Having settled into a discussion about two contrasting views on globalization - by Martin Wolf and Joseph Stiglitz - I am struck by the variety of ways that several people are questioning the underpinnings of Wolf's argument. I say this understanding that many are raising these questions even as they may be fundamentally sympathetic to Wolf's pro-market perspective that advocates for liberalism and its economic corollaries (such as open trade, private markets and exchange with limits on government intervention, and the like).
There are two themes that emerge across several blogs today. The first draws on Stiglitz's concern and is about inequality in outcomes between countries. This is raised in distinct - yet related - ways. HeeJu saying that Wolf is "tolerant of the disparity" between countries, Lauren's worries about the "magnitude of loss", and Robert's thoughts about a "deadly cycle" due to a number of conditions. (And again, each of these three also has words to the effect that globalization is or can be beneficial, so these are not one-sided positions.) This question about inequality, incidentally, is also evoked by Stewart's title to her previous post, which is a clear allusion to a recent major book by Thomas Piketty about inequality. (It's 600+ pages, but if anyone wants to pick it up as your book for week 8, be my guest!) We can talk somewhat more about the extent to which inequality constitutes a damning critique of globalization - I hinted at the idea of Pareto optimality in class the other day, and you can probably imagine that there are quite distinct well-grounded moral perspectives on the salience of inequality as a critique of modern capitalist economies.
The second theme I want to draw out is one that Julia has addressed the most directly in a recent post. It is the question that gets to the validity of some of the basic theoretical underpinnings of the free-market argument, namely arguments about rationality. As she notes, recent research in economics (along with neuroscience and psychology) has really questioned whether we can operate on the assumption that human beings act rationally. Or conversely, if their behaviors and choices are shaped by other processes (such as "irrational" worries about "not losing" or simply using heuristics and mental short cuts). The "invisible hand", operating on each person making their own rational self-interested decision, is clearly not the whole story (as Adam Smith knew well).
There is also much to say about this, of course. Note that scholarship in economics and politics as disciplines often depart from the rationalist assumption as a "first pass" in explaining why human beings do what they do (whether it's someone making a private economic decision about buying or selling or investing, or someone making a choice about the costs and benefits of different votes or deciding how to run for office). "Rationalist" thinking is clearly a useful theoretical tool to understand how "many" people behave "often" (not "all" people behave "always"). And prominent economist Milton Friedman famously argued that we don't need the assumption of rationality to actually describe how we make decisions, but rather we build a theory upon it because it is a good approximation that allows us to predict how people will typically behave. In any event, it is clear that rationality describes only a part of our thinking and decision making. And it is also clear - as Stiglitz has shown, among others - that markets do not operate seamlessly under ideal conditions of transparency and free flows of information, costless transactions, and so on. This should lead us to question the premise that free markets and individual rationality (as captured by the "invisible hand") leads inevitably to betterment for all. We are well-served to question not simply with a view to reject, but rather to test the limitations of the theories offered by Wolf and other advocates of free market economics. When it comes to the role of market economics, suffice it to say, other things matter too.
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