Since then, his contributions to economic theory have spanned the discipline. His ideas have advanced or influenced macroeconomics and monetary theory, development economics and trade theory, public and corporate finance, and income and wealth distribution; in 2001, they earned him a Nobel Prize. But Stiglitz, a political progressive in the mold of Keynes and Galbraith, sought more than the accolades of the academy. He wanted influence.
“As an individual,” he confessed in his Nobel Prize lecture, “I have not been content just to let others translate these ideas into practice.” And that ambition propelled him into the fray of making, not merely studying, economic policy.
Through much of the 1990s, Stiglitz held some of the highest-level government appointments to which an economist might aspire. Four years on the Council of Economic Advisers under President Bill Clinton (including two as its chair) were followed by three years at the World Bank, where Stiglitz was chief economist and senior vice president. He also served on the Nobel-winning Intergovernmental Panel on Climate Change, helping quantify the economic costs of global warming.
Those years in public service proved both exciting and tumultuous. “Even among relatively like-minded people, with a shared sense of vision and a great deal of camaraderie, there can be difficult relationships and honest differences,” he says. His social scientist’s preference for “evidence-based” analysis met with regular opposition in Washington. “Most people I worked with in the White House would not approach a problem scientifically,” he says. “They were lawyers or investment bankers, often very ideologically driven and not necessarily data driven.”
Hardly battle shy (he was the captain of his college debate team), Stiglitz squared off against his intellectual rivals–especially those within the Treasury. He argued against capital-gains tax cuts and deregulation, particularly the repeal of the Glass-Steagall Act, a decision (signed into law by Clinton) that some critics today blame for the rise of risky mortgage-backed securities.
At the World Bank, Stiglitz opposed rapid free-market liberalization and monetary shock therapy for developing countries. Markets require modest government intervention and reasonable regulation, he argued, because their inefficiencies are stubborn, and unseen corrective forces such as Adam Smith’s “invisible hand” are rarely in evidence. “The reason that the hand may be invisible,” he posited in his Nobel Prize lecture, “is that it is simply not there.”
Stiglitz did not give up the fight after resigning from his post at the World Bank at the end of 1999. He turned, instead, to writing popular books on topics such as globalization, fair trade, and the Iraq War, taking his case directly to the citizens. Globalization and Its Discontents, considered a kiss-and-tell by its critics, delivered blistering criticisms of how the International Monetary Fund handled economic crises in Asia, Russia, and Latin America in the 1990s.
“It was important to make people aware that in important cases, the institutions that were making the rules of the game and influencing the lives of millions around the world were getting their economics wrong,” Stiglitz says. “There were reasons to question their technical legitimacy and their political legitimacy.”
In his most recent book, which examines the devastating human and economic toll of the Iraq War, Stiglitz estimates that the total cost of the conflict will reach about $10,000 per American. “We’re a rich country. We can waste a trillion dollars without ending up in the poorhouse,” he contends. “But even a rich country that squanders that much suffers negative effects.” The war deserves its share of blame for the current recession, he says. “Money spent on Iraq is money we do not spend to stimulate the economy.”