Joseph Stiglitz is a brilliant economist -- arguably the best of his generation. He is also a brave soul. For years he warned about the dangers of hot money ricocheting around the world. And he took a stand in support of the Asian model in the late '90s in opposition to the powerful Washington Consensus, jousting with his own employer at the World Bank. But as the after-effects of our own financial crisis unfold, Stiglitz has opted to delve more deeply into the political half of the old concept of the political economy. And like many economists, left and right, he does his economic half -- his economic brilliance -- no good service for indulging.
This weekend, Stiglitz published a review of former U.K. Prime Minister Gordon Brown's new memoir-cum-policy tract, Beyond the Crash: Overcoming the First Crisis of Globalization in both the Financial Times and Slate. Stiglitz likes and admires Brown, and there's a rough correspondence between Stiglitz's left-progressivism and Brown's Labour credentials. Brown, he says, unlike many "other people," particularly those "who were responsible for the creation of the crisis," instantly recognized the significance of it all. "As soon as Northern Rock began to teeter, he realized there were deep structural problems with the financial sector and he tried to act on what he saw. He grasped immediately that the problem was not just one of liquidity but of a weakness in the financial sector built on years of mismanagement, lax regulation and reckless speculation. He also saw early on that unless a government recapitalisation was accompanied by requirements that banks continue lending to businesses, the crisis in the financial sector would spread to the broader economy."
Now it's a little hard to tell whether Stiglitz knows all this because it's in the book or from conversations with Brown. In either case, Stiglitz displays no skepticism about Brown's sudden, and startling, epiphany -- or indeed that he was somehow far more advanced than others in power. In fact, Northern Rock was the U.K.'s Bear Stearns Cos. Both were runs (one by depositors, the other by counterparties and lenders) that forced the hands of policymakers to engage in a bailout. And once those moves were made, both countries found themselves spiraling down into deeper crisis. The U.S. ended up nationalizing Fannie Mae, Freddie Mac, AIG and injecting money into the largest banks; the U.K. essentially nationalized its largest banks, with the exception of Barclays. Both countries remain mired in post-crisis malaise, with incomplete recoveries and demands to reduce deficits. The U.K., now under a coalition government led by Tory David Cameron, is involved in a fierce cost-cutting campaign that is sparking widespread social tensions. The U.S. may be marginally better off only because of its entrenched advantages - its size and status as home of the world's reserve currency -- and perhaps because the Obama administration has avoided severe austerity measures.
So where does Brown fit into all this? First, Brown served as chancellor of the exchequer (and heir apparent) under Tony Blair beginning in 1997; he became prime minister when Blair resigned in 2007, just as the crisis was beginning. Stiglitz manages to ignore the fact that Brown presided for a full decade over the very mismanagement and structural flaws he so quickly identified when it blew up. This makes Henry Paulson, Tim Geithner and Ben Bernanke look like latecomers to the party. Stiglitz manages to spread the blame around to the usual suspects; one of the pleasures of reading this is wondering when he'll get to Brown's own complicity. And finally he does.
"Brown also shares the disappointment that more wasn't done in the aftermath of the east Asian economic crisis in 1998. To him, that episode showed how interconnected the global economy was. He expresses disappointment with the Financial Stability Board. But he doesn't reveal who was on the other side of the battles -- one can only guess that it might have been some of the same people who had fought in the U.S. against derivatives regulation."
Notice the recurrence of "disappointment" in others. See how easily Stiglitz slides from Brown to others. And what's that "one can only guess"? So Robert Rubin, Larry Summers and Alan Greenspan -- two of three gone from office by 2001, while Brown continued to preside -- were responsible not only for beating up Brooksley Born on derivatives, but for somehow battling Brown to silence over issues that included the size of London's financial center, the leveraging up of U.K. banks, deregulation and the overheating of real estate. You can blame the Committee to Save the World for a lot of stuff, but you can't blame them for what occurred after George W. Bush took office. Maybe that's why Brown doesn't single them out. Stiglitz, however, is eager to give Brown a pass. "He doesn't dwell, however, on the mistakes of the past," he writes of Brown, "either those that led to the crisis or the more recent one [presumably post-crisis economic responses]. What he tries to do is learn the lessons -- as different as they may be from the conventional wisdom that prevailed before the crisis." Ah, the old conventional wisdom.
Perhaps Brown realizes what Stiglitz chooses to forget: The blame game is a kind of contagion; few are immune. It's one thing for Brown to ritually blame Margaret Thatcher for everything -- "We needed to overturn 30 years of policymaking," he declares, 10 of which occurred under Labour -- but anything closer than the '90s poses a threat to his own reputation. After all, the Clinton New Democrats, including Summers and Rubin (who were Stiglitz's great antagonists in the Asia crisis debates) and Tony Blair's New Labour generally shared a centrist governing philosophy that gave a large role to finance as the engine. What was not to like? Labour continued to win elections, and the U.K. seemed to prosper, particularly the City. Let's face it: Brown missed the bubble just like everyone else.
Brown today is a sad figure -- a man who waited all those years for ultimate power, only to get it just as everything was collapsing around him. That sadness, of course, is diluted by the fact that he had oversight over the very economy that swept him under -- unlike Obama who inherited the mess. Brown did act with dispatch and focus, and he was a voice calling for harmonization of policies around the globe, culminating in the London G-20 meeting in 2009, perhaps his finest moment. As for his bank nationalization policies, it's a little hard to discern whether they were clearly superior to steps taken in the U.S. Stiglitz certainly believes they were, though he offers no evidence. "The U.S. strategy of letting the banks continue with the same practices, including credit card abuses, was doomed economically and politically," Stiglitz writes. The British public obviously did not agree.
Making these kinds of glib national comparisons is fraught with difficulties. The crisis, alas, still has a way to go before it's firmly placed in history. Comparing Brown to Rubin, Bush, Paulson or Obama involves far more than simply resorting to the conflicts and the clash of ideas and politics from over a decade ago. It involves issues that are far more nuanced and ambiguous than economic doctrines, whether left or right. And indeed, we may never know for certain whether Brown was the great and magnanimous hero of Stiglitz's telling or a figure brought low by forces he failed to foresee.
Robert Teitelman is editor in chief of The Deal