American follies

The Roaring Nineties

by Joseph Stiglitz

(Penguin/Allen Lane)

Few people outside the United States understand the revolutionary nature of American conservatism and the profundity of its ambitions. They don’t understand the extraordinary self-serving venality of corporate America and its Republican allies.

They don’t understand the ruthless pursuit of radical conservative interests and disregard for all others. They think, like British Prime Minister Tony Blair, that the US is having an eccentric wobble — and that if President George W Bush is engaged with, it will sooner or later be business as usual.

Nobel Prize-winner Joseph Stiglitz’s careful dissection of the follies of the “roaring Nineties” and the conservative thinking that produced them — penetrating the Clinton administration — is as good as it gets.

Stiglitz explains how the US centre and left allowed the right to win the economic argument. The right’s market fundamentalism is plain wrong, but has the pleasing consequence for conservatives of validating their every prejudice and allowing them to dress up serving their own interests as promoting the common good.

This thinking, with the unique circumstances of the post-Cold War 1990s, led to an extraordinary, unsustainable boom. As chairperson of Bill Clinton’s council of economic advisers for four years and chief economist of the World Bank for three, Stiglitz had a bird’s eye view of how the contagion infected the Democrats — and made them collaborators with the trends they deplored.

There is an element of confessional breast-beating in Stiglitz’s book — and occasionally the overlap with his previous bestselling work, Globalisation and Its Discontents, gives you a sense of déjà vu. Some of this Stiglitz has said before. Nonetheless, his account of how a group of smart economists and policy thinkers with impeccable liberal credentials found themselves zealously cutting public spending, deregulating, privatising and even cutting capital gains tax, is important and well-marshalled.

Time and again the combination of powerful corporate lobbies and appeals to the “rightness” of the new conservative economic consensus made it impossible for the Clinton administration to make progress, or even to shape deregulation in a less damaging way.

Stiglitz is a stout defender of the role of government, basing his view on the economics of information for which he won a Nobel Prize. Of course markets don’t work perfectly. They are structured so that insiders have more information than outsiders — so that prices don’t reflect costs and excess profits and rents abound. Unless government is on hand to correct the imbalance with regulation to promote competition, markets will produce all kinds of follies — of which the 1990s boom was the quintessential expression.

The hangover of debt and bankruptcy is costing the US economy hundreds of billions in lost output; and all because the insiders — CEOs, investment bankers, corporate lobbyists — went on the rampage, aided and abetted by Republicans.

Stiglitz’s account of how the lobbyists shaped the 1996 Telecoms Act, opening up telecommunications to new entrants with minimal regulation in the name of “competition”, is an eye-opener. In effect, despite self-serving talk of competition, they were giving a licence for an orgy of bids and deals as the industry jostled for what it knew were captive franchises (mobile and cable networks).

Stiglitz can’t offer a satisfactory explanation of quite why conservative America has the grip it has. My view is that market fundamentalism has been shaped by the American conservative think tanks to dovetail so neatly with great American myths — individualism, the frontier, self-reliance, redemption through hard work, from log cabin to White House — that it has become a self-reinforcing ideological thought system that is unfortunately impervious to rational argument of the type Stiglitz marshalls. — Â

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