This book has been written by a winner of the Nobel Memorial Prize in Economic Sciences who is also a prolific commentator on current events.  It therefore deserves serious consideration and may well be influential.  However, I have struggled to distil its messages into actionable proposals and have found it hard to get beyond its rather simplistic characterisations of existing economic systems.

Much of the book is taken up by a criticism of neoliberalism, which is identified with Friedman and Hayek.  This was my first sticking point.  While there are certainly similarities between these scholars, there are also differences.  Hayek’s direct experience of totalitarianism informed his views on the need to allow for variety and economic choice.  Friedman’s views on the absolute primacy of shareholders and that markets somehow existed free of context would not be shared by him. What therefore exactly Stiglitz means by neoliberalism is not made clear by joining these names together and indeed accusing them of being disingenuous at best and of deliberately misreading history at worst.

My second concern is with Stiglitz’s over-simplification of twentieth century economic history.  He conflates the rise of (in his view) pernicious neoliberalism with climate crisis.  While the most obstreperous deniers that climate change is happening also tend to be small government proponents, the roots of anthropomorphic impacts on climate, on soils and on water, well predate Friedman or Hayek.  The acceleration of such impacts appears to date from the 1950s across the globe.  This was, however, a period in which policymakers were hardly neoliberals; rather it was the heyday of central planning, industrial policy and the establishment of international bodies such as the IMF, the World Bank and so on.

Stiglitz calls for a return to Enlightenment values.  This should mean careful attention to the data, establishing testable hypotheses, and calm and balanced argument.  I wish I could think that what Stiglitz doesn’t mean that such values are only met when you agree with him.

Having said this, the issues that he is addressing are important ones.  A core challenge is how society makes trade-offs.  One person’s freedom is, as he points out, another’s unfreedom.  How corporates and markets are regulated and the context in which they operate is another.  The social context sets the limits of acceptable behaviour: the shortest of the ten commandments is that ‘thou shalt not kill’.  It is obvious and law is only needed to set parameters for punishment and definitions of self-defence.  It has become clearer that defining acceptable business behaviour as ‘greed is good’ and shareholder value the only criterion has undermined trust, and the ability to assess trade-offs as they occur.  Stiglitz rightly quotes Adam Smith, both for his recognition of the risks of business collusion and for his recognition elsewhere of the importance of morality.

What follows here is my take on what Stiglitz has left out.  Crucial to decisions in society is the role of information – where it is, how we handle it and what decisions it supports.  I would have expected more on this here since it is for the economics of information that Stiglitz won his Nobel Memorial Prize.  The work of Herbert Simon is not mentioned, though it is seminal in describing the role of feedback loops in influencing decisions through copying and the influence of neighbours.  The concept of bounded rationality starts with him and the work of Kahneman and Tversky amplified these results in clarifying how we actually make decisions, using heuristics and short cuts, influenced by our pre-conceptions and also the last thing that happened to us.  Even when ‘thinking slow’ we are simply unable to process all the possible information that might be available and so focus on that we assume to be relevant or perhaps readily available.  There is no guarantee that this leads to the optimal result, or even that it is possible ex post to know what that was.

Richard Thaler has written about our inability to be ‘rational’ but this is an interesting take of rationality.  Possibly it is the Enlightenment view which holds that it would be possible to find and reach the optimum if only we are sufficiently rational.  But if this kind of rationality is essentially non-human: does it mean in the end that we wish to delegate our decisions to supercomputers?

The role of model-based decision making is central to identifying and acting on the trade-offs that Stiglitz identifies. In the mid-twentieth century many economists believed and taught that models could be sufficiently good and powerful that planning was possible.  Market participants would also learn from mistakes so inaccurate views and models would not persist.  All these propositions have turned out to be wrong.  We have learnt that the world changes faster than we can learn about it, though economists persist in a narrow view of selfish rationality. For example, it’s not clear to me how compromising in order to live in a community is irrational in the longer term

The Road to Freedom is a tough one and rocky.  Confucian philosophy would teach that freedom is greatest when it operates within limits.  Those limits are set by societies and societies are often dominated by elites.  The vested interests of elites undermine the interests of the less powerful, be they minorities, the poor or traditionally marginalised.  It doesn’t help to label the reactions of some of these groups as ‘populist’ as term of abuse.  The views of those who feel left behind are not invalid, even if you think that the deliverable desired is misguided.

Stiglitz is right that major corporates have gamed the system – the opioid crisis and the role of the Sackler interests being perhaps the most egregious recent example.  The information to deal with this in the legal, medical and personal domains was available.  All of us failed to act soon enough because we lacked the right perspective from which to address the question.

This raises a related point.  Stiglitz refers often, starting with the preface, to the need for rules and regulations ‘enforced by government’.  He misses the many other and important ways that rules and regulations are both made and enforced.  Communities, professional organisations, standard setters all are endemic in this arena.  A great example is the debate and infighting over the standards for containers, both in terms of size and how they connected with one another.  Shipping companies, manufacturers, ports were all involved but not governments.  The assumption that only governments set and enforce rules and regulations, leads to an over-emphasis on the role of governments and media in controlling beliefs and behaviours. Life is not that simplistic and individuals do take individual views.  Of course, sometimes that means that they hold views that Stiglitz disapproves of and would like to ban – such as Fox News.  He should be careful what he wishes for.

Stiglitz asserts in several places that government interventions are not necessarily inefficient.  This is probably true but again needs nuance.  We need to ask when and where it is appropriate to intervene and what form that should take.  Setting regulations – for example, building standards – is not the same as using taxpayer money to build houses.  Both can be important, but they are not at all the same.

My final concern with this book is that innovation doesn’t get mentioned until p227.  Yet, this has been the bedrock of the ability to raise living standards around the world and possibly also the cause of global travails.  The Enlightenment rested on scientific inquiry and the development of new ways to use resources and develop trade.  Such inquiry, innovation and more importantly its dissemination, determine our ability to reduce the impact of climate change and in establishing the distribution of incomes and wealth.  The changing global power balances also probably rest on technologies and their trade consequences.  Stiglitz argues that we need a progressive capitalism, social democracy and social justice.  Who could disagree?  He wants open debate and a variety of organisational responses.  It’s just not clear to me how his top-down approach is going to generate it.

His final plea is for a ‘good liberal arts education’ which will help inculcate the desired values.  It’s a fine ideal.  I once went to a session for potential applicants at Columbia which talked strongly about such an education, and the need to understand Plato and Shakespeare.  I was impressed.  That was more than twenty years ago and now such foundational texts are under attack but not from neoliberalism but rather from authoritarian voices calling for more limitations on what we can do, speak or even possibly think.

Without addressing that, I fear what is good about this book will fall on stony ground and what is interesting will be taken up by the new authoritarians and believers in bigger and bigger government.  Maybe I should re-read Hayek – alongside Schumpeter and Simon.  I won’t go back to Friedman and the Chicago school though.