Stiglitz: The Invisible Hand is Invisible Because It Isn’t There

[Owlet]

Stiglitz says that “most Americans don’t realize that we are no longer the country of opportunity that we think of ourselves, that America today has less equality of opportunity than any of the other advanced industrial countries.” He points out how many like to say that our economy is doing well because GDP is growing, but that “if you’re going to be judging how well an economy is doing, clearly I think the key metric that one wants to focus on is what is happening to the living standards of most citizens.” He says that most Americans don’t realize how bad we’re doing, including the fact that “the median income of a full-time male worker today is the same as it was in 1968,” and “if you look at median household income it is the same today as it was a decade and a half ago.”

http://www.newdeal20.org/2012/04/02/stiglitz-the-invisible-hand-is-invisible-because-it-isnt-there-75639/

[raccoon]

1. Bookmarked to read later. nt

[xchrom]

2. du rec. nt

[Blue Meany]

3. The entry of women into the workforce

helped to conceal this decline, as families were able to stay in the middle class with two incomes instead of one. But the rising costs of healthcare and college tuition, which I don't think are even fully accounted for in Stiglitz's metrics, are causing that possibility to fade. Since the middle of the Bush administration the 99% have faced a double-whammy of deflation in what they have (homes), and inflation in what they need on a regular basis (food, health coverage, and energy).

[NickB79]

14. Good points, and don't forget daycare costs

My wife and I can't do daycare because the added money she would make going up to full-time work would be completely consumed and then some just to have our daughter taken care of while we both work. I have coworkers spending $1000+/mo on daycare!

[bemildred]

4. Not only is it not there, there is no evidence that it is there, and there never has been.

No mathematical discussion even to suggest that it ought to be there. If it were there, it would mean we have a way to solve NP complete computing problems, because optimising an economy sure as Hell is an NP complete computing problem. The "Magic Hand" is dogma, ideological dogma, that's all it is, all it ever was, and it's sole purpose, ever, was to stave off regulatory government, because regulatory government, done right, prevents the accumulation of great wealth.

[Jim Lane]

7. No sensible economist, free-market backer or otherwise, takes the extreme view that you criticize.

Free markets don't optimize the economy in the sense of producing the best possible result. The serious claim is that they produce a Pareto optimum -- a situation in which there's no change that would improve someone's lot without making someone else worse off. One Pareto optimum might involve the accumulation of great wealth by a few, while another Pareto optimum is more egalitarian.

As is pointed out in the linked article, "Stiglitz notes that not even Adam Smith thought markets were anything beyond efficient. 'Nobody ever said that they were fair, that they would lead to a distribution of income that was socially acceptable.'"

[bemildred]

8. Straw man. I said "optimize", not "best possible result".

Those are your words. And the statements I made remain correct.

Market theory economic arguments are circular. What does "efficient" mean when one says the market is efficient? Efficient in what way? Efficient for whom? Effiicient to do what? You get no answers to those questions, just nebulous babble and vague abstractions.

I'm not talking about fairness either, though I could, I'm saying it's unscientific horseshit, mumbo-jumbo. Where is the fucking evidence that any of this works in the real world? How do you know that if one improves one player's result someone else must pay? Is that not a zero sum game? Does the real economy look or act like a zero sum game? It's ludicrous.

But the main point is that these words like "efficient" and "fair" and "optimum" are used without even knowing what they mean, they have no metrics, no way to measure, it's all theory, abstractions, it's math, not science.

[BeHereNow]

10. Always love to read your posts bemildred...

Still remember meeting you years ago at the Doug Decker party!
Gosh, that was a long time ago...nearly a decade.
BHN

[bemildred]

12. First time I met Duers in the real world.

That was a great party.

[Jim Lane]

13. You yourself have noted the vagueness of your phrase.

The final paragraph of your post #8 states, correctly, that there are no metrics for concepts like "fair" and "optimum". You used a vague phrase -- "optimising an economy" -- without elaborating on your meaning. In a short DU post, that's an understandable omission, but it left me unclear what you meant, so I addressed different possible meanings. I said "in the sense of" precisely because I didn't know if that was your meaning. It's not a straw man because my wording makes clear what viewpoint I'm addressing, and there are those who hold it even if you don't.

You ask about the meaning of efficiency. One common answer is the one I noted, that a free market produces a Pareto optimum. You can agree or disagree with that view, but you're putting blinders on if you say that the free-market theorists have no answers to questions about efficiency.

[bemildred]

15. Right, it's circular, tautological, like all math.

It is argued that a "free market" produces a "Pareto Optimum", which means it's "efficient" which is why it's supposed to be the best we can do. Not a shred of evidence in the whole mess, dodgy assumptions, and it contradicts simple observation.

In fact there is no such things as a "free market", it's a mathematical fiction based on quite unrealistic assumptions like rational actors and perfect information, and all real markets are not free and do not have perfect information, all of the real players are looking for some way to game the system.

I'm not saying they have no answers, I'm saying their answers are unscientific dogma and a misuse of mathematics.

[tk2kewl]

5. Oh it's there alright...

and it is picking pocket!

[Egalitarian Thug]

6. Dissing Dr. Stiglitz was an early warning of where this administration was heading.

Paul Krugman was not interested, not that there were any overtures directed his way, but Joseph Stiglitz made it clear that he was willing, if not anxious, to help this man fix the global disaster he inherited.

Retaining Ben "helicopter" Bernanke and appointing the Wall Street hacks we ended up with ensured that the pain would continue throughout his administration. Why would any President that intended to fight for the "small people" turn down a Nobel Prize winner in favor of Bernanke, Summers, and Geithner (the troika of architects that gave us this well predicted disaster)? He wouldn't.

[BeHereNow]

9. I hate to say it, but you're spot on.

Doesn't make ANY sense that the foxes are sleeping
in the hen house.

Why?

Who is running the show?

Not who we voted for, that is becoming more and more apparent.

BHN

[BeHereNow]

11. Excellent post Owlet, painful to read, but excellent.

It is so accurate.
I don't think the average person really
understands the depth of trouble we are in,
or how we got here.

BHN