Sitglitz on the Roaring Nineties
The day before yesterday I finished Joseph Stiglitz' Clinton Administration retrospective, The Roaring Nineties. It's really a tour de force, and enough hardcore politics to send me rushing for a few days of relative literary confort in Philip Pullman's His Dark Materials triligy (I always forget how easy and fun it is to read fiction).
As an economist, Stiglitz made his name researching market imperfections; I know him best for his theory of efficiency wages -- the argument that firms pay workers more than their reservation wage in order to elicit effort and loyalty and to minimize turnover costs. That sort of belief -- in market failures like moral hazard and in the importance of a happy, well-paid labour force to enhance productivity and in the role of legislation to correct inefficiencies -- translated directly into Stiglitz' policy persona. As Jonathan Chait describes him approviningly in this 1999 American Prospect article, Stiglitz was very much the leftwing black sheep of the Clinton Administration. He served, during Clinton's first term, as a member, and eventually the Chair, of the relatively liberal Council of Economic Advisors, a post from which he did battle with Greenspan's Fed over inflation targeting and the NAIRU, while also serving on the panels overseeing telecommunication reform and "reinventing government" -- the latter on which he made his mark opposing the privatization of the United States Enrichment Corporation (this gets a lot of ink in Stiglitz' book).
Stiglitz' account of the early years and the domestic policy battles are actually the most interesting parts of The Roaring Nineties, though of course he is more famous for his role in the second Clinton Adminstration after he moved to the World Bank as its chief economist and, from that perch, engaged in tendicious public battles with the IMF and its treasury backers Bob Rubin and Larry Summers over globalization policy. (These battles are described in greater detail in Stiglitz' more famous book Globalization and its Discontents which I haven't read yet.) The best part of The Roaring Nineties is Stiglitz' description of the formation and development of 90s corporate culture, the public and private incentives, policy choices and information failures that fed a speculative New Economy stock bubble and eventually culminated in the bust of the 2001-2002 corporate scandals. Enron, of course, gets its own whole chapter. But Stiglitz also gives detailed, layman-accessible explainations of the role of stock options, the battle over whether or not to force firms to expense them, the banking deregulation that conflated the roles of corporate commercial and investment banking, the increasing joint roles of the accounting firms as auditors and consultants, the principle-agent problem between CEOs and shareholders that all these deregulations created, and the decade-long public-private glorification of the unfettered, hyper-sensitive Shiva market that made it all possible. All of this is laid out in lucid, excruciating, devastating detail without a whiff of sentimentality. Better yet, Stiglitz is able to paint a devastating picture of a mutually beneficial, high-stakes private-public sector relationship gone too far, of the heady self-serving rationalizations of a bipartisan neoliberal politics, without resorting to Republicrat conspiracy theories or hoary anarco-syndicalistic sanctimony. Stiglitz is every inch a New Democrat. In the book's best moments, he makes you wistful for the world that the New Democratic project might have -- and maybe even could someday -- produce.
Which is not to say that the book is perfect. Stiglitz makes a few bad arguments. He is at his most eloquent, and indignent, railing against the 1997 capital gains tax cut (it too gets its own chapter). While Stiglitz is right that cutting capital gains taxes benefitted wealthy speculators while doing nothing for wage-earners and that, more damningly they fed the stock market bubble at a time when the government should have been preaching prudence, he also argues that the tax cut was hypocritical in that it increased the long run deficit -- by decreasing the total long-run taxable base of capital gains -- even as it increased current revenues by encouraging short run sales of stock and thereby filling government coffers. In fact, in light of the stock market collapse, this isn't really true. Investers only pay taxes on capital gains; they don't receive government transfers when they face capital losses. So by encouraging the movement of stocks during the bubble's inflation, the Clintonites actully squeezed revenues out of the investment class that might otherwise never have been realized once the new economy firms started going belly up. The cut also provided cover for an increase in the EITC and an expanded child tax credit forced by threat of a veto. This might have been a cynical way of raising revenues and throwing bones to the poor, but that was really, sadly, the norm of White House public policy during the Newt 90s, the art of the possible.
(More interesting is Stiglitz' observation that the Clintonites chose to reward their benefactors through cutting capital gains taxes -- a pander to New Economy investers -- while the Bushies have pushed and gotten tax cuts on dividends, the tax-cut of choice for Old Economy firms, including oil companies, who are may no longer be buiding up their capital base and are in many cases are protected from competition from abroad by federal legislation. This is one of the real defining differences between Clintonian neoliberalism and Reagan-Bush old-school crony capitalism, as well as the fact that, as Stiglitz points out, the 80s and 00s borrowing binges have gone mainly to finance consumption while Clintonian borrowing went mainly to finance investment, even if, with the bubble's bursting, much of that investment turned out to be worthless.)
Stiglitz also succumbs to a sort of passive-aggressive tone in the book that can be offputting. His contempt for Greenspan, Rubin, Summers, Treasury and the IMF is palable -- indeed his feud with Summers is legendary -- but he still feels compelled, for instance, to tell us patronizingly that he is "fond of" Greenspan in a chapter in which he (convincingly) trashes the Fed and its Chairman from start to finish for arrogance, hypocracy and failure of nerve in combatting the bubble (he offers similar milquetoast praise for trade rep Mickey Kantor in his chapter on globalization even as he accuses Kantor of doing the pharmaceuticals' bidding to the detriment of millions of Third World AIDS victims.) When detailing the Clinton Administration's few attempts to crack down on corporate welfare, he inserts a footnote wondering innocently if unsuccessful efforts to force companies to pay for the use of airspace by corporate jets were in fact informed by more by politics than good government since such jets were manufactured in Bob Dole's and Newt Gingrich's homestates. Presumably, though, as part of the reinventing government team, Stiglitz would have been in on those meetings and would know the answer to that question; he could simply tell us, or be honest about his suspicions. There's also somthing grating about the way Stiglitz uses the pronoun "we" to describe Clinton policy decisions ("we did not achieve the balance that we sought" he assesses) even while copiously distancing himself from those decisions of which he disapproves.
Which is not to say the book would be better if Stiglitz were to really call people out. If anything, he seems torn between his affection for his old colleagues -- his obvious admiration for Clinton himself -- and his anger at what transpired during the Clinton decade. Occassionally, the book reads like the sour grapes of a man who lost the battle to more conservative colleagues at Treasury and Fed. But there's still an enormous amount of power in Stiglitz' evaluations -- not least in his passing prophecy on page 182 that the Pension Benefit Guarantee Corporation had been underfunded in the 90s and would eventually need a bailout. For an economist (as someone who reads a lot of the prose-starved output of the field, I can assure you this is true), Stiglitz is, at times, startlingly, powerfully eloquent in laying out the realities of the political and ethical battlefield that define a liberal country in boomtime, the perils and promise of globalization and liberal internationalism, and what he sees as the necessary relationship between government and business, particularly in his final chapter on a "New Democratic Idealism: Visions and Values" (it's much better than the title suggests.)
Most importantly, Stiglitz tells a story that would shake anybody's New Democratic certainties, but could, at the same time, reaffirm them. It's the stuff that any honest evaluation of the neoliberal project, and of the Clinton chapter of it, must confront and stomach and contemplate. For that reason alone, it's invaluable stuff.
As an economist, Stiglitz made his name researching market imperfections; I know him best for his theory of efficiency wages -- the argument that firms pay workers more than their reservation wage in order to elicit effort and loyalty and to minimize turnover costs. That sort of belief -- in market failures like moral hazard and in the importance of a happy, well-paid labour force to enhance productivity and in the role of legislation to correct inefficiencies -- translated directly into Stiglitz' policy persona. As Jonathan Chait describes him approviningly in this 1999 American Prospect article, Stiglitz was very much the leftwing black sheep of the Clinton Administration. He served, during Clinton's first term, as a member, and eventually the Chair, of the relatively liberal Council of Economic Advisors, a post from which he did battle with Greenspan's Fed over inflation targeting and the NAIRU, while also serving on the panels overseeing telecommunication reform and "reinventing government" -- the latter on which he made his mark opposing the privatization of the United States Enrichment Corporation (this gets a lot of ink in Stiglitz' book).
Stiglitz' account of the early years and the domestic policy battles are actually the most interesting parts of The Roaring Nineties, though of course he is more famous for his role in the second Clinton Adminstration after he moved to the World Bank as its chief economist and, from that perch, engaged in tendicious public battles with the IMF and its treasury backers Bob Rubin and Larry Summers over globalization policy. (These battles are described in greater detail in Stiglitz' more famous book Globalization and its Discontents which I haven't read yet.) The best part of The Roaring Nineties is Stiglitz' description of the formation and development of 90s corporate culture, the public and private incentives, policy choices and information failures that fed a speculative New Economy stock bubble and eventually culminated in the bust of the 2001-2002 corporate scandals. Enron, of course, gets its own whole chapter. But Stiglitz also gives detailed, layman-accessible explainations of the role of stock options, the battle over whether or not to force firms to expense them, the banking deregulation that conflated the roles of corporate commercial and investment banking, the increasing joint roles of the accounting firms as auditors and consultants, the principle-agent problem between CEOs and shareholders that all these deregulations created, and the decade-long public-private glorification of the unfettered, hyper-sensitive Shiva market that made it all possible. All of this is laid out in lucid, excruciating, devastating detail without a whiff of sentimentality. Better yet, Stiglitz is able to paint a devastating picture of a mutually beneficial, high-stakes private-public sector relationship gone too far, of the heady self-serving rationalizations of a bipartisan neoliberal politics, without resorting to Republicrat conspiracy theories or hoary anarco-syndicalistic sanctimony. Stiglitz is every inch a New Democrat. In the book's best moments, he makes you wistful for the world that the New Democratic project might have -- and maybe even could someday -- produce.
Which is not to say that the book is perfect. Stiglitz makes a few bad arguments. He is at his most eloquent, and indignent, railing against the 1997 capital gains tax cut (it too gets its own chapter). While Stiglitz is right that cutting capital gains taxes benefitted wealthy speculators while doing nothing for wage-earners and that, more damningly they fed the stock market bubble at a time when the government should have been preaching prudence, he also argues that the tax cut was hypocritical in that it increased the long run deficit -- by decreasing the total long-run taxable base of capital gains -- even as it increased current revenues by encouraging short run sales of stock and thereby filling government coffers. In fact, in light of the stock market collapse, this isn't really true. Investers only pay taxes on capital gains; they don't receive government transfers when they face capital losses. So by encouraging the movement of stocks during the bubble's inflation, the Clintonites actully squeezed revenues out of the investment class that might otherwise never have been realized once the new economy firms started going belly up. The cut also provided cover for an increase in the EITC and an expanded child tax credit forced by threat of a veto. This might have been a cynical way of raising revenues and throwing bones to the poor, but that was really, sadly, the norm of White House public policy during the Newt 90s, the art of the possible.
(More interesting is Stiglitz' observation that the Clintonites chose to reward their benefactors through cutting capital gains taxes -- a pander to New Economy investers -- while the Bushies have pushed and gotten tax cuts on dividends, the tax-cut of choice for Old Economy firms, including oil companies, who are may no longer be buiding up their capital base and are in many cases are protected from competition from abroad by federal legislation. This is one of the real defining differences between Clintonian neoliberalism and Reagan-Bush old-school crony capitalism, as well as the fact that, as Stiglitz points out, the 80s and 00s borrowing binges have gone mainly to finance consumption while Clintonian borrowing went mainly to finance investment, even if, with the bubble's bursting, much of that investment turned out to be worthless.)
Stiglitz also succumbs to a sort of passive-aggressive tone in the book that can be offputting. His contempt for Greenspan, Rubin, Summers, Treasury and the IMF is palable -- indeed his feud with Summers is legendary -- but he still feels compelled, for instance, to tell us patronizingly that he is "fond of" Greenspan in a chapter in which he (convincingly) trashes the Fed and its Chairman from start to finish for arrogance, hypocracy and failure of nerve in combatting the bubble (he offers similar milquetoast praise for trade rep Mickey Kantor in his chapter on globalization even as he accuses Kantor of doing the pharmaceuticals' bidding to the detriment of millions of Third World AIDS victims.) When detailing the Clinton Administration's few attempts to crack down on corporate welfare, he inserts a footnote wondering innocently if unsuccessful efforts to force companies to pay for the use of airspace by corporate jets were in fact informed by more by politics than good government since such jets were manufactured in Bob Dole's and Newt Gingrich's homestates. Presumably, though, as part of the reinventing government team, Stiglitz would have been in on those meetings and would know the answer to that question; he could simply tell us, or be honest about his suspicions. There's also somthing grating about the way Stiglitz uses the pronoun "we" to describe Clinton policy decisions ("we did not achieve the balance that we sought" he assesses) even while copiously distancing himself from those decisions of which he disapproves.
Which is not to say the book would be better if Stiglitz were to really call people out. If anything, he seems torn between his affection for his old colleagues -- his obvious admiration for Clinton himself -- and his anger at what transpired during the Clinton decade. Occassionally, the book reads like the sour grapes of a man who lost the battle to more conservative colleagues at Treasury and Fed. But there's still an enormous amount of power in Stiglitz' evaluations -- not least in his passing prophecy on page 182 that the Pension Benefit Guarantee Corporation had been underfunded in the 90s and would eventually need a bailout. For an economist (as someone who reads a lot of the prose-starved output of the field, I can assure you this is true), Stiglitz is, at times, startlingly, powerfully eloquent in laying out the realities of the political and ethical battlefield that define a liberal country in boomtime, the perils and promise of globalization and liberal internationalism, and what he sees as the necessary relationship between government and business, particularly in his final chapter on a "New Democratic Idealism: Visions and Values" (it's much better than the title suggests.)
Most importantly, Stiglitz tells a story that would shake anybody's New Democratic certainties, but could, at the same time, reaffirm them. It's the stuff that any honest evaluation of the neoliberal project, and of the Clinton chapter of it, must confront and stomach and contemplate. For that reason alone, it's invaluable stuff.
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