Joseph Stiglitz highlights four inflation risks if there is another US Trump Administration, explains what US Republicans get wrong about freedom, identifies the principles that should guide a post-neoliberal agenda, & more

Project Syndicate: A year and a half ago, you criticised the US Federal Reserve’s response to inflation in the United States, arguing that, if anything, “disinflation has happened despite central banks’ actions, not because of them.” Now, many observers are highlighting the inflation risks of second Donald Trump administration, which would likely double down on import tariffs and seek a weaker dollar. Do you see other inflation risks on the horizon, and what should US policymakers be doing now to support continued price stability?

Joseph E. Stiglitz: There are four additional inflation risks associated with another Trump administration. The first is a tightening of immigration rules: as the US population ages, the labour force shrinks – a trend that, in the context of a tight labour market, will put further upward pressure on wages. Second, a second Trump administration would likely exercise little fiscal discipline – implementing, for example, unfunded tax cuts for corporations and billionaires; this could raise inflationary expectations and possibly even lead to an excess of aggregate demand. Third, a Trump administration would almost certainly abandon Joe Biden’s anti-monopoly policy, effectively giving corporations free reign to increase prices. Lastly, Trump’s likely interference with the US Federal Reserve might spook the markets, again leading to higher inflationary expectations.

PS: You have repeatedly highlighted the role of flawed and manipulative narratives in fueling the rise of authoritarian populism in the United States. One crucial principle that the American right has distorted and weaponised is freedom – the focus of your new book, The Road to Freedom: Economics and the Good Society. What do US Republicans get wrong about freedom?

JES: Freedom is about what you can choose to do. But a very poor person – someone who is unable to secure food or housing and has little to no economic opportunity – has no real choices; they must do whatever they have to do to survive. US Republicans disregard this reality, touting instead the myth that, no matter your situation, you can simply “pull yourself up by your bootstraps.” They conveniently forget that you can’t do that if you have no boots to begin with.

Moreover, many Republicans forget that one person’s freedom can impinge on someone else’s. Freedom for some is unfreedom for others, or as Isaiah Berlin put it, “Freedom for the wolves has often meant death for the sheep.” A society must carefully balance the freedoms of different people or groups.

Likewise, imposing some constraint on some people can sometimes expand freedom for all. Consider traffic lights: by enabling us to avoid gridlock, this constraint (or “regulation”) on our movement actually expands the freedom to move for everyone, including those who might feel that traffic lights represent a deprivation of individual freedom.

PS: You have praised US antitrust authorities for their recent efforts to tackle rising market concentration. Combating market power, you argue in your book, is also a potent means of addressing “coercion” by an increasingly oligopolistic media, which, by shaping people’s beliefs, limits their choices. What else is needed to ensure that news media in particular, including social-media platforms, fulfill their crucial role in well-functioning democracies?

JES: There has to be some accountability; giving social-media platforms immunity from liability was a big mistake. At the time, the argument was that social media was a “nascent” industry and needed room to grow without excessive restrictions or even adequate accountability. That is no longer defensible.

We will also need regulation. Europe’s Digital Services Act was a step in the right direction, but even that is insufficient.

At the same time, government should provide support to news media. After all, news media provide a public good, and public goods are inevitably undersupplied in private markets.

By the Way…

PS: Not all coercion is bad, you explain in The Road to Freedom, nor should it be viewed as the antithesis of freedom. In fact, there are many cases where “government actions that appear coercive actually increase the set of options for all or most people,” including delivering public goods and enabling coordination. How does coercion support the coordination of the economic system within countries, and how should it be used to advance global coordination?

JES: The traffic-light example offers a simple way of understanding such coordination, but there are countless other examples of this general principle, including on the global scale.

I might not be here today were it not for the mRNA COVID-19 vaccines that were rapidly developed during the pandemic. Government money financed not only the platform for these vaccines, but also a substantial share of the work it took to bring them to market. But for governments to be able to finance such public goods, they have to collect taxes.

Taxes are, by definition, coercive, but the money that I and others have been forced to pay supported government research that has enhanced our freedom in perhaps the most fundamental way possible: it gave us the freedom to live.

PS: Your book’s “ultimate objective” is to “describe an economic and political system that delivers not only on efficiency, equity, and sustainability, but also on moral values.” But, first, you examine the reasons why neoliberal capitalism failed, including its advocates’ blind belief in “self-correcting forces.” Has the belief in the magic of the market become less tenable now than in the past?

JES: I believe so – at least among a large share of the population.

Neoliberalism failed. We know that, because growth has been lower, and inequality higher, during its reign. A large (and growing) share of people seem to understand that this ideology bears much of the blame for our current travails.

But, regrettably, political processes are also not necessarily self-correcting. Voters in many places (including the US) have reacted to the failure of “center-right” policies by turning toward the extreme right, which will only exacerbate our problems by giving corporations more power – more freedom – at the expense of workers and consumers.

PS: You argue in The Road to Freedom that “slight tweaks” to the neoliberal framework “won’t suffice,” but that revolutions “typically don’t end well.” Instead, we must “push for as large a change as our democratic system will permit” – a change as radical as, say, the New Deal in the US. What would such an agenda entail, and how would it differ from the reforms enacted under President Franklin Delano Roosevelt and his successors?

JES: FDR set the US on a fundamentally new course, with government taking on greater responsibility for macroeconomic stability and the well-being of citizens (such as through social security). But that was almost a century ago, and the world has clearly changed. What was once an agrarian economy, before becoming a manufacturing economy, is now a services- and knowledge-based economy. The global economic balance of power has shifted, and the geopolitical environment is different from what it was even a few years ago. Meanwhile, we are facing a climate crisis as we confront our planetary boundaries. And, crucially, we now have a better understanding of what human well-being requires and what makes for a better-functioning economy.

A new policy agenda should be guided by a few key principles. First, we need a rich ecology of institutional arrangements, including for-profit firms and non-profits (including NGOs), and mechanisms for collective action – for example, unions, cooperatives, and class-action lawsuits. Governments, at multiple levels, must be engaged in regulation, taxation, and public investment.

The agenda must reflect a keen awareness of how these institutions shape us and their broader societal consequences. It must demonstrate sensitivity to power relations, to the ways different institutions can serve as part of a system of societal checks and balances, and to how wealth inequality is translated into political inequality.

Finally, we must recognise that what matters is not GDP – that is, the production and accumulation of goods and services – but individual and societal well-being, broadly defined. An understanding of the ways different economic, social, and political arrangements affect well-being is thus essential.

*Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and a member of the Independent Commission for the Reform of International Corporate Taxation. Copyright: Project Syndicate, 2024, and published here with permission.