Shaping globalization with Joseph Stiglitz
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.