The United States, despite various idiotic tariffs and quotas, does allow free flow of capital. During the 1990s and early 2000s, this meant that capital largely flowed towards foreign markets. Now that the dollar is weaker, the market is correcting itself. Capital flows towards the United States, more capital is created, more wealth is created, and the dollar will eventually strengthen. It's a beautiful thing.
Stories like this are harmful to the public's knowledge of the economy. This one does an okay job of reporting the economic facts - foreign investment is a good thing - but it also ends with typical economic fear mongering. The end quote by Stiglitz leads people to believe that there is some hidden danger in normal economic activity. Here it is:
We used to measure the economy in terms of GNP, which is the amount of income produced by U.S. citizens. But now we measure it by GDP, the income that is actually produced in America. The distinction becomes important, says Stiglitz, when an increasing proportion of the country is owned abroad. "If you were to look at America Inc. as a company, it's like owning a company and you own a smaller and smaller fraction of it. So the fraction of America Inc. owned by Americans is diminishing," says Stiglitz.
That means that when the economy recovers, there will be less wealth left in the country to reinvest in it. But then returning to the original question--Why is the American yard sale not setting off alarms?--Stiglitz explains that the alternative is even worse. "There isn't an outcry," he says, "because the focus right now is the weakness of the American economy, and anything to keep our economy going is welcome." That's why no one really objected to Citibank's becoming a Middle Eastern--financed bank, because it's better than Citi's becoming a dead bank. "But clearly we're worse off as a country," he says.
There are a lot of problems with this. (And before I begin my critique, let me point out that I know quite a bit less than Dr. Stiglitz. I'm a second year economics undergraduate. He is a premier economist. But I think he's very wrong about this on a very basic level.)This first is that he says, "...clearly we're worse off as a country." This is begging the question. We're not clearly worse off, as indicated by the necessity of his critique.
He gives his only reason for being "clearly worse off" earlier:
"If you were to look at America Inc. as a company, it's like owning a company and you own a smaller and smaller fraction of it. So the fraction of America Inc. owned by Americans is diminishing."
The problem I see with this is reference point. It's true that less of American capital is owned by Americans, but does that really matter much? As a left wing economist, one would think that he'd be primarily concerned with the welfare of laborers. And if one views it as an issue of worker quality of life, then this is a no-brainer. The prospect of having the Rust Belt resuscitated by European and Japanese money far outweighs the "problem" of having fewer wealthy Americans own shares in those factories.
Now, I think that workers should have a share in the capital they use. I think profit sharing plans, stock options, etc. are a step towards the cooperatives that I think would be a more just distribution of capital. But that type of society is a long way off. In the meantime, welfare of the people is a more worthy goal. Little is lost when a German owns a factory, rather than an American. To use Marxist lexicon, the Proletariat is international. Who cares which country our bourgeois oppressors are from?
I think Time should have brought in a more mainstream economist to actually counter Stiglitz' claims. It's poor journalism to just let the guy make such idiotic statements.
No comments:
Post a Comment