Joseph E. Stiglitz at the Rotman School of Management at the University of Toronto, on Nov 14.Fred Lum/The Globe and Mail
Joseph Stiglitz is, in a sense, the ultimate establishment man: former chief economist of the World Bank, chair of the Council of Economic Advisers under U.S. president Bill Clinton, winner of the John Bates Clark medal as America’s top young economist in his 30s and the Nobel Prize for economics two decades later. But he’s also been a constant critic of the excesses of the free market and the necessity of regulation and government. His new book is The Road to Freedom: Economics and the Good Society. I spoke with him on Thursday in Toronto about innovation, inequality, Trumpenomics and the sad decline of his hometown. This conversation has been edited for brevity and clarity.
Tony Keller: The title of your book sets it up as a challenge to an 80-year-old polemic by another Nobel Prize-winning economist. Why?
Joseph Stiglitz: The Road to Freedom is a riff off of [Austrian libertarian economist Friedrich] Hayek’s The Road to Serfdom. He wrote that book at a moment in 1944 when Keynesian economics had shown that markets by themselves were not self-correcting, that you could have extended periods of unemployment, but that government could come in and intervene and get us full employment, and governments could provide social protection and address real uncertainties in ways that were actually good for the economy. He thought this stronger role for government would lead us to a society of subservience.
Part of my point in this book is that, to the contrary, you see the growth of authoritarian populism in places where the government hasn’t done enough, not where it’s done too much. You see it stronger in a place like the United States, where government hasn’t addressed the real grievances, sense of insecurity and lack of upward mobility.
Keller: Is there any society you would point to that has done a good job of using the the economic approach you’re talking about?
Stiglitz: I think Norway is a country that probably has done it, though it is lucky that it had a lot of oil and gas. But I see a lot of other countries that have oil and gas and didn’t use their money to enhance freedom, and Norway consciously did. They took their gas and oil to increase the potential of their people, especially women. They were actively engaged in expanding, you might say, their people’s capabilities, people’s ability to live up to their potential, increasing their freedom.
Keller: One of the big economic issues in Canada right now is the slump in Canadian productivity and gross domestic product per capita relative to the U.S. A lot of people say the fix is to be more like the U.S., with lower taxes and less government. What do you say to someone arguing for that?
Stiglitz: There are many things they’re missing. Productivity doesn’t necessarily translate into well-being. Are you really interested in just the production of goods and services, or are you interested in well-being? I don’t care so much if the standard of living of Jeff Bezos and Elon Musk goes through the roof. If the ordinary American is struggling, our economic system is failing. Wages at the bottom are at the same level they were 60 years ago, adjusted for inflation. I mean, that’s a failure. Life expectancy is lower than in any other [developed] country, and declining. That’s a failure. Median incomes have been stagnating. When you look at any of these statistics, over a 40-year period when this is supposed to be the innovative economy, by most measures things have not gone well. So I would say our system as a whole is a failure.
Keller: Which brings me to Donald Trump and Trumpenomics. He got elected by arguing that America is failing, and a lot of his supporters are critics of neoliberalism, as are you. Are they right?
Stiglitz: What they picked up is a sense of grievance that neoliberalism led to enormous increases in inequality. That’s at the heart of their campaign. Where they’re wrong is they’re blaming trade itself as the problem. Trade liberalization has exacerbated the problem, but technology would have contributed on its own. Does Trumpenomics have a solution? Protectionism is not going to bring back the manufacturing jobs and, to the extent it brings back manufacturing, it will be robots. To the extent it brings back production, it’s not going to bring back jobs. The jobs are going to be very different jobs than the jobs that are lost. So they don’t have the solution.
Beyond that, a lot of (Trumpenomics) is just reaction. Getting rid of Obamacare means that life expectancy is going to go down more. Health and security, a big part of people’s unhappiness, is going to become ever worse. I can’t think of an item in their agenda that will actually address people’s concerns.
Keller: Is Canada closer to your idea of a good society than the U.S.?
Stiglitz: I think it is, beginning with the public health care system. There is criticism of any health care system, no one can be perfectly happy, but the idea that everybody, no matter their income, has a right to access to medicine is pretty well accepted in Canada. In the United States, large fractions of people don’t have access to health care. That’s a very important part of well-being. I joke that as I get older, I appreciate how important it is.
More broadly, in many areas of public choice there are tradeoffs and you have to make decisions, and sometimes you make them wrongly, but you’re trying to reach a balance. I get the feeling that [in Canada] there’s much more of an awareness of the existence of tradeoffs and the struggle to get the right balance rather than the ideological limits that drive so much of the discourse in America.
Keller: Since the 1970s, the pace of economic growth has slowed across the developed world. To what extent is that because of our economic policies, and to what extent is it an independent slowdown in the rate of innovation and technological change?
Stiglitz: Neoliberalism played a very big role. Since the Cold War we have been cutting back on basic research. The private sector won’t do that, they do the last mile well but not the basic research. Neoliberalism underestimated the importance of that. Neoliberalism also highlighted money, and there was a diversion of resources toward finance, and that actually led to less real investment, so that undermined growth. In many countries there’s been a deterioration in public education – again, undermining growth. Financial liberalization led to volatility, which is bad for growth. The irony is that neoliberalism was supposed to enhance growth but the evidence is unambiguously that growth slowed, and I think there’s a causal connection.
How do we resolve the contradiction that we use the vocabulary of “an innovative economy,” yet growth is slowing? The answer in part is that, overwhelmingly, private innovation resources were allocated to making a better advertising engine over the last 20 years. What kind of society decides that making a better advertising engine is going to be the best way of allocating resources?
Now, it turns out that the very little resources allocated to renewable [energy] has had numerous productivity gains. That’s a big innovation that will save the planet. So if we measure things correctly, there has been really important innovation. And an unintended byproduct, based on fundamental research that government supported, but also a byproduct of all that advertising research, is AI. And AI may have profound effects [on growth].
And the final thing is, it may be that the change in the structure of the economy may make it less amenable to innovation, and we just have to accept that. There’s a view that making manufactured goods is more subject to innovation than services. I’m not sure I agree with that, but it is at least a possibility.
Keller: You grew up in the steel town of Gary, Indiana, which has become a poster child for economic decline, and decline generally.
Stiglitz: I went back in September for my 65th high school reunion. It was a lot of fun, but seeing Gary is very, very depressing. The best analogy is a war-torn community. I talked with the mayor, and he had succeeded in getting a couple of movies shot there. One of them was a movie supposed to take place in Somalia. Gary is a little safer than Somalia but looks as war-torn. Its population is half of what it was, and that means half the buildings are empty. I went to where my father’s office used to be. It was a 10-storey building – all empty. It’s like Detroit, but worse. It’s devastating.
Keller: Could things have turned out differently?
Stiglitz: Gary deindustrialized. It would have taken large public investments to restructure the human capital to do something else. There is one steel town that succeeded in making the transformation, and that’s Pittsburgh. Pittsburgh is thriving. The answer? The University of Pittsburgh, Carnegie Mellon University, it’s become a cultural centre, a research centre. It went into the innovation economy. Gary, in some ways, was better positioned – next to Chicago, next to some beautiful beaches. I really believe it could have been done. But markets on their own don’t do it.