How can you ignore Joseph Stiglitz?

This article from Michael Hirsh of Newsweek is quite disturbing and interesting. Obama and his team have been ignoring Joe Stiglitz for a while and his expertise is not being used for policymaking. The reasons are pretty silly- his rivalry with Larry Summers. Stiglitz has been criticising Obama(despite his supported Obama for Presidency) and his team for their policies which has not been taken kindly by the team. The article says only Obama wants him but other don’t.

I was wondering how do you ignore Stiglitz in these times? He is perhaps one of the best people around and has written extensively on issues which are haunting us in these times- information asymmetry, financial globalisation, financial regulation, international governance etc etc. He was criticised heavily for his same ideas before the crisis but he clearly had the last laugh. He was really misunderstood for being anti-markets, globalisation etc. All he said was the market incentives are pretty asymmetric and do not result in desired market outcomes. As a result, you need some regulation/intervention. His ideas of appropriate regulation/intervention could be debated but his main ideas have stood the test of time.

I was also reading this Buiter blog post on the Fed.

The Fed did not see the crisis coming

This criticism is clearly correct.  The Fed’s failure to foresee the storm, even when it was imminent, represents an indictment of its competence at one of its key tasks: discerning developments likely to lead to systemic financial instability before the instability manifests itself, and taking preventive measures.

The Fed failed utterly in this task, but so did every other regulator, supervisor and government agency or official with even an indirect responsibility for financial stability.  Alan Greenspan did not see it coming during the almost 20 years (1987 till 2006) he spent at the Fed; neither did Ben Bernanke, a member of the Board of Governors of the Federal Reserve System from2002 to 2005, Chairman of the President’s Council of Economic Advisers from June 2005 to January 2006 and Chairman of the Fed since February 1, 2006. Hank Paulson did not discern any financial crisis clouds on the horizon, either during his many years with Goldman Sachs (1974-2006), or during the first year of his tenure as Treasury Secretary (July 2006 – January 2009).  Likewise, Tim Geithner failed to foresee the crisis when he was Under Secretary of the Treasury for International Affairs(1998–2001) under Treasury Secretaries Bob Rubin and Larry Summers or as President of the New York Fed (2003 – 2009). Larry Summers was similarly blinded by the light during his years at the US Treasury (1993 -2001), including his years as Deputy Secretary under Bob Rubin (1995-1999) and his tenure as Treasury Secretary (1999-2001). There was not a Dicky Bird either from  Don Kohn or Bill Dudley.  So the list of dogs that did not bark is a long and distinguished one.

And we still have the same team in key policy roles barring Paulson and Rubin. Were they not criticised so heavily, I am sure we would have had them in some capacity. Krugman in this post remarks on Stiglitz article:

Yes, Joe should be playing a bigger role — he’s an insanely great economist, in ways you can’t really appreciate unless you’re deep into the field. I’d say that he’s more his generation’s Paul Samuelson than its John Maynard Keynes: as with Great Paul, almost every time you dig into some sub-field of economics — finance, imperfect competition, health care — you find that much of the work rests on a seminal Stiglitz paper.

But the larger story is the absence of a progressive-economist wing. A lot of people supported Obama over Clinton in the primaries because they thought Clinton would bring back the Rubin team; and what Obama has done is … bring back the Rubin team. Even the advisory council, which is supposed to bring in skeptical views, does so by bringing in, um, Marty Feldstein.

 All this is pretty unnerving literally. We have the same set of people whose beliefs should be reviewed and questioned by having likes of Stiglitz in your team. But all you see is the same names. No one is doubting the caliber of these people (far from so). But we need other people in the team as well who saw things differently even in good times. It is then only we can get some proper policies for future.

I also remember reading this NYT articlewhich pointed to differences in Obama team. Simon Johnson also pointsto some differences between Summers and Geithner. But I am not sure. We need people like Stiglitz to be there as well even as outside consultants. It is then only we can see some difference in policies. True, we need quicker decisions and do not have time for differences but having same set of people is not good at all for economic prospects.

Somewhere down the line I believe that we are seeing some kind of economist oligarchy like financial oligarchy as well ( I discuss this briefly in my paper as well). They are star economists whose papers/views become hallowed instantly. If you agree with them fine, if you disagree you have to wait for moments like today’s and even then there is no guarantee that you will be heard. Most likely, the same people would again capture the main work/policies. Minsky would have loved to be around this time and would have been easily the most respected economist. But he was clearly ignored then. There are so many such names. Krugman in the same Stiglitz post says:

The point is that even if you think the leftish wing of economics doesn’t have all the answers, you’d expect some people from that wing to be at the table. Yet I don’t see Larry Mishel, or Jamie Galbraith … Jared Bernstein is it.

Joe Stiglitz stands out because in addition to being on the progressive wing, he’s also, as I said, a giant among academic economists. But I think the real story is more about excluded points of view than excluded people

How do we get over this oligarchy? Internet has helped somewhat as we get to know about so many views now. But still it is not enough. In economics we believe markets should be competitive but clearly the economist market itself is in under deep trouble.

I also keep thinking why we in the economics profession ignore market asymmetries/failures despite they occurring every now and then? Why is someone who points these asymmetries/failures in good times is laughed upon/ignored/belittled? 

And then suddenly when the moment of asymmetries/failures arrives we rush to him/her like crazy.  The first camp is first astonished to see their beliefs shattered (0nce again) and then some keep defending their view and others look for other reasons. we have preferred to model everything on rationality and rational beings whereas reality is different. Even taken together, people behave highly irrationally. Just because it is difficult to theorize irrationality does not mean it does not exist.

I agree “markets work” is the most important lesson of economics and we would like to have it that way, but the misses are as important and cannot be ignored. We have had too many recently. Much of economics should be to work on these misses and make markets better. However, our energiesare spent only on working on the rational being. The ignorance was happening as we saw these misses in emerging/developing economies. I hope things change now.

One Response to “How can you ignore Joseph Stiglitz?”

  1. Comparing Japan and Asian crisis with US 2007 crisis « Mostly Economics Says:

    […] Unfortunately, as key US policymakers have hardly changed there is no one to remind them of the lessons. They have been conveniently […]

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