The Nobel economics laureate prefers to focus on the 'one per cent’ rather than look at the facts on inequality
When the self-described Marxist and newly-appointed shadow chancellor John McDonnell addressed the Labour conference in September, he told delegates that the party needed to “prove to the British people that [Labour] can run the economy better than the rich elite that runs it now”. He went on to unveil an Economic Advisory Committee of “some of the world’s leading economic thinkers” to advise Labour on strategy. At the top of McDonnell’s list was an economist whom he described as having “unchallengeable expertise” — Joseph Stiglitz.
Stiglitz’s name, along with that of Capital in the Twenty-First Century author Thomas Piketty, prompted cheering among the delegates in the conference hall — an unusually enthusiastic reception for economists who have spent their careers researching, respectively, asymmetric markets and wealth distribution. But Stiglitz is by now used to such receptions. He has become something of an economic rockstar in recent years, with a cult-like following from fans won over by his characterisation of inequality as the dangerous result of the “unjust policies and misguided priorities” of a vindictive “one per cent” (he claims credit for the popularity of that phrase).
Though Stiglitz worked for President Bill Clinton and as chief economist of the World Bank in the 1990s, it was the Nobel Prize in economics he shared with George Akerlof and Michael Spence in 2001 that brought him widespread recognition. He has since used that fame to fashion himself as a leading public intellectual, publishing more than two dozen mass-market books and picking up more than 40 honorary degrees along the way — accolades he makes a point of mentioning ad nauseam in his latest volume, The Great Divide (Allen Lane, £25).
More recently, Stiglitz has revived his career as an adviser to elected politicians. Perhaps American decision-makers have stopped listening to him, because he has increasingly set up shop overseas, counselling Nicola Sturgeon’s SNP government, Alexis Tsipras’s Syriza-led coalition in Greece, and, now, the Corbynistas. These left-wing leaders use Stiglitz’s name to add a veneer of credibility to the policies they peddle, but one would be wise to take his relentlessly anti-austerity message with a grain of salt.
While Stiglitz has succeeded in building his own international profile, his interventions into European politics have proved to be woefully under-informed. Recycling old arguments, Stiglitz has repeatedly prescribed simplistic solutions to complex problems, failing to grasp even the most basic characteristics of the political and economic systems he is assessing, all the while legitimising fiscally irresponsible parties.
Take, for example, his work in Scotland. Stiglitz, who is a member of the SNP government’s council of economic advisers, waded into the independence referendum in September 2014, less than a week before Scots were set to vote. Writing in the Glasgow Herald, he dismissed legitimate currency concerns as a “non-issue”, incorrectly asserted that an independent Scotland would remain part of the EU, and made an unsubstantiated claim that Scottish “values” ensured that the nation had better education and health systems than those in England.
Stiglitz cheers on the SNP’s elimination of university tuition fees, but fails to mention what this has done to student debt in Scotland, which is at a record high. Having cut student grants by 40 per cent to offset the costs of subsidising tuition, the Scottish government has actually facilitated a spike in student borrowing, which jumped by 69 per cent in the last academic year. He ignores the fact that the poorest students have been among the hardest-hit, or that literacy and numeracy rates among younger students have simultaneously slipped. Far from solving inequality, the policies Stiglitz advocates only widen “the great divide”.
The American economist likened Greece’s creditors’ insistence on government cuts to “unconscionable torture”, saying that the country’s devastating downturn was the “deliberate” result of the Troika’s demands and, repeating his anti-austerity rallying cry, arguing that structural reform was “not needed”.
When first asked about Jeremy Corbyn, at an event at the Arts Club — a one percent-er hangout on Mayfair’s Dover Street — in the summer, his answer demonstrated little knowledge of the Labour leadership contest: “I am not surprised at all that there is a demand for a strong anti-austerity movement around increased concern about inequality.” Many in the audience suspected he had never heard of Corbyn.
Echoing his new boss, Stiglitz has said that “inequality has gotten much worse” in the UK — another claim that does not fit with the facts. According to the Institute for Fiscal Studies, taking into account earnings, taxes and benefits, income inequality is actually lower now than it was at the time of the financial crisis. Stiglitz should heed the advice of an eminently more sensible American progressive, the late Daniel Patrick Moynihan: “Everyone is entitled to his own opinion, but not to his own facts.”