Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!

Tuesday, October 01, 2002

What worries Joe Stiglitz?

Author's note: I'm actually steamed at the IMF at the moment over some of the bionically annoying things they've been saying about Brazil recently. But rather than get into a whole load of that, I thought I'd repackage the Stiglitz Critique of the IMFfor the peanut gallery. With, as usual, a chunk of saloon-bar language at no extra cost.

Joseph Stiglitz is obviously a hero of D-Squared Digest, because he used his Nobel Prize to do exactly what I would have done in the unlikely event of winning one; to immediately start arguments with everyone who ever pissed him off, in the knowledge that his opponents are on a complete loser because Stiglitz can end the argument at any time by saying "Look, sunshine, there's only one of us who's got a Nobel Prize here and it isn't you". He also picked a very, very pleasing target in the form of the current IMF, and if the calvalcade of twisted knickers we've seen from that institution in response is anything to go by, he struck a raw nerve the size of Lincolnshire.

For those sensible souls who couldn't be fagged looking up the details but just enjoyed the fight, Stiglitz had a very specific critique of the IMF to begin with (since the original IMF seminar where it all apparently kicked off, he appears to have signed off on the whole bill of goods of the crusty Seattle crowd). The original Stiglitz Critique went as follows:
  1. The IMF are not as damn clever as they think they are ("third-rate students from first-rate universities")
  2. They don't know as much economics as they think they do
  3. They're unsufferably arrogant that they are all that when it comes to economics, which given 1 and 2 above, makes them downright dangerous.

I don't want to get into the personality issues ... well, of course I do, but I don't know enough of the people concerned to do so. Instead, here's a central example of the sort of thing that Stiglitz is talking about; the question of "sequencing".

Basically, the "sequencing" literature revolves round the following idea (this para. cribbed from the excellent Dani Rodrik:
"Imagine landing on a planet that runs on widgets. You are told that international trade in widgets is highly unpredictable and volatile on this planet, for reasons that are poorly understood. A small number of nations have access to imported widgets, while many others are completely shut out even when they impose no apparent obstacles to trade. With some regularity, those countries that have access to widgets get too much of a good thing, and their markets are flooded with imported widgets. This allows them to go on a widget binge, which makes everyone pretty happy for a while. However, such binges are often interrupted by a sudden cutoff in supply, unrelated to any change in circumstances. The turnaround causes the affected economies to experience painful economic adjustments. For reasons equally poorly understood, when one country is hit by a supply cutback in this fashion, many other countries experience similar shocks in quick succession. Some years thereafter, a widget boom starts anew.

Your hosts beg you for guidance: how should they deal with their widget problem? Ponder this question for a while and then ponder under what circumstances your central recommendation would be that all extant controls on international trade in widgets be eliminated.

Substitute �international capital flows� for �widgets� above and the description fits today�s world economy quite well."

I'd recommend the whole of Rodrik's paper; it's an excellent summary of the literature, the basic conclusions of which are
  • that there is no definite relationship, nor even any particularly useful analogy between free trade in goods markets, and liberalised capital markets, and,
  • most importantly, that a country which opens up full capital account convertibility in the context of a weakly capitalised or poorly regulated domestic financial system is asking for trouble.

It's important to note that these are really quite well-established results of the literature, with good theoretical foundations and decent empirical support. This isn't some wild heterodox theory; it's what one ought to learn at a decent graduate school if one studies the area at all. Note also that Rodrik's paper is dated 1998; it's not really "bleeding edge" stuff. While you're noting things, have a good old note at this whacking great collection of references to the sequencing literature, particularly this review article from the IMF's own economics team, also dated 1998.

So given that the sequencing question is mainstream economic thought, you might have guessed that it would be shaping IMF policy, right? Wrong. Although the IMF's economists will freely and happily admit, in public, that sequencing matters, I defy anyone to find an instance of an IMF program where a country with liberalised capital markets has been advised to impose restrictions, or even one where a country that has existing capital account controls has not been either required or strongly exhorted to remove them. The IMF knows (somewhat behind the times) that liberalisation of the capital account is something that should happen very late in the development process, but it can't put this knowledge into action, because to do so would be tantamount to admitting past mistakes, and would "slow down the pace of reform" at a time when reform desperately needs to be slowed down.

That's institutional arrogance, and the evidence to date is that it's seemingly incurable. That's why Stiglitz thinks there's no saving the IMF, and lots of people, myself included, are beginning to believe him.
1 comments this item posted by the management 10/01/2002 06:10:00 AM

This page is powered by Blogger. Isn't yours?


Bitch : Lab
Aaronovitch Watch
Brad Delong
The Robert Vienneau blog

Political and philosophical heroes

Subcomandante Marcos
Will Rogers
Boris Vian
The English Svejk

RSS Feed:
This seems to matter to a lot of people

If you liked this "Daniel Davies" website, you might be interested in

"Danux", the web developer
The martial artist (and fan of extremely annoying Flash intros) from Blackburn
The Welsh political journalist
A Scouse computer programmer who collects Soviet cameras
"Danimal", the heavy metal drummer
Canada's finest recorder of radio jingles
More of the same, at the Guardian
A tailor's in Lampeter where Jimmy Carter once bought a hat
An advertising man who has written a novel about dogging (I think we sometimes get each other's email)
An award-winning facilities manager in Dubai
The son of the guitarist from the Kinks Update: he is apparently "balls-out motherfucking shit-dicked exxxstatic" to be included on a Kerrang magazine giveaway CD of Iron Maiden covers, which is nice.
"Fritz Gretel" from the Ramones film "Rock 'n' Roll High School"
The former presenter of the leading politics talk radio show on the Isle of Man, now a business change manager in the Manx government secretary's office
An aquarium curator in Sussex who keeps on scoring home runs like this (this is the first stable link I've found, but he is constantly kicking ass in acquarial terms)

If you didn't like this "Daniel Davies" website, then don't give up on the Daniel Davies industry completely!

An American "Christian Political Analyst" who has the same name as me
A student at Patrick Henry College
these two might be the same guy ...
"Scatter", the deceased Liberian gangster
A naked man stuck in a chimney in Wigan
A thug in Barrow

This blog has been going downhill since ...

August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
November 2003
December 2003
March 2004
April 2004
May 2004
May 2005
June 2005
July 2005
August 2005
September 2005
October 2005
November 2005
December 2005
January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
May 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
June 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
August 2012
September 2012
October 2012
December 2012
February 2013
April 2013
June 2013
July 2013
August 2013
March 2014
April 2014
August 2014
October 2015
March 2023