have low unemployment without inflation; and if we have low unemployment, we will begin to reduce inner-city poverty.
In the eighties Galbraith’s attacks on high interest rates were dismissed as heretical by policymakers in the Reagan and Bush administrations and by critics around the country. Reviewing his 1989 book, Balancing Acts: Technology, Finance, and the American Future, a Chicago Tribune financial editor commented that it was “hard to imagine how any of Galbraith’s ideas will attract a significant constituency,” and a New York Times writer characterized Galbraith’s theories as “contrarian, sometimes fanciful.” But in the nineties, as unemployment has continued to drop without spurring inflation, many of the skeptics have come around. “Recent developments lend credence to Galbraith’s theory,” Business Week proclaimed in its review of Created Unequal, noting that Greenspan “has behaved in the past year or so much as Galbraith would want.” Indeed, in October, the Fed cut interest rates for the second time time in three months.
At 46, Galbraith is slighter and considerably shorter than his father, John Kenneth Galbraith, the venerable economist, author, and professor emeritus at Harvard University. He is known by the diminutive “Jamie,” and there is, as he peers out at you from rimless spectacles, a boyish shyness about him. But when he begins to talk about Greenspan, labor markets, and neoclassical economists, what appears to be a self-effacing grin is transformed into quiet and self-confident amusement at the folly of his critics. “I grew up with the idea that you stick with what you think is right,” Galbraith says. “My father was never popular with the economics profession, so I grew up not worrying about those things.”
After graduating magna cum laude from Harvard in 1974 and spending a year at Cambridge University studying economics under disciples of John Maynard Keynes, Galbraith