Re: on Stiglitz

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Paul:

Re. the following:

> BY THE WAY GUNNAR, your "good old days" example (i.e., the pre-bretton
Woods
> collapse era ) in incorrect--
> as, on average, LDC's showed greater economic growth (both in the
aggregate
> and in per capita basis) over the this good old days period when private
> capital flows to htem were small vis-a-vis the post Bretton Woods
period. --

My comments -

In the "good old days", most LDCs had insignificant amounts of both public
and private capital inflows and, broadly speaking, were going nowhere
insofar as their economic development was concerned. -

concerned _development_ rather than growth rates of traditional activity.

As in the post-Bretton Woods Asian Tiger phenomenon.

Gunnar



----- Original Message -----
From: "pdavidso" <pdavidso@xxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Thursday, September 11, 2003 10:15 AM
Subject: Re: on Stiglitz


> >===== Original Message From Warren Mosler <mosler@xxxxxxxxxxxxxx> =====
> >I AGREE WITH THE ASSESSMENT, AND THE 'CURE' PAUL
> >SUGGESTS MAY BE 'A' CURE BUT FAR FROM THE 'ELEGANT
> >SOLUTION.' PAUL CONTINUES TO IDENTIFY THE SURPLUS
> >COUNTRIES AS PROBLEM, AS THEY CAUSE A LACK OF DEMAND
> >IN THE REMAINING (DEFICIT) COUNTRIES. WHILE THIS
> >INDEED THE CURRENT CHAIN OF EVENTS, THE DEFICIT
> >COUNTRIES CAN, TODAY, UNILATERALLY, INSTANTANEOUSLY,
> >'CURE' THEMSELVES BY SIMPLY 1)IGNORING THEIR NATIONAL
> >GOVT'S 'EXTERNAL' DEBT,
>
>
>
> Unfortunately, if all nations (except the US) ignore their external
debt --
> and even, if Warren is to be taken seriously, these debtor nations default
> simultaneously on their external debt servicing, the world's financial
markets
> would collapse in a wave of bankrupcies as the creditor lenders in OECD
> nations suddenly found themselves holding worthless paper that seriously
> damaged if not wiping ut their equity position in their respective balance
> sheets.
>
> 2)FLOATING THEIR CURRENCY IF
> >THEY HAVEN'T ALREADY,
>
> Warren assumes that a LARGE Marshall-Lerner condition ubiquitously holds
so
> that changing relative export-import prices will miraculously cure balance
of
> payments deficits without any significant real income loss.
>
> The large Marshall -Lerner condition may be true in a two nation Ricardian
> comparative advantage hypothetical example. Unfortunately, as the the
> short-run decline in the empirical evidence of the possibility of a based
> J-curve shows, the Marshall-Lerner condition normally does not hold in the
> short-run. {As the text book by Abel and Bernake note -- the idea that the
J
> curve will ultimately turn upwards is based on an assumption that in the
> longer run the sum of the elasticities will be significantly greater than
> unity.)
>
>
> AND 3) OFFERING A NATIONAL
> >SERVICE JOB TO ANYONE WILLING AND ABLE TO WORK.
>
> If a nation can iGNORE its external debt servive obligations, then it is
> always possible for sufficent government spending to fill the gap between
full
> employment aggregate supply and private sector effective demand.
>
> The Soviet system offered a job toanyone who wanted to work -- but the
> resulting allocation of labor was not what the private sector households
> wanted to buy with their full employment income---hence long queues in
shops!
> So full employment is a not just a goal in itself - rather one wants full
> employment with, hopefiuully, the employed workers will be oriented
towards
> producing mainly everything the private sector wants (except for illegal
> goods, e.g., drugs,etc) to buy out of full employment income
>
> -- and then allocating the rest of the GDP to producing socially
desireable
> productive facilities (e.g., infrastructure, education, medical care, etc)
> that the private sector will not buy out of its full employment income.
>
> AS AN
> >ALTERNATIVE AND/OR SUPPLEMENT TO 3) THEY CAN INCREASE
> >DOMESTIC DEMAND MORE TRADITIONALLY WITH EITHER HIGHER
> >GOVERNMENT SPENDING OR LOWER TAXES. (SEE EXCHANGE
> >RATE POLICY AND FULL EMPLOYMENT).
>
>
> Unfortnuately in a global economy, a nation cannot avoid global financial
> requirements--
>
>
> So far the main reason --certainly since the 1980s-- that the global
financial
> payments system has not collapsed into a great depression is that the US
> ignore its external debt obligations -- which can be serviced by $US
dollars.
> Since the world is on a dollar standard -- the US has not trouble
serrvicing
> its $ debts -- as long as foreign central banks are willing to keep their
> liquid assets in the form of US Treasuries.
>
> Thus Gunnar's comments on the comparison of the post Bretton Woods period
are
> irrelevant --as long as the dollar standard holds and the US ignores its
> external debt position.
>
> BY THE WAY GUNNAR, your "good old days" example (i.e., the pre-bretton
Woods
> collapse era ) in incorrect--
> as, on average, LDC's showed greater economic growth (both in the
aggregate
> and in per capita basis) over the this good old days period when private
> capital flows to htem were small vis-a-vis the post Bretton Woods
period. --
> The LDC's growth record since 1973 (to 2002) despite large capital inflows
has
> not come close to the growth rate of the 1950-1973 period [See the first
> chapter of my book FINANCIAL MARKETS MONEY AND THE REAL WORLD for the
> statistics on growth for both OECD and LDC's for both periods.)
> >
> >THE LESSON OF RUSSIA AND ARGENTINA IS THAT THE
> >EXTERNAL DEBT IS BOTH UNSECURED AND NON RECOURSE.
> >THERE IS NO PENALTY FOR NON PAYMENT. AND BOTH DID
> >SUBSTANTIALLY BETTER AFTER DEFAULTING ON IT.
>
> Yes! as Keynes once said "when you owe your bankerf 5 pounds its your
problem,
> but when you owe your banker 500 pounds its the bankers problem".
>
> As Argentin'a default this week showed, the IMF blinked when the
Argentinians
> i ndicated they would default and now apparently the IMF will make loans
> available rather than let the creditors including the IMF take an
additional
> bath -- and perhaps lead to the cascading defaults that Warren advocates.
>
>
> >GOVERNMENTS CAN OPERATE JUST FINE IN LOCAL CURRENCY
> >WITHOUT THE IMF OR $US DEBT.
>
> As long as they do not want the advantages of globalization in terms
of"cheap"
> ggods ---).
>
> >
> >THE SURPLUS NATIONS ARE OFFERING A FREE LUNCH TO THE
> >REST OF THE WORLD.
>
>
> Primarily the US who can ignore its external debt servicing payments by
> printing paper to cover them. Unfortunately the rest of the world can not
be
> so blase -- unless one wants to sink into autarky.
>
>
> THEY HAVE OVERLOOKED THE FACT THAT
> >EXPORTS ARE A COST, IMPORTS A BENEFIT
>
> This assumes that if the exprot market demand was not available, the
> government would always create at least the equivalent in terms of
domestic
> effective demand---
>
> Unfortunately, as Warren admits, government policy makers throughout the
world
> --with perhaps the US being the only exception?--they don't understand
this.
>
>
> \
> ND HAVE OTHER
> >INTERNAL AGENDAS FOR BURDENING THIER DOMESTIC
> >POPULATIONS WITH TRADE SURPLUSES.
>
> Funny the employed workers in the export industries do not see this
burden --
> nor do the workers in industries that suppply goods and services to these
> export industries workers and entrepreneurs see the burden ---).
>
>
> THERE IS NO REASON
> >FOR THE DEFICIT NATIONS TO CHANGE THAT, AS IT IS IN
> >THEIR OWN BEST INTEREST TO LEAVE THE SURPLUS NATIONS
> >ALONE, AND INSTEAD MAINTAIN FULL EMPLOYMENT
> >DOMESTICALLY WITH THEIR OWN LOCAL CURRENCIES.
>
> Surprisingly even the policy makerts in the deficit nations don't see
this--
> as even though Argentina has recovered (i.e., had a little bounce from a
> severe deprerssion), it still does not have a policy of employer of last
> resort for its domestic workers -- as 1/5 of the Argentinian population is
in
> poverty.
>
>
>
> Paul
>
>
>
>
>
> Paul Davidson
> Editor, Journal of Post Keynesian Economics
> University of Tennessee
> SMC 503
> Knoxville, Tennessee 37996-0550
> office phone #;(865)974-4221; office fax# (865)974-1686 or (865)974-4601
> home phone and fax # (865)692-0802
> email pdavidson@xxxxxxx
> http://econ.bus.utk.edu/davidsonextra/Davidson.html
>