OK, so the first post in academic papers isn’t an academic paper, but it is an epic takedown of a Nobel Prize winner: Joseph Stiglitz.
And it is epic.
First, some background.
Stiglitz is Washington establishment. Democrat establishment. And he is an economic genius. You don’t win the John Bates Clark medal unless you are a bit special.
And, boy, is he special.
But before we get to Stiglitz, I’d like to introduce you to another take down of another Nobel prize winner; in this case, Paul Krugman. The point being made that when Nobel prize winners stray from their field of expertise their words lose value. In other words, they’re using their authority instead of their knowledge to win the argument. This point is said here to Krugman’s face [watch from 35:30 – 36:47 – it’s worth it, even if it needs buffering].
But there’s plenty of time for Krugman later. Back to Stiglitz.
Under the heading ‘Continually mistaken, chronically admired’, Gene Epstein shows you just how special Stiglitz is.
Next time you see Stiglitz quoted, remind yourself of this:
In 2006, Nobel Prize–winning economist Joseph Stiglitz praised the economic policies of Hugo Chávez. The Venezuelan president ran one of the “leftist governments” in Latin America that were unfairly “castigated for being populist,” Stiglitz wrote in Making Globalization Work, published in September of that year. In fact, the Chávez government aimed “to bring education and health benefits to the poor, and to strive for economic policies that not only bring higher growth but also ensure that the fruits of the growth are more widely shared.” In October 2007, Stiglitz repeated his praise of Chávez at an emerging-markets forum in Caracas, sponsored by the Bank of Venezuela. The nation’s economic growth rate was “very impressive,” he noted, adding that “President Hugo Chávez appears to have had success in bringing health and education to the people in the poor neighbourhoods of Caracas.” After the conference, the Nobel laureate and the Venezuelan president had an amicable meeting.
What’s odd is the latter-day conversion he had away from the free market.
From Stiglitz’s perspective, markets are rife with failure in processing and conveying information, and government must be ready to correct these failures. In his Nobel lecture, Stiglitz spoke of having “undermined” the free-market theories of Adam Smith, asserting that Smith’s “invisible hand” either didn’t exist or had grown “palsied.” He noted that major political debates over the past two decades have tended to focus on the “efficiency of the market economy” and the “appropriate relationship between the market and the government.” His approach favoured government. This context helps explain his endorsement of Chávez; his public assent to a minimum-wage hike, a policy that he had earlier opposed, in a textbook he authored; and his notorious 2002 finding that the risk of government-sponsored enterprises Fannie Mae and Freddie Mac defaulting on their debt was “effectively zero.”