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Joseph Stiglitz’s Rocky Road to Serfdom

Summary:
The Road to Freedom: Economics and the Good Societyby Joseph E. StiglitzW.W. Norton, 2023; 356 pp.To say that Joseph Stiglitz, a Nobel Prize winner in economics who now teaches at Columbia University, opposes the free market is an understatement. He does not favor complete central planning, he tells us, but wants a balance between market and nonmarket arrangements. However, when it comes to his concrete proposals, the market seems always in his eyes to be deficient. Indeed, his title consciously echoes Friedrich Hayek’s The Road to Serfdom (1944), but while Hayek argued that central planning undermines freedom, Stiglitz says that only an economy dominated by a “democratic” state results in freedom.Stiglitz’s book contains a number of interesting arguments, and I

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The Road to Freedom: Economics and the Good Society
by Joseph E. Stiglitz
W.W. Norton, 2023; 356 pp.

To say that Joseph Stiglitz, a Nobel Prize winner in economics who now teaches at Columbia University, opposes the free market is an understatement. He does not favor complete central planning, he tells us, but wants a balance between market and nonmarket arrangements. However, when it comes to his concrete proposals, the market seems always in his eyes to be deficient. Indeed, his title consciously echoes Friedrich Hayek’s The Road to Serfdom (1944), but while Hayek argued that central planning undermines freedom, Stiglitz says that only an economy dominated by a “democratic” state results in freedom.

Stiglitz’s book contains a number of interesting arguments, and I will discuss a few of them in this week’s article. Others I will address in a review of the book in the next issue of The Misesian.

Let’s begin with his argument against The Road to Serfdom. Nazism did not arise, Stiglitz says, because there was too little government planning but because there was not enough of it. Unemployment, rather than inflation, was the primary factor that led to the rapid rise of Adolf Hitler to political power in the years before his appointment as chancellor by President Paul von Hindenburg in January 1933. Moreover, Stiglitz says that Hayek as well as his colleague Milton Friedman were aware of the true cause of Hitler’s rise to power but deliberately distorted history to suppress it:

We can’t help but reach conclusions that are just the opposite of Friedman’s and Hayek’s. They misread history—I suspect deliberately so. The severe bout of authoritarianism—Hitler, Mussolini, Stalin—from which the world was recovering at the time Hayek and Friedman were writing was not caused by governments having played too large a role. Instead, these heinous regimes were brought about by extreme reactions to governments not doing enough. It was not . . . the case that authoritarianism was arising in social democratic states with large governments, but rather in countries marked by extremes of inequality and high levels of unemployment, where governments have done too little.

Stiglitz’s point depends on his view that heavy doses of government planning and spending were needed to cope with high unemployment, and nowhere in the book does he discuss the Austrian theory of the business cycle, which would lead to contrary policy recommendations. (Was Hayek consciously dishonest in defending his business cycle theory as well? Unless he was, Stiglitz’s mean-spirited imputation of dishonesty to him falls to the ground.) Suppose, though, that Stiglitz is right that fascism arose through insufficient government control of the economy. (I, of course, don’t think he is right.) He has done nothing to answer Hayek’s argument that comprehensive central planning leads to the suppression of freedom. Hayek supports his argument with a detailed account of socialist thought in the 1920s and ’30s, showing that the leading socialist intellectuals fully recognized that central planning requires the suppression of freedom. In short, Stiglitz and Hayek could both be right; it could be the case both that we need planning to escape authoritarianism and that planning suppresses freedom. We can’t assume as an unquestioned premise that freedom is sustainable!

When we turn to Stiglitz’s own view of freedom, it soon becomes apparent that he himself finds it difficult to reconcile planning with freedom as this concept is normally understood. He says that economists look at a person’s freedom as the alternatives available to him in his “opportunity set”—roughly speaking, the more options you have, the greater your freedom. Now comes trouble. One person’s freedom, understood this way, restricts the freedom of others. If, for example, I own property, my options widen, but your options go down because you are not free to use my property without my permission. Whose freedom should win out? (Stiglitz’s way of looking at freedom is a Hobbesian one, in which all actions are allowed into the “opportunity set.” He has no use for natural law.)

Stiglitz has no principled way to answer this question, and the choices he arrives at have little backing them other than his own intuitions about what is reasonable. To many of us, his judgments will seem disturbing. Freedom of speech is a value, he says, but it has its limits. If people are free to propagate falsehoods that contradict science, the world stands in danger of disaster. People who deny that “climate change” requires drastic action to “green” the economy threaten the lives of millions, and aren’t the lives of pandemic victims of greater value than the right of “science deniers” to claim falsely that covid vaccinations are dangerous? Their freedom to do so caused many deaths.

Readers of my column will hardly need to be reminded that Stiglitz’s claims about “climate change” and covid vaccinations are highly controversial, to say the least. This is not the place to discuss them at length, but one point is worth our attention. It is demonstrably false that “science” dictates the policies Stiglitz favors. Leading scientists and doctors have challenged these claims; why are their views to be excluded from the purview of science?

To reiterate, Stiglitz has no principled way to make judgments about freedom. He sometimes disguises this lack with learned references to choices behind John Rawls’s “veil of ignorance,” but it is quickly apparent that he does not understand this concept. Whatever his failings, Rawls had arguments for the choices he claimed people would make behind the veil, but Stiglitz uses the notion to dress up his own intuitions with pseudophilosophical verbiage. If he says, “I think the harm to people caused by denying unlimited freedom of speech to covid vaccine deniers is less important than the harm done to those deterred from getting vaccinated by tolerating such speech,” appending to this that “people would make this choice behind the veil of ignorance” adds nothing to the argument.

Stiglitz suggests that choices about freedom should be settled “democratically,” but if you think this means that ordinary people would have a decisive say in what counts as democratic choice, you are in for a surprise. “Behavioral economics,” of which Stiglitz is an ardent partisan, has taught us that people make irrational choices. The “guidance” of scientific experts is needed to ensure that people choose in accord with their genuine well-being, and you can be certain that Stiglitz sees himself as among these scientific guides. Those of us who look at freedom from a Rothbardian standpoint will see matters otherwise.


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