SWF, enjoys investing, pina coladas

One consequence of the US current account deficit is increased foreign ownership of American assets - essentially, our trading partners are getting stocks and bonds in exchange for all the goods they're sending us.

Because of central bank intervention in foreign exchange markets and since we buy much of our oil from state-owned firms, much of these assets are in the hands of foreign governments. Traditionally, much of this wealth has been invested in US Treasury bonds, but increasingly foreign governments are forming "Sovereign Wealth Funds" (SWFs) with more diversified portfolios, including, in some cases, purchases of whole companies. The New Yorker's James Surowiecki writes about the concern this is generating:

What are people so anxious about? The first concern is obvious: no one wants foreign states, especially those which might be anti-Western, acquiring Western companies that have anything to do with national security or advanced technology. But policymakers also believe that having governments play an active role in the stock market and in the global economy might make the whole system less efficient and productive, since government-run companies would likely think about things other than the bottom line, including protecting the interests of their home country. This situation has put free-marketeers in a peculiar quandary. They usually favor the free flow of capital in the world’s markets, but, in this case, supporting the free flow of capital would mean letting governments run American companies, which no free-market economist thinks is a good idea.

The New York Times ran an article on the spending spree of oil producing countries under the headline "Oil Producers See the World and Buy it Up." One notable deal was Abu Dhabi's $7.5 billion investment in Citigroup yesterday. The Times reported:

A falling dollar, a growing pile of oil revenue and an interest in not being overshadowed by neighboring Dubai’s increasingly high profile spurred Abu Dhabi to break with its low-key investing tradition to purchase a big $7.5 billion stake in Citigroup.

That is the view of analysts, economists and deal makers who keep an eye on the secretive Abu Dhabi Investment Authority, the largest sovereign wealth fund in the world, with assets estimated at $650 billion. Despite its size, Abu Dhabi’s royal family has been largely content to pour money into low-return, low-profile investments — until now.

But Abu Dhabi, the largest oil producer of the seven city-states that compose the United Arab Emirates, is worried enough about the eroding value of its pile of petrodollars that it appears ready to pursue more big-ticket deals.

The article has a nice sidebar listing some other notable SWF purchases.

Should we be concerned? Surowiecki suggests that if we really don't like foreign governments buying our companies, we might want to change our own behavior:

The prospect of American companies being sold to foreign states is, to be sure, disconcerting. But it’s a problem of our own making. The reason that sovereign wealth funds are so flush with cash is all the dollars we spend on oil and Asian consumer goods. If we want to consume far beyond our means, then, one way or another we’re going to end up selling off assets to pay for it. Passing laws barring foreign states from acquiring American companies may help treat the symptom. But it’s not going to do much to cure the disease.

Krugman's Calculation of Credit Crunchiness

In addition to affecting consumer spending, the problems in the housing sector may be contributing to a credit crunch (see earlier post). In a column titled "Banks Gone Wild," Paul Krugman writes:

But bad housing investments are crippling financial institutions that play a crucial role in providing credit, by wiping out much of their capital. In a recent report, Goldman Sachs suggested that housing-related losses could force banks and other players to cut lending by as much as $2 trillion — enough to trigger a nasty recession, if it happens quickly.

Beyond that, there’s a pervasive loss of trust, which is like sand thrown in the gears of the financial system. The crisis of confidence is plainly visible in the market data: there’s an almost unprecedented spread between the very low interest rates investors are willing to accept on U.S. government debt — which is still considered safe — and the much higher interest rates at which banks are willing to lend to each other.

He explained further on his blog:

Anyway, what I’m talking about is the spread between Libor — the London Interbank Offer Rate, which is the rate at which banks lend to each other — and the yields on Treasuries of the same maturity.

Normally, there’s just a small difference. For example, in February 3-month Treasuries yielded 5.03%, while 3-month Libor was 5.36%.

Right now, however, 3-month Treasuries are yielding only 3.18%, while 3-month Libor is 5.02%. That’s a big spread, suggesting that investors are very nervous about banks’ finances.

That nervousness is, in part, because it is hard to tell how much trouble the banks are in. One expert put it this way:

I fancy that the great New York (banking) institutions have more skeletons in their cupboards than anyone yet knows about for certain, and that their concealed anxieties cramp their action more than is admitted.

That's John Maynard Keynes, in 1930 (via EconoSpeak).

One reason Libor matters is that most corporate bank loans are priced at a spread over Libor - that is, the interest rate is "floating" and rises and falls with Libor; so this is directly affecting the cost of credit to corporations.

Some of our trading partners see the financial turmoil as a buying opportunity - Abu Dhabi is buying a $7.5 billion stake in Citigroup.

At Vox, Columbia's Charles Calomiris offers a more optimistic view of the situation.

Update (11/28): The NY Times reports "Lenders' Belt-Tightening Stifles Growth in the Economy."

The Quantity Theory and the Constitution

Money is probably the second-most divisive issue in American history. A useful tool for interpreting some of the historical battles over it is the quantity theory of money. The main implication of the theory is that more rapid growth of the money supply leads to higher inflation. Inflation (particularly if unanticipated) tends to benefit borrowers by reducing the real value of debts, while hurting creditors. This can explain, for example, why the populists of the late 19th century represented the interests of indebted farmers by campaigning for adding silver (in addition to gold) to the money supply.

It may also help understand the motives behind the Constitution itself. From the Washington Post's review of "Unruly Americans and the Origins of the Constitution" by Woody Holton:

He contends that the Founders were primarily concerned with the very democratic, revolutionary state legislatures' "excessive indulgence to debtors and taxpayers," above all by printing paper money, which made the United States an investor's nightmare. Well-heeled "Federalists" -- which included most of the Founders -- dismissed paper money as a way to allow lazy, luxury-loving people with the 18th-century equivalent of serious credit card debt to cheat their creditors...

After 1783, Holton explains, the states faced colossal war debts on which the interest alone required more revenue than the colonies collected before independence. Most states resorted to regressive "direct taxes" on real estate and polls (only adult men). The main beneficiaries were speculators who had purchased government-issued IOUs from soldiers and war suppliers for a fraction of their official worth, then collected 6 percent interest on the full face value, yielding as much as a 30 percent annual return...

To add to the problem, a severe trade deficit in the mid-1780s drained the country's gold and silver. The resulting deflation made it harder to pay private debts, which became, in real terms, larger than the original loans. Delinquents could see their farms auctioned off, then spend time in debtors' prison. The rural population did not submit quietly. Throughout the country, farmers resisted tax collectors, forced courts to close (or burned them down) to prevent foreclosures and demanded paper money and tax relief.

Circumstances called for (in modern terms) a loosening of the money supply, and Holton argues that paper money was a reasonable response. Seven states printed currency (though only three made it legal tender for all debts), and every state provided some tax or debtor relief. The goal was to let people pay their taxes and encourage economic development, but the paper currency lost value in a few states, particularly Rhode Island, which tried to force creditors to accept it. To defenders of fiscal responsibility, Rhode Island showed what too much democracy produced: a situation in which only a fool would lend money to anyone.

Article I, section 8 of the Constitution gives to Congress the power to coin money, and section 10 specifically forbids States from doing so.

Sounds like an interesting book to read over break...

Remittances

The NY Times has a fascinating feature on Western Union, the former telegram company that has become the giant of the money transfer business. Much of that business is in "remittances" - money sent by migrants back to their home countries:

With five times as many locations worldwide as McDonald’s, Starbucks, Burger King and Wal-Mart combined, Western Union is the lone behemoth among hundreds of money transfer companies. Little noticed by the public and seldom studied by scholars, these businesses form the infrastructure of global migration, a force remaking economics, politics and cultures across the world.

Last year migrants from poor countries sent home $300 billion, nearly three times the world’s foreign aid budgets combined.

As the graphic accompanying the article illustrates, remittances play a significant role in the economies of some low-income countries. As we argue over immigration in the United States, it is a useful reminder that our immigration policy is also development policy (an argument made by Economist Lant Pritchett).

Is Bernanke's Glasnost Really Perestroika?

Although Bernanke was careful to say otherwise (see earlier post), Willem Buiter believes the Fed's new communication strategy of releasing more extensive forecasts more often is tantamount to inflation targeting. On his Maverecon blog, Buiter writes:

It has taken a while, just under two years since Ben Bernanke took over from Alan Greenspan as Chairman of the Fed, but the deed now is done: the Fed has moved to de-facto inflation targeting. It will continue to be an inflation targeting that dare not speak its name. The Fed has introduced inflation targeting inside the twin Trojan horses of improved communications and greater transparency. An indeed, these proposals are likely to improve the clarity of the Fed’s communications to the market and the public at large and to enhance its transparency. But there is more that that involved. I discern a movement away from the Fed’s symmetric dual mandate to a greater emphasis on price stability as the primary objective of monetary policy. This reform will not take the Fed the whole way towards the lexicographic or hierarchical inflation targeting of the ECB and the Bank of England, whose primary objectives are price stability and without prejudice to, or subject to, the price stability target being met, output, employment and all things bright and beautiful. It does, however, represent a significant step in that direction.

The Fed will now provide projections for inflation for three years (actually a range of the forecasts of the individual board members and reserve bank members). Herein lies the target, according to Buiter:

The longer horizon matters, because, even allowing for long, variable and uncertain lags in the effects of monetary policy, over a three year horizon a monetary authority like the Fed should expect to hit its inflation target, if it has one. Second, the Fed forecasts are made on the assumption of ‘appropriate monetary policy’, that is, not on the basis of a constant Federal Funds target rate or on the assumption that the future path of the Federal Funds target rate is that implied by the market yield curve. This reinforces the presumption that at a three year horizon, if not earlier, the forecast for inflation should equal the inflation target.

The first fruits of the new transparency accompanied the minutes of the October FOMC meeting, which were released yesterday. Inflation projections for 2010 - the implicit inflation target in Buiter's reasoning - ranged from 1.5% - 2% (the projections were for "PCE Inflation" - the price deflator for personal consumption expenditures, which tends to be a smidge lower than the Consumer Price Index).

At Econbrowser, James Hamilton assessed the projections. He was surprised by the low growth projections:

I was particularly struck by the 3-year projections. GDP growth is a time series with relatively rapid mean reversion, so that one would need a lot of evidence (or courage) before offering a 3-year-ahead forecast that is anything other than the historical average. That historical average is 3.3% if you go all the way back to 1948. Yet even the most optimistic FOMC participant was expecting no more than 2.7% real GDP growth for 2010.

The inflation projections were also on the low side:

The Fed's 3-year-ahead inflation forecast also surprises me a little, in that the highest inflation rate that any member anticipates for 2010 is only 2.0%. Inflation is a time series with far less mean reversion than GDP growth, so it's probably unreasonable to use the long-run historical average inflation rate (3.3%) as your forecast for 2010. But for the FOMC participants unanimously to expect the inflation rate in 2010 to be below its average value of the last five years, and for that matter likely below even its value for 2006, should raise an eyebrow.

For more, here's the NY Times story.

Ok, I'm dating myself with the joke in the title. For those unfamiliar with the 1980's: Mikhail Gorbachev tried to reform the Soviet Union with more openness ("glasnost") and restructuring ("perestroika").

Social Security, Political Insecurity

Towards the end of last week's Democratic presidential debate, Barack Obama and Hillary Clinton had this exchange (which I've edited a bit):

SEN. OBAMA: ...I've been very specific about saying that we should not privatize; we should protect benefits. I don't think the best way to approach this is to raise the retirement age. But what we can do is adjust the cap on the payroll tax. Right now anybody who's making $97,000 or less, you pay payroll tax on 100 percent of your income. Warren Buffet, who made $46 million last year, pays on a fraction of 1 percent of his income. And if we make that small adjustment, we can potentially close that gap and we can make sure Social Security is there....

SEN. CLINTON: ....I think we have to have a bipartisan commission. I do not want to fix the problems of Social Security on the backs of middle class families and seniors. (Applause.) If you lift the cap completely, that is a $1 trillion tax increase. I don't think we need to do that...

MR. BLITZER: All right. So Senator -- so you're not ready to accept that raising of the cap on that, but I know that Senator Obama wants to respond to you.

SEN. OBAMA: I will be very brief on this because, Hillary, I've heard you say this is a trillion dollar tax cut on the middle class by adjusting the cap. Understand that only 6 percent of Americans make more than $97,000 -- (cheers, applause) -- so 6 percent is not the middle class -- it's the upper class.

As Senator Clinton pointed out, of course, he meant to say "increase." Paul Krugman, among others, has been very critical of Obama's willingness to raise the cap on income subject to social security contributions. Krugman's argument is that the idea of "crisis" in social security is greatly exaggerated, and the incorrect, but widespread, perception that social security is in financial danger has been politically exploited by those who want to replace the system with private accounts.

This chart from the report of the social security and medicare trustees shows the projected costs for social security (blue line) and medicare (red line) as a share of GDP.

The social security trust fund, which holds government bonds (i.e. the government is borrowing money from social security), is not projected to run out of money until 2041. Contrary to popular belief, social security is in pretty good financial shape. The real "entitlement problem" is with medicare, and this is driven by projected increases in the cost of health care. Therefore, the much more more urgent policy challenge is to find ways to reduce the growth in health care costs.

Although the shortfall in social security is modest, getting more money in the trust fund now would ease the future problems. Since the cap for social security taxes is a regressive feature, raising it would have the effect of making the tax code more progressive. Moreover, Obama's tax increase (and that is, indeed, what it is) would increase net national savings (private savings less the amount borrowed by the government). Currently, this is far too low to finance domestic investment, which means that we have to borrow from abroad, hence the large current account deficit. So, while Krugman's absolutely right that there is no social security crisis, Obama's idea has some economic policy merit. I have no idea whether Krugman's correct about the politics, though I suspect the failure of the Bush administration's push for private accounts, combined with disillusionment with the stock market, has shut the door on privatization for the near future, so he may be fighting the last war.

For more, check out this analysis by Times columnist Tom Redburn. Also, Financial Times columnist Clive Crook makes an interesting argument that the Democrats should embrace more radical social security reform.

China Trade

For a long time, China's trade surplus with the United States was largely offset by a trade deficit with much of the rest of the world, leading to a roughly balanced trade position overall. This fact could be pointed to by those who wished to defend China against accusations of "unfair" trade practices. Not any more.... This week's "Off The Charts" feature in the NY Times has the (official) numbers, which show that China's trade surplus began to balloon in late 2004. Floyd Norris writes:

This week, China reported that its trade surplus for October came to a record $27 billion, a figure that is larger than its surplus for the entire year of 2003.

But even as it was posting a record surplus, China was reporting that its imports were at the lowest level in several months, and were particularly weak from Europe.

Over the last three months, China imported an average of $9.7 billion a month from Europe, a figure that was almost 5 percent lower than imports in the same three months of 2006. It was China’s biggest year-over-year decline in imports from Europe since 1998, when China was only a marginal presence in world trade, rather than the dominant force it has become.

Because China intervenes heavily in foreign exchange markets to limit the appreciation of the Yuan versus the Dollar (i.e. they are keeping the value of their currency artificially low), it has inherited some of the depreciation of the Dollar versus the Euro (i.e. European goods have become more expensive to China and Chinese goods cheaper to Europeans).

US exporters may be reaping the benefit as their European competitors get priced out of the market - according to the Census Bureau's Foreign Trade Statistics, the US exported $5.6 billion worth of goods to China in September, up 21% from a year ago (US imports from China were $29.4 billion, so the deficit is still huge, but shrinking).

In addition to its currency market intervention, China appears to be doing other things to promote a trade surplus. The NY Times reported on Friday:

Few American industries have had more success in selling goods to China than makers of medical devices like X-rays, pacemakers and patient monitors. Which is why a recent Chinese decree was so troubling.

The directive, issued in June, called for burdensome new safety inspections for foreign-made medical devices — but not for those made in China. The Bush administration is crying foul.

Even more worrisome to the administration is that the directive seems part of a recent pattern in which Chinese officials issue new regulations aimed at favoring Chinese industries over foreign competitors...

This is a good example of how regulations can be used to create "non-tariff barriers" to imports, which is why World Trade Organization rules require "national treatment" (i.e. apply regulations in the same way to imports as domestically-produced goods). This would appear to be clear grounds for a case at the WTO. It will be interesting to see if the Bush administration will take them on... Or maybe we should let the Europeans do it.

CARMA chameleon

Dani Rodrik's Blog brings to my attention a new website called CARMA (CARbon Monitoring for Action) with data on the carbon emissions of over 50,000 powerplants worldwide. The site has nifty color-coded maps (like my dream, red, gold and green).

Our friendly neighborhood power plant, Duke Energy's plant in North Bend (the one you drive by on the way to the Cincinnati Airport via I-275) emits 7.5 million tons of carbon dioxide per year, 2123 pounds per megawatt hour, earning a red dot.

The Fed Promises to Share its Feelings

The Fed announced today that it would publish more detailed forecasts more often. Chairman Bernanke explained the rationale for increasing the Fed's openness:

[A] considerable amount of evidence indicates that central bank transparency increases the effectiveness of monetary policy and enhances economic and financial performance in several ways. First, improving the public's understanding of the central bank's objectives and policy strategies reduces economic and financial uncertainty and thereby allows businesses and households to make more-informed decisions. Second, if practitioners in financial markets gain a better understanding of how policy is likely to respond to incoming information, asset prices and bond yields will tend to respond to economic data in ways that further the central bank's policy objectives. For example, if market participants understand that arriving information about the economy increases the likelihood of certain policy actions, then market interest rates will tend to move in a way that reinforces the expected actions, effectively supporting the goals of the central bank. Third, clarity about the central bank's policy objectives and strategy may help anchor the public's long-term inflation expectations, which can substantially improve the efficacy of policy and the overall functioning of the economy. Finally, open discussion of the central bank's analyses and forecasts invites valuable input and feedback from the public.

As Bernanke explained in the speech, there has been a considerable evolution toward greater central bank transparency - it was only in 1994 that the Fed only began publicly announcing changes in the Fed Funds target. Real Time Economics had reaction from several academic economists, who interpreted this as a move in the direction of inflation targeting. Bernanke was careful to say otherwise:

As you may know, I have been an advocate of the monetary policy strategy known as inflation targeting, used in many countries around the world. Inflation targeting is characterized by two features: an explicit numerical target or target range for inflation and a high degree of transparency about forecasts and policy plans. The steps being taken by the Federal Reserve, I must emphasize, are intended only to improve our communication with the public; the conduct of policy itself will not change...

...some aspects of inflation targeting may be less well suited to the Federal Reserve's mandate and policy practice. In particular, although inflation-targeting central banks certainly pay attention to economic growth and employment, their formal accountability is often largely couched only in terms of a price-stability objective.... As I have emphasized today, the Federal Reserve is legally accountable to the Congress for two objectives, maximum employment and price stability, on an equal footing. My colleagues and I strongly support the dual mandate and the equal weighting of objectives that it implies. Of course, as I have discussed, the Federal Reserve's influence over these objectives differs importantly in the long run: Monetary policy determines the long-run inflation rate, whereas the factors that influence the sustainable rates of growth and employment in the long run are largely outside the central bank's control. Still, over time, monetary policy must strive to foster rates of growth and employment close to their long-run sustainable rates. The Federal Reserve must thus be accountable for the effects of its policies on the real economy as well as on inflation. The enhanced projections that I have described today will provide additional information pertinent to both halves of the Federal Reserve's mandate.

Reagan Was Worse

In Vanity Fair, Joe Stiglitz makes the argument that, in terms of economic policy, George W. Bush is the worst president ever. In an essay titled "The Economic Consequences of Mr. Bush,"* he begins:

When we look back someday at the catastrophe that was the Bush administration, we will think of many things: the tragedy of the Iraq war, the shame of Guantánamo and Abu Ghraib, the erosion of civil liberties. The damage done to the American economy does not make front-page headlines every day, but the repercussions will be felt beyond the lifetime of anyone reading this page.

I can hear an irritated counterthrust already. The president has not driven the United States into a recession during his almost seven years in office. Unemployment stands at a respectable 4.6 percent. Well, fine. But the other side of the ledger groans with distress: a tax code that has become hideously biased in favor of the rich; a national debt that will probably have grown 70 percent by the time this president leaves Washington....

Up to now, the conventional wisdom has been that Herbert Hoover, whose policies aggravated the Great Depression, is the odds-on claimant for the mantle “worst president” when it comes to stewardship of the American economy. Once Franklin Roosevelt assumed office and reversed Hoover’s policies, the country began to recover. The economic effects of Bush’s presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting. There is no threat of America’s being displaced from its position as the world’s richest economy. But our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush.

Stiglitz makes a number of strong critiques Bush's stewardship (or lack thereof), but his historical comparison neglects a much more consequential Presidency, that of Ronald Reagan. There are some definite parallels between the two administrations - fiscal policies centered around "supply side" tax cuts which primarily benefited people with high incomes, a deteriorating fiscal situation (i.e. growing deficits) and low priority on traditional government functions (e.g. investment in infrastructure and research).

The parallels should not be taken too far - Reagan inherited an economy reeling from the "stagflation" of the 1970's, with a federal reserve determined to put an end to inflation, notwithstanding the "short run" consequences (arguably the Reagan fiscal policies forced the Volcker Fed to slam the monetary brakes even harder, worsening the recession). When Bush took office, unemployment and inflation were low, and the federal budget was in a rare state of surplus. Because of the differing circumstances, and because much is beyond the influence of the President, it would indeed be unfair to compare the two on a cyclical measures like unemployment (though it should be noted that the 1982 recession was much, much worse than 2001 - the unemployment rate reached 10.8% in 1982).

Although macro data miss many important nuances, here are some data on 3 issues raised in Stiglitz's critique: (i) tax code bias, (ii) the deficit and investment and (iii) fiscal priorities:

Distribution of the Tax Burden: From the CBO's data on effective federal tax rates, here are the effective tax rates on the highest-income 1%, from 1979 through 2004 (the last year available):

Although the Bush years have seen a dip in the tax burden on the richest, its much smaller than the plunge in the early 1980's (partly reversed by the tax reform act of 1986). Another way to look at the distribution of the tax burden is the ratio of the effective tax rate on the top 1% divided by the effective rate faced by the middle 20% of the income distribution:

Here again, the Reagan administration is where the big shift occurs. In 2000-03, while the richest received far larger tax cuts in terms of the dollar amount, the percentage change was actually bigger for middle-class households, so, by this measure, the relative burden on the rich actually rose.

The Federal Deficit and Investment: Relative to the size of GDP, the federal deficits of the 1980's were much bigger than those of recent years. According to the CBO's historical budget data, the federal deficit peaked at 6% of GDP in 1983 during the Reagan administration, and at 3.4% of GDP in 2004 (to be fair, there was a 2.7% deficit already in 1980, and a surplus of 2.4% in 2000, so the Bush administration saw a bigger swing in the fiscal position). One reason to worry about the deficit is if the indebtedness of the federal government is exploding relative to the size of the economy:

While the Bush administration has reversed the positive trend of the Clinton years, relative to GDP our federal debt has basically leveled off, but it has not resumed the explosive path of the 1980s (I should note this is publicly-held debt, and does not include the debt owed to the social security trust fund).

Another reason to fret about the deficit is that it may be bad for investment ("crowding out"), leading to a smaller capital stock and lower output in the long run. According to the BEA, here's nonresidential fixed investment as a % of GDP (1979-2006):

The Reagan and Bush eras have both seen sharp decreases in investment - the Bush-era decrease is sharper, but there are signs of a bit of a recovery already, while the Reagan trend only reversed after the Clinton administration took office (and raised taxes).

Fiscal Priorities: Several of Stiglitz's points relate to neglect of domestic priorities, like education, research and infrastructure. These all fall under the heading "domestic discretionary outlays" in the federal budget numbers. Lots of other things also show up in this category, so this is a very blunt measure, and doesn't tell us anything about how well the money is being spent. Nonetheless, the data are indicative a sharp fall in the early 1980's, with only modest changes since:

Although the Reagan administration did not really reduce the size of government, it did induce a significant reallocation, spending a larger share on the military and interest payments, and less on discretionary programs.

Ok, "worse" is very much a normative term, and whether and to what extent one views these shifts negatively is a matter subjective judgment. But the facts indicate that, compared to the Bush administration, the Reagan era saw bigger changes in the distribution of the tax burden, the growth rate of the national debt and in federal spending priorities.

*The title of his article is an allusion to Keynes, who penned "The Economic Consequences of Mr. Churchill," in criticism of the British government's decision to return the pound to its pre-WWI value of $4.86 (Churchill was Chancellor of the Exchequer, which is British for "finance minister"). Keynes was referencing his own famous critique of the Versailles treaty ending WWI, "The Economic Consequences of the Peace."

PS Stiglitz's article came to my attention via the invaluable Economist's View.

Update: Marginal Revolution's Tyler Cowen sees some inconsistencies in Stiglitz's argument.