Joseph Stiglitz Thinks We’re Done with Neoliberalism

"Talking Trump and Economics With Joseph Stiglitz in Sydney

The Australia Letter is a weekly newsletter from our Australia bureau. This week’s issue is written by Damien Cave, the bureau chief.

For more than three decades, Joseph Stiglitz has been working within and critiquing the system of global economics.

He was the World Bank’s chief economist in the late ’90s, after serving in the administration of President Bill Clinton, and in 2001 he was awarded the Nobel in economic science for a body of work focused on imbalances in information — the way, for example, a seller may possess more information than a buyer, or a borrower many know more about his or her ability to repay a loan than the lender does.

The central insight of his life’s work can perhaps be summed up in the idea, now more widely accepted, that free markets are not always rational and tend to be freer for some than for others. 

In his latest book, “The Road to Freedom: Economics and the Good Society,” he found a sharper way to say it by quoting Isaiah Berlin, the Oxford philosopher, who said: “Freedom for the wolves has often meant death to the sheep.”

I sat down with him this week in Sydney, during his latest tour of a country he first visited in 1967. This time, he was traveling for panels and lectures sponsored by the Australia Institute. And as has always been the case — at least in my experience, having interviewed him at a few global inflection points — he was unassuming and generous with his time and thoughts.

He even let me bring along a couple of 10th graders working on school assignments: Lyra Mesimeris, who has expressed interest in journalism, and Balthazar or Baz Oliva Cave, my son, who has hinted (just once) that he’s curious about economics.

The interview below with Professor Stiglitz (at age 81, he still teaches at Columbia University), conducted by the three of us, has been edited for space and clarity.

Q. You may not remember this, but I first interviewed you for a Q&A in 2002, at the very beginning of my career. It was after the Enron scandal and the first dot-com bust, and you told me you thought that people were learning that Wall Street isn’t a font of wisdom, and that the U.S. system was on the verge of positive change. That didn’t happen. What did you miss or underestimate?

You’re absolutely right, I was overly optimistic that we would learn from those events. Nothing was a more clear demonstration of that than the 2008 financial crisis. And I continued to be optimistic then, even more optimistic, because it was so clear — I mean Enron was small compared to the disaster of the 2008 financial crisis, which was global in its reach.

I guess what I would say is, the way I talk about it in my new book, is that when things go bad, you come to a view that there is a need for change but figuring out which changes are needed is more complicated. You will get change, but don’t count on that being in the right direction.

And what we are seeing now is a reflection of that simple insight — Donald Trump and the MAGA movement, I believe, is a response to the failure of nearly 40 years of neoliberalism. But it is a response that exacerbates many or most of the problems that led to the disenchantment.

Q. Lyra has a related question: What are the economic prospects for America if Trump is elected in November?

In almost every dimension, things will get worse. So inflation is not much of a problem now and it has come down not because of what the Federal Reserve has done, what here (in Australia) the R.B.A. has done. Raising interest rates, they’ve made it worse, I believe. It’s come down because markets and the economy have responded to the supply-side interruptions and demand shift associated with the pandemic, and sanctions against Russia. It’s just an automatic process.

But a 50 percent tariff on Chinese goods from Trump would raise the cost of living for typical Americans. We are very reliant on their textiles, clothes. We rely on them for drugs, for a whole host of products, so it would cause inflation. It would cause inflation, also, because of the drastic reduction in immigration, which we rely on. Americans, like most other advanced countries, are not reproducing at the same rate and so we rely on immigration.

Then there are other aspects of his policies — a major problem for us is inequality. He has a tax cut for billionaires, tax increases for ordinary Americans. So again, it would exacerbate the inequalities.

Q. In your latest book, you describe the U.S. as a low-tax, low-regulation, shareholder-centric economy. Australia is not as extreme, but inequality here is also widening. Why are some of these problems appearing even in more moderate countries?

Well, Australia does have some extreme policies like their treatment of mining and natural resources, which is where a lot of extreme inequality comes from. That you didn’t have a windfall profits tax; that you allow people to extract your resources for almost nothing, and in some cases, subsidize those extractions. Your financial sector regulation is in some ways a part of the global norm — again, it gives rise to the same global forces for inequality.

Australia’s not gone to the extreme in C.E.O. pay or dysfunction in governance, but it’s hard for any country to move out of the flow that’s going on globally.

Q. Baz has a question. It’s kind of related to Lyra’s question — do you think if Trump wins there would be a financial crisis that would leach into the rest of the world?

I think we’ll have a democratic crisis that will reach into the rest of the world. Just the other day he said something like, once you vote for him this time, you won’t have to think about elections anymore. That was a very dark statement. And he’s said that kind of thing before. What is so amazing is that those are probably moments of honesty percolating in what is going through his mind.

He has already shown he doesn’t believe in democracy, and that is more worrying to me.

He normalizes what should be totally unacceptable within a democratic society.

Q. Baz had also been wondering what you would do if you, as a leading proponent of what you call “progressive capitalism,” were in a position of power. What’s the first or most important fix for all of this?

There’s no single thing that would solve our problems. If there’s anything, it’s changing the mind-set. Change the mind-set away from neoliberalism, and that then sets the agenda going forward. If you approach these problems with the wrong theory, every one of your decisions is going to be wrong. So that, to me, is the underlying thing.

Q. Do you see reasons for hope or optimism now?

Hope actually may be too optimistic a word. But it is very clear that there’s a consensus that neoliberalism is broken. You see that both Republicans and Democrats, for instance, are now advocating industrial policy. That was such a no-no for 40 years.

I feel kind of sorry now for my friends who were in the center-right, who were about small government, a global view — the old Liberals in Australia. They have no home, no intellectual, no party home in the United States.

Whether it’s optimistic or pessimistic, it means that there’s been a very big change in our politics." [1]

1. Australia Letter: Joseph Stiglitz Thinks We’re Done with Neoliberalism. Cave, Damien.  New York Times (Online) New York Times Company. Aug 2, 2024.