Best Of The Blogs, But Off Topic: Stiglitz On 6 Hard Lessons And A Blog Comment Response

I thought this was pretty rich, although off-topic (its about what "we should do to change things", not what "we should do to trade what we cannot change"). Here (click here from Ritholtz.Com) is Nobel Prize winning economist Joe Stiglitiz's 6 hard lessons:
"

1. Markets are not self-correcting, and without adequate regulation, they are prone to excess.

2. There are many reasons for market failures. Too-big-to-fail financial institutions had perverse incentives: Privatized gains, socialized losses. .

3. When information is imperfect, markets often do not work well – and information imperfections are central in finance.

4. Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster

5. There is more to monetary policy than just fighting inflation. Excessive focus on inflation meant that some central banks ignored what was happening to their financial markets. The costs of mild inflation are miniscule compared to the costs imposed on economies when central banks allow asset bubbles to grow unchecked.

6. Not all innovation leads to a more efficient and productive economy – let alone a better society. Private incentives matter, and if they are not properly aligned, the result can be excessive risk taking, excessively shortsighted behavior, and distorted innovation."

Sound pretty reasonable, right? Here's a commenter's response:

"Hume Says:
December 31st, 2009 at 9:42 am

Let’s try something different and equally plausible:

1. Governments are not self-correcting, and without adequate limitations, they are prone to giant mistakes.

2. There are many reasons for government failures. Too-fat politicians had perverse incentives: Privatized gains, socialized losses, no accountability.

3. When information is imperfect or too demanding to follow, governments do not work well – and information imperfections are central in politics.

4. Countries, like Australia, that have commodities depended economies emerged from the crisis faster.

5. There is more to monetary policy than just fighting unemployment and external shocks. Excessive focus on unemployment and external shocks meant that some central banks ignored what was happening to their financial markets due to excessive monetary easing. Short term gains from such policy are miniscule compared to the costs imposed on economies when central banks cause asset bubbles to grow.

6. Not all regulation leads to a more efficient and productive economy – let alone a better society. Private incentives matter, and if they are distorted by badly written and implemented regulation, the result can be muted growth, structural imbalance in the economy, and distorted innovation."

Pretty on-target in my view, but "off-topic" because the US political situation is pretty desparately corrupted with no signs of reform anywhere.

MontyHigh, www.worldofwallstreet.us

Comments

[samw]

Hume's writing might be tweaked, but terrific response to policy-making-loving eggheads.
What Stiglitz seems to misunderstand - a glaringly obvious result of his work - is that regulators often ADD to information assymetries!