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Professor Stiglitz and Lord Keynes / Interess. Artikel, engl.

verfasst von JÃœKÃœ, 05.06.2002, 00:05

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Professor Stiglitz and Lord Keynes
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by Dr. Frank Shostak

[Posted June 4, 2002]

[img][/img] The
newest issue of The
Nation herald’s the 2001 Nobel Laureate
Joseph Stiglitz as a"rebel with a cause." That characterization is
certainly a stretch for an economist, who is former senior vice president of
the World Bank and who adheres to orthodox Keynesian doctrine, the dominate
economic paradigm of mainstream political and economic theory for the past 50
years.

Stiglitz’s Keynesianism isn’t just a matter of habit, as
it is with so many economists, but instead amounts to a strict doctrinal
adherence. In his recent article,"IMF should take a lesson on Keynesian
economics" in the Straits Times, Stiglitz  went so
far as to resurrect the New Deal era bromide that market economies are to
blame for the boom-bust economic cycles.

According to Stiglitz,

Since capitalism's beginnings, the market economy has been
subject to fluctuations--to booms and busts. Capitalist economies are not
self-adjusting: Market forces might restore eventually an economy of full
employment, as economist John Maynard Keynes said, but, in the long run, we
are all dead.

Boom-bust cycles, however, are not caused by the market
economy. They are the outcome of central authorities’ interventionary
monetary policies. The monetary theory of boost-bust cycles as developed by
Ludwig von Mises provides an accurate explanation of the boom-bust cycle
phenomenon. It is about activities that sprang up on the back of loose
monetary policies of the central bank.

Thus, whenever the central bank loosens its monetary stance,
it sets in motion an economic boom by means of diverting real funding from
wealth generators to various false activities that a free unhampered market
would not facilitate. 

Whenever the central bank reverses its monetary stance, this
slows down or puts to an end the diversion of funding toward false activities,
and that in turn undermines their existence. In short, the trigger to
boom-bust cycles is central bank monetary policies, not capitalism.
Furthermore, in an unhampered market, human errors are self-correcting. The
corrections tend to be rather quick.

Following in the footsteps of Keynes, Stiglitz holds
that expansionary monetary and fiscal policies must be used in hard economic
times. Also, again following Keynes, Stiglitz believes that fiscal policies
are more effective than monetary policies. Regardless of the state of an
economy, however, every economic activity has to be funded. Neither printing
money nor expansionary fiscal policies generate wealth. 

What loose monetary and fiscal policies do is divert real
funding from wealth generators to wealth consumers. Consequently, neither
loose monetary nor loose fiscal policy can lift an economy if the wealth,
capital, and savings are not there to support it. It is a myth that fiscal
policy can be more effective than monetary policy in growing an economy. None
of these policies can. Only an expanding capital base, based on savings and
profitable investment,"grows" an economy.

Stiglitz is of the view that, in advanced economies,
Keynesian economics is the bread and butter of economic forecasting and
policymaking. He also suggests that, because of Keynesian policies, expansions
are longer and downturns shallower and shorter in advanced economies.

It is a great tragedy that Keynesian economics provides the
foundation of thinking of most economists and policymakers. In advanced
economies, expansions are longer and recessions are shorter due to
accumulated capital and the power of free enterprise, not because Keynesian
prescriptions work. There are, however, indications that this may not last.
For instance, the flow of savings is barely visible, and individuals’
indebtedness is now at a record high.

As a proof that Keynesian policies are valid, Stiglitz
insists that,

We learn from economic policy failures as well as successes.
When the International Monetary Fund (IMF) forced large expenditure cuts in
East Asia, output in those countries fell just as Keynesian theory predicted.

But the output in these economies fell, not because of the
cut in government expenditure, but because the previous loose monetary and
fiscal policies had severely diminished the quantity of investable resources.
A cut in government expenditure has revealed the fact of reality--that there
is not much left to invest.

If lifting government expenditure drives an economy, then
why do we still experience many economic problems? According to the Keynesian
magic formula, all that is needed is to increase government spending and the
rest should follow suit. If this view were correct, then poverty in the world
would have been eliminated a long time ago.

Not so, maintains Stiglitz:

In early 1998, when I was chief economist of the World Bank,
I debated the United States Treasury and the IMF concerning Russia. They
said that any stimulation of the Russian economy would incite inflation.

This was a remarkable admission: Through their transition
policies, they had managed, in just a few years, to decrease the productive
capacity of the world's No. 2 superpower by more than 40 percent, a
devastating outcome greater than that of any war. 

In August 1998, with the rouble's devaluation, we tested
the alternative, Keynesian hypotheses: Production soared, and relatively
quickly, showing that policies emphasizing excessive austerity had caused
unnecessary idleness of human and physical resources, and unnecessary
suffering.

In fact, the productive capacity collapsed, not because of
austerity, but because of previous loose policies. For instance, between
January 1993 and April 1996, the yearly rate of growth in money M1 fluctuated
between 120 percent and 500 percent. Austerity measures have only revealed the
extent of the damage caused by loose monetary policy. The recovery emerged
because there was still something left in the"kitty" and because
austerity helped strengthen the basis for future sustainable growth.

On Argentina’s crisis, Stiglitz wrote,

Remarkably, the IMF was slow to learn the lesson. While it
recognized belatedly its fiscal-policy mistake in East Asia, it repeated it
in Argentina, forcing expenditure cuts that deepened recession and boosted
unemployment to the point where things fell apart finally.

Even now, the IMF has not acknowledged the lesson: It
still insists on further cutbacks as a condition for assistance. It
continues to insist on an alternative economic"theory"--one which
Prof. Keynes fought against over 60 years ago. In a nutshell, he struggled
against the notion that if only countries would cut their deficits,
confidence would be restored, investment would return, and their economies
would again attain full employment.

But cuts in government expenditure did not cause Argentina's
present economic crisis. There are several factors responsible for the crisis.
Prior to the introduction of the currency board and the currency peg, money
supply was growing in excess of 100 percent annually. So the IMF is to be
blamed for endorsing a peg to the dollar while the peso was extremely
overvalued. This destroyed the export sector.

Furthermore, the high money rate of growth severely
distorted the structure of production and depleted the capital base. The IMF
is wrong in focusing on the reduction of the budget deficit. The focus must be
on the reduction of government expenditure that Stiglitz opposes.

A cut in government expenditure is a blessing for wealth
generators and frees up property for productive use, so why should it be seen
as bad news? Obviously, the cut in government outlays is bad for various
activities that only consume real wealth without making any contribution to
productive capacity. If the percentage of these activities exceeds the
percentage of wealth generators, the economy will suffer. Aggressive
government spending will only further deplete investable resources and prolong
the depression. A good example of this is Japan. Aggressive Keynesian policies
have been employed for over 10 years, yet the economy has continued to fall.
Surely by now Keynesians should concede that these policies are a recipe for
disaster.

In conclusions, Stiglitz says:

Economics is difficult because we cannot conduct controlled
experiments. But we do have a wealth of experience from which to draw
inferences. This wealth of experience all points in one direction: Prof.
Keynes's teachings are very much alive, and Argentina today would be in far
better shape if his lessons had been taken to heart.

Indeed we do have a wealth of experience--which clearly
indicates that Keynesian policies based on the view that something can be
created out of nothing are responsible for economic misery in the world.
Professor Keynes’s teachings may still be alive, but they are killing
economies all over the world.

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Frank Shostak, Ph. D., is an adjunct scholar of the Mises
Institute and a frequent contributor to Mises.org. Send him MAIL and
see his outstanding Mises.org Articles
Archive. Dr. Shostak expresses gratitude to Michael Ryan for
helpful comments during the writing of this article.



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Professor Stiglitz and Lord Keynes / Interess. Artikel, engl. - JÃœKÃœ, 05.06.2002, 00:05