Stiglitz appears to believe [says Reisman] that the main problem of the global economy is ”global financial imbalances.” By this, he means “America’s enormous trade deficits,” which he states are close to $3 billion a day, and “China’s growing trade surplus of almost $500 million a day.”The crux of Reisman's critique, which shows his fundamental disagreement with Stiglitz, is here: One of Stiglitz's proposals to "fix" this trade imbalance is "an increase in taxes on upper-income Americans" which he says will flush out the savings of upper-income Americans and allow the Government to reduce its own deficit. These savings, Stiglitz seems to be saying, would otherwise be "hoarded," and otherwise unavailable to production.
But this is absurd. "In typical Keynesian fashion,"says Reisman, "Stiglitz confuses saving with hoarding." For some reason (read Keynes) this fallacy still exists, even among Nobel-Prize winning economists, even though it was debunked by John Stuart Mill more than a hundred years ago. Saving is not hoarding: saving one's income does not take it out of production; rather, it makes 'seed capital' available to build and grow productivity.
The fact is, of course, as John Stuart Mill pointed out in the middle of the 19th Century, that what is saved, i.e., not spent in purchasing consumers’ goods, is spent. But it is spent productively, i.e., in buying capital goods and in paying the wages of workers employed by business firms. These workers, of course, then consume their wages.In any case, concludes Reisman, the primary "problem" with trade deficits only exists to the extent that it finances the government's own deficit, which itself serves to keep capital froim being used productively by growing businesses. So is there a problem with global "trade imbalances"? "No!" says Reisman, "global “trade imbalances” are not a problem."
They are a profoundly important means of preventing problems. What will cause a problem is allowing wreckers, devoid of serious knowledge of economics, to “fix” things.Ain't that the truth.
LINKS: Stiglitz in The Times: A study in confusion - George Reisman's blog
Monster deficits and economic nationalism - Not PC (Peter Cresswell)
RELATED: Politics-US, Economics