Re: Stiglitz on Soros

[ahmet tonak <eatonak@xxxxxxxxxxxxxxx>]

To start up a discussion first a correction is needed.

I am assuming Professor Davidson did not mean "the Palestine Authority."  He meant
"the state of Israel."  Am I wrong?

Best,

E. Ahmet Tonak
Simon's Rock College of Bard

Paul Davidson wrote:

> Matt asked me for any comments on the NY Review of Books article by
> Stiglitz on Soros's GLOBALIZATION.
>
> My immediate reaction was similar to Alan Blinder's reaction to "bleeding
> heart liberals" in his book.
>
> Both Soros and Stiglitz come off as bleeding heart liberals who want to (in
> Spike Jone's words) Do the Right Thing. But in wanting to be "fair" they
> have no theoetical framework for evaluating their proposals. As Stigliz
> notes in the first paragraph of his article "no one expected that the world
> market economy would be fair; but at least we were taught that it was
> efficient. Yet these and other tendencies suggest that it is neither".
>
> Why is it neither?  Stiglitz is left with no theoretical answer -- except
> some  ad hoc constraints, that prevent the system from being efficient or fair.
>
> Stiglitz lauds Soros for proposing "concrete, practical policies", -- e.g.,
> "foreign assistance".
>
> Would Soros's proposal of foreign assistance via the Open Society program,
> if given to the Palestine Authority provide "fairness", or peace and
> civility in the middle east,  or an improvement in efficiency ?
>
> The fact that the IMF proposals is based on the "hard-headed" economics of
> Blinder's efficient market theory  does not work-- does not mean that the
> Stiglitz-Soros "practical" proposals will systematically improve the
> system. [As we have recently learned some US charities have funded
> Ben-Laden's Terrorist operations. So giving  to the "poor" without strings
> might be foolish -- but if you are going to have strings-- what strings
> should they be.  Without a theoretical framework, the strings become very
> arbitrary,.
>
> But the liquidity preference theory indicates that liquid markets are not
> efficient and efficient markets are not liquid-- as my forthcoming
> book  FINANCIAL MARKETS, MONEY AND THE REAL WORLD explains in
> detail.  Under the international financial proposal developed from the
> theory in my book, my policy proposal for an IMCU system immediately
> eliminates the relevance of secrecy of off-shore banking accounts . The
> only requirement for poor nations is that they be willing to work their way
> out of poverty -- as the system I develop assures each nation can
> pursue  full employment policies if the government desires without worrying
> about international balance of payments deficits.
>
> But my proposal does not require the "handout" to poor nations of
> additional "created" SDRs -- modest or not -- Instead the IMCUs will always
> be available to deficit nations (who are at less than full employment) if
> they are willing to work (and employ otherwise idle domestic resources) to
> earn them!
>
> Soros recognizes that fundamental free market ideology , according to
> Stiglitz, is not supported by "modern theory" where ny modern theory
> Stiglitz means his theory of asymmetric information-- but the latter is
> merely an ad hoc constraint on the available use of existing information.
> Nevertheless, in 1989 Stiglitz indicated that the long-run real path of the
> economy would be the same whether this information was available to anyone
> or not.  Only the distribution of the fruits of the system and not the size
> of the pie changes with asymmetric information. That's why Stiglitz and
> Soros emphasize fairness  -- because in the long run, the size of the pie
> can not be changed by economic policy in their view!
>
> But under Keynes's GT's liquidity preference analysis -- as I show in my
> new book on FINANCIAL MARKETS, MONEY AND THE REAL WORLD (to be published
> this summer)-- even in the long run the total size of the pie can be
> increased once we recognize markets are not efficient and we create enough
> liquidity plus other government policies to assure full employment without
> inflation .
>
> Stiglitz is right about the global financial system needs to be changed --
> but it has nothing to do with "moral hazard".
>
> I could go on -- but perhaps that is enough to start up a discussion.
>
> Paul
> Paul Davidson
> Editor, Journal of Post Keynesian Economics
> Economics Department - 523 SMC
> University of Tennessee
> Knoxville, Tennessee 37996-0550
> phone # (865) 974-4221
> fax # (865) 974-1686
> home phone  (865) 692-0802
> http://econ.bus.utk.edu/Davidson.html