Joseph Stiglitz

Joseph E. Stiglitz
Born	February 9, 1943 Gary, Indiana
Nationality	American
Alma mater	MIT
Known for	Screening
Awards	File:Nobel.svg Nobel Memorial Prize (2001)
Scientific career
Fields	Economics
Institutions	Columbia University
Doctoral advisor	Robert Solow

Joseph Stiglitz (born February 9, 1943) is an American economist and a member of Columbia University faculty. He is a recipient of the John Bates Clark Medal (1979) and the Nobel Memorial Prize (2001). Former Senior Vice President and Chief Economist of the World Bank, he is famous for his critical view of globalization and international institutions like the International Monetary Fund and the World Bank. In 2000 Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. Since 2001 he has been a member of the Columbia faculty, and has held the rank of University Professor since 2003. He also chairs the University of Manchester's Brooks World Poverty Institute.

Biography

Stiglitz was born in Gary, Indiana, to Charlotte and Nathaniel Stiglitz. From 1960 to 1963, he studied at Amherst College, where he was a highly active member of the debate team and President of the Student Government. He went to the Massachusetts Institute of Technology (MIT) for his fourth year as an undergraduate, where he later pursued graduate work. His undergraduate degree was awarded from Amherst College. From 1965 to 1966, he moved to Chicago to do research under Hirofumi Uzawa who had received an NSF grant. He studied for his PhD from MIT from 1966 to 1967, during which time he also held an MIT assistant professorship; the particular style of MIT economics suited him well - simple and concrete models, directed at answering important and relevant questions . From 1969 to 1970, he was a Fulbright research fellow at the University of Cambridge. In subsequent years, he held professorships at Yale University, Duke University, Stanford University, Oxford University and Princeton University. Stiglitz is currently a Professor at Columbia University, with appointments at the Business School, the Department of Economics and the School of International and Public Affairs (SIPA), and is editor of The Economists' Voice journal with J. Bradford DeLong and Aaron Edlin.

In addition to making numerous influential contributions to microeconomics, Stiglitz has played a number of policy roles. He served in the Clinton Administration as the chair of the President's Council of Economic Advisors (1995 – 1997). At the World Bank, he served as Senior Vice President and Chief Economist (1997 – 2000), in the time when unprecedented protest against international economic organizations started, most prominently with the Seattle WTO meeting of 1999.

Leaving the World Bank

Stiglitz always had a poor relationship with Treasury Secretary Lawrence Summers. In 2000 Summers successfully petitioned for Stiglitz's removal, supposedly in exchange for World Bank President James Wolfensohn's re-appointment – an exchange that Wolfensohn denies took place. Whether Summers ever made such a blunt demand is questionable – Wolfensohn claims he would "have told him to fuck himself" (Mallaby, The World's Banker, p266).

Stiglitz promptly resigned his post as chief Economics advisor but stayed on as 'Special advisor to the President'. In this role, he continued criticism of the IMF, and, by implication, the US treasury department. In April 2000, in an article for the New Republic, he wrote on the IMF :

"They’ll say the IMF is arrogant. They’ll say the IMF doesn’t really listen to the developing countries it is supposed to help. They’ll say the IMF is secretive and insulated from democratic accountability. They’ll say the IMF’s economic ‘remedies’ often make things worse – turning slowdowns into recessions and recessions into depressions. And they’ll have a point. I was chief economist at the World Bank from 1996 until last November, during the gravest global economic crisis in a half-century. I saw how the IMF, in tandem with the U.S. Treasury Department, responded. And I was appalled".

The article was published a week before the annual meetings of the World Bank and IMF and provoked a strong response. It proved too strong for Summers, yet more lethally, Stiglitz's protector-of-sorts at the World Bank, Wolfensohn. Wolfensohn had privately empathised with Stiglitz's views, yet this time he had gone too far. Wolfensohn, worried for his second term – which Summers had threatened to veto, had little other option left. Stiglitz was fired by Wolfensohn (see US Hegemony and the World Bank, p222-223, by Wade in 2002, Review of the International Political Economy [1]).

Contribution to economics, life after the World Bank

In July 2000 Stiglitz founded the Initiative for Policy Dialogue (IPD) to help developing countries explore policy alternatives, and enable wider civic participation in economic policymaking.

Stiglitz' most famous research was on screening, a technique used by one economic agent to extract otherwise private information from another. It was for this contribution to the theory of information asymmetries that he shared the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2001 (alias Nobel Prize for Economics) in 2001 "for laying the foundations for the theory of markets with asymmetric information" with George A. Akerlof and A. Michael Spence.

Traditional neoclassical economics literature assumes that markets are always efficient except for some limited and well defined market failures; Stigltz et al. more recent studies reverse that presumption: it is only under exceptional circumstances that markets are efficient. Stiglitz (and Greenwald) show that "whenever markets are incomplete and /or information is imperfect (which are true in virtually all economies), even competitive market allocation is not constrained Pareto efficient". In other words, there almost always exists schemes of government intervention which can induce Pareto superior outcomes, thus making every one better off . Although these conclusions, and the pervasiveness of market failures, do not at all warrant the state into intervening broadly in any economy, it makes clear that the "optimal" range of government recommendable interventions is definitely much larger than the traditional "market failure" school recognizes For Stiglitz there is not such a thing as an "invisible hand" .

Whenever there are “externalities”—where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets will not work well. But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always.

The real debate today is about finding the right balance between the market and government (and the third “sector”—non-governmental non-profit organizations.) Both are needed. They can each complement each other. This balance will differ from time to time and place to place.

In the opening remarks for his prize acceptance "Aula Magna" , Stiglitz said: "I hope to show that Information Economics represents a fundamental change in the prevailing paradigm within economics. Problems of information are central to understanding not only market economics but also political economy, and in the last section of this lecture, I explore some of the implications of information imperfections for political processes." Stiglitz, Aula Magna

Books published

Along with his technical economic publications, Stiglitz is the author of several books in which he uses his command of economic logic to good effect, offering clear discussions of dozens of complex issues, from patent law to abuses in international trade.

Stability with Growth: Macroeconomics, Liberalization and Development

In Stability with Growth: Macroeconomics, Liberalization and Development (2006), Stiglitz, José Antoni Ocampo (United Nations Under-Secretary-General for Economic and Social Affairs) Shari Spiegel (Managing Director, Initiative for Policy Dialogue - IPD ) Ricardo Ffrench-Davis (Main Adviser, Economic Commission for Latin America and the Caribbean - ECLAC ) and Deepak Nayyar (Vice Chancellor, University of Delhi) discuss the current debates on macroeconomics, capital market liberalization, and development, and develop a new framework within which one can assess alternative policies. They explain their belief that the Washington consensus has advocated for narrow goals for development (with a focus on price stability), prescribed too few policy instruments (emphasizing monetary and fiscal policies), and places unwarranted faith in the role of markets. The new framework focuses on real stability and long-term sustainable and equitable growth, offers a variety of non-standard ways to stabilize the economy and promote growth, and accepts that market imperfections necessitate government interventions. Policy-makers have pursued stabilization goals with little concern for growth consequences, while trying to increase growth through structural reforms focused on improving economic efficiency. Moreover, structural policies, such as capital market liberalization, have had major consequences for economic stability. This book challenge these policies by arguing that stabilization policy has important consequences for long-term growth and has often been implemented with adverse consequences. The first part of the book introduces the key questions and looks at the objectives of economic policy from different perspectives. The second part examines the central issues of macroeconomics, presenting an analysis of economic models and policy perspectives on stabilization from conservative, Keynesian, and heterodox perspectives. The third part presents a similar analysis for capital market liberalization.

Making Globalization Work

Making Globalization Work (2006) surveys the iniquities of the global economy, and the mechanisms by which developed countries exert an excessive influence over developing nations. Dr Stiglitz argues that through recourse to various measures – be it overt trade tariffs, subtler subsidies, a patent system that developed countries are far better prepared to navigate, or the damage done to poor countries by global pollution – the world is being both economically and politically destabilised, from which we will all suffer. Making Globalization Work exposes the problems of how globalisation is currently being managed, the vested interests behind many decisions and the prospects for negotiating fairer terms for those worst affected. Dr Stiglitz tackles the problems immediately facing the world, arguing that strong, transparent institutions are needed to turn globalisation to favour the world's poorest, and to address the democratic deficit that is so keenly felt across the world. Stiglitz won the Nobel for exploring how uncertainty and poor information can make markets fail. Here shows how an examination of incomplete markets can make corrective government policies desirable.

Many of Stiglitz's criticisms are uncontroversial. He is hardly alone in believing that economic opportunities are not widely enough available, that financial crises are too costly and too frequent, and that the rich countries have done too little to address these problems. Making Globalization Work is an optimistic book, offering the hope that global society has the will or the ability to address global problems and that international economic integration will ultimately prove a force for good. Certainly Stiglitz is right that the world would benefit from a concerted effort to address problems of the environment, poverty and disease. However, his proposals are almost utopian in their reliance upon good will, enlightened public opinion and moral imperatives to overcome selfish but deeply entrenched private or national interests that do not share his goal of making globalization work for as many countries and as many people as possible. Making Globalization Work had sold more than two million copies.

The Roaring Nineties

In 2003, Stiglitz published The Roaring Nineties, his analysis of the boom and bust of the 1990s. In 2004 he published "New Paradigm for Monetary Economics" (Cambridge University Press) and in 2005, Oxford University Press published his book "Fair Trade for All."

Globalization and Its Discontents

Stiglitz has always been concerned with one of the most pressing economic problem of our time: so many of what we usually call "developing economies" are, in fact, not developing at all. Stiglitz, in Globalization and Its Discontents' (2002), offers his informed views both of what has gone wrong and of what to do differently. But the main book also focus in who to blame. According to Stiglitz, the story of failed development does have a villain, and the villain has been the IMF.

In Globalization and Its Discontents Stiglitz bases his argument for different economic policies on the themes that his decades of theoretical work have emphasized: namely, what happens when people lack the key information that bears on the decisions they have to make, or when markets for important kinds of transactions are inadequate or don't exist, or when other institutions that standard economic thinking takes for granted are absent or flawed. The implication of each of these absences or flaws is that free markets, left to their own devices, do not necessarily deliver the positive outcomes claimed for them by textbook economic reasoning that "assumes that people have full information, can trade in complete and efficient markets, and can depend on satisfactory legal and other ". Stiglitz stresses the point: "Recent advances in economic theory" (in part referring to his own work) "have shown that whenever information is imperfect and markets incomplete, which is to say always, and especially in developing countries, then the invisible hand works most imperfectly." As a result, Stiglitz continues, governments can improve the outcome by well-chosen interventions. (Whether any given government will actually choose its interventions well remains open to questions.) At the level of national economies, when families and firms seek to buy too little compared to what the economy can produce, governments can fight recessions and depressions by using expansionary monetary and fiscal policies to spur the demand for goods and services. At the microeconomic level, governments can regulate banks and other financial institutions to keep them sound. They can also use tax policy to steer investment into more productive industries and trade policies to allow new industries to mature to the point at which they can survive foreign competition. And governments can use a variety of devices, ranging from job creation to manpower training to welfare assistance, to put unemployed labor back to work and, at the same time, cushion the human hardship deriving from what — importantly, according to the theory of incomplete information, or markets, or institutions —i s no one's fault.

Stiglitz complains bitterly that the IMF has done great damage through the economic policies it has prescribed that countries must follow in order to qualify for IMF loans, or for loans from banks and other private-sector lenders that look to the IMF to indicate whether a borrower is creditworthy. The organization and its officials, he argues, have ignored the implications of incomplete information, inadequate markets, and unworkable institutions—all of which are especially characteristic of newly developing countries. As a result, Stiglitz argues, time and again the IMF has called for policies that conform to textbook economics but do not make sense for the countries to which the IMF is recommending them. Stiglitz seeks to show that the consequences of these misguided policies have been disastrous. not just according to abstract statistical measures but in real human suffering, in the countries that have followed them.

Whither Socialism

In Whither Socialism, a non-mathematical book providing an introduction to the theories behind economic socialism's failure in Eastern Europe, the role of imperfect information in markets, and his conceptions about how truly "free market" the free market capitalist system is.

Papers and conferences

Mr. Stiglitz wrote a series of papers and held a series of conferences explaining how such information uncertainties may have influence on everything from unemployment to lending shortages. As the chairman of the Council of Economic Advisers during the Clinton Administration and former chief economist at the World Bank, Mr. Stiglitz was able to put some of his views into action. For example, he was an outspoken critic of quickly opening up financial markets in developing countries. These markets rely on access to good financial data and sound bankruptcy laws, but he argued that many of these countries didn't have the regulatory institutions needed to ensure that the markets would operate soundly.

Critics

Some laissez-faire economists fear that this line of reasoning, which is based on theories of Information economics and information asymmetry, could amount to an economic argument for more government regulation, which many free-market neoliberal economists abhor. For them the thinking goes that if imperfect information sometimes distorts markets, then governments sometimes need to fix those distortions. This very act of government fixing markets distortions, when and where "market fixing" is feasible, would represent, in itself, a justification for some limited gorvernment intervention in the economy.

Personal Information

Stiglitz's first two marriages ended in divorce. He was married for the third time on October 28, 2004, to Anya Schiffrin, who works at the School of International and Public Affairs at Columbia University.

Publications

• Making Globalization Work ISBN 0-393-06122-1, Penguin Books, August 2006.
• Stability with Growth: Macroeconomics, Liberalization, and Development ISBN 0-19-928814-3 (Initiative for Policy Dialogue Series C); by Joseph E. Stiglitz, Jose Antonio Ocampo, Shari Spiegel, Ricardo Ffrench-Davis, and Deepak Nayyar; Oxford University Press 2006
• Whither Socialism? (Wicksell Lectures), MIT Press, January 1996.
• Frontiers of Development Economics: The Future in Perspective, edited with Gerald M. Meier, World Bank, May 2000.
• New Ideas About Old Age Security: Toward Sustainable Pension Systems in the 21st Century , edited with Robert Holzmann, World Bank, January 2001.
• Principles of Macroeconomics, Third Edition, with Carl E. Walsh, W.W. Norton & Company, March 2002.
• Economics, Third Edition, with Carl E. Walsh, W.W. Norton & Company, April 2002.
• Peasants Versus City-Dwellers: Taxation and the Burden of Economic Development, with Raaj K. Sah, Oxford University Press, April 2002.
• Globalization and Its Discontents, W.W. Norton & Company, June 2002.
• Towards a New Paradigm in Monetary Economics, with Bruce Greenwald, Cambridge University Press, forthcoming in May 2003.
• The Roaring Nineties, W.W. Norton & Company, forthcoming in October 2003. Video presentation
• Fair Trade for All: How Trade Can Promote Development (Initiative for Policy Dialogue Series C) -- by Joseph E. Stiglitz, Andrew Charlton; Hardcover
• Economics of the Public Sector by Joseph E. Stiglitz
• The Rebel Within: Joseph Stiglitz and the World Bank by Joseph E. Stiglitz (Editor), Ha-Joon Chang (Editor), ISBN 1-898855-91-9, Anthem Press, Wimbledon Publishing Company (Paperback - February 25, 2002)
• The Development Round Of Trade Negotiations In The Aftermath Of Cancun by Joseph E. Stiglitz, Andrew Charlton (Paperback - January 30, 2005)
• A Chance For The World Bank by Joseph P Stiglitz (Foreword), Jozef Ritzen, ISBN 1-84331-162-3, Anthem Press, Wimbledon Publishing Company (Paperback - May 30, 2005)
• Readings in the Modern Theory of Economic Growth by Joseph E. Stiglitz (Editor), Hirofumi Uzawa (Editor)
• The World Bank Research Observer: No 2: August 1996 by Joseph Stiglitz
• Credit Rationing in Markets with Imperfect Information, The American Economic Review, Vol. 71, No.3 (June 1981),pp.393-410, by Joseph E. Stiglitz and Andrew Weiss

Online access to his published papers at his own website

External links

• Joseph Stiglitz's homepage
• STIGLITZ, Joseph E. Prize Lecture: Information and the Change in the Paradigm in Economics. Joseph E. Stiglitz held his Prize Lecture December 8, 2001, at Aula Magna, Stockholm University. He was presented by Lars E.O. Svensson, Chairman of the Prize Committee.
• Initiative for Policy Dialogue (IPD) official website
• Joseph Stiglitz speaks about Making Globalization Work
• Policy Innovations Advisory Board Member
• The Brooks World Poverty Institute at the University of Manchester
• Stiglitz explains how the IMF destroys nations
• An Open Letter to Joseph Stiglitz, by Kenneth Rogoff, Economic Counsellor and Director of the Research Department, IMF
• The Economists' Voice
• Autobiographical essay in acceptance of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel
• Joseph E. Stiglitz's syndicated monthly op/ed column for Project Syndicate
• "More instruments and broader goals: Moving toward the post-Washington Consensus" (PDF 287KB) The (freely) published UNU-WIDER 1998 Annual Lecture
• Critical review of Globalization and its Discontents by Tony Smith
• "The Economic Costs of the Iraq War: An Appraisal Three Years After the Beginning of the Conflict" - A paper that estimates the total cost to the U.S. of the second Iraq War to be $1-2 trillion. Co-authored with Linda Bilmes.

Video lectures

• Joseph Stiglitz on Google Video, Google Video
• Fair Trade for All: How Trade Can Promote Development, Carnegie Council
• The Roaring Nineties by Joseph Stiglitz, World Bank
• Joseph Stiglitz and Kenneth Rogoff discuss: Globalization and Its Discontents, World Bank
• Information and the Change in the Paradigm in Economics - Nobel lecture, Nobelprize.org
• Rewriting history, Kellogg School of Management, Northwestern University
• The Future of Globalization: Lessons from Cancun and Recent Financial Crises, Globalization research group, Duke

References

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