Galbraith Calls Reagan Policies Harmful

President Reagan's monetary policy has caused the greatest economic crisis in the United States since the Depression of the 1930s, John Kenneth Galbraith, Warburg Professor of Economics Emeritus, said at an Institute of Politics Forum last night.

"We have been living beyond what the economy can supply," said Galbraith, citing damaging effects of the largest budget deficits in the nation's history.

He told the audience of about 400 that "We have changed in just three years from the largest creditor nation in the world, which we took for granted, to the largest debtor nation in the world."

The basis of the administration's economic policy is monetarism, one aspect of which is the attempted reduction of inflation by raising interest rates.

"[Monetarism] was an extraordinarily successful attack on inflation, but...the direct cost of the monetary experience was a very severe recession or depression," said Galbraith.

Imbalance

Galbraith said that monetary policies have increased the value of the dollar abroad, causing a huge trade imbalance. This imbalance has offset the expansion caused by the government's deficit spending, he said.

"I would move strongly now to close the deficits" by substantially increasing sales and income taxes and cutting defense spending, he said. "I would be hesitant about any further cuts in social programs."

Galbraith admitted that raising taxes would be politically unpopular but said, "Politics must be subordinate to good sense."

He also advocated a closer attention to the problems of managerial efficiency and employer-employee relations.

"Even as the dollar depreciates, as I think in the future it will, manufacturers in other countries are entrenched in the [U.S.] market, and they are not easily dislodged," he said.

Responding to a question from the audience about how to brighten the economic scene, Galbraith advocated "turning out of office the people who are too retarded to understand."

In an interview after his lecture, Galbraith said that he did not expect much change from the Reagan Administration. "Things will look up after the next election because we'll be paying some of the prices of the postponement of reality."