It’s not often that a distinguished scholar advises his listeners to be cautious before assigning excessive weight to his words. That, however, is precisely what the economist F. A. Hayek did in his speech at the 1974 Nobel Prize banquet.

“The Nobel Prize,” Hayek informed his audience, “confers on an individual an authority which in economics no man ought to possess.” He then added: “There is no reason why a man who has made a distinctive contribution to economic science should be omnicompetent on all problems of society—as the press tends to treat him till in the end he may himself be persuaded to believe.”

These words came to my mind recently while reading a new book by another Nobel Prize economist. In The Road to Freedom: Economics and the Good Society, Joseph E. Stiglitz, the 2001 Nobel Laureate and former World Bank chief economist, identifies Hayek and yet another Nobel economist, Milton Friedman, as the primary intellectual purveyors of neoliberal policies that, Stiglitz contends, have perverted the idea of freedom and generated deep inequalities and a host of injustices.

The word “neoliberal” has its own pedigree. Today, however, it functions as an epithet used by the Left—and now the New Right that populates many conservative institutions—to stigmatize people and ideas. The use of epithets is common in polemics, and polemics are not concerned with reasoned debate or discussion. Nor, despite protestations to the contrary, is Stiglitz’s book. From beginning to end, it trades in hyperbole.

The World According to Stiglitz

“Freedom,” Stiglitz states at the beginning “is in danger.” The global decline of liberty reflected in the rise of authoritarian regimes, he argues, has also manifested itself in liberal democratic societies. By Stiglitz’s account, this reflects failures in economic policies that mirror “the Right’s incorrect conception of freedom.”

“The Right” functions throughout this book as a catch-all phrase. It embraces groups like the Republican Party and as unlikely bedfellows as libertarians and Donald Trump. Important details, like Trump stating that he is “not a conservative” or the undeniable and deep split in the American conservative movement between economic nationalists and free marketers, are obscured by Stiglitz’s Manichean view of politics. Light is on the side of modern liberals, neo-Keynesians, and social democrats. Darkness envelops everything else.

Some of that darkness, according to Stiglitz, extends to the American Founding. He holds, for example, that “the freedom the country’s patriots championed was not freedom for all, but rather freedom for themselves.” Stiglitz points to the post-independence maintenance of the institution of slavery as proof for his claim that the Constitution was the product of “the people who wrote it (overwhelmingly, rich white men, many of them slaveholders).”

That assertion contradicts the evidence meticulously assembled by historians like Forrest McDonald in his We The People: The Economic Origins of the Constitution. This showed, contra Charles A. Beard and his disciples, that most of those rich white men who drafted the Constitution actually supported constitutional measures that did not serve their personal interests. Nor does Stiglitz grasp that the seeds of slavery’s downfall in America were laid by the Founding’s promise of “liberty and justice for all.” Absent that inner and, for the time, radical logic, it is harder to understand why furious disputations of slavery’s basic legitimacy increasingly characterized American political discourse from the 1770s onwards.

But the more immediate culprits for the miseries inflicted by neoliberalism, Stiglitz argues, are free market economists like Hayek and Friedman. Freedom, he says, depends upon rules and regulations that preserve some degree of equality, promote social justice, and reflect the reality of trade-offs in life. Such things have no place, Stiglitz maintains, in Hayek and Friedman’s free-market nirvana. In Stiglitz’s world, they “were the most notable mid-twentieth defenders of unfettered capitalism,” and, as “the intellectual handmaidens of capitalists,” led “a pack of conservative economists who have tried to preempt meaningful discussions by the very vocabulary they use.” Their understanding of “free markets,” Stiglitz believes, views “rules and regulation” as resulting in “unfree markets” and thus vast inefficiencies.

Myths and Markets

At this point, I wondered how much Stiglitz has actually read of Hayek and Friedman. I know of no text where they called for rule-free and regulation-free markets. Significantly, there is just one reference in Stiglitz’s footnotes to something authored by Hayek.

Yet one need only open books like The Constitution of Liberty to find Hayek, for example, pointing out that “a functioning market economy presupposes certain activities on the part of the state.” In The Road to Serfdom, Hayek even says that the “wooden insistence on … the principles of laissez-faire” did immense harm to the market liberal cause. So much, then, for unfettered markets.

More generally, anyone who has read the corpus of Hayek’s work knows that he wrote extensively about the laws and legislation best fitted for societies that take justice and rule of law seriously. That is the whole point of Hayek’s mammoth Law, Legislation, and Liberty. Stiglitz himself concedes that books like The Road to Serfdom show that Hayek was “aware of externalities” and “the need for government intervention when there are externalities.” But how can Stiglitz square this concession with his declarations that Hayek was committed to “unfettered markets”? The answer is: he can’t.

In fact, the debate between free marketers and interventionists is not about whether there should be regulation. The argument is really about what is the best way to regulate markets.

Is it through a combination of macroeconomic policies, specific interventions into particular economic sectors, the application of wide-ranging regulatory codes to economic transactions, and ongoing wealth redistributions through large welfare states and progressive taxation? Or: are markets better regulated through protections of property rights, adherence to rule of law, contract enforcement, commonsense health and safety regulations, a basic safety net, stable money, and the dynamic competition that promotes consumer sovereignty over and against vested interests like established businesses and their political allies? This is a key dispute between dirigistes like Stiglitz and those who believe in markets, and Stiglitz’s presentation of the latter’s position is a caricature.

This, however, is dwarfed by Stiglitz’s astonishing claim that the “free and unfettered markets advocated by Hayek and Friedman and so many on the Right have set us on the road of fascism.” I find it hard to believe that Stiglitz does not know that fascist regimes have historically been characterized by widespread regulation, endless interventionism, and corporatism: in short, the opposite of free market economies.

Like many of his fellow-travelers on the Left and the New Right, Stiglitz doesn’t believe that we can trust ordinary people operating within a context of rule of law.

As the German market liberal economist Wilhelm Röpke demonstrated in his 1934 Economica article “Fascist Economics,” the economies of actual fascist regimes like Mussolini’s Italy were distinguished by a “monopolistic-interventionist system” enforced by armies of uniformed bureaucrats. Stiglitz, however, claims that the economic conditions preceding regimes like Nazi Germany were characterized by too little intervention.

In fact, the economic history of Imperial Germany and Weimar Germany is far more complicated. Imperial Germany was, after all, the birthplace of the modern welfare state. By the 1890s, key sectors of the German economy had become highly cartelized. Tariffs were also used to try and protect particular industries like agriculture from foreign competition. During World War I, that same economy was subject to massive planning. As for Weimar Germany, Part 2, Section V of its Constitution contained fourteen articles that identified many economic rights that no one would describe as reflecting a classical liberal view of life. Many such rights were given subsequent expression in policies ranging from expansions of social security to legislating worker co-determination arrangements.

To be sure, some German conservatives and liberals tried limiting the scope of these measures. Nonetheless, “unfettered markets” never reigned in Germany between 1870 and 1933. The truth is simply far more complex than the portrait painted by Stiglitz.

Old Left Meets New Right

What, then, does Stiglitz want to substitute in neoliberalism’s place? Here, Stiglitz is unambiguous. He wants “something along the lines of a rejuvenated European social democracy or a new American Progressive Capitalism, a twenty-first-century version of social democracy or of the Scandinavian welfare state.” When we look, however, at Stiglitz’s preferred measures, they are hard to distinguish from Old Left propositions.

Stiglitz’s long list of “Progressive capitalism policies” includes the following: “regulation,” “corrective taxation,” “government investment,” “industrial policies,” “financial regulations, both macro . . . and micro,” “public investments,” “disclosure requirements,” “regulations (consumer, financial, labor),” “liability laws making firms accountable,” “social insurance/protection,” “safety net programs,” “unemployment insurance,” “retirement programs,” “health insurance,” “income contingent loans,” “small business loans,” “green bank financing,” “antitrust policies” that “restrict mergers,” “abusive practices restrictions,” “minimum wages,” “supportive labor legislation,” “redistribution through taxes,” and “public expenditure programs” on things like education and health care. All these measures are to be overlaid by fiscal and monetary policies designed to address macroeconomic fluctuations.

Three ironies should be noted here. First, the US economy already has almost all of these things, albeit to varying degrees. American economic life is littered with the big government programs bequeathed by progressives, New Dealers, and Great Society advocates, not to mention the entrenched bureaucracies that administer them. Stiglitz may want greater government resourcing and deeper legal codification of these policies. Convinced interventionists generally do not believe that we can have enough of such things. America is, however, far closer to Stiglitz’s progressive capitalist model than he admits.

A second irony concerns Stiglitz’s repeated insistence that he wants a more decentralized economy. All the policies listed above, however, necessitate a large government constantly intervening in the economy and crowding out the civil society associations that Stiglitz claims to value.

The third irony is that many of Stiglitz’s progressive capitalism proposals mirror those of prominent New Right thinkers. Not only do they support many of the same policies; but they also echo Stiglitz’s anti-neoliberal rhetoric and critical view of Hayek and Friedman. Therein lies a fracture that increasingly characterizes American politics: one in which Stiglitz’s Old Left economic preferences line up with those of some on the Right against whom his book inveighs.

Freedom and Hubris

Notwithstanding these problems with Stiglitz’s book, there is one point where I agree with him. Liberty is in a fragile state. The real debate is about the nature of the threats.

Central to Stiglitz’s progressive capitalism is what he calls “its focus on equality, social justice, and democracy.” These are all understood by Stiglitz in unambiguously social democratic terms. Taken together, he believes, they give people the freedom to realize their potential.

The difficulty is that social democracy invariably undermines freedom in important ways. Markets don’t facilitate intergenerational welfare-dependency; extensive welfare programs do. Social democracy also creates an enormous power differential between ordinary citizens and those technocrats who administer a plethora of state programs and regulations. And if there is anything that we have learned from the relentless growth of the administrative, regulatory, and welfare state in America, it is that such agencies are remarkably resistant to the demands of democratic accountability and transparency.

Likewise, social democracy’s redistributionist conception of social justice steadily corrodes some of freedom’s surest safeguards, most notably private property. Just as significantly, it damages the rule of law. As Hayek observed in The Road to Serfdom, “To produce the same result for different people, it is necessary to treat them differently.” If you use the state to pursue substantial equality, you inevitably compromise rule of law because governments seeking to achieve substantive equality necessarily forgo their position of impartiality towards all citizens.

Above all, social democrats have often undermined the means by which societies cultivate the moral habits needed to sustain what John Adams called “virtuous liberty.” Throughout his book, Stiglitz regularly refers to the importance of habits like honesty, trust, and other-regarding behavior for social cooperation. He is right to do so. But social democrats have traditionally looked to government to shape the social order—not civil society. The associated growth of state power and bureaucratization of society subverts the rich ecology of families and bottom-up communities and associations in which such habits are best taught and internalized.

Therein lies the deeper problem with Stiglitz’s book. Like many of his fellow-travelers on the Left and the New Right, Stiglitz doesn’t believe that we can trust ordinary people operating within a context of rule of law, constitutionally limited government, proven norms, and a rich civil society to make their own decisions as they see fit. For, notwithstanding Stiglitz’s desire to carve out a new road to freedom, the political agenda underlying this book is not one of renewal or rejuvenation. Instead, it reflects an old-fashioned Keynesian faith in the state: one that has always ill-fitted the American experiment in liberty of which Stiglitz is plainly skeptical.

Yes, free people will make errors. But their mistakes will not be as devastating to society as those made by dirigistes, ranging from Keynes to Stiglitz, who believe that they can re-engineer a better world from the top down and want the power to do so. Nor are such “men of system,” as Adam Smith called them, inclined to admit the failure of their ideas and policies, let alone correct them. Therein lies the eternal significance of Hayek’s warning about the temptations associated with accolades, even for truly outstanding work. They are the road to hubris, and the consequences for liberty and justice of a lack of humility are invariably dire.