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Stiglitz comes around

A new paper by Joseph Stiglitz (it might be that he has been holding these ‘heterodox’ (better: common sense) views for some time already):

In the aftermath of the Great Recession, there is a growing consensus, even among central bank officials, concerning the limitations of monetary policy. This paper provides an explanation for the ineffectiveness of monetary policy, and in doing so provides a new framework for thinking about monetary policy and macro-economic activity. What matters is not so much the money supply or the T-bill interest rate, but the availability of credit, and the terms at which credit is made available. The latter variables may not move in tandem with the former. In particular, the spread between the T bill rate and the lending rate may increase, so even as the T bill rate decreases, the lending rate increases. An increase in credit availability may not lead to more spending on produced goods, but increased prices for land or other fixed assets; it can go to increased margins associated with increases in speculative activity; or it may go to spending abroad rather than at home. The paper explains the inadequacy of theories based on the zero low bound, and argues that the ineffectiveness of monetary policy is more related to the multiple alternative uses—beyond the purchase of domestically produced goods—of additional liquidity and to its adverse distributional consequences. The paper shows that while monetary policy is less effective than has been widely presumed, it is also more distortionary, identifying several distinct

  1. November 22, 2016 at 10:13 am

    So, where is the paper?

    • antireifier
      November 22, 2016 at 5:53 pm

      You have to pay for it.

  2. avneroffer
    November 22, 2016 at 11:03 am

    Provide a reference/link?

  3. Michael Robinson
    November 22, 2016 at 1:42 pm

    “(it might be that he has been holding these ‘heterodox’ (better: common sense) views for some time already)”

    It’s worth reading the excellent forward Stiglitz wrote to the 2001 edition of _The Great Transformation_.

    • merijntknibbe
      November 22, 2016 at 1:43 pm

      I’ll try (!) to find it and publish (part of it) on this blog

      • antireifier
        November 22, 2016 at 5:54 pm


  4. Michael Robinson
    November 22, 2016 at 1:43 pm
  5. Grant Fitzner
  6. November 22, 2016 at 3:49 pm

    General equilibrium has obviously been dead since 2008. While Stiglitz and virtually every other heterodox economist has recognized this they still ignore the keystone structural problem, the glaringly contradictory monopolistic dominance of the business model of finance, their virtual monopoly on credit creation and their complete monopoly on the monetary paradigm, that is, debt and loan only. No this is not to suggest the end of interest or the destruction of finance or any other reactionary nonsense. It is the suggestion that we create a legitimately opposing monetary paradigm of gifting thus creating a real duality that is actually able to be consciously and intelligently integrated into profit making systems so that a third and unified economic theory can arise out of it.

  7. November 22, 2016 at 4:51 pm

    I agree with Craig : Stiglitz and his profession are still 30 years too late with this kind of re-think .As a researcher of the unpaid Love Economy that underpins the official currency denominated economies , I now see the FINTECH 100 finally disrupting the incumbent financial system , joining forces with all the grassroots understanding that private banks create our money supply . Even the Bank of England now admits this.

    • November 22, 2016 at 9:43 pm

      Thank you Hazel. I have often thought a grassroots movement combining banking reform and policies reflecting a new monetary paradigm of Gifting that focuses on key constituencies whose interests are aligned with both is the correct and quickest route to real change.

  8. antireifier
    November 22, 2016 at 6:06 pm

    The more that a country allows the private sector to create its money supply, the more tax dollars are transferred to the wealthy through debt service charges paid by taxpayers thus limiting fiscal options available to the government. That also incrementally increases income inequality decreasing governments’ ability to ameliorate the problems created by unfettered capitalism.

    Money is perpetual non-interest bearing debt when printed but, when it is in the form of credit from private lenders, money is perpetual interest bearing debt requiring further pillaging of the planet’s resources to pay the interest.

  9. November 22, 2016 at 10:02 pm

    I say, QE for Joe Blow is in order to avoid political upheaval and a new major war.

  10. November 23, 2016 at 9:33 pm

    I feel the debate is already lost if we limit monetary policy to the creation of credit. The entire Euro crisis, and wider global stagnation, is caused by the new doctrine that central banks should be solvent, prohibiting governments from monetary spending.

    Of course monetary creation of credit is going to be ineffective. It’ll stay on banks’ books, or it’ll inflate asset prices. At best it”l have a wealth effect on firms: They’re more likely to expand and hire when stock valuations are going up, but that’s an inefficient way to generate income.

    What the world needs is to once again allow governments to create money to spend, to pay salaries and fund projects, using inflation as a tax to circulate surpluses in the economy. Until we do that, monetary policy will be curiously ineffective.

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