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November 04, 2005

Stiglitz and the Strawman.

Over at Catallarchy:

This is remarkable primarily for the fact that it’s coming from the pen of a Nobel laureate. And not just any Nobel laureate—if you see someone walking around with a Nobel Peace Prize around his neck, you kind of expect this sort of thing—but a real, live winner of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.

Go read what he said to find out why the conclusion is this:

What Dr. Stiglitz is describing is not a hypothetical perfect market economist, but a government shill trying to explain why it’s okay for Congress to spend vast quantities of money it doesn’t have. To suggest that a perfect market economist would ever take such an absurd position is unfair, and an insult to strawmen everywhere.

November 4, 2005 in Economics | Permalink


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Since this is the actual view of Robert Barro (and formed the basis of the Lawson Doctrine that because the UK's current account deficits of the 1980s were the result of private consumption rather than government dissaving they were "benign and self-correcting"), I think that the conclusion is entirely unfair to Stiglitz. In fact, if you don't believe the position that Stiglitz describes, then you believe that there is a fairly serious failure in the savings market, and I don't understand what sense you would be a "perfect markets economist".

So in other words, Stiglitz is describing an entirely theoretically consistent position which is actually held by influential people in the real world. Of course it's not a strawman.

Posted by: dsquared | Nov 5, 2005 2:56:08 PM

Government deficits are entirely different from current account deficits, and Stiglitz was specifically talking about government deficits. It's entirely possible that there's some nut out there who would agree with the position Stiglitz is describing. Possibly a very influential nut--their stock has been rising recently. But I didn't say there wasn't.

My point is twofold:

1. I don't think any economist actually believes in perfect markets. Certainly the arguments for free markets are not contingent on assumptions of perfect markets.
2. The position which Stiglitz is describing is not one which follows from perfect-market assumptions.

Posted by: Brandon Berg | Nov 6, 2005 10:37:24 PM