For the past week or so, the Nobel Prize-winning American economist Joseph E Stiglitz has been in the UK promoting his new book, The Great Divide. The title refers, of course, to inequality, which Stiglitz thinks saps democratic legitimacy and undermines the economy. Indeed, the economics of inequality is the principal theme of the essays and articles collected in the book. "Sustained economic growth," Stiglitz writes, "can't happen when the vast majority of citizens have stagnant incomes."
The Great Divide focuses mainly on the United States, but Stiglitz doesn't think the UK is "much different" where major economic trends are concerned. And he's not afraid of pronouncing on British affairs either, particularly on the conduct of macroeconomic policy in this country. When he met Prospect last week, the conversation ranged widely, touching on recent developments in British politics among other subjects. Here are some highlights. (A longer version of the interview will appear in the July issue of the magazine.)
- On Ed Miliband and Labour Stiglitz agrees with Ed Miliband's assertion that inequality is the "most economic problem". Why does he think that theme failed to resonate in the recent general election campaign? "A couple of reasons. One of them is that obviously personalities matter. They either engage the people or they don't. Secondly, the economic agenda of Miliband and Labour was almost Conservative-lite. 'We're going to have austerity, but we're going to do it with a little bit more of a human face.' … I think for those who were critical of the [coalition] government's approach, [Miliband's agenda] was too timid to engender excitement."
- On Scotland Shortly before last year's referendum on Scottish independence, Stiglitz wrote an article in the Herald newspaper in which he argued that "fear-mongering" about the economic prospects of an independent Scotland had "little basis". "Independence may have its costs," Stiglitz wrote, "although these have yet to be demonstrated convincingly, but it will also have its benefits." Is he still as optimistic about the economic case for Scottish independence? After all, the oil price is coming down, and North Sea oil revenues currently underwrite higher levels of public spending north of the border. "I still am optimistic," he insisted."Partly because the government there has a focus on recognising that there is a role for government to try to restructure the economy towards another [kind of] economy. It's not sitting there passively. The big mistake I think the UK made is that when all the oil revenues came on [in the late 1970s], it was clear that the country needed to restructure away from where it was. When the oil money came on, you could have used that money to think about how you could restructure the economy. I always say that if you don't invest the resources below the ground above the ground, you're a poorer country. The UK bet on finance. And I'd have told them that was not a good choice."
- Advice for the new government Along with his compatriot and fellow Nobel laureate Paul Krugman, Stiglitz has been a vocal critic of economic policies that he believes postponed economic recovery after the crash of 2008. What advice would he give the new Conservative government? "Not to do another dose of real austerity." Of course there's an argument about how much austerity George Osborne actually did. Stiglitz acknowledges that the coalition government "first did it and then pulled back. So [this time], don't do what you said you were going to do. You might not be so lucky this time… That would be the most important [bit of] of advice. The second would be that you should be worried about the way the rules of the economy lead to more inequality, which impairs economic efficiency. This is not just about redistribution. It's about all the rules of the game that affect the power relationship before market distribution of income, before taxes and transfers."
