Not such a low and dishonest decade
Tim Congdon
THE ROARING NINETIES by Joseph Stiglitz Allen Lane,f18. 99, pp. 389, ISBN 1854109308 1 fit is to be interesting, contemporary history has to be a battle between good guys and bad guys. In his The Roaring Nineties Professor Joseph Stiglitz lets the reader know at an early stage in the proceedings that he is a good guy. As he says in the preface, when he first fell in love with economics,
I wanted to understand what caused the poverty, unemployment and discrimination that I had seen all around me growing up, and I wanted to do something about these problems.
Stiglitz spent much of his early career in universities and made important advances in such highly theoretical areas of economics as the understanding of 'information asymmetries', which led to his being awarded the Nobel prize for economics. But in 1993 he became Chairman of the Council of Economic Advisers to President Clinton. An active and controversial decade close to real-world policymaking followed, with a stint as Chief Economist at the World Bank between 1997 and 1999, culminating in sharp polemics with the International Monetary Fund. The IMF was savaged in his last book, Globalization and its Discontents, for propounding the 'Washington consensus' that free trade, privatisation and independent central banks are the best economic prescription for developing countries.
The Washington consensus also receives a few brickbats in The Roaring Nineties, but the main themes in this new book are American rather than international. The 1990s were certainly an exciting decade for the American economy, with hopes of a New Paradigm of never-ending prosperity accompanied by both a remarkable rise in share prices and an extension of share ownership to about half the population. In retrospect it is clear that much of the excitement was unjustified. Share prices fell for three years from early 2000 and remain about 30 per cent below their peaks. A downturn in demand and output in early 2001 was the worst for almost 20 years.
Stiglitz's mission is to debunk the freemarket evangelism which gripped the leaders of American public life, including the so-called 'New Democrats', in the midand late 1990s. The result is a lively and pungent account of the wickedness of modern capitalism which — as with Globalization and its Discontents — is longer on opinion and vituperation than analysis and argument. Stiglitz's attitude towards the debate is unashamedly partisan, even tribal. Not only are there good guys and bad guys, but all the good guys vote Democrat and admire President Clinton. and all the bad guys vote Republican and support one or the other President Bush.
This makes for great entertainment, but not for intellectual coherence. Stiglitz is an avowed Keynesian with a strong belief in the virtues of large budget deficits to combat unemployment. On page 84 he derides the attempt of some Senate Republicans to introduce a balanced-budget amendment to the American Constitution in the early 1990s. But an obtrusive fact about the 1990s is that, although his term started with high unemployment, Clinton cut the budget deficit and ultimately delivered a massive budget surplus. So on page 48 the Republicans in Congress who opposed Clinton's deficit-reduction measures are condemned as 'fiscally irresponsible'. It appears that — no matter whether Republicans oppose or approve budget deficits — they are in the wrong. A cynic might remark that all deficit increases of $30 billion are equal to other deficit increases of $30 billion, unless they can be blamed on the Republicans.
There is nothing wrong with Nobel prize-winners writing popular books for a mass readership. But — like other mortals — they ought to write high-quality popular books. An august academic reputation does not excuse sloppy argument, naive over-simplification and blatant partiality. What, for example, is to be said about a statement on page 88 that Chile is still paying the costs of a banking crisis in the early 1980s, when all serious commentary on Chile recognises that over the last 20 years it has been an impressive economic success story? (Indeed, Stiglitz himself recognises
as much on page 230.) And what is one to make of such claims as 'Take the eight million jobs that Clinton had promised to create, a promise on which he more than delivered — creating 16 million jobs in eight years'? The attribution of 16 million jobs to one man is fantasy. Were the 16 million jobs to be credited to Clinton's fiscal policy even though — according to the theories Stiglitz favours — the deficit reduction ought to have lowered employment? Or should the accolade go to Alan Greenspan, who steered monetary policy in these years? Or should the flexible and dynamic American economy itself be awarded the prize?
Much went wrong with the American economy in the 1990s, just as much went wrong with it in the 1980s, the 1970s and so on, right back to the 1770s. Somehow the American system is so strong that, decade after decade. all the follies, blunders and inequities do not prevent economic progress. Set in a long-run context the 1990s were in fact a betterthan-average decade. Growth was higher, inflation lower and instability less than in most of the preceding 20 decades. Of course, American capitalism is imperfect. But it is in better shape than European or Japanese capitalism, and its problems deserve a more rigorous and heavyweight analysis than Stiglitz provides in The Roaring Nineties.
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