

Harsh lessons we may need to learn again - bensummers
http://www.chinadaily.com.cn/opinion/2009-12/31/content_9249981.htm

======
mseebach
Major Propaganda Vessel of Communist Country Denounces Capitalism; Hell Stays
Hot; film at 11.

I'm sorry for the cheap joke, but the op-ed doesn't even try to be coherent.
Lesson one is that free markets don't work, even though 3/4 of the argument
supporting it has to do with the huge government bail-out of the financial
industry.

Lesson two is that the reliance on that kind of bailout creates perverse
incentives (and lesson one was that markets _don't_ work?).

Lesson three is that Keynesian policies do work. Which seems to contradict
lesson one. (Yes, Keynesian policies do work. The debatable issues is whether
they work better than letting the free-market work things out).

I don't understand lesson four (mea culpa) and lesson five "is that not all
innovation leads to a more efficient and productive economy". Well, duh, no.
But bailing out the innovation that doesn't work doesn't lead to anything
good, either.

~~~
jhancock
"The author is an Economics Nobel laureate and university professor at
Columbia University."

Are you implying the author is being used as tool of the China government? Or
that this isn't his original text and the "Propaganda Vessel" twisted his
words?

As for the China Daily and Shanghai Daily, I've read them regularly for close
to 10 years and find the reporting to be mostly professional and many times
more informative than U.S. mainstream reporting.

~~~
mseebach
No, I'm implying that his message (which is political, not scientific in
nature) fits the goal of the Chinese government very well. I don't for a
second think that Mr. Stiglitz doesn't hold the beliefs that he expresses, but
knowing that China does not, whatever the other qualities of the papers
mentioned are, have a free press, it's a safe bet that a equally qualified
author with the opposite view of Mr. Stiglitz would not have been printed.

~~~
jhancock
I understand your general position. Your assertion that of course China would
print it seems to make at least the following assumptions that in my
experience are not correct:

1 - China is the borg, everyone, and especially everyone in the gov thinks
alike. Not my experience, which is that inside various Chinese government
groups, there exists a wide variety of opinion.

2 - China's news is heavily censored. A few topics are taboo. Sometimes a
reporter/editor gets reprimanded or fired for crossing the line. But for the
most part, there is plenty to report on that does not get censored.

As to your general position that an opposite view would not have been printed,
this may be true as it is true for many U.S. papers.

~~~
mseebach
1: I didn't think so. But there is only one party, and once the party settles
on a policy, it pretty much stays that way, and debate is certainly not
encouraged.

2: From <http://en.wikipedia.org/wiki/China_Daily> :

 _China Daily, has a monopoly, being the only official English-language
national newspaper in China.[...] Journalists practice a high degree of self-
censorship at the paper. Subjects such as Tibet, Taiwan and Falun Gong [...]
have to be approved by a higher authority before publication [...] One
journalist working at the paper said, despite more openness in the media, "80
per cent of what we know we cannot report." The editor of the paper has told
foreign editors that the paper's editorial policy was to support the policies
of the Communist Party and only make criticism of the authorities if there was
deviation from Party policy._

Re. US papers - sure, but the U.S. (and other free countries) have competing
papers and newsletters and even blogs.

To frame it differently: I'm in China and I disagree strongly with Mr.
Stiglitz. Free markets have done wonders for China and the policies backed my
Mr. Stiglitz serves only to promote poverty. What do I do to voice my opinion?
I write the editor of China Daily, and maybe I'm published. But maybe not, and
maybe the next day I'm fired from my job at a large Chinese University. Maybe
they tell me I'm a reactionary, maybe they don't, but suddenly I just can't
seem to find a job in academia.

Alternatively, if I'm not in China (which I'm not), I go on HN, and write my
opinion. If I cared a bit more, I might write a blog entry or a letter to the
editor of a newspaper I expect to find my view interesting. Whatever I do, my
family and my self still have jobs tomorrow.

------
fauigerzigerk
What I find kind of funny is how roles and identities are mixed up in texts
like this to make everything appear wonderfully clear when it is not.

He says: "In this case, too-big-to-fail financial institutions had perverse
incentives: if they gambled and succeeded, they walked off with the profits;
if they lost, the taxpayer would pay"

So we have the banks and the tax-payers he says. Are these disjoint sets? No,
these are roles and there are individuals, lots of individuals, who are both
owners of banks _and_ tax-payers. The more taxes someone pays the more likely
they are owners of banks as well.

The perverse incentives were provided by these owners, demanding low risk and
returns way above anything that could possibly be sustainable.

He goes on to say "It certainly did not serve homeowners who are losing their
homes, workers who have lost their jobs, retirees who have seen their
retirement funds vanish, or taxpayers who paid hundreds of billions of dollars
to bail out the banks."

Homeowners are sadly losing their homes. Homes they wouldn't have been able to
afford if it hadn't been for the reckless lending of banks. And those risky
sup-prime loans, who bought them? Pension funds bought them (among others).
Pension funds who demanded outsized profits for the benefit of exactly those
people who now lost their retirement funds.

If the banks had walked away with all the profits or were saved when they made
mistakes then people would not have lost their retirement funds, because the
banks' profits _are_ their retirement funds.

Workers sadly lost their jobs. Jobs in the financial industry were lost.
Construction workers lost their jobs building sup-prime homes. Many other
people lost their jobs that used to be funded by people (themselves) borrowing
like there's no tomorrow trusting in their homes gaining value and their
retirement funds growing fat from fat bank profits.

Now, is this a zero-sum game? Have only people lost who had gained from the
same system before? No, of course not, there were indeed people who did not
benefit much and are now suffering hardship. And there are rich people who
benefited and did not lose much.

But what Stiglitz does not say is that these people are few. Most people,
particularly those who are tax-payers, are on both sides of the game in
various different roles.

~~~
yummyfajitas
Actually, there are a huge number of people who lost: home owners (as distinct
from mortgage-owners) and renters.

Both these groups were forced to subsidize mortgage holders and banks on the
way up and on the way down.

------
teeja
Where he published the article is _funny_. Who cares about theories? A pox on
all their houses. His core observations are unassailable:

* The bankers' pursuit of self-interest (greed) did not lead to the well-being of society

* It certainly did not serve homeowners who are losing their homes, workers ... retirees ... or taxpayers.

* Those who had preached fiscal restraint when it came to small welfare programs for the poor now clamored for the world's largest welfare program

Our 'leadership' has failed us repeatedly. The appropriate response is
obvious.

~~~
anamax
> Those who had preached fiscal restraint when it came to small welfare
> programs for the poor now clamored for the world's largest welfare program

What are you babbling about?

The folks that brought us the financial crisis did claiming to be fighting
poverty. Why do you think Fannie and Freddie were created and lied about
mortage quality?

------
wendroid
Adam Smith's warned us that self regulation of the financial industry would
lead to the financial ruin of the country.

His invisible hand concerned the freedom to trade physical goods.

I don't have a bunch of snappy quotes available, the book is 1200+ pages long
and took me 3 months to read, I wished I'd taken notes!

"The legal rate ought not be much above the lowest market rate. If the legal
rate of interest in Great Britain, for example, was fixed so high as eight or
ten per cent, the greater part of the money which was to be lent would be lent
to prodigals and projectors [promoters of fraudulent schemes], who alone would
be willing to give this high interest. A great part of the capital of the
country would thus be kept out of the hands which were most likely to make a
profitable and advantageous use of it, and thrown into those which were most
likely to waste and destroy it.

When the legal rate of interest, on the contrary is fixed but a very little
above the lowest market rate, sober people are universally preferred, as
borrowers, to prodigals and projectors. The person who lends money gets nearly
as much interest from the former as he dares to take from the latter, and his
money is much safer in the hands of the one set of people than in those of the
other. A great part of the capital of the country is thus thrown in the hands
in which it is most likely to be employed with advantage."

Adam Smith - On The Wealth Of Nations

~~~
glymor
High interest rates normally occur with high inflation making it cheaper to
borrow. The "real" rate your paying back is interest-inflation. Prodigals and
projectors borrow at a premium above the interest rate whatever the prevailing
rate.

Directly quoting Adam Smith is an argument via authority. Evolution doesn't
rest on The Origin of the Species but on predictive power. Unless your
interest is historical you would be better off reading a modern text.

edit: Actually Smith is talking about Usury Laws.

~~~
wendroid
The quote was to illustrate that Smith wasn't anti-regulation.

