"The Most Misunderstood Man in America"

Michael Hirsh wonders why the Obama administration hasn't consulted Joe Stiglitz more often on economic policy issues, and suggests the answer is an ongoing feud with Larry Summers:

The Most Misunderstood Man in America, by Michael Hirsh, Newsweek: ...Even in the contentious world of economics, [Joe Stiglitz] is considered somewhat prickly. And while he may be a Nobel laureate, in Washington he's seen as just another economic critic—and not always a welcome one. Few Americans recognize his name... Yet Stiglitz's work is cited by more economists than anyone else's in the world... And when he goes abroad—to Europe, Asia, and Latin America—he is received like a superstar, a modern-day oracle. ...

Stiglitz is perhaps best known for his unrelenting assault on an idea that has dominated the global landscape since Ronald Reagan: that markets work well on their own and governments should stay out of the way. ... The subprime-mortgage disaster was almost tailor-made evidence that financial markets often fail without rigorous government supervision, Stiglitz and his allies say.

The work that won Stiglitz the Nobel in 2001 showed how "imperfect" information that is unequally shared by participants in a transaction can make markets go haywire, giving unfair advantage to one party. The subprime scandal was all about people who knew a lot—like mortgage lenders and Wall Street derivatives traders—exploiting people who had less information... As Stiglitz puts it: "Globalization opened up opportunities to find new people to exploit their ignorance. And we found them." ... The solution, Stiglitz says, is to ... develop a balance between market-driven economies—which he favors—and government oversight.

Stiglitz has warned for years that pro-market zeal would cause a global financial meltdown very much like the one that gripped the world last year. ... Since at least 1990, Stiglitz has talked about the risks of securitizing mortgages, questioning whether markets and authorities would grow careless "about the importance of screening loan applicants." ...

To his critics—and there are many—Stiglitz is a self-aggrandizing rock-thrower. ... Stiglitz's defenders say one possible explanation for his outsider status in Washington is his ongoing rivalry with Summers. ... Since the early '90s, when Summers was a senior Treasury official and Stiglitz was on the Council of Economic Advisers, the two have engaged in fierce policy debates. The first fight was over the Clinton administration's efforts to pry open emerging financial markets, such as South Korea's. Stiglitz argued there wasn't good evidence that liberalizing poorly regulated Third World markets would make any one more prosperous; Summers wanted them open to U.S. firms.

The differences between them grew bitter in the late 1990s, when Stiglitz was chief economist for the World Bank and took issue with the way Treasury Secretary Robert Rubin, and Summers, who was then deputy secretary, were handling the Asian "contagion" financial collapse. After World Bank president James Wolfensohn declined to reappoint him in 1999, Stiglitz became convinced that Summers was behind the slight. Summers denies this...

Despite the Obama team's occasional efforts to reach out to him, Stiglitz remains deeply unhappy about the administration's approach to the financial crisis. Rather than breaking up or restructuring the big banks that failed, "the Obama administration has actually expanded the notion of 'too big to fail,' " he says. ...

Today, settled as a professor at Columbia, Stiglitz occasionally finds himself welcomed in the nation's capital, though usually at the other end of Pennsylvania Avenue, to testify before Congress. While he had no great desire to go back into government, friends say he was deeply disappointed when an offer didn't come from Obama last fall. Not surprisingly, Stiglitz believes his old rival was behind it, though Summers denies this. ... Stiglitz may a prophet without much honor in Washington, but he seems to be determined to keep the prophecies coming.

This isn't the first time Michael Hirsh has written about this. Though the question has changed from "why didn't Obama appoint Stiglitz to a key position within the administration" to "why doesn't the administration consult Stiglitz more often on economic policy issues," last December he made most of the same points:

OK, enough with the Obamamania already. I have a major bone to pick with our all-praised president-elect. Where, Mr. Obama, is Joseph Stiglitz? Most pundits have pretty much gone ga-ga over your economic team: The brilliant Larry Summers... The judicious Tim Geithner... The august Paul Volcker... But lost amid the cascades of ticker tape is the fact that, astonishingly, you didn't hire the one expert who's been right about the financial crisis all along—and whose Nobel Prize-winning ideas will probably be most central to fixing the global economy.

This is not speculation. A source close to Stiglitz told me Thursday that the Columbia University economist has been left out in the cold, even though he was expecting at least an offer. ...

Stiglitz, more than anyone on the Washington scene, was the biggest fly in the ointment of "free-market fundamentalism" pressed on the world in the '90s by Summers, Geithner and their mentor, former Treasury secretary Robert Rubin—advice that has now contributed to the worst financial crisis since the Great Depression. ... Sure, I know the rap on Stiglitz:... he's too often "off the reservation," won't stay on the message, and doesn't play well with others—especially Summers. (Summers is said to have pressured former World Bank president Jim Wolfensohn to fire Stiglitz in the '90s...) Unquestionably, Stiglitz has occasionally gone overboard in his criticisms... But Obama has made a point of declaring that he wants dissonant voices in his administration. So why not Joe Stiglitz?

I can understand not offering Stiglitz a key position within the administration, he might not always stay on message and that scares the political managers (though the fact that they accepted Summers undercuts the argument that they wanted to avoid people who are potentially politically explosive, though perhaps they'd agree to one, but not two, and Summers was the one). But in the first article Stiglitz is quoted as saying that "We've talked one or two times," and it's harder to understand why the administration hasn't consulted him more often on economic policy issues.

Update: Paul Krugman:

Morning Joe: I think this Michael Hirsch piece on Joe Stiglitz somewhat misses the point.

Yes, Joe should be playing a bigger role — he’s an insanely great economist, in ways you can’t really appreciate unless you’re deep into the field. I’d say that he’s more his generation’s Paul Samuelson than its John Maynard Keynes: as with Great Paul, almost every time you dig into some sub-field of economics — finance, imperfect competition, health care — you find that much of the work rests on a seminal Stiglitz paper.

But the larger story is the absence of a progressive-economist wing. A lot of people supported Obama over Clinton in the primaries because they thought Clinton would bring back the Rubin team; and what Obama has done is … bring back the Rubin team. Even the advisory council, which is supposed to bring in skeptical views, does so by bringing in, um, Marty Feldstein.

The point is that even if you think the leftish wing of economics doesn’t have all the answers, you’d expect some people from that wing to be at the table. Yet I don’t see Larry Mishel, or Jamie Galbraith … Jared Bernstein is it.

Joe Stiglitz stands out because in addition to being on the progressive wing, he’s also, as I said, a giant among academic economists. But I think the real story is more about excluded points of view than excluded people.