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Arabica Robusta

Pambazuka - The state, private sector and market failures - 0 views

  • In 2008, Clinton denied responsibility for refusing to regulate derivatives. He changed his mind in 2010, then blaming his advisors, among whom were Treasury Secretaries Robert Rubin and Larry Summers and the Chair of his Council of Economic Advisors, Joe Stiglitz. Larry Summers went on to become President of Harvard University. Joseph Stiglitz went on to be Chief economist of the World Bank and then professor at Columbia University. Summers showed little remorse for his role in the deregulation era. Joe Stiglitz, in contrast, became the best known critic of deregulation.
  • at what point did Stiglitz, in his role as a senior Clinton policy advisor, become convinced of the severe damage that would result from deregulation? ... As one important example, the general tenor of the 1996 Economic Report of the President, written under Stiglit’s supervision as Chair of the Council of Economic Advisors, is unmistakably in support of lowering regulatory standards, including in telecommunications and electricity. This Report even singles out for favourable mention the deregulation of the electric power industry in California — that is, the measure that, by the summer of 2002, brought California to the brink of economic disaster, in the wake of still more Enron-guided machinations.”
  • Professor Stiglitz’s great contribution has been to challenge both these assumptions. As he has shown, asymmetric information is a pervasive feature of how real-world markets operate. The free market is an ideological myth. In the real world, imperfect information makes for imperfect markets.
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  • Before discussing its limits, I will summarize Professor Stiglitz’s response to the problem he calls “market failure.” Professor Stiglitz attributes “market failure” to “lack of transparency.” He has several recommendations on how to check market failure. The first is that government needs to bridge the gap between social returns and private returns, both to encourage socially necessary investment as in agriculture and to discourage socially undesirable investment as in real estate speculation. Second, the government may set up specialized development banks. In support, he cites the negative example of America’s private banks and their “dismal performance” alongside the positive example of Brazil’s development bank, a bank twice the size of the World Bank, and its “extraordinary success” in leading that country’s economic transformation. Finally, Professor Stiglitz cautions against liberalizing financial and capital markets as advised by the Washington Consensus.
  • I am not an economist, but I have been forced to learn its basics to defend myself in the academy and the world. Like you, I live in a world where policy discourse has been dominated – I should say colonized – by economists whose vision is limited to the economy. Professor Stiglitz derides this as “free market fundamentalism” and I agree with him. Like fundamentalist generals who think that the conduct, outcome and consequence of war is determined by what happens on the battlefield, the thought of fundamentalist economists not only revolves around the market but is also limited by it. Just as war is too important an activity to be left to generals, the material welfare of peoples is also too important to be left to economists alone.
  • The Eurozone was created as a single currency for Europe but without constituting Europe as a democratic polity. The result was that monetary policy was formulated outside the framework of democracy. The states in Europe have done to their own people what the Washington Consensus did to African peoples in the 1980s. Unelected governments rule Europe; the EU ruling phalanx is not accountable to anyone.
  • Here is my point: The antidote to the market was never the state but democracy. Not the state but a democratic political order has contained the worst fallout from capitalism over the last few centuries. The real custodian of a democratic order was never the state but society. The question we are facing today is not just that of market failure but of an all-round political failure: the financialization of capitalism is leading to the collapse of the democratic order. The problem was best defined by the Occupy Wall Street movement in the US: it is the 99% against the 1%.
  • It would be a shame if this audience is to walk away from Professor Stiglitz’s lecture with a message that the problem is just one of “market failure” and the solution is a robust state that regulates markets and provides development finance. Is the lesson of the Structural Adjustment era simply that we need strong states to defend ourselves from the Washington Consensus? Or does the experience of the SAP era also raise a second question: What happens if developing countries are forced to push open their markets before they have stable, democratic institutions to protect their citizens? Should we be surprised that the result is something worse than crony capitalism, worse than private corruption, whereby those in the state use their positions to privatize social resources and stifle societal opposition?
Arabica Robusta

Europe's Ugly Future: A review of Varoufakis, Galbraith & Stiglitz - Foreign Affairs | ... - 0 views

  • Without a currency that could appreciate against those of her trading partners, German productivity increased and its technical excellence produced a declining real cost of exports, while in its European trading partners, deprived of currencies that could depreciate, stable purchasing power and easy credit produced a corresponding increase in demand for German goods.
  • Stiglitz concedes that austerity may eventually work, but he argues that even if it does, the cost is too high. Better to allow countries to declare bankruptcy and start over, just as individuals and firms can do in a domestic economy. Varoufakis and Galbraith dismiss austerity as flatly self-defeating, because low growth simply ends up increasing the debt-to-GDP ratio.
  • Germany has emerged almost unscathed—at least so far. Berlin has preserved the existing euro system, which advantages it as an international creditor, an exporter of high-quality goods, and a country that suppresses wage increases. It has enjoyed lower interest rates and higher growth than the rest of Europe, which has depressed the real cost of its exports, resulting in a trade surplus larger in absolute terms than China’s.
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  • Such options range from Grexit to his preferred alternative of breaking the eurozone into several subgroups, each with its own currency.
  • Varoufakis and Galbraith would likely sympathize with his proposal and clearly regret that Greece lacked the political courage to forsake the system earlier, when it could have done so more easily. Yet even the radical step of breaking up the eurozone, Stiglitz makes clear, would probably help deficit countries only if Germany agreed to increase domestic spending, rein in speculation, and reduce deficits
  • As Varoufakis writes, “All talk of gradual moves toward political union and toward ‘more Europe’ are not first steps toward a European democratic federation but, rather, and ominously, a leap into an iron cage that prolongs the crisis and wrecks any prospect of a genuine federal European democracy.” Thus, one is forced to conclude that short of a catastrophic economic crisis, Europe can do little more than continue to muddle through in a self-induced state of austerity, thereby undermining its future prospects and global standing.
Arabica Robusta

Does The Richness Of The Few Benefit Us All? By Zygmunt Bauman - 0 views

  • In the era of the Enlightenment, during the lifetimes of Francis Bacon, Descartes or even Hegel, in no place of Earth the standard of living was more than twice as high as in its poorest region. Today, the richest country, Qatar, boasts an income per head 428 times higher than the poorest, Zimbabwe. And these are, let’s never forget, comparisons between averages – and so akin to the facetious recipe for the hare-and-horsemeat paté: take one hare and one horse…
  • As the authors of the quoted article warn, the prime victim of deepening inequality will be democracy – as increasingly scarce, rare and inaccessible paraphernalia of survival and acceptable life become the object of a cut-throat rivalry (and perhaps wars) between the provided-for and the left-unaided needy.
  • And he adds: “Growing income inequality, though obviously undesirable from a social perspective, doesn’t necessarily matter if everyone is getting richer together. But when most of the rewards of economic progress are going to a comparatively small number of already high income earners, which is what’s been happening in practice, there’s plainly going to be a problem.” [ii]
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  • According to the Helsinki-based World Institute for Development Economics, people in the richest one percent of the world population are now almost 2000 times richer than the bottom 50 per cent. [v]
  • Ten years later François Bourguignon [viii] found out that while the planetary inequality (between national economies), if measured by the average income per head, continues thus far to shrink, the distance between richest and poorest national economies continues to grow, and internal income differentials inside countries continue to expand.
  • As long ago as in 1979, a Carnegie study [x] vividly demonstrated what an enormous amount of evidence available at that time suggested and common life experience continued daily to confirm: that each child’s future was largely determined by the child’s social circumstances, by the geographical place of its birth and its parents’ place in the society of its birth – and not by its own brains, talents, efforts, dedication.
  • This is how Joseph Stiglitz sums up the revelations brought up by the dramatic aftermath of the two or three arguably most prosperous decades-in-a-row in history of capitalism that preceded the 2007 credit collapse, and of the depression that followed: inequality has always been justified on the grounds that those at the top contributed more to the economy, performing the role of “job creators” – but “then came 2008 and 2009, and you saw these guys who brought the economy to the brink of ruin walking off with hundreds of millions of dollars.”
  • In his latest book The Price of Inequality (WW Norton & Company 2012), Stiglitz concludes that the US has become a country “in which the rich live in gated communities, send their children to expensive schools and have access to first-rate medical care. Meanwhile, the rest live in a world marked by insecurity, at best mediocre education and in effect rationed health care.”
  • Stewart Lansey falls in with Stiglitz’s and Dorling’s verdicts that the power-assisted dogma meriting the rich with rendering society service by getting richer is nothing more than a blend of a purposeful lie with a contrived moral blindness: according to economic orthodoxy, a stiff dose of inequality brings more efficient and faster growing economies. This is because higher rewards and lower taxes at the top – it is claimed – boost entrepreneurialism and deliver a larger economic pie.
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