Re: Stiglitz on Soros

[Geoff Edwards <g.edwards@xxxxxxxxxxxxxxxxx>]

Leigh

This line of reasoning seems rather too clinical to describe real world
economies. Countries do not have the implied level of independent control
over their fortunes.

Certainly some countries (like Australia) have deliberately put in place
the policies (unilateral removal of restrictions on trade and foreign
investment) that have been followed by massive current account deficits.
But consider the following circumstances which can have the same result
outside a country's deliberate control:

* massive devaluation caused by speculative withdrawal of currency;
* transfer pricing by corporations;
* IMF or World Bank conditions of financial support which force countries
to shrink their infrastructure or open their markets to imports;
* aggression by trading partners who demand that the subject country's
markets be opened but protect their own.

With a chorus of major international bodies proclaiming the current
economic orthodoxy that "free trade" is the way to prosperity, and using
their financial and political clout to force these policies onto the rest
of the world, what hope do well-meaning politicians of the average smaller
country have of running an independent macro policy?


Regards


Geoff Edwards
PhD Student
Griffith University
Brisbane, Australia

-----Original Message-----
From:	Leigh Harkness [SMTP:Leigh@xxxxxxxxxxxxxxxxxxxx]
Sent:	Monday, May 13, 2002 10:39 PM
To:	mosler@xxxxxxxx; Paul Davidson
Cc:	pkt@xxxxxxxxxxxxxxxx
Subject:	Re: Stiglitz on Soros

Paul

You wrote:

> Since both the creditor and the debtor are responsible for the imbalance
in
> the international  current account payments, then both have a
> responsibility for solving the problem -- but the creditor nation has the
> wherewithal to solve the problem  --and so it has the major
responsibility
> for resolving the problem.

When you are managing an economy, you try to balance international current
payments.  You definitely don't want a huge currently deficit.  Neither is
it worthwhile generating a huge current account surplus, unless your people
and businesses  wish to build up savings overseas.  For example, Japanese
people and businesses may wish to build up savings overseas, so a sound
policy position may generate current account surpluses for that economy.
(That is not to say that this is the reason for the current account
surpluses of Japan.)

While one can manage ones own economy to generate a current account deficit
or surplus, I doubt if one can achieve a similar results for ones own
economy by managing the economy of every other country.  If the forces that
would have generated a current account deficit cannot be relieved through a
current account deficit, then they must be relieved in some other way, such
as hyper inflation.

For example, lets say two countries, A and B have expansionary policies in
place that cause excess demand.  In the case of country A, it has a good
credit rating and the rest of the world is prepared to lend to it.  It
experiences current account deficits.

Country B, on the other hand, does not have a good international credit
rating.  It cannot go into debt internationally to pay for goods to meet
the
excess demand in its economy.  As a result, it has a shortage of goods
relative to the money trying to buy goods and so experiences hyper
inflation; but no current account deficit.

Are the "other countries" irresponsible for lending to country A?    Have
they contributed to its current account deficit?

Also, are the "other countries" acting responsibly when they don't lend to
country B?  They have saved country B from a current account deficit.

The current account deficit is a symptom of an economic problem.  That
problem is caused directly by macro-economic policies (government fiscal
deficits are not a necessary nor sufficient cause of current account
deficits).  The problem can be solved directly by macro-economic policies.
The country that has the problem is responsible for that problem.  No
amount
of action by other countries to treat the symptoms of that problem can
address the cause of that problem.


Leigh














s in place policies that would cause