Transcription
You know, Obama's uh chief of staff uh famously said uh, "We should not let a crisis go to waste." But Obama did let it go to waste. Uh, it was a patchwork, resuscitating the role of the banks, uh, not really reforming uh our society in any significant way. Um, he let that moment pass.
Uh, we are now in another moment where I think uh what is at stake is much, much more because Trump has trampled on our democracy, on our rule of law, and we now realize the fragility of our political system, of our democracy. Uh, we uh realize that our systems of checks and balances, are they may hold? We hope they hold, but they're too fragile. We shouldn't be, we shouldn't be relying on prayer at this point, but that's what we are uh relying on right now.
We've had some fantastic guests here on Downstream over the years, but today is the very first time that I'm speaking to a Nobel Prize winner. Joseph Stiglitz won the 2001 Nobel Prize for Economics. He is, however, not just an amazing mathematician and economist. He is, I think, one of the best communicators in the English language on these issues in the last 30, 40 years. "Globalization and Its Discontents" made him a whistleblower from inside the establishment when it came to globalization and the likes of the IMF, the World Bank. Mr. Stiglitz, more than anyone else, turned those acronyms into household names, a shorthand for growing global inequality. And more recently, in 2008, he was inside the room when some of the most profoundly important decisions were made about banking bailouts and what America does responding to the biggest financial crisis since 1929.
So, lots to discuss over the last 30 years, over the last 15 years, and even more recently in the aftermath of Donald Trump's election last year. I hope you enjoy this interview. Professor Joseph Stiglitz, welcome to Downstream.
Nice to be here. We like to use formality here at Navar Media. It's great to have you on. Our first Nobel Prize winner.
Oh, thank you. So, uh, quite the accolade. You are obviously best known for a book written a while back now, "Globalization and Its Discontents." We're talking about this though, "The Road to Freedom: Economics and the Good Society." Uh, I will, of course, want to talk about some of your previous work as well. And in fact, I'd like to start with that. You were the outstanding voice with regards to critiquing globalization at its high point, um, late 1990s, early 2000s. Are we now living in a moment where you kind of reflect on that moment almost with affection? You know, things were working a little bit. There was global growth, there were rising living standards for the West. Do you sort of think maybe I was a bit too harsh on globalization?
No, I more uh, I I don't like to say things like, "I told you so," but uh, I think what I said there uh was really a precursor to some of the political and economic problems uh we have today. Uh, I was, I wrote the book after uh coming out of being chief economist of the World Bank, and I was looking at it through a particular lens of developing countries. And uh, I was writing and saying, you know, those global arrangements were unfair to developing countries, emerging markets. They were unfair to workers in America. They were agreements that were based basically on uh, corporate interest and financial interest in the advanced countries, and particularly uh, in the United States. And uh, I worried that a lot of the economic analysis on which it was uh, predicated, globalization, uh, made no sense. Uh, there were ideas like uh, trickle-down economics, just make sure the pie is bigger and everybody's going to be better off. No theory behind that. In fact, economic theory said that opening up trade could actually lead to lower wages of workers in a bank's countries. Um, they were predicated on notions that uh, free movement of speculative capital would stabilize uh, the global economy. And it seems to me pretty evident, if you looked at history, that capital sloshes around in a very uh, destabilizing way. And they were predicated on the idea that uh, if you opened up free trade, yes, you would lose jobs, but uh, new jobs would be created. It was a simplistic view about job creation, particularly in the context of developing countries. We all now know also in developed countries that uh, creating jobs is much more difficult. And too often, what I saw was that you moved workers from low-productivity, import-competing sectors to zero-productivity unemployment. And now, it's not a way to create wealth and and make people better off. So, there's so many uh, aspects of what was going on then that sort of foreshadow the troubles, but the troubles not just in the developing countries and emerging markets, troubles in the advanced countries.
A quick interruption. As you may know here at Navar Media, particularly with Downstream, we like to take these conversations that we have in this room at Navara Towers out to you, the people. We've done it before with Elon Pap, with Yiannis Varoufakis. Live events. It's great to do them face to face. We are now adding to that roster Jean-Luc Mélenchon. If you're not familiar with Mr. Mélenchon, he's the leader of La France Insoumise. Think the French Bernie Sanders. I'm speaking to Jean-Luc on the 25th of June at Earth in Hackney. We'll be talking about the future of the French left, whether they can stop the likes of Bardella and Marine Le Pen, and far more besides. He is a truly extraordinary figure. He just missed out on the runoff of the French presidency by 1%. His party is now the largest in the French Parliament by seats. He has remade, recalibrated the political conversation in France in a way that, frankly, very few people saw coming just three, four, five years ago. What can we learn from Mr. Mélenchon and La France Insoumise here in the UK? Do we need a new left party? Is Labour finished, or can people on the left have influence inside what is the party of government? Big questions with a big figure. Join me and Jean-Luc Mélenchon on June the 25th at Earth in Hackney. Buy the tickets. The link is in the description below. And if you can't do that, if you can't, for whatever reason, make it to glorious Hackney in late June, maybe you're on holiday. I don't know. I won't hold it against you. You can still support our work here at Navar Media. We are trying to get a thousand new supporters over June. We're doing really well. Why don't you join them though? Click that other link in the description below. Of course, you can do both. You can come to the event and support us as well, but either will do. Thanks so much.
So, it sounds like you see a straight line between that diagnosis you had of globalization at the turn of the century and political events in the United States and in this country as well, subsequent to 2016. Did you think then, 20 years ago, 25 years ago, that the United States would produce a Trump-like political figure, or was, like you've said, the emphasis was more on global South developing countries? And and if if you didn't think it 25 years ago, when did it kind of click with you that actually American politics could be profoundly disrupted in a way that hadn't been the case in your in your lifetime as a result of this global economic settlement?
The realization that we were in a moment of democratic fragility, yeah, uh, began to dawn on me uh in the 2008 financial crisis. And uh, as I looked at the way we handled that, uh, it was so clear that uh, we, what we were doing in the United States was reflecting the interest of the financial markets and alienating everybody else in our society. Uh, I was engaged in that moment in a number of political discussions. Uh, I was, for instance, on a a phone call at the very beginning uh, when before uh, Obama had gotten elected. Uh, it was during the final stages of the campaign, and the question was uh, how should the Democrats respond to the crisis that began in September of uh, 2008? And there were all these uh, people from the big banks and financial markets on the uh, conference call, and I was one of the lonely voices saying, you know, you ought to be also worrying about American workers and American homeowners who are about to lose their homes. And if we just focus on the banks, it won't be a good recovery, and it will be politically disastrous. And they laughed at me, you know, they said, "Oh, you know, let's be serious. It, we have to save the banks." And unfortunately, Obama executed that kind of a strategy. And by the time I came a little bit later, uh, 2011, I wrote uh, this uh, article in Vanity Fair uh, called "Of the 1%, for the 1%, and by the 1%," uh, echoing uh, Abraham Lincoln's Gettysburg Address, "of the people, for the people, and by the people," uh, where it seemed to me that we were having a government that was reflecting that top 1%. And that led to my book, "The Price of Inequality." And by the time I finished that book, "The Price of Inequality," in 2012, it was clear to me that we were uh, sowing a fertile field for a demagogue. And I actually said that in the book, uh, a demagogue like Trump. Uh, at that moment, I don't think I had any picture of somebody as dangerous as uh, Trump. You know, it was outside our vision, but that there would be a demagogue seemed to me uh, a very high risk.
So you have this crisis of capitalism in in 2008, the the most extraordinary crisis since 1929, certainly in the United States, and you have this response, which is an incredible sort of insight. You're on the same call, I presume, as people like Tim Geithner and, you know, Bob Rubin and all the all the big shots. And of course, Tim Geithner, I think, Zack Goldman, he ends up being the Treasury Secretary for Obama. So you're on that call, you hear what these guys are saying, and their response is not remotely interested in the sort of the political externalities, the political risks that would entail from their choices. Here's a question because, you know, you've been around a long time. You've seen so many different characters and personalities in politics. There's an argument which is that the statesmen in this country that had the shared experience of the Second World War and across Europe actually were terrified of going back to something like that. And there was just a shared understanding that politics can get really nasty, really quickly, and we need to avoid that kind of that kind of volatility, that kind of volatility, that kind of downside. And as societies on both sides of the Atlantic, we've lost that that inheritance, that kind of collective knowledge. Do you buy that? That our sort of commercial and political elites simply don't think about the possibility of political chaos, collapse, regimes falling, demagogues?
Uh, I think uh, for to a large extent, I think that's true. Um, you know, we've had so much political stability uh, and particularly after World War II, uh, we had decades of shared prosperity uh, where, you know, every group in the population grew, but those at the bottom grew more. And so there was an almost out of that period, a a belief in the American middle class. This is the world that I uh, grew up in. Um, but then I think we didn't fully appreciate what began to happen uh, in the mid-1970s, and the really strikingly with 1980, Ronald Reagan, neoliberalism. And uh, that was really a major departure from that post-World War II quarter-century of social solidarity, high taxes, is to uh, on the rich, but a kind of solidarity of our society uh, on the whole. And uh, that neoliberalism brought down the taxes at the top, deregulated, uh, you might say, "Let the market rip," and it did. And the result, we had growing inequality, we had financial crisis after financial crisis. Uh, it wasn't the pretty picture that they had promised. Uh, it was really quite the contrary: slower growth, more instability, more inequality. But we didn't notice it. They bought the Kool-Aid so strongly that even as the data was coming in and said this experiment is not going well, like any religious uh, cult, they said, "Give it more time. Give it more time." And as time went on, we had another crisis in 2008. Politically, the economic divide got greater. Uh, life expectancy in the United States started to decline. And finally, the the vision that I had seen uh, of a demagogue arising out of this fertile field of of uh, despair, uh, became a reality.
Do you blame the Obama administration for Trump then? Because it sounds like they took certain choices which kind of made this somewhat inevitable.
Uh, I think the problem started earlier than Obama. I have to say, I think the problem started in some sense even under Carter, where the deregulation began. Clinton continued that big financial deregulation, lowered the taxes on capital gains, which is the major source of income for the very, very wealthy. So, uh, the tax policy that increased inequality was part of, uh, Clinton's agenda. Uh, but, uh, by the time of Obama, it was clear where we were going. No excuse. So, yes, in the end, I do blame Obama in a couple of ways. Um, first, uh, he did have one achievement, and that was Obamacare, which is the healthcare uh, for the large numbers of Americans who didn't have health insurance. That was an achievement. Uh, it, it had in the design there were a number of mistakes. One of the things I had advocated was uh, what was called the public option. Uh, so if the private sector didn't uh, give what people wanted and needed, there would be a public option. That was thrown out under the influence of the uh, uh, health insurance companies that didn't want competition. And the fact that they didn't want competition should have told us something, that they were afraid of the public option. But that was an important success overall. Uh, but the way he uh, handled uh, the bank bailouts, the failures in helping individuals with mortgages, the insufficiency of the uh, recovery packages, uh, the failure to do anything about climate change. Um, and politically, the failure to America is a federal system where what happens at the state and local level is really important. Uh, he didn't strengthen our state parties, our local parties. And uh, meanwhile, the Republican party was shoring up what was going on at state and local level. And so uh, it left the political system more vulnerable, and it left our economic system more vulnerable.
Yeah. So for for people watching and listening to this in the UK, as I understand it, by 2012, obviously Obama gets reelected, but you already start to see damn ballot races, Democrats really suffering, their vote not not turning out. And there's one of these great ironies of the last 15 years, which is that the right has taken more lessons from the radical left of the 20th century in organizing, building the party, than the center and center-left has. One final question on history, um, because I want to talk about the the substance of this book. You met Milton Friedman. I think you sort of explicitly say that in the in the book many years ago. What was he like as a person?
Yeah, actually, we, we had many, many encounters uh, over the years. Uh, I was a uh, token liberal at uh, the Hoover Institution, which is uh, I don't know if you know, a think tank located on the Stanford University campus, which is uh, uh, where uh, all the right-wing uh, go to be trained, indoctrinated, sort of a each of the president gets a uh, a library, and often associated with the library is a think tank. And uh, Herbert Hoover is uh, the emblematic right-wing president who brought on the depression by saying, "Let the market take care of it." Stock market had crashed in September '29, didn't do a thing, and we got really the Great Depression. So, he's emblematic of what good right-wing politics, uh, economic policy is about, and they celebrate that at the Hoover Institution. And they wanted to bring in a few token liberals uh, into the institution. And when I was teaching at Stanford, they brought me in and and uh, a few others, Ken Arrow, and you know, I welcomed this as a chance to to get to know the whole political landscape, and we had many conversations. But I'll relate one uh, particular conversation I uh, back in the uh, late '60s, early '70s. Um, I wrote uh, a paper explaining why uh, firms maximizing their stock market value would not lead to uh, the general well-being of society. Now, I could, you know, it's a mathematical uh, formulation of that idea. And at the about the same time, uh, Milton Friedman was writing a very influential article, which was published in uh, the New York Times Magazine, on why firms should maximize uh, the stock market value. And I got invited to the University of Chicago to uh, give a talk on my paper. And I gave a seminar, and after the seminar, we, we were uh, sitting outside the seminar room, standing outside the seminar room, and he said, "Joe, uh, you're wrong." I said, "Milt, tell me where, what an assumption that I made that you don't like, or where I made a mistake uh, in my analysis." He said, "Joe, you're wrong. I know shareholder maximization is optimal. It's good for society." I said, "Look, I've worked very hard to show that you're wrong, and that, you know, here, just explain to me where in my analysis I went wrong." He said, "Joe, you're wrong." And it was very clear at that point he had become an ideologue. He had strong beliefs. He couldn't engage in an analytic exercise. Uh, he was very bright, very congenial, a really very nice guy, very committed uh, to his ideology. Um, there's a little bit I've always felt a little uh, dissemblance, I don't know what the right word is, uh, because one of his arguments in "Capitalism and Freedom," one of his arguments is, is that economic freedom is very important for political freedom. And I, I think there is some relation, important relationship between the two. And the way he talked about it seemed to be what he was really carous about was political freedom, and economic freedom was the means to get it. And yet, he seemed perfectly at ease going down and becoming an advisor to Pinochet, right after he had disappeared tens of thousands of people, and using that as a form of imposing on the Chilean people his economic ideology. So, he was using political authoritarianism to impose his idea of quote, "economic freedom." I, I often look at uh, like clips of Friedman online on YouTube or whatever, and I think, my God, we're really lucky he didn't exist in a world of TikTok and Instagram because he had this tremendous capacity for charismatic clicks and, you know, clickbait and bite-size thinking. And, you know, obviously that category didn't exist back then, but he wasn't an economist, he was an influencer by the end. Anyway, like you say, he was he was an ideologue. He did, let me say, he did some very early and important work for which he got the Nobel Prize, and, you know, I think everybody respects that uh, pioneering work. But uh, uh, he was a great rhetorician, and, you know, you couldn't help but admire uh, those clipbakes. Yeah. Yeah. He, he was he was a very, very compelling, charismatic person. That doesn't mean the arguments particularly strong.
Um, you talk about Adam Smith in the book a lot. You know, this guy's what, more than 250 years ago? Um, about the same time as the American Republic. We're talking the same time, right? Mid-18th century. 1776 was when "The Wealth of Nations" was written. There you go. Which is, for those your audience who don't remember, that was uh, the year of our Declaration of Independence, important year. Um, what do you think Adam Smith would make of free market liberals who use his name to justify the policies they like?
Oh, he'd be rolling over in his grave. Uh, if you read the totality of Adam Smith, uh, yes, he talks about the invisible hand, the pursuit of self-interest leading, as if by the visible hand, uh, to the well-being of society. But that's just one idea. One way of thinking about that is he was describing that as one force going on. He then went on also to say things like, uh, "Businessmen seldom get together, whether for merriment or whatever, without a conspiracy against the public." So he didn't think businessmen were out there to increase people's well-being. And he really worried about what we would call today uh, anti-competitive behavior. Uh, he writes uh, at another point, uh, that "When regulation is in the favor of workers, it is almost always for the good, but not so when it's in the interest of corporations." He's very much aware how corporations capture the state and advance regulations to pursue their interest, to give them what we would today call rent profits. But he also realizes how important it is for workers uh, for well-being, that their state regulate in behalf of uh, workers. Then he goes on at at another point and talks about uh, how firms get together, as he said, "almost always in secrecy to conspire to push down the wages of workers." And I often quote that passage when talking about some of the conspiracies that went on 200 years later in Hollywood and Silicon Valley to suppress the wages of workers in some of the highest profit firms. They were working together to lower the wages of those who were generating their profits. I mean, quite unbelievable. So there, there was a kind of foresight that he had. Maybe it was about the basic nature of human nature and and the striving for profits, but clearly he did not believe in unfettered capitalism.
Yeah. And he he makes effectively proto-trade union arguments because he talks about employers working in combination, and this is this is when trade unions are well illegal. You get the Tolpuddle Martyrs decades later in in the South of England, and they're charged with precisely this combination, coming together to try to get better wages for this small group of workers in this tiny Dorset village. So I mean uh, quite extraordinary how he's been abused and misused. Why is that? And and was it always like that? Was there some political project to reassert that Adam Smith was a certain kind of person? Where does that come from? Because if you just read "The Wealth of Nations" or "Theory of Moral Sentiments" for 10 minutes, this stuff becomes evident quite quickly.
Yes. Well, I think uh, one way of trying to understand uh, how that came about was to realize that uh, ever since the Industrial Revolution, uh, there's been a debate about the origins of the inequality that was associated. Memory. The beginning years of the Industrial Revolution, some people did very well, but some people, living standards went down, especially if you include the environmental degradation of those who moved to the cities. Uh, and, you know, if you read Dickens, you you see the the view of how dire things uh, were. So, uh, obviously, uh, the capitalists, you might call them, uh, were gaining, uh, and they wanted, uh, a theory to justify what was going on, to defend it. And a whole series of uh, ideas were put forward uh, uh, that I summarized and called the the "just desserts." The reason the rich are rich is because uh, they deserve it. And what did that mean? Uh, they worked harder, they were more innovative. Uh, Nassau Senior, who was uh, uh, the first holder of the first chair in political economy at Oxford, which I held uh, a couple hundred years later, uh, said uh, uh, uh, described uh, the high income of capitalists due to their abstinence, a word I loved, that they didn't consume, and therefore it was a reward for their savings. Um, so that was one theory that all this inequality, don't be upset, it's really morally right. It is uh, their compensation for what they've contributed. The called the marginal contribution, productivity theory, and it, it, it gave a a sort of a morality to this uh, huge inequality that was then emerging. The other theory, of course, was that of Karl Marx, which was based on exploitation, taking advantage of workers. Um, and so you had a contest between two different views of the world. Um, one saying the capitalist system was very productive and morally justified. The other was saying it was based on exploitation and taking advantage of others and would eventually run into problems. Um, and so in this uh, debate, uh, Smith becomes one of the protagonists for uh, good capitalism. Whereas I think from the perspective of of today, 21st-century economics, we can see actually Adam Smith was the reasonable person in the room. He saw that there were some uh, uh, benefits that that there were this incentive system. But he also saw there was exploitation, and that's why you needed government regulation. And he also saw that you needed government intervention for providing education. He saw a broader role of government in public investment. So in that way, I see Adam Smith as being very much a modern economist. You know, not uh, the polemicist on exploitation, but somebody trying to get a a balanced picture uh, of the strengths and the limits of a market economy.
Yeah. Adam Smith, I think to the modern mind, is probably center-left if you actually read the guy. Um, and Marx, you know, in in his defense, I mean, he would call himself an empiricist, but he was also he was a polemicist, right? He was trying to write a big political polemic at a really important moment. And that wasn't something, Smith did, but it's so true. You know, you read somebody like Thomas Malthus and Adam Smith, I mean, they're saying such wildly different things. You know, Thomas Malthus basically says, if children die because they can't eat, that's life. So be it. It's part of the equilibrium system. Yeah. Yeah. And um, the the idea that, you know, all of these people agreed on everything, that's a really interesting way of of seeing it. It's opposition to Marx. Does the United States need another FDR?
Yes. Uh, you know, FDR uh, responded uh, to the Great Depression. Uh, but in responding to the Great Depression, he not only said, "We have to stimulate the economy," to use today's words, he also said, "We have some deep problems in our society. We don't have systems of social protection." And so he put forth Social Security. He said, "You know, the bargaining power of workers isn't there, and they're being left behind." So, we passed what we call the Wagner Act, that gave workers uh, uh, bargaining rights. Um, these were transformative. Uh, he also said there's a role for government in investment. Uh, the United States was arguably, we were the richest, at least one of the richest countries at the time. Large fractions of the country did not have electricity. And he said, "Well, the market hasn't done this, we will uh, provide electricity uh, across the country." Um, and uh, he said, "You know, people shouldn't live in a life of fear," and he said, "One of the, you know, yes, we have our civil rights, uh, our freedom of speech, freedom of religion, all those, but we also have economic rights, freedom from hunger, freedom from fear." So, it was a real reconception of the role of the state. And uh, you know, he said, "This is not going to be easy. There are going to be uh, people who want a small government, people who want more inequality, and they're going to oppose me." Uh, but he had a vision of a different society, and he pushed and he pushed, and uh, he achieved an awful lot. Uh, today, almost a hundred years later, we're in need of uh, that kind of uh, vision, a visionary, but also a politician who is able to translate that vision uh, into practice. Uh, you know, Obama's uh, chief of staff uh, famously said, uh, "We should not let a crisis go to waste," but Obama did let it go to waste. Uh, it was a patchwork, resuscitating the role of the banks, uh, not really reforming uh, our society in any significant way. Um, he let that moment pass. Uh, we are now in another moment where I think uh, what is at stake is much, much more because Trump has trampled on our democracy, on our rule of law, and we now realize the fragility of our political system, of our democracy. Uh, we uh, realize that our systems of checks and balances, are they may hold? We hope they hold, but they're too fragile. We shouldn't be, we shouldn't be relying on prayer at this point. But that's what we are uh, relying on right now.
Why do you think progressive parties are so incapable of producing another politician like FDR? So that's not just a question for the United States. It's the same in the UK, and it's not a recent phenomenon. Like you say, Obama has the crisis. He wins this huge mandate, like extraordinary number of votes. Probably the most charismatic American politician, I would say, since Kennedy, but you could say Reagan, but he's at that level easily. And yet, he he doesn't he doesn't deliver on a holistic political project. And you see something similar with Starmer right now in this country. Again, you use the word patchwork. That's precisely it. So why don't progressive parties across the Anglophone world so far pursue the kind of agenda you're talking about with with FDR? What's stopping them?
I think one way of thinking about uh, it goes back to the uh, 1980s, 1990s. We went through a period of the "Great Moderation." Uh, you might say it was a period of mellowness, of everybody trying to uh, get together. We were uh, there was a, you might say, I don't want to say backlash, but it was saying, "Oh, uh, FDR was too strident. We're all middle class now. Let's not talk about quote, 'class warfare.' That's a thing of the past. That's old uh, uh, communist language, you know, let's, let's put that in uh, behind us. We're one big happy family." Well, of course, we're not one big happy family. And there are a very large fraction of Americans who are very, very deeply unhappy. And the same thing is true in in many other uh, advanced uh, countries. But that belief, that ideology, that hope that we were one happy family circumscribed what the politicians felt comfortable doing. Um, they, they didn't want to be strident. And FDR looked at that moment and he said, "I have no choice. Uh, if I am not strident, we won't solve the Great Depression." And he realized that, and so he had to make a choice. And it takes somebody who of some gumption. But we do have leaders, uh, AOC in the United States, Bernie Sanders, there are some of the state governors who I think are able to put forward a new agenda, a progressive agenda. Different from the kind of, you know, we're in the 21st century. We're in a digital green transition. It's a very different world. So it's not replicating the 19th-century battles. It's new. But it, but it requires a a kind of forcefulness that recognizes that we are at a moment of upheaval and that will take strong collective action, and that unfortunately, where we are today, not everybody is going to be happy.
Yeah, it's something that politicians can't say. Right. Sticking with this for a moment, I'm gonna come at this with um, a skeptic's eye. So I agree with everything you've said effectively, but somebody watching this who watches, you know, Fox News or in this country, GB News, they would say, "Mr. Stiglitz, Professor Stiglitz, this is all a reasonable analysis on FDR. I happen to agree with you, in fact, but we live in a different world now. Personal debt is much higher. Sovereign debt is much higher. We've had no growth for a really long like real growth. We've had debt-leverage growth really since the global financial crisis. We haven't had a growth model in the US or the UK. People talk about growth under Trump. Look at the deficits as well. Um, it's you're not creating like private sector-led prosperity in that country. Same in this country. Certainly not if you take out big tech. So this is not the same as the '30s. What what would you say to them? Between the debt, zero growth, even the demographics, right? We're much older societies. So the constraints are higher, the costs are higher with regards to elderly care, healthcare, etc. What would you say to them?
Well, first, I would say, look, we, we are uh, a more innovative society. There have been enormous advances in science. What is the basis of why our standard of living today is so much higher than 250 years ago? It's basically science and figuring out how to work together collectively, new forms of social organization, large corporations, and within the broader sense of society, checks and balances, rule of law, how to make democracies work. And we've learned a lot about when things don't work. What are the principles of good governance and what are principles of bad governance? So I would say, in terms of fundamentals, we're actually in a much better position than we were a hundred years ago. The question is, how do we use all that knowledge and uh, channel that knowledge to make uh, a more prosperous society, and prosperous for not just a few, but for most members of our society? And in the end, I think uh, we've been caught in a 45-year failed experiment. And to me, the answer is to break out of the experiment. Recognize the failure. The experiment, of course, is the neoliberal experiment. The idea that free markets are going to lead to higher growth that will be shared by everybody through trickle-down economics, and markets are on their own stable. I mean, all those hypotheses, we've given them a good try, and they failed, not just in one country, but in country after country. So to me, with all that knowledge, we we are on a better footing to begin to create an alternative economic system. I don't think it's going to be easy because in a democracy, you have to convince a lot of people. And I hate to use the word, but they've been brainwashed for decades that this particular system, if you only gave it a chance, this system, neoliberal capitalism, would work. But eventually, they're becoming disillusioned, and this disillusionment is leading them to go to authoritarian populism. And uh, you might say the good news uh, in this uh, very dark hour is that Trump is showing them that authoritarian populism may not be a good answer for anybody.
Yeah, it's it's interesting that the collapse of of neoliberalism and the collapse of the neoliberal self is something that you even see play out with social media. So you might highlight a market failure or a negative externality, stuff that people like yourself as economists have talked about for a very long time, and they'll say that's socialism, that's immigration. Because of course, it can't be the nature of the economic system you're living in, because like that's self-correcting. It finds equilibrium naturally, and that's the that's the fresh air we've been imbibing as a culture for a very long time. And I and I think you're right. That's precisely why the answer for many people is is right-wing authoritarianism. I'm going to stick with the skeptic stance for one moment though. So, particularly in the UK context, GB News viewer, they would say, "Okay, Mr. Stiglitz, Professor Stiglitz, we want to create a new system, but debt to GDP is about 100%. My personal taxes are quite high. Um, my my kid is already in £50,000 worth of debt just to go to university. Uh, we have a 120 billion pound deficit last year. Our debt interest payments are 100 billion last year, which is, you know, really, really high by UK standards. Where's the space because you want to invest more, for instance, in public infrastructure? Where's that money going to come from? So what would you say to them? Is it coming from tax rises? Where would you cut stuff?
So first, uh, let me put it in a little bit of historical context. Uh, when the United States uh, emerged from World War II, we had a debt-to-GDP ratio higher than we are today, significantly higher. We didn't let that stop us. The decades after that were our fastest period of growth, and that debt-to-GDP ratio went from around 100, over 130%, down to uh, under 45%. If you grow the economy, then the debt over GDP goes down because GDP goes up. Uh, UK, the debt-to-GDP ratio was even higher, and it then came down. You had a harder time. The war was worse for you. You had more destruction. Uh, we, we just postponed investment, but you actually suffered a lot. Um, so that shows you that that there can be a growth strategy even when there's a high level of debt. Now, when you get push me on, you know, what are the specifics? I think there's a lot of scope for increased taxes. I've studied it very closely in the United States. I know we have actually uh, scope for increasing our taxes over a 10-year window, which is how we measure it, by trillions and trillions of dollars. Uh, partly, there's a huge gap between the taxes that we're levying and the taxes we're collecting. There's immense tax evasion and avoidance, uh, especially by corporations. Uh, globalization. One of the negative sides of globalization is that it opened up a a wonderful framework for tax avoidance uh, and evasion through tax havens and tax, and secrecy. Um, but we also uh, have ample uh, scope for uh, environmental taxes that would improve our society by discouraging pollution. Uh, there are other externalities. Financial transactions generate short-term transactions, generate enormous volatility that destabilizes the economy. So there's a again, huge scope for a financial transaction tax in the United States. Owners of capital are taxed at lower rates than somebody who's working as a plumber. If you just have fair taxation of capital, we would raise trillions of dollars. But if you had progressive taxation, constructive realization of capital gains, lots of details like that, we would raise again trillions and trillions of dollars. So in the United States, unambiguously, we have ample opportunities for raising more money for more public investment in R&D and human capital and infrastructure technology, which would be a growth agenda both on the bank side and on the supply side that would usher in a new era.
So you talk about China in in the book. I want to fold two questions into one really. Is China a socialist economy or a capitalist economy? And what lessons can the West learn from how China has administered its economy over the last 35 years?
China is sui generis. Uh, it describes itself as a market socialist economy with Chinese characteristics. So you put together that string of words and it says, uh, "We're different from any other economy." Some people describe it as part state capitalism. But there is also a thriving uh, small business sector. Um, the government has a much more pervasive role overall in the economy than in any of the uh, Western economies. So it does play a a very uh, big role. Uh, I think there are uh, several things that we can learn from China's success as an economy. Uh, this is not talking about democracy or any of the other aspects, but from successes in economy. Uh, first, it had some vision. Except, uh, "We want to modernize. There's no reason why we should have a lower standard of living than the most advanced country." Uh, "How do we get there?" That's a question that most countries didn't pose to themselves. And, you know, there was a sort of pride that they're saying, "No reason that we can't uh, have as high a standard of living as any other country." And that opened up the window to try to understand uh, what makes for economic success. And they talked to everybody on the left and the right. My first uh, uh, meeting with them was in 1980. My first visit was in 1981. And, you know, continuing discussions. They wanted to learn from any source they could find, and they listened to different views and then integrated it to the within their own framework. Um, out of that came a lot of novel ideas, innovative ideas. I, I don't have time to describe it now, but one of the things uh, might be obvious: investment in people, human capital. And they sent hundreds of thousands of people to the United States and to Europe, to Australia, to learn, to higher education, to be engineers. And you see the fruits of that. A few weeks ago, I was in China. I saw uh, one of their new car factories. Robots putting together cars. Very few humans in it. Just amazing. And most of the employees are not production workers, they're engineers. And that, in they've gone from having, you might say, a comparative advantage in unskilled labor to having a comparative advantage in engineering and skilled labor. Remarkable change in 45 years. And that's a third aspect of, they did some planning, some thinking ahead. How do you achieve this vision? And part of that is industrial policy. Now, the United States finally is beginning to embrace some industrial policies in the CHIPS Act, which US recognized we didn't have the capacity to produce a essential ingredient in modern economy, which is chips. IRA, which recognized that we aren't prepared to make the green transition. But we don't have a broader industrial policy. What Trump is is using trade as an industrial policy. He wants to bring jobs back to America. That's exactly what industrial policy does. But the way he's doing it is so thoughtless, so uninformed, so destructive both to the United States but to the global economic order that it's questionable whether he'll achieve much, and the cost in terms of the global economy is going to be enormous, and in terms of the American economy is going to be enormous. So those are at least uh, three aspects that I think uh, one can any country can learn, study uh, from China. Now, China has some advantages that uh, other countries don't have: scale. You know, if you have 1.3 billion people, you have a big market. Having a big market gives you, without borders, gives you some advantages. So they are now, in terms of purchasing power parity, which is the way economists compare economies with different relative prices, they are now the world's largest uh, economy, and that gives them an enormous opportunity uh, to continue uh, their development strategy.
Joseph Stiglitz, this was a fantastic conversation. Thanks for joining us on Downstream.
Thank you.
[Music]