I am nearly finished with Joseph Stiglitz’s new book, The Price of Inequality, and plan to include a brief review in my contribution to the inequality symposium by early next week. Something about the book grates on me, though, in the way Stiglitz can’t seem to be bothered to offer a complete defense for any of the ideas he advances. Some of those ideas I nonetheless agree with, such as the problem of special interests. (Though he wrongly lays all of the blame on Republicans. Remember Harry Reed’s juicer bill that kicked off a flurry of hedge fund rent-seeking that never stopped? Everyone needs to fundraise, and the letter after your name doesn’t change that.)
Even though I’m unpersuaded by Stiglitz’s polemical rhetoric, he is obviously a brilliant economist and I do not have satisfying answers at the ready for all of his points, roughly stated though they are. For example, do we libertarians and conservatives really make too big a deal over inflation? Does austerity really hurt an economy? Are Sweden and Norway really succeeding because of their generous welfare programs? Are deficit-reduction and tax-reduction really ”curious” notions? Should we revisit Henry George’s idea of socializing the rents of all the nation’s real property? Does “trickle-up economics” really work?
(To this last one, I think, I have a ready answer: putting more dollars in the hands of those other than the poor via tax redistribution results in threshold earners spending money on things they were not otherwise willing to work for. This sends false signals into the market that there is demand for goods and services, when in fact people would not work buy but for redistribution. That artificial demand results in a bubble that the government must sustain through ever more tax redistribution–a one-way ratchet.)
One doozy Stiglitz puts out there is that unemployment is a “market failure.” He offers no explanation for this statement. Indeed, earlier he states that “markets are supposed to be stable.” I suppose “stable” lends itself to subjective interpretation, but markets necessarily involve “creative destruction,” which is anything but stable. Stiglitz also repeatedly calls for “full employment.” In my amateur studies of economics, I’ve learned that full employment is impossible and undesirable given the pressure it puts on inflation. But again, Stiglitz urges (without much explanation) that printing money is no biggie, so, why not?
The big question all of these little ones lead me to ask is, why is Stiglitz not willing or able to offer a full-throated answer? Why am I more confused about economics after reading 300 pages of a Nobel laureate economist than I was going in? The answer to that question seems fairly obvious to me. One theme I will develop in my essay is that we must choose one structure of government or another: free and limited, or centralized and planned. Although the free and limited government project is of relatively recent vintage, we do have more than 200 years of history in our very own backyard in this country from which to draw in understanding and defending it.
The centralized and planned model, on the other hand, has a very long and terrible history. No one would say the failures of the communist and socialist experiments thus far were the result of an inadequate stimulus or not allowing a tax cut to expire. They failed not because someone forgot to carry the one. They failed because they were tragically and fundamentally immoral and wrong-headed.
It is only in the last 60-70 years that some European countries have begun experimenting with so-called social democracy, thus far with very mixed results. At any rate, there are no truly settled conclusions either way to draw from European social democracy (though if we were to judge by recent headlines, I wouldn’t like its chances). Thus, other than a very wonkish understandable only by theoretical economists, Stiglitz has precious little settled practical data from which to draw to make the case for the economic system suited to a centralized and planned economy. I suspect this is why neither Stiglitz nor anyone else will be able to offer a much more persuasive argument for leftist economic policies.