Monday, November 22, 2010

A Stiglitz Anecdote

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 Joseph Stiglitz, who shared the 2001 Nobel Prize with George A. Akerlof and A. Michael Spence, had once served as President Clinton’s Chair of the Council of Economic Advisers. In this capacity, he was privileged to have joined cabinet meetings where he often found himself torn between "the ideals of economic theory and the compromises of practical political economy." See how these conflicts are worked out at the policy level in the following anecdote, taken from J. Barkley Rosser, Jr.'s Abstract on "A Nobel Prize for Asymmetric Information: The Economic Contributions of George Akerlof,Michael Spence, and Joseph Stiglitz":

During an episode of high oil prices that would lead President Clinton to decide to release oil from the Strategic Petroleum Reserve into the market, Stiglitz met with Clinton and Chief of Staff Leon Panetta to discuss the matter. Stiglitz advised against releasing the oil on the grounds that doing so would have no effect on the market and that the price of oil would come down on its own fairly soon anyway. Panetta responded to this argument by declaring that Clinton should therefore go ahead and release the oil anyway because “it won’t cause any harm and we’ll get the credit for the drop in the price of oil.” Panetta’s argument carried the day.

Preview: Investment Banker On Life blog