Joseph E. Stiglitz

Joseph E. Stiglitz, born February 9, 1943, Gary, Indiana, U.S. is one of the most prominent and controversial economists of our time. He chaired US president Bill Clinton's Council of Economic Advisors, sat as chief economist at the World Bank, and shared the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2001 (a.k.a imprecisely Nobel Prize for Economics) in 2001 "for laying the foundations for the theory of markets with asymmetric information" with A. Michael Spence and George A. Akerlof.

Stiglitz studied at Amherst College (B.A., 1964) in Massachusetts and the Massachusetts Institute of Technology (Ph.D., 1967). The particular style of MIT economics suited him well - simple and concrete models, directed at answering important and relevant questions. He was awarded a Fulbright fellowship to Cambridge for 1965-1966. Stiglitz taught at several universities, including Yale, Harvard, and Stanford. He was a member of President Bill Clinton's economic policy team; a member of the U.S. Council of Economic Advisers (1993–97), of which he became chairman in June 1995; and senior vice president and chief economist of the World Bank (1997–2000). In 2001 Stiglitz became professor of economics, business, and international affairs at Columbia University in New York. Stiglitz has made seminal and fundamental contributions to every subfield of economic theory – microeconomics, macroeconomics, industrial organization, international economics, labor economics, financial economics and development economics. He has published more than 300 papers, as well as a dozen books, in a 35-year career.

A critic of "free-market fundamentalists", Dr Stiglitz has repeatedly challenged what he sees as the "ideological basis" to much of the world's economic decision-making. This is most notable in his battles with the International Monetary Fund (IMF) over developing countries being pushed to open their markets before they have stable, democratic institutions to protect their citizens. For Stiglitz there is not such a thing as an "invisible hand" .

"For much of the world, globalization as it has been managed seems like a pact with the devil. A few people in the country become wealthier; GDP statistics, for what they are worth, look better, but ways of life and basic values are threatened (...) This is not how it has to be." Joseph E. Stiglitz

The focus on development and spending to draw economies out of downturns will see comparisons drawn with both Amartya Sen and Keynes. His argument for a global reserve currency to avoid the US dollar's present problems is truly innovative, and will no doubt meet staunch opposition from the same economists and politicians who reject his support for the gradual opening of a country's markets to volatile capital flows.

Some of Stiglitz analysts, such as Gerald Houseman (a professor of political economy at Washington State University, who is writting a book on Stiglitz) even consider that: "The formidable myth of 'free enterprise', a major crutch for the belief systems of those who see market economics as a be-all and end-all, has been dead since at least 1986 , and a rather modest economist, Joseph E. Stiglitz, along with two fellow Nobel Prize winners in economic science, George Akerlof and Michael Spence, drove the final stake through its heart in the Stockholm Nobel Prize lecture of December 2001. Stiglitz's accep- tance speech proved to be a singular and remarkable event in which he effected the internment in quiet and reflective tones, a marked contrast with the shrill decibels of the defenders of this defunct idea" .

The Prize

The Academy noted that Stiglitz "clarified the opposite type of market adjustment, where poorly informed agents extract information from the better informed, such as the screening performed by insurance companies dividing customers into risk classes by offering a menu of contracts where higher deductibles can be exchanged for significantly lower premiums. In a number of contributions about different markets, Stiglitz has shown that asymmetric information can provide the key to understanding many observed market phenomena, including unemployment and credit rationing."

(...)Market economies are characterized by a high degree of imperfections (...) Older models assumed perfect information, but even small degrees of information imperfections can have large economic consequences. Our models took into account asymmetries of information, which is another way of saying 'Some people know more than others. (...) Our global system is characterized by a lot of inequities (...) It seems increasingly important to try to redress these inequities. (...) Joseph E. Stiglitz at a press conference held at Columbia.

Stiglitz comments that "economics can make a difference" in improving peoples lifes by "focusing on the difference between the haves and have-nots."

While the traditional literature assumes that markets are efficient except for some well defined market failures, more recent studies reverse the presumption: it is only under exceptional circumstances that markets are efficient . Stiglitz (and Greenwald) show that "whenever markets are incomplete and /or information is imperfect (which are true in virtually all economies), even competitive market allocation is not constrained Pareto efficient". In other words, there almost always exists schemes of government intervention which can induce Pareto superior outcomes, thus making every one better off . Although the pervasiveness of market failures doesn't warrant the state in thrusting its nose into everything, the "optimal" range of government interventions is definitely much larger than the traditional "market failure" school recognizes.

The prize lecture

On December 8, 2001, at Aula Magna, Stockholm University, Joseph E. Stiglitz held his Prize Lecture Information and the Change in the Paradigm in Economics , a 69 page lecture summarizing his findings in an event that some analysts consider to mark a major turning point in the Economic science.

I hope to show that Information Economics represents a fundamental change in the prevailing paradigm within economics. Problems of information are central to understanding not only market economics but also political economy, and in the last section of this lecture, I explore some of the implications of information imperfections for political processes. Stiglitz, The Prize Lecture

Formal modeling in economics has focused on models in which information was perfect. Everyone recognized that information was in fact imperfect, but the hope, following Marshall's dictum "Natura non facit saltum" was that economies in which information was not too imperfect would look very much like economies in which information was perfect. One of the main contributions of Stiglitz's research was to show is that this was not true; even a small amount of information imperfection could have a profound effect on the nature of the equilibrium. The paradigm of the twentieth century, the "neoclassical model", ignored the warnings of the nineteenth century and earlier masters on how information concerns might alter the results of their analyses.

Under the standard neoclassical paradigm, markets are Pareto efficient, except when there is one of a limited number of market failures occurs. Under the imperfect information paradigm, markets are almost never 'Pareto efficient. While information economics thus undermined these long standing principles of economics, it also provided explanations for many phenomena that had long been unexplained.

An exhaustive review of the Prize Lecture is beyond the scope of this article. A very good abstract of Information and the Change in the Paradigm in Economics, by "The American Economist", can be read online at the links provided.

Books published

• <This section is under construction, which begins with the most recent books published>

Stability with Growth: Macroeconomics, Liberalization and Development

In Stability with Growth: Macroeconomics, Liberalization and Development (2006) Stiglitz, José Antoni Ocampo (United Nations Under-Secretary-General for Economic and Social Affairs) Shari Spiegel (Managing Director, Initiative for Policy Dialogue - IPD ) Ricardo Ffrench-Davis (Main Adviser, Economic Commission for Latin America and the Caribbean - ECLAC ) and Deepak Nayyar (Vice Chancellor, University of Delhi) discuss the current debates on macroeconomics, capital market liberalization, and development, and develop a new framework within which one can assess alternative policies. They share the belief that the Washington consensus has advocated for narrow goals for development (with a focus on price stability), prescribed too few policy instruments (emphasizing monetary and fiscal policies), and places unwarranted faith in the role of markets. The new framework focuses on real stability and long-term sustainable and equitable growth, offers a variety of non-standard ways to stabilize the economy and promote growth, and accepts that market imperfections necessitate government interventions. Policy-makers have pursued stabilization goals with little concern for growth consequences, while trying to increase growth through structural reforms focused on improving economic efficiency. Moreover, structural policies, such as capital market liberalization, have had major consequences for economic stability. This book challenge these policies by arguing that stabilization policy has important consequences for long-term growth and has often been implemented with adverse consequences. The first part of the book introduces the key questions and looks at the objectives of economic policy from different perspectives. The second part examines the central issues of macroeconomics, presenting an analysis of economic models and policy perspectives on stabilization from conservative, Keynesian, and heterodox perspectives. The third part presents a similar analysis for capital market liberalization.

Making Globalization Work

In one of his latest books, Making Globalization Work (2006), Stiglitz surveys the iniquities of the global economy, and the mechanisms by which developed countries exert an excessive influence over developing nations. Dr Stiglitz argues that through recourse to various measures – be it overt trade tariffs, subtler subsidies, a patent system that developed countries are far better prepared to navigate, or the damage done to poor countries by global pollution – the world is being both economically and politically destabilised, from which we will all suffer. Making Globalization Work exposes the problems of how globalisation is currently being managed, the vested interests behind many decisions and the prospects for negotiating fairer terms for those worst affected. Dr Stiglitz tackles the problems immediately facing the world, arguing that strong, transparent institutions are needed to turn globalisation to favour the world's poorest, and to address the democratic deficit that is so keenly felt across the world.

Stiglitz uses his command of economic logic to good effect, offering clear discussions of dozens of complex issues, from patent law to abuses in international trade. Many critics complain that drug companies overcharge poor countries, but Stiglitz goes further and makes a convincing case that this is not only immoral but also economically inefficient. Poor countries should be charged less than rich countries: if people willing to pay for medicines are unable to buy them, an existing demand goes unmet, which, in economic terms, is wasteful. Drug companies' pursuit of private gain results in an inefficient allocation of resources and a social loss. Stiglitz won the Nobel for exploring how uncertainty and poor information can make markets fail. Here shows how an examination of incomplete markets can make corrective government policies desirable.

Many of Stiglitz's criticisms are uncontroversial. He is hardly alone in believing that economic opportunities are not widely enough available, that financial crises are too costly and too frequent, and that the rich countries have done too little to address these problems. Making Globalization Work is an optimistic book, offering the hope that global society has the will or the ability to address global problems and that international economic integration will ultimately prove a force for good. Certainly Stiglitz is right that the world would benefit from a concerted effort to address problems of the environment, poverty and disease. However, his proposals are almost utopian in their reliance upon good will, enlightened public opinion and moral imperatives to overcome selfish but deeply entrenched private or national interests that do not share his goal of making globalization work for as many countries and as many people as possible. At last count Making Globalization Work had sold more than two million copies.

Fair Trade for All: How Trade Can Promote Development

During the 1990s, the so-called Washington consensus of officials from the International Monetary Fund, World Bank and United States Treasury Department thought the best way to spur growth in developing nations was for them to quickly lower their trade barriers and deregulate their markets. But that prescription has not worked especially well, even though it still shapes American trade policy. Apart from China and India, the gap between rich and poor nations has continued to widen

In Fair Trade for All: How Trade Can Promote Development (2005) Stiglitz and his co-author Andrew Charlton, a research officer at LSE's Centre for Economic Performance, question how can the poorer countries of the world be helped to help themselves through freer, fairer trade and address one of the key issues facing world leaders today and put forward a radical and realistic new model for managing trading relationships between the richest and the poorest countries. Their approach is designed to open up markets in the interests of all and not just the most powerful economies, to ensure that trade promotes development, and to minimise the costs of adjustments.

Beginning with a brief history of the World Trade Organisation and its agreements, the authors explore the issues and events which led to the failure of Cancun and the obstacles that face the successful completion of the Doha Round of negotiations. Finally they spell out the reforms and principles upon which a successful agreement must be based. Stiglitz and Charlton show that standard economic assumptions are wrong when it comes to many developing economies. When markets in sub-Saharan Africa and elsewhere are opened, people often can't move easily to new industries where the nation has a comparative advantage.

Globalization and Its Discontents

Stiglitz has always been concerned with one of the most pressing economic problem of our time: so many of what we usually call "developing economies" are, in fact, not developing at all. Stiglitz, in Globalization and Its Discontents (2002), offers his informed views both of what has gone wrong and of what to do differently. But the main book also focus in who to blame. According to Stiglitz, the story of failed development does have a villain, and the villain has been the IMF.

In Globalization and Its Discontents Stiglitz bases his argument for different economic policies on the themes that his decades of theoretical work have emphasized: namely, what happens when people lack the key information that bears on the decisions they have to make, or when markets for important kinds of transactions are inadequate or don't exist, or when other institutions that standard economic thinking takes for granted are absent or flawed. The implication of each of these absences or flaws is that free markets, left to their own devices, do not necessarily deliver the positive outcomes claimed for them by textbook economic reasoning that "assumes that people have full information, can trade in complete and efficient markets, and can depend on satisfactory legal and other ". Stiglitz stresses the point: "Recent advances in economic theory" (in part referring to his own work) "have shown that whenever information is imperfect and markets incomplete, which is to say always, and especially in developing countries, then the invisible hand works most imperfectly." As a result, Stiglitz continues, governments can improve the outcome by well-chosen interventions. (Whether any given government will actually choose its interventions well remains open to questions.) At the level of national economies, when families and firms seek to buy too little compared to what the economy can produce, governments can fight recessions and depressions by using expansionary monetary and fiscal policies to spur the demand for goods and services. At the microeconomic level, governments can regulate banks and other financial institutions to keep them sound. They can also use tax policy to steer investment into more productive industries and trade policies to allow new industries to mature to the point at which they can survive foreign competition. And governments can use a variety of devices, ranging from job creation to manpower training to welfare assistance, to put unemployed labor back to work and, at the same time, cushion the human hardship deriving from what— importantly, according to the theory of incomplete information, or markets, or institutions—is no one's fault.

Stiglitz complains bitterly that the IMF has done great damage through the economic policies it has prescribed that countries must follow in order to qualify for IMF loans, or for loans from banks and other private-sector lenders that look to the IMF to indicate whether a borrower is creditworthy. The organization and its officials, he argues, have ignored the implications of incomplete information, inadequate markets, and unworkable institutions—all of which are especially characteristic of newly developing countries. As a result, Stiglitz argues, time and again the IMF has called for policies that conform to textbook economics but do not make sense for the countries to which the IMF is recommending them. Stiglitz seeks to show that the consequences of these misguided policies have been disastrous. not just according to abstract statistical measures but in real human suffering, in the countries that have followed them.

External Links

• Joseph E. Stiglitz Homepage at Columbia University

• Autobiography, Joseph E. Stiglitz

Publications by Stiglitz

Books

• STIGLITZ, Joseph E., Readings in the Modern Theory of Economic Growth by Joseph E. Stiglitz (Editor), Hirofumi Uzawa (Editor) MIT Press, April 1969, ISBN 0-262-69018-7

• --, Economics of the Public Sector W. W. Norton & Company; 3rd edition (February 2000) ISBN 0393966518

• --, The Rebel Within: Joseph Stiglitz and the World Bank by Joseph E. Stiglitz (Editor), Ha-Joon Chang (Editor), ISBN 1-898855-91-9, Anthem Press, Wimbledon Publishing Company (Paperback - February 25, 2002)

• --, Principles of Macroeconomics, Third Edition, with Carl E. Walsh, W.W. Norton & Company, March 2002.

• --,Economics, Third Edition, with Carl E. Walsh, W.W. Norton & Company, April 2002.

• --, Peasants Versus City-Dwellers: Taxation and the Burden of Economic Development, with Raaj K. Sah, Oxford University Press, April 2002.

• --, Globalization and Its Discontents, W.W. Norton & Company, June 2002. ISBN 0393051242

• STIGLITZ, Joseph E. and GRENWALD, Bruce. Towards a New Paradigm in Monetary Economics, Cambridge University Press, September 2003. ISBN 0521008050 ISBN 9780521008051

• STIGLITZ, Joseph E.The Roaring Nineties: A New History of the World's Most Prosperous Decade (Open Market Edition) W. W. Norton & Company; 1st edition (September 2003) ISBN 0393058522 ISBN 978-0393058529

• STIGLITZ, Joseph E. and CHARLTON, Andrew, Fair Trade for All: How Trade Can Promote Development Oxford University Press, December 2005, ISBN 0-19-929090-3

• STIGLITZ, Joseph E., A Chance For The World Bank by Joseph P Stiglitz (Foreword), Jozef Ritzen, ISBN 1-84331-162-3, Anthem Press, Wimbledon Publishing Company (Paperback - May 30, 2005)

• --, Stability with Growth: Macroeconomics, Liberalization, and Development ISBN 0-19-928814-3 (Initiative for Policy Dialogue Series C); by Joseph E. Stiglitz, Jose Antonio Ocampo, Shari Spiegel, Ricardo French-Davis, and Deepak Nayyar; Oxford University Press 2006.

• --,Making Globalization Work ISBN 0-393-06122-1, Penguin Books, August 2006.

• Partial list

Articles, lectures, conferences

• Online access to STIGLITZ published papers at his website

• STIGLITZ, Joseph E. Prize Lecture: Information and the Change in the Paradigm in Economics. Joseph E. Stiglitz held his Prize Lecture December 8, 2001, at Aula Magna, Stockholm University. He was presented by Lars E.O. Svensson, Chairman of the Prize Committee.

• Partial list

Bibliography

• CROTTY, James. Slow Growth, Destructive Competition, and Low Road Labor Relations: A Keynes-Marx-Schumpeter Analysis of Neoliberal Globalization. PERI- Political Economy Research Institute, PERI Publications, 11/1/2000
• CROTTY, James. The Effects of Increased Product Market Competition and Changes in Financial Markets on the Performance of Nonfinancial Corporations in the Neoliberal Era. Amherst: University of Massachusetts, Department of Economics, October 11, 2002

• CROTTY, James. The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era. July 2003 Research Brief 2003-5

• ENGLISH,Simon. IMF admits its policies seldom work New York: Telegraph.co.uk, 11:40pm GMT 19/03/20

• HOUSEMAN, Gerald. Joseph Stiglitz and the Critique of Free Market Analysis. Challenge, vol. 49, no. 2, March/April 2006, pp. 52-­62.

• PLESKOVIC, and STIGLITZ, Joseph E., editors. Annual Bank Conference, Development Economics 1999. Washington: The International Bank for Reconstruction and Development / THE WORLD BANK. December 2000.

• ROTHSCHILD, Michael. Information, The invisible Hand and Google Princeton University