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Brian Lehrer: It's The Brian Lehrer Show on WNYC. Good morning again, everyone. With us now, the Nobel Prize-winning economist, Joseph Stiglitz, who has a new book called The Road to Freedom: Economics and the Good Society. Among other things, he centers a much-needed inspection of how we use the word freedom in the context of our financial lives. He argues that the way the idea of freedom has been weaponized has led to economic pain for so many Americans and others. We will hear this case.

Joseph Stiglitz is the chief economist of the Roosevelt Institute think tank and an economics professor at Columbia. He won the Nobel Prize for Economics in 2001 for research on the theory of markets with asymmetric information. I know that sounds really wonky, but I'm actually going to ask him about that too because it might relate to how much you pay for health insurance. Among many other things, Joseph Stiglitz was the chair of President Clinton's Council of Economic Advisors, and then chief economist of the World Bank later in the Clinton years of late 1990s. Again, the book is called, The Road to Freedom: Economics and the Good Society. Professor Stiglitz, thanks for coming on. Welcome back to WNYC.

Joseph Stiglitz: Great to be here.

Brian Lehrer: Let's just dive right into your critique of how the political right uses the word freedom when it comes to economics. What's their definition and what's their political strategy around it?

Joseph Stiglitz: Their definition is that any individual should be free to do whatever he wants whatever the consequences for others. That's the key point that in our modern urbanized, integrated society, what one person does can have very adverse effects on others. That's why going back to a primitive economy society, we have the 10 Commandments, thou shall not steal, thou shall not kill, the actions of one affects others. What I point out is one person's freedom can lead to the unfreedom of others, or as Isaiah Berlin put it, freedom for the wolves is death for the sheep.

Brian Lehrer: They go so far, you're right, as to argue that all other freedoms flow from economic freedom. Can you explain that case even though you disagree with it?

Joseph Stiglitz: They contend that you can only have political freedom if you have economic freedom. That was why, for instance, Friedrich Hayek wrote the book, The Road to Serfdom in the middle of the last century as she saw the growth of the welfare stage, the growth of Keynesian economics where government took an increasingly important role in stabilizing the economy. He contended that all of these actions by government were paving The Road to Serfdom.

The argument of my book is he got it 180 degrees wrong, that the government is doing too little led to populism. Populism provided a fertile field for demagogues and is paving the road to serfdom. The problem is not government doing too much, the problem arises from government doing too little.

Brian Lehrer: You mentioned the Hayek book, I guess around the same time, there was the very influential 1962 book, Capitalism and Freedom, by the very influential conservative economist Milton Friedman. You summed up his version of freedom in your book with that Isaiah Berlin quote, freedom for the wolves, death for the sheep. I want to get into it a little more because he challenged what he called Naïve Keynesian theory. I'm quoting from Wikipedia now on his philosophy, so you'll tell me if this is right. Wikipedia is usually accurate.

He challenged what he called Naïve Keynesian theory beginning with his interpretation of consumption which tracks how consumers spend. I gather he thought too much government stimulus to create full employment would lead to too much inflation, and that would be worse. There are those who argue today that that's what we're living through right now with the effects of too many rounds of COVID stimulus. Would you argue back against the theory and the current link to inflation from government spending?

Joseph Stiglitz: Exactly. If you look over the long period, we've actually had very stable inflation. The result of government intervention is that booms are longer, and downturns are shorter and less deep. We haven't had another great depression. We recovered from the Great Recession. We would've recovered faster if we had had more government fiscal support. It was the conservatives, the Republicans that tied our hands in not allowing more government support.

Coming to the recent round of inflation, it's very clear, and I've argued this with data, that it's a pandemic-related supply size shortages, demand shifts, people wanted to live in different places. It was not excess aggregate demand that led to the current bout of inflation. My position is now widely accepted. The evidence is that we've been able to bring down the rate of inflation dramatically without any increase in the level of unemployment, very contrary to what the chairman of the Federal Reserve said. He said that it would have to have 5% unemployment to bring inflation down. He was absolutely wrong.

There's some economists, the one at Harvard, for instance, who suggested we would have to have 7.5% of unemployment for two years to bring down inflation. He was even obviously more wrong. The fact is that markets worked reasonably well in relieving the supply constraints. As those supply constraints were relieved, the inflation came down very quickly.

Brian Lehrer: Since you bring that up, are you skeptical of the need to keep interest rates as high as they are?

Joseph Stiglitz: Yes, I am. It was important to normalize interest rates, but we went well beyond that and we went well beyond that too fast. That has put at risk our economy. The good news is that the Biden administration has been very effective in providing a growth agenda that has provided in turn strong fiscal support not only with the Infrastructure Bill, the CHIPS and Science Act, the IRA.

Had it not been for those, we would be in very bad shape as Europe is today. They've had to respond to our high interest rates, but they haven't had the fiscal support, and countries like Germany are stagnating or in recession. We've caused the global slowdown, but we've been protected ourselves by the strong fiscal support that we've had.

Brian Lehrer: Joseph Stiglitz, the Nobel Prize winning economist, is our guest with his new book, The Road to Freedom: Economics and the Good Society. Listeners, we can take your phone calls for him, your comments and questions on freedom, the word freedom and the economy, your personal economy, and the national economy and global economies, and this notion of freedom and how that word is used. Questions and comments, 212-433-WNYC call or text, 212-433-9692.

In the book, you also center a critique of neoliberalism which many non-economist have no idea what that means. You say it's very much what our economic system is based on these days. Would you define neoliberalism so people can use it at their next cocktail party?

Joseph Stiglitz: Sure. Neo refers to new. Liberalism refers to liberating, giving freedom. It was the idea that by liberating the economy from regulations, reducing taxes, you would lead to unprecedented economic growth. The neo refers to the fact that this is a 20th-century liberalism in contrast to 19th-century liberalism. In fact, there was very little difference. It wasn't an updating.

We've now had 40 years of results from this experiment, and what happened was growth declined markedly to one-third of what it was before. What growth occurred went all to the top. Those at the bottom were actually worse off, contrary to another doctrine of neoliberalism, which was called trickle-down economics, let the rich get richer and everybody will benefit.

The main tenets of neoliberalism have really been refuted by the evidence, but actually, the underlying theory that free and unfettered markets would lead to economic efficiency, economic growth, well-being, had been refuted even before it became fashionable. You mentioned I got the Nobel Prize in asymmetric information. My own work showed that whenever information was imperfect, which of course is always, or markets were imperfect, which again is almost always, markets are not actually efficient, and that there is a role for government intervention.

Brian Lehrer: You say neoliberalism, as you've been describing, is the source of massive inequalities in our country and of today's dangerous populism, and we'll get to the populism. To many listeners, that critique will sound like, "Oh, neoliberalism is conservative," but the word neoliberalism sounds like it's a new liberalism, which sounds like it might be progressive. What's the context of the word liberal? I guess you were getting at it with 19th-century liberalism versus 20th-century liberalism, but it's not liberal in the way that people usually say liberal or conservative, right?

Joseph Stiglitz: That's right. It's a usage actually, in the United States, which is different in most of the rest of the world. In most of the rest of the world, liberalism has been associated with stripping away regulations. In the United States, the liberal is associated with the Democratic Party. That's just an odd difference in the usage of words. The fact of the matter is that stripping away regulations, like on pollution, gives companies freedom to increase their profits, but it means that the rest of the world, including Americans, have to pay the price.

They pay the price in global warming. The people with asthma may find themselves at risk for their lives. Expanding the freedom of the companies is actually reducing the freedom of the rest of us. That's exactly the core point I'm trying to make. When you expand freedoms of some, you may contract the freedoms of others. Actually, I go on to point out that there are some cases where mild constraints actually can expand the freedom of everybody. For instance, stoplights are a good example, where a little regulation saying you can't go until the light is green and you take turns going through the intersection, that allows the traffic to flow.

In the absence of that little regulation you have gridlock and nobody can move, so by a little regulation, everybody's freedom to move is increased. That general principle is actually widespread, that taxation, which is a constraint, allows for public investments that have extraordinarily high returns, and that can expand the freedom of everybody. Obvious example, if the government hadn't made those investments in the mRNA vaccine platform, we might not be here talking. That led to the vaccine that protected us against COVID-19, so coercion, the fact that you have to pay for that research has expanded in a meaningful sense, all of our freedoms.

Brian Lehrer: I don't know anybody who's called a government communist for having stoplights so that everybody gets their fair turn to move forward through the intersection. Peter, in St. Petersburg, you're on WNYC with Joseph Stiglitz. Hello, Peter.

Peter: Ah, finally. Yes. Here's what's going on. I told your screener about, my history is, I graduated from NYU in 1989. At that time, communism, I'm talking about communism all fell apart, if you remember that.

Brian Lehrer: Right then.

Peter: Huh?

Brian Lehrer: Right then, 1989, 1990.

Peter: I was taking a course called Socialist Theory, and it was taught by a Marxist. It was just perfect because I was in the class. He wouldn't call on me anymore because I was like, "No, no, no." I had read-- let's put it. I read Thomas Sowell and Milton Friedman, and I said, "Wait, that's--" I just knew that that was the winning team. Here I am now, I subscribe to Reason Magazine, and here now, going into the 21st century, it's like, forget it.

I'm not a libertarian. All those labels, they don't mean anything anymore. I'm just looking at the world and saying, no, that wasn't the winning team after all. I'm interested in your guest to tell me, what went wrong, or did nothing go wrong? You know what I mean? I am saying, the idea of saying-

Brian Lehrer: Thank you.

Peter: -libertarian, all that.

Brian Lehrer: It's a great conversation to set up a thread of this conversation on what went wrong compared to what people, including probably President Clinton, who you work for, and maybe you as the chair of his Council of Economic Advisors thought was going to happen with his economic policies. What do you say to Peter?

Joseph Stiglitz: Well, actually, even at the time neoliberalism became fashionable, dating at around 1980 with Reagan and Thatcher, economic theory, my work and that of others, have pointed out that unfettered markets didn't actually deliver. Of course, the empirical evidence over the last 40 years has really reinforced that. As we've seen that, we've come to understand a little bit better what was going on. The so-called agenda of freedom of liberalization was really driven by special-interest corporations. They wanted to have more profits.

They didn't care what the consequences were for the environment. The more they were able to exploit market power, exploit individual vulnerabilities, the higher their profits. Their profits came at the expense of others, their freedom came at the expense of others. That's really the point of the book. After 40 years, what I had suggested was the case 45 years ago, we see it so clearly today.

Brian Lehrer: Well, you were President Clinton's Council of Economic Advisors chair in his first two years as president, if I have that right. Was Clinton a neoliberal in the way you use the word?

Joseph Stiglitz: Well, he was really in between, in the end, it turned out he was neoliberal. We had a lot of fights within the cabinet. On one side were people like Bob Reich and myself, and on the other side there were a number of others as Secretary of Treasury. We had a lot of debates. Some of us warned that trade liberalization was going to lead to more inequality, and we better be prepared. We better have programs that help those that were going to be adversely affected, but we went ahead even without those programs, and my fears turned out to be correct.

Brian Lehrer: A little--

Joseph Stiglitz: I was able--

Brian Lehrer: Go ahead.

Joseph Stiglitz: One more point.

Brian Lehrer: Sure.

Joseph Stiglitz: I was really skeptical of financial market liberalization. The history was very clear, deregulating banks was dangerous. We had a lot of fights. During the four years I was there, we had stopped it but after I left, in the last couple of years of the Clinton administration, neoliberalism really swept the Clinton administration. Bob Reich had also left by that point, and that's when we got financial deregulation.

Brian Lehrer: That banking deregulation is widely considered to have contributed a lot to the mortgage crisis, the financial crisis that began in earnest in 2008. Absolutely. Let me play --

Joseph Stiglitz: Absolutely.

Brian Lehrer: Let me play a clip from back then because during your time in that position, and I hear you, that you were not supporting everything, you were arguing with him and lobbying for certain other positions, but during that time, Clinton signed NAFTA, the North American Free Trade Agreement, and later he helped bring China into the World Trade System, both things very much criticized these days. Here's 30 seconds of President Clinton from his NAFTA signing ceremony speech, November 1993.

President Clinton: No one has shown how a wealthy country can grow wealthier and create more jobs unless there is global economic growth through trade. There is simply no evidence that you can do it any other way. About half America's growth in the last seven years has come from trade growth, and the jobs that are tied to trade on average pay about 17% more than jobs which are totally within the American economy.

Brian Lehrer: How much are you cringing hearing that old clip and how much would you push back?

Joseph Stiglitz: Well, what I would say is that we didn't fully understand how adverse would be the effects within the United States. He was right that over the long run, if you manage trade well, it can lead to benefits. This is the old theory of comparative advantage that each country specializing in its comparative advantage leads to growth of income in both sides of the trade agreement. What I saw when I went to the World Bank, was that often when you liberalized trade, when you took joint trade agreements for developing countries, what you did is have resources move from low productivity, not into high productivity, but into unemployment. That, of course, didn't lead to economic growth.

Then it turned out that when people looked more carefully at what was going on in the United States, those places in the United States where there was more competition from imports, whether it was under NAFTA from Mexico, or whether it was from China after the accession to the WTO, those places had higher unemployment, lower wages, lower property values. The neoliberal doctrine was that markets adjusted very quickly, and so people would quickly find jobs that turned out not to be true and that the impacts within the United States were larger than had been anticipated.

Brian Lehrer: I think --

Joseph Stiglitz: Now, of course --

Brian Lehrer: Go ahead, finish your thought. Go ahead.

Joseph Stiglitz: I was just going to say that we have to also recognize that a lot of the de-industrialization was not due just to globalization, but to the fact that there was technical change. I come from Gary, Indiana, a steel-making town. I went back a few years ago, visited the steel mill, and what they told me is they were producing almost as much steel or as much steel as they used to be but with a fraction of the labor force. That's an example where it wasn't trade so much as improvements in productivity, but still the problem was we were not very good at moving labor from the old economy into the new economy. That was an important lesson we should have taken on board.

Brian Lehrer: Tom in Sea Bright in Jersey, you're on WNYC with economist Joseph Stiglitz, his new book, The Road to Freedom: Economics and the Good Society. Hi Tom.

Tom: Hi. Good morning. Thanks for taking my call. Well, professor, your book obviously refers to the road to serfdom. I think we are serfs. Most people are serfs in this country. Professors can write their smart books and figure around a little change here, a little change there. We need a new social contract and we don't have one now. The rich control this country.

The only way things are going to change when people have a decent standard of living and some guarantees of a humane life is if there's a mass revolt. If people say, "I have enough." You know that lobbyists control Congress and the rich control the lobbyists, and they do what those people want. Clinton, he was horrible for the middle class. You can't be proud of having worked with that man. I don't know what we can do short of a revolution, sir. I don't know. I'll take your comments.

Brian Lehrer: Tom, thank you very much. Well, you know he mentions revolution and that cycles back to something you said near the beginning of the segment that I wanted to follow up anyway because you do write in the book about how our current form of economic freedom, as it's generally practiced, could bring down political freedom. The total opposite of Milton Friedman's old belief that economic freedom promotes other freedoms. This is a dystopian vision that runs through populism and maybe revolution, right?

Joseph Stiglitz: Exactly, that one of the motivations of my book is echoing actually with the caller's points that government doing too little about inequality, about exploitation, is creating a dystopia and setting the stage for populism and authoritarianism. He's absolutely right that we need a new social contract.

We have to provide a decent living standard for more of our citizens, for hopefully all of our citizens. He's absolutely right that in America, money talks too much in politics and our economic inequality has as a result led to political inequality. Where I disagree with him is a revolution because the history of revolutions has not been happy. I actually addressed that in my book. What I say is that--

Brian Lehrer: Well, and I'm going to jump in because we're almost out of time, but there's revolution and there's revolution. I think what Tom, talking from the political left, I believe would be unhappy about what's happening right now that's happening right now is that your theory is inequality from neoliberalism fuels what you call populous movements but what's the big populous movement in America? It's on the right. It's Trump style, right?

How do you understand that this massive inequality, which you might think would lead to more calls by more, let's say non-college educated, working-class people who are so broadly victims in our economy the last 30 years, that they would support a more progressive economic blueprint like yours rather than run with Trump?

Joseph Stiglitz: Well, Trump provides a simplistic vision where he says, blame others, blame immigrants, blame foreign trade, blame others for our problems. My view is we need to look inside. We need a new social contract as he says. What I'm arguing for here is that we need the kind of minor repairs, a little bit more education here, a little bit change in a regulation there, is not going to suffice.

We need major changes in our economic system. I try to describe those major changes. I think we can do it, but it will take a lot of civic engagement, political force from the people in the left and the center left, to combat the simplistic story that says just blame others. If we look at the Trump agenda, the 2017 tax cut, it was a tax cut for the billionaires and the corporations. What also did he propose? Getting rid of Obamacare leaving more people without healthcare?

Brian Lehrer: Right.

Joseph Stiglitz: When you look at the details of his agenda, it's really worsening the situation we face today.

Brian Lehrer: Before you go, and we just have a few minutes left, and I know this is worthy of much more than the time I'm going to give it, but in your book you write that despite all the failures and inequities of the current system, so many people still champion the idea of an unfettered free market economy. You use the example of dealing with healthcare and insurance companies among the downsides.

I read on the Encyclopedia Britannica website that your Nobel Prize was for the study of asymmetric markets. Listeners, I'm going to get a little wonky here, but I think it'll be worth it. Britannica says, "Stiglitz studies, for example, the insurance market, in which uninformed insurance companies lacked information on the individual risk situation of their informed customers. They were informed about their own risks, of course, the people were. The analysis showed that by offering incentives to policyholders to disclose information, insurance companies were able to divide them into different risk classes. The use of a screening process enable companies to issue a choice of policy contracts in which lower premiums could be exchanged for higher deductibles."

A little wonky, like I said, but it seems to say you helped empower insurance companies to get us to give up personal data about ourselves so they could make more money off of us. You're going to tell me I'm reading that wrong, right?

Joseph Stiglitz: Well, what I was doing there is describing the way the market worked and that it worked in ways that could lead to that kind of discrimination. The answer about how to organize society when there are these information problems is quite different, That's what I've called for, for instance, it would be better if we had a national system of insurance where everybody pulls together and we don't have that kind of discrimination that I described as an inevitable consequence of the markets when even markets for insurance exist.

One of the things our analysis showed was that there were many circumstances in which there were these problems of imperfect and asymmetric information. Asymmetric just means that some people know something that other people don't know, that in those circumstances, markets might not even be able to function. We see that a lot of the most important things that we would like to get insurance for, we can't get insurance. This idea that you talked about in the insurance markets, what I show is implicit in labor markets, credit markets, that's why there's credit rationing, problems of liquidity in firms, and the banking system, it's really pervasive throughout our economy.

That was really part of my critique of why markets on their own don't solve our society's problems and that there are many arenas. We get much better outcomes with programs of some government role, whether it's a public option and health insurance, I actually think there should be a public option in mortgages. Government role in providing higher education, we have lots of problems in higher education. It helps define more precisely what the government needs to do and why markets have so often failed to live up to the promise that Friedman and Hayek held out for us.

Brian Lehrer: There folks we have just been treated to a short explanation of the theory that won Joseph Stiglitz the Nobel Prize in economics 23 years ago. What a treat. He's got his new book, The Road to Freedom: Economics and the Good Society, which obviously we've also been discussing. Really good to talk to you. Thank you so much.

Joseph Stiglitz: Great to talk to you.

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