16th October 2011
And now Joseph Stiglitz adds to the irrelevance of macroeconomics
I switched off from Stiglitz quite some time ago, but here's information that completely destroys his credibility (at least with people like me who are intent on finding the truth). He was out there at the Occupy Wall St festival on 2 October 2011 (despite being a multi-millionaire – which I do not envy!), and this is what he said:
I'm sure you couldn't listen to the whole thing either (people were apparently repeating his words since a megaphone was not available, and by repeating them others could listen). Here's a short summary of what he said – from other sources:
Pointed out that it was illegal to use a bullhorn in the park on a Sunday, and he said that was an example of "too many regulations stopping demonstrations and not enough from stopping Wall Street from behaving."
He said that Wall Street got rich by "misallocating capital" and by "socializing losses and privatizing gain… that's not capitalism… its a distorted economy."
You are right to be indignant. The fact is the system is not working right. It is not right that we have so many people without jobs when we have so many needs that we have to fulfill. It’s not right that we are throwing people out of their houses when we have so many homeless people.
Our financial markets have an important role to play. They’re supposed to allocate capital, manage risks. But they misallocated capital, and they created risk. We are bearing the cost of their misdeeds. There’s a system where we’ve socialized losses and privatized gains. That’s not capitalism; that’s not a market economy. That’s a distorted economy, and if we continue with that, we won’t succeed in growing, and we won't succeed in creating a just society.
This is Mark A. Calabria's take on Stiglitz's recent "great" contributions to economics:
Speaking before a group of protesters in Zuccotti Park, Nobel economics prize winner Joseph Stiglitz urged on the crowd, telling them they are “right to be indignant.” Professor Stiglitz goes on to explain, correctly in my view, that we have a financial system of socialized losses and privatized gains. [Sanjeev: That's precisely what the Keyensians want. I have strongly opposed the bailouts here.]What the good professor fails to mention is only a few years ago, for what I understand was a nice paycheck, he was denying this very fact. In 2004, along with Jonathan and Peter Orszag, Professor Stiglitz wrote a paper for Fannie Mae in which he “estimated” that the “risk to the government from a potential default on GSE debt is effectively zero.” The paper goes on to argue “that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million.” Now I understand his Nobel is in economics, not math, but $2 million sounds no where near the actual cost so far of $160 billion.Certainly there was a time where some could be forgiven for not really understanding the nature of Fannie and Freddie, but this was published after Freddie’s accounting scandals came to light and while Fannie itself was being investigated.
So yes, you do have a right to be indignant. Especially at those “academics” who sold their work to the highest bidder defending the system and now pretend to be shocked at how everything turned out.
The argument of Adam Smith , the founder of modern economics, that free markets led to efﬁcient outcomes, “as if by an invisible hand” has played a central role in these debates: it suggested that we could, by and large, rely on markets without government intervention. There was, at best, a limited role for government. The set of ideas that I will present here undermined Smith’s theory and the view of government that rested on it"