The Atlantic | October 2002 | The Tyranny of Financial Markets

Contents | October 2002

More on politics and society from The Atlantic Monthly.

The Atlantic Monthly | October 2002

[From "The Roaring Nineties," by Joseph Stiglitz]

The Tyranny of Financial Markets

We have established independent agencies in many areas to move critical parts of decision-making at least slightly further from the political scene ... Deciding how far to remove what decisions is a key issue in a world of increasing complexity.

Most of us, for instance, would not want the statistical agencies, like the Bureau of Labor Statistics or the Bureau of the Census, to be influenced by political pressures. There is therefore a consensus that statistics should be collected at some distance from the political process. But what about some central issues of macroeconomic policy, such as the trade-off between inflation and unemployment? Fiscal policy is under the control of Congress and the President, which assures some representativeness, but it is by no means clear that it assures the country's best expertise. (Though to be sure, there are incentives for politicians to seek out the best advice.) As for monetary policy, while the level of expertise at the Federal Reserve Board of Governors is fairly high, its representativeness can be questioned, since not all of its members are even appointed by the president or ratified by the Senate. In either case, how much secrecy should surround the deliberations?

There is a newly emerging tyranny attempting to suppress democratic discourse about issues of economic policy that are vital to prosperity—a tyranny said to be imposed by financial markets. The financial markets, it is said, will be rattled by open discussions. It is ironic that those who put forward this argument are often the same people who argue for the rationality of market processes—processes which should therefore depend not on the cacophony of voices that are heard in public discourse, but on the reality of the underlying fundamentals.

— From "The Private Uses of Public Interests," by Joseph Stiglitz, Journal of Economic Perspectives 12 (Spring 1998)

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