Here are some of Stiglitz’s observations on US capitalist society, many of which we can appreciate to some degree: If you’re traveling, your flight often departs late, and the airline loses your bag. Your cell phone costs a lot, and the reception is poor. Healthcare costs a lot, but life expectancy is low relative to other rich countries. Corporations have delivered such plagues as opioids, cigarettes, junk food, and fossil fuels. Retailers are unhappy to be open on Sundays. Consumers lack options. “It boggles the mind,” he writes, “that anyone who lives under twenty-first-century capitalism, let alone reads about the myriad abuses, can believe in unfettered markets or the inevitable efficiency of ‘free’ enterprise.”
But life under capitalism isn’t as bleak as he describes. Although late departures and lost bags frustrate airline passengers, millions fly every day. Phone service can’t be too expensive given that almost everyone has a phone and quality is quite good, especially in the United States. (See “No ‘Cozy Triopoly,’” Summer 2024.) Healthcare is costly, but quality has improved considerably over time and continues to do so. Cigarettes and junk food are unhealthy, but they provide benefits to consumers who buy them. Fossil fuels produce carbon dioxide, but driving beats walking. Chick-fil‑A closes on Sundays despite its competitors being open. And some of us find product variety overwhelming.
Externalities / So what is Stiglitz on about? Take the following as an introduction to his economics:
One person’s freedom is another person’s unfreedom. Externalities are pervasive, and the management of these externalities—including environmental devastation—that are inevitably the direct by-products of unfettered markets requires public actions, including regulations.
Readers who think of freedom as voluntariness will bristle at this zero-sum view of freedom. But Stiglitz is not alone in this perspective. He quotes Isaiah Berlin, “Freedom for the wolves has often meant death to the sheep.” Using this view, I suppose a person’s freedom from slavery is the slave owner’s unfreedom to enslave people. Or a citizen’s freedom from military conscription is the government official’s unfreedom to conscript him. The author goes this far: “Freedom for the gun owners has often meant death to schoolchildren and adults killed in mass shootings.”
Believing that one person’s freedom comes at the expense of another’s is troublesome. The author does not discuss free trade in this context. But if he did, would he argue that permitting domestic buyers to buy from foreign sellers reduces the freedom of domestic sellers? He might, because he likens freedom to income. He states, “Someone with very limited income has little freedom to choose.” In this way, if free trade lowers the incomes of domestic sellers, they are less free. But voluntary trade is peaceful and wealth enhancing. In contrast, protectionism is neither and seems a lot like legal theft.
Stiglitz aims to convince us that freedom entails tradeoffs. He itches to correct omnipresent externalities. Take the Tragedy of the Commons: One cattle owner’s freedom to graze his cows conflicts with another’s. Stiglitz recognizes economist Ronald Coase’s “privatization solution”: property rights may be assigned in a way that benefits both the landowner and the owners of cattle. But he rejects it on grounds of impracticality and because, during the UK enclosure period, English and Scottish cattle owners were not compensated. He grants Coase’s reply that assigning property rights differently might have achieved a better outcome but dismisses that as “largely irrelevant.” He prefers regulation consistent with the case studies documented by economist Elinor Ostrom. “Historical research in the UK,” he reports, “shows that in fact much of the common land was actually well regulated, as communities themselves adopted restrictions to prevent overgrazing.”
His approach to externalities involves “a package of policies, including regulations, prices, and public investments.” He recalls the “yellow vests protests” in France during 2018: The French government imposed a fuel tax to reduce carbon dioxide emissions. The tax would raise the price of fuel, reduce its consumption, and reduce carbon emissions. But millions protested and demanded repeal of the tax. According to Stiglitz, the French government would have been better off putting more money into “public transport” and “subsidies to the most affected groups.” He does not mention the regulations he would have added.
Public goods / The political “Right” is Stiglitz’s bugbear. In his view, its members don’t understand that freedom is zero-sum. They also don’t understand that government spending, necessarily financed by taxes, produces tremendous benefits. Finally, they don’t appreciate that government intervention makes us freer.
The author ties these three ostensible failures of understanding together in his chapter on public goods. He gives many examples of public goods: national defense, healthcare, basic research, etc. The free rider problem is why taxes are necessary to finance government spending on public goods, he argues. “Even if only some are free riders,” he maintains, “there will be an under-provision, to the detriment of all.”
Stiglitz attempts to overcome resistance to coercion by first considering the problem parents face when planning a vacation. Because work and school schedules conflict, a family might not be able to take a vacation. The author endorses the French approach: “Everyone gets August off.” He presumably thinks that French citizens who would prefer a winter vacation are better off because they would not actually be able to arrange one.
A reader is supposed to see that a little coercion is an effective lever. For instance, a prohibition on price gouging benefits all but the price gouger. Coercive taxes that finance unemployment benefits and welfare payments, as well as regulations on bank behavior, produce macroeconomic stability. Stiglitz tells us, “A little coercion could result in an increase in global societal well-being.” He intends to coerce us to provide a public good high on his list of priorities: reducing climate change. He does not tell us—at least in this section—which specific coercive measures he recommends for achieving this. He cites the Montreal Protocol as international coercion done right. If my understanding is correct, nations that adopted the protocol agreed to ban ozone-layer-damaging chlorofluorocarbons to avoid trade restrictions. Stiglitz summarizes, “Coercion expanded freedom—the freedom, for instance, not to get skin cancer.”
This view that coercion is beneficial is problematic. For example, it is unclear whether going on vacation in August is French government policy or a popular decision made by the masses. Nevertheless, one wonders whether there are unintended consequences. Are hotels and restaurants adequately staffed in August? Is there costly excess capacity in the hospitality industry in other months? As for prohibiting price gouging, does Stiglitz forget that price ceilings cause shortages? His willingness to coerce his fellow citizens might be tempered by imagining how people with different values might coerce him.
Redistribution / Income inequality has always existed everywhere. Stiglitz considers it extreme in today’s United States and counts it as a market failure. The policies that he proposes to reduce income inequality are redistribution, government spending on healthcare and education, and “pre-redistribution.” The minimum wage is an example of the last. The author knows what critics of redistributing income would say:
The libertarian claims that her income is hers, that she has, in some sense, a moral right to it. She further claims that, as a result, there shouldn’t be redistributive taxation even in the face of huge societal inequalities and gaping public needs.
The libertarian critic is incorrect, Stiglitz argues, because she does not deserve the income she earns in the market. Perhaps she earns income from inherited wealth, much of which was accumulated by exploiting others. Besides, wealthy people influence markets, which renders incomes earned in the market unfair. The author suggests that the family of Bernard Arnault, CEO of the luxury goods giant LVMH, does not deserve their wealth because Arnault sells luxuries to wealthy people. Stiglitz seemingly cannot find one legitimately wealthy individual. Therefore, all incomes “lack moral legitimacy.”
One wonders how far this illegitimacy goes. If Arnault’s family doesn’t deserve to be wealthy from selling luxury goods to rich people, would Sam Walton’s family deserve to be wealthy from selling ordinary goods to ordinary people? What about an Uber driver who works twice as much and earns twice as much as another Uber driver? Stiglitz is confident he can adjust tax rates and justly redistribute income from behind the veil of ignorance to create a better society.
Hedges and errors / There are qualifications to the progressive message. Despite emphasizing that “one person’s freedom is another’s unfreedom,” Stiglitz proclaims, “We are not in a zero-sum world.” Despite his faith in regulations, he admits, “Simply writing a law stating something doesn’t change the reality of the world.” He concedes, “Prices provide a coordinating mechanism; it works, but works imperfectly.” People who appreciate markets will be glad to encounter this line: “Our economic system has to be decentralized, with a multiplicity of economic units—many enterprises and other entities (of different kinds) making decisions about what to do and how to do it.”
There are a few errors and questionable interpretations. Stiglitz writes, “Hourly earnings of autoworkers declined by 17.1 percent between January 1990 and December 2018, a period in which prices doubled, implying real wages had gone down by two-thirds.” In fact, the source he cites reports that real wages fell by 17 percent. He defines pi as “the ratio of the circumference of a circle to its radius.”
Some questionable interpretations relate to corporate behavior. “While there is no evidence of explicit collusion” among oil industry executives following the war in Ukraine, Stiglitz alleges “there seems to have been tacit collusion.” Yet, the price of a barrel of West Texas Intermediate fell from $92 in February 2022 to $79 in May 2024, and the Fed’s index of crude oil production was 15 percent higher in May 2024 than it was at the start of the war. If oil industry executives are colluding to keep production low and the price high, they are failing.
The author grumbles about market power in general and in the airline industry in particular. However, while the overall Consumer Price Index is up 21 percent since before the pandemic, the CPI for airline fares is down 5 percent. Sellers exercise market power, but it is not necessarily exploitation. Consumers receive goods in return for their money and sometimes benefit from lower prices.
Other questionable interpretations relate to history. Consider these contentious lines:
The call for a return to liberalism with the new name neoliberalism, in the middle of the last century, flew in the face of what had happened during the Great Depression. It was akin to Hitler’s Big Lie.
That is not a charitable view of neoclassical economists. There is more: “America’s economy was built on enslaved labor, hardly a manifestation of a free market.” Ignoring questions about the first part of that sentence, isn’t the last part a virtue of the free market?
Conclusion / The author’s idea of a “good society” is sensible: one that “allows individuals to flourish and live up to their potential.” According to Stiglitz, the economic system most conducive to the good society is “progressive capitalism.” The features of his progressive capitalism are dispersed power, reduced inequality, collective action, “shaping individuals,” a “learning society,” and a “rich ecology of institutions.” The author provides a table showing market failures and progressive capitalism policies: government spending, transfer payments, and regulations. We’ll know society is good when the United States looks like “the Scandinavian welfare state.”
“The changing nature of our society and economy,” Stiglitz claims, “requires more government intervention and investment today than in the past, and accordingly, higher taxes and more regulation.” Yet total government expenditures (which include transfer payments) have risen from 27 percent of gross domestic product in 1960 to 35 percent today. Over the same period, the page totals published in the Federal Register have risen from 14,479 to 90,402. We would seem to be headed the direction Stiglitz wants, so why is he so dissatisfied?
