The Road to Freedom: Economics and the Good Society
Upriver Press Book Review
The Road to Freedom: Economics and the Good Society
By Joseph Stiglitz
W. W. Norton & Company, 2024
Adam Smith, the famous eighteenth-century moral philosopher, argued that a society could not survive if its citizens lived only according to self-interest. If that occurred, he said, widespread selfishness would breed distrust, and distrust would undermine civil cohesion. Capitalism, if driven only by self-interest would devour itself. Therefore, he said, society needed “good codes of conduct” designed to limit self-interest.
“Upon the tolerable observance of these duties depends the very existence of human society, which would crumble to nothing if mankind were not generally impressed with the reverence for those important rules of conduct,” Smith wrote (The Theory of Moral Sentiments, III:V).
Smith was alluding to every nation’s need for a “social contract” that establishes fair rules of politics, economics, and other forms of civic life. Without that, a society can devolve into anarchy or disorder. Life would become like driving a car in a large city without stoplights. Collective freedom requires rules that consider the needs of everyone.
“Imagine a group of people who act only on the basis of their immediate needs and self-interest, without ever considering the effects of their actions on others,” writes Princeton University economist Markus Brunnermeier. “It would be the law of the jungle…. In fact, we would not call such a group a ‘society’” (The Resilient Society, 2021, p. 29).
In his new book The Road to Freedom, Nobel Prize-winning economist Joseph Stiglitz considers our economic “rules of conduct.” His central argument is that, starting primarily in the 1960s and 1970s, many prominent economists, such as Milton Friedman, gradually initiated major ideological changes to US economic policy, policies that idolized an unfettered financial and business sector, and demonized all government regulation.
This ideological shift, which Stiglitz says has little evidence in economics, began to seriously shape policies during the early 1980s and 1990s, with government pushing for widespread deregulation and massive tax cuts (without spending reductions). To promote tax cuts, free-market advocates espoused the concept of “trickle-down economics,” a belief that lower tax rates for corporations and the wealthy would be compensated by a rise in business investment, booms in innovation, and increased wages.
Trickle-down economics has never worked in US history, says economist Alan Blinder in his book A Monetary and Fiscal History of the United States, 1961-2021. To the contrary, Blinder says that starting with Reagan, new types of nontraditional conservative thinking disregarded any concern for budget deficits. The priority was always tax cuts. Since these policies have been in force, the national debt has soared and “fiscal stabilization policy has essentially been thrown out the window,” says Blinder (p. 151).
Stiglitz argues that this type of economic policy is rooted in a false notion: that government regulation and taxes stifle individual freedom. But, says Stiglitz, that’s like saying that when a municipal government mandates the installation of stoplights to prevent car accidents, the government is anti-freedom. His point is that balanced economic regulations promote, preserve, and expand freedom.
Complete deregulation does, of course, increase some freedoms—at least for a small group of people. But policies that oppose all government intervention in the economy often lead to widespread problems for the general population.
For example, Blinder describes how extreme tax cuts without spending reductions have played a significant role in increasing the national debt—an immense financial burden that future generations will be forced to pay. Those people will experience less freedom. Extreme tax cuts also defund teachers, police forces, fire departments, and infrastructure (roads, electric grids, waterworks, etc.), thereby reducing many fundamental freedoms for all Americans.
Stiglitz argues that neoliberal conservativism, which is not the same as the traditional conservatism of past presidents (e.g., Dwight Eisenhower), has warped our notion of what economic freedom means, couching it in hyper-individualism. Economists like Friedman have essentially decoupled our notions of freedom from moral responsibility, he says.
“Friedman flipped morality around, suggesting it was wrong for a corporate manager to do anything [other than maximize profits],” Stiglitz writes. “As [Friedman] said, ‘There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits” (p. 155).
Friedman’s widely held view—that a company’s only responsibility is to make a profit—often leads to what economists call “negative externalities,” which are downstream problems caused by upstream selfishness. One example is how the US financial sector invented shady investment products called mortgage-backed securities that produced massive short-term profits for a narrow group of investors but caused the 2007-2008 global financial crisis that hurt a billion people. Investment firms that designed the products thought only about their own economic benefits, and then, after causing the near collapse of the global economy, begged the government to rescue them (p. 50).
“[Neoliberal thinkers] trumpet selfishness almost as a virtue and misleadingly claim that selfishness ruthlessly pursued advances social well-being,” writes Stiglitz (p. 82).
In The Road to Freedom, Stiglitz also points out that those who adhere to neoliberalism don’t really believe what they preach. In practice, they like government regulation. They spend billions of dollars to lobby for regulations that promote their interests and to oppose regulations that constrain their profits. They also favor regulations that protect them from competition, thus debunking the idea of a truly free market. In short, they use power to establish the “rules of the game” to benefit only themselves.
“We cannot divorce the current distributions of income and wealth from the current and historical distribution of power,” writes Stiglitz. “Those in power typically, though not always, attempt to perpetuate their own power. While they might appeal to notions of fairness and justice as they shape the economic and political rules, they might naturally, unwittingly, or actively tilt those rules to serve their own interests” (p. 114).
Thus, when politicians say to Americans, “If you play by the rules and work hard, you can achieve the American dream,” they never mention that many of the rules hinder the futures of those who work hard and live moral lives.
In no way does Stiglitz advocate for Communist rules. He is far from being a Marxist who wants to see the state take over the private sector. He says the nation needs a healthy, vibrant, innovative private sector. But, he says, the private sector needs to be concerned about the well-being of all Americans, not just the bottom line.
His book promotes the idea of “progressive capitalism,” a capitalism that is based on rules and laws that help bring broader economic benefits and freedoms to all Americans rather than just a narrow few. He does not want a revolution; rather, he promotes the benevolent use of capital and policy changes emerging from a democratic system of government (p. 235). He simply believes that we need a form of capitalism that has checks and balances on unfettered greed (p. 276).
“We can strengthen systems of checks and balances in our society,” says Stiglitz. “It is not just one branch of government checking other branches but the private, public, and civil society spheres checking each other, and the fourth estate checking them all” (p. 292).
Whether you agree with Stiglitz or not, this book makes a vital contribution to an important moment in our national dialogue. We can learn a lot from Stiglitz, whose aim is to promote well-reasoned discussions, civic discourse, and national unity.
Quotes to Ponder
“Civilization: If it is not in man’s heart—well, then, it is nowhere.” — Georges Duhamel
“We wear the cape of civilization, but our souls live in the stone age.” — Nizar Qabbani