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The Economic Consequences of Mr. Bush by Joseph Stiglitz

by An American in London Wed Nov 7th, 2007 at 05:51:40 AM EST

In an article in December's Vanity Fair, Joseph Stiglitz, Nobel laureate, writes the next president will have to deal with yet another crippling legacy of George W. Bush: the economy and sees a generation-long struggle to recoup. Should be read in parallel with Jerome's excellent diary, 'Financial Meltdown-More to Come'.

Link: http://www.vanityfair.com/politics/features/2007/12/bush200712?currentPage=1

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The Economic Consequences of Mr. Bush by Joseph Stiglitz | 19 comments (19 topical, 0 editorial, 0 hidden)
The Economic Consequences of Mr. Bush (4.00 / 2)
It's hard, when reading this, not to wonder where this esteemed gentleman was 3 or 4 years ago. If I do him a disservice I apologise, but was he taking tea and buns with Greenspan ? Cos this sure sounds like the sour grapes of somebody whose investment portfolio has gone west and wants to gripe about whose fault it is.

Still, such cavils aside, all I can say is, good luck with this lot cos I'm entirely unaware of anybody who's goin to be anywhere a lever of power in washington in the next decade who'll even dream of this.

What is required is in some ways simple to describe: it amounts to ceasing our current behavior and doing exactly the opposite. It means not spending money that we don't have, increasing taxes on the rich, reducing corporate welfare, strengthening the safety net for the less well off, and making greater investment in education, technology, and infrastructure.



keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Wed Nov 7th, 2007 at 09:37:34 AM EST
Stiglitz (none / 1)
was the senior economist of the World Bank in 96-99. See his wiki biography.

He blames the IMF in 2002 (Globalisation and Its Discontents


In Globalization and Its Discontents Stiglitz bases his argument for different economic policies on the themes that his decades of theoretical work have emphasized: namely, what happens when people lack the key information that bears on the decisions they have to make, or when markets for important kinds of transactions are inadequate or don't exist, or when other institutions that standard economic thinking takes for granted are absent or flawed. The implication of each of these absences or flaws is that free markets, left to their own devices, do not necessarily deliver the positive outcomes claimed for them by textbook economic reasoning that "assumes that people have full information, can trade in complete and efficient markets, and can depend on satisfactory legal and other [?? missing word; maybe "institutions"?]".


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Nov 7th, 2007 at 10:21:35 AM EST
[ Parent ]
Re: Stiglitz (4.00 / 3)
The implication of each of these absences or flaws is that free markets, left to their own devices, do not necessarily deliver the positive outcomes claimed for them

And seeing as most bankers or mortgage brokers, credit agencies and company accountants have made an art of obscurity and partial information, indeed based their entire business model on such behaviours with central bank approval, then I guess we shouldn't be surprised if occasionally our economies trip over stuff we didn't know was there.

Regulation : enemy of market efficiency

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Nov 7th, 2007 at 10:58:38 AM EST
[ Parent ]
Re: The Economic Consequences of Mr. Bush (none / 0)
I haven't kept up with Stiglitz as much as I perhaps should have, but I'm pretty sure he's been out against Bush for several years.  He tends to focus on the issue of trade, though, leaving the attacks on Bush policy to guys like Krugman and DeLong.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sat Nov 10th, 2007 at 01:56:13 PM EST
[ Parent ]
The dollar has lost 1/3 of its value (none / 1)
LondonYank has posted this at Orange. It's one of the clear and present consequences.

there's some interesting investment advice in the comment thread too.

If you want a whiz-bang return, check out Matthews International China Hong Kong Fund - MCHFX.

Another cool new fund that we've recently bought is Guiness Atkinson Alternative Envergy Fund - GAAEX.



keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Wed Nov 7th, 2007 at 10:07:10 AM EST
Re: The dollar has lost 1/3 of its value (4.00 / 3)
Holy shit!Daily Kos: The dollar has lost 1/3 of its value

I am advising central bankers next week on strengthening their preparedness.  I will be telling them to abandon any focus on capital adequacy requirements.  It's far too late for that to have any effect on the fall out.  They should focus instead on reviewing and modernising their bankruptcy laws, enabling transfer of customer accounts and nominee assets from failing banks to healthy banks, providing for rapid auction of failed bank businesses and assets, and other practical measures for limiting loss, contagion and debilitating paralysis in the markets.

It is going to be very ugly, but there are steps which if taken now can make it surviveable.

I was a central banker and market supervisor during some of the period of deregulation.  In retrospect it was a mistake to let Citibank and Goldman Sachs define what a good market or a good regulation might be.  But there will be lots of time to learn the lessons of the coming collapse once it is past.

Oh, BTW, forget about the Kossacks and their investment advice.

We have met the enemy, and he is us — Pogo
by Carrie (migeru at eurotrib dot com) on Wed Nov 7th, 2007 at 10:31:02 AM EST
[ Parent ]
Re: The dollar has lost 1/3 of its value (none / 1)
sounds like LY is a made-guy economically. Anyone know anything about him ?

btw, I never do investments anyway. It's dates you as somebody who emotionally never left the Thatcher era

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Nov 7th, 2007 at 10:53:30 AM EST
[ Parent ]
Her (none / 1)
The central bank bona fides is a revelation to me. I assumed her international business exposure was private equity. Anyway, I've never been not impressed by her contributions and willingness to disintermediate [heh! that's a word I hadn't encountered in a long while] MSM fictions.

Diversity is the key to economic and political evolution.
by Cat on Wed Nov 7th, 2007 at 01:50:43 PM EST
[ Parent ]
Re: Her (4.00 / 2)
whoops !!

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Wed Nov 7th, 2007 at 04:24:28 PM EST
[ Parent ]
Re: The dollar has lost 1/3 of its value (none / 1)
I never do investments but my pension fund (ulp) does.

The difference between theory and practise in practise ...
by DeAnander (de_at_daclarke_dot_org) on Wed Nov 7th, 2007 at 04:09:02 PM EST
[ Parent ]
LY is a she... (4.00 / 2)
She's been involved in bank regulation.
She came out in this diary

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Nov 8th, 2007 at 04:52:22 AM EST
[ Parent ]
Re: LY is a she... (none / 1)
I remember having lunch with her about 7 years ago when she was just setting up her consultancy.

Very impressive.

Her response on that Kos Diary in respect of a query re the Reserve Currency of the future...

is very difficult to envision today.  One thing I'm keeping my eye on is the nascent Khaleeji - the currency which will be created sometime after 2010 from Gulf Cooperation Council currency union.

Although the politics are making it really complex, the Khaleeji will effectively be oil-backed with huge cash reserves of over $25 trillion by then.

In our war against Islam, we may have to concede defeat when they own us and we work for them as our corporate masters.

prompted my (first) Kos response

You are presuming of course that either Central Banks or clearing banks are necessary as credit intermediaries.

They are not.

The requirement is for a Clearing Union, as envisaged by Keynes, and also a "Value Unit" with global validity for which the obvious candidate is a fixed unit of energy - a "Carbon Dollar" consisting of one dollar's worth of energy at the launch date.

The function of Banks as credit intermediaries is to guarantee the credit of the borrower, and the bank backs this guarantee with an amount of capital set by the BIS.

The actual cost of credit is simply the operating costs of the bank, and the default costs. This cost has nothing whatever to do with the actual "price" of credit indicated by central bank interest rates,

As we are now seeing, the price at which they may deal with the Central Bank is secondary to banks' judgement as to the likelihood of default of their new loans.

Central Banks - as opposed to monetary authorities -have never been necessary, and are now obsolete. The requirement is for a mutual guarantee of (interest free) bilateral trade credit, backed by a mutually owned default fund. In this model, banks are service providers, not credit intermediaries.

The necessary "Value Units" of energy - fungible internationally - and "land rental units" fungible nationally could come about from simple new investment mechanisms (REIT's and ETF's are embryonic examples), whereby return on investment is not in fiat money, but in fungible units of use value or "production".

Fiat "deficit-based" money=credit is neither sustainable nor - in a dis-intermediated "Napsterised" world - necessary.

While you correctly state that the Gulf nations have it in their power to create the necessary currency - a "deficit-based" and energy backed Euro clone is not it.



"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Nov 8th, 2007 at 06:25:58 AM EST
[ Parent ]
Re: The dollar has lost 1/3 of its value (4.00 / 4)
LY:
In retrospect it was a mistake to let Citibank and Goldman Sachs define what a good market or a good regulation might be.  

Well - who'd have thought, etc? If you hand the hen house over to the foxes, it's not as if they're golng to eat everything and leave a bloody mess.

Props to LY for posting about this. I miss her posts here - always worth reading.

LY:

I will be telling them to abandon any focus on capital adequacy requirements.  It's far too late for that to have any effect on the fall out.  They should focus instead on reviewing and modernising their bankruptcy laws, enabling transfer of customer accounts and nominee assets from failing banks to healthy banks, providing for rapid auction of failed bank businesses and assets, and other practical measures for limiting loss, contagion and debilitating paralysis in the markets.

Now that is cheerful, isn't it?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Nov 7th, 2007 at 04:22:45 PM EST
[ Parent ]
Yeah, if institutional economists had known ... (4.00 / 2)
... then what they knew then, they would have said it was a mistake, so they did.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Nov 9th, 2007 at 03:46:53 PM EST
[ Parent ]
Re: The Economic Consequences of Mr. Bush by Josep (4.00 / 3)
btw, does it strike anyone but me that the attempt to loot Soc Sec funds and put them into the stock market was an indicator that the made men knew some time ago that the house of cards was coming down and needed a multi-$B injection to keep it tottering a little while longer?  just a stray thought.  we attributed it to sheer greed at the time, but perhaps it was panic.

second-order thought:  is there always an element of fear and panic in greed?

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Wed Nov 7th, 2007 at 04:10:57 PM EST
Re: The Economic Consequences of Mr. Bush by Josep (4.00 / 2)
Nah, these guys still thought everything was going swimmingly back then. It really was sheer greed, actually second thought it was more petty vindictiveness against the poor.

They'd have done a lot more than just try to prop everything up for another couple of weeks if they'd suspected.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Nov 7th, 2007 at 04:28:08 PM EST
[ Parent ]
No, they thought that things were going ... (4.00 / 2)
... swimmingly, and they wanted a multi-million dollar injection into the total streams of transactions. Or else they thought {fill-in-the-blank) and they wanted a multi-million dollar injection into the total streams of transactions.

You don't need to know whether the markets booming or busting to know that those who operate as traders are better off if the government pretends that it can make financial savings for the future by handing liquidity over in financial markets in return for promises.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 9th, 2007 at 03:52:09 PM EST
[ Parent ]
Re: The Economic Consequences of Mr. Bush by Josep (4.00 / 6)
the gold bugs and "end is nigh" gang are of course tickled by all this financial disaster:

Mike  Whitney proclaims End of Financial World At Hand

and disaster-entrepreneur Matt Savinar (one of the forces behind the increasingly popular little film Crude Awakening) is practically crowing:


Words can't begin to describe how much trouble we're in on all fronts: financial, energy, environment, etc. If you haven't begun preparing to the best of your abilities, I'm not sure what the hell you're waiting for:

Brace for Impact: The Unraveling Has Begun
<http://www.lifeaftertheoilcrash.net/Archives2007/smithunraveling.html>

The Time to Take Evasive Maneuvers is Now
<http://www.peakoilstore.com/forum/index.php/topic,8569.msg97880.html#msg97880>

The End is Nigh as Heads Roll at Merrill Lynch and Citigroup
<http://www.lifeaftertheoilcrash.net/Archives2007/whitneyheadsroll.html>

I tend to agree w/him about the trouble we are in, but imho the cowrie shell (money) problem is the least of our worries.

The Southern oceans are now mostly stripmined of fish as the big processors, having destroyed the northern hemi fish stocks, turned their giant shopvacs to the south.  India has deliberately overstated its water reserves and has been hyperexploiting them beyond safe reserve levels since 1997...  

"What the government has done is double accounting of one vital element of the water cycle and therefore ended up with an inflated figure. While the error looks simple, with the ground water data of the country being classified, it took us four years of digging and understanding the method of calculation to figure out this discrepancy," Garg, from the department of civil engineering, IIT-Delhi, told TOI.

Cutting through the reams of data and calculations mentioned in the paper, Garg explained, "During the lean period, the water in rivers that one sees is actually ground water as there is no rain at the time. But when the CWC calculated total utilisable water, it accounted for the water in the rivers at the time as surface water as well as ground water, leading to the inflated figures."

It sounds so much a clerical mistake but A K Gosain, also from the civil engineering department of IIT-Delhi and on the PM's expert committee on climate change, said, "The trouble is all the data on ground water is classified and never released to even scientists. Nobody outside the government has been able to evaluate the statistics. Even when we were doing simulation studies to look at impact of climate change on our rivers, we had to use American data on Indian rivers to validate our results."

Meanwhile, the S Hemi is being systematically stripped of forests (remember that oxygen generator that the Ferengi were breaking up to sell?) to produce palm oil and other commodity crops for the industrial market, even as the local populations go hungry in many cases.

It doesn't get madder than this. Swaziland is in the grip of a famine and receiving emergency food aid. Forty per cent of its people are facing acute food shortages. So what has the government decided to export? Biofuel made from one of its staple crops, cassava. The government has allocated several thousand hectares of farmland to ethanol production in the district of Lavumisa, which happens to be the place worst hit by drought. It would surely be quicker and more humane to refine the Swazi people and put them in our tanks. Doubtless a team of development consultants is already doing the sums.

This is one of many examples of a trade that was described last month by Jean Ziegler, the UN's special rapporteur, as "a crime against humanity". Ziegler took up the call first made by this column for a five-year moratorium on all government targets and incentives for biofuel: the trade should be frozen until second-generation fuels - made from wood or straw or waste - become commercially available. Otherwise, the superior purchasing power of drivers in the rich world means that they will snatch food from people's mouths. Run your car on virgin biofuel, and other people will starve.

Which anyone with half a brain could see coming;  all you need to know is the energy density of biofuels, the average yield per hectare (even with negative EROEI industrial farming which makes a mockery of the whole game), and the fuel consumption of even an "efficient" ICE automobile.

Our masters are lying to us.  They have always lied to us.  They will lie to us as the house burns down and the roof falls in -- while they're getting out the marshmallows.  I suppose things can be repaired, even now -- if the will were present, if the owner class didn't own the media and the schools and the brains of the people.  But I fear that repair will take longer than what is left of my personal lifetime.

For some reason all I can think of is this old poem of Berry's which an FS reader recently brought back to mind:

The Mad Farmer Liberation Front

---- Wendell Berry

Love the quick profit, the annual raise,
vacation with pay. Want more
of everything ready-made. Be afraid
to know your neighbors and to die.
And you will have a window in your head.
Not even your future will be a mystery
any more. Your mind will be punched in a card
and shut away in a little drawer.
When they want you to buy something
they will call you. When they want you
to die for profit they will let you know.

So, friends, every day do something
that won't compute. Love the Lord.
Love the world. Work for nothing.
Take all that you have and be poor.
Love someone who does not deserve it.
Denounce the government and embrace
the flag. Hope to live in that free
republic for which it stands.
Give your approval to all you cannot
understand. Praise ignorance, for what man
has not encountered he has not destroyed.

Ask the questions that have no answers.
Invest in the millenium. Plant sequoias.
Say that your main crop is the forest
that you did not plant,
that you will not live to harvest.
Say that the leaves are harvested
when they have rotted into the mold.
Call that profit. Prophesy such returns.

Put your faith in the two inches of humus
that will build under the trees
every thousand years.
Listen to carrion -- put your ear
close, and hear the faint chattering
of the songs that are to come.
Expect the end of the world. Laugh.
Laughter is immeasurable. Be joyful
though you have considered all the facts.
So long as women do not go cheap
for power, please women more than men.
Ask yourself: Will this satisfy
a woman satisfied to bear a child?
Will this disturb the sleep
of a woman near to giving birth?

Go with your love to the fields.
Lie down in the shade. Rest your head
in her lap. Swear allegiance
to what is nighest your thoughts.
As soon as the generals and the politicos
can predict the motions of your mind,
lose it. Leave it as a sign
to mark the false trail, the way
you didn't go. Be like the fox
who makes more tracks than necessary,
some in the wrong direction.
Practice resurrection.



The difference between theory and practise in practise ...
by DeAnander (de_at_daclarke_dot_org) on Thu Nov 8th, 2007 at 08:30:28 PM EST
Re: The Economic Consequences of Mr. Bush by Josep (none / 1)
ah, de, we may be going down, but reading your comments makes it a lot more tolerable an experience...

thanks for the help decorating my personal cellblock no. 9...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Nov 8th, 2007 at 11:18:17 PM EST
[ Parent ]
The Economic Consequences of Mr. Bush by Joseph Stiglitz | 19 comments (19 topical, 0 editorial, 0 hidden)


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