PROFILES OF WORLD ECONOMISTS 24 JOSEPH STIGLITZ JOSEPH STIGLITZ doc. Ing. Marta Martincová, Ph.D., University of Economics in Bratislava Joseph Stiglitz, professor at Colum- 2001 for research into „information bia University and convinced Neo-Key- asymmetry in the market“ and analysis nesian, received the Nobel Prize jointly of „moral hazard“ in economics. with G. A. Akerlof and A. M. Spencer in Joseph Stiglitz was born on 9th Februa- with instability and ineffectiveness only if ry 1943 at Gary, Indiana in the USA. It is we consider a variant of the assumption of interesting that Paul Samuelson, another rational expectations, if we create simple very important winner of the Nobel Prize models with a long time horizon. for economics, was born in the same city. Stiglitz’s work on uncertainty in economics led him Joseph E. Stiglitz attended state schools. From to research on information asymmetry and more 1960 to 1963, he studied at Amherst College, a small generally to work on the imperfect informedness of university in New England. He directed his attention to actors in the market. Stiglitz pointed to the results of economics in his third year of study. He left Amherst the economic behaviour of actors in the market. The College in his last year of study, because he got first course he taught was on statistics, and specifi- a grant to study at the Massachusetts Institute of cally on the use of the theory of probability to explain Technology (MIT). He was only later awarded an addi- statistical inexactness. tional degree diploma and still later, an honorary doc- Afurther key work was a book on public finance torate. “Economics of the Public Sector”, in which he clarifies Study at the MIT was important for the development the principles of the functioning of a correctly mana- of his profession as an economist. He spent two years ged and cautious state. In his lecture on the occasion at the MIT as a student and then continued to study of receiving the Nobel Prize, he stated that from vari- there for a doctorate. He was taught by outstanding ous points of view, information is a public commodity, teachers, including at least four winners of Nobel Pri- and so it is improbable that a private market will secu- zes: Samuelson 1970, Solow 1987, Modigliani 1985 re effective allocation of resources, when information and Arow 1972. His first paper presented at an aca- is an endogenous factor. His further works were direc- demic event was compiled jointly with George Aker- ted towards more exact definition of the origin of failu- lof, with whom he also shares the Nobel Prize. After re of the market. completing his first year of study at the MIT, he was His stay in Kenya was important for the develop- offered the chance to critically review Paul Samuelso- ment of J. Stiglitz’s thinking on the economics of infor- n’s articles. Even after leaving the MIT, he was long mation. It helped him to understand the basic pro- known as the best critical reviewer of blems a poor country has to struggle with. He also Samuelson’s articles. had a chance to learn about the problems of an eco- In 1965-1966, Stiglitz gained a grant to study at nomy, which differs very much from a functioning mar- Cambridge University. From Cambridge he returned ket economy. Similarly, the fact that he grew up in to the MIT, but after a year he left to teach at Yale Uni- Gary, Indiana, helped him to understand problems versity. One reason for this was to delay being drafted such as wage discrimination, which led to him reali- for the war in Vietnam. During this period, he continu- zing that certain pre-conditions for the functioning of ed to work on the dynamic of economics, and he the market were not consistently fulfilled in practice. began to concern himself with the problem of uncer- Although J. Stiglitz devoted the majority of his profes- tainty in economics, which led him to work on the role sional effort to teaching economics and to economic of information in the economics. research, he also briefly devoted his attention to con- The main subject of J. Stiglitz’s interest in resear- sultancy activity. He attached great importance to the ching dynamics was the stability of the market econo- problems of public policy. His first great consultancy my.Together with Karl Shell, he pointed to the fact that project was a direct result of his work on imperfect infor- a competitive economy with future, still growing mar- mation. It was oriented to information externality, which kets will generally be exposed to an unstable dyna- happened at the time of the oil boom. Further consul- mic. According to Stiglitz, we will not find problems tancy, connected mainly with violations of anti-trust BIATEC, Volume XI, 10/2003 PROFILES OF WORLD ECONOMISTS JOSEPH STIGLITZ 25 rules or with questions of the role of the central govern- architects of globalization the basic question: Why ment gave Stiglitz stimuli for clarification of how markets does the USA, when threatened by recession react really function and how companies behave in these with appropriate relaxation of monetary and fiscal markets. Joseph Stiglitz now teaches economics and policy, while the IMF advises or even forces develo- finance at Columbia University. He received the Nobel ping countries to do exactly the opposite? Prize for analysis of “moral hazard” in economics. Stiglitz’s arguments have evoked much discussion in In 1993, he became the chief economic advisor to the ranks of both the supporters and opponents of glo- Bill Clinton. He promoted reduction of the public debt balization. and budget deficit. In 1997, he was appointed to the J. Stiglitz argues that the private owner looks after position of chief economist and vice president of the property better than the state, so removal of restricti- World Bank, which gave him direct access to informa- ons on the economy supports development. However, tion about development aid. He gave up this position it is necessary to bear in mind that in countries, where in 2001. the market system is only emerging and beginning to J. Stiglitz also thought about the new challenges operate, this principle has many exceptions. Joseph and problems of globalization. He has written the book Stiglitz is a person, who knows very much about these “Globalization and its Discontents”, which asks the exceptions. Information asymmetry in the market classical model of the market did not pay attention to the pre-condition of access to information, and it also Stiglitz’s scientific work on uncertainty in economics completely ignored technological progress. He beca- led him to knowledge about information asymmetry me a supporter of Joseph Schumpeter, emphasizing and the general imperfect informedness in the mar- the importance of innovations, but he pointed to the ket, which was only a short step from the generaliza- fact that an established monopoly may persist, it does tion, that the market is not ideal. Stiglitz and his colle- not have to be a short-term matter. agues G.A. Akerlof and A.M. Spencer are convinced At the beginning of the 1970s, Stiglitz took an inter- that even small deviations from rationality in the rela- est in alternative approaches to the functioning of the tions between individual actors in an economy cause market founded on the evolutionary basis of Hayek. macro-economic break downs. In classical or neo- He was interested in evaluation of the evolutionary classical economic models, a key element is the process. He considered that the key question was assumption that the market is perfect. Buyers and sel- whether freely functioning markets can achieve the lers have equal power and opportunity to achieve a effective desired evolution without external interventi- satisfactory price. They have perfect information, they on, and whether it is possible to intervene in these know who sells cheaper and who buys at a higher markets in ways, which would lead to better results. price. However, the real market is not perfect, on one According to Stiglitz, this question has still not been side are privileged actors, on the other disadvantaged sufficiently researched. He stated in his lecture on participants. Some companies can wait before selling receiving the Nobel Prize that there are limits to the because they have reserves, while others must sell at evolution of the free market. Only part of this problem any price. Some know much about the goods and lies in the imperfections of the capital market. conditions in the market, others know nothing. Stiglitz’s views on the inadequacy of the standard According to Stiglitz and the neo-Keynesians in model were fully expressed in the discussion of the general, unequal access to information and the une- process of transformation of the former socialist eco- qual position of actors are typical of real markets. nomies into market economies. In this process, he If we take this assumption into account, it is entire- emphasized the importance of competition, the cent- ly clear that the market does not contribute to the opti- ral government, finance and more widely also the mal redistribution of the resources available to socie- institutional including the legal infrastructure. Howe- ty. In other words, the theory of economics needs to ver, he did not place much emphasis on privatization. be supplemented. The balance of supply and demand He belonged to the group of experts sometimes cal- as the basic thesis of every standard economics text- led “gradualists” in contrast to the supporters of the book is only a theoretical hypothesis. Well managed theory of shock therapy, who concentrated on rapid companies employing highly qualified workers should changes with rapid privatization.