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March 24, 2008 | by  | in Features |
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Joseph Stiglitz

He’s no swashbuckling Romeo, but I could hardly fault John Campbell’s burning desire to propose marriage to Joseph Stiglitz during his brief talk last Friday. Erudite, controlled and surprisingly entertaining, the Nobel Prize winning economist amused large portions of the audience with his pithy observations on the disparities of global wealth distribution. Stiglitz was one of many authors to attend the 2007 International Festival Readers and Writers week, but the only deemed so compelling as to be given a prime-time slot and the grandeur of the Michael Fowler Centre to expound on his theories.

Making Globalisation Work and Globalisation and Its Discontents, two of the former World Bank director’s popular works, are powerful critiques of the global discourse on the economics of development. Much of their content would not seem particularly radical to, say, readers of New Internationalist or development studies students. The real catalyst for the success of these books is the status of their author, a symbolic gesture on behalf of the ‘establishment’ of commitment to improving on past policy failures. Unfortunately for Burkina Faso and everyone else at the bottom of the register, Stiglitz’s views are hardly shared by his contemporaries. Director of Research at the International Monetary Fund (IMF) Kenneth Rogoth had this to say of the author: “Joe, as an academic, you are a towering genius. Like your fellow Nobel Prize winner, John Nash, you have a “beautiful mind.” As a policymaker, however, you were just a bit less impressive.”

For a policymaker whose background is the epitome of academic rigour and prestigious credentials, Stiglitz’s pariah-like status amongst many of Washington’s elite does seem odd. That his not so glittering trajectory through the 19th Street offices of the World Bank ended abruptly and in considerable scandal explains a lot.

If there is a lesson to be learnt, it would go something along the lines of ‘don’t fuck with the IMF’ (and ironically, be prepared to pay if you do). This is not to suggest that Stiglitz did not do his job properly. On the contrary, he did it too well. He paid attention to what was happening at the IMF across the street from the World Bank HQ, and he didn’t like what he saw.

While the World Bank was working to help developing countries build their infrastructure, the IMF’s rigid dogma often undermined the potential good that international institutions could (and should) achieve. As Stiglitz opined in an article for the New Republic in April 2000: “They’ll say the IMF is arrogant. They’ll say the IMF doesn’t really listen to the developing countries it is supposed to help. They’ll say the IMF’s economic ‘remedies’ often make things worse – turning slowdowns into recessions and recessions into depressions. And they’ll have a point.” Stiglitz’s resignation from his position at the World Bank came soon after pressure from both the IMF and the U.S Treasury to downplay the obvious failures of IMF ‘shock therapy’ policies in former Communist countries’ transition to market economies. It’s hardly conspiratorial to suggest that he would have lasted longer had he toed the policy line.

Money

In our ever popular drive to compartmentalise thinkers in relation to their predecessors, Stiglitz is generally considered to be a New-Keynesian economist. (Soon we will be able to call someone ‘Stiglitzian’, something I look forward to hearing people attempt to say quickly with a pen in their mouth). In other words: a) he doesn’t think the free market will solve all our problems, and b) he understands the flaws in how Adam Smith’s theories are misguidedly applied today. His Nobel Prize winning economic theories and lecture series at Stockholm in 1990 are underpinned by these major points, in particular the harm in assuming ‘perfect information’ in free market theory. As the joke goes, assumptions aren’t particularly helpful if you’re marooned on a desert island and attempting to crack the proverbial coconut. If we are all to get our fair share of the tropical juices, we need to understand that perfect information rarely exists, and adjust our theories to suit. A further handy Stiglitz quip – “The invisible hand is largely invisible because it isn’t there…” Who ever said economists couldn’t be entertaining?

However, Stiglitz’s talk with Rod Oram on Friday was less concerned with the specifics of liberalisation and was more a communal confirmation that we (the ‘informed’) are not alone. Even better, we have bearded MIT graduates on our side. “We are going to have to change the way we live in a big way” he assured the audience, for if the average Joe in India and China were to aspire to our decadent ways, we will truly be stuffed. This is hardly big news to anyone who cares to observe the disjuncture between the size of most western countries and their relative resource consumption. But the rhetoric pulls a bigger punch coming from the mouth of someone who knows just how hard the process of change will be. Stiglitz believes we have to save the market from market advocates who pretend that everyone will benefit. A prime example: the attempted liberalisation of the employment laws in France during early 2006. Riotous students demanded to know how decreasing their job security and wages would make them better off, as Sarkozy suggested. “In the future, we’ll all benefit,” countered the future President. But as the esteemed Mr. Keynes prophetically remarked, in the future, we’ll all be dead.

Contrary to the desires of the global elite, Stiglitz is convinced that an improvement on our economic quagmire will require some of Earth’s spoils to be taken from the winners and given to the losers. Snickers echoed around the theatre when he suggested a policy of ‘trickle up economics’ be implemented. “What we need is social protection without protectionism. We need to move away from the notion that markets make everyone better off.” He elicited more knowing chuckles by quietly inquiring why certain types of income, often based on luck, are exempt from tax. “Seems to me we ought to reward hard work, not luck.” If only it were so. Fortune (and a penchant for colonialism) has rewarded the historical invader, and now we get to dictate how developing countries should follow our liberalisation model in giddying fast-forward. Enforced liberalisation and a borderline obsession with keeping inflation down characterises the dogmatic approach of the IMF, whose targeting model Stiglitz calls ‘naïve’. This is especially dangerous given the propensity for ‘imported inflation’ to affect developing countries, (for example the current high prices of food and oil) which throws infant economies into disarray and complicates central banks’ ability to target the source of the inflation. He believes we are blind to the other methods for improving fiscal policy and a countries economic performace. “We are ideologically tied to the notion to not use the other instruments at our disposal. We’ve tied our own hands.”

War

Stiglitz has not limited his scathing criticism to the realm of international bureaucracy. His homeland has repeatedly come under his fire for its incredible ability to weasel its way out of a position of global responsibility towards climate change and global underdevelopment. Again, hardly breaking news that Uncle Sam would prefer to be in front of the T.V than at the front line. But if anyone could shame the government into taking action, it would be the prodigal son. His suggestions range from the mild to the outrageous (in the narrowed eyes of major industries in the U.S): an example of the latter was his idea as part of a Washington think-tank to subtract out environmental impacts from the nation’s GDP. “Needless to say, the coal industry didn’t much like that idea,” judging by their complete withdrawal of funding to the research. Stiglitz also condemned the U.S’s decision to build its infamous super highway system in the 1950’s, calling it a “huge mistake” that perpetuated the nation’s oil dependence and its slow decline into a drive-through lifestyle. The money that should be spent on public transport, believes Stiglitz, is instead funding the increasingly expensive Iraq War, and to what end?

This was the concern of the panel discussion the author took part in the following day, alongside journalist James Meek, theatre director Nigel Jamieson and Doonesbury cartoonist Garry Trudeau. Stiglitz’s presence was thanks to his most recent publication The Three Trillion Dollar War, in which he rails against the outrageous spending of the Bush administration, with at least 40 % borrowed from China and other countries. Asked by chair John Campbell about his personal response to the war, Stiglitz talked of his shock at the lack of public debate and the flaccid response of the media. Of particular scandal was the New York Times’ failure to report a two million strong antiwar protest soon after the declaration. The Bush administration had quite successfully painted the situation as black or white: either you were outraged at the September 11th attacks (and thus pro-war) or you weren’t. End of story. “Obviously, there was no connection” shrugged Stiglitz. “Visitors to the White House were convinced of war at least one year prior – it was just a case of figuring out the excuse.” It is, he believes, a peculiar interpretation of democracy, whereby the public’s support is a mere bonus to a decision to go to war, not a prerequisite. The United States government, for the first time in history, painted the conflict as a ‘war for free': no discussion on how to pay for it, no tired rhetoric of “shared sacrifice”. Instead, as Garry Trudeau pointed out, the financial costs were outsourced to the Chinese, and the emotional costs to the military, many of who come from small towns in the South. Trudeau’s aim is to reconnect Americans to their countrymen through his cartoons, a difficult task given the increasing unpopularity of the war.

Stiglitz’s primary focus, like a true economist, was on the financial cost of the war. He was left to answer all financial questions from the floor, while the other panellists emphasised the war’s less tangible – although no less harmful – effects. Nevertheless, when asked whether the Bush administration waged the war for financial gain (e.g. via oil), Stiglitz said he believed these reasons do not make sense; the real reason for the war was Bush’s oedipal desire to out-do his father. All participants spoke of the blow to America’s moral currency and the perceived moral authority of the democratic West. In particular the issue of torture at both Guantanamo Bay and Abu Ghraib has done little to promote the legitimacy of the entire venture. Trudeau believed that the issue of torture “has pierced the American soul . . it is hard to quantify with the number of fatalities.” Obviously the United States has a tortuous history with regards to police brutality and slavery (not to mention the support of various murderous regimes) but Trudeau believes one cannot put a price on the damage done to the American psyche on the issue of torture. To our generation the concept of opposing torture may appear to be a bedrock principle of western democracies, but really we owe it to the abyss of World War Two and our collective repulsion at the horrors of that conflict. As Jamieson pointed out, it is tragic how briefly these principles have lasted, and how easily any semblance of peace can so easily be undermined. “The greatest cost of Iraq across the world was the cost to dialogue between countries, our capacity to have understanding, to live together, share values . . embedding fundamentalism and intolerance in all countries”. The same could be said of the policies that Stiglitz is so critical of – fundamentalist economics can wreak too much harm to be dallied with uncritically. I would venture that most Wellingtonians walked away from both talks wondering how much of their future is in the hands of a select few who don’t seem to be making any of the right calls. And they’re too busy pressing the mute button to hear what everyone else is saying.

“The free market may be a good, bad or insufficient idea, but, in any case, it is just a crude commercial code. Now it is regularly equated with, or given credit for, or even precedence over, the freedom of man. But the freedom of man is a moral statement on the human condition, both in the practical and in the humanist sense. To equate it with a school of business is to betray a certain confusion. An unconscious unease.”
– John Ralston Saul.

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Comments (5)

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  1. Kerry says:

    excellent article, Tania!

    I wish I’d made it to those sessions of R & W, as well…

  2. Tania Mead says:

    Thankee. I wish I’d stayed behind and attempted to mob the esteemed G. Trudeau. . . such subtle charisma!

  3. Tom Cruise says:

    I get annoyed when economists belive that their position is somehow more objective than any other poltical commentator. Stiglitz’ claim that ‘the real reason for the war was Bush’s oedipal desire to out-do his father’ also seems like the sort of weak line desgined to please the crass, snobbish anti-Americanism of the disgusting middle classes. That said, I really enjoyed your article.

  4. treverend em says:

    i wish there was more time for questions from the audience. i understand that the theatres were on a fairly strict time schedule but it would have been nice to have at least an extra 45 minutes. 1 hour simply wasnt long enough. the george monbiot interview reflected the same problem, especially considering the relentless transmission difficulties throughout the show. as well, there prolly could have been a few more questions in the “costs of iraq” had john campbell not blathered away for the first ten minutes in a tirade of ass munching.

  5. Kyla D. says:

    Joseph Stiglitz, Nobel Prize winning economist, believes that banks should be allowed to fail, and then once they have, they should have a state takeover and restructure of the banks into a more viable system. His argument against giving the banks a cash advance and then letting them fail is that once the old system has died off, the one that takes its place will be a healthier, more sustainable one. It makes some sense to cancel the bank bailout and keep the cash advance in the hands of the taxpayers, and not shareholders.

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