Joseph Stiglitz gives a talk in Veröld

Economist Joseph Stiglitz, a renowned Nobel-prize winner and author of many books on economics, recently gave a lecture at Veröld. On the occasion, Stiglitz was quite severe in his criticism of neoliberalism. This criticism will be the basis of his new book, in which the scholar wants to introduce what he calls “progressive capitalism” as an alternative to unbridled capitalism. Stiglitz was also invited for an interview with RÚV, during which he criticised the high-interest rate policy of many of the world’s central banks, which he believed was exacerbating rather than abating inflation.

Sacked from the World Bank for expressing his views

Stiglitz is known for his research in the field of information economics. According to his research, an unequal access to information prevents the market from achieving ideal efficiency, which makes intervention from the state necessary.

The economist has had a diverse career and served in the Clinton administration as the chair of the President's Council of Economic Advisers before being hired as the World Bank’s chief economist. His criticism of the World Bank’s policy, however, was not tolerated, leading to his dismissal in 2000. In the same year, Stiglitz was hired by the Central Bank of Iceland to make an assessment of the state of Iceland’s economy.

Critical of inequalities and neoliberalism

Stiglitz has written and published many books about economics, in which he has been very critical of, among other things, inequalities, globalisation of trade and neoliberalism. Income inequality has risen significantly in the United States during the last few decades, resulting in a society where the bottom 50% of the population receives only about 10% of the national income, as the share has been steadily decreasing since 1970 according to statistics from the World Inequality Database. Wealth inequality has also increased, so that the 1% richest citizens own 35% of all wealth in the country.

Stiglitz argues that while inequalities have often been justified as a consequence of the “industriousness,” “abstinence” or “genius” of entrepreneurs according to neoliberal theory, the reality is often much more nuanced, and factors such as privilege and luck tend to play a large part in the economic fortune of individuals. The economist pointed to a well-known example in the context of Iceland: the implementation of fishing quotas led to a handful of individuals acquiring a large amount of wealth on a mostly arbitrary basis.

Freedom to exploit

The economist also made freedom a subject of discussion during his lecture, and commented on how neoliberalism had attempted to define freedom as an absence of rules. He argued that in many cases, limitations to freedom were a condition for the very same freedom, and took traffic lights as an example: such state interference can certainly be interpreted as coercion and a limitation to freedom, while at the same time being a precondition to our ability to travel between places without incurring the risk of being run over. Freedom and coercion are therefore two sides of the same coin. According to Stiglitz, neoliberalism was in fact an attempt to favour the freedom of the powerful to profit from the contribution of the less powerful, and the scholar took as an example a book by neoliberal economists Milton and Rose Friedman, Free to Choose. According to him, the book would have more appropriately been titled Free to Exploit.

Sceptical of high interest rates

In an interview for RÚV, Stiglitz was asked about his views on interest rates and inflation. The economist was critical of the high interest rates policy that has been implemented by central banks as a reaction to high inflation rates. He argued that the primary cause of inflation had been an increase of energy and food prices. “Does raising interest rates create more food, create more energy, that will lower the price?” Stigliz asked rhetorically, and answered negatively. He argued that the recent decrease of inflation had happened in spite of rising interest rates, and not because of them.

Stiglitz’s speculations were interesting, but in some cases lacked a reference to academic research to justify his statements. In fact, a lack of scientific rigour seems a common habit of economists, who tend to rely on abstract theories without verifying their validity in the realm of reality. The controversy surrounding the question of inflation and interest rates is a case in point: economists readily join opposing schools of thought, each of which claims to be able to predict the effect of interest rates on inflation. But, rarely do the same intellectuals point to any real-world data that would justify their recommendations. In that respect, economists sometimes remind us of nineteenth-century physicians who were either ardent supporters or sworn enemies of particular schools of thought in the world of medicine, while in fact not knowing much more than the common people about the inner workings of the human body.

Could inflation be a symptom rather than an illness, as far as economic wealth is concerned? If so, then we should question what the illness is, and policies that aim at reducing inflation could be compared to a prescription for painkillers: they can at best alleviate symptoms, but do nothing to cure the illness itself.