Wednesday, October 04, 2006

Damned Stiglitz

Good interview with noted economist Joseph Stiglitz in the current Management Today. It covers a good range of topics, including Stiglitz's experiences of the dominant orthodoxy at the IMF -
As he explains in Globalisation and its Discontents, Stiglitz discovered that it was going to be difficult for him to work in the way he wanted to. There was a crucial discussion to be had about the direction of global economic policy, but the IMF did not seem interested in having it. 'It was very difficult to generate an open, public debate with the IMF,' he says. 'They would say: "We can have a debate, but it has to be closed".
'In 1997 the IMF decided to change its charter to push capital market liberalisation. And I said, where is the evidence this is going to be good for developing countries? Why haven't you produced some research showing it was going to be good? They said: we don't need research; we know it's true. They didn't say it in precisely those words, but clearly they took it as religion.'

And what happens if you challenge such orthodoxy? You get damned -
When the IMF finally consented to debate these issues in the summer of 2002, Stiglitz was bushwhacked. The meeting was off the record, but the IMF immediately released its statement to the press - the Rogoff 'snake oil' slur quoted above. 'They had clearly planned this as an ambush,' Stiglitz says. 'It clearly backfired.'
Had he been expecting such a violent, ad hominem attack? There is a pause, a sheepish grin. 'No, no, I wasn't,' he says. 'I probably should have been. My wife warned me to expect it, but I didn't.'
Has this made him cynical about politics and what happens to academics who get involved? The question provokes another long pause, the longest in our time together. 'It obviously made me think a great deal about what was going on,' Stiglitz says. 'But they couldn't discredit the arguments. The arguments were correct - there was evidence and analysis.
'What do you do when you can't win an argument? Well, in the Middle Ages you had the Inquisition, you executed the person - but we can't do that. So what you do is you try and discredit the person.
'And it was clearly an attempt. There was a mantra. They'd say: "Oh well, he's a very bright person" - it always begins with that - "but he has a political agenda, he doesn't understand policy, he should have stuck with academia..." It is an attempt to discredit, to say that academia has nothing to do with the policy, and the policy is flawed, or that the policy is motivated by a personal agenda or a political agenda. The interesting thing is that it became almost a ritual. A recent New York Times book review had nothing to do with the book at all...
'What they didn't realise was that the policy positions I took were very strongly based on my academic work. I view the work as seamless. Predictions about why the policies in East Asia failed were based on my theoretical papers. So in a way they were a vindication of the theories, and that the old theories of perfect information were flawed. I had talked about this effect.
'There is now a rearguard action from a lot of economists who still want to believe in unfettered markets. And because they can't attack the economics, they have become political scientists, in a way. Their answer is not that markets work perfectly, but that government works more imperfectly. So, yes, markets don't work, but trying to do anything about it is likely to be worse.'

I've not read Stiglitz's latest pop-econ book, Making Globalisation Work, yet, but his earlier Globalisation and its Discontents and The Roaring Nineties (along with his hugely important papers on information asymmetry, of course) are highly recommended.



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