Monday, May 17, 2010

"Hello, Can I Tell You About the Real World?"

In a recent post, I discussed economists who proceed by observing reality as opposed to those who proceed from a fantasy world. I stated that, in economics, this dichotomy is what George Reisman has referred to as productionism vs. consumptionism, and, in philosophy, what Ayn Rand called the primacy of existence vs. the primacy of consciousness.

To see a brief glimpse of this idea in action, here is a
video from a recent roundtable pitting Keynesian Joseph Stiglitz against hedge fund manager Hugh Hendry regarding Greece and the larger problem of unsustainable government debt (the other guy is a Spanish bureaucrat who blames speculators). Note that Stiglitz's entire orientation is not reality based. He starts by disputing the idea that the term "bailout" is appropriate then calls for "social solidarity" between countries seeming to suggest that the solution is for other countries to merely state that they will stand behind Greece (not to actually cut spending) then dismisses the level of Greece's debt as inconsequential.

I love the beginning of Hendry's response - the title of this post. Indeed, Stiglitz should go there sometime. P.s. guess which one is the advisor to Greece (and Obama)?

4 comments:

Shane Atwell said...

fantastic. put it on my facebook.

Doug Reich said...

Thanks for the link Shane!

HaynesBE said...

Stiglitz's solution:
"Does anybody believe that the US is going to default. The fact is the US government can print money."

Unbelievable.

Actually, it is unfortunately believable.
Maybe Hendry can laugh. Makes me want to cry.
Thanks for the link and the spot on analysis.

Doug Reich said...

Beth,

Thanks for the comment.

As we all know, factually Stiglitz is right that the U.S. can simply print money to pay its creditors as can all sovereign nations. (As a technical matter, I'm not exactly sure what constitutes a "default" in these agreements. Obviously, a failure to pay is one but there may be other lesser conditions which constitute default - what if Greece said we are not going to pay you back in Euro but instead will pay you back in Drachma...) Stiglitz acknowledges that it is inflationary but, of course, that is not something that really concerns him.

Imagine if an individual applied for a loan and told the bank "don't worry, I can always pay you back, I have a counterfeit printing press in my basement..."

How is it different? Tragic.