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July 2, 2009

Economist's View - 8 new articles

Tom Keene's "On the Economy"

From earlier today:

Thoma Says Fiscal Policy Needs 6 to 9 Months to Take Effect
July 2 (Bloomberg) -- Mark Thoma, professor of economics at the University of Oregon, talks with Bloomberg's Tom Keene about U.S. employment, consumer confidence and the fiscal stimulus. Listen/Download [Recent podcasts include: DeLong, Roubini, Eichengreen, Ritholtz, and Blinder.]

"Old Speeches, New Policies"

Greg Mankiw responds to this post, "Deficits are Worrisome, but Not as Worrisome as an Economy that is ... Rapidly Shedding Jobs" (or maybe it was this):

Old Speeches, New Policies, by Greg Mankiw: For academics, it always a delight when some old, obscure thing we've written suddenly gets noticed. So I was pleased when econoblogger Mark Thoma decided to draw attention yesterday to a speech I gave six years ago (pdf version) to the National Association of Business Economists. I had not looked at that speech in years, but looking back at it today, I think that it holds up pretty well. So, please, feel free to follow the link and read the whole thing. The part of the speech that Mark highlights on his blog is the defense of running budget deficits during a recession. I am a bit puzzled about why Mark picked up that piece, however. Mark seems to be suggesting that my speech can somehow be construed as a defense of Obama fiscal policy. Yet I don't think that aspect of current economic policy is controversial. As I wrote in the NY Times in March of this year, "Few economists would blame either the Bush administration or the Obama administration for running budget deficits during an economic downturn." ... The controversial part of current fiscal policy are, first, the relative reliance on spending hikes versus tax cuts as short-run stimulus and, second, the long-term picture. ...

This speech was given in September 2003, just under two years after the end of the 2001 recession, but job growth remained sluggish. From the speech:

Growth had resumed after the end of the recession in November 2001, but the pace of growth was far from satisfactory. And of course the labor market remained, and still remains, lagging behind.

So what did they propose? As a follow-up to the "Administration's tax cut in 2001 and the stimulus package of 2002," they proposed another stimulus package, and never mind the deficit:

Because further policy action was clearly needed, the President pushed hard for the passage of his Jobs and Growth initiative. The purpose of this initiative was not only to help push the economy back toward its potential but also to raise this potential by improving supply-side incentives for work and investment.

I'm sure the Obama administration will be pleased to know that, should this recovery be similarly jobless, or W-shpaed - if the recovery is listless or non-existent for any reason - that, rather than harping on the deficit and the potential problems it might cause, they can count on Greg Mankiw's support for another round of fiscal stimulus to try to turn things around. (And if a lot of the spending is on infrastructure, as it was this time, he should also be pleased with the long-run supply-side effects of these policies.)

The Consequences of External Reform: Lessons from the French Revolution

Was Hayek right that the "institutions of a society had to evolve organically and could not be designed"?:

The consequences of external reform: Lessons from the French Revolution, by Daron Acemoglu, Davide Cantoni, Simon Johnson, and James A Robinson, Vox EU: Different incentives, created by variation in key institutions such as property rights and the functioning of markets, explain why some countries are much more prosperous than others. Therefore, institutions often need to be reformed to improve the economic conditions in poor countries. There is a lot of controversy, however, about how this can be done, and, in particular, whether agents external to a country can successfully impose or foster institutional reform.

"Big Bang" external reforms

Knowing the answer to this question is important for understanding whether, for example, the mass expansion of resources for the IMF announced recently by the G20 is likely to be effective. Many, like Rodrik (2007), argue that external reform has been a failure and reject reform agendas such as the "Washington consensus" as being inappropriate to the problems of countries with poor institutions. This argument is reminiscent of Hayek (1960), who claimed that the institutions of a society had to evolve organically and could not be designed. Those who advocate these views point to the relative success of gradual Chinese economic reforms as opposed to reforms in the former Soviet Union, which took place in a "Big Bang" fashion with a lot of external influence. Interestingly, the conservative English philosopher Edmund Burke seems to have been a precursor to these views. In 1790, he condemned the radicalism and the interventionist spirit of the French Revolution and argued:

"It is with infinite caution that any man should venture upon pulling down an edifice, which has answered in any tolerable degree for ages the common purposes of society, or on building it up again without having models and patterns of approved utility before his eyes."(p.152).

In Acemoglu, Cantoni, Johnson and Robinson (2009), we argue that the impact of the French Revolution on the institutions of Europe can be seen as a "natural experiment" that sheds light on these debates. After 1792, French armies invaded and reformed the institutions of many European countries. The package of reforms the French imposed on areas they conquered included the civil code, the abolition of guilds and the remnants of feudalism, the introduction of equality before the law, and the undermining of aristocratic privilege. These reforms clearly relate to the above-mentioned debates. They were imposed "Big Bang" style from the outside. And, institutions such as the civil code were self-consciously designed and were not necessarily "appropriate" for the lands on which they were imposed. If externally-imposed and "Big Bang" reform is generally costly or if designed institutions like the civil code create major distortions, the reforms should have had negative effects on nineteenth-century Europe.

The impact of French-imposed reforms

So what were the economic consequences of these reforms? To analyse this question the first crucial observation we make is that the French conquered and reformed some parts of Europe but not others. Crucially, European polities did not choose the French institutions, but those institutions were imposed on them, first by the Revolution and then by Napoleon. Moreover, territorial expansion by French armies did not intentionally target places with a greater potential for future economic growth. Rather, the French sought to create a system of buffer states in response to the threat of Austrian or Prussian (or later British) attempts to topple the Revolutionary regime. In addition, in the early 1790s, the French sought to establish France's "natural frontiers". In neither case were the places which were reformed selected on the basis of economic characteristics.

These facts imply that we can separate Europe into two groups of states, those that had their institutions reformed by the French – the "treatment" area – and those that did not. We can then compare the relative economic performance of these two regions before and after the revolutionary period (1789-1815) and ask if the relative economic performance of the areas reformed by the French improves after 1815.

To undertake, this comparison we use one main outcome variable, urbanisation, which is accurately measured in this period and serves as a good proxy for income per capita (we check our findings with a less complete dataset on GDP per capita). We do this both at the level of all European states, separating them into those reformed and those not reformed, and at the level of German pre-unitary polities. Parts of Germany, primarily the west and northwest, were invaded and reformed by the French, while the south and the east were not. In addition, we collected data to directly measure the institutional reforms implemented by the French across German polities. This enables us both to verify that the French did indeed reform various aspects of institutions and to utilise a two-stage least squares strategy, with French invasion as an instrument for institutional reform.

The main finding from our reduced-form approach is that, both across countries and within Germany, urbanisation rates increased significantly faster in treated areas during the second half of the nineteenth century. Using just German data, we further show a strong association between our measures of institutional reforms and French invasion or control. Formerly French-controlled Rhineland and Westphalia were decades ahead in the implementation of reforms relative to other parts of Germany, even when compared to modernising Prussia. This confirms the observation made by Friedrich Engels in the 1850s, when he wrote that:

"…Rhenish Prussia shares the advantage of having participated in the French Revolution and in the social, administrative, and legislative consolidation of its results under Napoleon. Ten years earlier than elsewhere in Germany, corporations and patriarchal dominance by the patricians disappeared from the cities, having to face free competition." (cited in Bergeron 1973, p. 537)

Using this association as a first stage, we also estimate instrumental-variables models, which indicate large effects of institutional reforms on subsequent growth. Overall, our results show no evidence that the reforms imposed by the French had negative economic consequences. On the contrary, there is fairly consistent evidence from a variety of different empirical strategies that they had positive effects. In particular, our results are strongest for the later part of the nineteenth century, which we see as evidence for the fact that French-induced reforms created an environment favourable to the Industrial Revolution, which reached Continental Europe precisely in those decades. French reforms involve no effort to be "appropriate" to local conditions and were imposed from the outside "Big Bang" style. Nevertheless, they appear to have spurred significantly faster economic growth in the second half of the nineteenth century, once the process of industrialisation throughout Europe was underway.


Why did these reforms work when other externally-imposed reforms often fail? One possibility, which sharply contrasts with Burke's initial negative assessment of the Revolution's radicalism, is that its success may have been due to the fact that the reforms it imposed were much more radical than is typically the case. Many reforms fail because they are de facto reversed shortly after the implementation (e.g., Acemoglu and Robinson, 2008). The French, instead, reformed simultaneously several aspects of economic, social and political institutions of the "ancient regime" of Europe, thereby significantly weakening the powers of local elites and making a return to the status quo ante largely impossible. Even when some pre-revolution elites returned to power after 1815, there was a permanent change in the political equilibrium. This scope and radicalism of the French reforms are common with the post-war reform experiences in Germany and Japan and stand in contrast with many other reform experiences.

Our results also shed new light on other important debates, perhaps the most interesting being that about the relative efficiency of British versus French institutions.

Napoleon himself saw the civil code as the most significant of the institutional reforms he imposed on Europe, and our results are consistent with positive economic effects from this imposition. This is quite different from the consensus amongst economists that French institutions, particularly the civil code had adverse effects on many dimensions of institutions (e.g., La Porta, Lopez-de-Silanes, Shleifer, and Vishny, 1998). Of course the fact that French reforms typically came as a bundle does not allow us to assess the precise importance of, for example, the abolition of guilds compared to the imposition of the civil code. Nevertheless, if the civil code and other aspects of French institutions were highly damaging to growth we would expect to find significant negative effects in treated areas. In addition, except for parts of the world that voluntarily adopted the civil code, such as Latin America, existing evidence on the consequences of the civil code comes from former French colonies which, like the Europe we study, had the civil code imposed simultaneously with other French reforms. In consequence, we believe that the evidence from the French revolutionary era should lead to some scepticism of the now conventional wisdom about French institutional legacies.


Acemoglu, Daron, Davide Cantoni, Simon Johnson and James A. Robinson (2009), "The Consequences of Radical Reform: The French Revolution," NBER Working paper #14831. Acemoglu, Daron and James A. Robinson (2008), "Persistence of Elites, Power and Institutions, American Economic Review, March 2008, volume 98, pp. 267-293. Louis Bergeron (1973), "Remarques sur les conditions du développement industriel en Europe Occidentale à l'époque napoléonienne," Francia, 1, 537-556. Burke, Edmund (1790/1969) Reflections on the Revolution in France, Baltimore; Penguin Books. Hayek, Friedrich (1960) The Constitution of Liberty, Chicago; University Of Chicago Press. La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny (1998) "Law and Finance," Journal of Political Economy, 106, 1113-1155. Rodrik, Dani (2007) One Economics, Many Recipes: Globalisation, Institutions, and Economic Growth, Princeton; Princeton University Press.

"Hire the Unemployed"

The stimulus package had two components, new spending and tax cuts. Everybody knew that the spending component would take time to put into place, six months or more for a lot of the infrastructure projects, and that meant that we needed something to increase demand and provide a bridge until the new spending comes online.

Enter the tax cuts that the GOP insisted upon, tax cuts that were a larger part of the stimulus package than I thought justified. These cuts were to come online immediately and stimulate demand until the spending could begin taking up some of the slack later in the year. I would have preferred targeted, non-infrastructure spending that could have been put in place almost as fast as the tax cuts (particularly those that simply require making existing programs more generous), but that type of spending was considered wasteful because it didn't add to our long-run capacity for growth and hence had little chance of being part of the stimulus package.

The problem was partly bad luck. A crisis hit and we had the bad luck of having an administration that opposed active intervention and though there was a bit of a stimulus attempt through a one time tax rebate, a strategy theory predicts won't do much to help, the real action in terms of stimulating the economy was left to the new administration. So nothing was done, nothing could have been done until the new administration took over, and given the insistence that any new spending be on infrastructure projects with clear benefits, tax cuts were the main hope for an immediate effect.

So if the policy has failed at this point, it is not the spending component since, fully consistent with predictions when it was enacted, it was going to be months before it could be of any help. What failed is the GOP's insistence that tax cuts be used to provide an immediate boost to the economy. Increasing food stamps, unemployment compensation, payments to help states with declining revenues and increasing demands for social services, payments to help unemployed workers maintain health care, digging (needed) holes, there were many, many other ways to provide more immediate relief and stimulate the economy at the same time, but no, it had to be tax cuts or nothing.

Finally, I want to note that what we maximize matters. For example, we can maximize GDP growth over the next ten or twenty years, or we can maximize employment over the next few months. Which we choose to maximize has a big effect on the policies we put in place. If we use the stimulus money to maximize GDP and growth - which is essentially what we did - that will have a much slower effect on employment than if we maximize employment directly. The efficiency argument always leads you to maximize output, and efficiency prevailed in the structure of the current package, but I think an argument can also be made that maximizing employment provides social benefits that are just as large, or larger.

Just noticed this, which makes a surprisingly similar point:

A Message to President Obama: Stop Priming the Pump, Hire the Unemployed, by Pavlina R. Tcherneva: Many have called President Obama's stimulus plan a return to Keynesian policy. Some of us who like reading Keynes professionally or for leisure have already been scratching our heads. I have wondered in particular whether the plan isn't set up to work in a manner completely backwards from what Keynes himself had in mind when he advocated economic stabilization by government.

There are two things to remember about Keynes's fiscal policy proposals: 1) government spending was always linked to the goal of full employment... and 2) to achieve macro-stability and full employment, the government had to employ the unemployed directly into public works.

By contrast, most modern economists believe that 1) there is some natural level of unemployment that includes the structurally unemployed, which governments cannot generally tackle, and that 2) public employment is an inefficient use of public resources.

So, when the government is called to action, the economic profession has replaced Keynes's "fiscal policy via public works" with a "leaky bucket pump-priming mechanism."

How is the latter policy supposed to work? Instead of employing the unemployed directly, the idea is to generate large enough government expenditures to produce a level of economic growth that would, in turn, gradually reduce unemployment. For example, the government could spend money on various private sector contracts, stimulate different private industries, offer investment subsidies and tax cuts, and increase unemployment insurance payments, in hope that it will boost GDP sufficiently to reduce unemployment to desired levels. This is essentially the underlying logic behind President Obama's stimulus package. But it is also a bit of a gamble.

Not all of these injections will be effective because the fiscal stimulus enters the economy through "a leaky bucket". Some of the money will be lost in transit (because of administrative costs, for example) and much of it will have no direct job creation effects (e.g. the tax cut component of the recovery act). Nevertheless, despite this leaky bucket, the theory goes, sooner or later, large enough government expenditures will produce the kind of growth that would reduce unemployment. ...

All of this is ... why Keynes never had any "leaky bucket" or "pump priming" idea in mind. For him "the real problem fundamental yet essentially simple…[is] to provide employment for everyone" (Keynes 1980, 267) and the most bang for the buck from fiscal policy would be achieved via direct job creation. This he called "on the spot" employment via public works.

As I have argued elsewhere, it is useful to think of Keynesian fiscal policy, not as aggregate demand management, but as labor demand management. ...

Commentators often call this a policy of "make work" but Keynes didn't advocate digging holes, burying jars with money and digging them out, or any other similarly worthless projects. The key was to marry the two goals: to employ the unemployed directly and to make sure that they do useful things. Once they are put to work on a particular project, Keynes argued, "there can be only one object in the economy, namely to substitute some other, better, and wiser piece of expenditure for it" (Keynes 1982, 146). We might as well ask a very basic question: is there really a shortage of useful things to do?

If we insist on calling ourselves Keynesians again, and more importantly, if President Obama's plan for economic stabilization should generate rapid reduction in unemployment, it would help to set fiscal policy straight. Instead of relying on "leaky fiscal buckets" we could return to "labor demand management" a la Keynes that provides immediate employment opportunities to the unemployed via bold and creative public works projects, which generate useful output and services for all.

"The Purely Rational Economic Man is Indeed Close to Being a Social Moron"

Daniel Little discusses Karl Polyani's views on whether self-interest, rationality, and market institutions are universal features of human behavior:

Polanyi on the market, by Daniel Little: Karl Polanyi's The Great Transformation is a classic statement of a polar position in the issue of the universality of instrumental rationality and market institutions in explaining concrete historical circumstances in the recent and distant past. Polanyi maintains that the concept of economic rationality is a very specific historical construct that applies chiefly to the forms of market society that emerged in Western Europe in the early modern period. Market behavior came to replace other forms of motivation within European society in this period, and individuals came to act more and more on the basis of a calculation of self-interest. However, Polanyi holds that this form of behavior, like the economic institutions of the market within which it emerged, is highly specific to a particular time and place. To make use of this model of action as though it were a universal feature and determinant of human behavior is as unjustified as it would be to extend medieval chivalry to all times and places.

No society could, naturally, live for any length of time unless it possessed an economy of some sort; but previously to our time no economy has ever existed that, even in principle, was controlled by markets. . . . Gain and profit made on exchange never before played an important part in human economy. (Polanyi 1957:43)

While history and ethnography know of various kinds of economies, most of them comprising the institutions of markets, they know of no economy prior to our own, even approximately controlled and regulated by markets. . . . The role played by markets in the internal economy of the various countries . . . was insignificant up to recent times. (Polanyi 1957:44)

Against the idea that it is "natural" for men and women to be motivated primarily by self-interest, Polanyi writes:

For, if one conclusion stands out more clearly than another from the recent study of early societies it is the changelessness of man as a social being. His natural endowments reappear with a remarkable constancy in societies of all times and places; and the necessary preconditions of the survival of human society appear to be immutably the same. (Polanyi 1957:46)

The outstanding discovery of recent historical and anthropological research is that man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end. Neither the process of production nor that of distribution is linked to specific economic interests attached to the possession of goods; but every single step in that process is geared to a number of social interests which eventually ensure that the required step be taken. . . . The economic system will be run on non-economic motives. (Polanyi 1957:46)

Thus Polanyi maintains that it is socially motivated behavior -- ªbehavior motivated toward the interests of one's family, clan, or village" -- rather than self-interested behavior that is "natural" for human beings; rational self-interest is rather a feature of a highly specific society: market society. Instead, Polanyi's account urges that the analysis pay primary attention to patterns of reciprocity and redistribution, shared values, traditions, and the determining role of community and politics. And he argues that virtually every society – traditional as well as modern – depends upon these sorts of social motivations.

In place of economic rationality and the market mechanism providing the basis for organization of the premarket economy, Polanyi argues that communitarian patterns of organization are to be found in a range of traditional societies:

The premium set on generosity is so great when measured in terms of social prestige as to make any other behavior than that of utter self-forgetfulness simply not pay. . . . The performance of all acts of exchange as free gifts that are expected to be reciprocated though not necessarily by the same individuals--a procedure minutely articulated and perfectly safeguarded by elaborate methods of publicity, by magic rites, and by the establishment of 'dualities' in which groups are linked in mutual obligations--should in itself explain the absence of the notion of gain or even of wealth other than that consisting of objects traditionally enhancing social prestige. . . . But how, then, is order in production and distribution ensured? . . . The answer is provided in the main by two principles of behavior not primarily associated with economics: reciprocity and redistribution. (Polanyi 1957:46-47)

Finally, Polanyi identifies the same element of materialist rationality in common among neoclassical political economists and Marx. Polanyi argues that Marxism analyzes the historical process in terms of individual self-interest, conceived largely in terms of material well-being.

There is the equally mistaken doctrine of the essentially economic nature of class interests. Though human society is naturally conditioned by economic factors, the motives of human individuals are only exceptionally determined by the needs of material want-satisfaction. That nineteenth century society was organized on the assumption that such a motivation could be made universal was a peculiarity of the age. It was therefore appropriate to allow a comparatively wide scope to the play of economic motives when analyzing that society. (Polanyi 1957:153)

All this should warn us against relying too much on the economic interests of given classes in the explanation of history. Such an approach would tacitly imply the givenness of those classes in a sense in which this is possible only in an indestructible society. (Polanyi 1957:155)

What kind of theory is this? And how should it be evaluated?

First, it is a hypothesis in historical sociology about institutions. Polanyi is asserting that history and ethnography provide a wealth of variety of fundamental economic and social institutions. Market institutions are historically specific -- there are periods of time in human history in which market institutions were barely present, and other periods in which they were essentially ubiquitous. And, though Polanyi doesn't do much with this, there is also the point that market institutions themselves show substantial variation across time and place. That said -- trade, artisanship, commodities, and production for the market appear to be activities that have very ancient roots in human societies. These kinds of economic exchanges are well documented in ancient China, Europe, and the Americas, and we can understand very well how they would emerge again and again out of ordinary human activity and interaction. So markets are surely not the nearly unique historical creation that Polanyi maintains them to be. Moreover, we can distinguish among "market" institutions (as Marx and Weber both do) according to whether they are organized around use or around accumulation; consumption or profit. (A neo-Polanyian might put forward a more limited claim: a market system aimed at accumulation is a historically recent institution.)

Second is a hypothesis about "human nature". Polanyi takes issue with a vulgar economism, according to which the most fundamental human motivation is rational self-interest. On the contrary, Polanyi maintains, this social psychology of "possessive individualism" (as C. B. Macpherson called it in The Political Theory of Possessive Individualism: Hobbes to Locke) is itself a very specific historical product -- not a permanent feature of human nature. In fact, Polanyi goes a step further and argues that the "social motivations" are more fundamental than rational self-interest. But here again, it seems likely that Polanyi puts his case much more absolutely than is justified. Being prudent and goal-directed -- paying attention to "costs" and "benefits" of various human activities -- is not simply a historical accident of the early modern period; it is a more or less permanent feature of the human species.

How should Polanyi's theory be assessed? There is an obvious risk of romanticizing human society that is implicit in Polanyi's reading of pre-modern societies -- expressing a moral preference for social cooperation and community, harmony and sharing, over competition, conflict, and self-striving. But romanticizing the past is not the same as understanding it factually and objectively. And it is my impression that anthropologists and historians would now be more inclined to find a mix of social and self-regarding motives in the contexts they study -- from contemporary Thai villages to the Greek polis to labor unions or environmental action groups. So Polanyi's black-and-white distinction between the past -- communitarian and social -- and the present -- egoistic and market-driven -- is too stark.

But at the same time, Polanyi's guiding intuition seems correct: human social behavior is influenced by more than simple self-interest, and human institutions are more varied than the vocabulary of the market would suggest. Human deliberativeness and purposiveness goes beyond maximizing rationality; it includes a broad range of "social" motivations and emotions. And a more adequate social psychology requires that we arrive at a better understanding of the motives that underlie cooperation and reciprocity. This is Amartya Sen's central conclusion in "Rational Fools" (link), and it is surely correct: "The purely rational economic man is indeed close to being a social moron".

(The connection between Polanyi's theories and the terms of the moral economy debate are evident (discussed in prior postings).)

Stiglitz: The UN Takes Charge (Update: and The Economic Lessons of the Iraq War)

Joseph Stiglitz says the UN has a key role to play in "reforming the global financial and economic system":

The UN Takes Charge, by Joseph Stiglitz, Commentary, Project Syndicate: ...On June 23, a United Nations conference ... reached a consensus both about the causes of the downturn and why it was affecting developing countries so badly. It outlined some of the measures that should be considered and established a working group to explore the way forward...

The agreement was ... in many ways ... a clearer articulation of the crisis and what needs to be done than that offered by the G-20, the UN showed that decision-making needn't be restricted to a self-selected club, lacking political legitimacy, and largely dominated by those who had considerable responsibility for the crisis in the first place. Indeed, the agreement showed the value of a more inclusive approach – for example, by asking key questions that might be too politically sensitive for some of the larger countries to raise, or by pointing out concerns that resonate with the poorest, even if they are less important for the richest.

One might have thought that the United States would have taken a leadership role, since the crisis was made there. Indeed, the US Treasury (including ... members of President Barack Obama's economic team) pushed capital- and financial-market liberalization, which resulted in the rapid contagion of America's problems around the world. ...[M]any participants were simply relieved that America did not put up obstacles..., as would have been the case if George W. Bush were still president. ...

The most sensitive issue touched upon by the UN conference – too sensitive to be discussed at the G-20 – was reform of the global reserve system. ... On the last day of the conference, as America was expressing its reservations about even discussing ... this issue..., China was once again reiterating that the time had come to begin working on a global reserve currency. Since a country's currency can be a reserve currency only if others are willing to accept it as such, time may be running out for the dollar.

Emblematic of the difference between the UN and the G-20 conferences was the discussion of bank secrecy: whereas the G-20 focused on tax evasion, the UN Conference addressed corruption, too, which some experts contend gives rise to outflows from some of the poorest countries that are greater than the foreign assistance they receive.

The US and other advanced industrial countries pushed globalization. But this crisis has shown that they have not managed globalization as well as they should have. If globalization is to work for everyone, decisions about how to manage it must be made in a democratic and inclusive manner... The UN, notwithstanding all of its flaws, is the one inclusive international institution. This UN conference ... demonstrated the key role that the UN must play in any global discussion about reforming the global financial and economic system.

Update: Just noticed something else from Stiglitz, along with Linda J. Bilmes, on the economic lessons of the Iraq war:

The U.S. in Iraq: An economics lesson, by Linda J. Bilmes and Joseph Stiglitz, Commentary, LA Times: Tuesday, the U.S. "stood down" in Iraq, finalizing the pullout of 140,000 troops from Iraqi cities and towns -- the first step on the long path home. ...

But not so fast. The conflict that began in 2003 is far from over..., and the next chapter -- confronting a Taliban that reasserted itself in Afghanistan while the U.S. was sidetracked in Iraq -- will be expensive and bloody. ...

Meanwhile, in Iraq,... U.S. officials have said we are likely to station 50,000 troops at military bases in the country for the foreseeable future. This is because the ... country ranks high on lists of the most dangerous places on Earth, with a continual stream of suicide bombings and murders...

Moreover, the U.S. has barely begun to face the enormous financial bill for the war.

By our accounting, the U.S. has already spent $1 trillion..., and it will cost perhaps $2 trillion more to repay the war debt, replenish military equipment and provide care and treatment for U.S. veterans back home. ...

This wartime spending has undoubtedly been a major contributor to our present economic collapse. The U.S. has waged an expensive war as if it required little or no economic sacrifice, funding the conflict by massive borrowing. As we've observed in the past, you can't spend $3 trillion on a reckless foreign war and not feel the pain at home.

Burned by the difficulties in Iraq, our political leaders have no illusions about the length and difficulty of the challenge facing us in Afghanistan. But in other respects we seem set to repeat the same mistakes that we made in Iraq. The president has just signed yet another "emergency" supplemental appropriations measure ($80 billion)... This means that for the 30th time since 2001, war spending has been rushed through the budget process without serious scrutiny.

The U.S. has 240,000 contractors working in the two war theaters -- but the Pentagon's oversight ... remains lax. The Army Criminal Investigation Command ... is woefully understaffed, with fewer than 100 people to investigate billions of dollars in alleged war profiteering.

Obstacles continue to beset returning veterans too..., the backlog of disability claims has reached its highest level ever, and the budget for helping returning veterans reintegrate into civilian life is less than we spend in a single day of combat operations.

Early this year, President Obama committed 20,000 troops to a "surge" in Afghanistan. That, combined with a large, ongoing presence in Iraq and continued reliance on private contractors for virtually every aspect of military support, remains a recipe for staggering out-of-control expenditures... Surely we can draw some lessons from the Iraq debacle and set aside money to care for our veterans, crack down on fraud and profiteering, and account for the true costs of the war in the budget so the American taxpayer can see what we are paying for.

links for 2009-07-02

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