The Most Misunderstood Man in America

The Most Misunderstood Man in America

Joseph Stiglitz predicted the global financial meltdown.

So why can't he get any respect here at home?


There are plenty of people who contributed to the sad state

of our economy.

But when it comes to bad decision making,

these seven folks arguably deserve bye bye

the bulk of the blame. (

Want to add to this hall of shame?

Follow the e-mail link at the end of this gallery.)

Who Is To Blame?
Source: http://www.newsweek.com/id/207390/page/1

Anya Stiglitz was in the middle of a Pilates class in Central Park

on an April morning when her cell phone rang.

Glancing down, she saw "202" pop up—no number attached

—and knew it was the White House.

An aide to Larry Summers was on the line, looking for her husband,

the Nobel Prize–winning economist Joseph Stiglitz. Anya said

she'd pass on the message to Joe—then went back to work

on her abs.

No big deal, she thought. People often call her when

they want to talk to Joe, because even though

he's spent four decades figuring out how the global economy works,

he hasn't quite gotten the hang of voice mail.

"He doesn't listen to his messages, so if you want

to talk to him, keep calling,"

Anya says on his cell-phone recording.

Anya figured Summers, Obama's chief economic adviser,

was probably just calling to gripe about Joe's latest op-ed

in The New York Times.

Joe Stiglitz and Larry Summers, two towering intellects

with egos to match, are not each other's favorite economist.

"They respect each other, but they hate each other like poison,"

says Bruce Greenwald, Stiglitz's friend and academic collaborator

at Columbia.

("I've got huge admiration for Joe as an economic thinker,"

Summers told NEWSWEEK.)

Stiglitz had been hammering at Obama's economic team for

its handling of the financial crisis.

He wrote that the stimulus program was too small to be effective

—a criticism that has since swelled into a chorus, though Obama

says he's not adding more money.

Stiglitz also had called the administration's bailout plan

a giveaway to Wall Street, an

"ersatz capitalism" that would save the banks' investors

and creditors and screw the taxpayers.

"I thought, Larry—he's just going

to yell at Joe," Anya recalls.

But Summers's aide soon called back, and this time

he said it was urgent: could Professor Stiglitz come

to Washington for a dinner hosted by the president

—that same night?

Anya patched him through to Joe's office at Columbia University;

Stiglitz accepted, and jumped on an early train.

He was a little miffed: the other eminent economists

attending the dinner, like Princeton's Alan Blinder and

Harvard's Kenneth Rogoff, had been invited the week before.

Stiglitz, a former chairman of Bill Clinton's Council of

Economic Advisers, had supported Barack Obama as

a candidate as early as 2007.

But until that day, four months into the administration,

he had heard barely a word from the White House.

Even now, when the president was making an effort

to hear a range of economic voices,

Stiglitz seemed to be an afterthought.

(A White House spokesman said only that

the president wished to include Stiglitz.)

Such is the lot of Joe Stiglitz.

Even in the contentious world of economics, he is considered

somewhat prickly.

And while he may be a Nobel laureate, in Washington he's seen

as just another economic critic—and not always

a welcome one.

Few Americans recognize his name, and fewer still would

recognize the man, who is short and stocky and

bears a faint resemblance to Mel Brooks.

Yet Stiglitz's work is cited by more economists than

anyone else's in the world, according to data compiled

by the University of Connecticut.

And when he goes abroad—to Europe, Asia,

and Latin America—he is received like a superstar,

a modern-day oracle. "In Asia they treat him

like a god," says Robert Johnson, a former chief economist

for the Senate banking committee who has traveled

with him. "People walk up to him on the streets."

Stiglitz has won fans in China and other emerging

G20 nations by arguing that the global economic system

is stacked against poor nations, and by standing up to

the World Bank and International Monetary Fund.

He is also the most prominent American economist to propose

a long-term solution to the imbalances in capital flows

that have wreaked havoc, from the Asian contagion of

the late '90s to the subprime-investment craze.

Beijing has more or less endorsed Stiglitz's idea for

a new global reserve system to replace the U.S. dollar a

s the world currency.

Chinese Prime Minister Wen Jiabao has been influenced

by Stiglitz's work, especially when "he talks about

the economics of poor people," says Fang Xinghai, the head

of Shanghai's financial-services office.

But his stature is huge in Europe as well: French President

Nicolas Sarkozy recently featured him at a conference

on rethinking globalization.

And earlier this month, while traveling to Europe and

South Africa, Stiglitz received a call from British Prime Minister

Gordon Brown's office: could he return through London

and help the P.M. get ready for

the G20 meeting in Pittsburgh?

Stiglitz is perhaps best known for his unrelenting assault on an idea that

has dominated the global landscape since

Ronald Reagan: that markets work well on their own

and governments should stay out of the way.

Since the days of Adam Smith, classical economic theory

has held that free markets are always efficient,

with rare exceptions.

Stiglitz is the leader of a school of economics that, for

the past 30 years, has developed complex mathematical models

to disprove that idea.

The subprime-mortgage disaster was almost tailor-made evidence

that financial markets often fail without rigorous

government supervision,

Stiglitz and his allies say.

The work that won Stiglitz the Nobel in 2001 showed

how "imperfect" information that is unequally shared

by participants in a transaction can make markets

go haywire, giving unfair advantage to one party.

The subprime scandal was all about people who

knew a lot—like mortgage lenders and

Wall Street derivatives traders—exploiting people

who had less information, like global investors

who bought up subprime- mortgage-backed securities.

As Stiglitz puts it: "Globalization opened up opportunities

to find new people to exploit their ignorance.

And we found them."

Stiglitz's empathy for the little guy—and economically

backward nations—comes to him naturally.

The son of a schoolteacher and an insurance salesman,

he grew up in one of America's grittiest

industrial cities—Gary, Ind.—and was shaped by

the social inequalities and labor strife he observed there.

Stiglitz remembers realizing as a small boy that something

was wrong with our system.

The Stiglitzes, like many middle-class families,

had an African-American maid.

She was from the South and had little education.

"I remember thinking, why do we still have people

in America who have a sixth-grade education?" he says.

Those early experiences in Gary gave Stiglitz

a social conscience—as a college student,

he attended Martin Luther King's "I Have

a Dream" speech—and led him to probe the reasons

why markets failed.

While studying at MIT, he says he realized that

if Smith's "invisible hand" always guided behavior correctly,

the kind of unemployment and poverty he had

witnessed in Gary shouldn't exist. "I was struck by

the incongruity between the models that I was taught and

the world that I had seen growing up," Stiglitz said in

his Nobel Prize lecture in 2001. In the same speech he declared

that the invisible hand "might not exist at all." The solution,

Stiglitz says, is to move beyond ideology and to develop

a balance between market-driven economies—which

he favors—and government oversight.

Stiglitz has warned for years that pro-market zeal would cause

a global financial meltdown very much like the one

that gripped the world last year.

In the early '90s, as a member of Clinton's Council of Economic Advisers,

Stiglitz argued (unsuccessfully) against opening up

capital flows too rapidly to developing countries,

saying those markets weren't ready to handle "hot money"

from Wall Street. Later in the decade,

he spoke out (without results) against repealing

the Glass-Steagall Act, which regulated financial institutions

and separated commercial from investment banking.

Since at least 1990, Stiglitz has talked about the risks of

securitizing mortgages, questioning whether markets and authorities

would grow careless "about the importance of screening

loan applicants." Malaysian economist Andrew Sheng says,

"I think Stiglitz is the nearest thing there is

to Keynes in this crisis."

That would be John Maynard Keynes, the great 20th-century economist

who rocketed to international renown in late 1919

when he published The Economic Consequences of the Peace.

In his book, Keynes warned that the draconian penalties imposed

on Germany after World War I would lead to political disaster.

No one listened. The disaster he predicted turned out

to be World War II. Like Stiglitz, Keynes was not

a favorite at the White House. Keynes also believed

that markets were imperfect: he invented

modern macroeconomics—which calls for

major government intervention to help ailing economies—in response

to the Great Depression.

But after meeting Keynes for the first time in 1934, FDR dismissed

him as too abstract and intellectual, according

to Robert Skidelsky, Keynes's biographer.

Keynes himself fretted that Roosevelt

was not spending enough.

To his critics—and there are many—Stiglitz is

a self-aggrandizing rock-thrower.

Even some of his intellectual allies note that while Stiglitz

is often right on the substance of issues, he tends

to leap to the conclusion that government c

an make things better.

Harvard economist Rogoff has called him

intolerably arrogant—though he added that Stiglitz

is a "towering genius." In a letter to -Stiglitz

published in 2002, Rogoff recalled a moment when

the two of them were teaching at Princeton and

former Fed chairman Paul Volcker's name came up

for tenure. "You turned to me and said, 'Ken, you used

to work for Volcker at the Fed. Tell me, is he really smart?'

I responded something to the effect of 'Well, he was arguably

the greatest Federal Reserve chairman of the 20th century.'

To which you replied, 'But is he smart like us?'"

(Stiglitz says he can't remember the comment, but adds that

he might have been referring to whether

Volcker was an abstract thinker.)

Stiglitz's defenders say one possible explanation for

his outsider status in Washington is his ongoing

rivalry with Summers.

While they are both devotees of Keynes, Summers often

has supported deregulation of financial markets—or

at least he did before last year—while Stiglitz has

made a career of mistrusting markets.

Since the early '90s, when Summers was

a senior Treasury official and Stiglitz was on

the Council of Economic Advisers, the two have engaged

in fierce policy debates.

The first fight was over the Clinton admin-is-tration's efforts

to pry open emerging financial markets,

such as South Korea's. Stiglitz argued there

wasn't good evidence that liberalizing poorly regulated

Third World markets would make

any one more prosperous;

Summers wanted them open to U.S. firms.

             J-L K.
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