Daily Archives: June 20, 2012

Joseph E. Stiglitz | The Price of Inequality

At Truth Out, there is an item Joseph E. Stiglitz | The Price of Inequality . The following is a quote from the article:

It would be one thing if the high incomes of those at the top were the result of greater contributions to society, but the Great Recession showed otherwise: even bankers who had led the global economy, as well as their own firms, to the brink of ruin, received outsize bonuses.

A closer look at those at the top reveals a disproportionate role for rent-seeking: some have obtained their wealth by exercising monopoly power; others are CEOs who have taken advantage of deficiencies in corporate governance to extract for themselves an excessive share of corporate earnings; and still others have used political connections to benefit from government munificence – either excessively high prices for what the government buys (drugs), or excessively low prices for what the government sells (mineral rights).

Likewise, part of the wealth of those in finance comes from exploiting the poor, through predatory lending and abusive credit-card practices. Those at the top, in such cases, are enriched at the direct expense of those at the bottom.

The usual cry from politicians like Mitt Romney and Scott Brown is that the rich deserve their income and low taxes.  No doubt some of them do.  However, it is about time we stop falling for such stereotypes as a generalization for the vast majority of the very rich.

Of course, there are even readers of this blog who might say, “Who is this guy Stiglitz, and what does he know?”  I’d prefer to understand his arguments and judge them on their merits than resort to a war of credentials.  There are a number of highly credentialed people whose judgment isn’t worth a bucket of spit. However, some of my readers do seem to be impressed by credentials so here it is from the article itself.

Nobel Prize-winning economist

I generally downplay the Nobel Prize in Economics by reminding myself that Milton Friedman also won a Nobel Prize.  So the prize in and of itself doesn’t prove much.

Here is the beginning of what WikiPedia has to say:

Joseph Eugene Stiglitz, ForMemRS, FBA (born February 9, 1943) is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is also the former Senior Vice President and Chief Economist of the World Bank. He is known for his critical view of the management of globalization, free-market economists (whom he calls “free market fundamentalists“) and some international institutions like the International Monetary Fund and the World Bank.

In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. Since 2001, he has been a member of the Columbia faculty, and has been a University Professor since 2003. He also chairs the University of Manchester‘s Brooks World Poverty Institute and is a member of the Pontifical Academy of Social Sciences. Stiglitz is an honorary doctor of Durham Business School,[1] an honorary doctor at the Charles University, an honorary professor at Tsinghua University School of Public Policy and Management and a member of the Executive and Supervisory Committee (ESC)[2] of CERGE-EI in Prague. Stiglitz is one of the most frequently cited economists in the world.[3]

Are you suitably impressed yet?

At G-20’s closing, Obama prods Europe to boost growth

From a McClatchy news story, At G-20’s closing, Obama prods Europe to boost growth, I have taken the following quotes:

Treasury Under Secretary Lael Brainard told reporters Monday that the administration expected to see “a high degree of resolve to work together to address financial market tensions and more clarity about the need to strengthen demand.”
Treasury Secretary Timothy Geithner said the Europeans were designing the “financial architecture” to secure their financial system, including seeing that especially hard-hit countries like Spain and Italy that are making long-term reforms can borrow at existing low interest rates.

“Those two things are very important,” he said. “Not just the long-term reforms to build a stronger Europe, but the immediate steps to make sure that they’re stabilizing their financial systems and making sure these reforms can really work.”

And he said the Europeans have agreed to a focus on economic growth, “because of course, for these reforms to work in Europe over time, Europe needs to grow faster.”

Brainard said there had been a “noticeable shift in the European discussion recognizing the critical importance of supporting demand and job growth,” and she said the Europeans were looking at supporting project bonds and strengthening the European investment bank. Asked whether the shift included the German contingent, Brainard said it did.

“I think you’ll see it both in the documents and in their discussions,” she said.

In my recent conversations, I have spoken to two people who I thought were diehard Obama supporters in the current Presidential contest, and yet they don’t seem to understand the wisdom of what Obama is trying to do about the European situation.  Even the Treasury Secretary, Tim Geithner, seemed to be slow to catch on, but he has come around to the accepted macro-economic view of what is ailing the world economy.

I know how hard it is to understand how macro-economics differs from micro-economics in a few key aspects.  As hard as I try to explain it, people who have a strong moral view about about actions taken in the micro-economics realm cannot seem to let some of these ideas go when thinking about macro-economics.

As an engineer and as a sailor, I know that sometimes what applies in the small absolutely must not be tried in the large.  What I did sailing my 11 foot  Sunfish sailboard did not always apply to my 26 foot sailboat. (By volume and weight, the 26 foot boat is 13 times bigger than the 11 foot boat.)  I also know that no small boat sailor would have been aware of the problem that occurred when the QE2 sailed near Martha’s Vineyard at a speed that increased its draft beyond the depth of the water it was in. (The QE2 is on the order of 57,000 times the weight and volume of my 26 foot boat.)

People who run really big things have to be aware of all sorts of effects that people who run small things never have to worry about.  It is impossible for people who run small things to even imagine the issues confronting people who run big things.  People who only run small things need to read about the problems that occur with big things with an open mind.  If they cannot fathom (pun intended) the concept that there are differences between the large and the small, they simply dismiss what the read about the problems of the large.  I am hoping that the boating analogy used above can be mind and eye opening to the possibilities.

Economist Paul Krugman on Germany’s ‘Whips and Scourges’

Economist Paul Krugman on Germany’s ‘Whips and Scourges’ has an excellent interview of Paul Krugman on PBS explaining some important issues about the current financial crisis in Europe. There is no date given for the interview. However Krugman is obviously speaking at a time when Nicolas Sarkozy was still President of France. That ended on May 15. This would put the interview at least a month old.

At the end of the article is “a rebuttal of sorts from Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.” I guess this is just proof that you can find whatever view you want whenever you look at the same set of facts. I don’t think the Peterson Institute is quite as bad as The American Enterprise Institute, but they do seem to have a decided institutional point of view as reflected by Jacob Kirkegaard.

The pointer to this interview and article was sent to me by someone who thought it contradicted Paul Krugman as quoted in my previous post We Don’t Need No Education. Try as I might, I cannot see where there is a contradiction.