BILL MOYERS: Asymmetrical information. What is that?
JOSEPH E. STIGLITZ: It’s that some people know something that other people don’t know. Very simple idea. But the whole theory of perfect markets that the devotees of Adam Smith and Milton Friedman, and all these people who think that markets work perfect, totally ignored.
So, the idea was that markets where people have different information, where some people know more than others, where markets work imperfectly, are fundamentally different from this world that they had described where there was perfect information. You know, if worlds were perfect information, wouldn’t be any discrimination, there wouldn’t be any of this monopolies and all, you know, those kinds of perfections are not part of the world that we live in. And so what my research did is to help clarify, and with other people’s research, help clarify why our economy doesn’t work quite so smoothly as the advocates of free markets have claimed.
Why we had a crisis in 2008. You know, that’s not the way market economies are supposed to operate. Why it is, you know, the basic law of economics is you have supply and demand. With supply, the law of supply and demand, there’s not supposed to be unemployment.
You know, we have 20 million Americans who would like a full-time job and can’t get one. We have an economy where, you know, in 2009, ’10 we were throwing people out of houses. We had homeless people and empty homes. That’s not the way a market economy is supposed to operate. There’s so many aspects that are so central to our economy that seem out of sync with that theory of perfect markets.
And the evidence is so overwhelming that our markets don’t work perfectly, that markets can and are an important force. But we have to shape markets. Come back to our theme of taxes, taxes are one of the ways we shape markets.
If our tax system says speculation is going to be taxed at a lower rate, you’re going to get more speculation. If our tax system says if you keep your money abroad, you don’t have to pay taxes, you’re going to get more money abroad and you’re going to get less job creation inside America. If your taxes say we want to encourage real investments in America, then you can get more investment in America. So I’m an economist who believes that incentives matter. But I also believe that you have to shape incentives and that markets on their own don’t necessarily shape them the right way.
And that when we have a distorted tax system, distorted by a distorted political system that has given a huge amount of weight to the upper one percent, to the corporations, then that kind of distorted political system leads to a distorted tax system, which leads to a distorted economic system, which leads to an economy that is not performing as well for most Americans.