A Market Economy is an economy in which decisions regarding investment, production and distribution are based on supply and demand^[1] and the prices of goods and services are determined in a free price system.^[2] This is contrasted with a planned economy, where investment and production decisions are embodied in a plan of production. Market economies can range from hypothetical laissez-faire and free market variants to regulated markets and interventionist variants. Most existing market economies include a degree of economic planning or state-directed activity and are thus classified as mixed economies.

In the real world, market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow full self-regulation by market forces.^[3][4] The term free-market economy is sometimes used synonymously with market economy,^[5] but, as Ludwig Erhard once pointed out, this does not preclude an economy from providing various social welfare programs such as unemployment benefits, as in the case of the social market economy.

There are many variations of market socialism ranging from the cooperative model, where employee-owned enterprises based on self-management are coordinated by markets and output of final goods and services is based on market allocation,^[6] to those based on public ownership of the means of production.^[7]

The term used by itself can be somewhat misleading. For example, the United States constitutes a mixed economy (substantial market regulation, agricultural subsidies, extensive government-funded research and development, Medicare/Medicaid), yet at the same time it is foundational rooted in a market economy. Different perspectives exist as to how strong a role the government should have in both guiding the market economy and addressing the inequalities the market produces. This is evidenced by the current lack of consensus on issues such as central banking and welfare.^{[citation needed]}

Capitalism[link]

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Capitalism generally refers to economic system in which the means of production are largely or entirely privately owned and operated for a profit, structured on the process of capital accumulation. In general, investments, distribution, income, and pricing is determined by markets.

There are different variations of capitalism and these different variations have different relationships to markets. In free-market and Lassiez-faire forms of capitalism, markets are utilized most extensively with minimal or no regulation over the pricing mechanism. In interventionist, Keynesian and mixed economies, markets continue to play a dominant role but are regulated to some extent by government in order to correct market failures or to promote social welfare. In state capitalist systems, markets are relied upon the least, and the state relies heavily on either indirect economic planning and/or state-owned enterprises to accumulate capital.

Capitalism has been dominant in the Western world since the end of feudalism, but most feel that the term "mixed economies" more precisely describes most contemporary economies, due to their containing both private-owned and state-owned enterprises. In capitalism, prices are decided by the demand-supply scale. For example, higher demand for certain goods and services lead to higher prices and lower demand for certain goods lead to lower prices.

Laissez-faire[link]

Laissez-faire is synonymous with what was referred to as strict capitalist free market economy during the early and mid-19th century as an ideal to achieve. It is generally understood that the necessary components for the functioning of an idealized free market include the complete absence of government regulation, subsidies, artificial price pressures and government-granted monopolies (usually classified as coercive monopoly by free market advocates) and no taxes or tariffs other than what is necessary for the government to provide protection from coercion and theft and maintaining peace, and property rights.

Social market economy[link]

This model was implemented by Alfred Müller-Armack and Ludwig Erhard after World War II in West Germany. The social market economic model is based upon the idea of realizing the benefits of a free market economy, especially economic performance and high supply of goods, while avoiding disadvantages such as market failure, destructive competition, concentration of economic power and anti-social effects of market processes. The aim of the social market economy is to realize greatest prosperity combined with best possible social security. As a difference to the free market economy the state is not passive, but actively takes regulative measures.^[8] The social policy objectives include employment, housing and education policies, as well as a socio-politically motivated balancing of the distribution of income growth. Characteristics of social market economies are a strong competition policy and a contractionary monetary policy. The theoretical fundamental is built on ordoliberalism, Catholic social teaching and Democratic Socialism.^[9]

Market socialism[link]

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Market socialism refers to various economic systems where the means of production or dominant economic institutions are either publicly-owned or cooperatively-owned but operated according to the rules of supply and demand.

In the Oskar Lange's model of market socialism, prices would be determined by a government planning board through a trial-and-error approach until they equaled the marginal cost of production as to achieve perfect competition and pareto optimality. In this model, firms would either be state-owned and managed by their employees.

A more contemporary model of market socialism is that put forth by John Roemer, where social ownership is achieved through public ownership of equity in a market economy.

The distinguishing feature between non-market socialism and market socialism is the existence of a market in the means of production and the criteria of profitability for enterprises. Profits derived from the public enterprises can either be used to reinvest in production or finance government and social services directly and/or be distributed to the workforce or public at large through a social dividend.

Cooperative socialism[link]

Libertarian socialists and left-anarchists often promote a form of market socialism in which enterprises are owned and managed cooperatively by the workers so that the profits directly remunerate the employee-owners. These cooperative enterprises would compete with each other in the same way private companies compete in a capitalist market. An example would be mutualism.

Socialist market economy[link]

Following the 1978 reforms, the People's Republic of China instituted what it calls a "socialist market economy", in which most of the economy is under state ownership, but the state enterprises are reorganized into joint-stock companies where various government agencies own controlling shares through a shareholder system. Prices are set by a largely free-price system and the state-owned enterprises are not subjected to micromanagement from a government planning agency. A similar system called "socialist-oriented market economy" has been implemented in Vietnam following the Doi Moi reforms in 1986.

However, this system is usually characterized as state capitalism instead of market socialism because there exists no meaningful degree of employee management in the firms, the state enterprises retain their profits instead of distributing them to the workforce or government, and many function as partial or de facto private enterprises.

Criticisms[link]

Robin Hahnel and Michael Albert claim that:

"(...) markets inherently produce class division" (divisions between conceptual and manual laborers, and ultimately managers and workers, and a de facto labor market for conceptual workers)(...)".^{[citation needed]}

Albert states that even if everyone started out with a balanced job complex (doing a mix of roles of varying creativity, responsibility and empowerment) in a market economy, class divisions would arise.

"(...) Without taking the argument that far, it is evident that in a market system with uneven distribution of empowering work, such as Economic Democracy (the model of market socialism David Schweickart has developed and refers to as "economic democracy"), some workers will be more able than others to capture the benefits of economic gain. For example if one worker designs cars and another builds them, the designer will use his cognitive skills more frequently than the builder. In the long term, the designer will become more adept at conceptual work than the builder, giving the designer greater bargaining power in a firm over the distribution of income. A conceptual worker who is not satisfied with his income can threaten to work for a company that will pay him more (...)".^[10]

Therefore according to this critique class divisions would arise inevitably.

See also[link]

• Free market
• Market
• Economic freedom
• Grey market
• Market socialism
• Mixed economy
• Planned economy
• Regulated market
• Controlled market

References[link]

This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (February 2012)

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Concepts Capital (economics) Capital accumulation Central bank Commercial law Companies law Comparative advantage Competition law Consumer protection Copyright Corporations Deregulation Economic freedom Economic liberalism Financial regulation Fiscal policy Free market Free price system Free trade agreements Freedom of contract Globalization Inflation Intellectual property Invisible hand Labour law Limited government Market Mode of production Monetary policy Monopoly Oligopoly Patents Private property Privatization Regulated market Recession Spontaneous order Stagflation Supply and demand Wage labour
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Origins Age of Enlightenment Feudalism Industrial Revolution Physiocrats Mercantilism Islamic capitalism
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Variants Anarcho-capitalism Consumer capitalism Corporate capitalism Creative capitalism Crony capitalism Democratic capitalism Eco-capitalism Finance capitalism Global capitalism Humanistic capitalism Inclusive capitalism Late capitalism Laissez-faire capitalism Liberal capitalism Merchant capitalism Mixed economy Monopoly capitalism Neo-Capitalism Philanthrocapitalism Technocapitalism Regulatory capitalism Rentier capitalism Social capitalism Social market economy State capitalism State monopoly capitalism Welfare capitalism
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A free market is a market where prices are determined by supply and demand, with little or no government control.^[1] Free markets contrast with controlled markets in which prices, supply or demand is directly controlled. Various economic theories require specific properties of free markets, for example, a perfect market with perfect information and perfect competition. Regulation which does not affect these specific properties can be in place without disqualifying the market as free under supply and demand.

Although free-markets are commonly associated with capitalism today, free markets have been advocated by socialists and have been included in various proposals for market socialism where market allocation of capital is combined with self management in enterprises, and employee-owned cooperatives or publicly owned enterprises operate in free markets.^[2]

Overview[link]

In the marketplace, the price of a good or service helps communicate consumer demand to producers and thus directs the allocation of resources toward satisfaction of consumers as well as investors. In a free market, the system of prices is the emergent result of a vast number of voluntary transactions, rather than of political decrees as in a controlled market. The freer the market, the more prices will reflect consumer habits and demands, and the more valuable the information in these prices are to all players in the economy. Through free competition between vendors for the provision of products and services, prices tend to decrease, and quality tends to increase.^{[citation needed]}

The meaning of "free market" has varied over time and between economists, the ambiguous term "free" facilitating a diversity of uses. To illustrate the ambiguity: classical economists such as Adam Smith believed that an economy should be free of monopoly rents, while proponents of laissez faire believe that people should be free to form monopolies. In this article "free market" is largely identified with laissez faire, though alternative senses are discussed in this section and in criticism. The identification of the "free market" with "laissez faire" was notably used in the 1962 Capitalism and Freedom, by economist Milton Friedman, which is credited with popularizing this usage.^[3]

Economic systems[link]

Laissez-faire economics[link]

The laissez faire principle expresses the preference for an absence of non-market pressures on prices such as those from government taxes, subsidies, tariffs, regulation (other than protection from coercion and theft), or government-granted or coercive monopolies. As developed in Hayek's The Pure Theory of Capital,^[4] the goal is the preservation of the unique information contained in the price itself.

Socialist economics[link]

Part of a series on
Socialism
Development History of socialism
Ideas Economic planning · Free association Equality of opportunity Economic democracy Adhocracy · Technocracy Self-management · Direct democracy Public ownership · Common ownership Social dividend · Basic income Production for use Calculation in kind · Labour voucher Industrial democracy · Collaboration Material balance accounting Social ownership · Economics
Variants Agrarian Anarchist Democratic Ethical Green Guild Liberal Libertarian Market Marxian Mutualism Reformism Religious Revisionism Revolutionary Scientific Social democracy State Syndicalism Utopian socialism 21st century
People Charles Hall · Henri de Saint-Simon Robert Owen · Charles Fourier William Thompson Thomas Hodgskin Louis Blanc · Moses Hess Karl Marx · Friedrich Engels Ferdinand Lassalle William Morris · Mary Harris Jones Eugene V. Debs · John Dewey Enrico Barone · Ben Tillett Edvard Kardelj · Robin Hahnel Michael Albert
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Various forms of socialism based on, or which advocate, free markets have existed since the 19th century. Early notable socialist proponents of free-markets include Pierre-Joseph Proudhon, Benjamin Tucker and the Ricardian socialists, who believed that genuinely free markets and voluntary exchange cannot exist within the exploitative conditions of capitalism.

These proposals ranged from various forms of worker cooperatives coordinated by free markets such as Mutualism (economic theory), to state-owned enterprises competing with each other in open and unregulated markets. These models of socialism are not to be confused with other forms of market socialism, such as the Lange model, where publicly owned enterprises are coordinated by a degree of economic planning in setting prices for capital goods.

Léon Walras, one of the founders of the neoclassical school of economics who helped formulate the general equilibrium theory, argued that free competition could only be realized under conditions of state ownership of natural resources and land. Additionally, income taxes could be eliminated because the state would receive income to finance public services through owning such resources and enterprises.^[5]

Advocates of free-market socialism, such as Jaroslav Vanek, point out that genuine free markets are not possible under conditions of private ownership over productive property because the class differences and inequalities in income and power that ensue from this arrangement enable interests of the dominant class to skew the market to their favor, either in the form of monopoly and market power, or by utilizing their wealth and resources to pass government regulations and policies that benefit their specific business interests.^[6] Additionally, Vanek states that workers in a socialist economy based on cooperative and self-managed enterprises would have stronger incentives to maximize productivity because they would receive a share of the profits (based on the overall performance of their enterprise) in addition to receiving a fixed wage or salary. The same could be accomplished in a capitalistic free market if the employee were to purchase stock of the company they work for.

Excessive disparities in income distribution emerging from private ownership are alleged by proponents of this system to lead to social instability that requires costly corrective measures in the form of social welfare and redistributive taxation and heavy administrative costs to administer them while weakening the incentive to work, inviting dishonesty and increasing the likelihood of tax evasion while reducing the overall efficiency of the market economy and necessitating government regulation over markets.^[7]

Concepts[link]

Supply and demand[link]

Supply and demand are always equal as they are the two sides of the same set of transactions, and discussions of "imbalances" are a muddled and indirect way of referring to price.^[8] However, in an unmeasurable qualitative sense, demand for an item (such as goods or services) refers to the market pressure from people trying to buy it. They will "bid" money for the item, while in return sellers offer the item for money. When the bid matches the offer, a transaction can easily occur (even automatically, as in a typical stock market). In Western society, most shops and markets do not resemble the stock market, and there are significant costs and barriers to "shopping around" (comparison shopping).

The model is commonly applied to wages, in the market for labor. The typical roles of supplier and consumer are reversed. The suppliers are individuals, who try to sell (supply) their labor for the highest price. The consumers of labors are businesses, which try to buy (demand) the type of labor they need at the lowest price. As populations increase wages fall for any given unskilled or skilled labor supply. Conversely, wages tend to go up with a decrease in population.

When demand exceeds supply, suppliers can raise the price, but when supply exceeds demand, suppliers will have to decrease the price in order to make sales. Consumers who can afford the higher prices may still buy, but others may forgo the purchase altogether, demand a better price, buy a similar item, or shop elsewhere. As the price rises, suppliers may also choose to increase production, or more suppliers may enter the business.

Economic equilibrium[link]

General equilibrium theory has demonstrated, with varying degrees of mathematical rigor over time, that under certain conditions of competition, the law of supply and demand predominates in this ideal free and competitive market, influencing prices toward an equilibrium that balances the demands for the products against the supplies.^[9][10] At these equilibrium prices, the market distributes the products to the purchasers according to each purchaser's preference (or utility) for each product and within the relative limits of each buyer's purchasing power. This result is described as market efficiency, or more specifically a Pareto optimum.

This equilibrating behavior of free markets requires certain assumptions about their agents, collectively known as Perfect Competition, which therefore cannot be results of the market that they create. Among these assumptions are several which are impossible to fully achieve in a real market, such as complete information, interchangeable goods and services, and lack of market power. The question then is what approximations of these conditions guarantee approximations of market efficiency, and which failures in competition generate overall market failures. Several Nobel Prizes in Economics have been awarded for analyses of market failures due to asymmetric information.

Some models in econophysics^[11] have shown that when agents are allowed to interact locally in a free market (i.e. their decisions depend not only on utility and purchasing power, but also on their peers' decisions), prices can become unstable and diverge from the equilibrium, often in an abrupt manner. The behavior of the free market is thus said to be scale sensitive (a pair of agents bargaining for a purchase will agree on a different price than 100 identical pairs of agents doing the identical purchase). Speculation bubbles and the type of herd behavior often observed in stock markets are quoted as real life examples of non-equilibrium price trends. Some laissez-faire free-market advocates, like Chicago school economists, often dismiss this endogenous theory, and blame external influences, such as weather, commodity prices, technological developments, and government meddling for non-equilibrium prices.

Low barriers to entry[link]

A free market does not require the existence of competition, however it does require that there are no barriers to new market entrants. Hence, in the lack of coercive barriers it is generally understood that competition flourishes in a free-market environment. It often suggests the presence of the profit motive, although neither a profit motive or profit itself are necessary for a free market. All modern free markets are understood to include entrepreneurs, both individuals and businesses. Typically, a modern free market economy would include other features, such as a stock exchange and a financial services sector, but they do not define it.

Spontaneous order[link]

Friedrich Hayek argues for the classical liberal view that market economies allow spontaneous order; that is, "a more efficient allocation of societal resources than any design could achieve."^[12] According to this view, in market economies sophisticated business networks are formed which produce and distribute goods and services throughout the economy. This network was not designed, but emerged as a result of decentralized individual economic decisions. Supporters of the idea of spontaneous order trace their views to the concept of the invisible hand proposed by Adam Smith in The Wealth of Nations who said that the individual who:

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the [common] good.

—Adam Smith, Wealth of Nations

Smith pointed out that one does not get one's dinner by appealing to the brother-love of the butcher, the farmer or the baker. Rather one appeals to their self interest, and pays them for their labor.

It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

—Adam Smith^[13]

Supporters of this view claim that spontaneous order is superior to any order that does not allow individuals to make their own choices of what to produce, what to buy, what to sell, and at what prices, due to the number and complexity of the factors involved. They further believe that any attempt to implement central planning will result in more disorder, or a less efficient production and distribution of goods and services.

Critics, such as political economist Karl Polanyi, question whether a spontaneously ordered market can exist, completely free of "distortions" of political policy; since even the ostensibly freest markets require a state to exercise coercive power in some areas - to enforce contracts, to govern the formation of labor unions, to spell out the rights and obligations of corporations, to shape who has standing to bring legal actions, to define what constitutes an unacceptable conflict of interest, etc.^[14]

Studies[link]

Joshua Epstein and Robert Axtell have attempted to predict the properties of free markets empirically in the agent-based computer simulation "Sugarscape". They came to the conclusion that, under idealized conditions, free markets lead to a Pareto distribution of wealth.^[11]

The Heritage Foundation, a conservative think tank, tried to identify the key factors necessary to measure the degree of freedom of economy of a particular country. In 1986 they introduced the Index of Economic Freedom, which is based on some fifty variables. This and other similar indices do not define a free market, but measure the degree to which a modern economy is free, meaning in most cases free of state intervention. The variables are divided into the following major groups:

• Trade policy,
• Fiscal burden of government,
• Government intervention in the economy,
• Monetary policy,
• Capital flows and foreign investment,
• Banking and finance,
• Wages and prices,
• Property rights,
• Regulation, and
• Informal market activity.

Each group is assigned a numerical value between 1 and 5; IEF is the arithmetical mean of the values, rounded to the hundredth. Initially, countries which were traditionally considered capitalistic received high ratings, but the method improved over time. Some economists, like Milton Friedman and other Laissez-faire economists have argued that there is a direct relationship between economic growth and economic freedom, and studies suggest this is true.^[15] Continuous debates among scholars on methodological issues in empirical studies of the connection between economic freedom and economic growth still try to find out what is the relationship, if any.^[16][17][18]

Misconceptions[link]

Some advocates of free market ideologies have criticized mainstream conceptions of the free market, arguing that a truly free market would not resemble the modern-day capitalist economy. For example, contemporary mutualist Kevin Carson argues in favor of "free market anti-capitalism." Carson has stated that "From Smith to Ricardo and Mill, classical liberalism was a revolutionary doctrine that attacked the privileges of the great landlords and the mercantile interests. Today, we see vulgar libertarians perverting ‘free market’ rhetoric to defend the contemporary institution that most closely resembles, in terms of power and privilege, the landed oligarchies and mercantilists of the Old Regime: the giant corporation."^[19]

Carson believes that a true free market society would be "[a] world in which... land and property [is] widely distributed, capital [is] freely available to laborers through mutual banks, productive technology [is] freely available in every country without patents, and every people [is] free to develop locally without colonial robbery..."^[20]

Criticisms[link]

Two prominent Canadian authors (both very hostile to the "Chicago School" philosophy) argue that government at times has to intervene to ensure competition in large and important industries. Naomi Klein illustrates this roughly in her work The Shock Doctrine and John Ralston Saul more humorously illustrates this through various examples in The Collapse of Globalism and the Reinvention of the World.^[21] While its supporters argue that only a free market can create healthy competition and therefore more business and reasonable prices, opponents say that a free market in its purest form may result in the opposite. According to Klein and Ralston, the merging of companies into giant corporations or the privatization of government-run industry and national assets often result in monopolies (or oligopolies) requiring government intervention to force competition and reasonable prices.^[21]

Critics dispute the claim that in practice free markets create perfect competition, or even increase market competition over the long run. Whether the marketplace should be or is free is disputed; many assert that government intervention is necessary to remedy market failure that is held to be an inevitable result of absolute adherence to free market principles. These failures range from military services to roads, and some would argue, to health care. This is the central argument of those who argue for a mixed market, free at the base, but with government oversight to control social problems.

Critics of laissez-faire since Adam Smith^[22] variously see the unregulated market as an impractical ideal or as a rhetorical device that puts the concepts of freedom and anti-protectionism at the service of vested wealthy interests, allowing them to attack labor laws and other protections of the working classes.^[23]

Because no national economy in existence fully manifests the ideal of a free market as theorized by economists, some critics of the concept consider it to be a fantasy – outside of the bounds of reality in a complex system with opposing interests and different distributions of wealth.

These critics range from those who reject markets entirely, in favour of a planned economy, such as that advocated by various Marxists, to those who wish to see market failures regulated to various degrees or supplemented by government interventions. For example, Keynesians support a role for government in providing corrective measures, such as use of fiscal policy for economy stimulus, when decisions in the private sector at believed to lead to suboptimal economic outcomes, such as depression or recession, which manifest in widespread hardship. Business cycle theory is used by Keynes to explain 'liquidity traps' by which underconsumption occurs, to argue for government intervention with central banking. Free market economists consider this credit-expansion as the cause of the business cycle in refutation of this Keynesian criticism.

Simulation of biological laws[link]

The Red-billed Oxpecker feed on ticks off the impala's coat.

The free market is believed to self-regulate in the most efficient and just way. Adam Smith described this behavior with the metaphor of an invisible hand urging society towards prosperity.

Charles Darwin's theory of evolution was appealing to some economists, sociologists and political scientists (most notably Walter Bagehot and William Graham Sumner) who adapted and rationalized the invisible hand by incorporating the popular idea of the survival of the fittest.^[24] They proposed – among others – that in a fully competitive economic environment (as they thought was the case of ecosystems) the most potent individuals would thrive and in turn society would prosper (in analogy to the observed biodiversity and abundance of life on earth). Such arguments lead to the consolidation of neoliberalism and laissez-faire.

See also[link]

Notes[link]

References[link]

• AYAL, Eliezer B. and KARRAS, Georgios. Components of Economic Freedom and Growth. Journal of Developing Areas, Vol.32, No.3, Spring 1998, 327–338. Publisher: Western Illinois University.
• BOETTKE, Peter J. What Went Wrong with Economics?, Critical Review Vol. 11, No. 1, P. 35. p. 58
• Palda, Filip (2011) Pareto's Republic and the New Science of Peace 2011 [1] chapters online. Published by Cooper-Wolfling. ISBN 978-0-9877880-0-9
• Stiglitz, Joseph. 1994. Whither Socialism? Cambridge, Massachusetts: MIT Press.

External links[link]

• Free Enterprise: The Economics of Cooperation Looks at how communication, coordination and cooperation interact to make free markets work
• Fair versus Free by Milton Friedman
• Freedom to Work, to Earn, & to Buy by Harry Browne
• The Tradition of Spontaneous Order,

Rizwan "Riz" Khan (Urdu: ريز خان; born April 1962) is a British^[1] television news reporter and interviewer who until April 2011 hosted his own eponymous television show on Al Jazeera English. He first rose to prominence while working for the BBC and CNN.

Life and career[link]

Khan was born in Aden, South Yemen,^[1] to a Punjabi father^[2] and Gujarati mother. His father's roots are in Azad Kashmir, Pakistan, while his mother's roots go back to Kutch, Gujarat. He considers himself a British Pakistani. Khan moved with his family to London, at the age of four. He attended both Springwell Junior and Hounslow Manor Comprehensive Schools and joined the Air Training Corps, and graduated with a Bachelor of Science with Honours in Medical Physiology from the University of Wales, and then completed a postgraduate course in Radio Journalism at the University of Portsmouth.

In 1987 he was selected for the BBC News Trainee scheme - a two-year BBC training system, usually taking only 6 people per course. Khan progressed to jobs as a BBC reporter, producer, and writer, working in both television and radio, and would later become one of the founding News Presenters on BBC World Service Television News. He hosted the news bulletin that launched BBC World Service Television News in 1991. In 1993, he moved to CNN International, where he became a senior anchor for the network's global news shows. Events he covered included the 1996 and 1999 coverage of elections in India; the 1997 historic election in Britain; and in April 1998 the unprecedented live coverage from the Muslim pilgrimage, the Hajj.

In 1996 he launched his interactive interview show CNN: Q&A with Riz Khan, and he has conducted interviews with guests including former UN Secretary General Kofi Annan, former US Presidents Jimmy Carter and Bill Clinton, the Dalai Lama and Nelson Mandela, and genomic scientist J. Craig Venter. Khan also secured the world exclusive with Pakistan's General Pervez Musharraf following his coup in October 1999. Khan also hosted Q&A-Asia with Riz Khan. These interactive shows put world newsmakers and celebrities up for viewer questions live by phone, e-mail, video-mail and fax, along with questions and comments taken from the real-time chatroom that opens half-an-hour before each show.

Until April 2011, Khan had his own show, Riz Khan, on Al Jazeera English, in which he interviewed analysts and policy-makers and invited viewers to interact with them via phone, email, SMS messages or fax.^[3]

Khan speaks Urdu and Hindi^[4] and also understands other South Asian languages such as Punjabi and Kutchi. He has studied French, and can understand some other European languages, including Swedish and Norwegian.^{[citation needed]}

In 2005 he authored his first book, Al-Waleed: Businessman Billionaire Prince, published by Harper Collins.

In 2011 he authored a preface for the Committee to Protect Journalists (CPJ) annual report "Attacks on the Press 2010",^[5] which examined working conditions for journalists in more than 100 countries.^[6]

References[link]

• "Why I'm Joining Al Jazeera", op-ed by Riz Khan, The Wall Street Journal, 13 June 2005, p. A1
• "Q&A CNN Anchor: Riz Khan". India Today. February 19, 2001.

External links[link]

• Riz Khan's official website
• Profile at Al Jazeera English^{[dead link]}
• MySpace Profile
• Interview with Baron Dave Romm of KFAI-FM at the Republican National Convention Sept. 2, 2008 and picture

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Joseph Stiglitz ForMemRS FBA
17th Chair of the Council of Economic Advisors
In office June 28, 1995 – February 13, 1997
President	Bill Clinton
Preceded by	Laura Tyson
Succeeded by	Janet Yellen
World Bank Chief Economist
In office 1997–2000
Preceded by	Michael Bruno
Succeeded by	Nicholas Stern
Personal details
Born	(1943-02-09) February 9, 1943 (age 69) Gary, Indiana
Political party	Democratic
Spouse(s)	Anya Schiffrin
Alma mater	Amherst College Massachusetts Institute of Technology
Profession	Economist

Joseph Eugene Stiglitz, ForMemRS, FBA, (born February 9, 1943) is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is also the former Senior Vice President and Chief Economist of the World Bank. He is known for his critical view of the management of globalization, free-market economists (whom he calls "free market fundamentalists") and some international institutions like the International Monetary Fund and the World Bank.

In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. Since 2001, he has been a member of the Columbia faculty, and has been a University Professor since 2003. He also chairs the University of Manchester's Brooks World Poverty Institute and is a member of the Pontifical Academy of Social Sciences. Stiglitz is an honorary doctor of Durham Business School,^[1] an honorary doctor at the Charles University, an honorary professor at Tsinghua University School of Public Policy and Management and a member of the Executive and Supervisory Committee (ESC)^[2] of CERGE-EI in Prague. Stiglitz is one of the most frequently cited economists in the world.^[3]

Biography[link]

Stiglitz was born in Gary, Indiana, to Jewish parents, Charlotte and Nathaniel Stiglitz. From 1960 to 1963, he studied at Amherst College, where he was a highly active member of the debate team and President of the Student Government. He went to the Massachusetts Institute of Technology (MIT) for his fourth year as an undergraduate, where he later pursued graduate work. His undergraduate degree was awarded from Amherst College. From 1965 to 1966, he moved to the University of Chicago to do research under Hirofumi Uzawa who had received an NSF grant. He studied for his PhD from MIT from 1966 to 1967, during which time he also held an MIT assistant professorship. Stiglitz stated that the particular style of MIT economics suited him well - simple and concrete models, directed at answering important and relevant questions.^[4] From 1966 to 1970 he was a research fellow at the University of Cambridge: he arrived at Fitzwilliam House as a Fulbright Scholar in 1965 and then won a Tapp Junior Research Fellowship at Gonville and Caius College.^[5] In subsequent years, he held academic positions at Yale, Stanford, Duke, Oxford, and Princeton.^[6] Stiglitz is now a Professor at Columbia University, with appointments at the Business School, the Department of Economics and the School of International and Public Affairs (SIPA), and is editor of The Economists' Voice journal with J. Bradford DeLong and Aaron Edlin. He also gives classes for a double-degree program between Sciences Po Paris and École Polytechnique in 'Economics and Public Policy'. As of 2005 he chairs The Brooks World Poverty Institute at the University of Manchester.^[7][8] Stiglitz is a New-Keynesian economist.^[9][10]

In addition to making numerous influential contributions to microeconomics, Stiglitz has played a number of policy roles. He served in the Clinton Administration as the chair of the President's Council of Economic Advisors (1995 – 1997). At the World Bank, he served as Senior Vice President and Chief Economist (1997 – 2000), in the time when unprecedented protest against international economic organizations started, most prominently with the Seattle WTO meeting of 1999. He was fired by the World Bank for expressing dissent with its policies.^[11] He was a lead author for the Intergovernmental Panel on Climate Change.

He is a member of Collegium International, an organization of leaders with political, scientific, and ethical expertise whose goal is to provide new approaches in overcoming the obstacles in the way of a peaceful, socially just and an economically sustainable world. He is also a member of the scientific committee of the Fundacion IDEAS, a Spanish think tank.^[12]

Stiglitz has advised American President Barack Obama, but has also been sharply critical of the Obama Administration's financial-industry rescue plan.^[13] Stiglitz said that whoever designed the Obama administration's bank rescue plan is "either in the pocket of the banks or they’re incompetent."^[14]

In October 2008 he was asked by the President of UN's General Assembly to chair a commission entrusted with drafting a report on the reasons for and solutions to the financial crisis.^[15] In response, the commission produced the Stiglitz Report.

On July 25, 2011, Stiglitz participated to the "I Foro Social del 15M" organized in Madrid (Spain) expressing his support to the 2011 Spanish protests.^[16]

In 2011, he was named by Foreign Policy magazine on its list of top global thinkers.^[17]

Contributions to economics[link]

Stiglitz at a conference in Mexico in 2009.

Information asymmetry[link]

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Stiglitz's most famous research was on screening, a technique used by one economic agent to extract otherwise private information from another. It was for this contribution to the theory of information asymmetry that he shared the Nobel Memorial Prize in Economics^[4] in 2001 "for laying the foundations for the theory of markets with asymmetric information" with George A. Akerlof and A. Michael Spence.

Before the advent of models of imperfect and asymmetric information, the traditional neoclassical economics literature had assumed that markets are efficient except for some limited and well defined market failures. More recent work by Stiglitz and others reversed that presumption, to assert that it is only under exceptional circumstances that markets are efficient. Stiglitz has shown (together with Bruce Greenwald) that "whenever markets are incomplete and/or information is imperfect (which are true in virtually all economies), even competitive market allocation is not constrained Pareto efficient". In other words, they addressed "the problem of determining when tax interventions are Pareto-improving. The approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained Pareto optima."^{[18]:229, abstract} Although these conclusions and the pervasiveness of market failures do not necessarily warrant the state intervening broadly in the economy, it makes clear that the "optimal" range of government recommendable interventions is definitely much larger than the traditional "market failure" school recognizes.^[19] For Stiglitz, there is no such thing as an invisible hand.^[20] According to Stiglitz:^[21]

Whenever there are "externalities"—where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets will not work well. But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always. The real debate today is about finding the right balance between the market and government. Both are needed. They can each complement each other. This balance will differ from time to time and place to place.

In the opening remarks for his prize acceptance "Aula Magna",^[22] Stiglitz said:^[23]

I hope to show that Information Economics represents a fundamental change in the prevailing paradigm within economics. Problems of information are central to understanding not only market economics but also political economy, and in the last section of this lecture, I explore some of the implications of information imperfections for political processes.

In an interview in 2007, Stiglitz explained further:^[24]

The theories that I (and others) helped develop explained why unfettered markets often not only do not lead to social justice, but do not even produce efficient outcomes. Interestingly, there has been no intellectual challenge to the refutation of Adam Smith's invisible hand: individuals and firms, in the pursuit of their self-interest, are not necessarily, or in general, led as if by an invisible hand, to economic efficiency.

Efficiency wages: the Shapiro-Stiglitz model[link]

In the Shapiro-Stiglitz model of efficiency wages, workers are paid at a level that dissuades shirking. This prevents wages from dropping to market clearing levels. Full employment cannot be achieved because workers would shirk if they were not threatened with the possibility of unemployment. Because of this, the curve for the no-shirking condition (labeled NSC) goes to infinity at full employment.

Stiglitz also did research on efficiency wages, and helped create what became known as the "Shapiro-Stiglitz model" to explain why there is unemployment even in equilibrium, why wages are not bid down sufficiently by job seekers (in the absence of minimum wages) so that everyone who wants a job finds one, and to question whether the neoclassical paradigm could explain involuntary unemployment.^[25] The answer to these puzzles was proposed by Shapiro and Stiglitz in 1984: "Unemployment is driven by the information structure of employment".^[25] Two basic observations undergird their analysis:

1. Unlike other forms of capital, humans can choose their level of effort.
2. It is costly for firms to determine how much effort workers are exerting.

A full description of this model can be found at the links provided.^[26] Some key implications of this model are:

1. Wages do not fall enough during recessions to prevent unemployment from rising. If the demand for labour falls, this lowers wages. But because wages have fallen, the probability of 'shirking' (workers not exerting effort) has risen. If employment levels are to be maintained, through a sufficient lowering of wages, workers will be less productive than before through the shirking effect. As a consequence, in the model wages do not fall enough to maintain employment levels at the previous state, because firms want to avoid excessive shirking by their workers. So, unemployment must rise during recessions, because wages are kept 'too high'.
2. Possible corollary: Wage sluggishness. Moving from one private cost of hiring <w∗> to another private cost of hiring <w∗∗> will require each firm to repeatedly re-optimize wages in response to shifting unemployment rate. Firms cannot cut wages until unemployment rises sufficiently (a coordination problem).

The outcome is never Pareto efficient.