Joseph Stiglitz
1) His Biography:
In Gary, Indiana, Stiglitz was born. His father, Nathaniel David Stiglitz, was an insurance salesman, and his mother, Charlotte (née Fishman), was a teacher. Stiglitz studied at Amherst College, where he was active on the debate team, a National Merit Scholar, and the head of the student body. He attended the Massachusetts Institute of Technology (MIT) during his final year at Amherst College; he eventually went on to do PhD studies there.
He travelled to the University of Chicago in the summer of 1965 to work on a project with Hirofumi Uzawa, who had been awarded an NSF grant. Between 1966 to 1967, while pursuing his PhD at MIT, he simultaneously held an assistant position there. MIT economics, according to Stiglitz, is “simple and concrete models, directed at answering important and relevant questions.” which is why he felt at home there.
He worked as a research fellow at the University of Cambridge from 1966 until 1970. Stiglitz was a Fulbright Scholar who first attended Fitzwilliam College in Cambridge in 1965. Later, he was awarded a Tapp Junior Research Fellowship at Gonville and Caius College in Cambridge, which greatly influenced how he came to comprehend Keynes and macroeconomic theory. Later, he held academic appointments at Yale, Stanford, Princeton, and Oxford, where he served as the Drummond Professor of Political Economy. Since 2001, Stiglitz has held academic positions at Columbia University’s Business School, Economics Department, and School of International and Public Affairs (SIPA). He also serves as editor of the magazine The Economists’ Voice alongside J. Bradford DeLong and Aaron Edlin.
Additionally, he teaches courses for a double degree programme in “Economics and Public Policy” offered by Sciences Po Paris and École Polytechnique. Since 2005, he has served as the director of the University of Manchester’s Brooks World Poverty Institute. Although at least one economics journalist claims Stiglitz’s work cannot be so precisely categorised, he is usually regarded as a New-Keynesian economist. Stiglitz has had a variety of policy positions during the course of his career.
He headed the President’s Council of Economic Advisers during the Clinton administration (1995–1997). From 1997 to 2000, he held the positions of senior vice president and chief economist at the World Bank. Because he disagreed with the World Bank’s policies, he was sacked. Stiglitz counselled American president Barack Obama, but he disapproved of the administration’s rescue plan for the financial sector. He claimed that whoever created the bank bailout plan for the Obama administration is “either in the pocket of the banks or they’re incompetent.”
He was requested to lead a commission writing a report on the causes of and remedies to the financial crisis in October 2008 by the President of the United Nations General Assembly. The Stiglitz Report was produced by the panel as a result. Stiglitz supported the 15M Movement protesters by taking part in the “I Foro Social del 15M” held in Madrid on July 25, 2011. From 2011 to 2014, Stiglitz presided over the International Economic Association. The United Kingdom Labour Party announced on September 27, 2015, that Stiglitz and five other distinguished economists would make up its Economic Advisory Committee.
2) Main Works:
The Three Trillion Dollar War (2008):
The Iraq War’s total cost, including numerous unaccounted-for expenses, is examined in The Three Trillion Dollar War (co-authored with Linda Bilmes). The book also addresses the extent to which these costs will be incurred over the course of several years, with special emphasis on the massive costs that will be associated with caring for a sizable number of injured veterans. At the time the book was published, Stiglitz openly criticised George W. Bush.
The Price of Inequality (2012):
According to Joseph E. Stiglitz, who emphasises, those at the top sometimes overlook this fact as they continue to benefit from the best health care, education, and financial advantages “their fate is bound up with how the other 99 percent live … It does not have to be this way.” Stiglitz outlines a comprehensive plan in The Price of Inequality to build a more dynamic economy and a just and equal society.
The Great Divide: Unequal Societies and What We Can Do About Them (2015):
Joseph E. Stiglitz elaborates on the analysis he provided in his best-selling book The Price of Inequality and offers solutions to the nation’s worsening inequality issue in The Great Divide. According to Stiglitz, inequality is a decision, the product of a series of unfair policies and wrong goals.
The Euro: How a Common Currency Threatens the Future of Europe (2016):
In ‘The Euro,’ Nobel Prize-winning economist and best-selling author Joseph E. Stiglitz dismantles the prevailing consensus around what ails Europe, demolishing the champions of austerity while offering a series of plans that can rescue the continent — and the world — from further devastation. It garnered negative reviews, according to book review aggregate Literary Hub.
Measuring What Counts; The Global Movement for Well-Being (2019):
The interconnected problems of environmental deterioration and human misery in our day and age, according to Stiglitz and his co-authors, show that “something is fundamentally wrong with the way we assess economic performance and social progress.” They contend that utilising GDP as the primary indicator of our economic health does not provide a reliable picture of the global economy or the condition of the world’s population.
3) Main Themes in his Writings:
Information asymmetry:
Stiglitz’s most well-known research focused on screening, a method employed by one economic person to obtain information from another that would otherwise be private. He shared the 2001 Nobel Memorial Prize in Economics with George Akerlof and A. Michael Spence “for laying the foundations for the theory of markets with asymmetric information” in recognition of their contributions to the theory of information asymmetry.
A large portion of Stiglitz’s work on information economics illustrates instances in which markets cannot achieve societal efficiency due to insufficient information. His paper with Andrew Weiss demonstrated that credit will be rationed below the ideal amount even in a competitive market if banks employ interest rates to infer information about borrower types (adverse selection effect) or to encourage their actions after borrowing (incentive effect).
Stiglitz and Rothschild demonstrated that firms have an incentive to thwart a “pooling equilibrium” in the insurance industry, where all agents are given the same full insurance policy, by providing cheaper partial insurance that would only appeal to low-risk agents. This means that a competitive market can only achieve partial coverage of agents. Since agents will have an incentive to free-ride on others’ information acquisition and obtain this information indirectly by observing market prices, Stiglitz and Grossman demonstrated that trivially small information acquisition costs prevent financial markets from achieving complete informational efficiency.
Monopolistic competition:
In contrast to conventional general equilibrium models of perfect competition, Stiglitz and Avinash Dixit developed a tractable model of monopolistic competition. They demonstrated that the entry of enterprises is socially insufficient when there are growing returns to scale. The concept was expanded to demonstrate how admission might be socially inappropriate when customers favour diversity. Paul Krugman employed the modelling approach in his examination of non-comparative advantage trading patterns, as well as in the domains of industrial organisation and trade theory.
Risk aversion:
Stiglitz co-authored one of his first publications for the Journal of Economic Theory in 1970 after receiving his Ph.D. from M.I.T. in 1967. Stiglitz and Rothschild drew on the research on risk aversion done by economists like Robert Solow.
Stiglitz and Rothschild demonstrated that none of the three reasonable definitions of a variable X being “more variable” than a variable Y were always consistent with the then-common definition of X having a higher statistical variance than Y. These definitions were: Y being equal to X plus noise, every risk-averse agent preferring Y to X, and Y having more weight in its tails. In a second work, they examined the theoretical effects of risk aversion in diverse situations, such as a person’s decision to save money and a firm’s decision to produce.
Henry George theorem:
Early on, Stiglitz made contributions to the field of public finance, arguing that the land rents produced by local public goods can be fully captured to finance an optimal supply of local public goods (when population distributions are optimal). In honour of the notoriously pro-land value tax radical classical economist Henry George, Stiglitz termed this the “Henry George theorem.”
According to Stiglitz’s theory, competition for public goods occurs spatially, therefore competition for access to any useful public product will raise land values by an amount at least equal to its outlay cost. Stiglitz also demonstrates the need for a single rent tax in order to provide the ideal level of local public investment. Stiglitz also demonstrates how the theory may be applied to determine the ideal size for a city or business.
Regulation:
The well-being of society and economic efficiency, according to Stiglitz, cannot be achieved by relying solely on business self-interest. Rather, stronger norms, clearer understandings of what is acceptable – and what is not – and stronger laws and regulations are needed to ensure that those who behave in ways that are inconsistent with these norms are held accountable, he writes.
Land value tax (Georgism):
Stiglitz contends that a land value tax would increase agricultural economies’ effectiveness and equity. To finance public goods, safeguard natural resources, enhance land use, and lessen the burden of rents and taxes on the poor while boosting the formation of productive capital, Stiglitz contends that nations should rely on a generalised Henry George theorem. According to Stiglitz, one of the principles of taxing “natural resource rents at as near to 100% as possible” is taxing polluters for “activities that cause negative externalities.” Therefore, Stiglitz claims that land value taxes is even more beneficial than its well-known proponent Henry George believed.
Green economy:
Stiglitz has demanded that we move toward a green economy. He was in favour of the Green New Deal. He argued in 2019 that the implementation of the Green New Deal would boost demand, ensuring that all resources were utilised, and the shift to a green economy would probably usher in a new boom. Trump’s emphasis on antiquated industries like coal is hindering the much more rational transition to wind and solar energy. By a wide margin, more employment will be produced by renewable energy than by coal (Stiglitz). The third World War for humanity, according to Stiglitz, is the climate problem.
4) His role in the Clinton Administration:
Stiglitz joined the Clinton Administration in 1993 and served as a member from that time until June 28, 1995, when he was appointed Chairman of the Council of Economic Advisers, a position that also allowed him to serve as a member of the cabinet. He got deeply interested in environmental concerns, working on the Intergovernmental Panel on Climate Change and contributing to the creation of a new regulation for toxic wastes, among other things (which was never passed).
Stiglitz’s most significant contribution during this time was his work on the definition of a new economic philosophy known as the “third way,” which advocated for the important but constrained role of government and held that free markets frequently did not function effectively but that government was not always able to address market limitations. The philosophical underpinnings of this “third way” came from the scholarly studies he had been performing during the previous 25 years.
Stiglitz was requested to remain leading the Council of Economic Advisers for another term when President Bill Clinton was re-elected. However, he had previously been recruited by the World Bank to serve as its senior vice president for development policy and chief economist. He took on that role on February 13, 1997, after his CEA replacement was officially confirmed.
The failures of the nations that had adopted the International Monetary Fund (IMF) shock therapy policies – both in terms of the declines in GDP and increases in poverty – were revealed as the World Bank began its ten-year review of the transition of the former Communist countries to the market economy. These failures were even worse than those most of its critics had predicted at the beginning of the transition.
There were unmistakable connections between the poor results and the IMF’s recommended policies, such as severe monetary stringency and voucher privatisation programmes. The success of a few nations that had adopted very different approaches, however, indicated that there might have been other options. The World Bank was under intense pressure from the US Treasury to stop him from criticising the policies that the World Bank and the IMF had adopted.
Stiglitz and Treasury Secretary Lawrence Summers had never gotten along well. Summers successfully petitioned for the dismissal of Stiglitz in 2000, ostensibly in exchange for the reappointment of World Bank President James Wolfensohn, a move that Wolfensohn disputes. It’s doubtful that Summers ever made such a direct demand; according to Wolfensohn, Summers “would have told him to *** himself.”
A month before his time at the World Bank was up, Stiglitz announced his resignation in January 2000. Stiglitz resigned from the Bank in November 1999, but James Wolfensohn also stated that Stiglitz will continue to serve as the president’s special advisor and chair the search committee. The World Bank’s chief economist, Joseph E. Stiglitz, announced today [Nov. 24, 1999] that he will step down after utilising the post for over three years to raise significant concerns about the efficacy of traditional ways to aiding developing nations.
He continued to criticise the IMF and, implicitly, the US Treasury Department in this capacity. They will claim that the IMF is haughty, he wrote in a piece for The New Republic in April 2000. They will claim that the IMF doesn’t actually pay attention to the developing nations it is supposed to assist. They’ll claim that the IMF is opaque and exempt from democratic oversight. They will claim that the IMF’s “remedies” for the economy frequently make matters worse by converting slowdowns into recessions and recessions into depressions. And they’ll be right. From 1996 until last November, during the worst global economic crisis in a half-century, I served as the World Bank’s chief economist. I observed the actions taken by the IMF and the US Treasury Department. And I was horrified, said Stiglitz.
A week before the World Bank and IMF’s annual meetings, the piece was released and received a lot of feedback. Summers and Stiglitz’s sort-of World Bank defender, Wolfensohn, both succumbed to its strength. Privately, Wolfensohn had shared Stiglitz’s viewpoints, but now he was concerned about his second term because Summers had threatened to veto it. IMF deputy managing director Stanley Fischer convened a special staff meeting and announced that Wolfensohn had decided to remove Stiglitz. In the meantime, the Bank’s External Affairs division notified the media that Stiglitz had not been let go; rather, his position had been eliminated.
In a September 19, 2008 radio interview with Aimee Allison and Philip Maldari on Pacifica Radio’s KPFA 94.1 FM in Berkeley, US, Stiglitz made the implication that if President Clinton and his economic advisers had been aware of covert provisions inserted by lobbyists that they missed, they would not have supported the North American Free Trade Agreement (NAFTA).
5) Nobel Prize:
The Royal Swedish Academy of Sciences bestowed the 2001 Nobel Prize in Economics upon professor of finance and economics Joseph Stiglitz. Stiglitz shares the honour for their “analyses of markets with asymmetric information” with George Akerlof and A. Michael Spence. With this achievement, Stiglitz has completed a spectacular 35-year career in which he has significantly advanced every branch of economic theory.
Stiglitz, a hugely significant figure in the formulation and assessment of economic policy, served in President Clinton’s Council of Economic Advisers, first as a member and then as chairman with cabinet status. Later, he was appointed the World Bank’s chief economist. Prior to accepting a full-time joint professorship with Columbia Business School, the Graduate School of Arts and Sciences, and the School of International and Public Affairs in 2001, Stiglitz returned to academia as the Joel Stern Visiting Scholar at Columbia Business School from 1999 to 2001.
6) His Legacy:
American economist Joseph E. Stiglitz teaches economics at Columbia University. In addition, he serves as the Chief Economist of the Roosevelt Institute and co-chair of the OECD’s High-Level Expert Group on the Measurement of Economic Performance and Social Progress. He is a former senior vice president and chief economist of the World Bank as well as a former member and chairman of the (US president’s) Council of Economic Advisers. He is also the recipient of the John Bates Clark Medal (1979) and the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (2001). Stiglitz established the Initiative for Policy Dialogue, a Columbia University-based think tank focused on global development, in 2000. He has been a member of the Columbia faculty since 2001 and received that university’s highest academic rank (university professor) in 2003.
Stiglitz was ranked among the top 100 most powerful individuals in the world by Time Magazine in 2011. Stiglitz’s work focuses on income distribution, risk, corporate governance, public policy, macroeconomics, and globalisation. He is known for his groundbreaking work on asymmetric information. He has written many novels, including several New York Times bestsellers. The Euro and Rewriting the Rules of the American Economy, Globalization and Its Discontents Revisited, and People, Power, and Profits, Rewriting the Rules of the European Economy are some of his most recent works.
