Well I have been reading Stiglitz last few days, I had read some of his columns here and there (trying to figure out what this financial crisis all about, as also searching about World Bank) but now thought of sitting down and read through his basics (encapsulated in his very long Nobel Prize speech). While I was reading these I was also watching TV!!. It was about the controversy that surrounded France win over Ireland in pre world cup. It is very clear that Thierry Henry handled the ball. The players knew it the world saw it. It was an obvious foul and should have been disallowed. But it was allowed, it didn’t violate the rule, it fitted in well into the system. So even though we all know it was wrong but the system doesn’t perceive nor could it rectify or correct the wrong. It seems it depends on the individuals to confess. It is therefore matter of individual choices thus subjective. In the meantime there is stress on transparency. But things are as transparent as it could ever be!!. This precisely is the problem. We all want to do something to prevent climate related catastrophe, we all want to protect environment but the system seems incapable of perceiving these. It is also about the kind of things that keep happening around us, we are all very concerned about insidious nature of market and how it is seriously undermining socio-cultural context. Trivialization, macabre exaggeration and amazingly crude is what is sought to be seen as normal change. There is something seriously wrong but the system instead of rectifying has chosen to propagate this. Isn’t it funny that the economic system is hinged on people spending, the more you consume the healthier the system. Conventional wisdom though contradicts, indeed it is absurd. But this it seems is the path to prosperity, development.
Stiglitz mentions “When I began the study of economics some forty one years ago, I was struck by the
incongruity between the models that I was taught and the world that I had seen growing up, in Gary Indiana, a city whose rise and fall paralleled the rise and fall of the industrial economy. Founded in 1906 by U.S. Steel, and named after its Chairman of the Board, by the end of the century it had declined to but a shadow of its former self. But even in its heyday, it was marred by poverty, periodic unemployment, and massive racial discrimination. Yet the theories that we were taught paid little attention to poverty, said that all markets cleared – including the labor market, so unemployment must be nothing more than a phantasm, and that the profit motive ensured that there could not be economic discrimination. If the central theorems that argued that the economy was Pareto efficient – that, in some sense, we were living in the best of all possible worlds – were true, it seemed to me that we should be striving to create a different world”. So there the contradiction. One of the key aspect of Stiglitz’s assertion is information “what happens when people lack the key information that bears on the decisions they have to make, or when markets for important kinds of transactions are inadequate or don't exist, or when other institutions that standard economic thinking takes for granted are absent or flawed”. The referee in the Ireland-France match (or any other match) lacked the key information, which quite absurdly was accessible to even an audience across the globe within few seconds, and the system saw to it that he couldn’t access these. Fairness was compromised for institution. Doesn’t that sound familiar?. It seems we are controlled by an inexplicable superior force, an invisible hand.
Is it surprising that Adam smith (the founder of modern economics) also mentions “by an invisible hand”, the free market led efficient outcomes?. The “invisible hand”, one can safely say now, was a euphemism for lack of information but necessarily meant to keep the government out. Stiglitz has argued “Interestingly, there has been no intellectual challenge to the refutation of Adam Smith’s invisible hand….individuals and firms, in the pursuit of their self-interest, are not necessarily, or in general, led as if by an invisible hand, to economic efficiency". He adds "have shown that whenever information is imperfect and markets incomplete, which is to say always, and especially in developing countries, then the invisible hand works most imperfectly." He concludes “governments can improve the outcome by well-chosen interventions”.
Like the financial crisis recently there clearly was no “invisible hand” in Ireland-French match. The world saw Thierry Henry handling the ball, the Irish though can include these in their enviable collection of fables.
PS. Last heard: they are thinking of banning Thierry Henry!!. Frankly what exactly is his fault?!!. Theater of absurd, the script should make Samuel Beckett proud!!
