The Absolutely Amazing Joe Stiglitz Jude Wanniski June 3, 1998

Memo To: Louis Uchitelle, NYTimes business writer
From: Jude Wanniski
Re: Joe Stiglitz

How nice I thought, seeing that you had written the lead piece in the Sunday business section about Joe Stiglitz, recently of the President’s Council of Economic Advisors, now chief economist of the World Bank. But Lou, to describe him as the most important economic theorist of our time, with practically unanimous consent that he should have the Nobel Prize A.S.A.P....?!! You have written a lot of screwy pieces for the Times in recent years, but I’m afraid you have gone around the bend with this one. As far as I know, the only thing Stiglitz has contributed to advance economic science is his discovery that MARKETS ARE IMPERFECT but STIGLITZ AND HIS FRIENDS ARE AVAILABLE TO CORRECT THE IMPERFECTIONS.

To tell you the truth, I kind of like Joe for being willing to say out loud that the International Monetary Fund’s austerity schemes do more harm than good in the developing world -- even though I think his reasoning is messy. (His idea that the IMF shouldn’t encourage higher interest rates because that sends the wrong signals to the imperfect markets is pretty messy, I’d say.) And I wish you would have drawn out the most important economic theorist of our time on exactly why he thinks the capital gains tax is too low! Or is that why you think he should be Nobelized?

In the lengthy, gushing profile, which altogether covers a full page of stuff about Joe, you say a lot of very silly things about what “free market” people think, which confirms for the hundredth time that you don’t know what a market is or does. You say for example that free marketeers believe that CEOs of major and minor corporations instinctively know what all their employees are worth individually. Then why do so many of their employees leave for higher pay? You tell us that Stiglitz has figured out that the market is imperfect, and that as a result all CEOs should pay their employees a wage that is higher than he supposes it should be. Then, everyone will stay. Isn’t that what you said, Louis? Or am I mistaken? I’m actually trying to get through to Stiglitz at his aerie atop the World Bank, to ask him if I should raise everyone’s wages at Polyconomics to perfect my imperfect sense of my little market.

I’m also bemused to find that insurance companies did not know how to set rates in order to give benefits to low risk cohorts relative to high-risk cohorts, until he pointed out to the imperfect insurance markets that if they allowed variable deductibles, the low-risk folks would choose high deductibles and the high-risk people would choose low deductibles. If this were true, Joe surely deserves a Nobel Prize, Lou. And you deserve a raise as well, to keep The Wall Street Journal from wooing you away from the Times. But first, I am going to check with The Prudential to find out if Joe really is the genius behind the insurance company-rating policies.

Now where Joe really shines is in his argument that the economic theories of all his friends at Harvard and Stanford and Berkeley and Yale are perfect, but they don’t work in practice because the markets are imperfect. His theory that the capital gains tax should be higher, for example, has fallen afoul of the imperfect capital markets, which have driven down the cost of capital, sent the stock market to record highs, and unleashed a torrent of revenues at every level of government. Stiglitz probably told President Clinton that terrible things would happen, but wouldn’t you know, those goshdarned markets are so imperfect that they did the opposite of what Joe said they would do. It must have occurred to you, Lou, that the reason the Ph.D. academics love Stiglitz is that they only know how to teach their perfect theories, and Joe has written mathematical equations to demonstrate why these perfect theories will not work in imperfect markets. How otherwise can a poor professor of Econ 101 explain to his bushy-tailed students that higher taxes and currency devaluations are the key to economic success? You know what I mean, Lou? Your neo-Keynesian pals need a fig leaf to cover their embarrassment, and Stiglitz provides it.

The one area I would agree with Stiglitz is that markets would be less imperfect if the information available to them would be more readily available.  The market would be more perfect, in this sense, if the meetings of the Federal Open Market Committee at the Federal Reserve Board were open to the public. As it is, pals of the Fed governors and Fed staff get inside dope that they make available to those who have the megabucks. Somehow, I don’t think that’s what Joe has in mind.
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