Pernicious Nonsense Unrebuked

Forbes , June 11, 2000

JOSEPH STIGLITZ IS A BRILLIANT MAN. His pioneering scholarship on the economics of information has put him on most economists' short list of Nobel Prize candidates. But Stiglitz has been in the news recently for reasons having nothing to do with his research. He is not only a scholar. Until recently, he was chief economist at the World Bank and, before that, a member of the president's Council of Economic Advisers.

Those political credentials give him clout with people who have never heard of asymmetric information models. So when Stiglitz published a cover story in The New Republic excoriating the International Monetary Fund's policies toward economies in crisis, he got a lot of attention—and a lot of praise.

Unfortunately, a lot of that praise distorted what Stiglitz was saying. The article came out as protesters were descending on Washington to object not only to IMF policies but also to globalization, free trade and economic growth. The protesters and their sympathizers used Stiglitz's reputation and credentials to lend credibility to their prescriptions for autarky and economic stasis.

And in pursuit of publicity, Stiglitz himself actively curried favor with people who represent ideas and values that are anathema to both his scholarly standards and his professed goals. He demonstrated the dangers of combining complex arguments, ambition and ideological naivete.

The New Republic piece is a careful, subtle and specific piece of work. In Asia and Russia, Stiglitz argues, the IMF used its clout to get countries to adopt macroeconomic policies that worsened their crises. In countries with budget surpluses and low inflation, for instance, the fund insisted on tighter fiscal and monetary policies, turning recessions into depressions.

The IMF's economic models are out of date, charges Stiglitz, and it is too insistent on one-dose-fits-all prescriptions, regardless of local circumstances. Its experts are "third-rank students from first-rate universities." They have ignored such institutional structures as bankruptcy law and, in Russia, the rule of law in general. IMF policy-makers won't listen to criticism, which has come from respected economists across the political spectrum.

Some of Stiglitz's points are debatable, particularly when he advocates capital controls, but they are not wrongheaded on their face. Not so the claims of his new-found allies.

On PBS' Charlie Rose Show Stiglitz was paired with Juliette Beck, representing a group called Global Exchange. Beck's antimarket agenda is far more sweeping than IMF reform.

Asked whether she sees any evidence that the World Bank and IMF get the message, Beck responded, "Quite frankly, no. I think that they are still entrenched in their ideology of 'growth is the solution.' Economic growth, frankly, is leading to a decline in almost every ecosystem on earth. We cannot sustain this level of growth, and yet they're promoting more and more economic growth as a solution. We need to rethink the whole economic system that we're living in."

If Beck is right, then throwing Thailand and Indonesia into depressions is just peachy keen. After all, a depression is the opposite of the "economic growth" she wants to stop. Stiglitz has nothing to complain about.

Faced with this pernicious nonsense, Stiglitz had a professional responsibility to respond critically. Without economic growth, and the trade and specialization that make it possible, the world's peasants are condemned to lives of brutal poverty. Beck's movement, if successful, will do more damage to poor countries than the IMF and World Bank could ever do.

Instead, Stiglitz kissed up. He said nothing in defense of economic growth, let alone free trade. He gushed about how much his man Al Gore supports the environment. He practically begged to be loved. It was disgusting.

Stiglitz has since become something of a martyr. He has been dismissed as a special adviser to the president of the World Bank and forced back to his job as a lowly Stanford professor on the Nobel track. Given the relative quality of his scholarship and his political judgment, that's for the best.