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Sachs-Stiglitz debates: Nobel and Reith

December 15, 2007


Joseph E. Stiglitz’ major international bestseller (2002) entitled Globalization and its Discontents is an indictment against policies of the International Monetary Fund, World Trade Organization, and World Bank that unintentionally but relentlessly increased vulnerabilities of the poorest groups and nation-states to the advantage of an unfettered market. In his 2003 publication entitled The Roaring Nineties: a New History of the World’s Most Prosperous Decade Stiglitz forcefully argues for a more balanced relationship between State and the Market by elaborating on outcomes and unintended consequences of the free market (neoliberal, market liberal) ideologies that shaped US Presidents Reagan and Bush I administrations national economic policies from c.1980-1992. He reveals the deceptions, distortions and disasters caused by the idealization of the private sector and demonization of government programs and regulations that Stiglitz claims led to the boom and bust of the 1990s. Stiglitz holds a Nobel laureate in Economics (2001), was member then Chair of the Council of Economic Advisors (1993-1997), senior vice-president and chief economist of the World Bank from 1997 to 2000.

In an attempt to understand the Sachs-Stiglitz debate I am reading both. The overarching theme which concerns me is the moral mathematics that leads to the current disequilibrium. As a bricoleuse I am using technologies and software to heighten the findability of useful resources for a more informed civil society, one that includes moderate civil religions. Editor of Rollo May argued forcefully that “the terms ‘optimism’ and ‘pessimism’ employed by Sachs should refer to the state of one’s digestion, and have nothing whatever to do with truth (May 1982).

Jeffrey D. Sachs (2007) argued that those who challenged his unbounded optimism in human capacity to find solutions to our man-made problems through the use of human reason and spirit are promoting ideas that are dangerous and defeatist. He is convinced that humans can continue to build on the 17th century Enlightenment belief in Reason and Science to create a New 21st Century Enlightenment that still includes Adam Smith’s concepts of international markets and Condorcet’s improved harnessing of resources. Like his hero John Maynard Keynes, Sachs occupies a liminal space between the academic and political arenas. We can now develop sustainable smart technologies so that those in wealthier countries do not have to sacrifice but rather can maintain our current high-consumption level through smarter living while making poverty history through a New Politics of global co-operation, an Open-Source Leadership capable of providing concrete actions such as anti-malaria mosquito nets, universal access to anti-retroviral medications by 2010 and voluntary reduction of fertility rates in poor countries. His optimistic vision of a practical, attainable, dynamic, changing peace that meets the challenge of each new generation is “based not on a sudden revolution in human nature but on a gradual evolution in human institutions, on a series of concrete actions and effective agreements which are in the interest of all concerned.” He dismisses those who question our ability to change or who feel depressed by his unabashed optimism in such dark times, as promoting a dangerous defeatist belief. He advocates commandeering the US military budget, debt cancellation for the poorest nations and zero sum redistribution. Whereas his solutions for economic reform for Bolivia in 1985 involved a rapid shock treatment approach to combat hyperinflation, he now advocates a gradualist approach in the evolution of human institutions. He calls for transparent timelines and responsibilities towards Gleneagles promises. He lists off historical acheivements such as the end of slavery, debt-relief, WHO programs as a rebuttal to the historic reality of the 20th century’s unfulfilled good intentions and unacheived goals.

Sachs claims that human reason can solve the unsolvable: “Our problems are man-made, therefore they can be solved by man, and man can be as big as he wants. No problem of human destiny is beyond human beings. Man’s reason and spirit have often solved the seemingly unsolvable, and we believe they can do it again. I am not referring to the absolute infinite concept of universal peace and goodwill of which some fantasies and fanatics dream. I do not deny the value of hopes and dreams, but we merely invite discouragement and incredulity by making that our only and immediate goal (Sachs 2007-04-11).”

Sachs on over-consumption: “I do not believe that the solution to this problem is a massive cutback of our consumption levels or our living standards. I think the solution is smarter living. I do believe that technology is absolutely critical, and I do not believe on the evidence that I’m going to be discussing in these Lectures that the essence of the problem is that we face a zero sum that must be re-distributed. I’m going to argue that there’s a way for us to use the knowledge that we have, the technology that we have, to make broad progress in material conditions, to not require or ask the rich to take sharp cuts of living standards, but rather to live with smarter technologies that are sustainable, and thereby to find a way for the rest of the world, which yearns for it, and deserves it as far as I’m concerned, to raise their own material conditions as well. The costs are much less than people think. You are making the argument that this is so costly we don’t dare do it (Sachs 2007-04-11).”
Sir Christopher Meyer, a former British Ambassador to the United States and currently Chairman of the Press Complaints Commission rejected Sachs’ overoptimistic assumption that human nature can make such a marked change that would lead to the solutions Sachs proposed. Meyer argued that history has proven otherwise.

I am still reading Stiglitz’s The Roaring Nineties: a New History of the World’s Most Prosperous Decade in my non-linear fashion. It is strange that his message is more uplifting to me that Sachs. To be continued . . .

Some useful key concepts emerging from these readings to be developed:

Anthropocene is a term coined by Paul Crutzen which “is the idea that for the first time in history the physical systems of the planet — chemical fluxes, the climate, habitats, biodiversity, evolutionary processes — are to an incredible and unrecognised extent under human forcings that now dominate a large measure of the most central ecological, chemical and bio-physical processes on the planet – the hydrological cycle, the carbon cycle, the nitrogen cycle, the location and extinction of species, and basic physical habitats. Of course human forcings have always played their role. We know that the hominids already controlled fire a million or more years ago, and therefore changed landscapes, even before the rise of homo sapiens. But never has the control of such fundamental processes been determined by human forcings, and we’ve barely awakened to that reality (Sachs 2007-04-11).” This is the the first of three challenges discussed by Sachs (2007-04-11) that face humankind in 2007. [. . .] Sachs’ discussed “the Anthropocene in Beijing, China, which soon will be the country that is the largest emitter of carbon dioxide on the planet, and one that faces its own profound challenges of water stress, which will worsen, perhaps immeasurably, as the glaciers of the Himalayas melt and as the seasonal timing of snow melt from the Himalayas changes the river flow of the Yangtze and Yellow rivers and other rivers of Asia. The Anthropocene tells us that it’s not just about one problem, as Sir Nicholas Stern, one of the intellectual leaders of our time, has brilliantly exposed in his report for the UK government. It’s not only the problem of mass extinctions, or only the problem of the mass destruction of fisheries in the North Atlantic and in many other parts of the world. We are weighing so heavily on the Earth’s systems, not only through carbon dioxide emissions changing climate but through carbon dioxide emissions acidifying oceans, through destruction of habitat, which is literally driving perhaps millions of species right off the planet. We are over-hunting, over-fishing, and over-gathering just about anything that grows slowly or moves slowly. If we can catch it we kill it. Our capacity in the Anthropocene is unprecedented, poorly understood, out of control, and a grave and common threat (Sachs 2007-04-11).”

Folksonomies

Globalization, Economic conditions, Economics, International Monetary Fund, IMF, World Trade Organization, WTO, World Bank, Washington Consensus, WB, neoliberal, market liberal, vulnerability to social exclusion, at-risk populations, extremes of wealth and poverty, moral mathematics,

A Tag cloud for Jeffrey D. Sachs’s Reith Lectures tbc

Jeffrey D. Sachs, Bursting at the Seams, Reith Lectures, BBC, 1948, Royal Society of London, 1660, slavery, empire, humanist, project of modernity, Enlightenment project of material progress, reason, Adam Smith, economics, global market, international markets, technology, Wilberforce, anti-slavery, 1770s, Condorcet, harness reason to grow more crops and to extend life expectancy, [John Locke], important scientific issues of the day, leaders of thought and action, new enlightenment, John Maynard Keynes, John Kennedy, Commencement Address at American University, June 10, 1963, Cuban missile crisis, between academic and political, restore[d]? broken economies, Bolivia, Poland, Russia, global co-operation, harnessing resources, catastrophe, physical geography, epidemiology, climate stress, rain-fed agriculture, drought-prone savannah climates, disease, zoonotic disease, hunger, pollution, clash of civilisations, over-populated world, increasing risk, increasing instability, increasing hatred, tribalism, corruption, ignorance, fanaticism, modern history, Western Darfur, Beijing, China, water stress, acidifying oceans, Himalaya glaciers melt, Yangtze River, Yellow Rivers, Asia, carbon dioxide, geopolitics, fiction of United States as New Rome, leaders of thought and action, optimistic epistemic communities, Sir Nicholas Stern, multi-disciplinary, reason and faith, human nature, gradualism versus shock treatment, concrete actions, anti-malaria mosquito nets, 2010 universal access to anti-retroviral medications, child survival, rapid demographic transition, voluntary reduction of fertility rates in poor countries, Paul Crutzen, Anthropocene, Age of Convergence, women and development, Spice Girls, Geri Halliwell, Ellen Johnson-Sirleaf, Liberia, Africa, over-consumption, maintain consumption level with smarter living, knowledge, technologies, redistribute zero sum that must be re-distributed, Sir Christopher Meyer, open-source leadership, new politics, unfulfilled good intentions, unacheived goals, 2001, World Health Organisation, AIDS, 2005 Make Poverty History, transparent timelines and responsibilities towards Gleneagles promises, GlaxoSmithKline, commandeering the US military budget, practical economics, 1985 debt cancellation for poorest countries, short-term thinking, addressing poverty at home, dangerous defeatist belief versus unbounded optimism.

Timeline of Social History

1776 Adam Smith, the father of modern economics, argued in his 1776 treatise The Wealth of Nations that the market leads us as if by an invisible hand to economic efficiency. Although Adam Smith’s thoughts on this were more circumspect, he is cited by those who since then have argued for unfettered markets. For a critique of the invisible hand argument see the work of Nobel Peace Prize winners Gerard Debreu and Kenneth Arrow (Stiglitz RN 2003:13).

Post WWII

1950s Nobel Peace Prize winners Gerard Debreu and Kenneth Arrow ‘established the conditions under which Adam Smith’s “invisible hand” worked. These include a large number of unrealistic condition, such as that the information was either perfect, or at least not affected by anything going on in the economy, and that whatever information anybody had, others had the same information; that competition was perfect; and that one could buy insurance against any possible risk. Though everyone recognised that these assumptions were unrealistic, there was a hope that the real world did not depart too much from such assumptions – if information were not too imperfect, or firms did not have too much market power – then Adam Smith’s (1776) invisible hand theory would still provide a good description of the economy. This was a hope based more on faith – especially by those whom it served well – than on science (Stiglitz RN 2003:13).”

1980 – 1992 During US Presidents Reagan and Bush I administrations national economic policies were shaped by free market ideologies who idealized the private sector and demonized government programs and regulations (Stiglitz RN 2003:12).

1987 Stock markets fell on October 19 by 23% erasing nearly a quarter of Corporate America’s capital (Stiglitz RN 2002:62).

1991 An economic downturn, a recession, began [in the US?] (Stiglitz RN 2003:54). Between 1990 and 1992 3.5 million people in the US were added to the unemployment pool while millions of others lost well-paying jobs and were forced into underemployment (Stiglitz RN 2003:40). The US federal government lowered interest rates but not quickly enough (Stiglitz RN 2003:40).

1992 President Bush was defeated largely due to poor economic performance (Stiglitz RN 2003:48). Economic circumstances were unsual [in the US?] (Stiglitz RN 2003:54).

1993 President Clinton largely owed his election to the faltering US economy. In January 1993 unemployment was at 7.3%, the US GDP was shrinking by -0.1% and the budget deficit had increased to 4.7% up from 2.8% in 1989 (Stiglitz RN 2003:40-1). Clinton made deficit reduction his priority setting aside his social agenda of job creation. Clinton under the advice of his risk-taking New Democrat economists (including Stiglitz) went against the standard theory of economics that held that deficit reduction slowed down economies and increased unemployment. They took the risk that they would succeed in backloading the nation’s deficit into a future more prosperous time (Stiglitz RN 2003:41). Clinton proposed taxation of polluters (emitters of greenhouse gases) (Stiglitz RN 2003:48).

1997 The meltdown of Asian economies

1997 Stiglitz in Ethiopia, Thailand and Russia

1997? Stiglitz resigned when his protestations about the fundamental wrongness of policies that force already vulnerable economies into capital liberalisation were met with disdain by his political masters.

Webliography and Bibliography

Bibliography and Weliography

May, Rollo. 1982. “The Problem of Evil: An Open Letter to Carl Rogers.” Journal of Humanistic Psychology. Summer:20.

Sachs, Jeffrey D. 2007. “Bursting at the Seams.” Reith Lectures. BBC. No. 1. April 11, 2007. 9am. http://www.bbc.co.uk/print/radio4/reith2007/lecture1.shtml?print

Stiglitz, Joseph E. 2002. Globalization and its Discontents. New York: W.W. Norton & Company. ECO-STI-GLO
Stiglitz, Joseph E. 2003. The Roaring Nineties: a New History of the World’s Most Prosperous Decade. New York: W. W. Norton.

Notes to be developed . . .

The standard theory of economics in the ??? held that deficit reduction would slow down recovery and increase unemployment (Stiglitz RN 2003:41).

Keynes theory of economics was that . . . (Stiglitz RN 2003:41).

New risk management that Clinton applied in 1993 was smaller government and smaller deficit (Stiglitz RN 2003:41)?

The New Democrats like President Bill Clinton and his administration in 1993, were a loose group of politicians, academics and policy makers who called for a revamping of the Democratic Party. They wanted to replace the overuse of bureaucratic solutions with greater concerns for policy impact on business and the marketplace (including Stiglitz?) (Stiglitz RN 2003:12).


CC 3.0 Flynn-Burhoe, Maureen. 2007. “Sachs-Stiglitz debates: Nobel and Reith.” >> Google Docs. Uploaded December 14, 2007. http://docs.google.com/Doc?id=ddp3qxmz_433djbf9mfx

2 Responses to “Sachs-Stiglitz debates: Nobel and Reith”


  1. Sorry for my bad English, It isn’t my mother tongue.
    A couple of remarks.

    About Adam Smith.
    Reading the infamous Smith’s assertions about the “invisible hand” in its proper context brings to the conclusion that this doesn’t mean what was considered by today “readers”. This brings us to the very big question about the meaning of the verb “to read” (and “to understand”). When reading anything written a couple of centuries ago one must remember that world was quite different from the present one and, as a consequence, also language was very different.
    I can only cite, in English language, Prof. Dani Rodrik, at Harvard University, who wrote about this matter.

    About Jeffrey David Sachs.
    I’m wondering how the man who invented the “shock teraphy” could write things such those I’m reading here (and elsewhere). Sachs resigned at the epoch of the sequel of bad advices (based on shock therapy) to president Yeltsin, that has been bitterly criticized by Stiglitz, and that brought to the second autocracy restoration in Russia (the first being the so-called October Revolution). It was a form of repel of his previous theories? Can someone clarify this point?

    PS: The website I quote here is in Italian. Only very few of our readers can reasonably read it. Sorry.


  2. Quoting Gavin Kennedy at Edimbourgh University should be more appropriate, in English language, about the meaning of the Smith’ “invisible hand”.


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