In case you haven’t already, I recommend taking a gander at today’s New York Time Book Review.Â In it, there is a review of Naomi Klein’s new book, The Shock Doctrine, by Nobel-winning economist, Joe Stiglitz.Â It’s an abomination (I’m sure the book is an abomination, too, but I’m referring to the book review).Â
If you know anything about Klein you know that she is an ideological zealot, impervious to facts and reason (although I’m sure some would say the same of me.Â Except in her case, it’s actually true).Â I’m sure she’s well-meaning and all that, but her book No Logo (yes, I have read it), and now this book, as well (judging only by the reviews–I won’t make the mistake of reading more than one Naomi Klein book), reflect an ignorance of economics,Â markets and politics that can be born only of utter disdain.Â I won’t belabor the point.Â
But what’s truly embarrassing is that an economist of Joe Stiglitz’s stature would write an utterly fawning review of her book!Â I didn’t know that Stiglitz had slipped as far as Paul Krugman into the land of the “formerly-great-now-blinded-by ideology-to-all-reason” but I can only conclude now that he has.Â There is not a single word of criticism in this review.Â Not one.Â At one point he does note that “she’s not an economist but a journalist,” and he similarly says that she “is not an academic and cannot be judged as one.”Â But one gets the powerful sense that these are actually compliments!Â Rather than follow these statements by noting one or two errors of, say, oversimplification, omission or confusion (of the sort inexcusable, I guess,Â by an academic or an economist), he follows them with praise for herÂ tenacity and perspicacity as a journalist and he excuses her oversimplification (apparently there is some in the book (shocking!), but Stiglitz can’t be bothered to hold Klein’s shortcomings up to the light) by claiming that her academic targets–Milton Friedman and his ilk–were guilty of oversimplification, too.Â Nya, nya!Â I’m rubber and you’re glue, whatever bad you say bounces off me and sticks to . . . economists I disagree with!Â It’s very illuminating (but not at all in the way one might want to be illuminated by a book review.Â But then I guess most reviews are more about the reviewer than the subject, right?).
And, of course, there is the obligatory, barely disguised self-promotion (remember that part about reviews really being about the reviewer).Â Just read this paragraph:
Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies. But Friedman and the other shock therapists were also guilty of oversimplification, basing their belief in the perfection of market economies on models that assumed perfect information, perfect competition, perfect risk markets. Indeed, the case against these policies is even stronger than the one Klein makes. They were never based on solid empirical and theoretical foundations, and even as many of these policies were being pushed, academic economists were explaining the limitations of markets â€” for instance, whenever information is imperfect, which is to say always.
Now which academic economists were doing all this explaining about imperfect information, Joe?Â I can’t recall.Â Anyway, even the claims he generously makes here on Naomi’s behalf are themselves untenable oversimplifications.Â Please, do show me where Friedman believes that ideas can be implemented in a frictionless world?Â The claim that Friedman’s models employed simplifying assumptions is true.Â But, then, that’s the point of models, even the ones Stiglitz uses.Â They are called “models” not “complete, messy representations of reality.”Â The implication that Friedman’s assumptions, because they were simplifications, led to results with no relevanceÂ is a claim only a journalist or a non-academic would make.Â Â I commend one ofÂ Friedman’s most important works–TheÂ Methodology of Positive Economics–to Stiglitz’s attention.Â He shouldn’t find it too troubling to read–it doesn’t even mention free markets or Ronald Reagan.Â Â Here’s just one important bit:
A theory or its â€œassumptionsâ€ cannot possibly be thoroughly â€œrealisticâ€ in the immediate descriptive sense so often assigned to this term. A completely â€œrealisticâ€ theory of the wheat market would have to include not only the conditions directly underlying the supply and demand for wheat but also the kind of coins or credit instruments used to make exchanges; the personal characteristics of wheat-traders such as the colour of each trader’s hair and eyes, his antecedents and education, the number of members of his family, their characteristics, antecedents, and education, etc.; the kind of soil on which the wheat was grown, its physical and chemical characteristics, the weather prevailing during the growing season; the personal characteristics of the farmers growing the wheat and of the consumers who will ultimately use it; and so on indefinitely. Any attempt to move very far in achieving this kind of â€œrealismâ€ is certain to render a theory utterly useless.
Most important, however, what Friedman knew and what Stiglitz and Klein utterly ignore is that world is a messy place, and implementation of even the best academic ideas must be undertaken with appropriate expectations about the limitations of the institutions doing the implementing.Â The only oversimplification here is the one (propounded by Klein, who is an ardent activist, and Stiglitz, who has no excuse) that says that because markets don’t always work perfectly, government solutions are better.Â If you read Stiglitz’s review, you’ll see that all of Klein’s examples have one thing in common:Â The only alternatives to the actions she abhors are ones entailing more government “solutions” to the endemic problems of the market.Â
But the best part is that the refutation of her (and Joe’s) philosophy jumps off every page of her books.Â For the common element in each of the actions she decries (Bush taking advantage of misery in Iraq to impose capitalism; the Sri Lankan government displacing poor fishermen in the wake of the 2004 tsunami, etc.) is that the evil being perpetrated, even by her own standards, is being perpetrated by the government!Â I know enough about Klein from her other book to know that the irony of this is completely lost on her.Â While advocating tirelessly for various forms of government solutions to the evils of capitalism run amok, it is completely lost on her that all of her alleged examples of such run-amokery are perpetrated by . . . governments.Â I’m sure she and Joe believe that if only the right governments were in charge, then none of this would happen and the world would be a shiny, happy place.Â The naivetÃ© in that is thick.Â Again, excusable for an anti-globalization hackÂ likeÂ Klein; a bit jarring for a Nobel Prize winner like Stiglitz.
But enough ranting.Â There are more important things to do. Â I’ll leave you with just this:
I’ve included a longer excerpt from Friedman below the fold.Â It contains not only the above bit about the usefulness of simplifying assumptions, but also a nice refutation of the specific claims Stiglitz makes about the irrelevance of models assuming perfect competition.Â Frankly this may be the most embarrassing part:Â That Stiglitz would make the claims he does in full knowledge thatÂ the very person he tries to tar withÂ irrelevanceÂ hadÂ long ago pennedÂ his own clarification (and refutation) of precisely this point.Â As I said, it’s an abomination.