Joseph Stiglitz, the Nobel Prize–winning economist, has served as the chairman of the Council of Economic Advisers under President Clinton and as the World Bank’s chief economist. In 2010, he acted as an adviser to the Greek government and became one of the most prominent critics of the European austerity policies instituted after the financial crash. Out of that experience comes his new book, The Euro: How a Common Currency Threatens the Future of Europe. His solution for the European crisis is what he calls a “flexible euro,” which would “create a system in which different countries (or groups of countries) could each have their own euro.” This would allow, he hopes, for countries with different types of economies to be grouped together within Europe, thus making future problems less likely.
Stiglitz has also been an adviser to the Hillary Clinton campaign, despite (or perhaps because of) his reputation as an outspoken progressive economist. I spoke by phone with Stiglitz. During the course of our conversation, which has been edited and condensed for clarity, we discussed culture differences among economists, the danger of tech monopolies, and whether Hillary Clinton is more liberal than Barack Obama.
Isaac Chotiner: Were recent problems in Greece and elsewhere in Europe inevitable because of the Euro, or were they the result of policymakers making specific mistakes?
Joseph Stiglitz: Fundamentally, it’s because of the structure of the euro, and that’s where my book differs from other people who say that it was policymakers. Yes, they made very bad mistakes, and those mistakes made the downturns much worse, and made the depressions in Greece much worse than they otherwise would have been. But the main thesis of the book is, in fact, that even the best of economic czars wouldn’t have been able, with all the countries of Europe, to return to full employment after the shock of the 2008 global financial crisis. Inevitably there would be failure without breaking the rules, and without changing the institutions. There needs to be reform of the rules and institutions of the eurozone.
What reforms are most important?
When you have a single currency, you give up two mechanisms of adjustment, the interest rate, and the exchange rate. Europe then made the further mistake of taking away one more instrument, which was fiscal policy, by constraining the size of deficits. They made another mistake by telling the Central Bank that it should focus on inflation and not worry about unemployment—that that was only a secondary consideration. They need a banking union with common deposit insurance, because under the current framework when a country gets hit by a shock, money leaves the country. If the government of the country is viewed to be weaker, money leaves, so that is a vicious downward spiral. You also need to stimulate the economy, but of course if you’re a small country like Greece you may not be able to access financial markets, so you have to have something like a solidarity fund for stabilization.
Do you have any confidence that these fixes might happen? One of the striking things when viewing this crisis is how little policymakers in Germany and elsewhere seem to have learned.
I agree with you. My view is that what has to be done is economically small, or at least doable, but Germany says Europe is not a transfer union, and Germany is not willing to engage in supporting some of the institutions that are required. My view is that it’s very unlikely, which is why I explore two alternatives. So there either has to be an amicable divorce or a move towards a system that I call “flexible euro.”
What struck you about the differences between the way Americans and Europeans, particularly Germans, view economic problems?
Germans by and large, have a fixation on inflation and a belief that seems to be unshakable by the evidence that austerity will restore countries to growth and prosperity. It just never happened. That is a difference. I won’t say it’s a European difference, because when I visit most countries in Europe I don’t find a large difference between American economists and European economists. There are differences in views, but the Germans are in that sense an outlier.
Do they defend austerity on economic grounds?
They try to defend it on economic grounds. They often do raise issues like feeling very strongly that Greece was profligate, and why should they come to the aid of Greece, but I point out that Spain and Ireland had surpluses before the crisis, and it wasn’t their deficit that caused the crisis, it was the crisis that caused the deficit.
Saying someone’s profligate is not an economic defense. That’s saying that they did something wrong and therefore they shouldn’t be helped.
That’s right. That’s what I’m saying. They both say that they agree that austerity’s going to work and they say that these countries should not, in some moral sense, be helped.
It must be a real pleasure to try and have a reasoned debate with someone holding that position.
[Laughs.] My view is you have to begin with where you are, and I try not to make moral judgments on these things because once we get into that who knows where we’re going to end? But you see those moral judgments being played out in the divisiveness in Europe caused by the euro, where Greece will go back and start talking about the forced loan during the occupation, which Germany has never repaid. Inevitably you’re going to start raising past grievances, and that’s not a healthy thing.
Where do you situate Hillary Clinton ideologically in terms of economics?
I think that’s a good question. I think the world today is different from where it was 20 years ago, and the issues are being framed considerably differently. For instance, I think there’s a recognition that inequality is a much bigger problem. I think she is much more concerned about more progressive taxes and dealing with tax avoidance of multinational corporations. I think she is very committed to that. I think progressives are not against trade, but they are concerned with trade agreements that are pushed by corporations, for their interests, by and for corporations. That is what we have in the form of TPP. I think it is a good thing that she has come out against that.
And you think she will stick to that if elected?
Yes, I do.
One of the progressive concerns about Clinton has been that the Clintons are enmeshed with this sort of global, financial elite through their foundation, and just through the circles they travel in.
I understand those concerns, and I guess part of the answer to that is the reality of 2016 is that the Senate Banking Committee has people like Sherrod Brown, Elizabeth Warren, and Jeff Merkel, and you are not going to get through legislation that is a sell out to Wall Street. Knowing that, and knowing that she does not want to fight within her party, I think she is pragmatic enough. The criticism occurs because she’s been, you might say, too pragmatic. The fact is she is pragmatic enough to know that these people will not tolerate the kind of sell-out that I think many people have seen in previous administrations. I think it is unlikely that we will get policies that stray too far from the progressive agenda.
That would imply that the Sanders campaign was helpful for the progressive agenda because it provided that same sort of magnetic pull drawing Hillary to the left on economics.
I think that is right. I think it was helpful. The fact that so many young people felt so intensely on these issues conveyed a very strong message. So, it wasn’t just Bernie, it was the intensity so many felt on the issue. That clearly we had under-appreciated the commitment and devotion to public interest of so many young people.
How does the rise of more economically populist—at least in theory, since Trump wants a giant supply-side tax cut—conservatism here and abroad affected the economic debate? What do you make of it?
Well, my reaction is it does not address problems, but it responds to them. That is to say, it recognizes that there are a lot of disgruntled people. The Republican Party has had a peculiar kind of coalition between the establishment/corporate types, the libertarians, the Evangelicals, and the Tea Party. It is a coalition with very different views of the world. Until Trump came along, they were pushing an agenda that was serving the elite but not serving ordinary workers. They opposed trade assistance as they pushed for trade agreements. You would have thought that when people are hurt, they need trade assistance. And they opposed it. And I think what Trump has done is expose some of that hypocrisy. The difference between Hillary and Trump is that Hillary is working very hard costing out her programs and trying to make sure that the numbers add up. I think partly because she thinks that she is going to get elected.
She is not angling for a reality TV show?
She’s angling for the real job.
You’ve written about the connection between monopolies and inequality. How much do you worry about the rise of companies such as Amazon and Google? We tend to think of monopolies as being about steel.
I do worry about it a lot. I do not think there are any simple solutions. I do think, for instance, the Justice Department has made a mistake in not recognizing Amazon’s monopsony power.
Do you think people like Hillary Clinton and others in the Democratic Party recognize going forward how important these issues are?
I think so. The reason why I say that is even Obama, who was more conservative …
More conservative than Hillary?
More conservative than Hillary, yes. I think his temperament is basically more conservative and he did not go as far on Dodd-Frank as many people wanted. He opposed some of the key provisions that eventually got in the bill.
What I was going to say was his Council of Economic Advisers has highlighted the increase in market power and he issued an executive order asking each agency to come up with initiatives to deal with it. That train has left the station, so I really think that this is going to be an issue going forward.