Stiglitz On Market Fundamentalism

The market crisis exposes the failure of the neo-con agenda of deregulation, self regulation, privatization and contracting out. The real solution to this crisis as Stiglitz pointed out in 2006 is the socializtion of capital.

Joseph Stiglitz was awarded the Nobel Prize for Economics in 2001.

Gardels: What, then, is the ultimate impact of the Wall Street meltdown of market-driven globalization?

Stiglitz: The globalization agenda has been closely linked with the market fundamentalists -- the ideology of free markets and financial liberalization. In this crisis, we see the most market-oriented institutions in the most market-oriented economy failing and running to the government for help. Everyone in the world will say now that this is the end of market fundamentalism.
In this sense, the fall of Wall Street is for market fundamentalism what the fall of the Berlin Wall was for communism -- it tells the world that this way of economic organization turns out not to be sustainable. In the end, everyone says, that model doesn't work. This moment is a marker that the claims of financial market liberalization were bogus.

Financial markets are supposed to be a means to an end -- a more prosperous and stable economy as a result of good allocation of resources and better management of risk. But instead, financial markets didn't manage risk, they created it. They didn't enable America's families to manage the risk of volatile interest rates, and now millions are losing their homes. Furthermore, they misallocated hundreds of billions of dollar.
We will never achieve perfect stability of our financial markets, or of our economy. Markets are not self-correcting.

Gardels: What set of policies in the advanced countries can make globalization work?

Stiglitz: The prescription for making globalization work is what is generally called “the Scandinavian model.” That means high levels of investment in education, research and technology plus a strong safety net. That of course also entails, as in the Scandinavian countries, a highly progressive income tax.
Far from making these countries less competitive, it has made them more so. Though it may seem a contradiction to conservative ideologues who think cutting taxes is the answer to everything, the fact is that people are more willing to take entrepreneurial risks if they can count on a safety net and if they have the training to be innovative.
In Sweden, the social democrats who fashioned this policy have just been turned out of office. But we should not read that as a some kind of rupture in the social consensus. The new, more conservative government will only be about fine-tuning the model.

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CRASH

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David Dodge World Bank Nominee

Is David Dodge, the outgoing Governor of the Bank of Canada, bucking for Presidency of the World Bank? Seems like it....

Dodge, who retires in January and has said he wants half a year off after that, declined to say today if he's interested in the job.

- Bank of Canada Governor David Dodge said China's government can't be expected to let the market set its currency's foreign-exchange rate ``overnight.''

``They have to keep going, and they have to keep going pretty rapidly,'' Dodge told reporters today after a speech to the Chicago Council on Global Affairs. ``But let's not expect everything to be done overnight.''

In his remarks, Dodge said that the world's most developed nations need to have ``some tolerance'' as long as countries such as China are making ``substantial progress'' in shifting toward flexible exchange rates. Some economies don't have financial markets that are developed enough to withstand an immediate move to prices set in markets, he said.

Dodge's remarks are more measured than those of U.S. officials, who demanded last week that China move more quickly on loosening its management of the yuan. The People's Bank of China on May 18 increased the amount that the currency can move each day. U.S. Treasury officials and lawmakers said China must use that increased flexibility to allow its exchange rate to climb.

Chinese officials ``understand that it's not to satisfy the Americans or the Europeans and Canadians, they need to do it for their own domestic growth,'' to move on the yuan, Dodge said.

In his speech, Dodge urged the Group of Seven industrialized nations, especially the U.S., to pursue changes at the International Monetary Fund so it can more effectively combat world trade imbalances.

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Wolfowitz Timetable

After a month long pout of misplaced indignation, Paul Wolfowitz has declared a time table for his voluntary withdrawal from the World Bank. Now how about a time table for withdrawal from Iraq.

Staff group says Wolfowitz should leave before planned date of June 30

After all no one is claiming the World Bank would be thrown into chaos after he withdraws. Unlike the excuses for staying in Iraq; we made a bad situation worse but it might get even worse if we leave.

"This is a prescription for chaos and confusion and we must not impose it on our troops," Bush said in a nationally broadcast statement from the White House.

And then there is the irony of this.....

Meanwhile, the Financial Times reported on Wednesday that Iranian Deputy Foreign Minister Abbas Araghchi has offered the US Tehran’s cooperation in developing an exit strategy from Iraq.

It quoted Araghchi as saying the US and Iran had the same interests in a stable Iraq and that direct talks leading to a “face-saving withdrawal” were possible. “(The US-led) invasion was a disaster — let there not be a disastrous withdrawal,” he told the newspaper in an interview.

“Yes, immediate withdrawal could lead to chaos, civil war. No one is asking for immediate withdrawal of foreign forces. But there should be a plan,” he said.

Take it, take it just like Wolfowitz had to because it could have been much worse, sort of like the current American surge in Iraq.

Wolfowitz's negotiated departure averted what threatened to become a bitter rupture between the United States and its economic partners at an institution established after World War II. The World Bank channels $22 billion in loans and grants a year to poor countries.

By all accounts, the terms of Wolfowitz's exoneration left a bitter taste with most of the 24 board members, who represent major donor countries, as well as clusters of smaller donor and recipient countries. Most had wanted to adopt the findings of the special board committee that determined he had acted unethically on the matter of Riza.

Also angered was the bank's staff association, which had called for Wolfowitz's resignation in early April. The bank's internal blogs were filled with denunciations of the action on Thursday evening.

Late in the evening, the association issued a statement saying, "Welcome though it is, the president's resignation is not acceptable under the present arrangement," and that it "completely undermines the principles of good governance and the principles that the staff fight to uphold."

Many European officials previously indicated that they would go along with the United States' picking a successor if Wolfowitz would resign voluntarily, as he now has.

Treasury Secretary Henry Paulson Jr. said Thursday that he would "consult my colleagues around the world" before recommending a choice to Bush, in what seemed to be an effort to assure allies that the United States would not repeat what happened in 2005 when Bush surprised them by selecting Wolfowitz, then a deputy secretary of defense and an architect of the Iraq war.

SEE

Criminal Capitalism: Office Romance

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Criminal Capitalism: Office Romance

Another neo-con from the Bush White House bites the dust. Shades of the Lewinsky affair.

World Bank pledges action on Wolfowitz

The controversy relates to Mr Wolfowitz’s personal involvement in securing a promotion and a pay rise far in excess of the normal maximum associated with such a promotion for Ms Riza, a bank official with whom he was romantically involved...


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