Joseph Stiglitz’s 2003 book “The Roaring Nineties” is a cornerstone of President Barack Obama’s blueprint to reshape the US economy. Yet the Nobel Prize- winning economist says “there’s no natural position for somebody like me” in the new administration.
A plan Obama was considering to buy illiquid assets on banks’ balance sheets amounted to swapping taxpayers’ “cash for trash,” Stiglitz, 66, said in January interviews at the World Economic Forum in Davos, Switzerland. “I’m hopefully shaping some of the debate and some of the policies and framing the discussion.”
Like fellow Nobel laureate Paul Krugman, who writes a column for the New York Times, Stiglitz has his own forum, contributing regularly to Vanity Fair magazine. His articles, with titles including “Capitalist Fools,” are spread through the Internet via sites such as DemocraticUnderground.com and DailyKos.com.
Stiglitz’s work is cited in economic papers by more people than that of any of his peers, according to a February ranking by Research Papers in Economics, an international database. Obama adviser Lawrence Summers is 11th on the list and Federal Reserve Chairman Ben S Bernanke 34th.
While Stiglitz’s long-held views on the drawbacks of unfettered markets are proving prophetic in the global recession, his outspokenness excludes him from government, said David Ellerman, who worked with the economist at the World Bank in the 1990s.
“If you’re going to function well in a big bureaucracy, you’ve got to have a sort of self-control that Joe doesn’t have,” said Ellerman, a visiting scholar at the University of California, Riverside.
“The Roaring Nineties” (W.W. Norton & Company, 432 pages, $15.95) argued that the deregulation and market excesses of the 1990s laid the seeds of later crises. It inspired a speech by Obama a year ago, said a top aide from the Obama campaign, who spoke on the condition he wouldn’t be identified. The address laid out the president’s plan to reinstate and modernize regulation of Wall Street to avoid further crises.
Stiglitz also mentored several members of Obama’s economic team, including budget director Peter Orszag, 40, and Jason Furman, 38, deputy director of the National Economic Council.
Still, Stiglitz is critical of how the president plans to rescue the economy and questions his appointment of Summers as his top economic adviser.
It’s “a real concern” that people such as Summers, “who have been openly on the side of deregulation,” are back in positions of power, said Stiglitz. The presidential adviser helped secure passage of the 1999 Gramm-Leach-Bliley Act, which repealed longstanding banking regulations.
Stiglitz Clashes
“Larry Summers has made clear that the events of the last several years make sweeping reform of our financial regulatory system absolutely necessary,” said White House spokeswoman Jen Psaki.
“He has been a top adviser to the president on this issue as he has repeatedly called for swift government action,” she said.
When Stiglitz last worked in Washington, as chief economist at the World Bank, he clashed with Summers at Treasury and with the lender’s president, James Wolfensohn, by criticizing International Monetary Fund policies. Stiglitz said the IMF was hurting poor countries by demanding they cut budgets, raise interest rates and open capital markets.
When Stiglitz resigned from the bank in early 2000, his staff drew up a mock list of reasons for his departure. At the top: “Had Just Seen One Too Many Hot Summers in Washington.” Another entry: “To Find a Vaccine for Foot-in-Mouth Disease.”
“Remaining silent when people are pursuing wrong ideas would have been a form of complicity,” the New York Times quoted Stiglitz as saying of his departure.
“Rather than muzzle myself, or be muzzled, I decided to leave,” he said, according to the Times.
Speaking Up
Stiglitz receives more than 50 requests from the media each week for comments, travels constantly, and delivers a speech almost every day, said his wife, Anya Schiffrin.
He won the Nobel in 2001 for showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time.,
“Adam Smith’s invisible hand -- the idea that free markets lead to efficiency as if guided by unseen forces -- is invisible, at least in part, because it is not there,” Stiglitz wrote in a 2002 article in The Guardian newspaper.
The idea implies that there’s an important role for government to play in the economy, he wrote.
“This is Joe’s moment in time,” said Jared Bernstein, chief economist for Vice President Joe Biden.
Bernstein, who calls himself a Stiglitz “disciple,” said the economist “understood the tendency for markets to fail in ways that nobody else did. He was way ahead of the rest of us.”
Teacher’s Son
The son of a schoolteacher and an insurance salesman, Stiglitz grew up in Gary, Indiana, when the local steel industry was beginning to decline. He was student-government president and debate-team member in high school and went on to Amherst College and the Massachusetts Institute of Technology.
At the World Bank, Stiglitz repeatedly criticized IMF handling of the financial crisis that swept Asia in the late 1990s. He claimed austerity measures the fund demanded from nations looking for help risked pushing them into severe recessions.
Stiglitz also questioned the IMF’s motives. “I worry a little bit about organizations whose function is to deal with crises,” he said in September 1999. “What are their incentives?”
Soon after leaving the bank, Stiglitz wrote in The New Republic magazine that fund staffers were “third-rank students from first-rate universities.”
‘Harsh’ Critic
“There was probably nothing worse he could have said about them,” said Dean Baker, co-director of the Center for Economic Policy Research in Washington.
“When he wrote about the IMF, he didn’t make any efforts to be polite,” Baker said, “he was harsh.”
Stiglitz’s bestselling 2002 book “Globalization and Its Discontents,” (W.W. Norton & Company, 304 pages, $16.95) denounced World Bank and IMF policies, along with the way trade liberalization was being pursued by Washington officials.
His writings and criticism of the IMF prompted an open letter from Kenneth Rogoff, then research director at the fund.
“Joe, as an academic, you are a towering genius,” Rogoff wrote. “As a policymaker, however, you were just a bit less impressive.”
Stiglitz, who’s been a professor at Columbia University since 2001 and chaired the Brooks World Poverty Institute at the University of Manchester in the U.K. since 2005, shows no signs of curbing his tongue. Obama graduated from Columbia in 1983 with a degree in political science.
Failing ‘Giveaway’
The Treasury’s program to inject capital into financial institutions in return for warrants was “not only a giveaway, but a giveaway that was designed not to work,” he said.
The financial industry, which has run up more than $1.2 trillion in losses and writedowns since mid-2007 and whose cooperation Obama needs to resolve the economic crisis, is “ethically challenged,” he said.
Stiglitz continues to win praise from his peers, however.
“Joe is just one of the most immensely popular economists,” said George Akerlof, 68, a professor at the University of California, Berkeley, who shared the 2001 Nobel Prize with Stiglitz and economist Michael Spence, 65, an emeritus professor at Stanford University. “Stiglitz is tremendously generous with his ideas,” said Akerlof.
‘Talk Freely’
Stiglitz said he prefers the liberty of his current jobs to the shackles of politics.
“In my position in life, it’s much better to be in academia, to be able to talk freely,” he said.
Even academia isn’t prepared to accept some Stiglitz habits. His first academic job offer, an assistant professorship at MIT in 1966, came with the proviso that he remember to wear shoes and not spend nights in his office, he said.
It was one more position on which the economist refused to back down.
“It saved on commuting time,” he said.
To contact the reporter on this story: Matthew Benjamin in Washington at Mbenjamin2@bloomberg.net
