Earlier this month, Brazil’s National Development Bank (BNDES) held a seminar on sustainable development with the help of think tanks and interest groups representing the industrial sector. More than anything, it was an opportunity for the bank’s chairman, Aloizio Mercadante, to come out guns blazing in his quest for more input into the government’s economic agenda.
Mr. Mercadante — a longtime figurehead within the Workers’ Party and a former member of Dilma Rousseff’s cabinet — is an aggressive defender of expansionary monetary and fiscal policies, mainly because this allows for greater room for political maneuvering and power-grabbing within the ruling party. It also expands the economic reach of the bank he heads.
As such, the seminar scapegoated the hawkish monetary policy of the Brazilian Central Bank and the possibility of fiscal responsibility for the country’s growth woes.
To add credibility to his agenda, Mr. Mercadante brought in every public authority that could lend weight to his argument in the public arena, including Nobel Laureate Joseph Stiglitz. In his remarks, Mr. Stiglitz called Brazil’s interest rates “shocking.” The left took his word as gospel to further say the Central Bank is wrong.
However, contrary to what Mr. Mercadante, some wings within the government, or Mr. Stiglitz may argue, Brazil’s monetary policy is on the right track.
Joseph Stiglitz won his Nobel Prize in 2001, in recognition of his work in the 1970s on information asymmetry (microeconomic models in which one agent has more information than the other about the good, a market failure). He is also known for his extensive work on taxation and the provision of public goods.
In fact, since leaving the World Bank and winning the Nobel Prize, Mr. Stiglitz has diversified his range of topics, although he is moving towards political polemics, defending perspectives contrary to what could be called neoliberalism, as in his book “Globalization and Its Discontents.”
In many ways, then, asking Mr. Stiglitz about Brazilian monetary policy is like asking an orthopedist about a suspected cancer: it is still much better than consulting an engineer; ideally, though, one would go to an oncologist. Economics is a highly specialized science, and while economists can certainly understand the research of different subfields and have general notions about all of them, these subfields are characterized by a fast-moving intellectual frontier, be it information economics, macroeconomics, or microeconomic theory.
It takes almost exclusive effort and dedication over a lifetime to reach and propose the frontiers of such subfields
The figure of the generalist economist no longer exists; it died with Milton Friedman and Paul Samuelson. But in Brazil, the public debate stubbornly keeps this figure alive, generally by invoking people without much scientific relevance, but who were policymakers or had success in the financial market decades ago.
Mr. Mercadante knows all this and called Mr. Stiglitz because he knows his general position on the global inflationary crisis, and he knows that the newspapers will publish headlines such as “Nobel laureate says interest rates are at ‘shocking’ levels.”
However, the Nobel Prize is a way of building a canon of contemporary economics, a way of marking the history of contemporary economic thought and the history of economic thought, as Pérsio Arida noted in his brilliant 1983 essay “The history of economic thought as theory and rhetoric.” As such, bringing Mr. Stiglitz to the forefront of the Brazilian debate is a rhetorical strategy.
However, all the evidence suggests that Mr. Stiglitz is wrong about inflation — not just in Brazil.
In the U.S., throughout the pandemic, there was a debate about the nature of inflation. Was it transitory? Just a supply shock that would dissipate without the need for intervention? Would it be permanent? Would there be demand components that would feed back?
The answer to these questions is of paramount importance to the U.S. government. If inflation were permanent, it would require the Federal Reserve to intervene in the macroeconomic equilibrium by raising interest rates to contain inflation, which would narrow the space for Joe Biden’s policy.
Mr. Stiglitz is one of the most ardent proponents of the idea that inflation was caused by a structural supply shock and that it is transitory.
Unfortunately, as the evidence showed, U.S. inflation was persistent and had a strong demand component, especially based on the Donald Trump administration’s public spending during the pandemic and the extra emergency aid check in March 2021. For...
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