Price Controls: An Inflation Solution That Doesn’t Screw Workers

Centrist and right-wing economists continue to advocate for laying off workers and engineering a recession to address inflation. But why not set price controls instead? This week on Deconstructed, Ryan Grim is joined by James K. Galbraith, a professor of government and business relations at the University of Texas at Austin. Galbraith has an extensive history of working in government, including as executive director of the Joint Economic Committee of the U.S. Congress and an economist for the House Banking Committee. Galbraith and Grim discuss the implementation of price controls by the U.S. government, how it brings down prices, how the Biden administration has used it and could use it more, and how Galbraith's father - economist and politician John Kenneth Galbraith- was instrumental in setting price controls during World War II.

[Deconstructed intro theme music.]

Ryan Grim: Welcome to an on-the-road edition of Deconstructed. I'm Ryan Grim.

At the very end of 2021, an economist at the University of Massachusetts Amherst named Isabella Weber published a short op-ed in The Guardian that surprised her, and everybody else, by going viral in a very bad way.

The leading lights in her field annihilated her for it. Paul Krugman called her truly stupid," and lesser-known figures called her much worse. Her crime had been to strike at the heart of free market economic orthodoxy. Weber suggested policymakers should learn from the past and do something directly about soaring prices, rather than trying roundabout solutions like slowing down the entire economy and engineering layoffs.

But the idea that the government could ever have any direct say in setting prices raises profound questions about the nature of the economy, and whether it falls properly within the sphere of democratic control, or whether it lives outside of it, like some other worldly force that we can only communicate within indirectly. Yet, that's not how it really works.

So, when Weber raised the example of American policy in the 1940s - which was guided by the economist John Kenneth Galbraith - she had to be ridiculed, rather than treated seriously. During the Roosevelt administration, Galbraith was a top official at the Office of Price Administration, which was in charge of, yes, setting prices.

The idea Weber put forward was anything but radical. Here's what she wrote in The Guardian: Today, economists are divided into two camps on the inflation question: Team Transitory argues we ought to not worry about inflation, since it will soon go away. Team Stagflation urges for fiscal restraint and a raise in interest rates.

But there is a third option," she writes. The government could target the specific prices that drive inflation instead of moving to austerity, which risks a recession. To use a metaphor," she went on, if your house is on fire, you would not want to wait until the fire eventually dies out. Neither do you wish to destroy the house by flooding it. A skillful firefighter extinguishes the fire where it is burning to prevent contagion and save the house. History teaches us that such a targeted approach is also possible for price increases."

Now, it's been quite a journey for Weber since that pile on. Much of what she argued has been proven to be correct and, two years later, she's now a sought-after advisor by major industrial economies.

She was recently the subject of a profile by reporter Zach Carter in The New Yorker, and her critics, meanwhile, have been made to look foolish. Larry Summers, for instance, has consistently attacked the Biden administration for too much spending, which he says caused inflation, arguing that the Fed needed to heavily raise interest rates in order to get unemployment up to something like six percent.

Here's one appearance he made on Bloomberg, where he called for millions of people to be thrown out of work. Now, since this is an audio-only podcast, you can't see that he did this interview while literally on an island getaway, with the ocean as his backdrop.

Bloomberg Host: Doesn't the Fed, Larry, have to push people out of jobs? I mean, right now, everyone is earning money, and able to pay up as much as they need to for goods and services. But, in order to bring inflation down, they're going to need unemployment at four-and-a-half, five, five-and-a-half percent. I don't know what NAIRU is right now, but maybe you have a view. Is that going to bring a political backlash?

Larry Summers: Matt, my guess is that things are much less good than the Fed has supposed. My estimate would be that the NAIRU is now near five percent. I don't see how you can fail to think that the NAIRU has risen substantially when you look at how much there's been an increase in vacancies at a given unemployment rate - what economists call the beverage curve" - when you look at the big increases in quit rates that we've seen, when you look at wage behavior.

And I add all that up and I see a difficult situation where I think that, to start bringing down inflation, we're going to need to get above the NAIRU; that's probably somewhere in the five percent range. And I think we do have to achieve some meaningful amount of disinflation. So, I've said that I'd be surprised if we get to the two percent inflation target without an unemployment rate that approaches or exceeds six percent.

RG: There's a tiny bit of jargon in this clip, but it should be understandable. When the Bloomberg host refers to NAIRU, he's talking about the concept of the non-accelerated inflation rate of unemployment. That means that if unemployment is below what we think is the NAIRU, we will have inflation. The theory goes, if the true NAIRU is five percent, then we have to have at least five percent unemployment to avoid inflation.

The other jargon in there is the target of two percent inflation. That means that the Fed is trying to manage the inflation rate, so it hovers right at two percent - not below and not above - and the Larry Summers tool to get there is to try to guess what the NAIRU is and push unemployment above that level.

It just so happens that his guess was wildly too high of a number, but that's OK for big corporations who benefit from higher unemployment, because they can then pay lower wages, hire more easily, and break unions. So, what he's framing here as an academic dispute is, in reality, class war. The unemployment rate today is just 3.7 percent, yet inflation is falling fast. He couldn't have been more wrong.

Now, one economist who did defend Weber at the time was the son of John Kenneth Galbraith, economist James Galbraith of the University of Texas at Austin. I first met James back when he was advising House Democrats on how to respond to the great financial crisis in 2008. They didn't take his advice, and we all paid the price.

Now, as some of you already know, during the pandemic, when they closed DC schools, we moved our family up to southern Vermont where public schools were still open in person. It was the best decision we could have made. And, coincidentally, it turned out that James was, by Vermont standards, one of our neighbors.

We came back up here for a visit recently, and recorded the episode on his porch at the home he grew up in, and where his dad wrote some of the most influential economic works of the mid-20^th century. Galbraith's ideas became the target of the neoliberal counterrevolution launched by Milton Friedman, which is sadly, in many ways, still dominant today.

Here's my interview with James Galbraith.

RG: How did your father wind up here? I mean, you told me this story once, but I'd love to hear that again.

James Galbraith: Well, this was 1947, and he was just returning, I guess, to Cambridge at that point - no, he was still in New York. They were looking for a summer place, came up to, to Newfane, were staying at the inn which, half of the building was also the jail. And as far as I know, he wandered up the hill on the basis of somebody's recommendation, saw this house and property, and bought it, without having notified my mother that he was [doing that].

RG: As if he'd gone off to get eggs.

JG: Sort of, yes. And my mother came up and eventually looked at it. She noted in her diary that it was a Charles Adams landscape, because the meadows were very unlike what you see now. They were basically scrub, the forests were far from being mature, the farming had been abandoned, I don't know, some decades previously. But they were not, the forests were not fully grown up.

And, over the front meadow, you could see the beavers had arrived relatively recently, and so the beaver swamps were full of dead trees.

RG: And when was this house first built?

JG: Parts of it were built in - the year we have is 1776, which I think is accurate. But then it was expanded, until the last part, which is the kitchen, was probably built in the 1920s.

RG: You had mentioned it ties into Revolutionary War history. Correct me if I'm wrong, it was something about the way that, when they cleared some of these forests for farmland, it produced a population boom, that then was hitting its stride right around the time that...

JG: Yes, it's interesting. We're on a hilltop here, and the original settlement was on the hilltop, so this is part of the original settlement. At the time, the forests were entirely cleared, and they were cleared from the hills down because the trees were thinner. The soil was very bad, but the trees were thinner; those two things went together. But it made it possible to clear out a patch and get a crop in, [in] a short period of time, the short season.

And as the settlements, which are all around here - you see stone fences, and old roads, and cellar holes that have long since been abandoned - but as the settlements became denser, they moved down the hills, and encountered thicker trees, but better soil. And the result of that was, effectively, increasing returns in agriculture, and that meant that the population expanded very rapidly.

So, that explains why you had a crowd of teenagers that were available in 1777 to go off.

RG: The Green Mountain Boys.

JG: The Green Mountain Boys, yeah.

RG: Well, thanks for inviting Deconstructed out here for this road show, it's very much appreciated. And it couldn't be a more appropriate place, because we want to talk about the history of economics, economic thought, particularly as it relates to your criticism of the way that economists had been looking at inflation during the pandemic and in its aftermath.

And they seem to have been, rather humiliatingly, been shown to be wrong in their approach.

JG: Not for the first time, but yes.

RG: Not for the first time. Pretty recently you had people like Larry Summers and Jason Furman saying, we're going to need years and years and years of high unemployment in order to tame inflation. That did not prove to be the case. So, what did they get wrong from your perspective? What's the most important thing that they missed?

JG: Well, I'm a contemporary of Larry Summers, and when we were coming through graduate school, the predominant view of inflation was essentially that created and published in 1960 by Larry's uncle Paul Samuelson, Robert Solow. It was a relationship between inflation and unemployment. It basically said, the problem of inflation is a problem of excessively tight labor markets and excessive demand. And then, that view was modified in the 1970s to become even more rigid to the idea that the economy was an extremely unstable thing and, if the unemployment rate ever got a little bit too low, inflation would tend to take off and accelerate.

So, these views became deeply embedded amongst academic orthodox economists, and in the policy space as well. They tended to override the alternative tradition, which looks at specific effects on costs, and particularly the shocks, the effects of wars, the effects of energy shocks that tend to go through the price system. So you have these two competing views, but the one which was based on, let's call it, macroeconomics, was the one that my generation of economists absorbed.

And that's what I think was reflected in the way in which Larry Summers, Jason Furman, Ken Rogoff, and others, attacked this particular problem. So, they saw an increase in prices, which basically originated in 2021 and, preceding that, there had been a substantial transfer of funds from the government to the household sector. And they lined up these two things and said, OK, we now have a problem of accelerating and persistent inflation. And that just turned out to be a description of events based on a false premise.

What was actually happening was a series of, if you want to call them shocks" to the price structure, in energy, in the supply chain, plus some things which are essentially statistical artifacts. And those things, although they take some time to work through the system, do work through the system, and they don't produce a sustained inflationary process.

That doesn't mean that the shocks can't happen again; that's possible. But it does mean that the analysis that this was being driven by the Covid income support programs, or by the infrastructure investment programs that were enacted early in the Biden administration, is not an accurate analysis.

RG: And so, if that's not an accurate analysis, that raises some interesting questions about what is.

There's a recent article by a mutual friend of ours, Zach Carter, in The New Yorker about the economist Isabella Weber and her efforts to get people to think about price and price controls. In the middle of all of this analysis - I guess it was 2021 or so - she suggested gently in public that maybe one solution ought to be, let's think about controlling prices. If we don't like what prices are doing, let's control prices. And she was tarred and feathered, academically abused in ways that are just stunning to people, I think, who are outside the profession.

Paul Krugman, I think, has since apologized but, you know, practically wished death on her. Just an extraordinarily bizarre and over-the-top response. What was your reaction at that time, and what point is she making?

JG: Well, first of all, let me say a word about it: Isabella Weber is quite an extraordinary young economist. She's German, originally. Her expertise, the field in which she made her breakthrough contribution is actually the policy debates in China in the 1980s, essentially. She did a great deal of field work, which is very unusual in economics, to develop a deep understanding of why China had succeeded by avoiding the mistakes that were made, for example, in the Russian Federation with the breakup of the Soviet Union and the other post-Soviet states.

Part of her analysis drew on the fact, first of all, that, in the long history of China, the stabilization of basic prices has been a major source of stability for the state, going back to classical imperial times, thousands of years. And further, in the modern period, and particularly in the early years after Mao, they maintained a system of price discipline, some of which was drawn by their study of the American experience in World War II, something which I also became familiar with in my time, working in China in the 1990s. This, in fact, was a period that Chinese policymakers or policy implementers were very familiar with.

RG: I just want to underline that. So, Chinese reformers, post-Mao, studied U.S. policy during World War II, as they were thinking about...

JG: I think they were familiar with it all the way through. One has to remember that many people who guided Chinese economic development, even in the revolutionary period, came back from the United States. This was something that they had paid especially close attention to.

So all of this suggests that, in a large, very important part of the world, let's just say the approach to price stabilization was very different from what it was in the United States, and the results were not bad. One might argue, in fact, that the Chinese were too strict on prices, and there's some interesting stories in Isabella's book on this. But they, nevertheless, had deployed, let's just say, strategic oversight over core prices as a continuing part of their policy.

So, it was not a stretch for Isabella to write in The Guardian that the experience of the United States in the Second World War was relevant to what we were going through. This was something she had a very professional, and thorough grasp, of that history, she had studied it very carefully. And so she was, in a sense, an authority, and that's, again, very rare, because there are very few professional economists in the United States who know anything about this.

So, that, then, to her enormous surprise, generated this extremely vicious reaction. Certainly, Paul Krugman's attack was really a blow, but there were also many others who joined in the great pile-on, and it showed that she had touched a very raw nerve.

What did I do? I stepped up to try and give her such assistance as I could, both publicly and privately. And, you know, she was able to withstand what was a brutal assault on an untenured professor who's - she was up for promotion. She has since been promoted, so that issue has resolved. But, certainly, her career was, at least briefly, under a substantial threat.

RG: And her journey from being piled on to the top of the pile is a fascinating one, because she's now in a position where she's helping to make policy. But, before we get to that: nobody's in a better position, really, to talk about that World War II experience than you. Your dad was the leader of implementing this policy.

So, what is it that Weber is looking back to, when she says that we ought to look at American policy in World War II?

JG: Well, at the start of the Second World War, there was an agency called the Office of Price Administration, originally Price Administration and Civilian Supply," which my father became the deputy director [of] prices. And that gave him authority, essentially, over every price and wage in the United States.

From May of 1942, this was under something called the General Maximum Price Regulation, and the basic way it worked was that there was a base of price set in March of '42 and, to go above that price, you had to have the approval of the OPA, which then meant that people had to bring a case to the agency, which rapidly expanded to be about, I think, about 17,000 people. And then they quickly started moving to create schedules, so that they didn't have to review every case on an ad hoc basis.

And that method for keeping prices under control was reasonably successful. It was replaced in May of 1943 with what was called the hold-the-line order" that basically froze all prices until the end of the war, and that held up until price controls were abolished in 1946.

So, this was a period in which, given the extraordinary pressure that the wartime demand placed on the economy - total spending, GDP doubled, GNP doubled in the four years, and most of that increase was for things that could not be consumed because it's military needs. So there was a lot of income that people had that they could not spend and, in order to prevent them from, or discourage them from, hoarding and buying commodities, they had to have confidence that prices were not going to rise, and that's what OPA provided.

So, it worked in two ways. One was to physically restrain the increase of prices of core commodities, and the other was to give people confidence that, if they bought Series E bonds, Victory bonds at a two percent interest rate, that the purchasing power of those bonds would hold up, so that they would then have something, a financial asset that would serve them into the 1950s and 1960s.

And that was, between those two aspects of the policy, a very successful approach to the most dangerous kind of inflation, which is wartime inflation. [It] tends to be very demoralizing and very destabilizing, particularly if you have some national purpose that needs to be achieved, which is the case in a war.

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RG: At a recent talk, I think it was at the FDR Library?

JG: Yes, I gave a talk on this at the FDR Library.

RG: You mentioned there that another effect that it had - and maybe this wasn't the intended effect, but it was, to me, a feature of it - that if you are a business owner or an investor and you're looking to maximize your profits, one way you can do that is by driving up your price and just charging more for your product. If you're prevented from doing that, then your two options are to increase your productivity and increase your volume, which then produces actual genuine economic activity and a benefit for the society, rather than simply marking up your prices and taking an extra profit margin.

And so, it feels like that has a lot of relevance today, because we've heard so much talk about greedflation and its role in driving up prices, but it's not as if greedflation's gone away. I would imagine the margins that these businesses are able to capture now, they're going to try to seize those as long as they possibly can.

And so, what types of price controls are possible now, and can you move through the system, that have a similar function to what happened during the OPA? What parts of it couldn't be replicated?

You mentioned in your talk that there were these civilian boards, like it was the most democratic kind of economy that you could imagine. That if a business owner wanted to raise their prices, they had to go to the local version of a town council, make their case, and then people would decide.

JG: Actually, the civilian boards, which were in effect from '43 to '46, were essentially to enforce the hold-the-line order. So, they were effectively to provide an oversight to prevent, they didn't have authority, so far as I understand, to authorize price increases. They simply were there to supervise...

RG: To make sure that they weren't going up.

JG: In the first year, the year my father was responsible, there was some leeway you could come to the OPA, so there's a difference in these two periods.

But, to get back to your question, yes. This effect of price control on incentives-facing business was very well understood at OPA in the 1940s, no question about that. They had worked out...

RG: It's fairly straightforward.

JG: It's an artifact of what we call the economics of imperfect competition." Once you understand the way businesses actually function, this was both obvious and clear from the way in which businesses did react. They may have pressed, tried to press for price increases, but when they were denied, they knew that they could make money by increasing their volume on relatively small margins.

Now, the situation in the modern time and, particularly, in the last 30 years, when there has been essentially very little to no price pressure, is that most businesses and big distributors, they tend to behave pretty well with respect to prices. They like to have stable prices; they recognize that's good customer relations. And, so long as they're making a decent margin, they don't, most of them do not, most of the time, constantly press to get the highest price. And they recognize that, if they do, they're going to lose goodwill, and they may, if they have a competitor, they may lose market share. So, that's the normal situation, most businesses behave that way most of the time.

But, when you get a shock to the system, and particularly a shock to costs - which is what happened in 2021, with the supply chain disruptions and with the energy price jumps - then things become uncertain for businesses. And, of course, they react to that, if they can, by raising margins. My margin is your cost, so that has effects through the system. And it becomes, then, a situation in which they, if you like, the basic psychology changes, and businesses say - and, you know, I'm not actually faulting them - they say, we really need to take the largest margin, because the other guy's doing the same thing. And if we don't, then we are going to be caught out, and we're going to lose market valuation, we're going to lose investors and profitability.

And so, what was a generally stable psychology becomes an unstable one.

RG: Which answers the question that people have of, well, greed is constant, so why would it be different now?

JG: Yeah, exactly. And that's the one piece of this puzzle which has an element of persistence to it, and the one piece that the mainstream economists don't want to talk about. But if you look into the sources of the recent inflation, you can see a very large share of it is, in fact, increased profit margins, and increased corporate profits.

So, a control mechanism which damps that behavior gets people back onto a more stable track, and that's the virtue of that idea in the present circumstances.

RG: And what would that look like? I know Weber is now working with Germany and some other places. What does a control mechanism look like beyond the most obvious blunt measure of, you know, Kamala Harris telling us what the prices of milk are.

JG: And that's, of course, a good question, for which I don't have a comprehensive answer worked out. But you do look at, you might focus on profit margins, you might focus on core costs. What you want to do, though, is, essentially, try to move people back toward a base period and hold them there, making adjustments as you move along. It requires having an autonomous authority in the government which is not under the control of the lobbies and, therefore, not under control of, let's say, members of Congress, who are controlled by lobbies.

RG: Like a federal reserve, but for prices?

JG: Well, yeah. Except, I think the Federal Reserve is, in fact, essentially a servant of a particular sector of the economy. This was the feature of the Office of Price Administration, was that it was strongly autonomous. It was run by people who were public servants to the core. My father certainly fit that category, but his boss Leon Henderson was, these were people who were not in the business of catering to lobbyists or self-enrichment.

RG: Now, I think when a lot of people think of price controls, the image that comes to their mind is of a farmer out in the Midwest somewhere, dumping a bunch of milk out, and complaining to the local news that milk prices are so low that it costs him more to just ship the milk. And so, he is just going to dump it, or they're going to let the crops just go fallow, otherwise.

What's the response to that kind of fear that people have?

JG: Well, that's an image that, actually, I associate with the early years of the Great Depression, when agricultural prices fell so low that the orange growers of southern California were turning over their harvests, and dumping kerosene on them, and burning them. And, again, yes, you say, milk poured out on the ground.

The object of a successful program of price control is to keep people in business, to make sure that they can, in fact, sell their product, but that they sell it at a modest but sustainable margin. And so, you can, in fact, set up agricultural purchasing boards, which will ensure that there is a market for agricultural commodities, and avoid that problem.

Sure, anything can be maladministered, anything can be screwed up, but the point is that the situation that we have now has a certain instability to it, and a program of strategic intervention could be a useful way of reducing that instability.

RG: Can you talk a little bit about the way that price has come to be understood by the mainstream economics profession? And the idea that price could be under democratic control really was, as far as I understand it, the real battle that was fought in the 1950s, 60s, 70s, but has vanished as a battle? It is now just kind of assumed that that is off the board, that these are matters of physics, rather than matters of laws.

JG: No, it's not an unreasonable interpretation of that course of economic thinking, to say that the experience of price control and of wage price guidepost - which continued up until, well, really up until the first days of Reagan's administration in 1981, when the last vestige was abolished, the Council on Wage and Price Stability in the White House - that the idea that the price mechanism, freely adjusting prices, is the core of a well-functioning and efficient economy was, in a sense, aimed at demolishing those structures and removing them from the sphere of legitimate discussion, and were very successful in doing that.

But the reality is, first of all, that no modern economy, certainly, and I doubt that any economy, actually, even going back to classical times, any real-world economy has ever actually functioned that way. And the assumptions required, even in theory, to make a freely price-adjusting economy into an efficient system are assumptions which basically violate it. They're completely unconnected to the world in which we actually live. They rest on the notion of so-called perfect competition," in which every business is a very small operation competing with many other identically situated very small businesses, to supply equally disorganized, vast numbers of independent households, and that's not the way the world is organized. In fact, practically every major line of activity is organized through structures in which a relatively small number of major enterprises are involved.

The realization in the 20th century that you could, in fact, control prices, was based on the fact that there were large organizations that were already controlling them, so you simply shifted some of the authority to an institution that was serving public purpose, rather than relying on the good behavior of individual enterprises.

RG: And, despite what feels like the complete victory of the kind of Milton Friedman view of prices, it does actually feel like there are still assumptions embedded in us as people that price controls are important. And what I'm thinking of is Biden's use of the strategic petroleum reserve. That that was, very directly, a White House effort to control prices.

JG: Absolutely, absolutely. And it was a successful effort. They were faced with a major spike in oil prices, which followed a major slump in oil prices. And what happened in the slump in 2020, among other things, was that the price of oil properties - for example, in the Permian Basin - fell to very low levels, which meant that they were a very good bargain for private equity and others to move in and take control.

Those entities, their behavioral pattern, their focus, is on shareholder return. They're not out to maximize production, they're out there to increase the return to their investors; you could read about this in the press in Texas, in the oil country.

When demand recovered, they had a plan for increasing production, but it was not to increase production to meet the demand, but something below that, and allow the price to rise dramatically, which is what it did. And the effect of that was that on the barrels that you were producing, you enjoyed a very healthy windfall. The White House, obviously aware of this process, stepped in, with releasing from the strategic reserve, and that then caused a peak and a decline in the price of oil.

The price of gasoline, which is what ends up in the Consumer Price Index, follows that process with a lag. That's the price which, of course, is politically sensitive. That's what people see at the pump.

RG: Are there other examples of that, that an administration could handle? Because it feels like an a-ha moment for a White House to say, oh wait, it is politically popular to control prices. We can control prices. We're going to be punished. Because in a lot of the political debate you hear Republicans attacking Biden for the price of eggs, or the price of this, that, or the other thing. But you never hear them suggest what they're going to do. Like, if they get into power.

JG: Well, there were a range of things in the supply chain that were affected by the pandemic, obviously. The delays in the buildup and congestion at Long Beach and Los Angeles for a certain period of time were a factor driving up shipping costs and delivery costs. And, again, the administration did have people working on that problem, which eventually gets smoothed out. So, yes. I think that over a spectrum of specific interventions, you can have an effect.

Another area was with the -which I think was simply resolved over time - was the shortage of semiconductors, as a result of the decision by semiconductor producers that forecast in the pandemic that people would be buying a lot more household appliances and fewer automobiles. And when they then didn't produce the semiconductors for new cars, new car production got jammed up, and the effect of that was to drive up used car prices. Used car prices you can't control. That's an asset, which is, basically, anything the dealer can get you to pay, you will pay. So, they rose by 50 percent or so, and that shows up in the Consumer Price Index.

So, again, these are supply issues, which can, in fact, be addressed and resolved, and may take some time, but they're not related to some notion that households had too much money to spend.

RG: The fact that Weber is now an in-demand policy advisor around the world, with countries asking her, What can we do about prices? How can you help us, or show us that there's some purchase there in government spaces?"

But I'm curious. In the economics field, is there any more openness to this way of thinking about the economy? Or is there going to have to be an entire new generation that comes around?

JG: I think it's very hard to get serious openness on this question. There were some measures taken in Germany, and Isabella Weber was involved with the commission, and I think it was basically her idea for a price cap on natural gas for households that was implemented. But the reality is that, in order to do this, you have to have governments that are seriously capable of implementing that policy, and that means they have to be somewhat independent of the mainstream economists. And the economics profession has become so hidebound in its views on these matters, and so committed to a particular ideology, that one cannot be optimistic that sensible ideas will prevail anytime soon.

RG: And you also mentioned that there was one day where Keynes himself walked in for a meeting with your father. What do you know about that meeting? And, also, if your father and Keynes were around today, what would they be telling people to do?

JG: Well, my father went to Cambridge in 1937 for a year, but Keynes was not there. He had suffered a heart attack and did not come to campus, so they didn't meet. In 1942, my father was in the position of being, as I said, Director for Prices at the OPA. This was in an office building which is now, I believe, the Ford House office building down on D Street, southwest.

In any event, one day he came back after lunch, and I think he came up a back staircase, and his secretary came in saying there was an Englishman waiting to see him. And he said, well, I'm busy, but the secretary said, well, he seemed to think you would want to see him. And she handed him a note on which he had written the name as she had heard it: K-E-E-N-S, Keens." So, yes, dad did want to see him, Keynes came in.

This was not on a macro issue. Keynes had been raising pigs at his farm in the south of England, at Tilton. And he had written a paper on what became known in economics as the corn hog cycle, the effect of prices of corn on the supply of hogs, pigs and maize," as Keynes called them. And he wanted to talk about this with my father. So, that was the subject of their meeting.

My father, in his memoirs, he said this was as though St. Peter had dropped in on the parish priest.

RG: Yeah. So, what do you think your father would say now, about how to think about prices in a global economy, to the extent that it is global?

JG: That's an interesting question. My father's perspective on price control was very much in the context of the national economy. That was what we had, the problem you faced in the 1940s, and the U.S. had full control over its core commodities and over its manufactured goods, and that's not the case now.

Now, what then happened, and the reason why we didn't have an inflation problem for 40 years after 1980, was effectively globalization, and there were two elements of that. One was the collapse of the Soviet Union, which lowered commodity prices, essentially, around the world. And the other was the rise of China, which gave us a very elastic supply of consumer goods.

And so, I think -just to put myself in my father's shoes, or to maybe project what I would say -

RG: We're in his house, so that seems fair.

JG: Exactly. You know, I think what he would say is that, if you want to have a situation in which the world economy is developing on a stable basis, first of all, you need to have peace. You cannot do this in a conflict environment because, in a conflict environment, you're going to lose control of the flows of commodities, and you are not going to have an assured supply of manufactured goods. You have a global division of labor, everybody has to be working together, and that means you need to have some respect for the other guy. You need to understand that you are not the only player here, and we cannot impose our will on everybody else.

And that is, I think, a serious problem, which the United States has lost a degree of perspective, really, in the last 25 years, where we believed with the way - I mean, really, since the end of the Cold War, but especially since the 1990s - the belief that the world economy was our oyster, to be treated as such. Well, the fact is, as time goes on, that becomes less and less true. And you have to develop a way of living with other great powers.

RG: Jamie Galbraith, Lloyd M. Bentsen Jr. Chair and Professor of Public Affairs and Government at the University of Texas at Austin. Thank you so much for being on the show today.

JG: Thank you very much.

[Deconstructed end-show theme music.]

RG: That was Jamie Galbraith, and that's our show.

Deconstructed is a production of The Intercept. Our producer is Jose Olivares. Our supervising producer is Laura Flynn. The show is mixed by William Stanton. This episode was transcribed by Leonardo Faierman. Our theme music was composed by Bart Warshaw. Roger Hodge is the Intercept's editor-in-chief, and I'm Ryan Grim, D.C. Bureau Chief of The Intercept.

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