Tuesday, January 14, 2003

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AN ECONOMICS SMACKDOWN: Brad DeLong has a fascinating post on the failure of Joeph Stiglitz -- the 2001 Nobel Prize winner in Economics -- to make any headway among economists in advancing his argument that capital controls are a good thing. DeLong explains:

"Joe is losing the argument. He is not losing the argument because rational debate shows that his is the worse cause (although I think that rational debate is likely to reach that conclusion). He is losing the argument because of something he wrote about former MIT Professor, then Principal Deputy Managing Director of the IMF, and current President of Citicorp (Group?) International Stanley Fischer:

'Moreover, the IMF's behavior should come as no surprise: it approached the problems from the perspectives and ideology of the financial community, and these naturally were closely (though not perfectly) aligned with its interests. As we have noted before, many of its key personnel came from the financial community, and many of its key personnel, having served these interests well, left to well-paying jobs in the financial community. Stan Fischer, the deputy managing director who played such a role in the episodes described in this book, went directly from the IMF to become a vice chairman at Citigroup, the vast financial firm that includes Citibank. A chairman of Citigroup (chairman of the Executive Committee) was Robert Rubin, who, as secretary of [the] Treasury, had had a central role in IMF policies. One could only ask, Was Fischer being richly rewarded for having faithfully executed what he was told to do? (pp. 207-208 of Globalization and Its Discontents)

It is the sentence that I have highlighted in bold that was Stiglitz's complete and total disaster. I have met nobody who knows Stanley Fischer who believes that the answer to Stiglitz's question is, "Yes." Everybody I have met who knows Stanley Fischer sees Stiglitz's question as a knowingly-false and malevolently-intended act of slander. The implication that Fischer was rewarded for slanting IMF policy in a pro-Citigroup direction in return for a future fat private-sector paycheck is universally rejected as totally false.

And as a result, every day at the AEA, it seemed that there were at least 300 friends of Stanley Fischer who woke up in the morning thinking, 'I have to defend Stan against Joe.' And they did so, quite effectively."

Read the whole post, as well as the comments it has inspired.

DeLong is correct to say that the right set of ideas is winning, but for political rather than intellectual reasons. Alas, I feared something this would occur back in September, in part because Stiglitz has yet to recover from his bruising experiences of being on the losing side of policy disputes in DC, for reasons that I elaborate on here.

posted by Dan on 01.14.03 at 11:06 AM