The Guardian has an opinion piece by Joseph Stiglitz that is simmering with rage and resentment. Stiglitz, perhaps a bit too early, is relishing the return of Keynesian thinking to government. But it is clear he nurses more than a few bitter feelings about being left out of the circles of power and influence (and this comes from a Nobel laureate!):
For those of us who always claimed some connection to the Keynesian tradition, this is a moment of triumph, after having been left in the wilderness, almost shunned, for more than three decades. At one level, what is happening now is a triumph of reason and evidence over ideology and interests.
Economic theory has long explained why unfettered markets were not self-correcting, why regulation was needed, why there was an important role for government to play in the economy. But many, especially people working in the financial markets, pushed a type of “market fundamentalism”. The misguided policies that resulted – pushed by, among others, some members of President-elect Barack Obama’s economic team – had earlier inflicted enormous costs on developing countries. The moment of enlightenment came only when those policies also began inflicting costs on the US and other advanced industrial countries.
Translation: Barack, baby, what didn’t I do?
Once Stiglitz gets that out of his system he has a laundry list of ideas that he wants to jam into a short piece. The first item has to do with our old friend Amity Shlaes and the persistent notion she peddles that the New Deal exacerbated the Great Depression’s severity and length. By extension, her fellow travellers believe anything the state does is Keynesian, even if it involves monetary policy:
Keynes argued not only that markets are not self-correcting, but that in a severe downturn, monetary policy was likely to be ineffective. Fiscal policy was required. But not all fiscal policies are equivalent. In America today, with an overhang of household debt and high uncertainty, tax cuts are likely to be ineffective (as they were in Japan in the 1990s). Much, if not most, of last February’s US tax cut went into savings.
Finally, Stiglitz takes a big swipe at Paulson and Bernanke’s bank bailout:
one should read history and theory carefully: preserving financial institutions is not an end in itself, but a means to an end. It is the flow of credit that is important, and the reason that the failure of banks during the Great Depression was important is that they were involved in determining creditworthiness; they were the repositories of information necessary for the maintenance of the flow of credit. But America’s financial system has changed dramatically since the 1930s. Many of America’s big banks moved out of the “lending” business and into the “moving business”. They focused on buying assets, repackaging them and selling them, while establishing a record of incompetence in assessing risk and screening for creditworthiness.
Getting Bang for Your Buck
The Guardian, December 5, 2008