Stiglitz on the Economy

Here's Joseph Stiglitz, Nobel Laureate in Economics, who has proved himself more interested in the average American than in the fat cat elite in America. He is giving testimony on Dec 10, 2009 in a Joint Economic Committee hearing (i.e. before Representatives & Senators):



If you go to this page you can access the PDF document with the full content of Stiglitz's written testimony. Here's one bit of his testimony that I think is key:

We are a rich country. We can afford to squander hundreds of billions of dollars. But there are limits for even a rich country. The combined effects of unbridled spending on unproductive wars, on corporate welfare, and on poorly designed bank bailouts inevitably will exert their toll. But when these effects are compounded by macro-economic mismanagement, leading to an economy operating for years below its potential, the consequences are even more worrisome.

This crisis has put to the test our economy and our political system. Financial institutions are essential to the well-functioning of any economy. Our financial system didn’t function as it should have, and we have all suffered. But this is not the first time that our banks have had to be bailed out. It has happened repeatedly. The S&L bailout was the last large bailout of American banks because of bad lending here at home, but the myriad of bailouts abroad, with names like the Mexican, Indonesian, Korean, Thai, Brazilian, Argentinean, Russian bailouts, were all bailouts of American banks arising from their failure to assess creditworthiness. We should not forget that. The only period in history when there were no banking crises was the short period after the Great Depression, before the deregulatory movement that began in the late 70s and early 80s.

We have seen how important trust is to the functioning of a financial system. Financial institutions lost trust in each other, and our credit system froze. We all understand the basic reasons for the failures, including lack of transparency, excessive leverage and risk taking, and a misalignment of private rewards and social returns. Unfortunately, to too large an extent the rescue has been marked by much of the same. There has been a lack of transparency and a socializing of losses and risk, combined with privatizing of returns and profits, what I call ersatz capitalism. I am a strong believer in the virtues of a market economy; I know of no economist who believes that this new ersatz capitalism is likely to produce an efficient, dynamic, or fair economy. As we went about the rescue, we had no vision of what kind of a financial sector or what kind of economy we wanted to emerge after the crisis. We cannot and we should not go back to the world of 2007. Our financial sector was bloated and distorted. It will have to be downsized. But the question is, what parts should be downsized? We should be strengthening the venture capital firms and the banks that lend to small and medium sized banks.

Many in the public have sensed that something went awry in the rescue. They have seen their jobs and wealth destroyed while some in the financial sector walk away with huge bonuses. The financial sector has lost the trust of the American people, but now, there is a risk that government too will lose that trust. Active programs to promote jobs and to regulate effectively the financial sector are important steps in restoring that trust.

Sadly Stiglitz is like an old time prophet wandering in the wilderness. His voice is 'heard' but not heeded. This is a great tragedy, especially for the 99% of the population who are not in the elite strata with its stranglehold on power.