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Paul,
Guess you are gone, but I simply note
that whether or
not there is fundamental uncertainty due to
non-ergodicity
does not mean that asymmetric information is
irrelevant.
The original paper is not Stiglitz
but Akerlof's on the
market for lemons. He showed that there would be
a
different equilibrium price under asymmetric info than
under symmetric info. This will hold irrespective of
the
existence or lack thereof of fundamental
uncertainty.
One can view it this way.
In a symmetric info
world there is agreement about the nature or
severity
of the uncertainty. In an asymmetric info world there
is
not, one party may be aware of uncertainty and
the
other is not. This suggests a different outcome
than
if they have equal degrees of awareness of
uncertainty.
And, I am not using uncertainty in its
quantitative
Tobinian manner. If you say that different
awarenesses
of uncertainty have no impact on market outcomes,
then
you have just declared uncertainty to be
irrelevant.
Barkley Rosser
----- Original Message -----
Sent: Thursday, May 16, 2002 11:54
AM
Subject: Re: My almost friend is not my
enemy
Just as the discussion is getting interesting, Cliff has run
out of time -- and I am off to a conference in Spain ---
At 09:58 AM
5/16/2002 -0400, you wrote:
Please see my responses below, which are set
off from the text in Italics. I am snipping significant parts of
the exchange for brevity:
- -----Original Message-----
- From: Paul Davidson [mailto:pdavidson@xxxxxxx]
- Sent: Wednesday, May 15, 2002 5:39 PM
- To: Clifford Poirot
- Cc: pkt@xxxxxxxxxxxxxxxx
- Subject: Re: My almost friend is not my enemy
At 04:10 PM 5/15/2002 -0400, you wrote:
My anecdote was to show how, unless non-mainstream economists are on
the Board of Editors of such journals different perspectives are
unlikely to be presented.
ANYONE WANT TO CITE ISSUE IN THE LAST 5 YEARS WHERE DIFFERENT
PERSPECTIVES WERE PRESENTED -- RATHER THAN DISCUSSIONS BETWEEEN
TWEEDLEDEE AND TWEEDLE DUM
( OR IS IT TWEEDLE
DUMB?)
[Clifford Poirot]
This is a point that is
well made and on this, we have no
dispute.
paul:
GOOD!
-
- I am not surprised that Stiglitz has problems with uncertainty
because as I have noted, I find Stiglitz' lack of acknowledgement of
this issue to be perplexing and inconsistent with other things he has
written. Which is to say, that we all have our theoretical blind
spots.
- It is not b lind spots -- but as Heilbroner and Milberg argued in
their recent book -- a lack of any view but the narrowest of the
mainstream.
- [Clifford Poirot]
- I do not think that is productive for us to focus on our differing
views of specific economists which is why I go into detail below on what
I think are the more interesting and significant differences. It is true
that the profession enforces conformity in a way that other disciplines
do not. But as Barkley noted, Stiglitz does not represent the narrowest
of mainstream theory, but rather, a significant opening.
paul:
AND I SEE IT AS A WAY TO KEEP REAL
INNOVATIVE MODELS OUT OF THE MAINSTREAM VIEW -- ESPECIALLY WHEN THE UNORTHODOX
ARE WILLING TO SAY -- WELL STIGLITZ HAS ALMOST GOT IT RIGHT --BUT NOT QUITE--
WITH HIS AD HOC ARGUMENT. EITHER WE WANT LOGICAL CONSISTENCY IN A MODEL
OF NOT!
- 2) Probably the more interesting point is the significance for
macroeconomics of microeconomic "imperfections". Let me turn this
around-suppose Central Banks always and everywhere insured the liquidity
of the system and the international system adopted Paul's IMCU proposal:
Does this mean that markets would then experience continuous clearing
and generate full employment, that wage contracts would not be subject
to power differentials, that economies with substantial degrees of
market power would not be vulnerable to oil price
shocks?
The question Cliff is if we passed and enforced laws
preventing exercise of monopoly power to prevent monopoly
power in labor markets)(including anti labor union legislation, do you
really think we would eliminate unemployment, etc.?
[Clifford Poirot]
Paul, as you are so fond of saying, I have never beaten my wife and
certainly have no intention of starting. This statement is so far from
the very clear meaning of my original assertions that it is difficult to
regard this question as nothing more than a cheap rhetorical trick
designed to make it appear that those who think that microeconomics has
significant ramifacations for macroeconomics must be anti-union, or at
best, logically anti-union, but inconsistent. See my further discussion
on related points below.
If we reduced the power of labor unions and
inreasing competition among workers --would you have a "better"
distribution of income? Again as someone who did his Ph. D. dissertation
on Income Distribution -- and a student of Sidney Weintraub who
developed Keynes's aggregate supply and demand analysis in his
masterpiece AN APPROACH TO THE THEORY OF INCOME DISTRIBUTION,
[Clifford Poirot]
Does this not require working out a theory of income distribution?
Are you really suggesting that market power is not relevant for
determining income distribution?
paul:
YES
--AND SIDNEY WEINTRAUB DID WORK OUT A THEORY OF INCOME DISTRIBUTION WHICH IS
COMPLETELY COMPATIBLE WITH KEYNES'S GENERAL THOERY---[THE AGGREGATE SUPPLY
CURVE IS BUILT UP ON THE DISTRIBUTION OF INCOME RELEVANT TO MONOPOLY POWER,
TECHNOLOGY, ETC. [FOR A VERY BRIEF DISCUSSION OF THIS THEORY SEE CHAPTER S 10
AND 11 OF MY POST KEYNESIAN MACROECONOMIC THEORY
- I BELIEVE THAT BY GETTING KEYNES'S LIQUIDITY MESSAGE AND EFFECTIVE
DEMAND MESSAGE AS THE BASIC MODEL WE CAN SOLVE WHAT KEYNES SAW AS THE
TWO MAJOR FAULTS OF THE SYSTEM WE LIVE IN NAMELY ITS INABILITY TO
PROMOTE FULL EMPLOYMENT AND ITS ARBITRARY AND INEQUITABLE DISTRIBUTION
OF INCOME AND WEALTH
- [Clifford Poirot]
- Do you really mean to say that If we only have enough
liquidity, all problems with Aggregate Demand and Aggregate Supply wil
be solved along with issues related to income distribution?
paul:
Of course not -- as my PKMT makes
clear. to get the point of effective demand (i.e., the intersection of
aggregate demand and aggregate supply -- with the latter having income
distribution implications--up to full employment --What is necessary is (1) to
stimulate private investment spending by animal spirited entrepreneurs by
creating liquidity that can be obtained at the lowest possible nominal costs,
(2) prevent the international sector from passing contagious deflationary
forces onto each nation's economy, and (3) if given the public's propensity to
consume, animal spirits private investment is not sufficient to generate full
employment, then the government should undertake, with the cooperation of
private initiative, deficit spending on productivity enhancing
quasi-public-private investment goods
-
Moral hazard is really a very classical ad hoc
invention. If the monetary authority knew its business then as
Keynes noted-- bank credit is the pavement on which enterprise travels
and if bankers knew their business they would provide all the paving
needed to keep industry going at full employment.
[Clifford Poirot]
How can banks possibly ever have all this information, or even act
on it in a concerted manner if they did have this information? You
seem to assume that by providing enough liquidity, all possible
coordination problems between economic agents will magically clear. And
that is the real hocus pocus here.
Adverse selection? That just asymmetric information hocus
pocus! If people lie on their loan application, that is known as
fraud and is punishable under the criminal code -as maybe we will
see happens to Enron and Anderson. But I don't think that even Joe
Stiglitz would say that the Enron situation was an excellent case of
adverse selection.
[Clifford Poirot]
The Enron case illustrates very well the difference between
asymmetric information and uncertainty. As I have said before, the
theory of asymmetric information describes the real ontological system
of differential power: Information is costly to obtain, and some agents
have more and better access to it than others. Ironically, any
intelligent accounting major at the undergraduate level could have
accessed SEC filings and figured out something was fishy, even if the
details would have been unknown. Because information is costly,
investors depend on security analysts, company reports about earnings
and other sources of information. As matters turned out, this
information was wrong.
paul:
THE ASYMMETRIC INFORMATION THEORY
PRESUMES THAT THE ECONOMIC FUTURE IS PREDETERMINED BY TODAY'S ECONOMIC
FUNDAMENTALS -- AND CANNOT BE ALTERED BY ANY HUMAN ACTION. ALL THE
ASYMMETRIC INFORMATION THEORY IMPLIES (ACCORDING TO STIGLITZ IN HIS 1989
ARTICLE ADVOCATING A TOBIN TAX ON ALL FINANCIAL TRANSACTIONS) IS THAT THOSE
WHO SPEND THE RESOURCES TO GET THE INFORMATION WILL ALTER THE DISTRIBUTION OF
THE FUTURE ECONOMIC PIE -- BUT NOT [INSTIGLITZ'S OWN WORDS] THE SIZE OF
THE FUTURE ECONOMIC PIE. THIS REQUIRES STIGLITZ TO HAVE THE ERGODIC
AXIOM UNDERLYING HIS THEORY--- AND HENCE HE CAN NEVER "SEE" UNCERTAINTY AS A
RESULT OF NONERGODIC PROCESSES!!
NONERGODICITY IMPLIES THAT
INFORMATION ABOUT THE FUTURE DOES NOT EXIST TODAY
- AND SO NO MATTER WHAT ONE SPENDS ONE CANNOT RELIABLE
(IN THE STATISTICAL SENSE) INFORMATION ABOUT THE FUTURE --
THATS WHY "ANIMAL SPIRITS" BECOMES
IMPORTANT
Uncertainty does
not mean that asymmetric information does not exist, or vice versa. The
concepts describe two different (though related) problems of people trying to
work out real problems in real economies in real
time.
paul:
WHEN YOU WRITE:
Uncertainty does not mean
that asymmetric information does not exist, or vice versa,
YOU ARE USING THE TERM UNCERTAINTY TO MEAN
"PROBABILISTIC RISK" -- AT LEAST IF YOU ARE GOING TO BE LOGICALLY
CONSISTENT.
THIS ILLUSTRATES WHY I THINK THE STIGLITZ AD
HOCRY -- PREVENTS TRULY DIFFERENT IDEAS TO EMERGE-- SINCE ONCE YOU IMPLICITLY
ACCEPT THE ERGODICITY AXIOM -- YOU ARE TRAPPED IN CLASSICAL THEORY--THERE IS
NO OPENING FOR KEYNES'S UNCERTAINTY -- AND IT IS CLEAR FROM WHAT KEYNES WROTE
ABOUT TINBERGEN THAT HE HAD IN MIND THAT ECONOMICS WAS A NONSTATIONARY SYSTEM
(AND NONSTATIONARY IS A SUFFICIENT CONDITION FOR
NONERGODIC)!!
ASYMMETRIC
INFORMATION BY YOUR DEFINITION IS LOGICASLLY INCOMPATIBLE WITH THE
GT.
- What policy change would you advocate to end a market imperfection
that would assure persistent full employment in any nation?
Globally?
- [Clifford Poirot]
- There is no *ONE* policy change that can insure full employment
nationally or globally. Yes, liquidity would help. For that matter, debt
relief would help the developing world, as well as a change in
priorities by the IMF and World Bank. Suffice it to say for the sake of
brevity, the problem of unemployment in developing countries is often
related to dual sectors and structural imbalances. In the U.S.,
promotion of full employment would require at the minimum an interest by
the FED and Congress, coordinated together, to promote full employment.
What I would define as full employment, would require, in a complex
market economy such as ours, one of two things-a willingness to live
with persistent inflation close to 10% or an overall incomes policy.
Liquidity could be at best, a part of the policy-not the entire policy.
And even then, there is no guarantee that AD policies would sufficiently
address the problems of structural
unemployment.
BUT IF STIGLITZ IS TO BE BELIEVE THE SIZE OF THE FUTURE PIE
IS ALREADY DETERMINED BY TODAY'S FUNDAMENTALS AND THERE IS NOTHING CONGRESS
CAN DO TO CHANGE THAT.
paul
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