Timely Measures

by Daniel Sorid
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At 6:16 p.m., the door to the Presidential Room of Faculty House clicked open, and necks craned toward the entrance. Joseph Stiglitz, Columbia’s bearded, bespectacled, and perennially late Nobel Prize–winning economist, grinned at the standing-room-only crowd that had gathered for a discussion, sponsored by the Committee on Global Thought, about the role of governments and central banks in creating a new financial structure. Stiglitz made his way to an empty seat at the front table beside two similarly bearded panelists, economists Adam Posen and Benjamin J. Cohen ’59CC, ’63GSAS, who had been awaiting his arrival since 6:00 p.m.

Without ceremony, Stiglitz launched into an assault on Wall Street banks and their Washington allies, the villains in his decades-long campaign against what he and other critics call market fundamentalism. “It’s a lack of regulation, not low interest rates, that was the source of the financial markets debacle,” he told the audience. “Banks happen to have 51 percent of the votes in Congress.”

Maybe he’s tardy to speaking engagements, but when it comes to ideas, such as increased market regulation, Stiglitz, a University Professor of economics, often seems ahead of the curve: demonized and marginalized at first, and later — sometimes many years later — embraced.

Take his thoughts on gross domestic product. As a senior economic adviser to President Clinton in the mid-1990s, Stiglitz locked horns with the coal industry over a “green GDP” campaign that he supported. He and others in government had pushed to incorporate the cost of environmental damage and depletion when calculating gross domestic product, the predominant measure of an economy’s performance. That would have made the social costs of energy production more apparent to policy makers — a troubling prospect for producers. Big Coal lobbied hard, and the plan was killed. The idea wasn’t.

In 2000, Stiglitz ruffled more feathers. As chief economist of the World Bank, he launched a remarkable attack on the World Bank’s sister institution, the International Monetary Fund, accusing it of pushing Washington’s economic agenda — privatization and the lifting of price subsidies — on the developing world. The argument won him admirers in policy circles of Asia, but caused an uproar at the Bank’s Washington headquarters that led to his abrupt resignation.

Stiglitz continued his endorsement of government involvement in markets, and continued making enemies in the United States. Though he won the 2001 Nobel Prize in economics for research into the inefficiencies that arise when two parties to a transaction (say, a bad driver and his unsuspecting insurance company) don’t share the same information, in his own country he remained a pariah among policy makers.
But Stiglitz embraced his opposition status. He wrote books attacking the dogma of market liberalization in developing countries, and traveled abroad to advise foreign governments.

Then, in January 2008, while attending the annual meeting of the American Economic Association in New Orleans, Stiglitz received a call from France. The man on the other end was Jean-Paul Fitoussi, a prominent French economist. Fitoussi had a message from his president, Nicolas Sarkozy. “Sarkozy would like you to lead an official commission on the measurement of economic progress,” Fitoussi said.

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