Joseph Stiglitz doesn't get the hype of his fellow Nobel laureate Paul Krugman -- thanks to Krugman's New York Times column and fairly frequent TV appearances -- but if anything Stiglitz was even more on the money (no pun intended) in predicting the sub-prime mortgage crisis and other calamnities that were looming in America after a generation with no serious economic regulation.
Comes now Newsweek with a profile of Stiglitz that all Americans who care about the economy -- and I believe that would be all Americans -- should read. The article does a great job of both explaining Stiglitz' broader philosphy and also his prescription for the economy right now.
Stiglitz is perhaps best known for his unrelenting assault on an idea that has dominated the global landscape since Ronald Reagan: that markets work well on their own and governments should stay out of the way. Since the days of Adam Smith, classical economic theory has held that free markets are always efficient, with rare exceptions. Stiglitz is the leader of a school of economics that, for the past 30 years, has developed complex mathematical models to disprove that idea. The subprime-mortgage disaster was almost tailor-made evidence that financial markets often fail without rigorous government supervision, Stiglitz and his allies say.
So what would Stiglitz do now?
Stiglitz had been hammering at Obama's economic team for its handling of the financial crisis. He wrote that the stimulus program was too small to be effective—a criticism that has since swelled into a chorus, though Obama says he's not adding more money. Stiglitz also had called the administration's bailout plan a giveaway to Wall Street, an "ersatz capitalism" that would save the banks' investors and creditors and screw the taxpayers.
It's maddening, all the critics who say the stimulus should have never happened at all when it's clear that the only problem is that it was too small. If your child was sick and your doctor decided to start with a low dose of antibiotics that helped somewhat but he was still ailing, would you take him off medication...or increase the dosage? This is one area in which I sympathize with President Obama's dilemma -- the huge debt racked up largely by Reagan and George W. Bush on things that America should never go into debt for (i.e., an unwarranted war, and a tax cut for the rich right in the middle of that war) gives Obama little room to manuever during a time of a severe economic slowdown, when you normally would do deficit spending.
Joe Stiglitz gets it. He's been getting it for the last 20 years. Why won't America listen?