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The Price of Inequality - A Conversation with Joseph Stiglitz '64 and Professor of Economics Geoffrey Woglom

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Geof: This is Geof Woglom and I’m joined here by Joseph Stiglitz. Joe, Nobel Prize winning economist and Joe I’ve forgotten your class

Joe: 1964

Geof: Ok, and we’re going to talk to day about Joe’s book, The Price of inequality, How Today’s Divided Society Endangers our Future. Joe, one of the things that I was interested in was to read that you had a Vanity Fair article that preceded this and can you talk a little bit about how you got interested in this topic.

Joe: It’s a topic that I’ve actually been long interested in. it was part of my PhD thesis. My PhD thesis was on the effects of inequality, the distribution of income, on growth and the effect of growth on the distribution of income. In fact, going back even further concerns about inequality and discrimination were one of the things that motivated me to go into economics in the first place. This particular article which was entitled “Of the 1%, for the 1%, by the 1%”, grew out of a conversation at a trustees meeting with Cullen murphy, who is a fellow trustee and one of the editors at vanity fair. We were talking about various ideas and he solicited the article.   The short article that I wrote went viral. It got a lot of attention and then my publisher said, why don’t you make it into a book? So I did.

Geof: With the reference to the 1% and the 99% it sounds like you were also inspired by the Occupy Wall St.

Joe: I think it actually was the other way. I think they picked up the refrain. It’s an interesting refrain because what it says is most of the country is in one boat and a small percentage in another boat. And of course the term 1% is in a sense a metaphor. It isn’t precisely 1%. For some purposes it’s the upper 1/10% and for other purposes it’s the upper 10 or 20%

Geof: well maybe we should talk a little bit about that. You begin the book with some very disturbing statistics. Which ones do you think are most relevant for our audience today?

Joe: Two of the statistics that I find most disturbing are the fact that the United States has become the most unequal of any of the advanced industrial countries. It’s also become the country with the least equality of opportunity amongst any of the advanced industrial countries for which we have data. In other words, the lifetime prospects of a child born in the United States are more dependent on the income and education of his or her parents than any of these other countries.

Geof: I’m interested to hear you say that because to me that was the most disturbing when I read the book. Because one can presumably tolerate a certain amount of inequality in income and wealth if in fact there is social mobility and the people at the top are churning over with the people at the bottom. But that’s not the case with the US.

Joe: That’s right. And the worry is there is a link. Those societies with a high degree of inequality often wind up having less equality of opportunity and that then often perpetuates that high degree of inequality.

Geof: I think it would be useful for you tell us a little about what the dimensions of the inequality are at the moment in terms of things like income statistics and wealth.

Joe: The statistic that has perhaps gotten the most attention is that the upper 1% gets somewhere between 20-25% of all the income. It varies from year to year but it’s in this very high range. And one of the concerns is that things are getting worse. That number is twice the corresponding number 30 years ago. The share that goes to the upper 1/10 of 1% has increased by a factor of 3 to4 in the last 3 decades. Another very telling number, in terms of the extent to which things are getting worse, is  the fact that in 2010, the year recovery from the great recession, 93% of all increase in income went to the upper 1%. Wealth inequality is even worse than income inequality. The upper 1% has about a 1/3 of the total wealth, but what’s been happening to wealth in the middle as well as income in the middle and the bottom, has been equally disturbing. It would be one thing if those at the top were getting wealthier and pulling up everyone with them, a notion that some economists call trickle-down economics. But that’s not what’s happening. The people in the middle are not doing very well. The numbers that came out after my book was published show that median income (the  income such that half the people are above and half the people are below that number) today is about at the level that it was in 1995 and median wealth is back to the level of the early 1990s. So that all the increase in wealth in effect has gone towards the top.

Geof: And that’s adjusted for inflation presumably?

Joe: And these numbers are all adjusted for inflation.

Geof: We do know when this rising inequality started, don’t we?

Joe: It started around 1980, sorry to not be precise. And that is again a very striking aspect of what’s been happening. In the decades after WW2 the country grew more rapidly than in the decades after 1980, but it grew together. Every part of society, the bottom, top and the middle grew. But those at the bottom grew the most and those in the middle the next most and the top the least. So we grew together. Just the opposite is what has been happening.

Geof: Not that I know these statistics, but there previous times in our history when we had very unequal wealth. How do we compare to the golden age in the 1920s?

Joe: We’re roughly to where we were in the roaring twenties. We don’t have as good data for then as we do for now. But the general sense is that inequality was roughly comparable then to what it is now. Another period of high inequality was the gilded age.  One of the interesting things and one of the things that give me hope you could say, is that in both of these periods of extreme inequality, the gilded age, and the roaring 20s, we looked over the brink and we said that’s not the direction we want our society to go; we pulled back from the brink and we passed legislation that in a sense tamed these extremes and brought our country closer together

Geof: And it’s interesting that the legislation was in the aftermath of a financial crisis.

Joe: Yes, the landmark social and economic legislation of the 1930’s was passed in the midst of the great depression –a depression which followed a financial crisis. It’s very clear that policy can make a difference. Social security for instance has almost eliminated poverty among the elderly.

Geof: Before we get to what should do about today’s situation let’s talk a little bit about the causes. You list a number of causes. I guess what we’re talking about is a structural break somewhere around 1980. Obviously one of the things economists talk about is the growth of free trade. And I know you know that has something to do with it but that’s not the whole story is my understanding.

Joe: That’s right. The task of trying to parse out what fraction of the increase in inequality is due to each factor I think is almost impossible because they are so intertwined. Trade and globalization have played a direct role but have also played an indirect role  in weakening unions. Because workers are told that if you demand high wages and good working conditions we’ll move our factories abroad. And so the unions can’t fight that, and that weakens the  the unions. Other factors that I look at in my book include the increase in rent-seeking. Rent-seeking is just the name we give to efforts to get a bigger share of an existing pie rather than increase the size of the pie. Examples are things like monopolies which actually get their money by restricting production. There are a host of examples of rent-seeking in our society and our economy. Banks that engaged in predatory lending and abusive credit card practices, basically took money from the bottom and middle and moved it to the top. That’s an example of an activity that can be thought of as rent-seeking. So too can getting corporate welfare from government, exemplified by  , the bailout of AIG which got 182 billion dollars.  of the  benefits of this corporate welfare ultimately almost always go to the those at the top.

Geof: It’s a little bit interesting in your discussion because I think of freer trade as trying increase competition and rent-seeking as something trying to decrease competition. But you see the two as related

Joe: Actually there are different forces going on. One of the reasons there is greater scope for rent-seeking of one form, monopoly of power, has to do with changes of technology, what we call network externalities, network effects.  This means that the person (corporation) who develops the operating system that is used in PCs has enormous amount of monopoly power and that generates a lot of monopoly rents. Much of the rents that I’ve referred to actually are through the political process. To compete internationally, the banks said we needed to deregulate.   I think that was  wrong. But, that deregulation in turn, particularly financial sector deregulation, actually gave more scope for renk seeking activities. Before government regulations had restricted the extent of this kind of exploitation.

Geof: In thinking about this I also wanted to ask you about financial liberalization in the sense that, is it all bad? I remember being at the fed in the mid-1970s and the banking sector was pretty much a monopolistic competitive situation then. Is it all bad that we’ve had?

Joe: Well, perhaps not all bad, but what is striking when you look at the numbers is how much of the growth of the financial sector has gone into activities other than what we think of as their core activities, that is to say, providing loans to small and medium size enterprises, to corporations to make investments, to create new jobs, to expand their markets. An extraordinary fraction of economic activity  is related to speculation. The concern is that in fact we’ve developed a financial sector that got distracted from its core mission.

Geof: well some of it was innovations that were taken too far and not designed properly. For example,, what do you feel in general about securitization. Can it be a good thing?

Joe: The right kind of securitization can be a good thing. The notion is that it pools risk. But there are other ways of mitigating risk. For instances, wider ownership of the shares at the banks is another way of risk mitigation. The problem with securitization that we finally realized, and I had written about actually back in the 90s is that it attenuates incentives for good lending. If you originate a loan and you keep it on your own books, you want to make sure that it’s a good loan, that the loan will be repaid. If you originate a loan and you sell it on to someone else and it goes into a pool of a million loans, the guy that buys the securitization loan can’t really ascertain the quality of each of those loans, and the mortgage originator knows this and there is therefore the tendency to originate worse and worse loans. And that is precisely what happened in the years before the crisis. Now there are ways of mitigating that, but many in the financial sector are resisting the reforms that would do so. And it’s striking; it’s now been five years after the breaking of the bubble at the beginning of the recession. The securitization market for mortgages has not really restarted. It’s the government that really is backing…

Geof: Fanny and Freddy

Joe: Fanny Mae and Freddy Mac that is really buying almost all the mortgages. The securitization model has not been able to get restarted.

Geof:  Well, Some of that I think is a lot of fear and uncertainty.

Joe: I think some of it is a recognition of a fundamental inherent information problem that is created with securitization. Now as I say, there are ways of mitigating some of the problems, such as requiring the originator to hold onto a more significant share of the loans so he can’t fully divest himself of the consequences of originating a bad mortgage.

Geof: that reminds me of one of the great phrases in economics, which I think I’ve heard you use, and that is, that the originator needs more skin in the game.

Joe: Exactly

Geof: But we’re getting off onto financial deregulation which is an area that I’d love to talk a lot more about. But we should talk more about… one of the unique aspects of your book is what you’re saying is there’s not a tradeoff between efficiency and quality. In fact, inequality is causing inefficiency. When I was trained, partially by you way back when, we had  a famous analogy called Okun’s Leaky Bucket and I guess you’re taking issue with that.

Joe: Very much, in fact that’s one of the main messages of the book.

Geof: By the way, Joe, before you go on I should point out that Okun’s leaky bucket was that attempts to eliminate or moderate inequality  is like taking water with a bucket that leaks and you want to do it if it doesn’t leak too much.

Joe: What I’m trying to argue is that the magnitude of inequality in the US and the nature of how it’s created is actually having negative effects on our economy. And I talk about several channels, for instance, one relates back to that theme we talked about in the beginning of this conversation, about America becoming the country with the least equality of opportunity. But one of the consequences of that is that those that are unfortunate enough to be born to parents who are not well off are not able to live up to their potential. They aren’t able to get access to education that would enable them to perform up to their capacities. Second example that is also related to what we were talking about before, a lot of the inequality is related to rent-seeking. And rent-seeking often is what we would call a negative sum game. It’s like a leaky bucket, but in moving money to the top you actually destroy value.

Geof:  We’re going the wrong way with the bucket

Joe: We’re going the wrong way with the bucket and it’s leaking going up as well as going down. And it’s weakening the economy. Monopoly is an example. When you create inequality through monopolization you are destroying value. Some of it, inequality, is related as well of course to distortions in our tax systems. When you tax speculators at a lower rate than those who work for a living you’re encouraging speculation, it’s distorting the economy, and in that sense, making the economy weaker. And there are some other channels that I identify. One is that a modern economy requires lots of public investments; investments in infrastructure, technology, education and so forth. But when you have a more divided society, it’s more difficult to get the political consensus behind those investments which are necessary to make an economy function well. And the dearth of those investments, the under investments, weakens the economy. And the final thing is, more a macroeconomic  phenomenon that is now becoming increasingly recognized, even the IMF has begun to talk about it, is that increasing inequality leads to a weakening of aggregate demand. And when there is a deficiency of aggregate demand it worsens the problem, weakens the economy, creates more unemployment. And the reason is very simple. Those at the top consume a smaller fraction of income than those at the bottom so when you redistribute money from the bottom to the top you’re lowering total demand

Geof: You know, I had a little trouble with that argument and just let me pursue that with you for a second. If you look up to the buildup to the great recession consumption was at all-time highs and personal savings was at all-time lows at the same time that inequality was getting worse.

Joe: If I had said it a little more precisely, what I would have said, in the absence of other actions by the government, demand would’ve been weak. And of course the FED responded to that potential weakness in demand, and the way it did it was lower interest rates and being a little but more lax on regulation. More than a little more relaxed. The effect of that was to create a bubble. So what it did, it artificially stimulated consumption to offset the inequality that was being created. In fact, it did it so much, that the bottom 80% was on average consuming 110% of their income. Now obviously that wasn’t sustainable. The only reason it could occur is that they had created a bubble and people felt that because their wealth was increasing in this fake way that they could consume that much more.  The implication for our economy going forward is that even after people deleverage, even after banks are fully repaired, they’re not going to be consuming 110% of their income. Most, their consumption will go to 100% of their income. If that happens of course that means we’re back into what I said before. High inequality weakens aggregate demand and there is going to be a deficiency in aggregate demand that will have to make up in some way or another and hopefully it won’t be an attempt by the Fed to create another bubble.

Geof: well certainly we don’t want another bubble. In the long run we do have to worry about the fiscal situation.

Joe: The long run that’s right.

Geof: I should say the median term.

Joe: that’s why the ability of government to fully fill in the gap may be restrained and why policies that would redistribute income would be an alternative way, not relying on deficit spending that would stimulate demand and get our economy growing

Geof: I get a little nervous about filling it with consumption. How about net exports?

Joe: Net exports are a good solution if you’re in a world in which your trading partners are growing. In a world in which Europe is in recession and there’s a slowdown in growth in Asia, things are more difficult.

Geof: I certainly agree in the short run, we can’t depend on net exports in the short run, but in terms of the longer run.

Joe: In the longer run that’s true. In the longer run we can also do more investment. But among the area of investment are going to be investment in the public sector as well. And that will need a broad social consensus that a divided society makes it much harder to reach.

Geof: Right. Maybe we should talk a little bit about the way you see that we could change things. That we can get back to a more equal society that probably we all would like

Joe: well there’s a whole agenda and much of this follows from the analysis of the sources of inequality. I should’ve said earlier, made two distinctions. There are many aspects of inequality in our society. And each of the parts of it in some sense has a slightly different diagnosis. There’s the increase of income at the top, the hollowing out of the middle, the increase of poverty at the bottom. And so as you think about these problems you want to think about each of them a little bit separately. Secondly, you want to distinguish between before tax and transfer inequality and after tax and transfer inequality. That is to say, what is the outcome of seemingly market processes and then how does the government intervene through taxes and transfers to adjust to correct that market distribution. One of the important points that I try to make is that markets don’t exist in a vacuum. Government sets the rules and regulations which affect how markets work and therefore the degree of before tax inequality. One of the reasons we know this, earlier in our conversations I pointed out that America has the highest degree of inequality of any of the countries, market forces are at play globally in all countries, in slightly different ways perhaps, but in all countries, but different countries shape those market forces so that the outcomes both in terms of before tax and transfer and after taxa and transfer income are markedly different and are even changing in different ways. Some countries are actually having reduced inequality as we are having increased inequality. What that emphasize s is that policy does matter. So there are things that we can do that will affect the degree of inequality on our society.

Geof: Can I just talk to you a little bit more about that. You know, at some level the criticism that you are making about the system being rigged is also shared by the tea party. And at some level, the far right and your position about government are not all that different. They conclude that essentially we can’t rely on government and you’re taking the position, I think, that somehow we need a better government.

Joe: That’s right

Geof: But how do we get a better government if all the institutions are rigged?

Joe: I guess in the end I have a little more faith in democracy and I have a little more faith that if the citizens can come to understand what is going on, that our democratic processes can be made to work better to reflect more the views of most of the citizens and to tame the excesses of inequality towards which we’ve gone. That’s the, you might say the optimism, maybe mid-west optimism that I have. And going back to the example I gave before. Both at the end of the Gilded Age/Roaring Twenties, we did that. I don’t think it’s inevitable. One of the things I do think we are going to have to do is make political reforms, including the role of campaign finance, revolving doors, lobbying and so forth. In a sense, we know what needs to be done and the real question is, are the same forces that have led to the kind of tilting playing field in economics actually lead to a tilting playing field in politics as well and can we undo that.

Geof: There is another dimension that I was a little uncomfortable with and would like to hear your views on.  You can think about government changing the structure of things. Glass-Steagall changed the structure of the financial industry. You can also think about the government being much more active and trying to fix things. And I was struck by the fact that you talked about providing incentives for the poor to save more. And it sounded like you wanted to use the tax code to do that. And frankly that got me very nervous because as soon as you start fooling around with the tax code, given the fact that I accept your view that the political system is rigged, that democracy is not going to protect society.

Joe: Let me try to differentiate between two aspects of the analysis. One is to say if we had to list what could be done economically to achieve…what are the changes in our economic system that would bring about a more efficient and a fairer society or a society marked by lower inequality. That’s the kind of agenda….one of the things I did was to outline what the agenda might look like. And some of those things, you might say, are easy tings not to do. Not taxing speculators at a lower rate than workers. Not privileging bankruptcy law derivatives over other kinds of claimants. Not treating student loans in the adverse way that we do treat them even in the event of bankruptcy. Reducing the scope for rent-seeking by more effective enforcement of competition law.

Geof: But that sounds like, again, the act of government. Do we need the political reform first?

Joe: I think unless we get political reform, it is going to be very difficult to accomplish these, but on the other hand, I don’t think we are necessarily striving for perfection. One of the reasons I made a long list like that is that there are some things that we might be able to accomplish faster or with broader consensus than others. For instance, more effective enforcement of competition laws is something that I think the right and the left agree on. Almost everybody except the monopolists think that competition is a good thing. Now the monopolists have a lot of money and they will try to fight back but in general there is a broad consensus in our society about the need for effective competition laws and when people understand some of the adverse effects both on efficiency and inequality there might be a broader consensus.

Geof: Boy, I don’t know Joe, I was born in Brooklyn and not the mid-west and maybe that explains it, but the failure of the SEC to pass the changing money market mutual funds from a dollar share to floating values, the failure to tax carried interest, you are more optimistic about our current democracy than I am.

Joe: I understand your question. What I am saying is I do think there are some elements of a broader agenda that we might be able to get some consensus on. But more broadly I do agree with you. The deeper reforms, the wider reforms, any real success will have to begin with the political reforms and that’s why I spend a couple chapters on that subject.

Geof: Given the fact that many of our listeners will hear this before the election does it matter who wins?

Joe: Yes, very much.

Geof: So you’re not a Ralph Nader type.

Joe: No, I think it does matter. And the reason is partly this political reform. I’m very concerned by the Supreme Court decisions on the citizens united and a number of the Arizona cases which have basically given wider scope for moneyed interests to influence our politics. I’m also concerned that the extent to which, obviously both parties there are, not a surprise, special interests, moneyed interests, have disproportionate influence. But I still think it’s a difference. One is committed to enforcing and extending financial regulation. Glass-Steagall actually worked while we had it, it may not have been perfect. And other countries, like the UK are now discussing more effective ways I believe of trying to restore a financial system that is focused on….

Geof: Along those lines, I can’t help but ask. In terms of financial regulation, again I’m looking for structural changes rather than more effective regulators, and I’m in the Simon Johnson camp about raising capital requirements and I wonder if you have been following this business school professor out at Stanford who wanted to apply the Modigliani-Miller theorem to banks in arguing that they should accept much higher capital ratios. And because you worked in Modigliani-Miller didn’t you?

Joe: That’s right, you’re talking about Anat Admati. One of her co-authors and I testified to congress on precisely that issue.

Geof: So you taught them Modigliani-Miller?

Joe: Yes, and argued that in fact that banks claimed that raising capital requirements was expensive ignores this fundamental insight that when you have higher leverage you are just shifting risk. And part of the risk is that you are shifting it to tax payers, which we saw. You are not creating value. That is a very deep insight. There are some limitations to the theorem that I also pointed out. But that insight is one that those in the financial sector have not really fully taken on board.

Geof: Well, there’s a difference between the social value that is created and the private value and the implicit guarantee on deposits.

Joe: Exactly. So, you could understand why they would like an increase in their implicit subsidy that they get. But at the same token, we, those that are responsible for creating an efficient and stable financial system should recognize what is going on.

Geof: I’m thinking about changing topics a little bit, non-book topics. The reason I thought it would be nice to change topics a little bit is you’ve had a remarkable career. In three different phases. You started off as a wonderkin theoretical economist and then all of a sudden you went to work for policy-making organizations and basically did policy work although your theoretical work certainly was related to policy but you were doing practical policy when you were the Chair of the Council of Economic Advisors under Clinton and then when you were the chief economist for the IMF

Joe: World Bank.

Geof: And now you’re this public intellectual. You appear on John Stewart. But you are trying to influence policy from the outside.

Joe: Well in a way, one of the reasons I went into economics was because I wanted to effect change. I wanted to have some impact. I had been a physics major at Amherst, I loved the mathematics. But I decided what I was really committed to, what I was really excited about           were these basic very deep social problems, economic problems. Then for, you might say 20-25 years, the intellectual challenge of those problems really took hold of me. Although I always kept a little bit….I did a little work for the World Bank, and did a little applied stuff. At the same time, the insights I was getting about when do markets work and when they don’t work, what are the problems in the public sector really provided the intellectual roots that grounded my policy work. And I think that’s where I thought the value added that I brought to the table as a policy maker was that I had thought about these questions quite hard from an analytic perspective for twenty years. One of the frustrations you have when you are in government, though, is that you are working…you are trying to have the influence from the inside, and there is an administration position or you are a member of a team, you are trying to influence that team, you try to play your role influencing public opinion but through the views of the agenda.

Geof: But you know, before you talk about the challenges of the political environment, there’s a big difference between doing theoretical analytical work and then doing practical policy in the sense that there are a lot of facts you have to work. And I’m somewhat astounded at your ability to go from very, very concrete tough analytical problems to the real world messy concrete of designing tax policy and so forth. I understand that your analytical background brings a big strength but how did you get the time to learn everything about the US tax code and things like that?

Joe: Part of my analytic work had always been to try to understand…it was motivated by detailed descriptions of institutions or actual structures. My work as opposed to a lot of other peoples work involved a closer interplay between the reality and the theory. For instance, some of my more important work on information economics were stimulated by time I spent in Kenya.

Geof: Is that right? That’s fascinating.

Joe: Yeah, and in developing countries more generally. There was a puzzle posed by share cropping. Here was a system where people were in effect giving up 50% of their income to their landlord. Well that was a very inefficient system in terms of attenuating incentives. IN fact, a 50% tax rate on the poorest people in the world. And yet it’s a system that is found everywhere around the world. The question is why. My work on theory of screening was actually motivated by a concrete question that was posed to me by the Kenyan government. How much should they invest in higher education? And I then translated and say, well, what is going on here. Are you increasing skills or just credentialing? Are you just identifying who is good and who is bad, or more productive and less productive? When it came to tax policy, same question, it was looking at rather precisely how the details of the tax system work that you have tax deductibility of interest is very different than not having tax deductibility of interest. One advantage of writing down a mathematical model is that as soon as you write that down it glares at you that that makes a difference and then you have to start saying, what is the assumption….what does the law say about this or that. So actually my theoretical work had been, I don’t want to say, it was institutionally detailed not empirically detailed, if you understand the distinction. But that meant that when I got into Washington I had to get empirically detailed. It was easy for me, particularly when you have people that can work with you.

Geof: and you have worked with some interesting people along the way.

Joe: One of the things I feel very pleased with, I’ve had very good students, as you know. I’ve also had very good younger people that I’ve mentored in government. For instance Peter Orszag, who became the head of the OMB, I basically hired from graduate school. Jason Furman, who is now the deputy director of the National Economic Council, I hired from graduate school.

Geof: Peter Orszag was the first name I thought of.

Joe: We worked very closely, wrote papers together.

Geof: He became an expert on social security if I remember correctly.

Joe: One on social security, one on putting our fires. So I had very good people to work with me and was lucky that way.

Geof: But now you feel you can be more effective on the outside.

Joe: That’s right. It brings me back to, you might say, partly back to the environment that I love, which is academics. You have a kind of freedom of interaction with students, a kind of intellectual life. I still do some theoretical work, so I haven’t left the theoretical work, but I  obviously am spending a large fraction of my time being what you call a  public intellectual.

Geof: Well I don’t know where you find the time to do all your activities. Would you feel comfortable talking about how you went from Amherst to MIT?

Joe: Sure

Geof: You took kind of an unusual route is the story I’ve been told.

Joe: Well in the spring of my junior year I had been debating whether I should go on in physics or in economics and I finally came to the decisions that I really was committed to the social problems and wanted to go on in economics so I went to see my teachers, who were great:  Arnold Collery, Ralph Bales, Jim Nelson. And I said, What should I do? And they said, well you might as well just go on to MIT. If you are going to go on to economics…

Geof: Joe, how much economics had you studied at that point.

Joe: I had taken the principals, which is a one semester course, micro, which was a one semester course with Collery, macro, I’m sorry with Collery, maybe a micro and a macro with Collery, and I had Jim Nelson for intro…

Geof: So you had three courses in economics

Joe: And I think I may have had one more.

Geof: Okay, so you had four.

Joe: I can’t remember, but I had been convinced that that was really what I wanted to do. So they called up Paul Samuelson and said, it was the days when you could do those things, and said you should accept him to go on as a graduate student and they said yes. My advisor said, well he needs money, and then that took about a week and they said yes, we can give him a fellowship. The effect of which was that, after paying rent, I was living on a dollar a day, which as you know is the World Bank poverty measure. I did lose weight, which is a good thing, and I’ve never gotten back to that weight, but it was very exciting.

Geof: But then you graduate from MIT, you take a position at Yale, where I first met you, but you won an Amherst College degree.

Joe: I went to MIT and at the end of my first year, which is 1964, my class, they said well, we’ll vote your degree, you can graduate with your class. I accepted. There was always an idea I had, that if you in fact are really doing important work you didn’t need any degrees. And so that the degree would actually was not the important thing, the important thing was what I had learned at Amherst.

Geof: But my understanding was that you didn’t get the degree until the seventies.

Joe: No I got the degree in 1964. And then what happened I was at MIT only for two years and then I got a Fulbright to Cambridge for a year, finished my PhD there in one year and then came back taught at MIT for a year, and then I went to Yale. And then Yale very quickly promoted me. I officially finished my thesis in ’67 … ’66 I guess, I officially got it in ’67. And then I got promoted to full professor in ’70.

Geof: That’s funny, I had always heard that you had to petition to get the Amherst College degree.

Joe: I may have had to petition, but that was a formality. I think they approached me.

Geof: Well, I’m glad to hear that.

Joe: And in ’74 they gave me an honorary doctorate.

Geof: So by about ’74 you’re a full professor at Yale and an honorary degree from your Alma Mater.

Joe: That’s right.

Geof: That’s quite something.

Joe: So that was very nice. So that was the same class of Cullen Murphy, our Chairman of our Board.

Geof: So you graduated with him, sort of.

Joe: Yes.

Geof: Well listen, this has been fun. Thanks, very much Joe.

Joe: Good talking to you.

** The transcript of this interview contains corrections and clarifications provided by Joseph Stiglitz.