Stiglitz: The End of Neo-Liberalism?

Is there a "silver lining in the cloud now hanging over the global economy"?:

The end of neo-liberalism?, by Joseph E. Stiglitz, Commentary, Project Syndicate: The world has not been kind to neo-liberalism, that grab-bag of ideas based on the fundamentalist notion that markets are self-correcting, allocate resources efficiently, and serve the public interest well. It was this market fundamentalism that underlay Thatcherism, Reaganomics, and the so-called “Washington Consensus” in favor of privatization, liberalization, and independent central banks focusing single-mindedly on inflation.

For a quarter-century, there has been a contest among developing countries, and the losers are clear: countries that pursued neo-liberal policies ... lost the growth sweepstakes...

Though neo-liberals do not want to admit it, their ideology also failed another test. No one can claim that financial markets did a stellar job in allocating resources in the late 1990’s, with 97% of investments in fiber optics taking years to see any light..., [and the more recent] massive misallocation of resources to housing...

Nor did markets prepare us well for soaring oil and food prices. Of course, neither sector is an example of free-market economics, but that is partly the point: free-market rhetoric has been used selectively – embraced when it serves special interests and discarded when it does not. ...

This mixture of free-market rhetoric and government intervention has worked particularly badly for developing countries. They were told to stop intervening in agriculture, thereby exposing their farmers to devastating competition from the United States and Europe. Their farmers... could not compete with US and European Union subsidies. ...

Those who promulgated this mistaken advice do not have to worry about carrying malpractice insurance. The costs will be borne by those in developing countries, especially the poor. This year will see a large rise in poverty, especially if we measure it correctly. ... In many countries, increases in food and energy prices will have a particularly devastating effect on the poor...

Defenders of market fundamentalism want to shift the blame from market failure to government failure. ... But ... US banks mismanaged risk on a colossal scale, with global consequences, while those running these institutions have walked away with billions of dollars in compensation.

Today, there is a mismatch between social and private returns. Unless they are closely aligned, the market system cannot work well.

Neo-liberal market fundamentalism was always a political doctrine serving certain interests. It was never supported by economic theory. Nor, it should now be clear, is it supported by historical experience. Learning this lesson may be the silver lining in the cloud now hanging over the global economy.

Comments

[methinks]

" Neo-liberal market fundamentalism was always a political doctrine serving certain interests. It was never supported by economic theory." -Stiglitz

Stiglitz dissects and destroys the politics of neo-liberalism in less than 500 words. We need a few more political economists willing to challenge the status quo. Give him a syndicated column!

[hari]

After neo-liberalism - what next?

It seems under capitalist free market concept, it is basically supply/demand that decides the value of a good or service. Now, after having tried it for a couple of centuries, I expect America to gradually get familiar with the conceptual framework of social democracy and its inherent economic benefits in the long run. Inevitably as stratification of society becomes more and more apparent, not only in terms of consumption but also relative poverty, it will become easier for the governing class to adopt social market system to overcome inequality and rest of the ills of a *class society*.

In EU counries, the evolution of this conceptual framework of marco policy has increased the role of state in not only managing the basic services but also guaranteeing them under the tax system (subsidy). Although privatization goes on even today, with state owned institutions/enterprises, laws nevertheless seek to guarantee their functional efficacy.

In Sweden, for example, with high relative personal taxation comes greater sense of social security and satisfaction by all classes of citizens. In other words, post-industrial society is an expensive model of investment to maintain and
service.

America has no choice, in my humble opinion, but to start thinking about replacing its neo-liberal ethos with a more social democratic egalitarianism.

says...

Interesting. Perhaps it is not so much market failure but government failure. Over at EconoLog Ken Rogoff is quoted:

"..governments are clawing to stretch out unsustainable booms, further pushing up commodity prices, and raising the risk of a once-in-a-lifetime economic and financial mess. All this need not end horribly, but policy makers in most regions have to start pressing hard on the brakes, not the accelerator."

Kling adds:

His view is that rising commodity prices are a message that demand is rising too rapidly. In the U.S., inflationary fiscal and monetary policy is to blame. In many developing countries, government subsidies that insulate consumers from rising commodity prices are at fault. As Rogoff sees it, markets will eventually adjust to tame the commodity boom, but the process could take years. Meantime, an economic slow-down is in order.

The list of countries that shelter their citizens from fuel and various food prices is rather large. China, India, Mexico, Egypt, Indonesia are just some that come to my mind rather quickly.

[kthomas]

:) Burn baby!

[robertdfeinman]

There are some who understood this from the beginning. The question is why weren't they heeded?

This is important because there is a new ideology forming which is designed to replace the one Stiglitz criticizes. He hints at it himself: it's not the theories that are wrong, its the implementation by incompetents. This same song is being sung by those who promoted our failed foreign policy and also the supporters of the failed IMF and WB programs.

So why did false ideas persist?

I've long promoted a "follow the money" explanation. It has been in the interests of the super wealthy to disguise their objectives to amass even greater wealth by funding a barrage of libertarian and free-market think tanks that provided the intellectual cover for what was really happening. Several of them like Scaife even own media outlets which promote the findings of their own paid pundits.

The rest of the major media is owned by huge corporations who see their interests allied with the super wealthy even if their owners are not all in the top of this economic class.

Add to this the buying of university departments such as at GMU, Chicago and Stanford by means of endowments and gifts and you have a one-sided intellectual space.

The wealthy are still doing well and their control of media has not diminished with the current downturn, so how are more realistic and equitable policies going to get adopted now?

Even the expected change in majority party in Washington doesn't offer much hope. The Dems are pretty much beholding to the same interests as the GOP for campaign money. At most, given their current statements, we may see some slight changes in funding for social programs and a bit of a scaling back in overt military activity.

How do you change things when the deck is stacked?

[ken melvin]

Destroy the old gods and build new ones. How far America from the 'we're all in this together' reckoning?

[Michael McKinlay]

Stiglitz's analysis is fine economically, but on the political analysis I'm with robertdfeinman.

It will take an economic shock of immense proportions to realign the government and media. The one great tool we have is the internet. The economic crisis looks to be coming very soon, but what comes after may be some form of totalitarianism. This country will not give up its pretensions to world dominance and patronage to the military industrial complex easily.

[bakho]

Stiglitz is only a Nobel Laureate, not a political power broker. If some of the power elites listen to him, then he can have good effect. At least he is willing to say that "the emperor has no clothes" when many other economists are too timid.

[gmc]

I disagree with Stiglitz.

It is not neoliberalism which failed, but neoliberals. Where were the neoliberals when we retained the Home Mortgage Interest Deduction and propped up failing financial institutions with government guarantees?

Where were the neoliberals when FNM and FRE were thrown all sorts of junk from private parties on the assumption that they'd be taxpayer-insured?

Where were the neoliberals when Hank Paulson started talking about extending a demand-fueled, zero-savings boom by providing demand stimulus with government debt when private credit ran out?

Where were the neoliberals when Sarbanes-Oxley, the FASB, and other regulation choked off innovation, freedom, and honesty in financial markets and imposed massive costs to the benefit of lawyers and investment bankers?

Hint: real neoliberals never really had any power.

[paine]

"Meantime, an economic slow-down is in order"

what horse shit

[paine]

gmc
where were you when the lights went out ???

[Bruce Webb]

RDF is Speaking Truth to Power.

Unfortunately for this particular DFH Truth is kind of dispiriting and there are few signs Power is listening, but in the end we all can only do what we can. You just have to believe we can start turning this around starting in Late January.

Personally I take it as a good sign that were some fairly centrist sites like AB, EV and DeLong while not throwing out the total economic (Smith/Ricardo) baby with the rather rank economic bathwater (Kudlow/Luskin) have come to accept that not every political/economic DFH is afflicted by some version of BDS.

If the Bush Administration has proved anything it has been to validate the principle "even paranoids have real enemies".

It is a lot dizzying that much of the left center blogosphere is increasingly a testimony to 'what Digby said'. To whose name I would add a lot of posters here if not in fear of leaving someone out.

But RDF and the smarter BW would decidedly make the cut.

[anne]

"The list of countries that shelter their citizens from fuel and various food prices is rather large. China, India, Mexico, Egypt, Indonesia are just some that come to my mind rather quickly."

This list is surely of apples and oranges, but China is a terrific instance of and model for sheltering people against fuel and food prices increases and India is learning. Meanwhile, an economic slowing is surely uncalled for. I suppose though we in particular could dispense with several wars, which slowing I would welcome.

[anne]

Poof, we could dispense with $162 billion in destructiveness and have all the constructive slowing we and others could handle by just stopping warring in Iraq and Afghanistan, that is us and not China because China is not warring in Iraq or Afghanistan. Nor Brazil, nor India, for the matter. Say what?

[kthomas]

"...massive misallocation of resources to housing...", so true.

China is a terrific instance of...totalitarianism, right up there with Singapore. But please, let's not stop our infatuations. Can we at least cheer - together as one this death - of neo-liberalism?

[halbhh]

The idea of economic freedom is only that you and I are permitted to trade or produce, etc., liable only for contracts and damages. Literally, you could build a table and sell it to me, without permission from some government, etc.

Proposing to blame economic freedom for the vagaries of human nature looks disengenuous to me.

[gc]

At just this point in time when the Iraq War is causing fits to "neo-conservatism", why is the headline term "neo-liberal"? Why not headline: the end of market fundamentalism? It seems to me at best a few insiders would recognize at whom this comment is aimed.

[dirtyal]

I wonder if the Fed will be as accommodating come next January as it has been for the past eight years? I doubt it. It's not the history of the Fed. But it probably won't matter that much anyway.

Consider this:

It's really more about what our global debt holders decide is the right level of compensation for the risky "junk bonds" that the US issues. Forget "flight to quality". The world has just downgraded US debt to junk status. Do you think the pronouncements of the Fed will matter too much if that happens?

With interest rates up, we have a number of choices. We could "reflate" our way out. Only once, though. Or, we could make some fundamental changes that reduce our federal budget expense in order to pay down the debt.

And, we all have to pay more taxes--rich and poor alike--because we finally get it that our creditors have put us on a plan that is a lot like what the IMF and World Bank did to the third world economies that were in danger of defaulting on their debt.

We end up with a new "acceptable" rate of both unemployment and core inflation. We go back to some of the levels that we thought we would never see again.

The Republicans blame the Democrats--after all, it happened on their watch. The Democrats still blame all the hare brained policies of the Bush administration.

But, maybe some good comes out of it.

We can no longer afford to be the world's super power.

Our kids get a chance to get ahead by hard work, savings, and investment.

We finally get health care at a sensible percentange of GDP.

It doesn't seem so unfair that there are "haves and have nots" because everyone is hurting more than they expected to.

Maybe these are the ramblings of an old guy. But it's a plausible story.

[david]

"it's not the theories that are wrong, its the implementation by incompetents."

what's the stage after this one? I want to get to that stage. Conservatism was failed by so-calleds is very irritating.

We'll be better off when we stop defaulting to ideas of perfect markets unaffected by government interventions, and towards language of collective problem solving. I don't see it happening in time, but I've been a pessimist for far longer than facts have warranted.

[anne]

"It's really more about what our global debt holders decide is the right level of compensation for the risky 'junk bonds' that the US issues. Forget 'flight to quality'. The world has just downgraded US debt to junk status. Do you think the pronouncements of the Fed will matter too much if that happens?"

Not true; no way.

[anne]

"At just this point in time when the Iraq War is causing fits to 'neo-conservatism', why is the headline term 'neo-liberal'? Why not headline: the end of market fundamentalism?"

Right.

[Richard H. Serlin]

Fantastic article by the Nobel Prize winning economist Stiglitz. I especially like the lines, "Neo-liberal market fundamentalism [Republican Economics] was always a political doctrine serving certain interests. It was never supported by economic theory. Nor, it should now be clear, is it supported by historical experience. Learning this lesson may be the silver lining in the cloud now hanging over the global economy."

[anne]

[Chicago Economics]

[Richard H. Serlin]

Again, my complaint about the enormous costs of the pressure to write with "good style" and in a snooty way, and how it hurts learning so much, and adds so much misleadingness.

The quote from Stiglitz I noted above is fantastic, and could do a lot to convince, with the credibility of his Nobel in economics, but I really can't use it for most audiences, because he felt pressure to use the more snooty term neo-liberal, so many people will now misinterpret that very important quote 180 degrees, and think it's talking about the economic policies of liberal Democrats like Ted Kennedy.

[Matt]

People, please; so much macro, so little history. It's as if the present was created today.

It wasn't, isn't and never will be. Let's look back a short ten years and think about the situation that Indonesia found itself in; Joe should be able to comment a bit, as it was a key battleground in his disagreements then and final exit from the World Bank. Ok, from memory in 1998 15 million people plunged below the poverty line because Indo went with IMF advice to cut micro subsidies in oils and foodstuffs, which led to rioting and crisis, which gave the world the unedifying spectacle of Camdessus wagging his finger at Suharto (one dictator to another), which led to the catastrophic loss of confidence from Asia in the IMF, the creation of the Chiang Mai Initiative and the accumulation of colossal reserves to save for the next rainy day, which is now: an autarkic response to multilateral failure. Frankly astonishing. And relegates the IMF to a bystander, unable to support the next wave-need from Asia. No wonder Kuroda is still plugging hedged versions of the ASian Monetary Fund while at the ADB.

I don't want to engage with the labels, neo this or that, since at this time to me they frankly carry too little explanatory power, and don't offer sound and immediate remedies. What I can see is business failure of many kinds in many sectors, fostered by policy and oversight failure, and governmental responses which are perhaps not up to the task, in several jurisdictions. Maybe this makes me Classic Liberal, as I think the Growth Commission came out on recently, having basically re-promulgated Adam Smith. Well done. One could add the "yes, buts" but not productively. And we could have gone to the library about 50 thousand times to borrow the Wealth of Nations rather than pay the Growth Commission to reiterate the main message of the interface between states and markets.

I'll largely end this here, but welcome posters' responses, esp those who remember the Asian crisis. I think we should be reflecting on the good, the bad, and the ugly, of the last war, since this one might benefit from principles-based considerations.

On the specifics, it might be sui generis, in which case we've got a whole problem-solving to do. Like U household balance sheets and prospects...

Matt

[german_reader]

Great article from Stiglitz. I'd wish we had more economists of his kind. But I believe that a correct analysis will not be enough to end neoliberalism. I'am in this regard more with Robert D. Feinman.

The neoliberal movement is driven by massive economic interests and supported by the concentration of enormous socioeconomic power in the hands of a few. In the U.S. even more than in most other democratic nations. They control the media and they have obviously achieved to corrupt the political systems in many countries.

It will need a broad based democratic movement in every single country to push back the influence of the social and economic forces which are behind the neoliberal agenda. And that will only happen ( sadly enough ) if the majority of people in every single country feel the pain the neoliberal program means for them and understand the reasons which are behind it. The U.S. may now have reached this point ( I'am not that sure ), but many other countries have not.

@hari

I always admire your confidence that the U.S. could adapt one day a more "social-democratic" policy. I think individualism and the drive to separation are rooted deeply in the collective American psyche. It will require the concrete experience of a lot more social and economic crisises until America understands that the days of the "frontier movement" are gone and will never come back , And it will need a lot more of individual suffering to convince the majority of Americans that a more cooperative, "social-democratic" society concept has its advantages.

Europe needed hundreds of years, endless wars and countless very deep political, economic and social catastrophes until it adapted a more social approach. And I fear that even the very modest improvements we've reached here in Europe are in danger. The chances that the neoliberals will destroy one day the EU with their concept of unbridled economic concurrence and individualism ( a codeword for selfishness ) are currently much higher than seeing the U.S. introducing a more "social-democratic" ( whatever that means ) policy.

[anne]

"The neoliberal movement is driven by massive economic interests and supported by the concentration of enormous socioeconomic power in the hands of a few. In the U.S. even more than in most other democratic nations. They control the media and they have obviously managed to corrupt the political systems in many countries."

They do not control China; never will.

[Movie Guy]

Here's another link to Joe's article [it works]:

http://www.todayszaman.com/tz-web/detaylar.do?load=detay&link=146922&bolum=107

[Movie Guy]

Joe Stiglitz - "Simply put, in a world of plenty, millions in the developing world still cannot afford the minimum nutritional requirements. In many countries, increases in food and energy prices will have a particularly devastating effect on the poor, because these items constitute a larger share of their expenditures."

This is THE issue which deserves maximum attention by economists and the news media.

If this goes unchecked, world's nation-states can expect much larger problems going forward.

---

[BJ Feng]

Stiglitz's diatribe is barely defensible. The "market" doesn't have the omniscient sight of a god, nor does it have the wisdom to guide all its participants to a beneficial future outcome. Stiglitz knows this. He also knows it's the best we have, however imperfect.

Stiglitz can't possibly argue that some government bureaucrat can be trusted to do better--the evidence is overwhelming. For every benevolent sage, there are swarms of Mugabes, Bushes, and Chavezes. Most leaders don't try to purposely destroy their nation's economy, but without a god's powers, how would they know the correct decision?

So Stiglitz resorts to Monday night quarterbacking. Anyone can SEE he shouldn't have thrown that pass. If only they had run a slant instead of a hook, it's so easy when you know the results.

And Stiglitz should know that economic pain is what causes us to respond. We cannot move toward "alternative" energies without high oil prices, it wouldn't make sense! Likewise, loses teach speculators that there is something called risk. Markets cannot self correct without undergoing a correction, that is a downturn.

[BJ Feng]

We have made great gains in poverty reduction over the last decade, in absolute numbers, the greatest in human history. These gains were quite unexpected and arose quite independently from the sage advice of the wise men and women who spend their lives pondering the subject in endless chatter; interrupted only by a morsel of caviar or sip of champagne (vintage of course) to quench the parched lips. Such is the life of an UN scholar-official.

Thankfully, the most powerful economic force we know of today, more powerful than a UN resolution, faster than a drunk UN representative heading for the toilet. It's the World Bank! It's Obama! No, it's globalization, able to bring entire countries into the global capitalist system and raise living standards in a blink of an eye. Rest assured, poverty will continue to be defeated as long as globalization is with us.

Times (London)
Sandton city is the most opulent temple of capitalism in the continent most devastated by poverty and environmental destruction. To get to it from the airport, the delegates have to pass by Alexandra, a vast township notorious for its hopeless destitution. The delegates are all staying in five-star hotels, fabulous mansions of gilt, fine statuary and Renaissance paintings, to help people who live in shacks.

The delegates who are tackling world hunger are dining in fine restaurants serving warthog, caviar and champagne in the middle of a region where 13 million people are threatened with famine. The head of the UN environment programme warned delegates that an iron curtain was forming between rich and poor countries, while surrounded by an iron curtain of security to keep the poor away from the rich.

http://www.guardian.co.uk/environment/2002/aug/27/worldsummit2002

[bakho]

"some government bureaucrat can be trusted to do better"

Better than what? Some corporate CEO special interest or group of special interests? As Stiglitz points out, free market is a fiction that provides cover for the special interests.

At least some person or group tasked with "good policy" has a better chance of arriving at good policy than a corporate robber baron. Stiglitz is not talking about "some government bureaucrat" rolling the policy dice in some giant crap shoot, but a considered consensus policy.

The very complaints you make about Mugabes, etc come about within the current system run by corporate special interests in cahoots with corrupt leaders under the cover of "free market".

[halbhh]

It's ideological to conflate criminal actions with an economic system. This is evident since every economic system has also had plenty of criminal activity happening concurently.

i.e. -- Socialism isn't defined by the USSR over Denmark, and economic freedom isn't defined by recent criminal activity over it's obviously better moments.,.,unless the objective is only ideology.

When I want to learn something new, I look away from ideology and to some kind of actual insight somewhere instead.

[lonesome moderate]

Over the past twenty years or so, I have seen or heard what seems like millions of opinion pieces about how terrible the neo-liberal model/Washington consensus has been for the third world. If it really has been such a godawful failure over that time, then what is it that has been so successful? One thing is clear--something has been successful, since there have been enormous strides made in improving the lot of the poor during that time, even if you account for the setbacks we are likely to see over the next few years. If neo-liberalism truly has been a failure, then there should be some alternate "model" that is responsbile for this success, and that developing countries should follow in the future.

No one seems to know what it is, as far as I can tell. I suppose you could say "follow China", but not even the Chinese seem to be able to articulate much of what they have been doing, and trusting in a benevolent dictatorship is always an iffy thing.

[hari]

@ german-reader

I'm an optimist by nature. My own professional achievements in a very competitive global setup taught me that there are ways and means by which an individual can make a small dent in the global system. The principal is basically based on NOT bringing your ideological disposition to the decision-making table - having the intellectual capacity to listen to your opposition without going into a rage - and using the benefit of human nature to influence decision-making.

America is not a lost cause, in my personal experience with its culture and history. Sooner than later, neo-liberalism will - by its intrinsic failure - come to recognize the *way forward* is more like what we've achieved in Northern Europe, in particular.

Call it social democracy or whatnot - EU calls it *social market system* with a safety net to protect its own citizens from poverty.

Christianity, as I understand it, is based on moral principles. So is Confucianism and Hinduism.

[Lafayette]

Rudyard Kipling

Article: No one can claim that financial markets did a stellar job in allocating resources in the late 1990’s, with 97% of investments in fiber optics taking years to see any light..., [and the more recent] massive misallocation of resources to housing...

Good examples of the Feeding Frenzy that can all-too-easily overcome capital markets in America and spread itself to the world like a viral infection. It seems the US has a knack for spawning them.

Like some Hollywood Grade B movie, rapacious greed in the hands of so-called "Finance Engineers" excites the common imagination with artful exaggeration and ... Puff! the Magic Dragon of Feeding Frenzies raises his ugly head in capital markets.

Such human folly should be overseen by cooler heads. But, in a country where liberal free-market policy is King, those cooler heads are nowhere, alas, to be seen.

And so, Uncle Sam careens through the carnage like a bumper-car at an Entertainment Park.

Rudyard Kipling: If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you
But make allowance for their doubting too,
... you’ll be a Man, my son!

[Lafayette]

hari: America is not a lost cause, in my personal experience with its culture and history.

No, not a lost cause.

But lost, yes, very definitely.

[evagrius]

"Hint: real neoliberals never really had any power."

Hint: real neoliberals don't exist.

[Jack]

Stiglitz, even though he won a Nobel prize in the field, doesn't seem to think like an economist. The free market by definition produces the best outcomes, and if that means low growth for poor countries, financial and political instability, and devestating (for the poor) bubbles and crashes, then that is the best we could hope for.
And that's another thing--what's all this concern for the poor? That's for liberals who don't know economics. The poor are lucky to be the wealthy's de facto chattel slaves, and the wealthy are gracious (though, of course, still and always in a self-interested manner) to let them clean our toilets and serve our food. Once the diseased idea of social equality and parity of human worth is finally stamped out by the Republican Party, the party of economists, we can finally get on with the unchecked exploitation of the poor by the rich until we pollute ourselves out of existence. And, again, since this will be the result of the free market, it is the best possible outcome.

[Aaron]

Has any country been screwed up by Neo-Liberalism?

[Icarus]

Are a bit presumptive on our autopsy of neo-liberal rule? Obama is moving to the right; that is clear.

And, China/India, which accounts for 40% of our globe's population, have moved steadily toward the right.

This is of course a sliding scale...no economy is truly a 'market economy', including the US. We subsidize many things, bail other things out, and create non-market incentives all the time.
But, a functioning market has a real value for investment and growth...

We do temper the cruelty of the market with government policies. The question is, do we need to more, or less.

[FreedomLover]

Capitalism is simply the freedom of capitalists do their business, no?

[ken melvin]

Future generations may look back on 'capitalism' with much the same contempt we now assign slavery.

[Lafayette]

Jack: Stiglitz, even though he won a Nobel prize in the field, doesn't seem to think like an economist.

Because he talks like a Social Democrat. Which is probably why you do not recognize him.

Different language, different set of values, different points of view. Stiglitz would feel right at home in Europe. But, here in Europe, there would be no purpose in doing battle with the minions of Capitalism Gone Amok. They've been tamed.

So, he does what he can in the US.

[gmc]

The neoliberal movement, to the extent it ever existed, runs counter to the interests of capital. Let me explain (in a more direct and less rhetorical way that previously).

People (probably correctly if often exaggeratedly) view concentrations of wealth as organs of political power. But it is not in the interests of concentrations of wealth to deregulate, it is in the interest of concentrations of wealth to regulate in their own favor. Why would you have power and decide to not use it?

Hence, the "deregulation" occurring over the past twenty years (well intended though it may have been by many who favored it, including myself) has not create unfettered markets, but markets fettered to the favored players. Sarbanes Oxley benefits almost no one, least of all small businesses and small investors. It essentially killed the IPO market (denying growing businesses access to cheap capital and an alternative to private equity (See any Republican top donor list) and denying small investors the chance to invest in their stock. The people it benefits? Lawyers and investment bankers (see Barack Obama's top 10 list of contributors).

The liberal commentators who can't wait to say "there is no such thing as a free market" ignore the fact that an unregulated market is not the same thing as an unlegislated market. Not to mention a Federally unlegislated market.

The Uniform Commercial Code is more important than all Federal regulation of the economy put together, and does more good and less evil. It costs taxpayers not a penny.

The Federal Reserve (much maligned lately, probably unfairly) has done more with its limited mandate to create prosperity than any Congress since the Eisenhower Interstate System.

[dirtyal]

Note to Ann re my post:

"It's really more about what our global debt holders decide is the right level of compensation for the risky 'junk bonds' that the US issues. Forget 'flight to quality'. The world has just downgraded US debt to junk status. Do you think the pronouncements of the Fed will matter too much if that happens?"

"Not true; no way."

First--I sometimes get carried away and overstate what's really on my mind--but I thought you might find the attached message kind of interesting. It says a lot of the same things that I meant to say.

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+July+2008.htm

[gordon]

Stiglitz: "...independent central banks focusing single-mindedly on inflation."

The inflation they focus on is the wage-price spiral so much discussed in the 1970s when today's central bankers were young. Those were also the days when there were Unions; there was a Glass-Steagall Act; when the share of wages in GDP was higher; and when people were more confident and had money in their pockets. They were also of the days of Vietnam protests; the early Green Movement; Rachel Carson, Paul Erlich and the Club of Rome; the Beatles and the Rolling Stones.

I could go on. I'll bet today's central bankers weren't having much fun then and probably resented everybody else enjoying themselves. So the war on inflation turned into the war on labour, and now nobody is enjoying themselves.

I wonder whether the attitudes would be different if some of today's central bankers had been invited to some of the parties they didn't get invited to because they were boring, neo-Fascist geeks thirty years ago.

[BJ Feng]

Come now, the 60's have been completely refuted, the important ideology are now regarded as nothing more than rambling from a LSD trip, so seemingly transcendent and illuminating until you sober up. If you need more proof, look no further than the former hippies and free spirits who are now building their McMansions with garages for their luxury cars. These are the same folks who marched on Washington, burned Chicago in 68, and preached free love along the streets of San Francisco. What utter rejection.

GMC makes a great point, rules and regulations have been used since the beginning of history to create unfair wealth and protect the elite. Most often, these same rules are portrayed as necessary to protect the poor from themselves. So only those with more than $2 million can invest in a hedge fund, if you have less, sorry, you're just too stupid. In Mexico, it's much worse, the monopolies and oligopolies that made Carlos Slim the richest man in the world exist only because of regulations to protect ordinary Mexicans from some big bad corporate boogyman ready to exploit and enslave. The telephone and broadcast media sectors can't be opened up lest evil forces take over. It's all for the people.

[Lafayette]

MacThis

BJF: If you need more proof, look no further than the former hippies and free spirits who are now building their McMansions with garages for their luxury cars.

Right, all ten of these "free spirits".

Dream on, BJ -- you're the one hallucinating, who could not understand a Gini coefficient if it bit him on the nose.

The selfish will always be with us, telling everyone that the trappings of riches are the raison d'être of existence - the just rewards obtained by the sweat of one's brow. Such Mindless Folklore is typical of a class without a moral compass.

A class lost in the Wilderness of Wealth.

[Lafayette]

gmc: Why would you have power and decide to not use it?

Power corrupts -- absolute power corrupts absolutely. (John Acton, historian and moralist)

When are we ever going to learn ... ?

[macquechoux]

From Tyler Cowen's blog verbatim:

Tyler Cowen

Via Mark Thoma, Joseph Stiglitz makes lots of claims. Here is one of them:

For a quarter-century, there has been a contest among developing countries, and the losers are clear: countries that pursued neo-liberal policies not only lost the growth sweepstakes; when they did grow, the benefits accrued disproportionately to those at the top.

He does not name the countries. Is Chile supposed to be a loser? Or does he have the more corrupt Latin American states in mind? How about Ireland or for that matter the economic policies of Mrs. Thatcher? Was it a mistake for so many states to drop communism? How many African nations -- the real losers -- have adopted neo-liberal policies? Do Singapore and Hong Kong count?

Presumably China counts as a winner and of course it has a relatively strong state. Oddly some of the communists saw capitalism as building the economic superstructure for socialism and then communism. In reality the nominally socialist and communist government of China built the public sector superstructure to support a later capitalism.

Here's another claim Stiglitz makes:

One senior Chinese official was quoted as saying that the problem was that the US government should have done more to help low-income Americans with their housing. I agree.

In my view, while the private sector is largely to blame for what happened, the U.S. government has, over the years, done far too much to encourage the housing sector. I guess Stiglitz thinks it should have done even more.

I find the content of his essay difficult to understand, on a number of levels.

I agree with Tyler, too.

[John V]

good post from Cowen, macquechoux.

And speaking of difficult to understand, as Cowen says, try to make sense of this passage from Stiglitz in light of the theme he is pushing:

Nor did markets prepare us well for soaring oil and food prices. Of course, neither sector is an example of free-market economics, but that is partly the point: free-market rhetoric has been used selectively – embraced when it serves special interests and discarded when it does not. ...

This mixture of free-market rhetoric and government intervention has worked particularly badly for developing countries.

OK. And? This one stubborn nugget of truth pops up readily in statements from the likes of Stiglitz and other social democrats grappling with what they know as economists.

It's a common formula:

Blame X for Y and hint that the solution is an undefined and murky Z...all while admitting that the true "X", properly understood is not really in play for causing Y but rather Z is.

I dunno. Maybe I'm misinterpreting Stiglitz. But it seems clear that he almost can't help, as an economist, but refute his own political opinions which are not based on economics by pointing out a simple, glaring flaw in his own reasoning.

Stiglitz is a smart man. No doubt. But why would he essentially blame neo-liberalism, loosely defined, and then admit in the same paper that his foundation for this blaming is neo-liberal rhetoric posing as a front for ideological market perversions and special interests policies?

For his logical to be sound, you'd think he'd be taking an opportunity, in this article, to condemn those neo-liberal "supporters" who didn't walk the walk after talking the talk....quite a different argument from the strange one he's making.

[Dr. Alex Tokarev, The King's College, New York]

Dr. Stiglitz notes that the world has not been kind to free market ideas. I agree. But that is not news. Why? Because the world is run by elites. The history of the world is a history of tyranny interrupted by brief periods of economic liberalizations. In those rare cases where bureaucracy has been pushed off the back of the entrepreneurial, there has always been a sharp increase in living standards, a process which disproportionately benefits those at the bottom.

It makes no sense for those at the top to embrace philosophies, which threaten their privileged position in society. If laisez-faire policies had the tendency to redistribute wealth to the rich, such policies would have been used by the Caesars, the Hapsburgs, the Bourbons, and the Romanovs. But historical experience teaches that when the rich had all the political power they suppressed economic freedoms in favor of government regulations. They still do – rationally or instinctively.

Is it fair to blame misallocation of resources on neo-liberal policies? In this case Dr. Stiglitz mixes facts with fiction as skillfully as a trained neo-Marxist. There is no starker example of selective blindness and a gap between rhetoric and reality than starting with a heartbreaking description of American families kicked out of their homes and the world’s hungry, then jumping to conclusions against the market.

It is academic dishonesty to reveal only part of the truth about the companies responsible for the current mortgage crisis. Created by Uncle Sam and subsidized by Joe Taxpayer, Fannie Mae and Freddie Mac have never felt the pressure of the free market forces. Hence their irresponsible behavior. The same applies to some US and EU farmers, oil cartels, public education unions, healthcare monopolists, etc.

There is a silver lining in the cloudy analysis of Dr. Stiglitz. It is the lesson that we pay too much for tolerating the alliance of special economic interest with political elites. The interventionist fundamentalism is masking itself as pleas for protecting the national interests, the environment, or the least among us. It touts about the immediate private returns of government programs, disregarding their repercussions throughout the economy, and paying no attention to the long-term social costs. Interventionism has been tested many times, in various environments, under different technological and cultural circumstances. Unlike free market ideas, it has failed as a theory in the face of historical experience of repeated government failures.