Joseph Stiglitz has always seemed to me to be among the more reflective members of the profession. Here, he steps back to take a broader perspective on the relationship between economic theory and the economy:
Just a few years ago, a powerful ideology – the belief in free and unfettered markets – brought the world to the brink of ruin. Even in its hey-day, from the early 1980’s until 2007, American-style deregulated capitalism brought greater material well-being only to the very richest in the richest country of the world. Indeed, over the course of this ideology’s 30-year ascendance, most Americans saw their incomes decline or stagnate year after year.
Moreover, output growth in the United States was not economically sustainable. With so much of US national income going to so few, growth could continue only through consumption financed by a mounting pile of debt.
I was among those who hoped that, somehow, the financial crisis would teach Americans (and others) a lesson about the need for greater equality, stronger regulation, and a better balance between the market and government. Alas, that has not been the case.
These arguments mirror his story in Freefall, which I maintain is one of the more reasonable accounts of the financial crisis. Stiglitz realizes that finance has been and will continue to be a race between the regulators and the regulated. Undermine the regulators and chaos ensues.