Let me begin this second round by noting an event in a parallel universe: Thomas Sowell's attack yesterday on Obama in National Review Online. The column is entitled "The Galbraith Effect" and it's not, alas, about my book. Here's how it begins:

"Many years ago, when I was a college student, I took a course from John Kenneth Galbraith. On the first day of class, Professor Galbraith gave a brilliant opening lecture, after which the students gave him a standing ovation. Galbraith kept on giving brilliant opening lectures the whole semester. But, instead of standing ovations, there were now dwindling numbers of students and some of them got up and walked out in the middle of his lectures. Galbraith never got beyond the glittering generalities that marked his first lecture. After a while, the students got tired of not getting any real substance. Senator Barack Obama's campaign this year reminds me very much of that course from Professor Galbraith."

Thomas Sowell graduated from Harvard in 1958. It's therefore likely that the course he took was a chapter-by-chapter preview of The Affluent Society, published that year. Such was JKG's teaching habit, in those days. The book was an epic bestseller and is still in print.

Sowell's fatuous little opening is of course a parody of the "brilliant opening lecture" that never gets "beyond the glittering generalities." Notice how, unlike his contemporaries, he sat through it all, observing carefully the empty seats. Notice also how he can read the minds of his fellow students, so eager for "real substance." My father's failings as a teacher must have been quite a topic, late at night in those Harvard dorms.

One could go on to discuss the stupid claim Sowell tries to make against Obama's economics, in defense of lower taxes on the very rich: that "experience has shown that the government typically collected more revenue from a lower capital-gains tax rate than from a higher rate." He does not bother to cite evidence, and the case has been exhaustively debunked (calling Brad DeLong!) since long ago. But that's not my reason for raising it.

Rather, what's interesting about this snippet is what was not said, but what is missing, what Peter Dale Scott calls the "negative template." Does Sowell make any claim that a low capital gains tax supports investment, saving or work effort? No, he does not. That topic has disappeared. The claim he does make, is about tax revenue. Since when was this a priority for a conservative? Hasn't he heard of starving the beast?

And this is followed, after a bit, by a passing reference to "lower levels of economic activity and fewer jobs." That reference is unmistakably Keynesian. Well, who brought Keynes to America? My father, who went to Cambridge in 1937 to study The General Theory, has a pretty strong claim. Maybe, just maybe, Tom Sowell did learn something in that class, over fifty years ago.

In any event, the reference should remind us, by its presence and their absence, of the more recent supply-side fallacies that he has obviously, conveniently, and wisely forgotten.

****

Michael Lind challenged me to say a few words about the origins of the liberal surrender to the market mind-mush. Several comments already took this up, and made valuable points. Clearly the Cold War liberals did realize that they had to defeat the Soviet Union by developing a more effective economic model, and with the experience of the Depression fresh in their minds they did not delude themselves that this could be done through free markets. So they remained substantially loyal to the New Deal. The last New Dealer was Lyndon Johnson, a protean figure who becomes more interesting with every biography.

The Cold War liberals also took a New Deal outlook, at least in principle, toward the developing world: just for instance, Walt Rostow's Stages of Economic Growth was a Cold War document, subtitled, "A Non-Communist Manifesto;" the message (for better or worse) was that everyone could take the American path. Much later, the impending end of the Cold War made the Third World safe for the neoliberal "Washington Consensus," with consequences well-told by Joe Stiglitz and by Naomi Klein. The rise in inequality throughout the world since 1980 emerges in detail in my own research, on the web-site of the University of Texas Inequality Project (if you're interested, just click on the world map).

But what happened in economics and in the 1960s and 1970s is what I know best, because it was the world I grew up in. My father was already a senior adviser in 1960 - at 52 he was old enough to have started work in Washington in 1934 and to have played a major role during the Second World War. The avatars of the New Economics - Samuelson, Solow, Tobin - were younger. And the split in the Kennedy administration was between that group on one side, who favored tax cuts to stimulate the private economy, and my father on the other, who favored an expansive program of public spending and investment designed to realize the program that was implicit in The Affluent Society - which was, after all, a critique of basing the economy on private purchasing power.

JKG observed (in a remark rediscovered by Bruce Bartlett) that tax-cut Keynesianism would prove fatally attractive, converting Hooverite Republicans to Keynes and seducing liberals by the speed and efficiency with which the economy could be goosed toward full employment. This argument was replayed in every debate over stimulus packages ever since, including in the offices of Henry Reuss, where I worked from the mid-1970s through the early 1980s. Early this year, I helped persuade John Edwards to denounce the "stimulus package" Congress passed, on the ground that it would buy a little time but solve no fundamental problems, while making those problems more difficult to face up to next year. But JKG lost the argument in the 1960s (partly because he was in India, where Kennedy needed him for foreign policy reasons), and the Galbraithians have lost it pretty much ever since. That should change.

In the 1960s, academic economics was a discussion among what seems, by modern standards, an almost incredibly diverse collection of intellectual giants. Paul Samuelson was at the peak of his influence. At MIT there was also Bob Solow, at Yale there was Jim Tobin, at Harvard in addition to my father there were Wassily Leontief and Simon Kuznets, at Chicago there was Milton Friedman. There was also a recognized dissident tradition: radical economics, loosely drawing on Marx. At the other Cambridge, there were Nicholas Kaldor and Joan Robinson, both of whom closely linked to Keynes.

But the early 1970s were an academic disaster for the mainstream American Keynesians - the New Economists of the Kennedy Council and their associates and friends. This is an old story by now, of how they had built an intellectual edifice on a flimsy empirical contraption -- the Phillips Curve trade-off between inflation and unemployment -- and how they collapsed when it did. It is difficult now to reconstruct just how powerful and devastating the Friedman-monetarist critique of standard American Keynesianism seemed in those days; doubts about Friedman's logic and evidence lay in the future.

The result was the right-wing takeover of academic economics, which predated the rise of Reaganism and provided a deep economic bench for the political right when it finally took power. But now the Old Keynesians were the recognized opposition - if any opposition was to be tolerated at all, it would be them. And they devoted much of the rest of their careers - Tobin and to his death and Solow to this very day - to the fight against the academic far right. In this, they did great work. But they also had little tolerance for theoretical deviations on their left. And the great diversity that economics had enjoyed, largely disappeared. Leontief and my father left almost no academic successors, and a great figure like Robert Eisner received less attention than he deserved.

By the end of the 1970s, the old Keynesians were an exhausted group: beaten in academic life, and beaten in politics. I don't think very many of them were all that sad to retreat to the academy, or to Brookings, when Carter was forced from office in 1980. Their chief intellectual descendants now are Joe Stiglitz and Paul Krugman - both very brilliant, and both brought up in the tradition of "don't look left." Paul, in particular, has been hit with some harsh knocks here, and back in those days we too had our tiffs.

These days, I'm a Stiglitz - Krugman loyalist, to the last breath. For two reasons. First, both Joe and Paul were mugged by reality. For Joe, this happened at the Council of Economic Advisers, and then at World Bank. For Paul, it happened when he found himself, in the gray dawn of the Bush era, sitting on the world's most valuable piece of newspaper real estate, a column at the New York Times.

Both rose to history. Joe Stiglitz issued a magnificent critique of neoliberal economics on the developing world, and has followed that with a fine book (with Linda Bilmes) on the costs of the Iraq War. And Paul has been, year in and year out, the relentless voice of us all, facing down every sort of abuse. So even if we were still in fundamental disagreement over theory, I would have buried those disagreements for the length of the war.

The second reason, is that both Joe and Paul have changed their views, at least up to a point. The financial crisis, especially, imposes a New Deal viewpoint on the world. It moves one away from the textbook formulae of the financially-stable 1960s, toward the monetary-theorist Keynes of the 1930s. And, the reality of the predator state is something that both have observed, first-hand.

For these reasons, I'm almost optimistic. Economics may have a future. To answer Sid's question: yes the shackles of the predator state can be broken.

Finally: a word of thanks to Sid, Maggie, Susan, Mike, Tom and Max. Of course. Certainly no author ever got better treatment. So far, anyway.