Stiglitz Strikes Out

My piece critiquing Joseph Stiglitz's controversial Vanity Fair article is up at LvMIC today.  Here is an excerpt:

In what accounts to nothing more than a tenuous endorsement of mercantilism, Stiglitz claims that increased productivity and lower prices caused one sector of the economy to contract in terms of those employed, thus setting off the Great Depression.  This flies in the face of all logical deduction when analyzing and considering how a market based on the remunerative actions of millions really works.  Even if one fifth of the American workforce earned a living by farming, the decreased prices of food served as a boon to all consumers.  What may be detrimental to a minority of workers is beneficial to the whole.  The key to sustain economic growth is in the easement of transferability of labor as those once engaged in farming activities find employment in other industries that should benefit from lower input costs (everyone needs to eat right?).

The cities weren’t spared—far from it. As rural incomes fell, farmers had less and less money to buy goods produced in factories. Manufacturers had to lay off workers, which further diminished demand for agricultural produce, driving down prices even more. Before long, this vicious circle affected the entire national economy.

Again, farmers made up a minority of the U.S. population.  Their incomes may have fallen but the real income of every worker rose as they paid less for food.  Time and mobility play a crucial role in the ability of former agricultural workers to adjust into new industries but this wouldn’t be a problem in an economy where wages and prices are free to rise and fall.  Changing times call for changing opportunities to fulfill man’s infinite desire.  Contrary to Stiglitz’s assertion, the Agricultural Adjustment Act that kept prices at above market levels prolonged the downturn as it prevented a much needed market correction.

Government spending unintentionally solved the economy’s underlying problem: it completed a necessary structural transformation, moving America, and especially the South, decisively from agriculture to manufacturing. Americans tend to be allergic to terms like “industrial policy,” but that’s what war spending was—a policy that permanently changed the nature of the economy. Massive job creation in the urban sector—in manufacturing—succeeded in moving people out of farming.

Stiglitz’s reasoning supposes that the move away from an agrarian based economy was a “structural issue” rather than one of natural progression.  America’s economy had been moving toward manufacturing long before the Depression began.  Just because the government went about spending billions on machines of death doesn’t mean that it set the stage for an already developing industry.  Correlation doesn’t automatically mean causation.

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Check the whole thing out if you can, there is no greater pleasure in life than ripping apart Nobel laureates.