An Icon of the Left Tells Democrats: Don’t Go Socialist

Over the past quarter century, no economist has worked harder than Joseph Stiglitz to keep the Democratic Party from moving to the center—to prevent Democrats from going gaga over free markets and the supposed glories of globalization. Along with a handful of other slighted seers of the left, such as former Labor Secretary Robert Reich, Stiglitz was concerned early on about the eroding safety net for the middle class, income inequality, and the “financialization” of the economy. As chairman of Bill Clinton’s Council of Economic Advisors and later the chief economist at the World Bank in the 1990s, Stiglitz argued passionately (and unsuccessfully) against opening up global capital flows too rapidly; he also spoke out against (again without results) repealing the Glass-Steagall Act, which regulated financial institutions and separated commercial from investment banking.

The subprime mortgage disaster of the late 2000s was almost tailor-made proof of some of Stiglitz’s theories about the imperfections of markets; he had shared the Nobel Prize in 2001 for showing how “asymmetric” information—in which one party to a transaction knows more than the other—can distort and rig markets (which helps explain how Wall Street sold all those junky mortgage-backed securities to credulous investors). Like Clinton, Barack Obama had little use for Stiglitz either (though some of Stiglitz’s seminal thinking about the failures of the insurance industry to supply equitable health care made its way into Obamacare). And of course Hillary Clinton all but ignored Stiglitz’s progressive ideas in 2016—fatally neglecting to see, as she entered the general election against Donald Trump, that the party’s base no longer trusted her centrism (despite ample warning from the insurgent Bernie Sanders, who nearly defeated her in the primaries).

But now that the backlash against Democratic centrism has made itself felt at the hands of an angry middle class— many of whom voted for Trump—and the party has tacked leftward in his direction, Stiglitz finds himself in the unusual position of urging caution. Stiglitz is worried that if Democrats shift too far left, they’ll be smeared as “socialists” and lose the 2020 presidential election—in which he believes the very institutions of Western civilization hang in the balance. For the famed economist, it is a consummate irony to be defending markets at all, since for years Stiglitz’s critics have faulted him for depending too much on government solutions.

Stiglitz spoke with Foreign Policy on the publication of his latest book, People, Power, and Profits: Progressive Capitalism for an Age of Discontent.

Foreign Policy: I find it interesting that you, the former intellectual bomb thrower, would now be the voice of restraint for the Democratic Party. Is there some historical irony in there?

Joseph Stiglitz: [laughs] There is, but we’re at a point today where the threat is enormous. It is really important that we win. And therefore I think it’s really important not for us to get hung up in the wrong vocabulary, when the ideas are basically the same. And in a way that’s not different from where I was before, but the question was how to get from here to there.

FP: Trump and the Republicans are going to try to smear the Democrats as socialists going into 2020. You say you prefer the term “progressive capitalism” over “democratic socialism.” Could the election turn on phrases like that? Are you concerned the Democratic candidates are not being clear enough in making those distinctions?

JS: Yeah, it does concern me a little bit. What I hope my writing will do is give more Democrats an alternative vocabulary that you might say is less offensive to some others. In a way, to me it’s interesting that among young people in New York and California and some other places, the term “democratic socialist” has no negative overtones. But we’re running a national campaign for the presidency. And you have to understand that’s not true everywhere. And one of the reasons for my book is to give people a framework for talking about these issues in a way that would be acceptable to the vast majority of Americans.

FP: You have warned for so long in different ways that the inequities of capitalism and globalization as practiced would be problematic. Looking back, seeing this populist backlash that brought Trump into the White House, do you have a sense of “if only”? If only your warnings had been heeded?

JS: Very much so. Not only about globalization but also the excesses of financialization. Not holding those who caused the financial crisis accountable. Especially among the Democratic Party, which was supposed to be concerned about ordinary people. Clearly it lost its grounding. And I think on the part of some of those people there was a genuine belief in trickle-down economics, which I just thought was a fantasy. And I also thought it was also doubly wrong because not only wouldn’t it trickle down but it wouldn’t lead to robust or sustainable growth. That turned out actually to be the case as well. I think a number of us—[liberal writer] Bob Kuttner, Bob Reich—had been concerned about these patterns and the almost predictable consequences of not dealing with what was going on.

FP: Trump’s defenders would say he is only trying to do what you did when you questioned the premises of globalization and the Washington Consensus [which called for free trade, privatization, and fiscal discipline]. How would you respond?

JS: We have to have a rule of law. Without that you’re going to have a jungle. We have to have these institutions for judging and assessing truth. All human institutions are going to be fallible. Our struggle is to improve them. If you had asked me would I rather have the rule of law and the World Trade Organization, which is flawed, or to have a jungle in international trade where you have trade wars, constant conflict, and we know who is going to win—well, it’s going to be the strongest, the corporations that are going to win in that kind of jungle. That choice is easy. I always supported the rule of law—it was because I believed rational discourse would eventually lead to reform that made it worthwhile to write those books. And in many ways the reforms at the International Monetary Fund [in favor of greater caution over cross-border capital flows, which Stiglitz had urged] are a testimony to the power of reason. The IMF changed. The failings we noticed in other institutions have also come to light. You don’t give up democracy because it passes a law you don’t like. You try to change the laws.

FP: Are you concerned the Democratic Party has not only caught up with you but is pushing too far left?

JS: I don’t think so. What I hope will happen is that, with various candidates putting forth their own ideas, the party and nation will come together and agree on what the central issues are. Let me give you an example. I think a lot of people looking at the success of the European countries would say “Medicare for All” makes a lot of sense, but the transition toward that regime is going to be difficult, and there will be a lot of anxiety by a lot of people about the loss of current health insurance with their current doctors whom they like, and adjustment is difficult. And that’s where the public option that I talked about in the original version of Obamacare becomes important. It’s a method of perhaps getting to Medicare for All, but in the meanwhile our real objective is to make sure everyone’s covered by health insurance.

Take a second issue that Bernie Sanders has talked about, the cost of a university education, and Elizabeth Warren has talked about the $1.5 trillion in student debt. Clearly something is wrong with the way we finance higher education. There are alternative models: Australia has a successful model, as does Europe, and in the end we are going to have to make difficult budgetary decisions and trade-offs. My own proposal is basically to convert all the existing student debt into income-contingent loans more along the Australian proposal. And let people pay a certain fraction of their income for 25 years, and then if they haven’t paid it off, just give them a write-off. But on the other hand Bernie has made a powerful point in emphasizing that the total amount of tuition in public universities is not huge amount. And we could well afford it. Each may have his or her own proposals.

FP: Except that there are a lot of Democratic proposals that move much further left than you do, such as the Green New Deal. In your book you argue against universal basic income. There’s this sense out there in the party that the government can just spend as much as its want, as with Modern Monetary Theory—that the discussion is going much too far in the direction of actual socialism.

JS: It’s not really socialism. Socialism is when the state owns the means of production.

FP: Well, then, it’s just about everything but that.

JS: I think what you’re really saying is there’s less attention to detail and overall resource constraints than most economists, even me, would like. And here, I would say that is the positive side of the Green New Deal, which is the recognition that we have still underutilized capacity. That there are many people who would like to work who don’t have a job. That the unemployment rate doesn’t really tell us the state of the labor market, partly because there’s so many people who are discouraged workers who’ve been looking for a job for a decade. And workers who are discriminated against, such as African Americans. We don’t have a labor market that is friendly to women and the elderly. So I think there is much we could do to expand the potential supply of the economy. If we were fighting a real war, we would figure out how to do it. That’s where the Green New Deal’s metaphor of the mobilization of resources comes in. On the other hand, if we were at war, we would do things very quickly. I don’t see that happening. So it’s a good thing they’re emphasizing that we should be changing the structure of the economy to be more inclusive. But in my mind it won’t happen overnight, and they’re overly optimistic about that.

FP: Obama’s former vice president, Joe Biden, is now leading the Democratic field. You were very critical of the Obama administration on many fronts, such as failing to deal with the too-big-to-fail bank problem and to help the middle class more. Do you think Biden gets it now?

JS: I think he does. In some ways, he got it more than Obama or Clinton. His economic advisors were much more attuned to the issue of labor. I’m thinking about Jared Bernstein in particular. And so in that sense he was much more of a voice for these concerns than former Treasury Secretary Timothy Geithner in the Obama administration. The issue with Biden obviously is partly age. And [unlike Biden] Elizabeth Warren and Bernie Sanders never came under the influence of the neoliberals. That set of ideas. And I don’t know to what extent Biden did, but it’s clear that he was surrounded by people who were. And it’s hard to believe that if you’re surrounded for so long by people for whom that is the basic belief system, it’s hard not to have some of that rub off.

FP: You’re concerned about that, and you’re not exactly sure where he stands.

JS: Exactly. He’s clearly not putting forth the strong ideas that Elizabeth Warren is. She’s clearly taken a stance that she understands the many ways that the market economy isn’t working well, and you can see a lot of parallels between what I write in my book and policies she’s been advocating.

FP: Have you been an advisor to her?

JS: Yeah, we’ve talked a lot over the years.

FP: Have you talked in a formal way to her or to Biden or anyone else?

JS: No, not really. I’ve talked to both Elizabeth and some of the people on other candidates’ staff. But I’m not sure they know where they stand on some of these issues. I think they’re trying to see the landscape. It’s a hard landscape to navigate for exactly the reasons you’ve been suggesting. We have a national election.

FP: Why did you publish this book now?

JS: There were multiple reasons. Part of it is related to my longer-term research program: trying to understand why our economy hasn’t been working as well as it should be and why there’s so much inequality. It also relates to what I regard as the most eviscerating effect of Trump on our society and the deepest threat to our civilization.

FP: Explain.

JS: First, it means understanding the marked change that happened around 1750 to 1800. For centuries before, there was stagnation. Then suddenly growth increases. You think of that as the period of Enlightenment, to which there were two important parts. One was science, broadly understood. The second, you might call it social organization. Before it was all just accepted, and there was a tradition of authority. Now with the Enlightenment we had to decide ourselves about what were good systems of social organization, such as democracy and capitalism. And both democracy, with its checks and balances, and markets, with the rule of law, require what you might call truth-assessing institutions. We may not know the truth with 100 percent probability, but we need a whole set of institutions that enable us to reach agreement on what is truth with high probability.

And now you have Trump talking about fake news, making up his own facts, assaulting the media and the universities and the judiciary—all of what I loosely describe as institutions of truth. There is a real assault on these institutions without an understanding of why we created them in the first place. We tend to look at these attacks piecemeal. Actually there’s a pattern here, and it is an assault on what’s made us successful for the last 250 years and is really the basis for our modern civilization.

Without these institutions, our society can’t function, and it’s very clear that he and those who support him lack an understanding of what it takes to run a complex society such as we have.

This conversation has been condensed and edited for publication.