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Most economists love markets. But my guest today, Nobel Prize winning economist Joseph Stiglitz, is an exception to that rule. He has devoted his life to exposing the limits of markets.

STIGLITZ: One of the arguments in my book is that, in a sense, neoliberal capitalism is self devouring. A world in which you just leave it to the markets, you’re going to wind up with selfish people, monopolies, and the system won’t work well. 

Welcome to People I (Mostly) Admire, with Steve Levitt.

There are few top economists who I don’t know personally, but Joseph Stiglitz is one of them. I’ve never actually spoken to him before. His brand of economics, which focuses on how markets go awry when people don’t have all the information they need or want for making choices — that approach wasn’t very popular at the University of Chicago, where I’ve spent my career. So we just didn’t cross paths. What I find most fascinating about Stiglitz is how much he’s transformed over his career. He went from an academic focused on highly mathematical theory to a pragmatic policymaker, and ultimately to a public intellectual and maybe even an advocate. There are very few academic economists who end up in that space.

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LEVITT: I’ve been at the University of Chicago almost my whole career, and I went there having been trained at Harvard and M.I.T., thinking that I’d only stay a few years and that I’d head back to Harvard or M.I.T. or Princeton. But I got seduced by the intellectual environment at Chicago. Now, I know you spent a year at the University of Chicago early in your career. You were not impressed by the intellectual environment there?

STIGLITZ: No, I was. My experience was a little bit different because I spent time with a very distinguished mathematical economist who was there at the time, Hirofumi Uzawa. We were working on growth theory and his roots were in Marxian economics.

LEVITT: Really?

STIGLITZ: Nobody could be further from the typical Chicago economists than Professor Uzawa. But Chicago has this very lively atmosphere of questioning and debating, but, I’m sure as you know, a dominant strand for a long time were the people called the Chicago economists like Milton Friedman, George Stigler, Gary Becker, who had an almost religious faith in what they called free markets, and gave rise to an idea called neoliberalism; that government should stay out of the way; that markets are efficient; and that only through economic freedom could one sustain political freedom. And that’s precisely the set of ideas that I address in my new book, The Road to Freedom: Economics and the Good Society.

LEVITT: So you were part of a revolution in economic thinking, a field called information economics. Could you describe what information economics means to a non-economics audience? How it differs from traditional economic thinking, and some of the key insights that have emerged?

STIGLITZ: Well, from the beginning of economics, it was assumed that there was not quite perfect information, but almost perfect information. And that if one thought about a world with perfect information, one would get insights that were relevant to a world with imperfect information. When I began my work in the late ‘60s, I wondered whether that makes sense. It turned out that a world with imperfect information, where some people know something different from others, was very different from one with perfect information. In fact, one of the things I showed was that even a very small amount of information imperfection drastically changed the nature of the economic equilibrium, so the hope the economists had that by studying perfect information they could understand the real world with lots of imperfection — that hope turned out to be wrong. And it’s become a major strand of economic thought, influencing how labor markets work, how product markets work, how, particularly, financial markets work.

LEVITT: It has really been a revolution. I’m no economic theorist, but I have written maybe five or six theory papers, and it didn’t occur to me until I was coming to interview you that almost all of them are in the realm of information economics. It’s so taken for granted by the set of economists who came one generation after you that we didn’t even really realize how remarkable it was. So, let me put myself in the shoes of a listener who doesn’t know much about academic economics. And I hear you say that there used to be these models and they assumed that everybody knew everything possible about everything. And then you came along and you said, “Actually people don’t know everything. Different people know different things.” My reaction is, “Well, duh, of course there’s incomplete information. Of course it matters.” How could economists have been ignoring this for so long? The economists in the generations before you, they weren’t dummies. They were geniuses. Why do you think they hadn’t taken economics in this direction decades earlier?

STIGLITZ: Sometimes the way a profession, academic discipline develops, there are certain assumptions that are so ingrained that nobody thinks about them. One of the great economists who got a Nobel Prize for his work is Gérard Debreu, who formalized the whole idea of what a competitive equilibrium might mean, lists the assumptions that go into his analysis and didn’t even list among those assumptions: information, that he was assuming perfect information. That was the world they lived in. It’s one of those things that once you see it, you say, “Duh, why didn’t other people see it before me?” But when I began this research, it wasn’t clear that it was going to come out so neatly as it did.

LEVITT: Of the papers you wrote that used imperfect information, what’s the leading example where it’ll just jump out to people and make it so obvious, the importance and how the results follow from the insight?

STIGLITZ: One of them is, if you’re an insurance company, you obviously would like people to tell you whether they have a high accident probability or not, and whether they smoke or not if you’re giving them health insurance, and whether they drink when they drive. But if you ask them: Are you a big risk? They’re going to say, “Oh, no, I’m really, really, really safe.” So you can’t ask them. There are clever ways by which you can figure out who they are. For instance, a guy who is willing to accept a big deductible is probably thinking, “I’m not going to have an accident. I’m not going to need the insurance policy very much so I can take a big deductible.” The problem is that you have what is called the lemons phenomena. As you raise the premium, only the people with the worst risk are willing to buy the insurance. And that means you need to raise the premium even more, and that means the people with the lowest risk drop out, and that means you have to raise it even more.

LEVITT: So just to put this even more concretely: If the insurance company has complete information about you and your health, then it’s really easy for the insurance market to work because you and the insurance company agree on your risk, and it’s just a way of transferring some of the risk from you to the company. When they don’t have complete information, well, then they struggle because you’re trying to pretend you’re healthy when you’re not. You’re trying to mimic the healthy people. And that can lead not to complete failure of the market, but to a situation where, in the end, the only people who are actually buying insurance are the high-risk people.

STIGLITZ: One can wind up with a situation where you have no insurance market or only a very small insurance market and most people are left without insurance. Part of the problem that many people think the United States is in right now, in the absence of government intervention.

LEVITT: I had a real life example of this. I was trying to get data from a big car insurance company and they were early on to gathering data that came out of the car. Cars now kick off all sorts of information about your driving habits, whether you slam on the brakes, things like that. And they had this information and they were trying to figure out how to use this increased information to offer a better solution for their clients. What they proposed was — well, they said, “We’re going to take all our existing clients and we’re going to take the ones who drive safely and we’re going to offer them a reduction in their premiums.” And I said, “That sounds great, but I’m sure you understand that’s only going to lower your profits. You want to get this information for all of the drivers who aren’t your current clients. Because then instead of offering to insure everyone, you can just go in and find the safe drivers and try to get them.” I think they understood the basic ideas, but two years later, continuing to talk to them, they had not once offered this product to anyone other than their existing drivers. And what hit home for me is, as simple as these ideas are, if you grew up within the world of economics and you think about it through the lens that you’ve thought about it, in the real world, imperfect information is very confusing to people. And the implications of it are often lost on players in the market.

STIGLITZ: That’s right, but they’re also often lost even on economists. One of the things that has mystified some macroeconomists is: Why don’t wages fall when there’s unemployment? And one of the reasons for that is if you lower your wage, you lose your best workers. They’re the ones that are able to go and search and find a better job. There’s what we call an adverse-selection effect. And these kinds of adverse selection effects arise in capital markets. If you raise interest rates, your best risk may drop out; if you lower your wages, your best employees may leave. And that gives rise to kinds of rigidities in wages and prices that mean that the macroeconomy doesn’t behave anywhere near the way that standard macroeconomics has assumed.

LEVITT: Yep. I guess when you were at Chicago, you didn’t yet have these ideas about information economics. Once you had them, in the late ‘60s and early ‘70s, did you ever talk directly to people like Friedman or Becker or Stigler about these ideas? What were those conversations like?

STIGLITZ: Well, actually very early in my career, I would give seminars quite often at Chicago. And later on, particularly in the 1980s, early ‘90s, I spent a lot of time at the Hoover Institution. I was a fellow at the Hoover Institution, and Gary Becker, George Stigler, Milton Friedman came there. So we got into a lot of debates. I think they never fully grasped the ways in which information and imperfections and risk markets changed the simplistic world that had been part of their intellectual frame as they developed their work. I remember I gave a seminar at Chicago early on and Milton Friedman was there. I showed him that paper that firms maximizing shareholder value would not lead to economic efficiency.

LEVITT: I bet that didn’t go very well with him. 

STIGLITZ: Milton Friedman just could not understand it. He said, “I know that’s wrong.” And I said to him, “Well, tell me which of my assumptions you don’t agree with and where in my analysis I made a mistake. Before I publish this, I’d like to know if there’s an assumption that I ought to be thinking about. Course, I really don’t want to have any analytic mistakes.” Our conversation didn’t get anywhere, I can tell you that.

LEVITT: Yeah, I didn’t know Friedman well because he left Chicago, believe it or not, in 1978, which was when I was nine years old — although his shadow still hangs over Chicago very strongly. But, I remember a really interesting conversation over the phone — a handful of us were talking with Friedman, and he was very upset about the fact that the way in which Chicago economists think about microeconomics was out of vogue, that it was being pushed aside, and it’s what we call price theory. He was really ranting about how terrible this was and “how could the profession be so confused.” And one of the economists at Chicago, Casey Mulligan, said, “Well, Milton, you believe in markets. It sure seems like the market is talking here and the market is saying that price theory isn’t what people want to buy. They’re buying something else.” Oh! And Friedman was so upset about that — it was interesting because he did believe in markets, but he did not want this to be a market. And Gary Becker said to me later, “The thing about Milton was, he never lost a debate.” He didn’t say he won every argument. He basically said that Friedman cared more about winning than about the truth, which to me seems like a terrible trait to have in an academic.

STIGLITZ: I think you’re right. There was one occasion where he actually conceded that he had lost the argument — or more accurately — that he may have won the argument, but when the truth got fully revealed, he was wrong. Michael Hirsh, interviewed Milton Friedman about what happened in the Soviet Union after the end of the Soviet Union and transition. And Milton and I had an argument about the role of privatization in the transition — Milton’s belief then was privatize, privatize, privatize. That was the slogan. And my view was, well, you better have a good legal structure, “institutional infrastructure,” as the way I put it, in order for privatization to really work and deliver what you want it to deliver. And when Michael Hirsh interviewed Milton, he said, “You know, Joe was right.”

LEVITT: Good. Wow, you might be the only one who got that admission out of him. I was really fortunate to have the economist Bob Solow as a guest on this show shortly before he died. And he’s always been one of my heroes, and I know he was one of your thesis advisors. I was really struck talking to him, even in his old age, how much his personal experiences living through the Great Depression influenced his economic thinking and his choice of topics over his lifetime. Now, you grew up in the golden age of capitalism, in contrast to Bob who grew up in the Great Depression. So where do you think your lifetime interest in the limits of the market and the importance of addressing inequality came from?

STIGLITZ: Well, while I grew up, in retrospect, is the golden age of capitalism, I grew up in Gary, Indiana, not far from the University of Chicago. And Gary, Indiana was a steel town. In fact, it was founded in 1906 by U.S. Steel. It was named after the chairman of the board of U.S. Steel — you can’t have much more of a company town than that. And when I was growing up, I just saw massive inequality, racial discrimination, segregation, episodic unemployment, labor strife. It wasn’t a rosy picture. And it was actually that that motivated me to become an economist. When I went off to college, I thought maybe I’d be a physicist. I loved mathematics. It was my major actually, physics and mathematics, until the end of my third year in college. And then I said, these social problems that I’d seen growing up, trying to do something about those, was really what I wanted to devote my life to.

LEVITT: So you were studying economics — in your 20s was during the ‘60s, all the upheaval. The young economists I know from that time, almost all had a very conservative bent and were against what the hippies were all about and the counterculture. Did you also have that stance or were you more part of a counterculture?

STIGLITZ: Well, I was focused, myself, more on the politics. I was down there with Martin Luther King, the March on Washington in August 1963. I was down in the South helping to integrate in ‘62. I was involved in one way or another with a lot of the causes. I was President of the Student Council at my college, Amherst College. I was engaged in politics of the moment. And that really fit in a lot with my eventual interest in economics and where it took me.

LEVITT: Now, let me ask you about the March on Washington. I’ve never spoken to anyone who was there, and it seems to be in general that it’s really hard to know that you’re part of history, that something important is happening. Did you know at that time how important that would be, or did it just seem like another thing?

STIGLITZ: Oh, it seemed more than another thing. Martin Luther King’s speech at that moment, “I have a dream,” couldn’t help but really get to the core of who you were. It was very, very moving. We didn’t know where it was going to go, but we really hoped it would go in the right direction. 

We’ll be right back with more of my conversation with Nobel Prize winning economist Joseph Stiglitz after this short break.

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LEVITT: So you had this amazing career in academic economics, and you’ve kept your foot in academic economics your whole adult life, but you’ve at the same time had a huge impact in other adjacent spaces as well. And it started with government service, first on the Council of Economic Advisors in the Clinton administration. Now, I personally have never spent any time as a Washington economist, but I imagine going from academics to being part of the political process must have been a pretty jarring shift, no?

STIGLITZ: It was a very big shift in many ways. One of the fields I had worked on extensively was the economics of the public sector. I’d written a textbook — two textbooks, an undergraduate and a graduate textbook on the subject. So having written about it, it seemed to make a lot of sense for me to actually see what was going on from the inside rather than just look at it from the outside. I thought part of my job was teaching, just like it was when I was at the university, explaining ideas to the president, to other members of the White House. Part of it was continuing what I have been doing with just my students. We had a very strong view at the council at the time that we would never say anything that we didn’t strongly believe, that we were still academics with a commitment to the truth.

LEVITT: At least in later administrations, the economists I know, they would tell me their biggest frustration is that oftentimes the politicians and the strategy folks decided things, and then they came to the economists and their job was to provide evidence that supported whatever policy had already been decided upon. You didn’t experience that as much?

STIGLITZ: No, I didn’t. I felt we were often engaged in structuring the policies. Now, there were some cases where the politics were overwhelming. There were some cases where the administration and then eventually Congress did things I thought were wrong. An example was there were efforts to deregulate the financial sector, and I was very concerned. Anybody who reads the history of banking deregulation would be worried. And as they discuss these ideas, I just try to explain both the theory, the evidence, the history, and we managed to stave it off. And it wasn’t until the end of the second Clinton term that it actually happened.

LEVITT: What were your biggest wins at the C.E.A.? Things that you’re proud of, where because you were there, something very different happened than would have otherwise happened, which you can look back and tell your grandchildren that you made a real difference that time?

STIGLITZ: Let me give you an example of a small thing that makes a big difference for economists. I pushed the idea that government ought to issue inflation index bonds. There’s always going to be uncertainty about inflation. People need a retirement vehicle that is protected against inflation. At the time, inflation was relatively low, but my view was you can’t predict. And I was right about that. We’ve just been through a big bout of inflation. A lot of people probably wish they had bought more of these inflation protective bonds. That was a big fight with Treasury and with Wall Street, because the problem with inflation protected bonds is people buy them and don’t trade them. And if they don’t trade them, Wall Street doesn’t make money. They make money out of trades. Treasury tends to reflect the interests of Wall Street, and they were not very interested. But we kept pushing and now those inflation protected bonds are not only important — the government actually realizes profits out of providing this risk product — but also provides a lot of information that economists use in interpreting what inflationary expectations are, so they become an important part of our macroeconomic framework.

LEVITT: So after your time in the Clinton administration, you went to the World Bank for a while. Now compared to the U.S. political system, would you say that thoughtful policy was more or less valued at places like the World Bank and the International Monetary Fund or more valued in the U.S. government?

STIGLITZ: It was very different because it’s going back into an economics culture, but one that was, unlike academia, very engaged in policy and very global. That was very exciting. But one of the sources of, you might say, frustration that led eventually to my first popular book was the fact that the U.S. Treasury and the World Bank and the I.M.F. was pushing ideas that were very counter to ideas that have been central to the Clinton administration. The I.M.F. was reflecting a very conservative orthodoxy; was particularly reflective of Wall Street’s perspectives and interests. They didn’t reflect the perspectives of workers, unions, N.G.O.s. And my view was very strongly: our mission was to help the poorest of the poor and to help poor countries. And so that became a particular source of contention over the years that I was at the World Bank.

LEVITT: One of the things that I found most interesting when I read Globalization and Its Discontents, which was your first book written for a popular audience — I’ve known a lot of economists and almost every one of them sits in their office and reflects on the world in their head, but you were in the field. You recount incident after incident where you’re in Ethiopia, and what you were seeing on the ground was changing the perspectives that you had developed sitting in your office and in the past 20 or 25 years, which to me rings completely true. Every insight I’ve ever had has come from observing the world around me up close, rather than staring off into space and having deep thoughts. Has that always been your way of operating or is that something that you stumbled on at the World Bank?

STIGLITZ: The World Bank gave me a real opportunity to go in the field that I would not otherwise have had, and most other people don’t have. It really gave me a chance to see what was going on all over the world and to go into rural sectors, to talk to people. I think economists too often think that empirical work is manipulating data. Looking at data is important, but so is opening up your eyes and seeing what’s going on. You don’t have to look at the data sometimes to see that there are a lot of unemployed people or there are a lot of homeless people. Quantification is often helpful, but just getting out there and getting a feel for what is going on is also really important. I also wound up talking to a lot of people in financial markets. So it wasn’t just seeing people in the field. It’s also getting a better sense of how those in power see the world. So getting that cross section of not only people in the developing countries, but people in the elites, in the governments, gave me a better perspective on how our whole society works. 

LEVITT: So let’s talk about your most recent work. You’ve got a new book out. It’s called The Road to Freedom: Economics and the Good Society. And I’ve never really seen the concept of freedom analyzed through an economic lens. In my mind, I’ve always equated freedom with the idea of liberty and rights and abstraction. And what you do is you just reframe freedom in economic terms. And to an economist, you can categorize the degree of freedom by what economists would call a choice set or an opportunity set. The more things I have to choose from, in some sense, the freer I am. And I thought that was a really subtle and simple description of freedom, but to me, it was like an earthquake. Everything snapped into place. Because one of your big arguments is, look, income inequality is a huge imposition of limited freedom on the people at the bottom rungs of the income distribution, because those people have a really small choice set, right? If I have no money, if I have no access to good education, I have very few choices that I’m allowed to make. It should have been obvious to me, but I never had that insight until you took this tiny little twist and laid everything bare. I really like that.

STIGLITZ: Well, thank you, Steven. You’ve articulated it really well. Somebody on the edge, who is in starvation, has to do what he can to survive. He has no freedom in a fundamental sense. I began the analysis looking at this as an economist and your choice set, and how large your choice set is, as the basic defining concept.

LEVITT: Can I tell you a funny story? It actually goes back to Milton Friedman. When his book with Rose Friedman, his autobiography, came out, I had just come to Chicago and they were having a book party out on the West Coast. And I think because I was the lowest person on the totem pole, the department chair asked me if I would go out and be part of this. And of course, I was actually delighted to do it. I had never met Milton Friedman. I was really excited to go and do this. And I was also one of the lowest status people there. So I was relegated to the last table in the far corner of the room with some relatively distant relatives of Milton and Rose Friedman. And as I sat at the table, they kept on talking about government theft — they kept on using the term “government theft.” And I had no idea what they were talking about. And I said, “I’m sorry, I’m confused. What do you mean by theft?” And they said, “Taxation. Theft. It’s the same thing.” And they literally were using the words taxation and theft interchangeably. In our modern discourse, freedom’s associated with small government and unfettered markets. If you reframe freedom in terms of this economic notion of opportunity sets, then suddenly it’s not at all clear that small government is associated with freedom.

STIGLITZ: Very much so. If government invests in education, basic research, it can expand the opportunity set of everybody. Now, of course, if it’s going to make those investments, it has to impose taxes. One can show that, actually, even with paying those taxes, the opportunity set of the richest can be enhanced. Another way of framing it is to realize that the people at the top wouldn’t have that income if it weren’t for government providing the rule of law, providing our infrastructure. Part of the perspective I had as chief economist at the World Bank is seeing what it’s like to be in places where there isn’t a rule of law, where you don’t have infrastructure, where you don’t have a good education system. Even very talented people can’t make a good living because there isn’t the societal support for that. We often forget that our individual success depends, to a very large extent, on the societal environment in which we live. And that is affected in a very important way by public expenditures.

LEVITT: When you reframe freedom using your economist definition, it ultimately leads you to endorse something that you call progressive capitalism. Can you explain what you mean with that term?

STIGLITZ: What I mean by that is a kind of capitalism that tries to expand the opportunity set of as many individuals as it can in the most meaningful ways. That entails, for instance, taxation, where the proceeds of the taxation lead to investments in infrastructure, basic research, education. We have regulations against pollution that would have otherwise contracted our opportunity set. After all, if somebody with asthma can’t breathe, that’s taking away their opportunity set. It’s taking away what they can do. It’s actually taking away their life, in some cases. It means that there has to be the kind of regulation to make sure that markets work, that there’s not harm to others. There have to be the expenditures that expand what individuals can do, helping more individuals to live up to their potential.

LEVITT: As I listen to you describe that, it sounds great, but let me challenge you as well. For your system to work, you need, among other things, policy makers to make good choices. But doesn’t loads of evidence tell us that people in power tend to make choices that enhance that power and that makes themselves richer? And isn’t it possible that progressive capitalism would, in practice, be distorted by the power holders to create something even worse than what we’ve got right now?

STIGLITZ: A key part of my idea about progressive capitalism is making sure we create checks and balances within our society to prevent what has happened. One ingredient is making sure that there is not an agglomeration of wealth of the kind that we have today. The problem is that whenever you have an enormous concentration of economic power, it will translate in one way or another into political power. The second thing is obviously a diverse, active media — the fourth estate, as they sometimes call it — and unfortunately that won’t be true if we have a significant portion of the media controlled by the rich and powerful. How we get there, I’m not quite sure, but I’m trying to give a vision of where we should be going. 

LEVITT: It sounds a whole lot like the European concept of social democracy. Is there a reason you don’t use those words?

STIGLITZ: It’s a term that’s not that familiar with Americans. But also today’s social democracy in Europe isn’t quite up to what is needed, what I call for. So sometimes I say, “We need a rejuvenated social democracy.”

LEVITT: So my impression is that the vision you lay out for progressive capitalism was popular in much of Europe in the ‘70s, maybe the ‘80s, but then it seems many European governments moved away from that towards a more U.S., neoliberal model. Do you know what they thought wasn’t working at the time?

STIGLITZ: I think it was the power of the ideas of free markets. And Europe at that period had higher levels of unemployment, so their economies weren’t working quite as well. Part of the irony of neoliberalism was that it promised faster economic growth, but actually after these ideas became fashionable, growth both in Europe and the United States fell by two thirds. So it’s curious that the growth in the 30 years, 1950 to 1980, was so much stronger than in the 30 years that followed under the guise of neoliberalism. I sometimes describe it as a, quote, “interesting experiment,” that failed.

You’re listening to People I (Mostly) Admire with Steve Levitt and his conversation with Nobel Prize winning economist Joseph Stiglitz. After this short break, they’ll return to talk about the advice Joseph gave to China.

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I try not to offend my guests, but I’m going to risk it today by drawing parallels between Joseph Stiglitz and another economist I know he doesn’t think very highly of. Let’s see how it goes.

LEVITT: You’ve had incredible academic accomplishments, including a Nobel Prize, and that gives you a lot of intellectual authority. It affords your ideas power. When you write for a popular audience, the economic insights and approach are very apparent, but they’re also combined with a worldview, a set of beliefs you have, that goes far beyond the mathematical models that defined your success in academic economics. I see some parallels between you and Milton Friedman on this dimension, although almost certainly Friedman was more extreme in the way that he embedded his worldview into the stories that he was telling about how the world worked. So first, how offended are you that I just suggested that you and Milton Friedman have some similarities in this regard?

STIGLITZ: I would like to believe that my economics is based much more strongly on both economic theory and empirical evidence. I think Milton, unfortunately, was wedded to very simplistic models that even when he was writing, by the 1970s, had been shown to be wrong. He wouldn’t move on that, even as theory and evidence moved against him. I keep my ears open. I’ve changed my views. I’ve integrated new ideas into my research. The second part of my book is really based on very recent research. You’ll see in some of the footnotes in the book, I do try to address those who take different views or articles that suggest there’s some evidence on the contrary side. But I really feel very strongly that I’m much more rooted in economic theory and evidence.

LEVITT: The worldview I think you have, as I’ve tried to reflect on it, is you have a very optimistic view of human nature. I think that’s what you add to your economic models. You have a belief that people will do the right thing. I think Friedman’s whole worldview was anchored in the idea that people were awful, couldn’t be trusted, and nothing good would happen, and the only discipline we had was the market. You seem extremely optimistic.

STIGLITZ: Yeah, I am optimistic, but I’m not quite as optimistic as you describe me. One of the things I strongly believe is that — and I talk about this in the book — is that not everybody behaves as well as I would like them to. So we have to create within the government, and within our society more broadly, checks and balances. I’m very aware of the existence of, selfish people, problems of what economists call capture and rent seeking. And I’m trying to create a vision of a society that has constructed safeguards, ways of not perfectly solving, but mitigating, the worst adverse effects of these.

LEVITT: Now, much of your popular writing is focused on and critical of the right: Republicans, neoliberal economic institutions. And that framing makes sense because the U.S.A. in particular is pretty far to the right compared to many other countries. But there are also some countries that have followed pretty extreme leftist anti-market policies. Have you ever had the opportunity to advise those governments or to be part of the public debates that are going on there? Because I’m curious for you how it’s different when you, as a centrist, are fighting against the right versus fighting against the left.

STIGLITZ: In a way, that kind of advice was important when I was working with China and talking to them about how they could make a transition from communism to a more market-based economy. And they obviously haven’t made a democratic transition, but at least trying to give them advice about how they could make an economic transition.

LEVITT: When were you having those conversations? 

STIGLITZ: They reached out to me around 1980. We had a meeting in Wisconsin. My first visit was in 1981 and I was engaged for a long period including when I was at the World Bank, and for a number of years after that, in trying to discuss how they could move towards a more market-based economy.

LEVITT: And so there you were seen as some crazy market believer that they were afraid of? How did they perceive you?

STIGLITZ: No, I think the reason they actually put some trust in me was that I was not sort of the shock therapy, just let markets rip — I was very concerned about how, as they made this major structural transformation of their economy, their society — that they could protect those who might be adversely affected. How they had to build up institutions. This was not going to be accomplished overnight. It was gradualist policy as opposed to the shock therapy that some people had advised them and was done in Soviet Union and then Russia and led to the — I think, the failures there. I was seen among the advisors from the West, as very centrist. There were people who were advising them: just do it. And they said no thank you. And following the kind of more gradual strategy in terms of their economy, they have been very successful.

LEVITT: What do you see as the biggest existential threat to human life as we know it?

STIGLITZ: Oh, climate change is clearly the biggest existential threat that we face today. Obviously, I worry about the threats that we in the United States are facing to our democracy, and it’s true in some other countries. But if we don’t deal with climate change, then the consequences for the human population are going to be very severe.

LEVITT: I’ve asked that question of a number of scientific types who have been on the show, and they either say nuclear annihilation and increasingly A.I. they see as big threats. What do you think of A.I.?

STIGLITZ: I think both of those are threats. One of the things I worried about when I was in the Clinton administration was nuclear proliferation. An unusual aspect of my involvement as chair of the Council of Economic Advisers was the spearhead of an effort to make sure that the nuclear warheads from the Soviet Union were changed into a form that was less dangerous — less enriched uranium that is not explosive. And it was very curious that, as Chair of the council, that that was one of the things that I took on because it was for some reason not the focus of the Defense Department, the C.I.A. They didn’t see that as the kind of existential threat that I did. So I am concerned about the problem of nuclear warfare. 

LEVITT: How about A.I.?

STIGLITZ: A.I. is a potential threat. I do think that it’s something that we can manage. The question is, as always: Will the special interests who are making money off of A.I. try to stop the appropriate kind of oversight to make sure that the worst consequences aren’t realized?

LEVITT: I would think someone in your shoes would be terrified of A.I. So the very worst cases are, the machines run wild and humans become slaves. But put that aside. The other thing you could really imagine happening is the concentration of wealth shifting immensely towards a small number of people who control these tools. So if labor is no longer being paid very much because A.I. tools can replace many skilled workers, it seems, from your perspective, that would be a complete unraveling of society as we know it.

STIGLITZ: You’re absolutely right. If we have competitive markets — there is a debate going on about whether there will be competition in A.I. If there is competition in A.I., there won’t be the humongous profits that obviously some people hope they will make, and the benefits will, through competition, be more widely shared. So I think it’s going to be very incumbent on us to have competition oversight.

LEVITT: We certainly haven’t proven very good at that in the realm of social media, right? The development of monopolies there is almost unprecedented. It certainly seems likely to me that we would go the same direction on A.I.

STIGLITZ: The Biden administration has been working very hard to deal with the monopolies in social media, but with a lot of pushback. That is a big concern to me. And as you put it, it’s a big worry that we won’t do enough about it. The other tools we have are both intellectual property regimes and taxes. But again, obviously I know what you’re going to say: “We haven’t done a very good job on redistributive taxes.” You’re just reinforcing what I believe is the need for progressive capitalism to put in place these checks in our society and highlighting the challenges we face in moving from our current neoliberalism to the progressive capitalism that I call for. But the very pessimistic note that I give about neoliberal capitalism, that it’s devouring itself.

LEVITT: One of the patterns I’ve noticed in your books — is that very often your conclusions fall somewhere in the middle of an ideological spectrum. So, for instance, on globalization, you argue that there are many benefits of globalization, if done right, but that in practice, it’s been executed in a way that’s been captured by special interests and the powerful. So it hasn’t worked out the way we hoped. And another example is the role of markets. We’ve mostly in our discussion focused about your discontent with markets, but in other places, you’re really clear that you think markets as a basis for an economy are really necessary. You don’t want to scrap them. You just want to limit their excesses through thoughtful government. You tend to see some merit and some demerits in the views expressed by people who’ve staked out strong positions on both sides of the issues. So first, let me ask you, do you agree with that broad characterization I’m making?

STIGLITZ: Yes, I do, and maybe it comes from the fact that my D.N.A. is very much as an academic. Even though I’m an advocate, basically in my D.N.A. is the view of: let’s try to really understand what’s going on and let’s try to understand the strengths and weaknesses of different kinds of arrangements. Maybe it’s the wisdom of age.

LEVITT: You used the word “advocate” describing yourself and I think among economists, that is almost a dirty word. Academic economists pride themselves — certainly not true, but there’s at least this — every economist I know tries to put off an aura of being unbiased. But when you talk about yourself as an advocate, it sounds like you’re willing to go a step further. Is that a fair statement?

STIGLITZ: I think it is. My values, my passions are part of my D.N.A., and I do have a passion for dispassionate research. I do believe very strongly that when I do academic research, I want to know: What are the consequences of this or that? If I advocate some policy, I want to know the downside, because I want to be prepared for it. I want to mitigate those downsides. I really want to know the truth, to go back to where we began our conversation. I feel very strongly that having strong views doesn’t stop me from being analytic. Theorems are theorems. The observations that I make about the world, people can challenge them; I want to be sure that they’re right. But on the other hand, we have to, as a society, make decisions. And people like me who’ve devoted their lives to thinking about these issues ought to be making a contribution to what they think of is the right way of running our society.

I actually do think Joseph Stiglitz does a pretty good job of mixing economics and advocacy better, in my opinion, than either Milton Friedman on the right or Paul Krugman on the left. After Freakonomics, when I suddenly had the chance to be a public intellectual, I thought hard about stepping into that role. But I just didn’t have very many opinions on important issues. And even where I had strong opinions, it was obvious, even to me, that these opinions were based on an ideology, not my economic insights. So, I’ve been evangelical about a few things: the need to teach data skills, the power of simple ideas, the value of quitting. But otherwise I’ve pretty much left the talking to others. And for me, that was definitely the right choice.

LEVITT: So this is the point in the show where I bring on my producer, Morgan. And this week, instead of a listener question, we’ve got something a little different to talk about.

LEVEY: So a few weeks ago, we replayed the episode with Daniel Kahneman, the late psychologist and former business partner and friend of yours. And we got a really great reaction from listeners, and I really enjoyed re-listening to the episode. Wasn’t it fun to revisit?

LEVITT: It was! It was almost like I was hearing it for the first time. Enough time had passed that I had forgotten so many of the interesting nuances and just Danny’s joyful personality. So I was really glad we took the time to do that.

LEVEY: And we’ve been doing this show for over three years. We have a rich archive filled with conversations with really interesting people. And I think there’s some real gems in there, don’t you?

LEVITT: Oh, I think so, too, although there are some pretty bad ones, too. And one of the things that comes up when I talk to people is they want my guidance about which ones I really like. So, I think by doing a little bit of curation, we can help listeners out a ton.

LEVEY: Exactly. So, we’ve decided to replay your top 10 favorite episodes over the next 10 months. We’ll replay one episode a month in our off week, so this is not in place of any new content. So, Steve, I have done my homework in picking out my top ten favorites. Have you done your homework and picked out your top ten favorites?

LEVITT: No, I haven’t done it yet. Although I will do it in time for the first one to come up next week. But don’t send your list to me until I’ve done my own. I don’t want to be unduly biased by your opinions.

LEVEY: Do you think our lists will be similar or different?

LEVITT: I actually think it’ll be pretty similar. Because for me, and I think for you, there’s a certain kind of episode that I really love, and that’s when a guest gets me thinking about issues I haven’t thought about, and maybe changes me a little bit. Or we get a guest to be vulnerable, start to reveal things that they don’t usually do when they’re on script, and the good ones are pretty obvious when you listen to them.

LEVEY: I’m glad you think our lists will be similar because, since this is really your top ten favorites, you are going to get final say. But I’m glad that most of my favorites will make the cut.

LEVITT: I hope so.

LEVEY: We’ll see. So the best way for listeners to hear the replays will be to follow People I (Mostly) Admire on any podcast app and the episode will show up in your downloads. If you have a question or comment, we can be reached at That’s We read every email that’s sent and we look forward to reading yours.

So next week we’re back with an encore presentation of one of my top ten favorite episodes of all time. And in two weeks, we’ll have a brand new episode featuring Caroline Paul. She’s lived a fascinating life as a firefighter, an adventurer, a writer. And she spent the last few years studying an incredibly important topic: how one can make the most of growing old.

PAUL: I will admit that when I came into this book, that I had a definition of adventure that was high octane and that I’d often done things that almost killed me and thought that that was kind of part of adventure. But there’s things in this book that do not look high octane at all. Because I understood how important it was for people just to get outside. 

As always, thanks for listening and we’ll see you back soon.

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People I (Mostly) Admire is part of the Freakonomics Radio Network, which also includes Freakonomics Radio, No Stupid Questions, and The Economics of Everyday Things. All our shows are produced by Stitcher and Renbud Radio. This episode was produced by Morgan Levey with help from Lyric Bowditch, and mixed by Jasmin Klinger. We had research assistance from Daniel Moritz-Rabson. Our theme music was composed by Luis Guerra. We can be reached at, that’s Thanks for listening.

LEVITT: Yeah, so every time I ask you a tough question and you disappeared. I think, “Wow, that must have been a really good question. I’ve totally taken his voice away.”

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  • Joseph Stiglitz, professor at Columbia University and chief economist at the Roosevelt Institute.



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