Joseph Stiglitz: ‘We still have time to save capitalism from itself, but if Trump wins, it will be harder’

Joseph Stiglitz, 81, is among the great heterodox voices of recent decades. A 2001 Nobel Prize winner in economic sciences, he is one of the economists whose voice is most present in the public arena. He self-describes as a progressive who is in favor of a capitalism that he believes must be reformed. Stiglitz chaired the White House Council of Economic Advisors during Bill Clinton’s first term and was chief economist and vice president of the World Bank. And he’s still at it, with his books, which challenge the impacts of neoliberalism’s four decades; and in his talks, like the one he recently gave in Madrid, hosted by the IESE Business School and the Naturgy Foundation. Afterwards he granted EL PAÍS a 40-minute interview.

Question. We’re in a massive election year in which campaigns have not been dominated by economic policies, but rather by scandals and culture wars.

Answer. I think economics is in the background. 40 years of neoliberalism was very hard on a lot of people. De-industrialization, partly globalization, partly technical change. The ideology precluded doing enough to protect the people who were being left behind. It has built up into, in the United States particularly, large groups of despair. That captures the tone of what has happened, the sense that something’s happened to people’s way of life.

Q. Donald Trump and other politicians from the far right are taking advantage of that.

A. Trump captured that sense of — in old language, it would be alienation, despair — and accelerated it, and helped transform it into a sense of identity politics. Politics has always been a little about identity, but he’s made it dominant, so that you’re either on Team A or Team B. What the other team says is wrong, and vice-versa. Making things more complicated at this moment, I think, is social media, because it allows people to live in different worlds.

Q. Polarization …

A. Even though they’re next door, we have a segregated society. If you are on Team A, you will almost never meet anybody from Team B and vice-versa.

Q. Neoliberalism, as you have said, simply didn’t deliver what it promised. But paradoxically, voters in Western countries are voting more frequently for right or far-right parties, which in many cases means more neoliberalism, not less. Why?

A. It’s an emotional reaction. Trump’s politics are not really neoliberalism. Trump has seized on nationalism and has established a coalition between the disaffected and a large group of business leaders. It’s a very strange coalition, because the business leaders used to be all in favor of globalization. But Trump is also in favor of low taxes and low regulation. Now, is he really in favor? Nobody cares — he’s an opportunist, and he’s seized the opportunity of forming a coalition between the disaffected and the billionaires.

Q. How is it possible to make that coalition happen? It’s unnatural.

A. Too many of the big corporate leaders are simply focused on material wealth and it’s a pact with the devil. Their number one priority is low taxes, even if it means the democracy will be destroyed. They will say, “Don’t worry, we can control him. Yeah, he makes a lot of noise, but we will make sure that he behaves reasonably.” In return, they get more tax benefits, no environmental regulations.

Q. It’s easy to accept such a discourse, even if it’s against voters’ interests.

A. There are a few elements of persuasion. One of them is this identity, that Trump’s “for us”, he’s the leader of our team, he has spoken truth to power by being such a bad boy, whatever that means. They actually think he’s good for the economy, and some of this is just bravado, but some of it is — even though the inflation rate is down, they think about prices being so much higher. Their wages have gone up, but the surveys say that many people think that their economic condition is not bad, but the economy is bad.

Q. How can you explain that? It’s not just happening in the United States, we’re also seeing it in Europe.

A. I think it’s the domination of the narrative over reality. They think their team does better. Biden’s economy must be doing very badly and they’re OK, but they must be the exception.

Q. Should we expect a radical shift in economic policy if Trump wins the elections?

A. I think it will depend, to some extent, to what happens to Congress. If one house of Congress remains Democratic, but it’s not like anything can happen overnight. If, on the other hand, there’s a Republican Congress, there could be large cuts to the science budget, for example. Where the president has a lot of powers is in foreign policy. I could see him announcing, even with a Democratic Congress, that we are no longer supporting Ukraine.

Q. France is about to hold some very important elections, and the extreme right is leading. What could happen if Marine Le Pen wins the election, in economic terms?

A. She’s been a very big nationalist, Euro-skeptic, not very cooperative. But it’s a little like [ultra-right Italian prime minister Giorgia] Meloni, who realized that in reality, Italy needed Europe. Immigration issues would become much uglier. I wouldn’t want to be a migrant in France if she gets elected.

Q. Does the increase in far-right parties in Europe stem from economic factors? Some thinkers point to discontent, low wages, inequality.

A. Like in the United States, some of the same forces of de-industrialization and neoliberalism, which means you didn’t do enough about rural-urban differences, create a fertile field [for such politicians]. We are unlucky in the United States that we have Trump, he has been very effective. They want to preserve the “American way of life,” and the only way you can do that is by destroying democracy.

Q. Even before Trump gets into power again, if he does, the world seems to be heading into a new era of tariffs, especially against China. What implications will that have?

A. For the moment it’s only moderate, though there’s a lot of rhetoric spent on this. I don’t hyperventilate, it’s hard to imagine a real break with China. We’re so dependent on China for so many minerals, pharmaceuticals, if you talk to people in these industries, they say it will take us five to 10 years to be able to be at the capacity to produce at a scale anything like them. Even with 40% higher prices, we just can’t do it. The most likely scenario is that nothing dramatic will happen, because nobody wants dramatic things.

Q. Do you agree with taxing electric cars, chips and solar panels?

A. I was talking to an investor who was talking about making a solar farm in the U.S. and because of tariffs, the cost of the solar farm was much larger. If you wanted to move as rapidly as possible in green, you would make sure it was as cheap as possible.

Q. The problem is that it could hurt your own industry.

A. I think we need to develop a solar panel industry, we can’t be so dependent on China. So, how do you square the circle of a rapid green transition and, at the same time, be more resilient?

Q. So your idea would be, in the short term, to accept such subsidized imports and in the long term, to increase the power of your own industry?

A. Exactly. Maybe through subsidies. Creating our own industry, but meanwhile, if they want to give us money to green, we should say thank you. [laughs]

Q. I’ll quote you: “You Europeans are not conscious of the paranoia U.S. has of China.” Why is that?

A. It never fully left America’s mind, this idea of Communism in China. For 30, 40 years, there was the hope that trade would convert China, and that’s gone. Anti-Communism, which has been the boogeyman of America for a long time, has come back, now that we’ve seen there’s no hope of conversion of Xi [Jinping]. As a U.S. citizen, I am concerned that we are not using our influence to encourage Democratic values in Africa and Latin America, we are losing that competition. But not in economic terms, I think the focus should be on strengthening the American economy, developing more resilience. But I would say that even if China were not the issue, that these are issues about our own development and growth.

Q. For many years, industrial policy was almost a taboo in Western countries. Now almost every single economic bloc is turning to those policies. Is that a big shift?

A. I’ve been advocating industrial policies for 40 years, and it is a positive step.

Q. Was the American dream a myth?

A. It’s been a myth. The life prospects of a young American are more dependent on education and the income of their parents than in almost any other advanced country. Americans are finally beginning to realize it. In many places, there’s no hope.

Q. Are we still in time to save capitalism from itself?

A. I think we can. If Trump gets elected and there’s a Republican Congress, then the answer is no. The battle isn’t over until the battle’s over, but it would be much more difficult.

Q. Has the Biden administration done enough to develop a progressive economic agenda?

A. It’s done a lot, it’s not fully appreciated. For example, in the IRA [Inflation Reduction Act] and the CHIPS Act. They’ve reduced the childhood poverty rate. Has he done everything I wanted? No. I wanted a windfall profit tax against the oil companies. I have strong reservations about the re-appointment of [Jerome] Powell [as the chair of the Federal Reserve], he doesn’t understand economics and raised interest rates too much, he doesn’t understand climate risk.

Q. So the Fed’s policy has been wrong in recent years, you’d say?

A. Yes. Well, normalizing interest rates was a good thing, but going up to 5% was not, they should be much lower. Central banks’ diagnosis was the wrong thing, they say that inflation is caused by demand exceeding supply, and my answer was no. If you don’t have chips to make an automobile, the price of automobiles is going to go up, if you have a war in Ukraine, the price of oil goes up, but raising interest rates doesn’t help that. It makes it more difficult to solve any of these problems. Powell is not an economist and would not likely understand these arguments, he doesn’t understand the sources of the inflation.

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