Joseph Stiglitz, 81, was Chairman of President Clinton’s Council of Economic Advisors between 1995 and 1997, then Chief Economist at the World Bank from 1997 to 2000. In 2001, he was awarded the Nobel Prize in Economics. He still teaches at Columbia University and is the author of numerous books. He is a notable critic of corporate profligacy, inequality and neoliberal globalisation.
When he has a new book published, it’s worth taking a look at it. When, in 2016, his book The Euro and Its Threat to the Future of Europe was published, I rushed to purchase a copy. At the time, Europe was wallowing in the economic aftermath of the Global Financial Crisis and the austerity programs imposed on the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain). I was curious to know what the great economist had to say. His critique of the Eurozone was fundamental and illuminating.
When his latest book came out, I bought a copy at once. It’s called The Road to Freedom: Economics and the Good Society. His name caught my eye, but so did his title. It was plainly a variation on the title of Friedrich Hayek’s famous book The Road to Serfdom (1944), which argued for a state confined to maintaining security and the rule of law, while giving maximum scope for private capital to develop the economy.
Stiglitz is unequivocal in stating that Hayek was in error and that the era since Thatcher and Reagan embraced Hayek’s theories, and those of Milton Friedman, had shown neoliberalism – the revival of classical liberalism and individualism – to have “failed”.
Stiglitz calls for a major reassessment of macroeconomics and some version of what he calls “neo-Keynesianism”.
Such an opinion is, of course, hardly original. Neoliberalism has been heavily criticised on various grounds. Not the least of these were the disaster of deregulating the banks in the late 1990s, not regulating derivatives and ending up with the Global Financial Crisis, in which the colossal losses of the Wall Street banks were covered by enormous public expenditure while millions of Americans had to cover their own private losses.
Similarly, the effects of neoliberalism internationally have been decried on various grounds, ever since the Asian Financial Crisis and the imposition of austerity on the afflicted countries of Southeast Asia by the International Monetary Fund. The term ‘Washington Consensus’ was saddled with this critique, over the objections of economist John Williamson, who had coined the term. On his 10-point program, starting with fiscal discipline, he insisted there had never been a consensus in Washington DC.
As I read Stiglitz, this became apparent. His book is perfectly readable and lucid. But it is more a rhetorical exercise, insisting on the failures of neoliberalism and the need for a larger government role in investment and regulation, than an actual examination of what Hayek or Williamson called for in good faith. In fact, he doesn’t mention Williamson at all.
I had hoped he would grapple empirically and critically with the serious mismanagement of the American economy and make a case for specific budgetary and regulatory adjustments that might, for instance, drastically reduce the US government budget deficit and promote law and regulatory enlightenment where they are lacking. But he does no such thing. There is no data of consequence in his book.
There is also no acknowledgement that to put together a policy platform on the broad lines he urges would require a heroic effort within either of the two major American political parties. Getting the restive American public to vote in support of such a program would be even more challenging.
But reforming federal (and state) entitlement spending, reforming the tax code and finding ways to overhaul the empire of defence spending would confront any politician with profound policy and electoral dilemmas. Stiglitz acknowledges none of these.
His idea of a ‘good society’ is, plainly, a benign one of common prosperity, egalitarian and socially conscious civil society, sound education and generous health and welfare provision for the underprivileged. No one would dispute that, for all its expenditure in these fields, the United States is in poor shape by these criteria.
But, as to precisely how this might be turned around, Stiglitz offers no more than an extended homily and the observation that, far from leading away from ‘serfdom’, neoliberalism has generated conditions that are driving social revolt and neo-authoritarianism.
Writing for an audience of rationalists, I feel compelled to complain that Stiglitz has let us down in terms of substantive argument. If, by contrast, one reads Robert Nozick’s classic Anarchy, State and Utopia (1974), one finds a remarkably detailed and scrupulous argument, from first principles, in favour of a minimal, or ‘night watch’ state. Hayek’s The Constitution of Liberty (1960) anticipated Nozick in this regard.
Stiglitz doesn’t engage with their arguments, though he repeatedly cites John Rawls’s famous A Theory of Justice (1971), to which Nozick was responding. He simply points to current conditions and says neoliberalism has failed. But he thought the Eurozone had failed. It wasn’t neoliberal and it hasn’t failed. Venezuela under Chavez and Maduro, or South Africa under the ANC, or gang-run Haiti, are clear failures based on anything but neoliberal economic policies.
The good rationalist wants to see sound arguments and relishes finding even highly plausible arguments to be flawed. Unfortunately, in this book, Stiglitz sermonises without rigour and avoids all the really tough and interesting questions. That might go down well with his woke students at Columbia University, but it doesn’t advance anyone in the direction of a workable economic and political program.
A more interesting book to stimulate thinking about economics and the state is Janos Kornai’s By Force of Thought: Irregular Memoirs of an Intellectual Journey (MIT, 2006), in which the Hungarian economist related how he slowly moved from Marxism to liberalism. You’ll learn more about thinking from Kornai than from Stiglitz.
Published 18 June 2024.
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Photo by International Monetary Fund (Flickr CC).
