Joseph E. Stiglitz

Economist

• Born: February 9, 1943
• Place of Birth: Gary, Indiana

ECONOMIST

Stiglitz, a Nobel Prize–winning economist, created models that accurately describe the behavior of free markets, developed the field of the economics of information, and has been a harsh critic of the development policies of the World Bank and the International Monetary Fund.

AREA OF ACHIEVEMENT: Economics

Early Life

Joseph Stiglitz was born on February 9, 1943, to Jewish parents in Gary, Indiana. On his mother’s side were New Deal Democrats, and his father was an independent businessman best described as a Jeffersonian Democrat. His family hotly discussed economic and political issues. Growing up in this environment and witnessing the industrial decline, cyclic unemployment, discrimination, and poverty of Gary, Stiglitz developed a concern for what could be done to improve social conditions. Being a member of the high school debate team gave Stiglitz an interest in social policy and the skill to see many sides of an issue.

For three years, from 1960 to 1963, Stiglitz attended Amherst College, where he thrived in the liberal-arts atmosphere. The Socratic method practiced there taught him the importance of asking the right question. Active in student government, he used his student-council presidency to promote social change. He was attracted to economics, for he believed it would allow him to address important social problems. Without taking a degree from Amherst, he was admitted to the Massachusetts Institute of Technology (MIT) for graduate school, and he earned a Ph.D. in 1966. Studying with such world-famous economists as Robert Solow and Paul Samuelson, Stiglitz learned to construct simple and concrete models that effectively described the workings of markets. He collaborated on research and on papers with many of his fellow students.

Stiglitz then went to Cambridge, England, on a Fulbright fellowship (1965–66), where he encountered leftist ideas about capitalist economies and learned from Frank Hahn the dynamic instabilities of free markets.

Life’s Work

After teaching for a year at MIT, Stiglitz taught at Yale University (1967–74), Stanford University (1974–76), Oxford University (1976–78), and Princeton University (1979–88), and he followed those posts with a fellowship at the Hoover Institution (1988–2001).

His early research focused on growth, technical change, public finance, and income distribution. He investigated why markets do not behave according to the standard competitive equilibrium model. He identified as causes uncertainty and asymmetry (or imperfection) of information; information is expensive to acquire and affects how markets behave. From these insights he developed his economics of information, which won him a Nobel Prize in 2001. The time he spent in Nairobi, Kenya, at the Institute for Development Studies (1969–71), where he witnessed sharecropping and the paradox of high wages and high urban unemployment, led to development of his efficiency wage theory.

As a neo-Keynesian (following the economic theories of John Maynard Keynes), Stiglitz believes government has an important role to play in the economy: the question is how to find the right balance between the market and government and how to redistribute income to minimize efficiency losses that are the natural result of taxation.

After the break-up of the former Soviet Union, questions arose about how socialist countries could make the transition to market economies. Some economists advocated the “shock therapy” policies of rapid transition and quick privatization as advocated by the World Bank and the International Monetary Fund (IMF). On the basis of his understanding of the inadequacies of the standard economic model, Stiglitz was one of the “gradualists”: He advocated the importance of competition, corporate governance, infrastructure, and institutional structures to accompany the transition. The failure of so many of these countries to make a successful transition cast doubt on IMF policies and provided insights into the workings of market economies.

A conspicuous failure of market economies is periodic episodes of unemployment and underutilization of resources. Stiglitz proposed an efficiency wage theory, which showed that, contrary to the theory of rational expectations, unemployment would be persistent and government policy and expenditure were an effective remedy.

After twenty-five years in academics, Stiglitz entered public service in 1992, joining the Council of Economic Advisors and then serving as its chairman (1995–97) under President Bill Clinton. Stiglitz took this opportunity to utilize the results of his years of research. He helped to define a new economic policy called the “third way,” which recognized the important but limited role of government, the failure of free markets always to work well, and the inability of government to correct the failures. Stiglitz became involved in environmental issues and served on the International Panel for Climate Control.

At Clinton’s reelection, Stiglitz took up a post as senior economist at the World Bank (1997–2000) and promoted remedies for poverty in the developing world. However, he soon saw that the IMF was pursuing neoliberalism, or market fundamentalism, based on an incorrect understanding of modern economic theory and that the IMF was forcing its policies in an undemocratic way upon developing nations. He also saw that the World Bank’s policies toward developing countries had been a failure and that some countries were making progress with firm government involvement. He was also critical of the approach taken during the Asian crisis of 1997. Stiglitz articulated his opinions publicly, and pressure from the U.S. Treasury forced his removal. After his years in Washington, he returned in 2000 to teaching at Columbia University, where he helped found the Initiative for Policy Dialogue, intended to offer alternatives to the IMF’s development policies.

Stiglitz has written a series of books that address economic issues. Globalization and Its Discontents (2002) reviewed what he considered the disastrous policies of the World Bank and argued that globalization works to benefit the financial interests of the developed economies. The Roaring Nineties (2003) reviewed the financial boom of the 1990s and criticized the politics of the George W. Bush and Clinton administrations and the Federal Reserve. Fair Trade for All: How Trade Can Promote Development (2005) advocated a gradual approach to opening free trade and the need for parallel development of infrastructure. Making Globalization Work (2006) presented a program of remedies to the inadequacies of the global economic system. His other books include Creating a Learning Society: A New Approach to Growth Development and Social Progress (2014), The Great Divide: Unequal Societies and What We Can Do About Them (2015), Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity (2015), The Euro: How a Common Currency Threatens the Future of Europe (2016), and People, Power, and Profits (2019). In The Road to Freedom: Economics and the Good Society (2024), Stiglitz analyzes the country's economics system and the relationship between capitalism and freedom. He discusses how some markets are able to generate wealth during crises such as the COVID-19 global pandemic and the US opioid epidemic.

Stiglitz has written or cowritten nearly three dozen books, more than a half-dozen textbooks (several in multiple editions), and hundreds of technical articles in addition to editing more than thirty collections. Many of his writings have been translated into other languages as well. Stiglitz has received more than four dozen honorary degrees and numerous awards, honorary professorships, and fellowships. In 2001, he shared the Nobel Prize in Economic Sciences with two longtime research collaborators, George Akerlof and A. Michael Spence.

Stiglitz cofounded the Initiative for Policy Dialogue in 2000 in order to broaden policy discussions around international development and continues to lead that organization. He teaches at Columbia University and serves as senior fellow and chief economist for the nonprofit Roosevelt Institute. He has also contributed to such widely read publications as the New York Times, the Atlantic, the Guardian, and Politico.

Significance

Stiglitz’s research has transformed thinking about market economies. His work shows the instabilities and inefficiencies of the free-market system and questions its ability to allocate resources efficiently. A neo-Keynesian economist, Stiglitz has shown that many aspects of the classical competitive market equilibrium model do not explain the true workings of capitalist economies adequately, and he has urged government involvement in the economy to achieve economic prosperity and social justice. He is a forceful critic of the policies of the World Bank and the IMF, which he believes have enforced undemocratic and counterproductive policies for economic development. His work, along with that of numerous collaborators, has created the field of economics of information, which is essential for understanding market economies and political processes.

Bibliography

"Brief Biography of Joseph E. Stiglitz." Joseph E. Stiglitz. Columbia U, n.d. Web. 25 Mar. 2016.

Cassidy, John. "Joseph Stiglitz and the Meaning of Freedom." The New Yorker, 25 Apr. 2024, www.newyorker.com/news/our-columnists/joseph-stiglitz-and-the-meaning-of-freedom. Accessed 2 Sept. 2024.

Hirsh, Michael. “The Most Misunderstood Man in America.” Newsweek (July 18, 2009).

Reich, Robert. “The Poor Get Poorer.” The New York Times, April 2, 2006.

Stiglitz, Joseph. Globalization and Its Discontents. New York: W. W. Norton, 2002.

Stiglitz, Joseph. Making Globalization Work. New York: W. W. Norton, 2006.