Stiglitz: The crisis was "Made in America"

Stiglitz: The crisis was "Made in America" He was speaking to a group of Serbian business leaders and economists. Professor Stiglitz, a guest of Delta Generali insurance on the occasion of the tenth anniversary of the Serbian-Italian company, spoke on the Global economic crisis with an emphasis on its affects on Balkan. Since Professor Stiglitz had no good news for his audience, he reviewed and highlighted his view of the events that have shaken the economic world for months: "The hub of the U.S. economy has been practically destroyed, with the national debt soaring to 16 trillion dollars, America has exported recession to the world and the global economy is suffering." According to Professor Stiglitz, it is uncertain how long the crisis will last, as this depends partially on the measures the globally dominant American financial system will take. Currently, he said, the American administration is giving "huge blood transfusions to a patient dying from internal hemorrhaging, and yet is doing nothing to halt a tidal wave of home foreclosures." He point out that millions of Americans have already lost their homes and will be joined by millions more in the months to come. Joseph Stiglitz speaks in Belgrade (Tanjug) Human tragedy "This is a human tragedy," he said, "not just an economic crisis. We need to provide strong and effective measures such as reform of our bankruptcy laws and assistance to households unqualified to secure mortgages. In addition, we need to provide a strong economic stimulus. Considering Bush’s legacy of towering debt, there are doubts whether the United States can afford to take these measures. But can we afford not to do so? If we do not provide a strong stimulus, the economy will further decline, tax receipts will decrease and the deficit will continue to rise." As one of America’s best known economists and a public critic of President Bush’s economic management, Professor Stiglitz, emphasizes that confidence in banking and the U.S. financial system will not be restored unless the banks and other financial institutions change the way they function. "All we have done so far," he said, "is shower them with money, yet they want still more. Strong financial regulations are needed not only to regain lost trust, but to minimize the possibility of such a crisis occurring again." "At best," he said, "considering the mistakes we have already made, recovery cannot begin before the end of 2009 or during 2010. And assuming that recovery starts, will it be a strong enough or we will enter some other form of depression? Perhaps a more fundamental question is what will replace America’s obsessively consuming society?" Calling the anti-globalist One of the most quoted economists in the world and a professor at New York City’s Colombia University, Stiglitz was recently appointed head of newly formed Commission of Experts on Reforms of the International Monetary and Financial System. It is ironic that one of the leading anti-globalists has been called on to deal with problems brought on by globalization. Speaking about directions that reforms can take, Professor Stiglitz stressed that solutions must be found quickly. "We still debating about creating a new financial system," he said. ‘It is a fact that America badly managed its economic policy, and the whole world suffers because of this. If globalization–that means capitalism–is a kind of a network, it is clear that if a problem appears in one part of it, the whole system collapses. In every game there is a referee who enforces the rules. If there are no rules, no referee, there is no more game," he said. Reform required Professor Stiglitz reminded his audience that a stable financial network is necessary in order to start system reform, to change the method of management. Reform of the world monetary reserve system is required and more equitable global trade agreements, as well as increased rights for developing countries in international financial organizations’ decision-making processes. He also highlighted the need for better macroeconomic coordination in the short term and more aid funds for developing countries that will, it seems, be innocent victims of this crisis. The management of the global financial system needs to be fundamentally reformed. Professor Stiglitz said where developed countries apply anti-cyclic monetary and fiscal policy, while developing countries are forced to do just the opposite. Affecting Serbia Speaking specifically on how the global credit crisis may affect Serbia, he pointed that due to negative effects of globalization the crisis spread from the U.S. to the rest of the world. Therefore, he said, it is possible that Europe will face economic chaos on a greater scale then is seen in U.S., with the greatest damage suffered by Eastern and Southeastern European countries directly depending on developed European Countries. "Serbia may be lucky to be spared the big economic crisis that is affecting the world," Professor Stiglitz said, "but, speaking generally, few countries will be spared. It is possible that less-integrated countries will be affected less than those highly dependent on foreign investments. Many developing countries have already been affected. Ironically, capital from those countries, even ones with well-managed economies, already flows to the U.S. due to the fact that U.S. Government guarantees enjoy huge credibility. Many developing countries wanting to obtain financial assets will face higher interest rates, while, to the contrary, to this part of Europe, the U.S. Government grants loans at very low rates of interest," he warned. Intervention necessary And, finally, has the global crisis shown that the state intervention is necessary in big as well as in small economies? Presenting his own view on that issue, Professor Stiglitz said that the specific issue of the bad mortgage crisis has proved the necessity of government regulation of every economy, whatever its size. "The U.S. is paying a high price for short-circuiting government regulation. The American unemployment rate is growing quickly, and pensions are melting before the eyes of the very people for whom they were meant. While 3.5 million Americans have already lost their homes, a relatively few from Wall Street have profited vastly, which has further deepened the growing inequality in American society. Most Americans live worse today than they did eight years ago. Although hundreds of billions have been spent trying to deal with the crises, it still has not helped," Professor Stiglitz said. He pointed that bad global financial market management will probably affect most countries in the world, therefore everybody rather fondly recalls the famed economist Keynes’s theory based on the importance of the state’s role in managing the economy. This article originally appeared in AmCham Perspective Magazine "I have no good news for you," said Joseph Stiglitz, the Nobel Prize-winning U.S. economist and professor at Columbia University, as he began a lecture last December at the Belgrade Hyatt Regency Hotel. AmCham Perspective Magazine "Serbia may be lucky to be spared the big economic crisis that is affecting the world, but, speaking generally, few countries will be spared. It is possible that less-integrated countries will be affected less than those highly dependent on foreign investments."

Stiglitz: The crisis was "Made in America"

He was speaking to a group of Serbian business leaders and economists. Professor Stiglitz, a guest of Delta Generali insurance on the occasion of the tenth anniversary of the Serbian-Italian company, spoke on the Global economic crisis with an emphasis on its affects on Balkan.

Since Professor Stiglitz had no good news for his audience, he reviewed and highlighted his view of the events that have shaken the economic world for months: "The hub of the U.S. economy has been practically destroyed, with the national debt soaring to 16 trillion dollars, America has exported recession to the world and the global economy is suffering."

According to Professor Stiglitz, it is uncertain how long the crisis will last, as this depends partially on the measures the globally dominant American financial system will take. Currently, he said, the American administration is giving "huge blood transfusions to a patient dying from internal hemorrhaging, and yet is doing nothing to halt a tidal wave of home foreclosures." He point out that millions of Americans have already lost their homes and will be joined by millions more in the months to come.

Human tragedy

"This is a human tragedy," he said, "not just an economic crisis. We need to provide strong and effective measures such as reform of our bankruptcy laws and assistance to households unqualified to secure mortgages. In addition, we need to provide a strong economic stimulus. Considering Bush’s legacy of towering debt, there are doubts whether the United States can afford to take these measures. But can we afford not to do so? If we do not provide a strong stimulus, the economy will further decline, tax receipts will decrease and the deficit will continue to rise."

As one of America’s best known economists and a public critic of President Bush’s economic management, Professor Stiglitz, emphasizes that confidence in banking and the U.S. financial system will not be restored unless the banks and other financial institutions change the way they function. "All we have done so far," he said, "is shower them with money, yet they want still more. Strong financial regulations are needed not only to regain lost trust, but to minimize the possibility of such a crisis occurring again."

"At best," he said, "considering the mistakes we have already made, recovery cannot begin before the end of 2009 or during 2010. And assuming that recovery starts, will it be a strong enough or we will enter some other form of depression? Perhaps a more fundamental question is what will replace America’s obsessively consuming society?"

Calling the anti-globalist

One of the most quoted economists in the world and a professor at New York City’s Colombia University, Stiglitz was recently appointed head of newly formed Commission of Experts on Reforms of the International Monetary and Financial System. It is ironic that one of the leading anti-globalists has been called on to deal with problems brought on by globalization.

Speaking about directions that reforms can take, Professor Stiglitz stressed that solutions must be found quickly. "We still debating about creating a new financial system," he said. ‘It is a fact that America badly managed its economic policy, and the whole world suffers because of this. If globalization–that means capitalism–is a kind of a network, it is clear that if a problem appears in one part of it, the whole system collapses. In every game there is a referee who enforces the rules. If there are no rules, no referee, there is no more game," he said.

Reform required

Professor Stiglitz reminded his audience that a stable financial network is necessary in order to start system reform, to change the method of management. Reform of the world monetary reserve system is required and more equitable global trade agreements, as well as increased rights for developing countries in international financial organizations’ decision-making processes. He also highlighted the need for better macroeconomic coordination in the short term and more aid funds for developing countries that will, it seems, be innocent victims of this crisis.

The management of the global financial system needs to be fundamentally reformed. Professor Stiglitz said where developed countries apply anti-cyclic monetary and fiscal policy, while developing countries are forced to do just the opposite.

Affecting Serbia

Speaking specifically on how the global credit crisis may affect Serbia, he pointed that due to negative effects of globalization the crisis spread from the U.S. to the rest of the world. Therefore, he said, it is possible that Europe will face economic chaos on a greater scale then is seen in U.S., with the greatest damage suffered by Eastern and Southeastern European countries directly depending on developed European Countries.

"Serbia may be lucky to be spared the big economic crisis that is affecting the world," Professor Stiglitz said, "but, speaking generally, few countries will be spared. It is possible that less-integrated countries will be affected less than those highly dependent on foreign investments. Many developing countries have already been affected. Ironically, capital from those countries, even ones with well-managed economies, already flows to the U.S. due to the fact that U.S. Government guarantees enjoy huge credibility. Many developing countries wanting to obtain financial assets will face higher interest rates, while, to the contrary, to this part of Europe, the U.S. Government grants loans at very low rates of interest," he warned.

Intervention necessary

And, finally, has the global crisis shown that the state intervention is necessary in big as well as in small economies? Presenting his own view on that issue, Professor Stiglitz said that the specific issue of the bad mortgage crisis has proved the necessity of government regulation of every economy, whatever its size.

"The U.S. is paying a high price for short-circuiting government regulation. The American unemployment rate is growing quickly, and pensions are melting before the eyes of the very people for whom they were meant. While 3.5 million Americans have already lost their homes, a relatively few from Wall Street have profited vastly, which has further deepened the growing inequality in American society. Most Americans live worse today than they did eight years ago. Although hundreds of billions have been spent trying to deal with the crises, it still has not helped," Professor Stiglitz said.

He pointed that bad global financial market management will probably affect most countries in the world, therefore everybody rather fondly recalls the famed economist Keynes’s theory based on the importance of the state’s role in managing the economy.

This article originally appeared in AmCham Perspective Magazine