Before I speak to Joseph Stiglitz, one of his surprisingly ample team asks if I can give him notice of my questions. The Nobel laureate, it turns out, appreciates time to prepare. Stiglitz’s critics might laugh: hasn’t he been preparing for the past three decades? Surely his leftist critique of free markets now comes naturally?
Stiglitz, chair of Bill Clinton’s council of economic advisers, then chief economist at the World Bank during the 1990s, found fame with his 2002 bestselling attack on the IMF, Globalisation and Its Discontents. Disdained by The Economist, for many left-wingers he nonetheless became the economist.
Some things have changed. At 81, Stiglitz finally feels in the ascendancy. Scepticism of trade rules is now received wisdom among Democrats and Republicans. “Where I was in 2000 on globalisation is really where the world is today,” he says, jovially and apparently spontaneously. Even the IMF has taken on board his critique.
US President Joe Biden has adopted some big state, pro-worker policies of which Stiglitz approves. Stiglitz is also claiming vindication from the fall in inflation. In November, he took a “victory lap” on behalf of those economists who, like him, argued rising prices were a “transitory” reaction to supply chain problems.
“If you hadn’t done anything other than normalising interest rates to 3, 3.5, 4 per cent, inflation today would be little different from what it is.” US consumer inflation was slightly higher than expected in March. “There are inevitably going to be month-to-month variations . . . [But] inflation came down dramatically — as ‘team transitory’ had predicted — without the unemployment increasing in the way that the other team had said was necessary.”
Yet the new global order also poses challenges for Stiglitz’s world view. He has called for a better deal both for the world’s poor and for deindustrialised regions in the west: the needs of the two often clash. The US wants to create green industrial jobs by producing electric cars and solar panels, but complains Chinese imports present unfair competition.
Is China a constructive player in global trade? “In many ways, because of the opacity of their system, we don’t fully know.” The “irony” is that since 2019, the US has blocked the appointment of new judges to the WTO appellate body, the top appeals court for world trade, “so we have no formal legal way of saying have they violated the rules or not”.
The underlying problem is that the US did not anticipate a rival such as China, says Stiglitz. Even without subsidies, China “could outcompete just because of the scale of their economy and the number of engineers they have. Our under-investment in engineering and their over-investment in engineering — that’s not a trade violation, it’s a strategic mistake. They put themselves in a comparative advantage, and we haven’t come to terms with that.”
China’s success in electric vehicles is also evidence for Stiglitz that, in climate policy, regulations often work better than subsidies. More than a decade ago, “I was in a meeting with the premier [Wen Jiabao] where he told the car companies: you have to be electric within five years or you’re out of here. China has made it clear it will be an EV country; we haven’t.”
So does Stiglitz support bringing industrial jobs back home? “The pandemic made it very clear that we don’t have a resilient economy and that borders do matter and, no matter what our agreements are, when push comes to shove, we’re going to put our citizens number one.”
A fellow Nobel laureate, Angus Deaton, recently switched to arguing that the leaders of rich countries must prioritise their own citizens over the world’s poorest people. Stiglitz disagrees: if the west is seen to prioritise its own people, it will fail to encourage global co-operation, for example, on climate change. “We can implement industrial policies in which there is more sharing of green technologies.”
Stiglitz likes the catchphrase “de-risking”: having high-end chip production concentrated “in one island, Taiwan, is madness”. Republicans’ brand of protectionism stems from seeing the world as “zero-sum”, whereas Democrats are concerned gains from trade have been mopped up by corporations, not workers. Moreover, “the Democrats still believe in a rules-based system, they just don’t think China’s obeying the rules, and they’re trying to figure out what kind of rules-based system can work in a world in which you have such heterogeneity”.
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Stiglitz’s new book, The Road to Freedom, seeks to reclaim the idea of freedom from America’s right. The US, he points out, was born from the idea of no taxation without representation. Some citizens now seem to reject the concept of taxation even with representation.
Freedom is not something that can be easily maximised, as libertarians would like. It involves trade-offs: a person’s freedom to carry a gun constrains many children’s freedom to go to school; a pharmaceutical company’s freedom to charge what it likes conflicts with disease sufferers’ freedom to live.
The right’s failure to grasp such trade-offs is its “fundamental philosophical flaw”, writes Stiglitz. It has created an unequal, dishonest society, which is partly embodied by Donald Trump: Trump University, the for-profit school he started, was, like many US businesses, built on exploitation; Trump himself, like many US rich kids, believes he has the right to break society’s rules.
Populism is stronger in countries such as Brazil, the US and Hungary, which have not addressed inequality, Stiglitz argues. Stalling living standards, and the resultant loss of hope, creates “a fertile field for [a] demagogue like Trump . . . He is what neoliberalism produces.”
Stiglitz shared the 2001 Nobel Prize for work on how imperfect information affects markets, but he had not thought this applied to people deliberately creating misinformation. “We hadn’t fully contemplated how evil people could be! I might know something, I would keep it for myself, but there were laws against fraud and we had scientific principles, you couldn’t just lie.”
Stiglitz’s solutions often suggest the US should be more like Europe: online regulation, sick pay and paid holiday. Why does the US continue to outperform Europe in growth and tech innovation? His response is two-fold. First, US growth figures are flattered by population trends. “Once you correct for some of the demography, we’re not doing that well.” Second, GDP isn’t enough. “We’re failing. Our life expectancy is down. The data about unhappiness — we’re way down.” Overall “if you were a typical citizen, would you rather wind up in Sweden or the US? The answer is unambiguous. It’s not going to be the US.”
The potential of Silicon Valley is real, but an “awful lot”, he argues, is down to government support and not-for-profit universities such as Stanford and Berkeley. Anyway “this [tech] world is the antithesis of the Trump world. He wanted to cut research expenditure.”
Yet the government is under strain: western debt-to-GDP ratios have increased. Is Stiglitz worried? Not about the US. “The growth rate over the last 100 years has been well in excess of the real interest rate, which really is the critical variable in the sustainability of debt. Investing in infrastructure with increased taxes would also boost growth,” he argues.
The eurozone, where countries cannot print their own currency and have less room for tax increases, is different. “It’s hard not to worry about the Italian debt, for instance.”
Stiglitz-onomics had a brief moment in Argentine politics. A Stiglitz protégé, Martín Guzmán, was appointed economy minister in 2019. He called for the restructuring of Argentina’s debt burden, but ended up resigning in 2022 unable to win support for spending cuts. What are the lessons? “You can’t separate economics from politics . . . But for the world as a whole, the absence of a [sovereign] bankruptcy procedure is really a crucial failure.” Stiglitz has also approvingly cited Chile’s leftist president Gabriel Boric, whose ideas have also run hard into reality.
The Road to Freedom is striking in its moral disgust at neoliberal capitalism’s “selfishness”, “materialism” and “dishonesty”. Stiglitz complains about airlines that lose luggage, unreliable phone networks, call centres that keep you on hold for hours. It’s clearly personal. “We were just talking this weekend — how many people we all know, particularly the elderly, who are facing the problem of scamming . . . So much of our lives has to be spent in a defensive way that is actually very unpleasant.”
He mocks his rival economists as suffering from “cognitive dissonance: you spend your life proving markets are efficient, and then you spend the rest of life dealing with the obvious inefficiencies of the market economy.”
I wonder if the same cognitive dissonance applies to him. He argues that “for the most part there is no moral legitimacy to market incomes”. Does the same go for his own earnings?
He takes the question in good humour. “The wages that all of us get can’t be justified in any moral sense. Some of the things I do might generate for somebody else billions of dollars. How much of that is attributable to what I’ve done? I don’t even know how to think about that.” He does know “that people who do work very hard, in very unpleasant jobs, are not getting pay that compensates them” relative to others. The US federal minimum wage is “the level it was 65 years ago, adjusted for inflation. It’s almost unbelievable.” Some things should change, even as Stiglitz himself remains reliably constant.