Why Joseph Stiglitz Wants to Redefine Freedom

On the day, Stiglitz was up first. The cheerful doyen of leftist economics launched into a speech laying out his ideological vision of “progressive capitalism.” About 13 minutes in, however, he realized he wouldn’t finish within his allotted time. Smiling, he dismissed the clock and declared, “I’m going to use the power I have right now to speak just a little bit over.” He went on for over 30 minutes in total, leaving the rest of us to rush through our presentations and extinguishing any opportunity for a Q&A.

I thought about this while reading Stiglitz’s latest book, The Road to Freedom: Economics and the Good Society. His central thesis is that “the Right” — into which he lumps everyone from old-school conservatives to libertarians — has a faulty conception of freedom. We non-leftists apparently don’t acknowledge that just as one person’s excess speaking time eats into that of another panelist’s, so does one person’s supposed freedom impinge on another’s more often than we’d admit. This trite observation that “no man is an island” is justification, Stiglitz supposes, for extensive government adjudication of our lives, particularly in economic affairs.

Caricaturing fellow Nobel-winning economists Milton Friedman and Friedrich Hayek as proponents of crude, unadulterated laissez-faire (a bizarre misinterpretation of their work), Stiglitz argues that it’s dangerous to perceive freedom as synonymous with the absence of government coercion. Not only does it lead to bad outcomes, but thinking that way inculcates selfish attitudes. Instead, Stiglitz wants us to understand that “unregulated, unfettered markets” aren’t even theoretically efficient and, indeed, are often exploitative and destructive and play upon human vulnerabilities in ways that harm human well-being broadly understood.

Given the pervasive existence of negative externalities, misinformation, market imperfections, and the suffering of the poor within “free markets,” Stiglitz thinks we need a more positive conception of liberty — one that considers opportunity-enhancing supports and public goods provided by the government as pro-freedom. In short, he argues that a benevolent state can make us freer, on net, by taxing, spending, and regulating to make the poor richer (“freedom to act”), provide social security (“freedom from want and fear”), and expand opportunity (freedom to live up to one’s potential). This coercion for the greater good will protect us against various market failures and exploitation. It’s the “freedom” that Vice President Kamala Harris promises on the campaign trail.

Why does Stiglitz try to redefine “freedom” rather than just use other existing words such as, say, “wealth,” or “opportunity,” or even “economic welfare” for these ambitions? Well, because he thinks that “freedom” resonates with people and that the libertarian-conservative conception of it has unfairly dominated our politics since the “neoliberal” revolution of Ronald Reagan and Margaret Thatcher. To read Stiglitz, in fact, you would think we’d seen minimalist government since the early 1980s, driving economic failure, climate-change destruction, and, ultimately, the economic disappointment that he thinks is fueling populist authoritarianism. Achieving his vision of real freedom requires “progressive capitalism,” Stiglitz concludes, by which he means a much more expansive form of social democracy and the regulatory state.

Stiglitz is without question one of the greatest theoretical economists of all time. But showing mathematically that free markets are not perfectly efficient, and that people aren’t always rationally self-interested, is insufficient to inform us about what public policy should do or could achieve.

There are glaring logical problems with Stiglitz’s simplistic ideological framing. First, as the liberal commentator Matt Yglesias documented recently, it’s simply untrue that the last four decades have seen the “unfettered” markets of Stiglitz’s conception. Environmental regulations such as the Clean Air Act, the Clean Water Act, and the Endangered Species Act are still on the books, land-use regulations have expanded, and we’ve seen extensive corporate welfare, including the bailouts associated with the financial crisis. Yes, the 1970s deregulations of price and entry controls have endured, corporate-tax rates have fallen, and, until recently, tariffs tumbled globally. But the world we live in is hardly a libertarian policy utopia.

Indeed, in an extensive table that’s supposed to draw out how his prescriptions differ from the status quo, Stiglitz repeats that the “neoliberal” approach to most theoretical problems is overwhelmingly to “leave it to the market,” with disastrous consequences. “Progressive capitalist policies,” we are told, would instead include environmental regulation, industrial policies, and financial regulation to deal with externalities; investment in public goods; product disclosure, consumer and labor regulations, and class-action lawsuits to deal with imperfect information; social-insurance programs to deal with unexpected risk; macroeconomic stabilization through fiscal and monetary policies; antitrust laws; and minimum wages, redistribution, and government health-care programs to deal with inequality. If that all sounds familiar, it is because all these policies exist already in our supposedly neoliberal world, although Stiglitz would clearly like them to go much further.

Next, Stiglitz’s commitment to proving that inefficient markets are behind all the world’s ills leads him to propagate a narrative about recent events that obviously ain’t so. He tells us, for example, that recent inflation was all due to supply shocks, shifting demand patterns after lockdowns, and corporate price-gouging, not “an excess of aggregate demand” — or, in English, too much government stimulus. What we really needed to avoid the sharp rise in prices, apparently, was not tighter monetary policy in 2021 and 2022 but more “resilience,” which imperfect free and open markets will always fail to deliver.

Of course, this narrative is at odds with basic facts about recent inflation. Though it’s true that at times pandemic supply-chain issues and international gas prices increased the price level, total spending on final goods and services (so-called nominal GDP) was until recently 9 percent above its pre-pandemic trend, a vast “excess” of stimulus that can almost entirely explain the above-target inflation we’ve lived through. Quite simply: The inflationary burst wouldn’t have been possible without the overly loose macroeconomic policies we saw in the first three years of the pandemic.

In making the case for the market’s lack of “resilience,” in fact, Stiglitz chooses the peculiar example of the 2022 baby-formula crisis, when the U.S. suffered shortages of infant-powder formula after a large-scale recall by Abbott, a major supplier. Was this worrying time for parents really a case of free markets’ delivering insufficient capacity to meet need — a market failure? Well, no. In fact, government policies (tariffs, tariff-rate quotas, and FDA product restrictions) prevented imports from serving the excess U.S. demand, while the Special Supplemental Nutrition Program for Women, Infants, and Children, a welfare program, had consolidated the industry through sole-source contracts with producers. This is an understated but inevitable consequence of the sort of government-led, protectionist industrial policy Stiglitz champions: It makes us more vulnerable to domestic shocks by limiting the international diversification of supply.

This gets me to the overarching problem with the book. For all the talk of the many market failures and externalities that exist, and all the wonderful benefits we’d supposedly see with more extensive progressive-capitalist policies to solve them, Stiglitz does not attempt to quantify anything.

There’s been a long history of economists running with mathematical proofs of the inadequacy of free markets to justify extensive government intervention. The 19th-century French economist Léon Walras, like Stiglitz, used such logic to argue that socialistic institutions were essential to achieving “free competition.”

But in declaring that perfect markets don’t exist, Stiglitz tilts at windmills. No real-world market is perfect. The logical leap is to assume that they are perfectible by governments, staffed by the same fallible humans who operate in the private sector. What we surely need in the messy real world is to weigh the costs and benefits of policies, on the margin, drawing on the experience of how government actually functions. Yet statistical claims appear, on average, just once every eight pages in this text — an extremely low figure for an economics book.

“In his focus on market failure,” as development economist William Easterly, a fellow former World Bank employee, has said of Stiglitz, “Joe often misses the bigger problem — the need to roll back the disastrous distortions of markets by government — such as government-induced hyperinflation, negative real interest rates, severe price controls, and punitive taxes on exports.”

Easterly was talking about Stiglitz’s thinking on economic development, but a similar charge applies here. If markets are so imperfect and governments so benign, then why has the more free-market U.S. maintained its economic preeminence on the technological frontier these past 40 years while Argentina, after decades of policies to obtain social justice and solve market failures, has seen its relative prosperity plummet? Perhaps markets and the basic state supports they undoubtedly require, while not perfect, still work pretty well.