The Road to Freedom: Economics and the Good Society, by Joseph E. Stiglitz, W.W. Norton & Company, 384 pages, $29.99
Joseph Stiglitz, a former chief economist of the World Bank, thinks that taxation is a precondition for freedom, not a threat to it. The current political problem, he argues in The Road to Freedom, is that the right (which for Stiglitz includes libertarians as well as conservatives) rejects the Founding Fathers' idea of no taxation without representation in favor of opposing any taxation at all. This is a problem, he continues, because market failures are more extensive and severe than the "neoliberals"—people like Stiglitz's fellow Nobel laureates Friedrich Hayek and Milton Friedman—would admit. For Stiglitz, redistribution and regulation are the real road to freedom.
Much of the book is devoted to criticizing neoliberals, who Stiglitz defines as proponents of "unregulated, unfettered markets." In Stiglitz's view, "a free-market, competitive, neoliberal economy combined with a liberal democracy" isn't enough—for "a stable equilibrium," we need "strong guardrails and a broad societal consensus on the need to curb wealth inequality and money's role in politics."
This book is written as though the regulatory state has not expanded since the end of World War II and as though the welfare state was dismantled in the 1980s. It is written as if liberal democracies' economic policies were all written by someone with the worldview of President Javier Milei of Argentina or the Brazilian MMA fighter Renato Moicano, who at UFC 300 proclaimed that everyone who cares about freedom should be reading the libertarian economist Ludwig von Mises. It is written as though we were still in the Lochner era, when the Supreme Court regularly struck down economic regulations.
But that is not the era we live in. Instead, the state has kept growing because neoliberalism has never reached the level of influence its adherents wanted. A more coherent argument—though still not a good one—would be that the modern state is big but should be bigger.
Nor is this book a good guide to the views of "neoliberals" like Friedman, Hayek, and Mises. No reasonable reading of these writers would suggest that they do not believe in market failures, yet Stiglitz claims that neoliberals think "markets on their own were efficient and stable."
Stiglitz also claims that "Unfettered markets designed along neoliberal principles have effectively robbed [the U.S. and U.K.] of their political freedom." One would expect an economist of Stiglitz's stature to make an effort to support this claim, yet his book offers no evidence for it. The available empirical evidence suggests that Stiglitz has it backward: It is state control of the economy that suppresses democratic freedom. There are other inconvenient empirical studies, including ones showing that the neoliberal "Washington Consensus" works fairly well and that there is no clear evidence that economic freedom leads to more inequality. (There is, however, abundant evidence that economic freedom makes us richer.)
The book does contain many reasonable ideas. Stiglitz is certainly right that the challenges associated with global fisheries, pandemics, and climate change are a fertile opportunity for more economic analysis. And the notion that market failures are both more complex and more common in an increasingly interconnected world should be a starting point for economists and policy makers.
Unfortunately, Stiglitz is too comfortable claiming that the solution to these problems is "regulation," without adding much explanation of how regulation should address such issues. Here he should have engaged more deeply with the insights of another Nobel laureate in economics, Elinor Ostrom. Stiglitz does mention Ostrom's research on the regulation of the commons—that is, of shared resources that anyone can use (and overuse, in the absence of rules governing how people can draw on them). But he sees her work as a defense of "regulation" and a critique of private property.
That wasn't what Ostrom was arguing. Rather than rail against private property, Ostrom argued that it is an empirical question as to whether private property, communal arrangements outside the state, or government control is the most appropriate way to manage the commons. And nothing in Ostrom's work implies a wide-ranging critique of private property. Her work is fully within the same classical liberal tradition that includes Hayek and Friedman.
Public goods, Ostrom argued, are not provided solely by the government. She also stressed the importance of polycentricity—of multiple levels of governance that offer opportunities for citizens and nonprofits to provide public goods, with each level able to cooperate with the others and also to act independently. This is especially useful for thinking about how to address the kinds of complex externalities Stiglitz sees as pervasive. Ostrom even developed a polycentric approach to climate change.
The call for regulation is less fundamental than asking what political arrangements give rise to the most appropriate rules, be they public, private, or communal. Elinor Ostrom and her husband, Vincent Ostrom, highlighted federalism's value as a laboratory of democracy because, like Hayek, they recognized that we do not know how to solve many pressing problems. This book would have been more convincing if instead of devoting so much time to criticizing the neoliberals (and overstating their influence), Stiglitz had spent more time exploring such insights.
Stiglitz's polemics are unlikely to change anyone's mind, but they will probably find an audience among people already predisposed to agree with them. His ideological fellow-travelers will probably like his full-throated defense of "progressive capitalism" (basically contemporary Sweden, with its combination of a generous welfare state, pro-labor policies, and a market economy). But Stiglitz does not explain why the U.S. is not like Sweden, nor how to get to Sweden from where we are now. Nor does Stiglitz note that Sweden, which ranks highly in the Heritage Foundation's Index of Economic Freedom, is rather open to policies promoted by neoliberals.
If you're interested in understanding market liberalism, there are better recent books to read, such as Peter Boettke's The Struggle for a Better World or Deirdre McCloskey and Art Carden's Leave Me Alone and I'll Make You Rich, each of which explains what classical liberals mean by freedom. If you are tempted to accept the notion that neoliberals lack a moral sense, you would especially benefit from Humanomics—by Bart Wilson and another Nobel laureate, Vernon Smith—which articulates the rich moral framework of Adam Smith's tradition. And if you want a more compelling empirical critique of capitalism, Daniel Bromley's Possessive Individualism explains how modern capitalism differs from the capitalism of even half a century ago, let alone Adam Smith's time.
But even our current, heavily regulated variety of capitalism is better than countless real-world alternatives. After all, if the situation in the U.S. were as bad as Stiglitz suggests, one would not expect so many people to want to move here. The border "crisis," which is really a problem with excessive regulation, suggests that the U.S. has pretty good institutions. Or at the very least, that people think those institutions are better than what they are leaving. And what they are leaving is less economic and political freedom.
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