Joseph Stiglitz against the free market

Joseph Stiglitz, economics professor at Columbia University, gestures as he speaks during a panel session on day three of the World Economic Forum (WEF) in Davos, Switzerland. (Bloombergs)

Given the visit of the Nobel Prize in Economics Joseph Stiglitz to our country, I make a tight summary of your book The discomfort in globalization translated into Spanish and published by Taurus in 2002. In its 348 pages there is a good compendium of all the common places and fallacies about the free market.

The work is made up of nine chapters and opens with a prologue where he confesses from the outset that he verified “first-hand the devastating effect that globalization can have on developing countries and especially on the poor in those countries.” He says yes but not in the sense that removing barriers may be beneficial in theory but not in practice. This is so due “to asymmetries, such as differences in information between worker and employer, lender and borrower, insurer and insured.”

This conclusion is unheard of but very frequent. Precisely the information asymmetrythat is, the different information of the contracting parties is the raison d’être of the transactions: identical appreciations and equal information would nullify the exchange. Valuing a good or service differently among participants in trade is why trade that takes place by very different parties is attractive because of its inequalities, which, in turn, give rise to the division of labor and the consequent social cooperation.

But Stigliz condemns inequalities instead of realizing the blessing they mean, otherwise if all men liked the same woman or if they all wanted to be doctors and there would be no tambourines, society would collapse. Even the conversation would be unbearably tedious since it would be the same as talking with the mirror. On the other hand, income and wealth inequalities in a free society refer to rewards and punishments for serving or not serving the needs of others. In this context, the results table sets the guidelines: those who are right obtain profits and those who are wrong incur losses. However, this author condemns “the inequalities of the world trade system” so that “the rich are getting richer and the poor are getting poorer” contrary to what really happens where there are no prebendaries that exploit people in alliance with authoritarian governments. However, this author reiterates that the assumption that markets generate efficient results by themselves is fallacious and “outdated” since they are based “on market failures” without having bothered to explore all the contributions and refutations around them. externalities, public goods, the prisoner’s dilemma, the previously condensed information asymmetry, the Kaldor-Hicks theorem, and the Nash equilibrium.

In this plane, the Nobel Prize winner makes the defense of “social justice” which, as is known, has two meanings, one that translates into gross redundancy since justice is not mineral, vegetable or animal, it is necessarily social, but the most generalized interpretation is the one that goes against the classic definition of “giving each one what is theirs” to instead take from some what belongs to them to coercively deliver it to others. No wonder another Nobel laureate in economics, Friedrich Hayekhas argued that the adjective social attached to any noun turns it into its antonym: social rights, social constitutionalism, social justice and equivalents.

It undertakes it with the fact that foreign aid such as the IMF “has benefited millions of people” instead of sponsoring the liquidation of that nefarious entity that is financed with the fruit of the work of others compulsively deducted from the pockets of taxpayers from different countries to solve failed governments… when not corrupt. For all this, Joseph Stiglitz concludes that “the market economy has turned out to be even worse than the communist leaders had predicted.”

This book could not miss the praise of the greatest sponsor of inflation of all times: John Maynard Keynes which he says “proposed a simple explanation and a correspondingly simple set of prescriptions” without paying attention to what Keynes himself had written in the prologue to the German edition -in 1936, at the height of the Nazi era- in his best-known book: “The Theory of global production, which is the goal of this book, can be applied much more easily to the conditions of a totalitarian state than to the production and distribution of a given volume of goods obtained under conditions of free competition. A confession of a party relay test.

Of course, in this book it was natural to ponder “The agrarian reform, adequately implemented” (sic) and “the dangers of the liberalization of the capital markets” but to close this telegraphic note he pointed out what I consider to be the deepest error formation of Professor Stiglitz that appears again and again in the text we are considering and alludes to the fact that “the market system requires competition and perfect information”. Nothing further than reality the free market by no means implies perfect information which is only in the minds of neoclassical trained professors who have completely distorted the understanding of economics. As has been repeatedly pointed out, the so-called perfect competition is a contradiction in terms since it translates into the absence of competition since if the agents had all the relevant information there would be no possibility of arbitration, which means the assumption that the costs are undervalued in terms of final prices. These models have completely disfigured the market process by introducing balances that are not such.

In this sense, it is appropriate to refer to two of the figures that have been the most representative of that distorted tradition and that have been rectified: Mark Blaug and John Hicks. The first writes in Appraising Economic Theories that “the Austrians [se refiere a la Escuela Austríaca] Modernists go further and point out that the Walrasian approach to the problem of equilibrium to markets is a cul de sac, if we want to understand the process of competition rather than the final equilibrium we have to start by discarding those static reasonings implicit in Walrasian theory. . I have slowly and uncomfortably come to the conclusion that they are right and all of us have been wrong.” The second prompt in capital and time that “I have declared the Austrian affiliation of my ideas, the tribute to Böhm-Bawerk and his followers is a tribute that I am proud to pay. I am within his line, moreover, I verified, as I did my work, that it was a broader and more extensive tradition than it seemed at first”.

There is another well-known case that is relevant, although it is not worth mentioning very quickly, since representatives of ECLAC accompanied the current rulers in our lands on their visit, inspired by the character we are referring to. It is the intellectual autobiography of Raul Prebisch titled peripheral capitalism by the one who has probably been the economist who has had the most negative influence on Latin America, who highlights the logical leap from the models referring to state interventionism, a scheme definitely learned in his studies of a disfigured economy but unfortunately very widespread even today in no few university classrooms.

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Joseph Stiglitz against the free market