Monday, February 8, 2016

Joseph E. Stiglitz and Hamid Rashid — What’s Holding Back the World Economy?


Out of paradigm.

Project Syndicate
What’s Holding Back the World Economy?
Joseph E. Stiglitz and Hamid Rashid

9 comments:

NeilW said...

Economists and the politicians who believe them.

Andy Blatchford said...

"Out of paradigm" more like out of this reality, that is extraordinarily awful.

circuit said...

Tom, which part? I can usually tell when you say that but not in this case.

Tom Hickey said...

1. Overall, mention of demand only by implication. This is somewhat surprising since lately Stiglitz has been leading with demand.

What's holding the global economy back? Lagging demand, which is depressing investment. This is being exacerbated by widespread adoption of fiscal austerity, wage suppression, and a focus on "export lead growth."

So as whole, it's out of paradigm even though his analysis is correct and the points are well taken. But the focus saying what was done wrong instead of saying what should be done ASAP. This ship is taking on water.


2. This specifically out of paradigm: "But large increases in public investment in infrastructure, education, and technology will also be needed. These will have to be financed, at least in part, by the imposition of environmental taxes, including carbon taxes, and taxes on the monopoly and other rents that have become pervasive in the market economy – and contribute enormously to inequality and slow growth."

An MMT economist would never lead with public investment needs to be financed even in part with taxes. Idle resources? Government has the means to employ them if the private sector can't, or doesn't want to.

I think Joe knows better, but this comes across as a desire to "speak their language" instead of rising to the occasion and hitting them between the eyes with a 2X4 to get their attention. This is not the time to be thinking about rearranging the deck chairs.

Tom Hickey said...

BTW, I agree that the accumulated rents should be taxed away, but not under the guise of needing to finance public investment.

We should lead with a vision and what spending it will take to actualize. The common welfare and public purpose should be the priority of fiscal policy.

Then we should look at tax as a disincentive to free riding, which is what rent is.

Finally, other tax policy should be geared to addressing price stability.

Unknown said...

Half of Sander's platform is imposing taxes to discourage socially damaging activity and claiming they're for funding purposes. Everyone is afraid to be the first in laying it out straight.

Matt Franko said...

You have a Jewish guy and probably a Muslim here... all we need is a representative from Christendumb for the trifecta... so of course they would make a statement like this:

"These will have to be financed..."

as all of those kinds of people's operative paradigm is "borrow > default > forgive..."

And this is interesting from Tom's excerpt: "and taxes on the monopoly and other rents that have become pervasive in the market economy "

ha LOL! Well those rents have been removed to the tune of estimated currently at equiv. $3T/year as a flow with oil down here at $30 due to 100% to the hard work/increased productive contribution of the US/Canadian oil workers... now where do we "get the money!!!"

circuit said...

Thanks for the response Tom. The part about financing slipped past me. That said, I'm not as critical as others on this site about this issue. I *think* MMT would agree that, in one way or another, when taxes are used, they always finance spending. In the case of the US federal government, taxes finance spending in real terms. Stated differently, taxes finance spending in terms of their utilization of productive capacity, just not in nominal terms.

I didn't think the rest was that bad either. I thought the critique of QE, obsession with interest rates, and the focus on public investment would probably get the average reader to question some of the conventional truths out there.

Tom Hickey said...

I don't think it is that bad either. It's just not in paradigm with MMT. But it is not wrong like other things are wrong. The approach is wrong. People like Stiglitz and Galbraith get it, I believe, but they don't come out and say it. Rather they continue to talk in econospeak.

It's kind of like Bernie Sanders correctly wanting to tax away rents but presenting it in away that suggests the US needs to get money for spending.

From the accounting POV, taxes and borrowing do "fund" expenditure, but unless one knows the technical meaning of these terms, one is likely to be misled from the MMT POV.

Some people with authority, such as "Nobel prize" gives, needs to step up to the plate and tell it like it is. Currency issuers that are currency sovereigns don't need to get their currency users like users do. Spending and taxing or borrowing are not intrinsically related as supposed in the case of sovereign currency issuers. Taxation and securities issuance serve entirely different purpose from revenue and debt for currency users.

Until this confusion is corrected, progressive policy will be hobbled.

For example, taxes are supposed to "pay for" SS and Medicare but don't actually cover the tab. So the argument is that either benefits need to be cut or taxes raises and raising taxes adversely affects investment and therefore employment.

This all goes away with proper understanding like darkness is lifted by turning on the lights.

Stiglitz is not helping this with his angle of approach. I applaud his focus on inequality, but suggest he needs to mount a frontal assault rather than an oblique attack.