The American economist Joseph Eugene Stiglitz was born in 1943 and is known for being awarded the John Bates Medal in 1979 and for winning the Nobel Prize in Economics in 2001. His position has been very tough with institutions such as the International Monetary Fund, because it considers that it serves the interests of the United States. On the other hand, he has shown a very critical vision of globalization. A writer, professor, and economist, Stiglitz is considered to fit into a current known as the New Keynesians.
The more traditional views of the economy, particularly the neoclassical approach, argue that markets are efficient. However, Joseph Stiglitz argues that markets are perfect under a very specific set of circumstances. This is because the information is imperfect, which is also known as information asymmetry.
For all those who participate in the market to have the same information, it is necessary for a more democratic functioning of the markets. Therefore, Stiglitz is in favor of greater information transparency. In this way, the participation of citizens in the markets will not be diminished.
Joseph Stiglitz not only justifies information transparency for a democratic functioning of the markets. It is also justified by quality information available to everyone, which allows efficient allocation of resources.
If Stiglitz makes a firm commitment to information transparency, one wonders why there are situations of information asymmetry in the markets. All of this is explained by transaction costs. In other words, the costs involved in obtaining information, conducting a negotiation and monitoring compliance with the agreement reached.
The Shapiro-Stiglitz model
Another of his contributions to the economy is the study of wages. Through the Shapiro-Stiglitz model, the American analyzed the behavior of workers' wages. See efficiency salaries
According to this model, companies have the ability to monitor the degree of performance of their workers. If they are caught loafing around, the company will fire them.
Regarding the unemployed, the Shapiro-Stiglitz model establishes that the unemployed will have homogeneous characteristics. The possibilities that workers can be rehired will depend on the number of people as well as the degree of employee turnover. On the other hand, salary will act as a motivational factor for workers to make an effort.
Thus, wages will be influenced by factors such as:
- The rate of layoffs due to external causes.
- The level of monitoring: The greater the monitoring, the less likely workers are to evade their responsibilities. Therefore, the chances of being caught loafing increase and so does the possibility of losing your job.
- The cost of effort.
- The degree of unemployment: The higher the unemployment rate that an economy supports, the greater the punishment that the worker who has been discovered in breach of his obligations must face.
Joseph Stiglitz and international trade
Regarding international trade, Joseph Stiglitz has advocated that the more developed countries eliminate barriers to trade towards developing countries. In this sense, Europe and North America would have to end tariffs and import quotas from developing nations.
In line with the British economist John Maynard Keynes, Joseph Stiglitz also advocates close monitoring of trade deficits. Joseph Stiglitz, contrary to more traditional views of trade, does not validate the principle of comparative advantage. This means that the eminently exporting countries are hurting the importing countries. Thus, countries with a trade surplus benefit from the impoverishment of states with a trade deficit.
The euro area and China-US trade tensions
He has been especially incisive with Germany when it comes to the euro. Thus, the exchange rate of Germany cannot increase with respect to the exchange rate of other states of the euro zone. And the fact is that Germany, as an exporting country, could see its economy seriously harmed, as it benefits from low exchange rates. See real exchange rate
Regarding the trade war between the United States and China, Joseph Stiglitz has opposed responding to China with protectionist measures. Stiglitz believes that these kinds of measures will only accelerate job destruction and will not be helpful in preventing deindustrialization.