Joseph Stiglitz is a man of the Left, but he’s no crabby Corbyn. He’s a lovely fellow and a brilliant theorist of economics (Nobel Prize, 2001). Like his mentor Paul Samuelson (Nobel Prize, 1970), he was raised in Gary, Indiana. Imagine two Nobel Prize winners coming out of Scunthorpe.

His project in this book is to plot out a way to ‘a rejuvenated European social democracy or a new American Progressive Capitalism’. He replies vigorously to lumped together ring-wingers, conservatives, libertarians and classical liberals. Using the conventional cuss word of the Left, he eloquently attacks ‘neoliberalism’, which gets eighty-six mentions (one more than the word ‘Stiglitz’). His particular enemies are the classical liberal economists Milton Friedman (seventy-six mentions) and Friedrich Hayek (forty-six mentions). He accuses them of ‘market fundamentalism … the almost religious belief that markets [are] efficient – an unshakable belief, even in the presence of evidence and theory to the contrary’. Margaret Thatcher be damned.

The fundamentalists recommend, says Stiglitz, ‘the freedom to exploit’. ‘Exploitation’ he defines implicitly as any unhappy advantage taken by one party over another. So high pay for unionised auto workers during the 1960s exploited the customers? Oh. ‘Unregulated, unfettered markets’, Stiglitz believes, are a menace. Fettering by interest groups, conversely, is good. We need more fetters on planning permission for housing in the UK, more regulations added to the five thousand that govern apple orchards in the USA, more coercions to add to the 40 to 50 per cent of national product nowadays seized for state schemes.

‘Mild coercion … can … enhance everyone’s freedom, even the freedom of those being coerced,’ Stiglitz argues. Like the many other orthodox economists who favour an expanded state, such as the Nobel Prize-fated Turkish economist Daron Acemoglu, Stiglitz puts forward in his idea-filled book no ideas about how the coercion he favours can be kept ‘mild’. Our masters are seen as sweet Swedish bureaucrats. China and Saudi Arabia might as well be other planets. 

One can only agree with Stiglitz’s claim that the refusal of ‘technocratic economists’ to take moral stances is a charade. They often take these implicitly when engaging with public policy but hide them behind the glow of ‘technical impartiality’. Stiglitz’s ambition is ‘to make the discipline of economics a more capacious cognitive enterprise’. Good. Does the book do it? No.

As with much of the writing that comes from the Left, the book depends on a mixing up of two types of liberty. Stiglitz does not distinguish, as Isaiah Berlin did, between positive liberty and negative liberty. Positive liberty gives you the wealth to do things, such as buy a Rolls-Royce or a crust of bread. Negative liberty prevents other humans from coercing you. Modern English invites the mixing. Two centuries ago, the Latinate word ‘liberty’ and the Germanic word ‘freedom’ meant the same thing: not being enslaved. But since the dawn of New Liberalism in the 1880s, the Germanic word has drifted, becoming synonymous with positive liberty. Stiglitz cites with approval the third of the ‘Four Freedoms’ that Franklin D Roosevelt articulated in 1941 – ‘freedom from want’. ‘A person facing extremes of want and fear’, writes Stiglitz, ‘is not free. Neither is someone whose ability to have a full life, aspiring to use all of her capabilities, is restrained because she was born into poverty.’ Equality at the starting line is Stiglitz’s aim. He doesn’t notice that it is unattainable.

The new meaning of ‘freedom’ is vacuous. We already have words that signify capabilities, income, wealth, what economists call a high budget line. We all want people, especially poor people, to have high budget lines (Stiglitz, with uncharacteristic ill will, supposes that classical liberals do not want this). The problem is that both the classical liberal hypothesis that freedom leads to wealth and the modern statist hypothesis that, on the contrary, fetters lead to it are rendered meaningless if ‘freedom’ is simply defined as wealth. We need a political term, Berlin’s ‘negative liberty’, to be able to discern whether the equality of permission entailed in liberalism or, conversely, the increase in the power of states to coerce explains the 3,000 per cent increase in the wealth of the world’s poor since 1800.

The other vacuity in Stiglitz’s argument arises from the weight put on ‘externalities’, a term used some 140 times in the book, to argue for coercions to achieve ‘freedom’. The concept of externalities, like the mixing up of different definitions of liberty, is wildly popular among statist economists. Stiglitz defines an externality as ‘an action taken by some people that negatively affects others’. ‘Externalities’, he opines, ‘are pervasive in our economy and society. Today, they are far more important than they were when John Stuart Mill wrote On Liberty and far more important than Friedman and Hayek suggested.’ Markets, Stiglitz says, ‘on their own won’t adequately “solve” the economic distortions to which externalities give rise’. ‘Collective’ (in other words, mildly coercive) action is needed to deal with them.

Stiglitz quotes John Donne in support of his claim: ‘No man is an island entire of itself.’ Quite true. But what Donne is saying is that you and I are involved in humankind. You and I bump into each other in every imaginable way all day long – in a marriage, say (‘For Lord’s sake, John, take out the rubbish’). If I wear a hideous burnt-orange dress, all who see it are hurt. Does that mean it’s time for the fashion police? The Declaration of the Rights of Man and of the Citizen offered approval to tout ce qui ne nuit pas à autrui (‘anything that does not injure anyone else’). What’s that? In a society of more than just Robinson Crusoe, nothing. If you write a better book on English open fields and enclosures than mine, I am injured. But a new coercion by the state is not justified.

That’s not to say that there are no bad events that states shouldn’t try to stop – the German conquest of Europe in 1939–42, say. But we should calculate the costs and benefits of every such course of action and decide whether it is worth pursuing. Such deciding entails measurement, which Stiglitz never offers. In the style of maths in the department of mathematics but not that of physics, he offers merely blackboard possibilities in an imagined world rather than facts in the world he inhabits.

I was acquainted with the British mathematical economist Frank Hahn (1925–2013). Frank, like Joe, was a splendid man who reread all of Jane Austen’s novels yearly. I once asked him why he did the sort of research Stiglitz praises throughout, seeking to demonstrate that only by combining many strange assumptions is it possible to come up with a mathematical model in which markets appear to work. He replied, ‘To show that Thatcher is wrong.’

The true liberal economist Vernon Smith (who won the Nobel Prize the year after Stiglitz got his) showed decades ago that in fact the necessary conditions for markets to work pretty well are very few. Real science speaks of approximations. Not Frank or Joe, though. The fundamentalism, dears, is on the other foot.