January 13, 2003
Joe Stiglitz is Losing His Argument

Joe Stiglitz is Losing His Argument

Two of the things I learned at the American Economic Association meeting was that Joe Stiglitz is losing his argument over the desirability of international capital mobility, and why he is losing his argument.

Now I think that Joe should lose the argument. I think that by and large international capital mobility is a Good Thing: I think that international capital mobility raises the earnings of savers and lowers the cost of capital to investing firms, I think that it gives the rich an extra source of insurance and the poor an extra source of knowledge of modern industial high-productivity technologies, I think that shutting off capital flows creates enormous opportunities and incentives for corruption and deprives societies of an early warning signal that their governments are following dangerous and destructive economic policies. But I will not deny that Joe has a strong case: financial panics, financial crises, irrational booms, irrational busts--economic catastrophe threatens the unskillful and the simply unlucky as they try to dance to the tune played by the far-from-rational financiers of New York and London.

However, as I said, Joe is losing the argument. He is not losing the argument because rational debate shows that his is the worse cause (although I think that rational debate is likely to reach that conclusion). He is losing the argument because of something he wrote about former MIT Professor, then Principal Deputy Managing Director of the IMF, and current President of Citicorp (Group?) International Stanley Fischer:

Moreover, the IMF's behavior should come as no surprise: it approached the problems from the perspectives and ideology of the financial community, and these naturally were closely (though not perfectly) aligned with its interests. As we have noted before, many of its key personnel came from the financial community, and many of its key personnel, having served these interests well, left to well-paying jobs in the financial community. Stan Fischer, the deputy managing director who played such a role in the episodes described in this book, went directly from the IMF to become a vice chairman at Citigroup, the vast financial firm that includes Citibank. A chairman of Citigroup (chairman of the Executive Committee) was Robert Rubin, who, as secretary of [the] Treasury, had had a central role in IMF policies. One could only ask, Was Fischer being richly rewarded for having faithfully executed what he was told to do? (pp. 207-208 of Globalization and Its Discontents)

It is the sentence that I have highlighted in bold that was Stiglitz's complete and total disaster. I have met nobody who knows Stanley Fischer who believes that the answer to Stiglitz's question is, "Yes." Everybody I have met who knows Stanley Fischer sees Stiglitz's question as a knowingly-false and malevolently-intended act of slander. The implication that Fischer was rewarded for slanting IMF policy in a pro-Citigroup direction in return for a future fat private-sector paycheck is universally rejected as totally false.

And as a result, every day at the AEA, it seemed that there were at least 300 friends of Stanley Fischer who woke up in the morning thinking, "I have to defend Stan against Joe." And they did so, quite effectively.

Indeed, it is hard to know whether Stiglitz himself regards his question as anything more than an attempt at character assassination. For in the very next paragraph he explains that IMF policy is completely explained by other factors--that there is no need or room to resort to the personal venality of high IMF officials to understand why it did what it did:

But one does not need to look for venality. The IMF... believed that capital market liberalization would lead to faster growth for the developing countries, believed it so strongly that it... gave little credence to any evidence that suggested otherwise. The IMF never wanted to harm the poor and beleived that the policies it advocated would eventually benefit them; it believed in trickle-down economics and, again, did not want to look too closely at evidence that might suggest otherwise. It believed that the discipline of the capital markets would help poor countries grow, and therefore it believed that keeping in good stead with the capital markets was of first-order importance. (p. 208 of Globalization and Its Discontents)

In the two paragraphs I have quoted from Globalization and Its Discontents, Stiglitz engaged in the same rhetorical strategy that Mark Antony engages in in his "Friends, Romans, Countrymen" speech in Shakespeare's Julius Caesar. You raise a question ("Brutus hath said that Caesar was ambitious... [but] ambition should be made of sterner stuff" or "Was Fischer being richly rewarded for having faithfully executed what he was told to do?"). You then assert that the answer to the question is "No." ("Brutus is an honorable man" or "one does not need to look for venality"). But the possibility that the answer to the question is really "Yes" (or that the question is open) remains in the listeners' and readers' minds. In this case, however, Stiglitz's rhetorical strategy has backfired disastrously.

This leaves me with mixed feelings. I think that the side of the debate that ought to win has won. I am too old and cynical to believe that the force of intellectual argument in some approximation to an ideal speech situation invariably carries the day.

But this is really not how my particular branch of the human race's Long-Term Planning Group is supposed to work...

Posted by DeLong at January 13, 2003 05:26 PM | Trackback

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Comments

Ever since reading Ken Rogoff's open letter to Stiglitz, where he gets the "How dare you say that about Stan?" campaign going, I've been interested to see whether Stiglitz might respond to hose this whole thing down. I'd be interested to know the state of play on this, including what Stiglitz might have had to say at the AEA meetings.

Posted by: Michael Harris on January 13, 2003 08:42 PM

How is this different than any other field? The sentence in question is a variation on "follow the crowd, get the rewards." It happens, so far as I can tell, in every human endeavor. Why should economics be special? I have met scietists who see the same thing in their subfield (isn't about the science, they ask) and the answer is that ego matters.

The point isn't that Fischer is a bad guy--it is that he followed along and reaped the rewards of being a follower--and that someone else (just about every citizen of the countries the IMF visited) payed.

You could read it in an alternate way. The closest alternate interpretation is that the paragraphs are a variation on the "banality of evil" rhetorical approach.

Is there any historical evidence, as opposed to theory, which shows that Stiglitz is wrong? Because the cases in his favor seem numerous and easy to name.

B

Posted by: Brennan on January 13, 2003 08:56 PM


Ceasar's wife should be honest and look honest.

At the very least, Stanley Fischer acceptance of the Citi job does a disservice to the credibility of the IMF.

And have no doubt about it: Citibank DOES use their ability to hire senior people at (public sector position X) to influence (public sector position X) incumbents choices of policies.

Of course, you know that, Brad - after all what to say about Cheney's business career?

Posted by: Economista Brasileiro on January 13, 2003 09:09 PM

I thought the argument was over something like this:

The IMF acts, effectively, as a branch of the United States
treasury. Different cabinet departments have different natural
constituencies. For example, Treasury worries more about
Wall Street than the AFL/CIO. For Labor, it's probably the
reverse.

This probably has something to do with who gets hired.
It has something to do with what are the limits of political
feasibility of policy advice. An intelligent economist at
the IMF, I would think, would and should know when he is
pushing the boundaries of feasibility. It is not about
whether somebody is corrupt.

Perhaps we'd get better policy if we had a different
institutions for governing the IMF. Maybe a greater range ofthose affected by the IMF should have a say in the
government.

It is not a question of how trustworthy or expert
economic advisors are.

Perhaps Rogoff can get Soros to explain Popper to him.
Or perhaps Rogoff prefers schoolboy squabbles. I'm quite prepared to believe economists act the way Brad describes.

I'll grant that Stiglitz's choice of words may be ill-chosen.
But referring to Stiglitz merely as a best-selling author
seems quite immature. (See 2nd sentence of Foreign
Policy article.)

Posted by: Not An Economist on January 14, 2003 04:12 AM

I think that it is a good thing that Stiglitz is being punished for using ad-hominem slander. If you want the community to focus on substance, you have to react against the sort of thing Stiglitz did.

The lesson that you should focus purely on the substance of policy without impugning the motives of others is an important one. I think that Stiglitz is far from the only economist who needs to learn it.

Posted by: Arnold Kling on January 14, 2003 05:59 AM

Yes to Brennan. If economists want to see us as profit-maximizers, they can't then ask us to hold up Fisher's character as the only explanation for his actions. He's been trained to make certain decisions -- and no doubt thinks they are right -- because there are rewards for making them. He doesn't have to be corrupt to be an example of the system screwing Argentina.

Posted by: david on January 14, 2003 07:08 AM

Yes to Brennan. If economists want to see us as profit-maximizers, they can't then ask us to hold up Fisher's character as the only explanation for his actions. He's been trained to make certain decisions -- and no doubt thinks they are right -- because there are rewards for making them. He doesn't have to be corrupt to be an example of the system screwing Argentina.

Posted by: david on January 14, 2003 07:10 AM

Oh come on Brad! The patronage of the IMF's research budget, plus Citigroup, plus the ideological commitments of the entire AEA, and the reason that they're all ganging up on the one dissident is all to do with one rhetorical flourish??? Do me one.

Posted by: DD on January 14, 2003 08:16 AM

Stone the heretic!

Posted by: Tom Strong on January 14, 2003 08:22 AM

In any case, what do you mean "losing"? Didn't you post an article a couple of days ago in which Fisher basically accepted the meat of Stiglitz argument and pretended that it had been IMF policy all along? Is Dani Rodrik in the dock along with Stiglitz, given that they're saying a lot of the same things about capital account sequencing? Face it, man, the argument about capital account liberalisation is over, and all that remains is for the AEA to burn a heretic who dared to give succour to the Seattle crowd. One might say that JS had it coming after participating in a similar mobbing of crows in the 1970s over the Cambridge theory of capital, but there you go.

But seriously, do you really regard the revolving door between the managers of global finance and the trading houses as totally unproblematic? Paul Krugman certainly doesn't; I quite clearly remember him making a quite serious accusation of the same sort about Armino Fraga. What would Bagehot have said?

Posted by: DD on January 14, 2003 08:38 AM

As I have said before, the question is about the sequence of liberalization. In what order do you do reforms? Why was the order chosen so wrongly? Who benefited?

Stiglitz's book is, without a doubt, the most lucid, best book about international economics I have ever read. I was a protestor in Seattle, so I feel quite strongly that many of our critiques were proven valid by this book. All of the critiques of this book seem to boil down to "I know these guys, they're not like that." A more irrelevant point I cannot imagine. The venality of the IMF came not from the personal desire to do evil, but for a slew of systemic and institutional factors, including the education of economists, that put these people in the position to make horribly wrong headed decisions that had miserable effects. This was horrible, and those responsible are at fault. Did someone cackle and rub their hands together while telling Fischer what to do? Probably not. Did his whole career, including his education, give him a delusional bias in favor of global finance interests? I cant see how that can be denied, in light of the evidence in Stiglitz's book.

BTW, Last August, Stiglitz went even further in his crtique of the IMF than in the book. On Behind the News- 8/15/02-- Stiglitz had this exchange with interviewer Doug Henwood:


Joseph Stiglitz, on "Behind the News," broadcast on WBAI, New York, August 15, 2002:

Let's close with the Lenin question: what is to be done? The IMF, it's pretty hard to say it's anything but a disaster. Its star pupils are all down in flames. It's not even able to have any psychological magic, as we've seen with the reaction to its arrangement with Brazil. What kind of rejiggering of this institutional architecture would serve the poor of the world better?

One of the aspects of globalization is that the countries of the world are today more integrated, more interdependent. And with more interdependence, there is greater need for collective action, a greater need as a result for international institutions. International institutions to regulate in one way or another trade, finance, to provide humanitarian assistance. The problem is that some of the institutions we have are not democratic, they're not transparent. They reflect special interests within the more advanced industrial coutnries. They do not represent the concerns of the poor and the developing countries. Now, I used to say that since we are going to need these institutions, it is better to reform them than to start from scratch. I'm beginning to have second thoughts. I'm beginning to ask, has the credibility of the IMF been so eroded that maybe it's better to start from scratch. Is the institution so resistant to learning, to change, to becoming a more democratic institution, that maybe it is time to think about creating some new insitutions that really reflect today's reality, today's greater sense of democracy. When the IMF was founded more than 50 years ago, most of the developing countries were still Third World countries [sic], we had a fixed exchange rate system. The world has changed enormously. Perhaps, now, some 50 years afterwards, it's really time to re-ask the question, should we reform, or we build from the start?


Non-economists who read this site to peer behind the curtain should listen to the whole show at:

http://www.leftbusinessobserver.com/Radio.html

(scroll down to 08-15-02)

Posted by: Biz on January 14, 2003 10:22 AM

Poor Dear Stanley Fisher. Going from the rich and powerful to the rich and powerful, a bit like Poor Dear Senator Phil Graham and family.

Imagine, such a retorical pinch by the likes of a mere George Stiglitz. Oh please. What rubbish. George Stiglitz is trying to frame development assistance models that support a middle class family in Brazil, a poor family in Peru. Pay attention to the lives of the people affected by IMF policies, and stop wasting time worrying about the pinch to a fat cat executive at Citi.

Posted by: on January 14, 2003 10:44 AM

"The problem is that some of the institutions we have are not democratic, they're not transparent. They reflect special interests within the more advanced industrial countries. They do not represent the concerns of the poor and the developing countries."

Thank you, George Stiglitz....

Posted by: on January 14, 2003 11:10 AM

Instead of focusing on the issues of IMF policy and economic well-being and development, a bunch of snarky ever so envious economists decide to mock a Nobel Prize winner. Stiglitz has been right about the Asian crisis and IMF policy, right about Argentina, right about Brazil, right about Africa.

Guess if we all jump to the Stanley Fisher defense, we too might get a slice of the Citi.

Posted by: on January 14, 2003 11:59 AM

Why was it that Paul Krugman so clearly understood how much of a problem the peso-dollar currency peg was becoming for Argentina, but Wall Street and the IMF saw nothing except a need for austerity. Wall Street and the IMF saw no problem with turning problem of currency valuation to a problem of recession and depression as long as foreign invesment in Argentina were protected from currency devaluation.

Citigroup, by the by, was able to take quite a bit capital from Argentina as the peg was held, and helped insure the capital flow problem would worsen and the economy would worsen.

Remember when Wall Street Week was filmed in Argentina, to laud the currency peg? Remember how the IMF support of the peg was lauded on the program even as the peso was pricing Argentine goods out of Latin American and European markets?

Citigroup was happy with the peso-dollar peg when it should have been adjusted. Where was the IMF? Where was Stanley Fisher?

Stanley Fisher is no doubt kind as kind could be, but not above tough professional criticism.

Posted by: on January 14, 2003 01:20 PM

JOSEPH Stiglitz.... Oops....

Posted by: on January 14, 2003 01:27 PM

To me, what would be interesting is a comparative review of what other sub-disciplines of economics think of Stiglitz's argument. Whilst the AEA is the largest grouping of economists worldwide, I think it would be true to say that it largely represents the neoclassical view and its derivatives (eg the 'new' institutionalists). There are other points of view with in economics - it appears to me that the 'old' institutionalists (ie AFEE, see Journal of Economic Issues) are of late starting to give the Stiglitz argument their own considered critique within their own framework.

Posted by: bolowski on January 14, 2003 01:51 PM

The point #1 is:
Fischer should not be able to switch from the IMF to Citibank (just like I would not be able to quit my job and join a competitor after some quarantyne period as set in my labor contract).

The point #2 is:
It is completely unthinkable for people with the same frame of mind as Brad that econ professors from Cambridge might be, well, not incorruptible. Never mind Shleifer.

Posted by: Lurker on January 14, 2003 08:16 PM

>>"To me, what would be interesting is a comparative review of what other sub-disciplines of economics think of Stiglitz's argument."

bolowski -- I think plenty of neoclassicals could/would have been receptive to Stiglitz's arguments, or at least some of them. Some of them HAVE been, including some I know. The problem, as Brad identifies, is that Joe's ad hominem slur on Fischer has (for better or worse) distracted the debate, and made a number of people want to defend Stan, first and foremost.

I wish Joe hadn't done it, I don't think it helps his case, and it's pitted people against him who otherwise might have stopped and listened (despite, I believe, what DD claims). And it's not only an important debate to have, but the most damn entertaining debate amongst upper echelon economists to have come along in ages.

Posted by: Michael Harris on January 15, 2003 12:07 AM

Isn't a critical part of the point the fact that there is a revolving door from the IMF to the large banks, and that makes for bad potential policy. The fact that that is the pathway is the point--in the same way that the acendence of Cheney from a career in politics to Haliburton, or Oneil from Dept. of Transportation to CSX, or any number of a thousand similar examples. If you play the game, you get paid, and Stiglitz is making the point that it isn't a game, and it shouldn't be played this way.

You can wish that the point was made without implicating anyone, but that changes the argument to a weak, timid, forceless one in the face of a serious problem.

And a more serious point is made in retrospect--the reaction proves that economists have the same herd mentality as every other group. And worse, like all academics, they take little slights far too personally. Perversely, when remuneration is largely in terms of prestige, rather than dollars, people behave their worst. The reaction of all the Fischer defenders is a pretty good way of proving Stiglitz's point.

B

Posted by: Brennan on January 15, 2003 07:55 AM

Brad, I think your thinking on Stiglitz book (and the AEA`s) fails to recognize the interest and the importance of discussing the economic points that he makes. I would highlight the following:

- Full liberalisation of the financial account is not the optimal policy for most emerging economies (I have not read anything in the book against openess to long term capital flows). Liberalisation of short term capital flows benefits more lending institutions in developed countries financial systems than emerging economies. When coupled with exchange rate fixed pegs the recipe has been a disaster, as the succesive crises in the nineties and early 2000s have shown. To my knowledge the Fund and other economists have now recognised the importance of sequenced liberalisation and the risks of fixed pegs. Hence I don´t see how Stiglitz is losing his argument.

-The IMF has been very slow to rectify, showing a lack of intellectual flexibility or, maybe better for staff ecomomists, of political independence.

- THe economic rationale behind IMF recipes has not paid sufficient attention to social costs, poverty reduction, political sustainability or growth. It has been very narrow-minded in a sense. The theoretical model used has not been able to combine market oriented policies with an analysis of the implications of market failures.

- International financial institutions do not represent appropriately the interests and views of developing countries.

- The interests of the financial industry in the developed world have influenced the policy of the IMF through the US Treasury.

Most of the criticisms of well-known economists of the points raised by Stiglitz have not addressed these basic ideas (misrepresenting what he actually writes in the book) and have focused in his unfortunate remarks. For the Fischer issue, which worries you so much, I would stick to comments made by Michael Harris and the "Economista brasileiro". But, even if you consider Stiglitz style rude, you and other economists are wrong not to take his economic ideas seriously enough. There are aspects in which the book is inconsistent, as John Williamsom´s excellent and balanced review in the IIE shows. But the book poses a huge and unavoidable intellectual and political challenge to the mainstream approach to international financial economics.

Posted by: Gonzalo García on January 15, 2003 08:22 AM

Brad, I think your thinking on Stiglitz book (and the AEA`s) fails to recognize the interest and the importance of discussing the economic points that he makes. I would highlight the following:

- Full liberalisation of the financial account is not the optimal policy for most emerging economies (I have not read anything in the book against openess to long term capital flows). Liberalisation of short term capital flows benefits more lending institutions in developed countries financial systems than emerging economies. When coupled with exchange rate fixed pegs the recipe has been a disaster, as the succesive crises in the nineties and early 2000s have shown. To my knowledge the Fund and other economists have now recognised the importance of sequenced liberalisation and the risks of fixed pegs. Hence I don´t see how Stiglitz is losing his argument.

-The IMF has been very slow to rectify, showing a lack of intellectual flexibility or, maybe better for staff ecomomists, of political independence.

- THe economic rationale behind IMF recipes has not paid sufficient attention to social costs, poverty reduction, political sustainability or growth. It has been very narrow-minded in a sense. The theoretical model used has not been able to combine market oriented policies with an analysis of the implications of market failures.

- International financial institutions do not represent appropriately the interests and views of developing countries.

- The interests of the financial industry in the developed world have influenced the policy of the IMF through the US Treasury.

Most of the criticisms of well-known economists of the points raised by Stiglitz have not addressed these basic ideas (misrepresenting what he actually writes in the book) and have focused in his unfortunate remarks. For the Fischer issue, which worries you so much, I would stick to comments made by Michael Harris and the "Economista brasileiro". But, even if you consider Stiglitz style rude, you and other economists are wrong not to take his economic ideas seriously enough. There are aspects in which the book is inconsistent, as John Williamsom´s excellent and balanced review in the IIE shows. But the book poses a huge and unavoidable intellectual and political challenge to the mainstream approach to international financial economics.

Posted by: Gonzalo García on January 15, 2003 08:24 AM

Brad, I think your thinking on Stiglitz book (and the AEA`s) fails to recognize the interest and the importance of discussing the economic points that he makes. I would highlight the following:

- Full liberalisation of the financial account is not the optimal policy for most emerging economies (I have not read anything in the book against openess to long term capital flows). Liberalisation of short term capital flows benefits more lending institutions in developed countries financial systems than emerging economies. When coupled with exchange rate fixed pegs the recipe has been a disaster, as the succesive crises in the nineties and early 2000s have shown. To my knowledge the Fund and other economists have now recognised the importance of sequenced liberalisation and the risks of fixed pegs. Hence I don´t see how Stiglitz is losing his argument.

-The IMF has been very slow to rectify, showing a lack of intellectual flexibility or, maybe better for staff ecomomists, of political independence.

- THe economic rationale behind IMF recipes has not paid sufficient attention to social costs, poverty reduction, political sustainability or growth. It has been very narrow-minded in a sense. The theoretical model used has not been able to combine market oriented policies with an analysis of the implications of market failures.

- International financial institutions do not represent appropriately the interests and views of developing countries.

- The interests of the financial industry in the developed world have influenced the policy of the IMF through the US Treasury.

Most of the criticisms of well-known economists of the points raised by Stiglitz have not addressed these basic ideas (misrepresenting what he actually writes in the book) and have focused in his unfortunate remarks. For the Fischer issue, which worries you so much, I would stick to comments made by Michael Harris and the "Economista brasileiro". But, even if you consider Stiglitz style rude, you and other economists are wrong not to take his economic ideas seriously enough. There are aspects in which the book is inconsistent, as John Williamsom´s excellent and balanced review in the IIE shows. But the book poses a huge and unavoidable intellectual and political challenge to the mainstream approach to international financial economics.

Posted by: on January 15, 2003 08:27 AM

Brad, I think your thinking on Stiglitz book (and the AEA`s) fails to recognize the interest and the importance of discussing the economic points that he makes. I would highlight the following:

- Full liberalisation of the financial account is not the optimal policy for most emerging economies (I have not read anything in the book against openess to long term capital flows). Liberalisation of short term capital flows benefits more lending institutions in developed countries financial systems than emerging economies. When coupled with exchange rate fixed pegs the recipe has been a disaster, as the succesive crises in the nineties and early 2000s have shown. To my knowledge the Fund and other economists have now recognised the importance of sequenced liberalisation and the risks of fixed pegs. Hence I don´t see how Stiglitz is losing his argument.

-The IMF has been very slow to rectify, showing a lack of intellectual flexibility or, maybe better for staff ecomomists, of political independence.

- THe economic rationale behind IMF recipes has not paid sufficient attention to social costs, poverty reduction, political sustainability or growth. It has been very narrow-minded in a sense. The theoretical model used has not been able to combine market oriented policies with an analysis of the implications of market failures.

- International financial institutions do not represent appropriately the interests and views of developing countries.

- The interests of the financial industry in the developed world have influenced the policy of the IMF through the US Treasury.

Most of the criticisms of well-known economists of the points raised by Stiglitz have not addressed these basic ideas (misrepresenting what he actually writes in the book) and have focused in his unfortunate remarks. For the Fischer issue, which worries you so much, I would stick to comments made by Michael Harris and the "Economista brasileiro". But, even if you consider Stiglitz style rude, you and other economists are wrong not to take his economic ideas seriously enough. There are aspects in which the book is inconsistent, as John Williamsom´s excellent and balanced review in the IIE shows. But the book poses a huge and unavoidable intellectual and political challenge to the mainstream approach to international financial economics.

Posted by: on January 15, 2003 08:29 AM

Brad, I think your thinking on Stiglitz book (and the AEA`s) fails to recognize the interest and the importance of discussing the economic points that he makes. I would highlight the following:

- Full liberalisation of the financial account is not the optimal policy for most emerging economies (I have not read anything in the book against openess to long term capital flows). Liberalisation of short term capital flows benefits more lending institutions in developed countries financial systems than emerging economies. When coupled with exchange rate fixed pegs the recipe has been a disaster, as the succesive crises in the nineties and early 2000s have shown. To my knowledge the Fund and other economists have now recognised the importance of sequenced liberalisation and the risks of fixed pegs. Hence I don´t see how Stiglitz is losing his argument.

-The IMF has been very slow to rectify, showing a lack of intellectual flexibility or, maybe better for staff ecomomists, of political independence.

- THe economic rationale behind IMF recipes has not paid sufficient attention to social costs, poverty reduction, political sustainability or growth. It has been very narrow-minded in a sense. The theoretical model used has not been able to combine market oriented policies with an analysis of the implications of market failures.

- International financial institutions do not represent appropriately the interests and views of developing countries.

- The interests of the financial industry in the developed world have influenced the policy of the IMF through the US Treasury.

Most of the criticisms of well-known economists of the points raised by Stiglitz have not addressed these basic ideas (misrepresenting what he actually writes in the book) and have focused in his unfortunate remarks. For the Fischer issue, which worries you so much, I would stick to comments made by Michael Harris and the "Economista brasileiro". But, even if you consider Stiglitz style rude, you and other economists are wrong not to take his economic ideas seriously enough. There are aspects in which the book is inconsistent, as John Williamsom´s excellent and balanced review in the IIE shows. But the book poses a huge and unavoidable intellectual and political challenge to the mainstream approach to international financial economics.

Posted by: on January 15, 2003 08:32 AM

I´m sorry about repeating myself that much. I swear it has been because a technical problem, not because I want to make my comments more forceful.

Posted by: Gonzalo García on January 15, 2003 08:41 AM

DD wrote:

>> Paul Krugman certainly doesn't; I quite clearly remember him making a quite serious accusation of the same sort about Armino Fraga.<<

I'll bet Krugman hasn't forgotten it either. Though that hasn't stopped him from making similarly bogus claims against others.

http://www.estado.estadao.com.br/english/week/99/w990223.html

<< The MIT economist Paul Krugman hit Brazilian headlines and apparently regretted to have done so. He wrote an article for the internet magazine Slate.... Fraga was once a director of the Central Bank (in 1992) and he is largely considered to be a market expert, capable of dealing successfully with the up and downs of the stocks and the exchange rate - exactly what we need at this time. But Paul Krugman wrote something that stirred up the mood over here. According to his article, [George] Soros, aware of Fraga's imminent hiring, guessed that the price of Brazilian bonds would increase. .... Krugman presented no evidences of his accusation. And yet more surprisingly, the national press got very angry at Krugman's apparent irresponsibility. Most of political analysts criticised the fact that, if Krugman had made such an accusation in the US, he would certainly lose a fortune to defend himself in the dock. The media demanded that the government took action against Krugman. Perhaps under pressure, the government was led to threaten a lawsuit against him, who then apologised and they were happy forever after. >>

Posted by: Patrick R. Sullivan on January 15, 2003 09:41 AM

Brad - Please do explain just what the IMF under Stanley Fisher did for southern African economies? What has Citigroup done for southern Africa?

Joseph Stiglitz is simply asking after just whose interests are served by the IMF, and the answer seems to be a heck of lot more Citigroup than middle class and poor people in developing economies. A better balance would sure be nice.

Joseph Stiglitz is on the right side as is Amartya Sen.

Posted by: on January 15, 2003 10:21 AM

One point that needs to be made is that when Ken Rogoff originally raised this issue he qouted the paragraph where Stiglitz raises suspicions about Fischer, but then didn't didn't quote the subsequent paragraph where Stiglitz dismisses them.

This was quite dishonest on his part, and more unfair than what Stiglitz originally wrote.

And if it's really seen as so unfair for Stiglitz to raise (and then dismiss) a question that any sensible outside observer would ask, than the economics profession as a whole has become dangerously defensive and out of touch.

Posted by: RC on January 15, 2003 10:37 AM

According to his article, [George] Soros, aware of Fraga's imminent hiring, guessed that the price of Brazilian bonds would increase. .... Krugman presented no evidences of his accusation. And yet more surprisingly, the national press got very angry at Krugman's apparent irresponsibility.Most of political analysts criticised the fact that, if Krugman had made such an accusation in the US, he would certainly lose a fortune to defend himself in the dock.

On what grounds on earth would this result in Paul ending up in court?

Posted by: Jason McCullough on January 15, 2003 10:58 AM

It wouldn't in the US. In the UK, it would probably have been found to be libellous, which is one reason why the UK sucks relative to the US.

On the other hand, it was an absolutely ubiquitous rumour at the time, and was not the only scurrilous rumour relating to Fraga.

Posted by: DD on January 15, 2003 12:48 PM

Coming to this as an outsider, I find the opprobrium directed at Stiglitz disturbing. I would not have interpreted the highlighted passage as an attack on Fischer. This could easily be my not knowing the personalities, but to me the lady doth protest too much. I can't help wondering if this kind of this has happened in other cases. At the least, it seems people are worried about it.

Posted by: Jonathan Goldberg on January 16, 2003 07:37 AM

Coming to this as an outsider, I find the opprobrium directed at Stiglitz disturbing. I would not have interpreted the highlighted passage as an attack on Fischer. This could easily be my not knowing the personalities, but to me the lady doth protest too much. I can't help wondering if this kind of this has happened in other cases. At the least, it seems people are worried about it.

Posted by: Jonathan Goldberg on January 16, 2003 07:40 AM

>> On what grounds on earth would this result in Paul ending up in court? <<

Jason, in this country anyone can sue anyone for anything at almost anytime.

Posted by: Patrick R. Sullivan on January 16, 2003 10:03 AM

Well, obviously you can be sued for practically anything. I thought they meant it as a serious accusation.

Posted by: Jason McCullough on January 16, 2003 02:34 PM

Jason, Krugman obviously took it seriously.

Posted by: Patrick R. Sullivan on January 17, 2003 08:59 AM
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