There are a great many economists who have chosen to embarrass themselves by triumphantly proclaiming that capitalism itself suffered some kind of death as a consequence of the financial crisis. Leading the Coalition of the Preening is Columbia economist Joseph Stiglitz. His Columbia colleague, Jagdish Bhagwati, takes Stiglitz to task for his ridiculous comments:
When the twin crises erupted on Wall Street and Main Street, each one of them fierce in itself but far more frightening when they interacted, populists rushed forward to celebrate the demise of capitalism and, for added gratification, plunge their pitchforks into its dead corpse. Since then, they have had their champagne parties. By now, however, the fizz is gone and the rush to judgment by capitalism’s obituarists has left us with tattered myths and egregious fallacies that invite scrutiny and refutation.
I can do no better than begin by citing a prominent populist, an icon to the madding crowd who would like to drive a stake through capitalism and globalization (which is viewed, not without some justification, as an international extension of capitalism). I am speaking of my Columbia University colleague Joseph E. Stiglitz. In 2001 he shared the Nobel Prize in Economics with the remarkable George Akerlof of Berkeley, who pioneered the study of asymmetric information with his brilliant paper on “the market for lemons,” the first to draw on the insight that the sellers of used cars (i.e., lemons) had more information than the buyers, a situation that would generally lead to “market failure.” In the long sweep of market failures, with virtually every generation since Adam Smith’s focusing on a different one appropriate to its time, asymmetric information is just one more, of course, and not even among the most important, it could be argued.
But Stiglitz made a much-cited claim that the current crisis was for capitalism (and markets) the equivalent of the collapse of the Berlin Wall. Now, we know that all analogies are imperfect, but this one is particularly dicey. When the Berlin Wall collapsed, we saw the bankruptcy of both authoritarian politics and an economics of extensive, almost universal, ownership of the means of production and central planning. We saw a wasteland. When Wall Street and Main Street were shaken by crisis, however, we witnessed merely a pause in prosperity, not a devastation of it.
Bhagwati goes on the demolish the critics of “market fundamentalism” (the phrase is used by the demolished critics, not by Bhagwati, or frankly, by anyone else who thinks that free markets are a good thing). Of course, the attempts by Stiglitz and others to critique “market fundamentalism” demonstrates an attempt to cast a moral judgment on those who believe in capitalism. Bhagwati has harsh words for that exercise as well:
After two and a half centuries of this fascinating debate, I have to say that my own sympathies lie with those who have found markets, on balance, to be on the side of the angels. But I should also add that I find the specific notion that markets corrupt our morals, and determine our ethical destiny, to be a vulgar quasi-Marxist notion about as convincing as that other vulgar notion that ownership of the means of production is critical to our economic destiny. The idea that working with and within markets fuels our pursuit of self-interest, greed, avarice, and self-love, in ascending orders of moral turpitude, is surely at variance with what we know about ourselves.
Read the whole thing. Especially if your name is “Joseph Stiglitz.”