Capitalisn’t: Joseph Stiglitz’s Vision of a New Progressive Capitalism

Joseph E. Stiglitz: The question is, has the US been as successful as it really claims in terms of what should be our objective, which is maximizing the well-being of most citizens in our society?

Bethany: I’m Bethany McLean.

Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?

Luigi: And I’m Luigi Zingales.

Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.

Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.

Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?

Luigi: And, most importantly, what isn’t.

Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.

Luigi: In the last 60 years, there has been no economist who has contributed to exposing more isn’ts of capitalism than Nobel laureate Joseph Stiglitz.

Bethany: Of course, I know his name, but can you briefly explain to our listeners why it is that Stiglitz has been so influential?

Luigi: And, of course, the operative word is briefly.

Bethany: Yes, it was.

Luigi: I would say that one of the main arguments in favor of free markets is that, in the absence of government intervention, a competitive economy delivers what we call an efficient outcome or, technically, a Pareto optimum.

This is the claim that is implicit in Adam Smith’s invisible hand, but it was only formally proven in the late ’50s. And then, starting in the late ’60s, Joe Stiglitz, with other people like Akerlof and Spence—by the way, all three of them got a Nobel Prize in 2001 for this—show that when you introduce the possibility that people have different information, markets really fail to deliver an efficient outcome. The beauty of markets and the competitive market seem to crash against the fact that people have different sets of information.

Bethany: What this sounds like to me is that the beauty of a model crashes into the real world. And I want to pause on this for a second because when you say the claim was formally proved, what do you mean? Was it proved with a mathematical model that made all sorts of assumptions about how markets work that aren’t actually true? Or am I being too critical of models, as we all know that I have a wont to be?

Luigi: I think that, actually, you shouldn’t be critical of a model. You should be critical of people who use models improperly. In a sense, models are what models are.

Bethany: OK, fair, fair, fair, yeah.

Luigi: In a sense, a good model is sometimes a way to understand under what assumptions one result is true. As you correctly pointed out, the assumptions underlying these beautiful results, in practice, are probably never true. And then, the question is, how far are we from those assumptions?

I think that one of the big contributions of Stiglitz was to show how pervasive these phenomena are because informational asymmetries are quite diffuse.

Bethany: I was just thinking about the stock market, where informational asymmetries are profoundly present. Anyway, but maybe give me . . . Let’s talk about another concrete example. Can you think of any?

Luigi: Oh, yeah, consider health insurance. We know that people are risk averse. If we are charged what we call an actuarially fair premium, so the price that we would pay in expectation if we were not insured, everybody is better off having health insurance.

However, the moment you open a market for health insurance, insurance companies start to fear that only the unhealthier people will buy health insurance. And this is called, in jargon, adverse selection, because you don’t get a random sample, you get the sickest, or the people who are most likely to get sick. In order to make it worthwhile for you as an insurance company to insure those people, you start to charge a higher premium.

However, at that high premium, many people who are not very sick would prefer not to get insured. And so, the result is that the marketplace will deliver an inefficiently low level of insurance. This is where a government intervention can fix things because if you mandate that people get insured, you solve that problem.

Bethany: Interesting. That’s also, of course, an argument for government involvement in markets to some extent, right?

Luigi: Oh, to a huge extent. To a huge extent, yeah.

Bethany: All of this is helpful to understand Stiglitz’s latest book, called The Road to Freedom, which is a really clear nod . . . I’m not sure it’s a nod to Hayek’s The Road to Serfdom, but perhaps a really clear refutation of it or criticism of it.

The book is a full-frontal attack on neoliberalism, which Stiglitz associates with the University of Chicago—hi, Luigi—and a call for a progressive form of capitalism which will fight inequality and help everyone.

The book echoes a lot of themes we have discussed in this podcast, from the power of big technology to the abuse of the arbitration system, from the importance of regulation to the close link between economic and political freedom. Stiglitz quotes Isaiah Berlin, who said, “Freedom for the wolves has often meant death to the sheep.”

And he writes: “Neoliberal capitalism has thus failed its own economic terms. It has not delivered growth, let alone shared prosperity, but it has also failed in its promise of putting us on a secure road to democracy and freedom and has instead set us on a populist road, raising the prospects of a 21st-century fascism.” Very apropos for anybody who’s looking at the political landscape today.

One of the core ideas of your book that you’ve come back to in various op-eds, and which struck us, is summed up in this quote by Isaiah Berlin: “Freedom for the wolves has often meant death to the sheep.” Can you tell us about how that quote has inspired your thinking?

Joseph E. Stiglitz: The things that you do, that you think you should be free to do, often have adverse effects on others. The most obvious example, and what motivated this, in part, was the pandemic, where many people objected to wearing masks or social distancing or getting vaccinated, saying that those were taking away their freedom.

The way I or most economists would look at this would say: “Well, if you don’t do those things, somebody else will wind up, risk winding up, getting the disease, getting hospitalized, even dying. That was taking away their freedom.”

Other examples are easy to think about: pollution. The right to pollute—telling somebody you don’t have that right is taking away their freedom, in a sense, but their pollution is taking away our freedom to have a world without climate change. If you have asthma, pollution may take away your freedom to live.

Bethany: Your book outlines an alternative economic system that you label as progressive capitalism. We recently, actually, had David Leonhardt on the show. He wrote a book called Ours Was the Shining Future, in which he talks a lot about what capitalism looked like back in the 1950s, before the neoliberal revolution, I guess you might call it.

How does your version of progressive capitalism look different from today’s capitalism and look different from the capitalism we had in the United States in the 1950s?

Joseph E. Stiglitz: The capitalism that we had from maybe the 40 years since 1980, 45 years, was based on the premise of taking away regulations, freeing the economy, lowering taxes, deregulating. The idea was that doing that would unfetter the markets, lead to enormous economic growth, from which everybody would benefit.

The irony was that growth actually slowed to about two-thirds of what was in the earlier era, and most of the fruits of what limited growth occurred went to the people at the very top, and the people at the bottom actually were, by most accounts, worse off.

Progressive capitalism, as I define it, recognizes not only that there are these trade-offs in freedoms, but that there are areas of working together where we can all be better off. An example: stoplights. If you didn’t have stoplights, if you didn’t have that regulation, you’d have gridlock. You wouldn’t have that freedom to move.

That’s a case where a collective action, a regulation, gives everybody, everybody, more freedom than they otherwise would have had. That basic idea really can be generalized.

Another example: if we hadn’t had the COVID-19 vaccine, we might not be here talking today, but that vaccine was based on government-funded research. To fund that research, you have to have taxes. Taxes are a form of compulsion. The freedom to live is more important than paying a little bit more in taxes. So, that’s an example where public investment done right can really expand our freedom, and we will need to have compulsory taxes to do that.

I think, today, we also understand better that for a well-functioning society, we need a rich set of institutions. Not only do we need for-profit institutions, corporations, and we need government, we need other forms of collective action, people working together. In the ’50s, we had stronger unions. They’ve gone down, become very, very weak today. We need ways of representing the voice of workers collectively.

I think what I would say is my vision of progressive capitalism entails an important role for corporations and small businesses and profit-making firms, but also envisages a much richer set of institutions, including an important role for government in regulation and investment.

Luigi: Since you use the traffic example, I don’t think anybody is against having a traffic code. The question is whether you want to have traffic lights or a roundabout. Roundabouts are much more efficient in most situations than traffic lights—not in all situations. How much does the regulation restrict, and how much does it enable?

Your criticism is that neoliberalism has cut growth by two-thirds. But, let’s face it, the entire West slowed down after 1980. It’s not just the United States, and this is maybe correlated with the fact that China had a great period. But in economics—as you know, and as I’ll explain to our listeners— we like to do what is called a diff-in-diff and compare the changes between two similar countries, for example, to control what has changed in the environment.

If we compare Europe pre-1980 and post-1980, and the United States pre-1980 and post-1980, post-1980, the US has done much better than Europe. So, you can’t blame the neoliberalists for a decline in growth because if you compare with Europe, which has not adopted neoliberalism, at least to the same extent, Europe has done much, much worse. How do you explain that?

Joseph E. Stiglitz: Europe has actually gone a long way in adopting neoliberalism. You see it in, for instance, their trade policy, banking regulation. The US may have been the leader, but others followed, and there really is a broad transatlantic consensus.

One aspect of progressive capitalism that I want to emphasize is what it does for well-being. It’s not just GDP that we care about. It’s broader well-being and how the fruits of society are shared.

If you look in those terms, the United States hasn’t done very well. Life expectancy in the United States today is the lowest among the advanced countries. Disparities in life expectancy are the largest, and life expectancy has been on the decline. If you do what you call the diff-in-diff, as you say, in these areas where people measure well-being, we’re not doing that well.

People care about the air they breathe; they care about the stress they feel, the hours they work, the leisure they have. The question is, has the US been as successful as it really claims in terms of what should be our objective, which is maximizing the well-being of most citizens in our society?

It’s very good when you measure average incomes or GDP. You include Jeff Bezos and Bill Gates, and they’re doing very well, and it’s nice to have a society that makes people at the very top very well. But I care more about a society where there is shared well-being, and unfortunately, we’re not doing that well on those criteria.

Bethany: One of the most important events in how corporate America has thought was, of course, Milton Friedman’s famous argument about how the duty of a corporation is to maximize profits for its shareholders. You had an argument with him about that. Can you explain that?

People today take refuge by saying: “Well, it’s our fiduciary duty. This is what we have to do.” If you were a legislator, if you could control the world, what would your definition of fiduciary duty be? Would it be today’s talk of stakeholder capitalism, or would you do something more concrete?

Joseph E. Stiglitz: Yeah, well, this dispute, fight, with Milton Friedman began a half-century ago. I actually came to Chicago to give a talk on the subject of what leads to societal well-being and a paper that was eventually published in the QJE, and argued there that maximizing shareholder value didn’t maximize societal well-being.

He said, “You’re wrong.” I said, “Well, tell me which assumption you disagree with, or where in my analysis my calculations have gone wrong.” He said, “I know you’re wrong.” Our conversation went along that way for a while, and then we parted smiling, but both convinced in our own way.

I then did some further research with Sandy Grossman. We published it in the Journal of Finance and the Quarterly Journal of Economics. Milton Friedman was smarter than us. He published his paper on shareholder-value maximization that you refer to in The New York Times Magazine. As a journalist, you might expect that he got more readers than I did in my Quarterly Journal of Economics or Journal of Finance paper.

He had an enormous influence, and many states passed laws called corporate-governance laws mandating that firms maximize shareholder value. That’s very different from the corporate-governance laws in some other countries, where they talk about stakeholder capitalism, where you have to take into account the impacts on workers, on your customers, on the environment, the communities that you operate in.

If you’re a company, don’t go and pollute the maximum you can get away with without going to jail or getting a big fine. Take on a little bit more responsibility. Don’t take the rules as the limit to which you should go. Try and act in a responsible way, knowing that we, as a society, care about pollution. We care about treating our workers reasonably well, even if they don’t have any market power, and so forth.

It is interesting that, today, many corporate leaders—actually, a vast majority of corporate leaders in America—are now talking about this kind of stakeholder capitalism. They’ve realized that the old model didn’t work very well.

Luigi: Now, I want to provide you a consolation. The fact that you published in the Quarterly Journal of Economics is not the reason why your ideas are less diffused. Milton Friedman wrote this initial stuff in his book, Capitalism and Freedom, in 1962, which initially did not sell very well.

The reason why it became famous is because The New York Times invited him to write that piece in The New York Times, and he was invited—my supposition, also given the pictures that are in that article—as a response to some shareholders bringing some social-responsibility issues to the shareholders’ meeting of GM.

So, it was really . . . The New York Times knew what it was getting when it was asking him. The New York Times was really trying to push his ideas.

Bethany: We just have to pause on that for a minute and highlight the extraordinary irony that Milton Friedman’s ideas were promulgated most forcefully by The New York Times. I just have to pause there for a minute. OK, go on, Luigi. Sorry.

Luigi: Speaking of that, one of the things I admire about you, you’ve been a critic of globalization when it was not particularly cool to be, and in fact, you suffered some ostracism as a result of that. But one part I particularly liked in your book is the part about what’s wrong with the international order.

I really would like to spend some time on this because a lot of the listeners are probably not familiar with this, and it is important. Let’s start with intellectual-property rights. My understanding—and tell me if I’m wrong—is that you were at the Council of Economic Advisors when the change in the WTO intellectual-property-rights regime came about, and there was an issue about to what extent in major crises these property rights could be waived to help people. Can you explain this contingency and why it was not triggered under COVID?

Joseph E. Stiglitz: As a condition of getting the agreement in the WTO concerning intellectual property, which is the right to use the innovation of one person by another, people said that in the event of a pandemic, or even an epidemic in one country, could they have the right to use that if there was a shortage of, say, the health product, a company that couldn’t produce enough?

All compulsory license says is you have the right to use that intellectual property in return for a reasonable fee. So, it takes away the monopoly power of the drug company, of the innovator, under the patent.

At the very beginning of the pandemic, South Africa and India, who are two big producers of drugs, including vaccines, particularly generics without brand names, sold in the developing countries and emerging markets . . . India and South Africa went to the WTO and asked for a waiver. Now, what the waiver was, it was basically the same as a compulsory license. But compulsory licenses require certain legal processes, and the drug companies have figured out how to drag their feet to make sure that it would take a long time, and the longer the time, the more monopoly profits they would get.

It wasn’t a change in the legal frame, the way we think about it. It was just the idea that in the midst of this pandemic, there was an urgency. We didn’t want to wait one or two or three years until the legal process ran out. And so, they asked for a waiver so that you could get access to the intellectual property immediately.

The drug companies resisted. I was part of a group of people who persuaded President Biden to support the waiver, but unfortunately, we were unable to persuade Germany, the UK, and Switzerland to support the waiver, and the way the WTO works is by consensus. And so, even though more than 100 countries supported the United States in favor of the waiver, nothing has happened.

What concerns me today is there is under discussion a Pandemic Preparedness Treaty, so that the next time a pandemic occurs, we’ll be better prepared. You would have thought we would have learned the lesson of what is called vaccine apartheid. That’s what happened last time, that those in developing countries, emerging markets, simply couldn’t get the vaccines they needed. And it’s caused enormous anger in the developing countries and emerging markets. We put corporate profits above their lives. So, you can imagine what kind of feelings that gives rise to.

We haven’t so far been able to get into the Pandemic Preparedness Treaty a provision for a waiver on intellectual-property rights in the event of a pandemic. The owner of the patent gets a royalty. He’s paid. It’s not like it’s taking it away from him without compensation. This is about responding to the urgency of a pandemic, to have everybody who has the capacity to produce it start producing it. It’s particularly important in developing countries and emerging markets.

Luigi: Joe, you are one of the few economists who is willing to criticize the revolving-door phenomenon of other economists. I remember when you criticized Stan Fisher, who went to work for Citibank after stepping down from the IMF. Can you explain to our listeners why you’re so concerned about that phenomenon and also what kind of ostracism you receive as a result of raising that issue?

Joseph E. Stiglitz: The irony is that economists always talk about incentives, and somebody from the outside looking at this revolving door might say, “That affects your incentives.” Maybe while you’re in government, you’re doing something to help a bank that might reward you, not while you’re there—that would be the kind of corruption you see in developing countries, we sometimes say—but after you come out. That’s corruption American style. You get rewarded afterwards by doing things that help the company that then hires you.

Now, in any individual case, that may not be true, but it looks bad. And because it looks bad, it undermines trust in government. I was saying earlier how important I think government is in the functioning of our society. And so, I’ve been very concerned about how we create trust in government.

I’ve been pushing agendas of transparency. I think having a strong media is really important to scrutinize government. And I think that kind of scrutiny encourages better behavior in government, and that better behavior in government then leads to better trust of government, and from there, trust in all institutions.

Bethany: One thing that struck me about your book, and perhaps this isn’t fair, but is that it is based on perhaps a view of the Democratic and Republican parties that has shifted over the last decade. What I mean by that is that you attribute to the right the extreme defense of laissez-faire capitalism, but that doesn’t really seem to be true today.

In some ways, it’s the right that is moving toward a more populist brand of capitalism. For instance, it’s right-wing politicians and right-wing thinkers who are advocating for controls on social media. And it’s often the Democrats who seem to be . . . at least the more centrist Democrats who seem to be the stronger defenders of laissez-faire capitalism. Do you agree with that shift? And then, how do you think about that when it comes to your arguments?

Joseph E. Stiglitz: The words right and left shift over time, as you say, and the parties have shifted, and one of my concerns is exactly that the failure of neoliberalism has fed populism. There are varieties of populism, left and right populism, but in today’s world, the populists are almost all of the extreme right. Therefore, they’re authoritarian. And that’s what really worries me. They don’t believe in democracy. They have a view of the world that they want to impose on the others.

It was so clear in my mind, and the January 6th insurrection, the most . . . Trump is proposing tariffs on all our . . . across the board and very high tariffs on China. A study just came out from the Peterson Institute estimating the cost to Americans of that. But it’s populist; it’s addressing concern about foreign competition. Blame the others for our failures, and that’s a characteristic of populists in many places. It’s a kind of nationalism where you blame others for your problems.

Luigi: Much of, if not all your work, is about the importance of informational asymmetries in economics. This has been a major revolution in economics—also, a major step toward realism. However, with the diffusion of smartphones and, basically, constant surveillance, the world is changing. These days, my insurance company knows more about my life expectancy or my health condition than I know myself. Amazon knows more about what I like than I do.

My question is, should we revisit all the models based on the fact that, today, if there is an informational asymmetry, it is the other way around? It is the case that companies know much more than consumers about consumers’ own preferences.

Joseph E. Stiglitz: There are many aspects of this. Even in our earlier work, I did talk about the context of, in some cases, insurance companies know more about your risks than you do. There’s still asymmetries of information, potentials for exploitation. Markets are not the same as they would be if everybody had the same information.

There’s an additional concern I have today that those with more information may be able to exploit consumers better. There is discriminatory pricing by some companies that undermines what we call the fundamental theorems of welfare economics and enable price discrimination to occur and the extraction of monopoly rents. These asymmetries of information are still there, but they’re of a different nature.

At the same time, with all that is going on, there are still differences in information between a lender and a borrower, an employer, an employee, that are really very important. An insurance company doesn’t know whether you drink before you drive. An employer doesn’t know many attributes that you may know about yourself. So, the old asymmetries of information still are very, very relevant.

To me, one of the big differences between the work that we did in the development of the economics of information is the prevalence of mis- and disinformation. We had models that assumed that you might not reveal all the information you had, but there were laws about fraud that you couldn’t just lie. There was a little literature I contributed to about fraud laws and ways that making sure that people tell the truth and what to do with people who don’t tell the truth, but mis- and disinformation didn’t have the role that they clearly have in today’s economy, today’s society. In some ways, the work I’m doing that I find most interesting right now is on the question of what we do about mis- and disinformation.

Bethany: I thought it was fascinating that Stiglitz describes himself as an activist, with this strong view that economics should focus on what we should do to enrich the lives of ordinary people. Do you think, is there anyone else in the economic . . . in your profession who you think would describe themselves as an activist, and how does that make you think about him?

Luigi: First of all, it’s becoming more and more popular for people to become activists. I don’t know how Paul Krugman describes himself, but it would be hard for me to describe him as other than an activist.

Bethany: Fair point.

Luigi: But I think it’s fine to be an activist, as long as you are able to distinguish between your economic view and your activist view, which sometimes is not easy. But to his credit, he tried to get involved in the real world. He was chief of the Council of Economic Advisors under Clinton and then later joined the World Bank as chief economist. To be honest, he wasn’t particularly successful on that front, but also, he was very critical, and I think that his criticism was well placed. So, I think that there is some value to what he has done.

I want to point out one major criticism of his approach, which is—actually using a Chicago term—that he falls into the so-called nirvana fallacy. What is the nirvana fallacy? It is that you look at markets and you see, oh, markets have all these imperfections. And then you say, boom, the government arrives, and the government, of course, is perfect and fixes everything.

Chicago always said, you should compare actual governments with actual markets, and actual governments don’t perform anywhere close to how Stiglitz thinks they perform. It’s not a reason to say we shouldn’t improve the quality of government. I’m completely in his camp on that, but let’s not put the cart ahead of the horse. Many of the times that the government intervenes, I think it creates distortion. It doesn’t fix the problem. So, I think we need to be a bit careful on that.

One part I like is this emphasis on the importance today of externalities. He might go a bit too far on that, but it is true that when we were living in an agricultural society and we were much, much fewer on this planet, the externalities we were imposing on each other were pretty limited.

Today, when we are living very concentrated in urban places, and there are a lot of us . . . We have to remind ourselves that we are, what, almost nine billion people now? I’m sorry to report that when we were born, we were a fraction of those. The number of people that have been added between when I was born and today is probably as many as ever existed in humankind. So, I think that sheer magnitude should make us much, much more conscious about the externalities, and also, we think about the concept of freedom in a world where the externalities are much more important.

Bethany: It raises an interesting question for me, which is how the market, meaning the actual, literal market, the stock market, should function in the face of this concept of externalities. Right now, the market pretty much ignores externalities until there’s a lawsuit, basically, which I guess is one way of coping with externalities.

But you think most profoundly about oil and gas companies and the argument that what they do is detrimental to the economy. They use a lot of resources that should be shared resources, like water, and there’s no mechanism for forcing them to clean up stranded costs, should the oil and gas industry go away as we transition toward a world of fusion and nuclear power. And so, how do you think about that concept of how the market does or doesn’t account for those kinds of externalities?

Luigi: One way in which you can try to internalize the externality—that’s the jargon in economics—is precisely through liability. However, what can you be liable for? How long it takes and how complicated it is to bring a case is a very important government policy that impacts the function of markets.

I was listening the other day that Exxon is bringing a case to the Supreme Court to block all the states from suing Exxon for the consequences of climate change. What you can sue people for and what you cannot is very much shaped by government.

When we did the episode on nutrition and obesity, you had a bunch of lobbyists who tried to make it impossible to sue food companies for addictive characteristics of their food. If there are no transaction costs, corporate liability might fix the problem of externalities. But in practice, there are transaction costs. And so, to me, one of the powerful insights is, for example, the importance of class action. This is not emphasized enough.

Class action is what makes it easier for people to aggregate small claims. In principle, a million $1 claims should be treated like a $1 million claim, but in practice, as you know better than I, that’s not the case. If there are a million people with a $1 claim, they’re never going to find a lawyer. But if you have a million-dollar claim, you might find a lawyer willing to take your case. And so, the class action is a way to reduce transaction costs and to make it easier to actually force companies to internalize externalities.

Now, is this perfect? No, nothing is perfect. Regulation is not perfect, either. Now, economists are enamored with the so-called concept of Pigouvian tax. This is an idea that goes back to a British economist, Cecil Pigou, who was working in England at the beginning of the 20th century. It basically said that the way you fix a problem of an externality is that you impose a tax, a tax that forces individuals to internalize the externalities they produce.

So, if you are polluting the environment, if you are taxed for the amount of CO₂ you produce, you’re going to start to produce less CO₂. And so, that will force the market to internalize the cost.

Bethany: I had one more area that I wanted to touch on. I don’t know if you did, but Stiglitz’s book and our conversation with him, got me thinking about these terms and how they’re used and whether they’re good or bad. He came across, at least, as saying he doesn’t really like populism or nationalism.

Yet, on the other hand, I was thinking of some of Biden’s policies, and some of the policies that people like Stiglitz are championing on the economic side are populist strategies, and they are nationalist strategies, whether it’s reshoring of key industries, or whether it’s a certain form of what is economic populism, to my way of thinking.

Do you have a clear way of thinking about what is populism and what is nationalism and how people use . . . It seems to me that these terms have become as confusing as neoliberalism once was.

Luigi: I think you’re right. And here I am going to borrow some ideas from Dani Rodrik, who we should have on the show soon because I think he’s very on target on these issues, and I distinguish between economic populists and political populists. Now, very often, they are brought together, but they’re not necessarily together.

Roosevelt, Franklin Delano Roosevelt, was an economic populist, but he was not a political populist. In fact, he was fighting against various political populists, including in his own party. Huey Long was a political populist who didn’t believe in protection of minority rights and all this stuff.

So, what is very important is economic populism is thinking from the perspective of an ordinary citizen and the impact on an ordinary citizen, and trying to introduce actions or rules that favor the small guys over the large ones. Some of these rules might be economically efficient, some might be inefficient, but who cares? If we set as a value that we need to protect the small guys, that’s what we’re doing.

Political populism is more like, we don’t believe in standard liberal democracy, and we are going to reduce that because standard liberal democracy is corrupt. As a result, we want to overrule protections for minorities, we want to overrule civil rights, the right not to be incarcerated without fair trial, all the stuff that comes with it.

Now, economists don’t like populists in general, neither form of them. They don’t like political populists because they tend to be liberal democrats. But most importantly, they even despise economic populists, for two reasons. One is they associate the term populist with some macroeconomic policies that were very diffuse in Latin America in the ’60s and ’70s, and they were pretty disastrous.

If you identify populist as we spend too much of our budget and we don’t raise enough taxes, first of all, which government is not populist by this standard? But it’s very easy to say that people who overdo it tend to be populist. Of course, especially in the context of unstable political-economic systems, like in Latin America in the ’60s and ’70s, this led to disaster. So, the term populist is bad in that sense.

Second is because, I’m sorry to say, most of us tend to be elitist. The idea of looking at the small guys . . . especially because, sometimes, looking from the perspective of small guys is not what maximizing the value of the pie will be. And so, we are very cavalier—and we’re getting better, but we’re very cavalier in saying the goal, from an economist’s point of view, is to maximize the value of the pie. And then we let the politicians share the pie the way they want. It’s very easy to transfer money. It’s difficult to produce it, so we all focus on producing it.

Now, the reality is, it’s not that easy to transfer money. The money ends up being stuck where it’s produced. Many of the policies that we economists recommend for increasing the value of the pie end up leaving a lot of money in the hands of a few. I don’t know whether this is the desired effect or the collateral damage, but that’s what happens. And so, our being antipopulist very often ends up being that we are protecting the powerful economic elite.

Bethany: It’s really interesting because . . . and I want to get to nationalism in a second, but I think it’s so interesting, to me, how terms take on connotations that are not what they explicitly mean, so that Stiglitz can be comfortable defining himself as an activist and an activist who wants to see the lives of ordinary people made better by economic policies.

Yet no one would want to say that makes you a populist, even an economic populist because . . . and perhaps it’s just because that term in the economic field has taken on such negative connotations that, as a layperson, I don’t see the difference between being an activist, an economic activist, who wants to make the lives of ordinary people better and being a populist. They seem like the same thing to me. Anyway, but . . .

Luigi: That is, by the way, the reason why, when I wrote my book, at this point 12 years ago, I titled it A Capitalism for the People because I was trying to reinvent an economic position that was not in favor of the rich but was in favor of ordinary human beings.

Bethany: Without calling it populism.

Luigi: Actually, I’m not afraid to call it populism. I think that I, at some point, played with the idea of calling it promarket populism, but I think the term economic populism is probably better. The term populist was invented by the elite to denigrate these ideas. So, I think that we have to be careful, speaking of the origin of words.

Bethany: Oh, that’s so interesting. Not only is the connotation reinforced by the history of what happened in Latin America, but it actually was built into the term in the beginning. That’s fascinating.

Well, maybe we should save the discussion of nationalism for another time, but I’ve also thought about this, and I guess maybe you would distinguish between political nationalism and economic nationalism, except the lines between the two become awfully, awfully blurry in the end. In other words, they don’t sit neatly in their little buckets.

I mean, political nationalism, we might all say, “I don’t know about that.” But economic nationalism, such as attempting to reshore the semiconductor industry or bring manufacturing jobs back to America, whether those are good ideas or not, I think a lot of people now think that’s good nationalism. So, again, these terms are becoming fraught, and maybe I disagree with some of that.

Luigi: No, I think that the economists, especially the purest liberal democratic economists, actually don’t like the term nationalism. They don’t even have a concept of nation. Remember, we had this discussion with Fukuyama. To me, it was very enlightening. At the end of the day, the liberal democratic system does not have a concept of nation. At some level, you think that it shouldn’t exist, and that’s very much in line with the economic elite that is transnational.

I sometimes feel, where do I belong? Because I am a bit everywhere. And when you’re everywhere, you’re nowhere. And so, you naturally think from a perspective of a plane. In my case, it is a regular plane. In the case of richer people, it is a private jet, flying over the land and belonging to nobody.

Bethany: Yeah, that’s really, really interesting. I suppose in an economic model, the existence of nations would be externalities with which the economic model would rather not contend, right? Because that beautiful picture of no nations also makes a certain kind of modeling easier and more simplistic, so the two converge.

Luigi: Absolutely.