Joseph Stiglitz against the free market

In his book "Globalization and Its Discontents", the winner of the Nobel Prize in Economics reproduces all the commonplaces and fallacies surrounding 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. (Bloomberg)

Given the visit of the Nobel Prize in Economics Joseph Stiglitz to our country, I am making a brief summary of his book Globalization and Its Discontents, translated into Spanish and published by Taurus in 2002. Its 348 pages contain a good compendium of all the commonplaces and fallacies surrounding the free market.

The book comprises nine chapters and opens with a prologue in which he confesses that he has seen "firsthand 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 the elimination of barriers may be beneficial in theory but not in practice. This is because of "asymmetries, such as differences in information between worker and employer, lender and borrower, insurer and insured".

This conclusion is outrageous but very frequent. Precisely the asymmetry in information, i.e. the different information of the contracting parties is the raison d'être of transactions: identical appraisals and equal information would cancel out the exchange. The different valuation of a good or service among the participants in trade is the reason why the trade that takes place among the very different parties is attractive because of their inequalities, which in turn give rise to the division of labor and the consequent social cooperation.

But Stigliz condemns inequalities instead of realizing what a blessing they are; otherwise if all men liked the same woman or if they all wanted to be doctors and there were no tambourines, society would collapse. Even conversation would be unbearably tedious because it would be just like talking to the mirror. On the other hand, inequalities of income and wealth in a free society refer to rewards and punishments for serving or not serving the needs of others. In this context, the table of results sets the guidelines: those who get it right obtain gains and those who get it 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 actually happens where there are no prebendaries who exploit people in alliance with authoritarian governments. However, this author reiterates that it is fallacious and "outdated the assumption that markets generate efficient outcomes by themselves" because they are based "on market failures" without having bothered to explore all the contributions and refutations on externalities, public goods, the prisoner's dilemma, the previously condensed asymmetry of information, the Kaldor-Hicks theorem and the Nash equilibrium.

In this context, the Nobel laureate makes an apology for "social justice" which, as we know, has two meanings, one that translates into a gross redundancy since justice is not mineral, vegetable or animal, it is necessarily social, but the more generalized interpretation is the one that goes against the classic definition of "giving to each his own" to instead take from some what belongs to them to coercively give it to others. Another Nobel laureate in economics, Friedrich Hayek, has rightly argued that the adjective social together with any noun makes it its antonym: social rights, social constitutionalism, social justice, and the like.

He claims that foreign aid such as the IMF "has benefited millions of people" instead of sponsoring the liquidation of this nefarious entity that is financed with the fruits of the labor of others compulsively extracted from the pockets of taxpayers in different countries to pay off failed governments... when not corrupt ones. For all these reasons, Joseph Stiglitz concludes that "the market economy has turned out to be even worse than the communist leaders had predicted".

This book could not fail to praise the greatest sponsor of inflation of all times: John Maynard Keynes who says "he put forward a simple explanation and a correspondingly simple set of prescriptions" without paying attention to what Keynes himself had written in the preface to the German edition -in 1936, in the middle of the Nazi era- in his best-known book: "The theory of aggregate production, which is the aim of the present book, can be applied much more readily 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." By confession, there is no need for proof.

Of course, in this book it was natural to ponder "Agrarian reform, properly implemented" (sic) and "the dangers of the liberalization of capital markets" but to close this telegraphic note he pointed out what I consider to be Professor Stiglitz's most profound training error 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 could be further from the truth, the free market in no way implies perfect information which is only in the minds of neoclassical training 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 because if agents had all the relevant information, there would be no possibility of arbitrage, which means the conjecture that costs are undervalued in terms of final prices. These little models have completely disfigured the market process by introducing equilibria that are not such.

In this sense, it is appropriate to refer to two of the figures who have been the most representative of that distorted tradition and who have rectified themselves: Mark Blaug and John Hicks. The former writes in Appraising Economic Theories that "The modern Austrians [he refers to the Austrian School] go further and point out that the Walrasian approach to the problem of market equilibrium is a cul de sac, if we want to understand the process of competition rather than the final equilibrium, we have to begin by discarding those static reasonings implicit in Walrasian theory. I have slowly and reluctantly come to the conclusion that they are right and that we have all been wrong." The second consigns in Capital and Time that "I have manifested the Austrian affiliation of my ideas, the tribute to Böhm-Bawerk and his followers is a tribute I am proud to make. I am in his line, indeed, I found, as I did my work, that it was a wider and more extensive tradition than it initially seemed".

There is another well-known case that is worth mentioning, even if it is only to mention it in passing, since representatives of ECLAC, inspired by the character we are referring to, accompanied the current rulers on their visit to our lands. It is the intellectual autobiography of Raul Prebisch entitled Peripheral Capitalism by probably the economist who has had the most negative influence in Latin America, who highlights the logical leap of the models referred to state interventionism, a scheme learned in his studies of a disfigured economy but unfortunately very widespread even today in many university classrooms.

This piece was originally published in Spanish in infobae.

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