If you’re steering a populist movement that needs some economic advice, Nobel laureate Joseph Stiglitz is your man.
Seeking to end Scotland’s three-century union with the rest of the U.K., Alex Salmond was the latest leader to ask the Columbia University professor for guidance. Stiglitz told him an independent Scotland could keep the pound, and oil revenue could guarantee its fiscal future.
“Independence may have its costs, although these have yet to be demonstrated convincingly; but it will also have its benefits,” Stiglitz said in an op-ed this month in the Glasgow-based Sunday Herald newspaper.
Fighting the mainstream is second nature to the 71-year-old former adviser to U.S. President Bill Clinton. This year alone he’s attacked Europe’s austerity policies as a “dismal failure,” sided with Argentina in its fight with bond investors, suggested a tax on high-speed trading and repeatedly rallied against growing income inequality.
Such positions are in keeping with his use of the chief economist’s office at the World Bank in the 1990s to lambaste the crisis-fighting policies of the neighboring International Monetary Fund during the Asian financial meltdown. When he eventually quit the bank in early 2000, he did so “rather than muzzle myself, or be muzzled.”
“Joe has an enormous reputation in economics, but he’s also not a conformist,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, who knows him. “He recognizes the grievances of different protest movements.”
As Scottish voters took to polling stations Thursday to decide their nation’s destiny, Stiglitz was at an economics conference in Italy and unavailable to comment for this article.
Salmond secured Stiglitz four years ago when he appointed him to the Council of Economic Advisers. “A Nobel Prize-winning economist backing Scotland,” he said at the time.
Salmond was able to boast of a world-renowned economist who shared his vision of a Scotland that could prosper on its own. In the end, the first minister’s campaign failed, garnering 45 percent of the vote compared with 55 percent support for the “no” side.
In an interview last month, Stiglitz said the U.K. government’s refusal to grant a currency union with an independent Scotland was a bargaining chip and would be dropped if voters backed a split.
“Countries can work with many different monetary arrangements,” he said. “The concern here really is, can they achieve a stable transition? I think it’s in the interests of the U.K., of England and everybody to have that kind of stable transition. And I think that can be accomplished.”
As for what to do with the oil that lies off Scotland’s coast and whose future was one of the contestable issues of the campaign, Stiglitz helped write a report last October that suggested the resulting revenues be used to set up a short-term stabilization fund and a Norway-style long-term wealth fund.
And for those worried a small state would be buffeted by the vagaries of global financial markets, Stiglitz pointed to Hong Kong, Singapore and Sweden as potential models.
While such arguments were promoted by Salmond on the campaign trail, they earned Stiglitz barbs from other economists including Adam Posen, a former Bank of England official and now president of the Peterson Institute for International Economics in Washington.
“The claims that Stiglitz makes about the economics of Scottish secession are a jumble of wishful economic theorizing (assume what I want to be true, is, and what I don’t want, isn’t), social democrat idealism (only selfish special interest nastiness keeps the world the way it is, we can easily do better), and 60s hippiedom (act local, we can set up our own community not subject to the Man),” Posen wrote in a Sept. 16 op-ed.
“While Stiglitz’s willingness to buck conventional wisdom has been often been insightful in the past, this is not one of those times,” he added.
The son of a schoolteacher and an insurance salesman, Stiglitz grew up in Gary, Indiana. He won the Nobel Prize in 2001 for work showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time.
Such an analysis clashes with that of 18th century Scottish economist Adam Smith. His “invisible hand — the idea that free markets lead to efficiency as if guided by unseen forces — is invisible, at least in part, because it is not there,” Stiglitz wrote in a 2002 article in The Guardian.
His long-held views on the drawbacks of unfettered markets proved prophetic when the world suffered its worst financial crisis since the Great Depression. That came a decade after he had clashed with then-U.S. Treasury Secretary Lawrence Summers and other policy makers over how to battle Asia’s economic woes. Stiglitz said the IMF was hurting poor countries by demanding they cut budgets, raise interest rates and open capital markets.
His writings and criticism of the IMF prompted an open letter from Kenneth Rogoff, then research director at the fund and now a professor at Harvard University.
“Joe, as an academic, you are a towering genius,” Rogoff wrote. “As a policy maker, however, you were just a bit less impressive.”
More recently, he urged President Barack Obama to deliver more fiscal stimulus in the wake of the crisis. A study of his showing the top 1 percent of Americans control 40 percent of U.S. wealth was seized upon by protesters around the world including the Occupy Wall Street movement.
“An economic system that only delivers for the very top is a failed economic system,” Stiglitz said in a May speech in Washington.
Outside of the U.S., he’s fought against Europe’s use of fiscal austerity to fight its debt crisis, saying in an interview last month the policy was the cause of economic stagnation. Stiglitz advised Greek Prime Minister George Papandreou during his country’s economic turmoil and sought to enlist the European Union to help the nation avoid “speculative attacks”
In March, his lawyer said he planned to file a brief in support of Argentina’s bid for a U.S. Supreme Court review of an order to pay holders of defaulted bonds in full.
Stiglitz is “iconoclastic,” said Jared Bernstein, a senior fellow at the Washington-based Center on Budget and Policy Priorities and former chief economic adviser for Vice President Joe Biden. “More than almost any other highly prominent economist, he is unbound by the set of ideological rules that too often dominate the profession in the face of contrary evidence.”
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