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-- Joseph Stiglitz

Posted by biznology on Dec-09-2003 17:42:

Joseph Stiglitz

Will the current economic zeitgiest accept a dissenting view?

Ok, so this is somewhat in line with our Dean discussion -sorta- or possibly the book review section, but here are two reviews that may interest people here:

quote:

>Foreign Policy, Nov-Dec 2003 i139 p85(2)
>Joe Stiglitz's bum rap.
>by Robert Hunter Wade.
>
>Full Text: COPYRIGHT 2003 Carnegie Endowment for International Peace
>
>* Journal of Policy Modeling, Vol. 25, No. 5, July 2003, New York
>
>The new article by Columbia University economist Joseph
>Stiglitz--"Globalization
>and Growth in Emerging Markets and the New Economy," appearing in the Journal
>of Policy Modeling--deserves wide discussion in the economics profession. But
>it won't get it. Stiglitz's arguments are so out of line with the prevailing
>zeitgeist that most of his colleagues will happily seize on the author's more
>intemperate remarks about the U.S. Treasury and the International Monetary
>Fund
>(IMF) as an excuse to disregard his substantive points. Such is the lot of the
>celebrity economist: Stiglitz now is categorized as an enfant terrible,
>celebrated for the conceptual work that won him the 2001 Nobel Prize in
>economics, and ignored on everything else.
>
>His article argues that globalization can be a positive force, but that "one
>must face up to the downside risks, and design programs, policies, and
>institutions" to address them. Put simply, the state must regulate integration
>of a national economy into the global economy so that market forces will
>generate wider benefits and fewer costs. Stiglitz advances this line against
>those who peddle "almost unfettered globalization" for developing countries
>with little more than rhetorical qualifications about the need for
>accompanying
>safeguards and sound financial regulation.
>
>As evidence, Stiglitz highlights the contrast between recent economic
>development in Latin America and East Asia. Latin America has followed the
>precepts of globalization, but its economic growth from 1980 to 2000 was
>roughly half the rate it had been in the two decades before the implementation
>of pro-market reforms. On the other hand, East Asia harnessed the growth and
>poverty-reduction benefits of joining the global economy, contends Stiglitz,
>but policymakers in the region did so by regulating the globalization process.
>"They took pragmatic policies," he explains, "not influenced by the ideologies
>of ... neoliberal doctrines." Only in the 1990s did they succumb to pressure
>and rapidly open their capital markets, with the Asian currency crisis of
>1997-98 as the predictable result. Stiglitz points to China as convincing
>proof
>that "one could attract enormous amounts of foreign direct investment without
>having full capital market liberalization."
>
>Standard economic theory argues that job creation--key to both economic growth
>and poverty reduction--requires eliminating trade barriers so that resources
>can move to where they are most productive. "But all too often," Stiglitz
>observes, "what seems to happen is that old jobs in the protected industries
>are eliminated before new jobs are created. Resources do not move from low
>productivity uses to high productivity uses, but from low productivity uses to
>zero productivity unemployment. Doing so increases poverty and decreases
>[gross
>domestic product]."
>
>Two subsequent essays in the same volume reveal how far from the mainstream
>Stiglitz's views fall. First, Harvard University President Larry Summers badly
>misrepresents Stiglitz's article as arguing that "the way to have more
>investment is to have controls that keep capital out." No surprise there,
>since
>while he was U.S. deputy treasury secretary and then treasury secretary during
>the Clinton administration, Summers pushed hard to free capital flows in
>developing countries.
>
>Second, Fordham University economist Dominick Salvatore examines economic
>growth
>in the G-7 (Group of Seven) countries and hails the United States for its
>competitiveness and flexible labor markets. But his criteria relate
>exclusively
>to narrow notions of efficiency and return on capital. "General merchandise
>retailing is twice as efficient in the United States than in Japan," he
>writes,
>ignoring how shopping malls have hollowed out many cities in the United States
>whereas, thanks in part to their allegedly inefficient retail system, many
>Japanese cities retain a vibrancy that produces better public services and
>higher quality of life. Salvatore praises U.S. labor policies that leave
>companies "much freer to hire, fire, reorganize, and use labor and other
>resources where they are most productive." Such practice "makes life difficult
>for U.S. workers, who can lose their jobs when caught in a competitive
>squeeze," Salvatore acknowledges, "but it also enhances firm efficiency and
>labor productivity."
>
>He also scolds Japan for using its capital less efficiently than the United
>States. "Japan keeps massive electrical generating capacity idle most of the
>time in order to meet peak demand in hot summer days," he writes, "while the
>United States avoids this great capital waste by utilizing time-of-day and
>summer-electricity pricing schemes that discourage usage at peak times." Tell
>that to the millions of people in the United States and Canada who lost power
>during the 2003 summer blackout.
>
>Summers and Salvatore speak for the mainstream economics profession;
>compared to
>their remarks, the innovation in Stiglitz's arguments becomes evident. Should
>Stiglitz harness the brainpower that won him the Nobel Prize to develop his
>arguments more analytically than he has to date, his peers will be less
>able to
>dismiss them.
>
>
> Article A110404195
>
>

quote:

>
>
>It Wasn't Deficit Reduction
>
>Louis Uchitelle
>
>http://www.prospect.org/print-frien...chitelle-l.html
>
>The Roaring Nineties By Joseph E. Stiglitz,
>W.W. Norton and Company, 379 pages, $25.95
>
>Like many academic economists, Joseph E. Stiglitz went
>into government hoping to tutor as well as to serve. Unlike most,
>Stiglitz has significant doubts about whether markets usually work as
>advertised. His research in this genre won him the Nobel Prize.
>Stiglitz's four-year stint in the Clinton White House was marked by the
>tension between his own powerful views and the pressure on a high public
>official to be a loyal team player.
>
>As chairman of Bill Clinton's Council of Economic Advisers (CEA),
>Stiglitz attempted to influence policy quietly from the inside, putting
>a brave face on policies he opposed. In his second government position,
>as chief economist for the World Bank, Stiglitz went public with his
>criticisms, and eventually was fired for his candor. Now Stiglitz is
>back in academia, at Columbia University, and he can tell us what he
>really thinks, as he does -- often insightfully -- in The Roaring
>Nineties.
>
>He has written an important revisionist critique of the conventional
>view that budget balance and deregulation powered the 1990s boom. Even
>so, Stiglitz the critic and Stiglitz the loyalist are still somewhat at
>odds in this book, and he remains protective of Bill Clinton personally,
>blaming wrongheaded policies instead on Clinton's lieutenants.
>
>When I first covered Stiglitz, then CEA chairman, his briefings for
>reporters never suggested the devastating criticism that would burst
>from him later. I had been the lead reporter for a series of articles on
>layoffs published in The New York Times in March 1996, the year Clinton
>was up for re-election. In response, the council produced a white paper
>that sought to shift public attention to the job market's strengths --
>and away from the spreading layoff problem -- in an election year.
>
>The white paper, which Stiglitz signed, argued that jobs were not only
>multiplying, which they were, but that most of the new jobs paid well, a
>questionable reading of the data. Layoffs were dismissed as
>insignificant in number, unless one noticed a brief caveat in the white
>paper. Mostly at the insistence of then-Labor Secretary (and current tap
>Chairman) Robert B. Reich, who also signed the document, the
>administration acknowledged that permanent layoffs had increasingly
>replaced temporary ones, and "the average real wage loss due to
>[permanent] displacement was significant and persistent."
>
>Clinton wanted to focus on good news, and his lieutenants furnished it.
>Going against layoffs would have meant trying to restrict the behavior
>of the nation's executives, a confrontation that might have spared the
>nation the waves of layoffs that plague the workforce today. But instead
>of pushing for alternatives -- shorter hours, for example, rather than
>fewer workers -- or even attacking the practice, Clinton accepted
>layoffs. His administration, instead, would subsidize the retraining of
>some of the victims, for the next job and the next and the next (though
>the subsidies would be constrained by budget cuts). Intervention "would
>have been inconsistent with the deregulation policies of both parties,"
>Stiglitz explained to me years later. In his loyalty to his president,
>Stiglitz the official spokesman ended up steering the public away from
>the kind of government intervention that Stiglitz the economist had so
>brilliantly advocated as a means of improving market outcomes.
>
>A year after the white paper appeared, Stiglitz left the White House and
>the second aspect of his public persona came to life. From his new perch
>at the World Bank, protected by the bank's president, James D.
>Wolfensohn, Stiglitz opened fire on the shortcomings of the
>administration's economic policies and the Washington Consensus of
>fiscal discipline, market liberalization and debt collection imposed on
>poor countries. The public criticism persisted for two years until
>Wolfensohn, under pressure from the Clinton administration, told
>Stiglitz that he must either curb his outspoken views or resign.
>
>Stiglitz resigned and kept talking. His first popular book,
>Globalization and Its Discontents, published last year, challenged the
>standard story about the benefits of speculative global capital markets.
>And now its sequel, The Roaring Nineties, gives us a revisionist
>assessment of the American economy in the Clinton years, and a
>fundamental critique of many Clinton policies.
>
>The new economy, Stiglitz writes, was real. "The Internet was real. The
>innovations, advances in telecommunications, and new ways of doing
>business which followed were real." The stock-market bubble and the
>recession and weak recovery that followed are temporary setbacks. What
>remains, Stiglitz argues, is an enduring improvement in productivity. As
>the output of the American worker rose, the supply of goods and services
>exceeded the demand for them. The problem now is ratcheting up demand,
>to take advantage of the prosperity that the new efficiencies make
>possible, a potential prosperity no longer threatened by the shortages
>that breed inflation.
>
>Most economists would agree that part of the recent boom was a result of
>rising productivity. Where Stiglitz departs from the standard story,
>however, is in his insistence that the credit belongs almost entirely to
>the higher productivity and not to the tax increases, spending cuts,
>resulting budget balance and bond-market reaction that usually get so
>much credit.
>
>He may be right about productivity, or at least partly right. We don't
>really know definitively how much of the improvement is the enduring
>result of innovation and high-tech investment and how much is a
>temporary fix -- management squeezing fewer employees to work faster.
>But Stiglitz is certainly correct to debunk the view, so much promoted
>at the Clinton White House, that budget balancing generated the recovery
>by restoring the confidence of bankers and investors. Or, as he wryly
>puts it, "Thus reassured, business went back to investing in growth and
>innovation, consumers began spending again, and the recovery gained
>momentum. The agenda of the deficit hawks was clear: keep deficits low
>(even in recessions) and listen to what the financial markets want --
>for if you alienate them, you are lost."
>
>Stiglitz offers a different and more illuminating sequence of events,
>one that helps to free us from blind faith in deficit reduction and the
>endless pressure from investors and executives for deregulation and
>unfettered markets. The true sequence of events was largely fortuitous:
>The Federal Reserve, eager to recapitalize banks damaged in the massive
>loan defaults of the late 1980s and early '90s, encouraged banks to
>invest their deposits in U.S. Treasury bonds, and held down interest
>rates long enough to help make a risky venture less risky and ultimately
>successful. Later, in the absence of inflation and concerned about bank
>exposure to foreign defaults, Fed Chairman Alan Greenspan lowered rates
>again and the boom accelerated, bubble and all.
>
>Stiglitz is properly critical of Greenspan for failing to act against
>the bubble, which Greenspan had warned about as early as 1996. He faults
>Greenspan in particular for not lobbying "behind the scenes against the
>huge capital gains tax cut of 1997, which sent a fresh torrent of
>investor capital into the markets at a time when a shift in the opposite
>direction" might have helped to subdue the bubble. But neither did the
>White House raise an alarm about the bubble, happy enough to have
>prosperity as a tailwind, whatever the reasons and the danger. Along the
>way, the overenthusiasm for deficit reduction and budget balancing
>damaged the economy, mainly through underinvestment in the public
>sector. In other words, while deficits on a scale wrought by Reagan or
>either Bush are damaging, there was plenty of room for moderate deficits
>and more social outlay, which might have helped productivity. The
>allegiance to deregulation turned out to be even more damaging, but the
>financial markets insisted and the Clinton administration complied.
>
>Stiglitz is particularly good at describing the failure to strengthen
>government's hand in a market economy. He shared a 2001 Nobel Prize in
>Economic Science for his pathbreaking contributions to the concept that
>markets function imperfectly, hurting many people, because the
>information available to market participants is inadequate. So
>government has to intervene, adroitly through rules and regulations, to
>make markets function properly.
>
>The Roaring Nineties makes that case effectively in the scandal-ridden
>aftermath of the 1990s bubble. For Stiglitz, the repeal of the
>Glass-Steagall Act in the Clinton years was madness. No longer required
>to stay away from trading stocks and investment operations, the banks
>fell into the schemes that made the Enron debacle possible. Or, as
>Stiglitz put it with blunt simplicity, "Investment banks push stocks,
>and if a company whose stock they have pushed needs cash, it becomes
>very tempting to make a loan ... . Under the old regime, investors at
>least had some assurance that if a firm was in trouble, it would have
>trouble borrowing money. This provided an important check, which helped
>make the whole system work.''
>
>Stiglitz the economist understood, when he joined the administration in
>1993 -- first as a member of the CEA, then as its chairman -- the damage
>inherent in the deregulation that later took place on his watch,
>particularly the Telecommunications Act of 1996 and the freeing of
>electric power companies from government rules. In The Roaring Nineties,
>he explains the sequences that made disaster inevitable. He tells us
>that his warnings were ignored within the administration, including his
>caveat that cutting the capital-gains-tax rate was bad policy, and not
>just for its contribution to inflating the bubble but for its long-run
>damage. The cut would bulk up tax revenue in the short run as more
>people sold assets, particularly stocks, but it would lower revenues
>later. "If the government is concerned with its long-run deficit
>position, as it should be, the lowering of the capital gains tax rate,"
>is bad policy, even chicanery, Stiglitz writes. His advice was ignored;
>with Clinton in agreement, Congress cut the rate.
>
>Reading all this in The Roaring Nineties, one marvels that Stiglitz
>stayed for four years in the Clinton administration, and that he is
>still so loyal to Clinton personally. The policy failures that Stiglitz
>so effectively describes are blamed on a handful of advisers --
>principally Treasury Secretary Robert Rubin and Lawrence Summers, his
>deputy -- who misled or misinformed the president more than once,
>Stiglitz tells us. Or it was the fault of the Republican congressional
>victory in 1994 that tied the president's hands, thwarting his "bold,
>broad-gauged agenda to address America's problems."
>
>But Bill Clinton was a very engaged president, one who personally bought
>into the deregulation and the alleged efficiency of unfettered markets,
>sharing the views of Rubin and Summers. In his post-presidential years,
>Clinton's public commentary suggests that he still favors deregulation
>and budget balance. This book cries out for a chapter in which a former
>insider of Stiglitz's stature expressly challenges these views of his
>ex-boss -- policy errors that the current crop of Democratic
>presidential hopefuls are in grave danger of repeating.
>
>Louis Uchitelle