Posts Tagged ‘Joseph Stiglitz’

New publication: ‘The Power of Ideas’ collects ‘theoretical foundations’ posts

Wednesday, December 22nd, 2010


It’s finally arrived! The most anticipated (by me at least) Policy Progress publication of 2010, The Power of Ideas: Decline and renewal in the theoretical foundations of progressive thinking, is now online.

From my foreword:

This report collects together all of my writings on the ‘Theoretical Foundations’ topic, one of the main themes for the Policy Progress website in 2010. This topic goes right to the heart of what Policy Progress has been trying to do as a policy ‘think-site’ devoted to developing and supporting progressive initiatives and ideas. Over the course of this year, I’ve tried to grapple with the history and prospects of progressive thinking and renewal. And, perhaps miraculously, I feel that the 35 or so posts that formed the basis for this report really do add up to something that hangs together.

As I said yesterday, I won’t be able to write for Policy Progress anymore next year, so I’m pleased to have managed to complete this giant compilation as a record of (much of) the year’s work.

You can download a copy here.

We value what we measure

Tuesday, December 14th, 2010

This is the third and final part of a series of posts about contemporary progressive thinkers who challenge the ‘conventional wisdom’ about economic growth. Part one looked at Richard Wilkinson and Kate Pickett’s The Spirit Level and part two looked at Tim Jackson’s Prosperity without Growth.

Wilkinson, Pickett and Jackson suggest that economic growth should no longer be — even cannot be — central to the progressive project. But what about those within the economics profession itself?

Joseph Stiglitz is a U.S. Nobel prize-winner, former chief economist of the World Bank, and author of Globalisation and Its Discontents and Freefall: America, Free Markets, and the Sinking of the World Economy. Amartya Sen, born in India, is also a Nobel prize-winner, and the author of Development as Freedom and The Idea of Justice. Both are highly-regarded progressive economists.

In 2008 and 2009, together with Jean Paul Fitoussi (a distinguished French economist), they headed a Commission on the Measurement of Economic Performance and Social Progress set up by President Nicolas Sarkozy of France, who felt that existing measures like Gross Domestic Product (GDP) didn’t tell a full and proper picture of the economy or society.

The Stiglitz-Sen-Fitoussi Commission produced a lengthy, thoughtful and thorough report. They argued that GDP was indeed a partial and often misleading measure, and proposed reform across three dimensions. First, classical GDP statistics needed to be refined to better take account of things like income distribution and the actual value of public services. Secondly, there was a need to complement GDP with measures of ‘quality of life’, including both purely subjective aspects such as happiness, and more objective factors drawn from Sen’s ‘capability framework’. Thirdly, we need to measure and track the sustainability of our economy, defined quite precisely as whether “at least the current level of well-being can be maintained for future generations” — for this the Commission argued that an approach based on changes in resource stocks (which Tim Jackson would recognise) would be needed.

Across all three dimensions, the Commission’s arguments are well-developed and compelling, although they were clear that their report was very much a starting point for what would be a complex exercise of statistical reform.

And, while predominantly an expert technical process, their work is likely to have important policy consequences and implications for progressive thinking. This is because the way we account for things helps determine the way we see the world. What we measure, we value; and, too often, if it isn’t measured, it slips out of view. This was a central theme of New Zealand politician and academic Marilyn Waring’s feminist critique of economic statistics, Counting for Nothing, back in 1988, and this work is very much in that vein.

In a ‘Reflections’ paper accompanying the main report, Stiglitz, Sen and Fitoussi are more explicit about this aspect of their project:

It is our belief that an open discussion of the issues – and problems – involved in measuring economic performance and social progress provides an important context within which societies can engage in critical debates about societal values. (p. 27)

Otherwise, the “risk is that as countries strive to increase measured GDP, they take actions which now, or in the future, may actually lower societal well-being” (p. 10). This can be seen with the environment:

Countries that enjoy high living standards today by depleting their inheritance of natural resources – without investing the proceeds – are “robbing” future generations. It is possible that doing this does not even increase their welfare, as people usually care about the well-being of their children, but they may unintentionally act this way, at least partially because they are not informed, absent the right metric. (p. 10)

And even with the recent Global Financial Crisis:

Many concluded, for instance, that financial deregulation was good, because it led to rapid expansion of the financial industry and an increase in measured GDP. We now know that that growth was not sustainable; that much of the profits earned in 2004-2007 might more appropriately be looked at as winnings in gambling by some, which were more than offset by the losses in 2008, and the following years, by others. (p. 11)

What, therefore, are the likely implications of measuring things in a broader and more accurate way? How would this approach, if implemented, be likely to inform the further development and renewal of progressive ‘theoretical foundations’?

In some respects, it would likely be compatible with the arguments of The Spirit Level and Prosperity without Growth. We would become more aware of which types of societal and economic development were having the most positive (or negative) impact on quality of life, and whether we were on a sustainable path. The Commission’s work can’t at this stage point to whether a strict path of de-growth is necessary, as Jackson argues, but would nevertheless encourage us to see the quantum of economic activity as just one set of factors in achieving progressive goals of equitable wellbeing. Metrics on things like leisure, happiness and political voice would help to provide a broader picture.

A secondary but still important consequence might be to counter negative images of the effectiveness of public services. The modern image of the public sector languishes under the constant suspicion of inefficiency and dysfunction, a far cry from the chilling efficiency of ‘bureaucratic authority’ depicted by Weber and which (I have argued) helped underpin the Keynesian-era confidence in the state. Cautiously, without wishing to prejudge, the Stiglitiz-Sen-Fitoussi Commission suggests that if we could better measure the value and not simply the input costs of non-market public activity, we may see a more positive picture of improved value over time (often in form of better quality and more effective services in areas like health and education, rather than larger volumes).

That may be one more way in which the seemingly mundane process of statistical reform could transform the way we see things, and deconstruct some of the statistical ’story’ that neoliberalism has constructed about the primacy of growth and markets.

Links:

  • The main Stiglitz-Sen-Fitoussi Commission report.
  • The accompanying ‘Reflections and Overview’ paper from Stiglitz, Sen and Fitoussi.
  • My earlier post on Weber.

Recommended reading, 13 August 2010

Friday, August 13th, 2010

A version of this list of recommendations also comes out earlier in the day as part of the weekly Policy Progress e-newsletter.

Helen Clark – speech on Peter Fraser and the UN
I had the good fortune of attending the second Peter Fraser Memorial Lecture last night, given by our former Prime Minister Helen Clark. It was a nice reminder of what a serious yet engaging speaker she is. Her speech mainly focussed on her work as Administrator of the United Nations Development Programme, which is appropriate given Fraser’s role in the founding of the UN. Stuff has posted the speech online (kudos for that), and it’s worth reading in its entirety. One bit that particularly caught my imagination though was this:

Right now we see developing country economies leading the return to global growth. In our part of the world, we are most aware of trends in China, but it should also be noted that Sub-Saharan Africa is projected by the IMF to be the second fastest growing region in the world this year and next. Africa with its young, dynamic, and aspirational populations is very much part of the solution to the world’s problems.

Wellington Central MP Grant Robertson also deserves some praise for his initiative in instituting the Peter Fraser Memorial Lecture as a regular annual event (and fundraiser). Fraser was probably our greatest 20th century prime minister, and it will be wonderful to see the various strands of his legacy explored as this event continues.

Lisa Harker and Carey Oppenheim – The balance sheet
The top tier of progressive thinktanks in the UK is probably made up of Demos, the Work Foundation and the Institute for Public Policy Research (ippr) (the new economics foundation, the Joseph Rowntree Foundation and the Young Foundation are also contenders). For the last three years ippr has been co-run by Harker and Oppenheim who have been described as “among the most senior jobsharers in the country”. Both women are now moving on two new challenges, so this assessment of the legacy of New Labour (1997-2010) can be seen as a departing view. Much of it chimes in with some of the themes presented on Policy Progress, including those of ippr’s incoming chair, James Purnell. For instance, they write:

On redistribution, the policy focus was virtually entirely on Tax Credits and benefits; the tax system was not made fairer under New Labour until very recently. And these policies were unable to tackle inequality – which affected not just income, but also social mobility and levels of wellbeing.

The lesson is that using tax and benefits policy to mop up the impact of a global economy will only get you so far. If we are to overcome this challenge it will involve intervening more radically in the economic power and assets that individuals have in the first place.

Paul Krugman – Defining Prosperity Down
Paul Krugman – Why is Deflation Bad?
Brad DeLong – Jean-Claude Trichet Rejects the Counsels of History
Continuing my coverage of gloomy outlooks for the world economy, here are the dynamic duo of Paul Krugman and Brad DeLong again, setting out the risks and taking on the president of the European Central Bank.

Joseph Stiglitiz – The Crisis Down Under
Meanwhile, another leading progressive economist Joe Stiglitz has been in Australia, as previously noted. Here’s his assessment of the situation across the ditch:

Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world. He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon. So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.

Rudd’s stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries. But, ironically, attention has focused on the fact that some of the investment money was not spent as well as it might have been, and on the fiscal deficit that the downturn and the government’s response created.

. . . For an American, there is a certain amusement in Australian worries about the deficit and debt: their deficit as a percentage of GDP is less than half that of the US; their gross national debt is less than a third. (Read more)

Also:
David Cunliffe – Tony Judt is dead; his ideas arn’t
Marty G (The Standard) – The new food crisis

Weekend Reading (and Listening), 16 July 2010

Friday, July 16th, 2010

A version of this list of recommendations also comes out earlier in the day as part of the weekly Policy Progress e-newsletter.

I’m finding that I have more opportunity to listen to podcasts at the moment than to read anything especially lengthy, and that’s reflected a bit in this week’s selections.

Helen Brown – Slavoj Žižek: the world’s hippest philosopher
Slavoj Žižek – Living in the End Times: Global Policy public lecture (audio/video)
Is this Slovenian cultural critic and proponent of a new version of “communism” (socialism sounds too “Aryan”) really the world’s hippest philosopher? I was sceptical of his “quirky” public image and not sure whether Living in the End Times would be anything more than a reheated Marxist polemic. But I have to say after listening to his LSE public lecture that he’s a witty, engaging and very intelligent guy. Many of the pleasures of the lecture are in the off-the-cuff details, and it’s worth listening through the Q&A, but his extended critique of Paul Hawken and co’s “Natural Capitalism” is worthwhile too.

Joseph Stiglitz – Freefall: Ralph Miliband and Global Policy public lecture (audio/video)
Joe Stiglitz is a leading US progressive economist and a Nobel prize winner. Our friend John Kay in The Truth about Markets describes him as a leading figure in his generation (the Baby Boom generation): “His work . . . showed that dealing with risk and information required a much more complex truth about markets.” (p. 197) Kay explains how, after a stint on President Clinton’s Council of Economic Advisers, Stiglitz became Chief Economist at the World Bank, but was more or less forced to leave because his “outspoken views” affronted Wall Street and the US Treasury. Rob Salmond has good things to say about him too. Joe Stiglitz’s new book is Freefall: free markets and the sinking of the global economy and over the next few weeks he’ll be ‘down under’ touring Australia (but not New Zealand unfortunately) to promote it. This link is to an LSE talk he gave at the UK launch of Freefall in February.

Brad DeLong – Types of “General Gluts”: Fisher, Wicksell, Bagehot
Brad DeLong – Microeconomic and Macroeconomic Excess Supply
Brad DeLong – We Are Live at the Week: “A (Keynesian) Voice Crying in the Wilderness, Saying…”
So, we’ve got Joseph Stiglitz, and I’ve previously discussed Paul Krugman. But there’s another progressive US Keynesian who’s worth reading but not nearly as well known: Brad DeLong, who teaches at the University of California, Berkeley. I find his blog to be a useful complement to Krugman’s (with whom he often but not always agrees), as he often traverses the technical issues in greater detail and with more references to the history of economic thought. His blog posting is very prolific and not all of it is essential — much of it is very centred on US issues and the follies of the media, or on liveblogging World War II (don’t ask) — but there’s some really good stuff there, too. The first two posts above are useful primers on economic theory, while the third is a take on the current economic situation. His recent book (with Stephen Cohen) The End of Influence: What Happens When Other Countries Have the Money looks good, too.

Also:
Mike Smith (NZ Fabian Society) – The Philosophy of Tax
The Independent – Britain’s debt: The untold story (hat-tip Bernard Hickey)
Marc Ambinder – What Should Political Journalists Do?

Why the progressive movement should talk more about economics

Wednesday, June 9th, 2010

Many people think that economics is a right-leaning discipline. They are wrong, and we need to tell them.

One common caricature of politics is that the ideological right attracts a homogenous cadre of serious-yet-uncaring bean counters, while the left attracts a rag-tag mob of caring, sharing mush-heads.

Stated this way, the caricature is obviously silly. But many progressives do not help their own credibility when they avoid talking about economics, thus lending credence to the false notion that all economists support the right.

While there is a pretty strong consensus in favour of free trade among academic economists, there are in fact sharp divisions within the profession on all other important matters of economic policy.

Yet the false perception of a right-leaning consensus endures, for two reasons: selective reporting of economists’ findings by some entrepreneurial commentators; and a preference among many progressives to talk around rather than about economic policy.

This particular think-site, of course, suffers from no such economic shyness, and nor do one or two of the authors at The Standard. But the strong economic analyses on these websites are sadly not reflected around much of the rest of the progressive movement.

If folk on the left are to challenge the caricature that they are economic illiterates swimming against the tide, we need – all of us – to confront economic issues much more directly.

Helpfully, four of the world’s most prominent economists have recently suggested progressive solutions to the world’s largest economic problems. That should help us to stop being coy.

Nobel laureates Joseph Stiglitz and Amartya Sen recently spearheaded a French economic commission that made a remarkable recommendation. After decades of measuring human progress using a purely financial measure (GDP), Stiglitz and Sen suggested that we instead measure human progress more broadly.

This recommendation draws on a wider “happiness economics” research agenda, which holds that human action is successful only in as much as it makes humans feel better about their lives. This is actually a pretty standard economic idea – the idea of utility. All people are doing with happiness economics (or, if you prefer, with Genuine Progress Indicators) is measuring utility better. Any attempt to measure the success of an economy using only financial measures like GDP misses this wider point.

The heroic assumption that more money necessarily makes people happier has been shown untrue in a large number of circumstances. For example, the near doubling of American GDP since 1950 has had no impact at all on their collective happiness. And in a recent ranking of “happy life years,” the top five nations were Costa Rica, Iceland, Denmark, Switzerland, and Canada – none of which crack the top five in terms of material wealth.

The right of course, has mocked happiness economics. A mere poll of feelings, they argued, was an impractical and fanciful way to judge progress (although that never stopped them when it came to measuring “business confidence”). Despite this shallow critique, Genuine Progress Indicators are catching on, and progressives everywhere should be singing their virtues.

Paul Krugman, another recent Nobel laureate, recently showed how the right’s belief in the “efficient markets hypothesis” lead them to completely misdiagnose the recent financial crisis. The efficient markets hypothesis says that the price of any asset is an accurate reflection of all available information about it. But it has no way of explaining the panic and implosion that engulfed major sectors of the American markets in 2008. The journalist Michael Lewis has made similar observations.

Any economic theory that misses the big real-world events, needless to say, is of only dubious usefulness. Social scientific theories are only as good as their empirical validity.

One especially welcome innovation in the area of explaining panic among supposedly rational economic agents is to juxtapose traditional economic theory with recent practical work on human behavior. Whereas traditional economists had tended to just assume that people are individually economically rational, behavioural economists have gone and tested those propositions against real world experience. And when we look in the real world, non-rational behaviour is surprisingly easy to find.

Jeffrey Sachs, a Full Professor of economics at Harvard at the age of 29, will likely win the Nobel Peace Prize for development work in Africa. A former darling of the right for his developmental prescription of “shock therapy” for third-world governments, Sachs has also recently “gone mushy.” He has embraced an activist role for both national governments and the UN, and has also explicitly rejected the claims from the right that expansive Scandinavian-style welfare systems are a drain on the economy.

These four stand at the pinnacle of the global economics profession. They all propose progressive policies and oppose neoclassical economic orthodoxy. Their stances show that economics is no guaranteed friend of the right. Progressives need to seize on these and other developments within economics, including the influential book The Spirit Level, to help us think about policy and to better make our case to the New Zealand people.

Links:

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A native Wellingtonian, Rob Salmond now lives in the US. He is Assistant Professor of political science at the University of Michigan, and is also currently a Visiting Scholar in the department of political science at Stanford University. Rob’s academic areas of interest include legislative institutions, political media, and political economy, all with a cross-national focus.

Vote with your feet – or work for change?

Tuesday, May 11th, 2010

Progressives should embrace increased consumer choice as the best way of raising standards in areas like health and education.

That’s the view of economist John Kay, who we heard a bit about at Policy Progress last month, and who was interviewed by Kim Hill on Radio NZ this weekend talking about his new book Obliquity.

Explaining this view, Kay stated that ‘exit’ is much more effective than ‘voice’ in raising standards.

But is that really so, and what do we mean by ‘exit’ and ‘voice’ anyway?

As it happens, I’ve written a description of these concepts and an argument in favour of the importance of voice. In fact, I wrote this thirteen years ago as aspects of students’ association submissions to the 1997 tertiary education review.

After mentioning exit and voice in that earlier post, I thought it would be interesting to dig out those submissions and see how my views back then have held up. Having done that, I decided that rather than write something new, which might be influenced by having read Kay, it would be worth presenting what I argued in 1997.

The following paragraphs therefore are from the June 1997 APSU/NZUSA submission Building a World-Class Tertiary Education System:

For students, institutional responsiveness is good in itself. But for the government, it is also a very useful measure for ensuring quality provision.

This can be conceptualised in terms of economic theory, using the exit/voice analytic framework developed by Hirschman. Exit is the withdrawal from a relationship with a person or organisation when one becomes dissatisfied with that relationship. Voice means directly expressing one’s dissatisfaction to the relevant person or organisation.

. . . [as well as using 'exit'] there is also a great deal of scope to influence quality by improving student ‘voice’. This is a underdeveloped area and a crucial one. There is increasing recognition that effective use of voice can be, if anything, more important in fostering good practice than exit.

For instance, in the macroeconomic arena, there is a growing literature on the success of economies which use bank-based financial systems (emphasising ‘voice’) compared to those using capital market-based systems (emphasising ‘exit’). (See e.g. Joseph E. Stiglitz, Banks Versus Markets as Mechanisms for Allocating and Coordinating Investment, 1992); Michael Porter, The Competitive Advantage of Nations, 1990, and Capital Choices: Changing The Way America Invests In Industry, 1992; and Will Hutton, The State We’re In, 1995.)

And from the December 1997 NZUSA submission Looking to the Future:

Exit can be a powerful strategy but it does not have much subtlety to it: it is all or nothing. Yet some matters, while important, are not central enough to the learning experience to contemplate exit over. For such matters, effective voice is more useful. Similarly, exit is good at highlighting matters of concern, but not so good at generating solutions. Where students have something to offer in terms of developing improvements or suggesting alternative directions, then voice is more valuable.

Even where exit is a viable strategy not all students may be able to, or wish to, exercise their right to transfer to another institution if this was possible. Exit may be a response to deteriorating quality, but it can also cause quality to deteriorate further. A programme with dwindling numbers may suffer from reduced resources, poor morale and fewer fellow students to enrich the learning envionment. In a world with perfect information and zero transaction costs, all students could exit simultaneously and none would suffer, but these circumstances seem unlikely to occur.

While the context of these arguments is clearly tertiary student involvement in institutional processes, most of the arguments are applicable more widely across various areas of public policy.

However, as this last passage (responding to claims about the importance of exit that were based on studies in the school context) implicitly acknowleges, the relative importance of ‘voice’ and ‘exit’ may differ from one policy area to another:

The situation of university students is very different from the parents of school children. Students tend to be more concentrated at one site (the campus), are more likely to know one another, and the experience that they have in common (being a student at a given institution) occupies a greater part of their lives.

So perhaps the lesson from this is that, rather than assert either voice or exit as being the superior mechanism, we should look at the particular characteristics of the area that we are seeking to improve. In some cases it may be empowering service-users’ choice (via ‘exit’) that is more likely to make a difference, whereas in others finding ways to give them an effective say (‘voice’) may be more important.

What’s your view about ‘exit’ and ‘voice’? Are they useful concepts for looking at the different ways that people can make organisations respond to their needs? Do you agree with John Kay that ‘exit’ is generally the more powerful mechanism? Or do you feel that, as my 1997 argument implies, it depends on issues such as how realistic it is for people to organise and express themselves collectively?

Postscript: this article has Joseph Stiglitz looking back on his 1992 paper, cited above, in light of the global financial crisis.