The message scrolled across the dry erase board on the wall seems too casual for a successful economist: "Hey Jamie! Let's get typing!" But the rest of professor James K. Galbraith's office is all business. Stacks of paper surround the computer while the shelves' overflow of books rests in neat piles on a desk in the corner. In this room overlooking the LBJ Library sits a thinker and a realist.
On top of being a government professor and a Lloyd M. Bentsen Jr. Chair in Government/Business Relations, Galbraith has written several books on economics, his most recent being "Unbearable Cost: Bush, Greenspan and the Economics of Empire." The son of renowned economist John Kenneth Galbraith, who was a member of several presidential administrations, James K. Galbraith has also served as the executive director of the Joint Economic Committee in Congress.
The Daily Texan caught up with Galbraith for a talk about the economic state of Texas, the failing U.S. dollar and the orphaned homes resulting from the sub-prime mortgage crisis.
The Daily Texan: In 1991, Bob Bullock wrote and helped pass the Texas Constitutional amendment that gives the state the opportunity to levy a state income tax. Would a state income tax be a viable option to lower property taxes and increase the state budget?
James K. Galbraith: I actually helped Bob Bullock with this. Texas is a state with very large numbers of people with high incomes. But these incomes are not touched by property or sales taxes. A state income tax would get to the segment of the population that is favored by states without income taxes.
DT: What about Texas businesses?
JKG: Businesses - mainly large, international ones - would not be opposed to it. State income taxes are normal to them.
DT: Would a state income tax be possible in today's Texas?
JKG: The political climate is ostensibly less favorable. Even when Democrats are in charge, they are afraid of losing their seats. Back when they first discussed a state income tax, once it was clear there wasn't a unified position from the Democratic leadership, they pretty much admitted defeat.
DT: As our city sees large increases in property values, particularly in East Austin, would a change in property tax rates and the addition of a state income tax affect the way the city grows?
JKG: It's more about suburban sprawl versus the inner city. Values get bid up and the neighborhood gets built up.
DT: There's no denying the U.S. is headed for economic trouble. What do you see for our future?
JKG: This is possibly the biggest financial crisis I've seen. The difference between it and ones before it is that it has its origins in the U.S. We are seeing a major unraveling of the economic boom of the last 20 years. I think it will be another year before the extent of it becomes clear.
DT: With artists and entertainers asking to be paid in euros, and the Organization of Petroleum Exporting Countries (OPEC) possibly even doing away with U.S. currency, what's next for the U.S. dollar?
JKG: Americans and others with mobile capital are the ones who invest in dollars, euros and other currency. Enough people are selling dollars right now to cause a slide. But the fate of the dollar is really driven by the sub-prime mortgage crisis. People were induced to take mortgages they couldn't afford. It's an abusive practice if not a fraudulent practice.
DT: What will be the long-term effects?
JKG: There are different problems with a housing slump. With most slumps, there is a quick recovery. With the housing slump, houses get boarded up and they decay.
DT: What are some solutions to the sub-prime mortgage crisis?
JKG: We need to look for a way to keep people in their homes. This has become a such a large problem that it will affect people with sub-prime mortgages and their neighbors. You could make a case for a procedure where people can declare they believe their mortgage loan was abusive to protect them from foreclosure.
DT: Do you see this happening in Texas?
JKG: I've seen an increasing number of "for sale" signs. I'm not sure what that's about, but I do see this really affecting the deep South.
DT: You are the director of the UT Inequality Project. What is the goal of the organization?
JGK: We want to provide an accurate, detailed measurement of inequality in many countries. This can be especially useful during a currency crisis. We were able to do this with the situation in Argentina.
DT: Can your work be applied at a micro level, such as for states?
JKG: We mainly study national economies. We study inequality by looking at differences across groups. Getting good sample surveys is just about impossible, so we found this technique. It is cruder than using a survey, but the trade-off is getting an observation almost every year.
