Thursday, March 27, 2008

Another Stiglitz Moment

From an event at CFR- Q& A with Larry Summers;

Q:Lucy Komisar, I’m a journalist. I interviewed Joe Stiglitz not too many years ago. He was chief of the Council of Economic Advisors under Clinton . He told me that when Robert Rubin was Treasury Secretary, he didn’t want to do anything to stop the free flow of money into the US . That meant not doing anything about money laundering because some of the freely flowing money was drug money, corruption money, money looted from developing countries. But when you came in, you really took some initiative to do something about the whole money laundering issue. I’m interested about what made you want to do that and how did you decide what you ought to do. Did you have problems with interests that didn’t want you to do this because maybe they wanted the money to come in freely without any blocking? This is an issue which of course is important today. Obama signed on to stop tax havens.

Larry Summers: I got it, I got it. I’ll take my compliments where I can get them, even from Joe Stiglitz who hasn’t usually been complimentary. Let me just say that I’m aware of no difference in opinion on this question between Bob Rubin and myself, and some how the suggestion that he was representing Wall Street interests seems to me to be entirely unfair and unwarranted and devoid of merit. For a variety of reasons at the time when I became Secretary of the Treasury, given concerns that existed in a number of parts of the US government, given some of what we have been discovering at the IRS , we did launch a series of initiatives directed at what I like to call the dark side of capital mobility. But for the most part open capital markets, foreign investment, bring tremendous benefits. But we identified three highly programmatic things: tax havens that were costing the tax payer large amounts of money, principally because of bank secrecy, not just in the United States , but in the rest of the world. Pressuring the ability to maintain progressive taxation around the world. Money laundering and failure to adequately regulate levered financial institutions who could plant their leverage abroad. We launched a series of initiatives designed to multi-laturalize an effort, to diplomatically pressure jurisdictions with respect to all three of those issues. I would say that during the time that we did it, with the help of my colleagues – my colleagues Will Wexler, Neal Woollen and Todd Sturn – we made what by government standards was quite a bit of progress over a period of a couple of years. The new administration regarded this all as some kind of dangerous left-wing plot against the fundamental right of capital to hide itself and not pay taxes and basically eviscerated all the initiatives. They basically said they are not our policy anymore, we’re done, finished. Yes, we have been working in the OECD through all this time but it’s done. After 9/11 there was a bit of a change of heart, particularly around the money laundering parts of it. But I think we did the right thing, and by the way, if we are to maintain support for an open trading system, we had better be prepared in those places where open markets are coming with very substantial costs, to act aggressively and forcefully. I thought this was important in two respects. I thought the problems were large and important, and I also thought there was a broader symbolic purpose in making clear that our judgments and commitment to open trade were not some kind of ideological principle, but were based on a pragmatic judgment of what would best promote prosperity.

I find it hard to believe that well-known economists go about making outrageous accusations against other economists.

An Open Letter- Rogoff;
Joe, you may not remember this, but in the late 1980s, I once enjoyed the privilege of being in the office next to yours for a semester. We young economists all looked up to you in awe. One of my favorite stories from that era is a lunch with you and our former colleague, Carl Shapiro, at which the two of you started discussing whether Paul Volcker merited your vote for a tenured appointment at Princeton. At one point, you turned to me and said, "Ken, you used to work for Volcker at the Fed. Tell me, is he really smart?" I responded something to the effect of "Well, he was arguably the greatest Federal Reserve Chairman of the twentieth century" To which you replied, "But is he smart like us?" I wasn't sure how to take it, since you were looking across at Carl, not me, when you said it...

On page 208, you slander former IMF number two, Stan Fischer, implying that Citibank may have dangled a job offer in front of him in return for his cooperation in debt renegotiations. Joe, Stan Fischer is well known to be a person of unimpeachable integrity. Of all the false inferences and innuendos in this book, this is the most outrageous. I'd suggest you should pull this book off the shelves until this slander is corrected.

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