Economists Occupy a Parallel Universe
The shambolic state of economics shows us something very clearly: economists kid themselves that they employ the scientific methods – they don’t. If proof is needed the proliferation of “schools of thought” tells us that ideology is a prominent (if concealed) component of their economic calculations.
Economists live in a parallel universe to the one we occupy. It’s not a completely virtual world but it’s not far off fictitious world inhabited by avatars. Most economic theories are located in a spaceless vacuum, which is why they consistently fail when they bump up against the pragmatic truth of the real world.
Joseph Stiglitz’s Theorem
Joseph Stiglitz is a poignant example of the way in which economists fail to deliver the full potential of their discipline. He coined the term “Henry George Theorem” to characterise a theory, which actually embraces the physical world. Put simply, the theory highlights the significance of the rent of land as the efficient way to pay for the public services we share in common.
Stiglitz employs simplistic assumptions to arrive at a conclusion that has reflected the real world ever since the first civilisation. But why doesn’t Stiglitz use his insights when analysing contemporary problems?
He is an influential commentator, and one of the “good guys” willing to challenge the powers-that-be. His authority as a Nobel Prize winner is needed to help governments grope past the global economic crisis yet his observations point politicians in completely the wrong policy direction.
Blaming it on Bush
Knocking George W. Bush has become a sport, but to blame the global crisis on the Iraqi war and his tax cuts for the rich is pure nonsense. Unfortunately that’s the explanation that Stiglitz offers. He does refer to real estate bubbles, but they are treated subordinate issues.
The global crisis is a pure manifestation of perverse policies of public finance. These policies have allowed privileged groups to exploit the real world. Despite his deep learning and sympathies, Stiglitz failed to comprehend the full reality of what was happening on the ground. The origins of all economists perpetual intellectual tragedy are spelt out in Documentary # 2
Messing with our Minds on…
http://uk.youtube.com/RenegadeEconomist
Popularity: 5% [?]
Mr Harrison, have you thought about adding a forum section to your website? It would be a great way to encourage traffic and plug a gap in the market as at the moment there’s no obvious place for those that are interested in Georgist idea’s to debate the issue’s further.
I was directed to this site via a link from housepricecrash where your name and idea’s crop up from time to time, however, as excellent a site HPC is land tax often gets sidelined for other topics. A place where your ideas could be debated openly would be a good tool to take your understanding of the economic sphere one step further.
There are several YouTube videos of Joseph Stiglitz speaking, as well as his books, the latest of which is ‘The 3 Trillion Dollar War’ in which he writes about the Iraq War more as an investigative accountant than an economist. One wonders how he was awarded a Nobel prize, because his analyses are fairly conventional and generally made only with hindsight, lagging after the event, rather than anticipatory. He claims to have warned of the coming downturn in 2004-5 but in fact he only said that the increasing US national debt couldn’t go on for ever, which many other were saying at that time. Perhaps he could be described as an historical accountant?
To his credit he does bring to light some ugly half-concealed facts, including the tragic waste of potential in which 48 % of the 1.7 million US military personnel will return dead (4000 to date) or disabled and will require, for the rest of their lives, health care and disability benefit payments which will cost the US taxpayer at least $600 billion, doubling the already deficit health care budget. The total cost of the Iraq War he conservatively estimates as $3 trillion and, as it has not yet finished, could rise to $4 to $5 trillion, which he believes will bankrupt the US. The cost of the Afghan War is extra. He rightly stigmatizes the Bush Administration for vetoing a Congress Bill in which the children of the 50 million US citizens who cannot afford health insurance, would have had it paid by the State…. on the grounds that the country couldn’t afford it. The expenditure of just a couple of days of the Iraq War would have paid for it. Similarly Bush, in a State of the Union speech, announced that the US social security system was bankrupt, whereas Stiglitz calculates just one sixth of the cost of the Iraq War would have been sufficient to put the social security system on sound footing for 50 to 100 years. The priorities are clearly insane, especially as all the reasons the US Government gave for the War are simply untrue.
Stiglitz is on weaker ground when he attempts to analyse the causes of the present world economic recession, frequently imitating other economists by blaming the relaxation of regulation in the US, together with a shifting of global economic balances, with the sovereign wealth funds and the oil countries’ national funds, rich in liquid finances, now so significant that they have to be brought into any future accommodation Stiglitz calculates that $1 trillion losses have been accumulated so far with much more to come, believing that the sub-prime default is only part of the cause, and in fact has only just begun, with 2.2 million mortgage foreclosures likely next year alone. He thinks the chief causes are simply inventory problems with excess accumulation, the Fed keeping interest rates too low for too long, and then stepping on the brakes too hard to correct inflation. Americans have been consuming too much, he suggests. Stiglitz thus betrays his lack of originality… these same analyses have been heard elsewhere before. He seems to be caught up in a chain of effects rather than seeking insight into the essential cause.
Stiglitz also believes the Iraq War is a major factor contributing to the present downturn, by creating uncertainty in the Middle East and thus forcing up the oil price which led to inflation and the rest of the chain of events. Later he partially back-tracks by admitting that the War only raised the oil price by 5 %. One senses he is looking for something to blame but cannot quite find the primary cause, and this makes him slightly shift his stance periodically. He thinks the US debt is now so large, and rising, that it will take generations to deal with…. clearly he has detected something that cannot be understood merely in terms of a few percent shift in commodity prices? He never reaches the first cause, therefore the truth is that he inhabits a superimposition, the creation of his own economist’s mind, rather than glimpsing the underlying reality. Not so much a parallel universe as a dream, even a multiple recurring dream.
The solution, Stiglitz says lamentably, is an even bigger bail out, a really huge package better designed, more to encourage infra-structure that would increase long term US productivity and less to encourage consumption. He then contradicts himself by recommending a large increase in unemployment insurance which would probably go straight into consumption. His analysis is too much spending and too much debt, and his solution, without the faintest trace of paradox, is more spending and more debt. He says that the present recession will be deep and long but doesn’t mention that his solution, by vastly increasing the US debt, will actually prolong it. The bust is probably an inevitable market correction to the preceding deception, but Stiglitz aligns himself with the Feds, the IMF, the US Authorities, and pretty well everyone else, in trying to do their best to avoid and ultimately deny the correction. The market may well regard that as blithe futility.
As Fred Harrison points out, like almost every other economist, Stiglitz does not give sufficient attention to land. Land is the fundamental basis of everything, the ground, and the one fundamental of all economic activity…. yet no one gives it any attention, mainly because most economists are looking into the future, calculating trends and shifts as hard as they can, while the Stiglitz type looks back into the past, delighting in the analysis of what went wrong. No one seems to want to be in the here and now. One aspect of the sub-prime default Stiglitz does not mention was the passing of legislation by the Clinton administration forcing banks to lend, grant mortgages to, the homeless social underclass, with penalties if they did not. Those very people who defaulted in large numbers triggering the now ripe bust. Guess who was Clinton’s chairman of economic advisors during his 1st term?…. yes… it was Stiglitz. Finally Stiglitz engages in the sad superiority-inferiority game, taunting…. “Those guys thought they understood economics… they didn’t! A little bit of knowledge can be dangerous. There was little knowledge in Wall Street”. The well-known tendency for human beings to detect in others and criticize the very thing that is in themselves is…. both ironic and strange? We all do it, there must be a reason for it. Someone is holding a mirror before us in every parallel universe.