Joseph Stiglitz is Pissed
The Guardian has an opinion piece by Joseph Stiglitz that is simmering with rage and resentment. Stiglitz, perhaps a bit too early, is relishing the return of Keynesian thinking to government. But it is clear he nurses more than a few bitter feelings about being left out of the circles of power and influence (and this comes from a Nobel laureate!):
For those of us who always claimed some connection to the Keynesian tradition, this is a moment of triumph, after having been left in the wilderness, almost shunned, for more than three decades. At one level, what is happening now is a triumph of reason and evidence over ideology and interests.
Economic theory has long explained why unfettered markets were not self-correcting, why regulation was needed, why there was an important role for government to play in the economy. But many, especially people working in the financial markets, pushed a type of “market fundamentalism”. The misguided policies that resulted – pushed by, among others, some members of President-elect Barack Obama’s economic team – had earlier inflicted enormous costs on developing countries. The moment of enlightenment came only when those policies also began inflicting costs on the US and other advanced industrial countries.
Translation: Barack, baby, what didn’t I do?
Once Stiglitz gets that out of his system he has a laundry list of ideas that he wants to jam into a short piece. The first item has to do with our old friend Amity Shlaes and the persistent notion she peddles that the New Deal exacerbated the Great Depression’s severity and length. By extension, her fellow travellers believe anything the state does is Keynesian, even if it involves monetary policy:
Keynes argued not only that markets are not self-correcting, but that in a severe downturn, monetary policy was likely to be ineffective. Fiscal policy was required. But not all fiscal policies are equivalent. In America today, with an overhang of household debt and high uncertainty, tax cuts are likely to be ineffective (as they were in Japan in the 1990s). Much, if not most, of last February’s US tax cut went into savings.
Finally, Stiglitz takes a big swipe at Paulson and Bernanke’s bank bailout:
one should read history and theory carefully: preserving financial institutions is not an end in itself, but a means to an end. It is the flow of credit that is important, and the reason that the failure of banks during the Great Depression was important is that they were involved in determining creditworthiness; they were the repositories of information necessary for the maintenance of the flow of credit. But America’s financial system has changed dramatically since the 1930s. Many of America’s big banks moved out of the “lending” business and into the “moving business”. They focused on buying assets, repackaging them and selling them, while establishing a record of incompetence in assessing risk and screening for creditworthiness.
Source:
Getting Bang for Your Buck
JOSEPH STIGLITZ
The Guardian, December 5, 2008
http://www.guardian.co.uk/commentisfree/cifamerica/2008/dec/05/us-economy-keynesian-economic-theory
December 7th, 2008 at 10:44 am
Keynesians shunned for 3 decades? On what planet?
December 7th, 2008 at 11:49 am
Namazu,
Like…the neocons “free-marketers” were all crypto-Keynesians perhaps?
People just can’t have it both ways: It’s Keynes fault when the Dems try to push socio-econ agenda, and when the Reaganites and the Bushies implement their ideas on the economy it is ALSO Keynes fault…BUT ONLY WHEN THEY FAIL.
Sorry, but we are done and over with this double-talk.
December 7th, 2008 at 12:02 pm
Terra Firma. In my view it had been pushed aside by 28 years of “supply-side” economics.
December 7th, 2008 at 12:12 pm
“But it is clear he nurses more than a few bitter feelings about being left out of the circles of power and influence (and this comes from a Nobel laureate!)”
A very convenient interpretation too from Marion Maneker. It gives license to the reader to discard anything Stiglitz wrote that said reader doesn’t like.
But I’ll refrain to push any spurious interpretation of what could have motivate Maneker to start this post the way he/she did.
Even after reading disparaging and completely unsubstantiated comments about Paul Krugman character from the same author in a previous entry on this very site. I even asked for some examples; unsurprisingly, my request was ignored.
As for the substance of Prof. Stiglitz, I am in complete agreement with the last part: Paulson is trying to save the banks, not the banking system; it is, alas possible, that Sec. Paulson is confusing both goals, thinking that saving the banks is saving the banking system. If it is the case, it won’t surprise anyone that the “too-big-to-fail” argument resonates deeply with Paulson and Bernanke.
Of course, a logical and tried solution like the Swedes did in 1992 appears unthinkable here, maybe because, it wasn’t created here, so it won’t be considered. I don’t know; I just know that the credit markets are still in deep freeze after committing mountains of T-bills and things could get much worse if ideological blinders are not removed ASAP from those who still hold too much power.
December 7th, 2008 at 12:36 pm
It’s OK. It is a good thing to leave some smart people on the outside looking in (in this case, Stiglitz and Roubini) to be able to point out the mistakes that will inevitably be made in the next administration. We need Joe and Nouriel to remain where they are: both are true independent observers, and will carry out the true role of universities and academic economists: to seek out and speak the inconvenient truth.
December 7th, 2008 at 1:50 pm
Stiglitz saw a lot of the problems with Rubin/Summers-nomics and was impolitic enough to say so early and often. Adding to that Stiglitz’s Nobel and then Summer’s implosion at Harvard tells us all we need to know about why Stiglitz is out now that Summers has Obama’s ear.
Stiglitz is now in the position of all those who told us Iraq would be a disaster – on the outside precisely because they were right and vocal about it. Why people like Rubin and Summers continue to be seen as the “grown-ups” who can fix the problem is as paradoxical to me as people like Biden, Clinton, Gates etc, all of whom were catastropically wrong about Iraq, are still seen as the kind of policy experts we need in foreign affairs.
December 7th, 2008 at 2:35 pm
this, from above: “Stiglitz saw a lot of the problems with Rubin/Summers-nomics and was impolitic enough to say so early and often. Adding to that Stiglitz’s Nobel and then Summer’s implosion at Harvard tells us all we need to know about why Stiglitz is out now that Summers has Obama’s ear.
Stiglitz is now in the position of all those who told us Iraq would be a disaster – on the outside precisely because they were right and vocal about it. Why people like Rubin and Summers continue to be seen as the “grown-ups” who can fix the problem is as paradoxical to me as people like Biden, Clinton, Gates etc, all of whom were catastropically wrong about Iraq, are still seen as the kind of policy experts we need in foreign affairs.”
needs to be studied and understood..
I’d only add that Stiglitz, among very few, was, also, calling out ‘The WorldBank’..
past that, Namazu, above, is correct. The idea that Reagan’s admin. put Keynesianism OOB is a complete canard..
Rhetoric aside, his admin., more than anything else, reinvigorated the Keynesian State–people are acting like JMK’s poli-sci-fi Tomes were burned in piles, as if..
December 7th, 2008 at 3:58 pm
Having learned a little more about Nouriel than Stiglitz my respect for Nouriel is enormous but I can understand if he much prefers to keep the establishment at arms length.
December 8th, 2008 at 8:30 pm
Having learned a little more about Nouriel than Stiglitz my respect for Nouriel is enormous but I can understand if he much prefers to keep the establishment at arms length.
He does have a reputation to maintain after all