Joseph Stiglitz: How to save capitalism from itself

Joseph Stiglitz won a Nobel Prize in Economics in 2001 for showing how information that is unequally shared by participants in a transaction distorts supposedly efficient markets and bestows unfair advantage.

Yet his firmly held conviction that government can "almost always" improve on the market's resource allocation has brought him into conflict with many mainstream economists, as well as with the US Treasury and even the White House.

Stiglitz, indeed, provokes considerable controversy. Lionized on the left for his focus on tackling economic inequality, he has numerous detractors on the right, especially among followers of the intellectual fathers of neoliberalism, Friedrich Hayek and Milton Friedman, who have accused him of downplaying the many instances when government intervention has also failed.

A question of conscience

For Stiglitz, however, economic policy choices are in large part a question of conscience. In his 2015 book, "The Great Divide: Unequal Societies and What We Can Do About Them", he argues that inequality is a choice, and that even billionaires can make more just choices.

He credits Warren Buffett, for example, with a clearer conscience than most billionaire capitalists. "When he says it is wrong for him to pay lower taxes than his secretary as a percentage of his income, I think he is genuine about that," says Stiglitz.

In fact, far from seeking to overthrow capitalism, Stiglitz wants to save it. He believes that "markets with private enterprise are at the core of any successful economy, but…unfettered markets are not efficient, stable or fair." By contrast, what he calls "progressive capitalism" can "save capitalism from itself".

An outlook formed in childhood

Stiglitz's own social conscience was formed in childhood. He was born in 1943 in Gary, Indiana, once famous for its huge steel mills, and witnessed first hand the familiar consequences of industrial decline: unemployment, poverty, and high levels of inequality.

Encouraged by his middle-class parents to do something socially useful, Stiglitz often recalls August 28, 1963, when he was among the 250,000-strong crowd that stood before the Lincoln Memorial in Washington DC to hear Martin Luther King declare "I have a dream".

King's speech was a pivotal moment in his life, Stiglitz has said. And it reinforced his determination to research the reasons why markets alone so often fail to ensure economic justice.

Discovering Keynes and a model to relate to

While studying at Amherst College, and gaining a PhD in economics from the Massachusetts Institute of Technology (MIT), Stiglitz was "struck by the incongruity between the models that I was taught and the world that I had seen growing up." But in 1965, on a Fulbright scholarship at the University of Cambridge, he encountered the interventionist ideas of John Maynard Keynes, and finally found a model he could relate to.

Much like Keynes, however, Stiglitz has struggled to capture and retain the attention of US presidents.

The legendary British economist was introduced to President Franklin D. Roosevelt (FDR) in 1934, but according to his biographer, they did not hit it off. FDR found Keynes too abstract, and Keynes worried that the US president simply wasn't doing enough to pull the US out of the Great Depression.

In the 1990s, as chair of President Clinton's Council of Economic Advisers, Stiglitz also failed to make his point. He spoke out, for example, against the 1999 repeal of the Glass-Steagall Act, which had separated commercial from investment banking since FDR's presidency, arguing that it would encourage the banks to take on too much risk, but could not convince Clinton to keep the act in place.

He also famously clashed with Clinton's treasury secretary, Lawrence Summers, whose ideas on market regulation differed from his own (and tended to prevail). In 1999, when then World Bank president James Wolfensohn declined to reappoint Stiglitz as the international institution's chief economist, he became convinced that Summers was behind the slight; a charge that Summers denies.

Highly influential, especially outside the USA

A professor of economics at Columbia University since 2001, he also holds positions at French and British universities. And his ideas have had more resonance with political leaders in Europe. Stiglitz advised both the UK Labour Party (when the left winger Jeremy Corbyn became its leader in 2015) and the Greek government, during Greece's 2010 debt crisis.

What's more, Stiglitz has won fans in G20 nations by arguing that the global economic system is stacked against them, and for relentlessly criticising the policies of his old employer, the World Bank, and of the International Monetary Fund, whose remedies, he has claimed, "often make things worse".

Jumping to conclusions?

Even some of his intellectual allies have suggested that while Stiglitz is often right on substance, he tends to leap to conclusions. Others, while acknowledging what one calls his "towering intellect" have accused him of arrogance.

But while Stiglitz plainly has little patience with those who dispute him, his persistence - and consistency - are undeniable. 

His most recent book (and he has authored dozens) proclaims a familiar message. Titled "The Road to Freedom: Economics and the Good Society" it's a riff on Hayek's "The Road to Serfdom", first published in 1944.  

But while Hayek warned of "the danger of tyranny that inevitably results from government control of economic decision-making," Stiglitz prefers to ask what happens when one person's freedom conflicts with another's. He also challenges the claim that neoliberalism is morally superior to its alternatives.

"The message to Democrats is clear: you must dump neoliberal economics," he wrote in a widely shared opinion piece after President Trump's victory in the recent US election. Holding neoliberalism responsible for "unprecedented inequality", he calls for the party to provide a new vision for society, and a new economy, with "new rules and new roles for government."