It's the dinner party that keeps giving.
Back in May, when we learned that dissident economists Paul Krugman and Joseph Stiglitz had been invited to dinner at the White House to bring some diversity to the Summers-Geithner dominated policy discussion, the news signaled a welcome openness from President Obama to other points of view. Not long after, Krugman and Stiglitz even seemed to slightly moderate their criticism of the administration.
Now we learn from Newsweek's Michael Hirsh that Stiglitz was "a little miffed" because he was only asked to participate at the very last minute, while other name-brand economists had gotten their invites a week earlier. And that, "While Stiglitz was flattered by the discussion over a dinner of roast beef and Michelle Obama's homegrown lettuce, he can't stop himself from complaining that an occasional meal with dissidents is not the best way for the president to formulate policy."
Given his track record pointing out the flaws in the prevailing economic ideology of the last few decades, Stiglitz has a right to carp. Hirsh's story includes lots of details on the long-simmering feud between Stiglitz and Larry Summers, but the meat of this very-worth- reading profile is a paragraph that superbly sums up how Stiglitz's theoretical contributions perfectly mesh with recent economic developments.
Stiglitz is perhaps best known for his unrelenting assault on an idea that has dominated the global landscape since Ronald Reagan: that markets work well on their own and governments should stay out of the way. Since the days of Adam Smith, classical economic theory has held that free markets are always efficient, with rare exceptions. Stiglitz is the leader of a school of economics that, for the past 30 years, has developed complex mathematical models to disprove that idea. The subprime-mortgage disaster was almost tailor-made evidence that financial markets often fail without rigorous government supervision, Stiglitz and his allies say. The work that won Stiglitz the Nobel in 2001 showed how "imperfect" information that is unequally shared by participants in a transaction can make markets go haywire, giving unfair advantage to one party. The subprime scandal was all about people who knew a lot -- like mortgage lenders and Wall Street derivatives traders -- exploiting people who had less information, like global investors who bought up subprime-mortgage-backed securities. As Stiglitz puts it: "Globalization opened up opportunities to find new people to exploit their ignorance. And we found them."
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