It seems to me that if Stiglitz and Krugman represent the very best in what mainstream economics has to offer, then it seems that all is lost. (I’m not attacking them personally.)
In this interview, Stiglitz proposes policies that make no sense and will actually damage the economy (obviously, my conclusion is based on the Austrian perspective about how the economy works). He mentions that he and Krugman have recommendations that should be followed.
My question is: How do we, as students of sound economics, cope with the mainstream like Stiglitz and Krugman? Everything they say, in interviews like this, is wrong. Do we ignore them? Go to battle with them? They are placed on the highest academic and intellectual pedestals. I suggest we can do nothing about this situation, other than continue to speak the truth. We cannot counter them, and we cannot stop them.
I’d have to agree with you. There isn’t much that we, or even professional Austrian economists can do about Krugman and Stiglitz. They are professors at some of the most prestigious schools in the world whose policies have a lot of political clout. Who will the establishment believe? A bunch of free market “kooks” who say the government has put the U.S on a path of destruction and hyperinflation or Ivy league academics who say that the government is doing the right thing and won’t really have to change a damn bit at all? The only thing we really can do is what you said, learn more and practice countering them, spread the word, and pray that Ron Paul or Peter Schiff gets to debate them on Fast Money or something. [:P]
Yes. Excellent point. To learn how to cope with Krugman and Stiglitz, maybe I need to read more Rockwell. Quotes like that are helpful. Here’s an idea for a new book: Chicken Soup for the Austrian Soul. It would have quotes from Krugman, Stiglitz, et al, on one page, then quotes from Rockwell, etc. on the opposite page to help sooth the reader’s distress. I actually think this is a book idea that is practical, if not intellectual or academic.
What specifically do you disagree with? Stiglitz is absolutely correct that an increase in economic growth will make debt easier to service (Greg Mankiw explained this concept effectively in a recent NYT column). All he is suggesting that government deficit spending focus on ways to improve economic growth–like education, technology, and infrastructure. Now, as an empirical matter, there are certainly differing opinions about whether increasing government funding for education or the like will actually increase economic growth. But as matter of pure economic logic, Stiglitz’s argument is consistent (meaning the conclusions follow logically from the assumptions)–if government spending did effectively increase economic growth more than what it would have been, then servicing the debt will without a doubt be easier.
If you want to disagree Stiglitz, you should focus on illustrating that his logic is not sound (that even though the argument is logically consistent, the assumptions he is utilizing are not true). Maybe that would mean pointing out studies that show how poorly government attempts to assist education or technology work out. If the government cannot effectively encourage economic growth through investments in infrastructure, technology, education, then Stiglitz’s argument falls apart. But this is strictly an empirical question and it cannot be answered theoretically.
This is a sticky subject. It’s almost painful to hear some of the main Keynsians talk about economics. They seem to do a fine job at influencing people. No matter how bad something goes, the media has a tendency to ignore the bad and say that some good came from it, so it must have been sound policy. It never really seems to matter that the policy has rarely, if ever, succeeded at what it set out to do.
Well…you are correct to point out that my post is not intellectually sound (my words, not yours) in that I did not attempt to address each point with logical arguments backed up by, for example, peer reviewed research studies that validate my points. The point of the thread was “how to cope with Stiglitz and Krugman”, not how to counter their arguments. Caley’s reply that quoted Lew Rockwell, “just let the crazy statist schemes fly” is what I was looking for. (By the way, I disagree with every proposal Stiglitz suggested.)
You are absolutely correct. Any argument for this should be countered by pointing out areas where the logic of his argument falls apart. The only down side to this approach is anyone who reads what Stiglitz said assumes that he is a viable source of information in and of itself. I recently had a similar problem with a friend in debating the profitability of the Post Office. He said it only stopped being profitable in the 80’s. I disagreed, but I could find no source what so ever. Yay interwebs.
The fact that this was in the “Economics Questions” section got me confused. That’s why I was directly addressing the economic content of the arguments, not how you can cope with the emotional pain of seeing Joe Stiglitz disagreeing with your libertarian policy perscriptions. Maybe we need a “Support Group” section especially for building up the self-esteem of the politically distraught.
using mainstream public choice theory, one could argue that democracy could never allocate the right amount of education/infrastructure efficiently.
Plus from the austrian side, one could also argue that the state doesn’t have the ability to allocate capital (like goods to build infrastructure or sometimes infrastructure itself) -there is a calculation problem.
I think those are some profitable lines of more or less theoretical reasons and not just empirical ones no?
Those are indeed theoretical qualitative reasons for suspecting that government efforts to encourage economic growth to fail, but the question most relevant for Stiglitz’s argument is whether these problems are quantitatively large. A public choice economist might say “well government bureaucrats will not have the incentives to make good choices with regards to schooling curriculum because their salary is not dependent on the school’s performance and they face no competition.” Okay. Great point. But how much will those bad incentives lead to bad behavior on the part of the school administrator? In the cafeteria of the company I work at, there is no one out front after 4:30 because they are all in the back washing dishes and such. I could easily go down there every day and still a cookie from the front counter. Yet, I don’t. Why? Morals I guess. I’m sure one or two people probably do steal cookies. But it is not such a huge problem that anyone has noticed. At the margin, worse incentives will indeed lead to worse behavior. But for Stiglitz’s argument the question is whether the problem is quantitatively large. And that can only be answered empirically.
Think of it this way, in a more familiar setting. You and I both agree that if the price of a good goes up, we can QUALITATIVELY say that the quantity demanded will go down, right? At the margin, people will certainly purchase less of this good. Great. But let’s say the price of a good only went up 1 penny, would that cause a QUANTITATIVELY significant decrease in quantity demanded? I don’t know. It’s an empirical question. It will depend on the shape the of the demand curve. If demand is very elastic, then yes, this could result in a significant decrease in the quantity of of the good demanded.
Now, my point could just as easily apply to Stiglitz himself. If I was talking to him and he told me “man, we really need the govt to fund education because there are positive externalities from improvements in a smarter work force that make it likely that the private sector will underinvest in education without government assistance.” I could simply say “Great! But are these externalities quantitatively large? If they are not, then there is no reason to think government will achieve significantly better outcomes than the private sector.”
Measuring the impact of incentives, the size of exteranalities, these are all hard questions to answer and in my opinion most answers will never be definitive. This is why I say most interesting questions are empirical and that we could likely never hope to answer them conclusively.
Caley, haha I’m glad you noticed. I threw that in there because I knew that many Austrians hate the notion that something can’t be answered by simply re-reading Human Action. I think if I left that sentence out (or if I phrased it differently) there wouldn’t have been much more discussion after that. So I threw it out there to be deliberately antagonistic. [H]
But only because I enjoy chatting around with you guys on this stuff. It makes my work day more enjoyable.
Or you could simply put your money where your mind is and try to profit from the ignorance of your market peers. The free market will reward the truth with wealth and punish the falalcies with failure. The wider and deeper the ignorance out there, the better the opportunity for the enlightened to profit from it. It’s the Austrian way.
Are you saying an individual such as Stiglitz or somebody similar, desires data to show if or if not an act upon the market via government decree is optimal or not? Yet we both know that interventionist economic theories have changed over time to deal with real-time market conditions, so, is society basically an on-going experiment until all the data has been collected to get it right (meanwhile the data will be dynamic and in flux so another nail biter), but meanwhile the economists getting the ring from the president or what have you, still need to come up with something that is the best for the time being. It almost sounds like, ‘hold your breath and pray’.
I would like to hear your response. Not a debate. More of a learning experience for me to get an idea on where you are coming from on this. Thanks.
I think that listing everything that is disagreeable with Stiglitz would be almost impossible. To be honest, the only important work by him that I’ve read is Making Globalization Work, but it is complete trash. I have Freefall coming through the mail, but I skimmed through it at the bookstore and it didn’t look much better. One of Stiglitz’ biggest problems is his refusal to look at “the other side”, or at least double check his terminology. He puts the responsibility of certain programs on the theory of different ideological economic schools of thought. For example, he links the “Washington Consensus” to supporters of the free-market. Superficially, he might be right, as that was the ideology that was used to pass those trade agreements, but they do not represent a real free-market trade program.
Although not perfect, I criticize some of the points he makes in Making Globalization Work: How Not to Make Globalization Work. This was an assignment for my political science class, and so the length was capped and I could only hit on a few points.
It depends entirely on what kind of debt, and how the debt is being funded. What Greg Mankiw in the article you linked to, and Paul Krugman is a number of blog posts, forget is that a large portion of our future debt will be unfunded liabilities, which are the unpaid future costs of our social insurance programs. Economic growth does not make these much more serviceable, given that these have a tendency to increase overtime - even if inflation is kept to a minimum. Social insurance programs are untenable over the long-run for this very reason. You cannot grow or inflate your way out of long-term liabilities that can never be paid in full.
I’m not sure Stiglitz is even logically consistent. See the chapter on patents in Making Globalization Work; I touch upon it in the link above:
It can only be answered theoretically; the theory can then be disproved based on empiricism, but empiricism cannot prove anything. You can disprove Stiglitz’ argument through empirical means, but you haven’t proved anything else.
Speaking of Stiglitz and Krugman, I noticed that these two offered up somewhat contradictory analysis of the Greek fiscal disaster.
Stiglitz - The euro is under speculative attack. It’s the speculators’ fault for selling so many euros and devaluing the currency.
Krugman - The Eurozone did not inflate enough. They should have targeted something like 4% instead of 2%. And now, they desperately need the magic cure of inflation (devaluing the currency).
So, a decrease in the euro’s value is bad according to Stiglitz, and good according to Krugman.
As far as I understand, Krugman’s argument is actually that given the eclectic mix of economics that make up the Eurozone you can’t make a fiscal policy that fits them all. High inflation is not good for central Europe, while he supports inflation in countries like Spain and Greece - basically to inflate their way out of debt, but I address this is in my first post.