Opinion

Chrystia Freeland

Shaping globalization with Joseph Stiglitz

By Chrystia Freeland
December 6, 2010

Columbia University economist Joseph Stiglitz is #30 on Foreign Policy’s list of the 100 Top Global Thinkers of 2010. Stiglitz told Chrystia that his big idea is “globalization is something that has to be shaped.”

For much of recent history, special interests have driven the globalization agenda, he says. One of the primary obstacles to completing the Doha Round of free-trade negotiations is the billions of dollars of subsidies the U.S. showers on about 25,000 American cotton farmers, a policy that impoverishes more than 10 million cotton farmers in Africa and that has been judged as a violation of WTO rules.

Despite globalization’s shortcomings, Stiglitz does not believe it is to blame for the hollowing out of America’s middle-class. Increases in productivity and technological changes have reduced the demand for the unskilled labor. “The real failure of public policy,” Stiglitz says, is that “it hasn’t responded effectively to the driving forces of technology and globalization.”  Stiglitz argues that by lowering barriers to trade while failing to invest in health care and education, America has resigned itself to having a middle class that lacks the skills to compete in the global economy.

Stiglitz has not one, but three, big ideas in the pipeline. First, he would like to study the design of financial architecture to find out what the optimal degree of inter-connectivity is in the capital markets. Too often, he says, economists look at either the benefits of risk-sharing or the costs of contagion without formulating a model that considers both.

Second, Stiglitz would like to research the role of ideas in shaping the economy. He recently co-authored a paper with Carla Hoff of the World Bank called “Equilibrium Fictions” that analyzes confirmation bias, the tendency to process information in a way that validates one’s worldview, by looking at the social construct of race in modern history.

Third, Stiglitz outlines his next book, which will look at how the financial crisis has affected globalization and undermined America’s credibility on economic policy.

But, Foreign Policy placed Stiglitz on their list of Top Global Thinkers for a completely different reason — “his full-throated defense of fiscal stimulus”:

If last year was Joseph Stiglitz’s “I told you so” moment, this year has been his “so what do we do about it” opportunity. The Nobel laureate and former World Bank chief economist has gone from predicting the cataclysmic fall of the deregulated global economy to outlining a way back from the abyss.

That’s not to say the famously iconoclastic professor is pulling punches. Stiglitz has excoriated Barack Obama for appointing the very same people who caused the financial crisis to manage the recovery. In his latest book, Freefall: America, Free Markets, and the Sinking of the World Economy, Stiglitz outlines how existential problems such as weak regulations and moral hazard were disregarded in favor of injecting cash back into the most risk-prone banks, while substantive issues such as the foreclosure crisis and the scarcity of small-business loans have worsened with neglect. As for the wave of austerity sweeping Europe, he recently cautioned, that could send the world into an economic tailspin. Stiglitz’s refrain? Forget the deficit and invest boldly in technology and infrastructure. As he wrote in September, “We cannot afford not to stimulate the economy.”

Read a full interview with Stiglitz at Foreign Policy‘s Global Thinkers Issue.

Posted by Peter Rudegeair.

Comments
6 comments so far | RSS Comments RSS

Good Article. It is strange that the government seldom looks beyond the beltway or the East Coast for people to direct the economy. Just because policy has not worked in the past does not mean that the people directing the policy know how to fix it. Like trying to fix a toaster if you have only worked on blenders. It is tough for good small business owners to expand when the economy is so shaky, and the leaders are off giving speaches, plus the second tier of leadership is poor at best.

Posted by fred5407 | Report as abusive
 

invest in education, technology, infrastructure, medical care

unlikely

deficit cutting resulted in double dip recession in 1938

people stick to their beliefs no matter the downside longterm

action is held hostage by political polarization

obvious

unlikely to be resolved not matter what the risk

a sign of a declining empire

Posted by mikeruss | Report as abusive
 

Clearly Stiglitz is disconnected from American reality by claiming that the “middle class” is declining because of a decline in the value of “unskilled labor”. This man seems totally unaware of class distinctions in this country. In general, the middle class is occupied by people who possess highly developed skills rather than capital.

The USA actively discriminates against people born here who have intellectual skills. They tax the native born to provide tax incentives to hire identically skilled foreigners — the H1B program primarily. They flood the market with tax subsidized foreign workers to provide extra profits to their contributors. This has severely damaged American engineers and scientists and crippled the occupational choices of several generations so far.

Taken together with a currency grossly overvalued for decades, these policies have doomed the American middle class and all the economic structures which have grown dependent on it. Decline will continue. Decline will continue even after policies are corrected, which they have not been. So called “free trade” has been a disaster for the American people, presuming we count all American individuals as equal.

Posted by txgadfly | Report as abusive
 

Pretty good txgadfly. Having lived and worked overseas, it is hard to imagine that the econcomic dynamos in China and India are driven by those countrie’s massive committments to health care and education, especially relative to our own. What they do have are low wages and virtually zero workplace health, safety, and environmental constraints. Mr. Stiglitz seems to be on another plannet.

Posted by John-B | Report as abusive
 

All these Nobel winning economists and the world is in a mess financially. Seems to me that they are the problem, not the answer.

Posted by diddums | Report as abusive
 

How do policies like fiscal and monetary stimulus, which have the very real intent of creating stability, not result in sticky wages and prices? In an international arena, what do you end up with but devaluation as a mechanism for communicating the change?

In the short run you can end up dead too; we’re working on the proof for that theorem.

Posted by ARJTurgot2 | Report as abusive
 

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