Joseph Stiglitz : The end of neoliberalism and the rebirth of history

[PETRUS]

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I'm sorry, I don't know what would make an appropriate subject line.

It is inaccurate to describe China's economic policy as neoliberal. Yes, Milton Friedman paid them a visit. They didn't take his advice. I have enough familiarity with Friedman's positions and China's economic policy that this seems self-evident to me (and I would have thought the same of you). But coincidentally, I recently read a book (“The Economists' Hour: False Prophets, Free Markets, and the Fracture of Society,” by Binyamin Appelbaum) that touched on exactly this topic. Here's a relevant quote: “Friedman's trip was not a success. When one reads the accounts of the visit, it is hard to say whether Friedman or his hosts were the most dismayed. At least the Chinese learned what they did not want. Instead they sought advice from Keynesians who favored a market economy carefully managed by the government - the kinds of Western economists who were no longer heeded in their own lands.” The Chinese government has a heavy hand in managing the nation's economy and engages in all kinds of practices that Friedman opposed.

You complain about gaslighting. That's a term I'd apply to the “look how well we're doing” narrative. There' are a set of persuasive stories being told that celebrate the world's progress. Many of them are accompanied by visually impactful charts and graphs that appear to support their case, and they are often propagated by individuals that command wide respect (I mentioned two names in my previous post). But they are highly flawed arguments. I don't know where you're getting your information, but it seems likely that at least some of it comes from sources for which I have specific criticisms.

The claim that global inequality (between countries) is decreasing is just plain false. I've encountered a variety of tricks employed to make it seem true. One is to compare the differences between rates of change rather than the differences between actual incomes. If country A's per capita GDP is $2,000 and growing 10% annually, and country B's per capita GDP is $50,000 and growing at 2% annually, country A is doing quite a bit better on the rate of change metric. However, 10 years later, the gap in per capita GDP will have grown from $48,000 to $55,000. Another trick is to aggregate data by large geographical regions. But throwing Bangladesh in the same category as Japan, and Bolivia in the same category as the US is misleading and tells us very little about the actual differences in incomes between countries. I've also seen incomes plotted on a logarithmic scale, which produces a visual that would make a casual observer underestimate the differences between the rich and the poor. The truth is that a number of core countries (e.g. the US, the EU nations, Japan) have put a huge amount of distance between themselves and much of the rest of the world in terms of levels of wealth. As I said the gap in income between the global north and south has doubled since 1980 (and quadrupled since 1960). If you don't believe me, you can go to the World Bank website and download their data sets and see for yourself.

My problems with the self-congratulatory rhetoric on poverty reduction are more complicated. There has been some progress, and I didn't mean to suggest otherwise. My criticisms have to do with a number of things, among them the $1.90 a day metric, the pace of improvement vs.what is actually possible, and where credit for improvement is given and witheld. The $1.90 a day measure is arbitrary and inadequate (it seems to have been chosen specifically so there would be a way to report good news). By that metric, there are 700 million people in extreme poverty. But the UN says there are 815 million people who don't get enough food to sustain even minimal human activity, and 2.1 billion people who suffer from malnutrition. (A somewhat related complaint is that I've seen charts that purport to show dramatic improvements that go quite a ways back in time. We don't have even remotely reliable global data before around 1980, and those charts don't make any attempt to account for the - still ongoing - destruction of traditional ways of life as state influence and the market system expands. Rural peasants and foraging tribes with little or no money can eat quite a bit better than a $1.90 a day worker who must depend on the market for provisions.) There's some debate on what a more meaningful figure would be, but it should be enough to support the basic nutritional requirements for normal activity, and that's probably around $7 a day. As I mentioned in my previous post, if not for China, recent decades have seen modest increases in the proportion of the global population falling below that threshold. Given the current rates of growth and distributional effects of the global system, it will be nearly 200 years before extreme poverty (i.e. the level of deprivation associated with chronic malnutrition) is eliminated. For perspective, if it would take only one third of the global 1%'s income to eliminate poverty overnight. The world as a whole is getting richer at a much faster pace than the rate of poverty reduction. And the best results in poverty reduction came not because of neoliberal policies, but in spite of them. As I noted in my previous post, China accounts for almost all of the reduction in extreme povery. Outside of Asia, the most significant improvements took place in Latin America under “pink tide” goverments. In fact, the structural reforms of the 80s and 90s led to reduced incomes in many of the poorer countries, and previous levels weren't recovered for some time. Mexico's rate of growth fell below the US rate after NAFTA took effect - if they had maintained their previous trend, they would have European levels of wealth now. Some improvement is better than no improvement, but I see no reason to rejoice when both our material capacity and our know-how clearly allows for much better and the favored policies are quite obviously inferior to known alternatives. Fortunately, there are some well-positioned people (e.g. at the IMF) who are openly entertaining thoughts that they've been doing it all wrong.

You didn't comment at all on one of my complaints about the “everything's getting better” rosy narrative of progress cheerleaders. We are almost certainly in overshoot on muliple ecological boundaries, and our current path is only increasing the strain. If the present approach to eliminating poverty will take 200 years and likely render large portions of the planet (or all of it) uninhabitable sooner than that, we need a different solution.