PEOPLE, POWER, AND PROFITS
Progressive Capitalism for an Age of Discontent
Joseph E Stiglitz
W W Norton & Company; $27.95; 371 pages
A diverting Beltway pastime during the heyday of the Washington Consensus was to gently mock Joseph E Stiglitz. It was remarkably easy for pundits to wave away his prestigious awards (Nobel Prize in Economics) and positions (World Bank chief economist, chairman of Bill Clinton’s Council of Economic Advisers) and dismiss his warnings about “market fundamentalism” as overripe hyperbole. In 2004 the financial columnist Sebastian Mallaby described Stiglitz as “like a boy who discovers a hole in the floor of an exquisite house and keeps shouting and pointing at it.” Fifteen years later, the house that capitalism built looks rather shabby. Maybe, just maybe, more people should have taken Stiglitz seriously.
This is certainly what Stiglitz, now a professor of economics at Columbia, is hoping for with his latest book, People, Power, and Profits. He argues that the American system of capitalism has fallen down and needs government help to get back up again. This book builds on Stiglitz’s earlier work and adds some pretty big ambitions.
Stiglitz’s diagnosis of what ails the American economy will have a familiar ring to anyone who has followed these debates. The rules of the game have been stacked in favour of the haves over the have-nots. This has widened economic inequality and increased the concentration of market power among leading firms in every sector, slowing down broad-based productivity growth. These firms and wealthy individuals are converting their riches into political power, further revising the rules to entrench their position at the top. They advocate for tax cuts and the deregulation of everything except intellectual property rights. Anyone who relies on countervailing institutions, like public education, labor unions or social safety nets, loses out.
People, Power, and Profits goes beyond diagnosis to treatment. At the core of Stiglitz’s plan is the strengthening of the state. “The view that government is the problem, not the solution, is simply wrong. To the contrary, many if not most of our society’s problems, from the excesses of pollution to financial instability and economic inequality, have been created by markets.” He proposes a whole host of reforms, including significant investments in public goods like basic research, more stringent regulation of firms and measures to preserve and protect the voting franchise.
A cruel irony of People, Power, and Profits is that in arguing the free market has declined, Stiglitz is competing in an extremely crowded marketplace. The genre of “How has America gone wrong?” is overstuffed; we are living in a golden age of authors telling Americans that we no longer live in a golden age. Given the plethora of books on this topic, does Stiglitz’s stand out?
One of his book’s comparative advantages is that while Stiglitz has impeccable economic credentials, he also recognises some of his profession’s blind spots. He observes, correctly, that standard textbook economics talks a lot about competition but little about economic power. He also excels at swatting away bromides about the miracles of markets and the failures of governments. He notes, for example, that the Social Security Administration is far more efficient at disbursing retirement benefits than private pensions.
Stiglitz could have done much better, however, if he had narrowed his focus to the sharpest arguments in his policy quiver. For instance, he discusses the idea that taxes on carbon or financial transactions “can simultaneously increase economic performance and raise revenue.” This sounds like the progressive doppelgänger of the Laffer Curve, that is, a concept that would be good policy and good politics. Stiglitz should be selling the hell out of it; instead, he breezes through it in one page.
Some of his other ideas seem less thought out or more politically toxic. On antitrust, for example, he encourages a doctrine of pre-emption: “Regulation of mergers must take into account the likely future shape of markets.” This would require considerable foresight, so it is a problem that 75 pages later Stiglitz allows that “often there is far from perfect information about where a market will be evolving, and the world turns out to be different from what we expected.” He fails to explain how regulators would handle this conundrum. Another of Stiglitz’s ideas — a public mortgage financing system that could access an individual’s IRS and Social Security data — sounds unpalatable in the current low-trust political environment.
Indeed, I wish Stiglitz had taken seriously his pledge to take politics seriously. At one point, People, Power, and Profits rules out the idea of a universal basic income because the necessary tax increases would be politically impractical. That was the only moment in the book in which Stiglitz seemed to think at all about how any progressive policy reform would be, to use the language of economics, “incentive compatible.” There is no discussion whatsoever of polling data or other metrics to gauge public support for his ideas.
The policy shop of every 2020 Democratic candidate for president would be wise to pore over People, Power, and Profits and cherry-pick its best ideas. Other readers should feel free to browse the genre a bit more widely.
©2019 The New York Times News Service