An economist for all seasons

Joseph Stiglitz's new book explains what went right, and wrong, with "The Roaring Nineties."

By Andrew Leonard

Oct 16, 2003 | Joe Stiglitz is the economist I want guarding my back if a bloody firefight is about to break out with free-market fundamentalists. When the Grover Norquists and Milton Friedmans and Dick Cheneys come charging over the hill, threatening to smart-bomb on sight anyone who even mentions the words "social justice" or "government regulation," I can count on Stiglitz to lay down a withering blast of covering rhetorical fire that Adam Smith himself would be hard put to counter.

Stiglitz has academic credibility: a Nobel Prize for his work on how "asymmetric information" affects the functioning of financial markets, and faculty positions at Stanford and Princeton. But he's also got the political chops: member and chairman of President Clinton's Council of Economic Advisers from 1993 to 1997 and chief economist of the World Bank from 1997 to 2000. He's no ivory-tower theoretician; he's had years of experience battling opponents, both within the Clinton administration and without.

He does have one major drawback, however: He understands nuance and complexity. This forces him to battle supply-side tax-cut advocates and pro-deregulation demagogues with the equivalent of one hand tied behind his back. Right-wing politicians have done a good job of reducing the rhetoric of economic debate to grunting Neanderthal simplicity. Tax cuts: good! UNHH! Government: bad! GRRR! Stiglitz takes a more sophisticated approach. When the topic is telecommunications deregulation, for example, his position is not that deregulation is bad, per se; he acknowledges that by the early '90s, vast technological changes had made the established regulatory framework obsolete. But that doesn't mean all regulation should be done away with; in some cases, more might be required. The task for government in the 21st century is designing the right kind of regulation, in reforming the system to better serve the general public's interests, and to do that, one needs to be smart.

Alas, it is one of the enduring weaknesses of smart progressives and liberals that nuanced views are both more difficult to articulate than sweeping ideological pronouncements and more challenging to shepherd through the political process. It's just so much easier to simply declare that letting people selfishly pursue their own desires in a completely free marketplace will lead to peace and prosperity for all -- and to claim, on the flip side, that anyone who believes differently is a Stalinist who wants everyone to march in lockstep for the glory of the proletarian revolution.

Well, for those of us unlucky enough not to have Stiglitz in our platoon as we argue for enlightened economic policies that take into account the welfare of the vast majority of the world's human beings -- instead of, say, the tiny fraction that might benefit from the abolition of the estate tax -- we now have his latest book, "The Roaring Nineties," for ammunition. And it will leave you well-armed indeed for any encounter with unruly Chicago Schoolers. "The Roaring Nineties" is a cogent look at the boom and bust of the American economy during the Clinton administration and shortly thereafter, and it covers a great deal of ground. It is neither too academic nor too general; it benefits equally from Stiglitz's clear command of economic theory and political reality.

Much of the story has been told before. Chapters on Enron, on investment banks and accountants and the Federal Reserve, will, in and of themselves, offer little new data to anyone who has studied the individual topics closely. What makes "The Roaring Nineties" useful is how all the pieces are put together in the context of government policymaking, the business cycle, and the process of globalization. And perhaps most valuably, "The Roaring Nineties," despite an epilogue with some strong words castigating George W. Bush's mismanagement of the economy, is far from an anti-conservative diatribe. The bulk of the book's criticism is leveled at the Clinton administration, and particularly the Treasury Department, for pursuing policies that fueled the unstable expansion of a stock-market bubble and set up the economy for a hard fall. (That these policies were too often identical with what Republican politicians had long advocated is, however, a consistent theme.)

The gist of Stiglitz's thesis isn't particularly controversial: While booms and busts are inevitable -- every bubble is going to pop, sooner or later -- policies still matter. Recessions can be shortened, expansions can be lengthened, and vice versa, by political policy choices. In the long term, policies that exacerbate inequitable distributions of wealth are not healthy either domestically or internationally.

Next Page: When is a deficit not a problem?

• View blog reactions