Stiglitz and Smith

In the New Republic, Joseph Stiglitz sings a familiar tune, lamenting the downtrodden economy:

We have not yet sunk into an "official" recession, but it has been more than half a year since any new jobs were created, and, meanwhile, our labor force continues to grow. If the Great Depression undermined our confidence in macroeconomics (the ability to maintain full employment, price stability, and sustained growth), it is our confidence in microeconomics (the ability of markets and firms to allocate labor and capital efficiently) that is now being destroyed. Resources were misallocated and risks were mismanaged so severely that the private sector had to go running to the government for help, lest the entire system melt down.

Interestingly, Stiglitz uses the same reasoning in his diagnosis of the U.S. economies ailments that he used in his prescription to Make Globalization Work. Bad markets let people do bad things. In Making Globalization Work, remember, he decried ease with which special interests could overrun and undermine the international institutions. Now, he takes aim at the American financial markets whose opaque information structures shield corporation's greed from consumers' eyes:

The task of unraveling all that went wrong in our financial system is a difficult one, but in essence the financial system's latest innovation was to devise fee structures that were often far from transparent and that allowed it to generate enormous profits--private rewards that were not commensurate with social benefits. The imperfections of information (resulting from the non-transparency) led to imperfections in competition, helping to explain why the usual maxim that competition drives profits to zero seemed not to hold.

He concludes, "The invisible hand often seems invisible because it's not there. At best, it's more than a little palsied. At worst, the pursuit of self-interest--corporate greed--can lead to the kind of predicament confronting the country today." I see no problem blaming corporate greed; my problem is with his slight attack on Adam Smith. The invisible hand line above seems glib, and when coupled with the first graph, it seems unfair:

More than 75 years ago, confidence in the market economy got a rude shock as the world sank into the Great Depression. Adam Smith had said that the market led the economy, as if by an invisible hand, to economic efficiency and societal wellbeing. It was hard to believe that Smith was right when one in four Americans was out of a job.

Of course, we can believe that Smith was right, thanks to the (at the time surprising, sure) assignment of the Theory of Moral Sentiments. Smith's theory required moral actors for it to be eventually fair. In the context of Stiglitz's analysis, Smith's warnings, in fact, seem more believable: we see how the market falls down when people exploit weaknesses with improprieties. Sure, Stiglitz -- the capable writer that he is -- was likely using Smith as merely a rhetorical motif or even a strawman, but when you're lamenting the misuse of information, you probably shouldn't publish incomplete (if only contextual) information yourself.

Importance

Just in case anyone forgets while we don't have a seminar together, this is just a reminder that we are all unbelievably important.

Rawls' Biography

Here's a bit of Rawls' biography that gives insight to his philosophy that we've studied thus far. Hat tip to Marginal Revolution for the quote.

As Thomas Pogge has noted in his recent biography John Rawls: His Life and Theory of Justice, Rawls was especially sensitive to issues of luck because of a sad occurrence in his own life. Two of his brothers died in childhood because they had contracted fatal illnesses from him. Pogge calls the loss of the brothers the “most important events in Jack’s childhood.” In 1928, the 7-year-old Rawls contracted diphtheria. His brother Bobby, younger by 20 months, visited him in his room and was fatally infected. The next winter, Rawls contracted pneumonia. Another younger brother, Tommy, caught the illness from him and died.

Luddites and Apologists

(Cross-posted from cmcabroad.com/abhi just to add some fresh content and get your input.)

I'm something of a technology elitist, sure. Just today I scoffed at my boss's old floppy disc, and regularly I mock typographical missteps. Nonetheless, I understand that people have different levels of experience and different points of view, so I can at least appreciate this opening to Lee Gomes's recent op-ed, "Note to the Next President: Avoid Computers."

"The two presidential candidates this year, in addition to all their other, more-significant differences, also present two contrasting perspectives about the extent to which personal-computer technology can be integrated into someone's everyday life."

That was about all I could appreciate.

Gomes makes the obvious diagnosis of McCain's computer illiteracy, but then, instead of dismissing, let alone lamenting, the candidate's technological conservatism, he rationalizes it, arguing that it's best for a president to keep distance from computers, the internet, and (those dreaded) blogs.

"The severe time rationing is necessary because a computer, far from making you more productive, instead loads you down with things to do, and it's important for the machine to know who is boss."

He just threw the 21st century under the Straight Talk Express.

To be fair, there is some force to Gomes' argument. Yes, the president can have an aid check his email, and sure, the computer wouldn't sit well on the Resolute desk. But no, we shouldn't enroll the president in computer class, as Gomes wishes: "If I were the chief of staff at the White House, I would have some sort of computer, not in the Oval Office itself, since it wouldn't match the furniture, but one office away. I'd push the president to spend, say, 20 minutes a day on the machine -- whether he would complain about the limit or about the mandated time." Or at least, we shouldn't have to.

This compartmentalization of new technology is crux of Gomes' pitch, as it hopes to free the president from the "distractions" of the internet, but it betrays his skewed worldview. He views the internet and the information age as small areas of our life: at best, a useful business tool, at worst, a distracting indulgence. It is a necessary evil in his mind, something to be used sometimes, but controlled always.

This is the modern equivalent of seeing the trees but missing the forest.

The information age has already transformed the way we work and the way we interact. We're more connected - and sure, sometimes more distracted - than ever, but the Blackberry isn't the enemy. It's a tool, one of many; tools that are breaking down the top-to-bottom communications structure of the 20th century and piecing together increasingly wide and dense networks. In fact, some expect this structural change to strengthen and develop our democracy (read this compelling call for "Politics 2.0" by members of the Sunlight Foundation). In a recent Atlantic Monthly article, Marc Ambiner explained that, already, Britain and other European countries have incorporated internet into governance, expanding access and increasing participation: for nearly two years now, British citizens have been able to seek redress from their government with online petitions. The Atlantic piece rightly notes the shortcoming of the system, as many petition go unattended to and none have guaranteed affect. But, it's just a start, and there are always blunders at the beginning. Moving forward, it will take attention, understanding, and willingness to unlock the full potential of internet participation--and that potential could translate directly to political power, as Ambinder explains:

"But it’s worth noting that some of the best-known presidents in U.S. history have stood at the vanguard of past communications revolutions—and that a few have used those revolutions not only to mobilize voters and reach the White House but also to consolidate power and change the direction of politics once they got there."

Here we see the political cost to Gomes' (and arguably McCain's) skewed worldview: by compartmentalizing the internet, you squander its potential. The Luddites thrashed about London, wrecking the machines and factories of modernity, denying its promise of a better future. Similarly apprehensive, a Luddite-in-chief is in some ways more damaging: muting the enthused, clamoring for a new way to participate and strengthen our democracy.

It's not simply a matter of updating his facebook page, the next president will lead the country, and hopefully the world, during an exciting and sometimes tumultuous technological revolution. To lead, he should, at least, know what's happening--let alone look to what's ahead.

Summer Reading: Richard Posner

The NYT's Paper Cuts Blog has an article outlining some suggested reading for anyone interested in reading more Posner.

If anyone reads any of these, go ahead and post a review.

Thinkers

The Freakonomics blog at the NYTimes has a fun game:

The e-mail gods recently delivered this interesting query from a reader named Derek Wilhelm:

I go to the University of Richmond, which requires [us] to take a class called Core, where we read famous historical books. (Gandhi, Marx, Plato, Augustine, just to name a few). Anyway, my question for you is: Who do you think is the greatest modern-day thinker?

I love this question. It first requires you to define what a “thinker” is, and also raises the question of what incentives exist in the modern world to be a thinker. Also, is someone a great thinker if they’re never able to communicate their thoughts to a broad audience?

Its comments section has gems, such as Lil' Wayne, Yogi Berra, and Homer Simpson, and some more serious nominations--Foucalt, Chomsky, and Dawkins. See for yourself.

The definition, I think, is tougher than nominations. Any thoughts on either?

Link...

Btw this might be useful...

Economist Debate