Capitalism's dark shadows.

• Author: Galbraith, John Kenneth
• Position: Recessions and income distribution

The beginning of the 1990s was dominated, not surprisingly, by the revolution in the Soviet Union and Eastern Europe. An imperfect economic system had come apart and, in some sense, was being replaced with no system at all. The controlling fact, however, seemed evident: Communism had failed--and where it did survive, as in China, it was undergoing major transformation. Capitalism, the market system, was triumphant. There was no lack of speeches to this effect; nothing so nurtures oratory as the commonplace.

The oratory in this case was, however, more than normally overdone. Capitalism, especially as manifested in the United States but also in Western Europe and Japan, was encountering difficulties as well. There was, with much else, the enduring recession.

To say that a recession endures is to speak in contradictory terms. A recession is thought to be a temporary departure from the norm--from the substantially full employment of willing workers and a steady expansion in economic product. This has not been the recent case. There now seems to be the possibility that in fact a recession--or at least a state of less-than-full recovery--can exist over a longer period of time than we are accustomed to.

Beginning in the summer of 1990 in the United States, there was depressed economic performance and high unemployment, ranging up to more than 7 percent of the labor force plus the many more who had given up the search for work and were no longer recorded. Economic stagnation and a high rate of unemployment continued over the next many months and acquired an aspect of permanence.

It was a significant contribution of John Maynard Keynes to economic thought to suggest the modern economy might well enter upon an equilibrium of underemployment and low performance. This was the living fact of the Great Depression. Now, in surveying the world scene 60 years later, one can see the reward of history: It is obvious that what has happened before, in the Depression, might be happening again.

By 1993, when the "recession" had lasted three years and more, the possibility of a depressive equilibrium could no longer be ignored. Even in early 1994, when the recovery was supposedly in full swing, the average U.S. work week reached a post-World War II high, a sign that companies, still anxious about the economy, were working their employees longer hours rather than hiring additional hands. There is need, however, to distinguish between causes that are temporary and those that are permanent.

There were economic legacies from the 1980s that, by their nature, were temporary in effect; while both precipitating and deepening recession, they would, with the passing of time, release the economy from their depressive influence. Thus the decade was a period of massive speculation in the financial markets, especially in real estate. The Florida real property boom of the 1920s reappeared in nearly all the major cities of the nation, with the banks, small, large, and very large, joining in to finance it. After the collapse of this speculation, there remained the economic wreckage--empty office buildings, an idled construction industry, banks replete with bad...