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February 18, 2010

Stiglitz Says Change Is Still Needed

Catherine New
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Speaking in a community forum with MBA students on February 19, 2009, Professor Joseph Stiglitz vigorously advocated for the government to nationalize banks — temporarily — in order to rein in the financial crisis. That didn’t happen, he laments in his new book, Freefall: America, Free Markets, and the Sinking of the World Economy (W. W. Norton & Company, Jan. 2010), and as a result the conditions that led to the crisis have continued.

“My main criticism of the Fed is not that it kept interest rates too low; it’s that it didn’t implement the regulation that it should have,” Stiglitz said in an interview with Bloomberg radio, broadcast live from Columbia University on February 16, 2010.

In other recent interviews, the Nobel Prize-winning economist has said the government should issue another round of U.S. stimulus spending focused on jobs and has supported proposals from the Obama Administration to restrict banks.

“Unless incentives and constraints are changed through regulation, it is unlikely that behavior on Wall Street will change. And once again, our financial system, our economy and the taxpayer will be in jeopardy,” Stiglitz wrote in the Los Angeles Times on January 29, 2010.

In the December 2009 issue of Finance & Development (a magazine produced by the International Monetary Fund) a thoughtful profile examined Stiglitz’s academic roots, from his early work at Amherst and MIT to his groundbreaking papers with Professor Bruce Greenwald in the 1980s about how changes in financial and credit conditions affect the business cycle.

The profile quoted Fed chairman Ben Bernanke, who has praised Stiglitz and others’ work: “‘[their research] gave economists the tools to think about the central role of financial markets in the real economy’ and led to a better understanding of how ‘extreme disruptions of the normal functioning of financial markets … seem often to have a significant impact on the real economy.’”

UPCOMING EVENT: The Heyman Center for the Humanities will hold the panel “The Continuing Financial Crisis: Perspectives from the North and the South” with Professor Joseph Stiglitz; Prabhat Patnaik, professor of economics at Jawaharlal Nehru University, New Delhi; and Jomo Kwame Sundaram, founder, International Development Economics Associates, at noon on March 25, 2010. Register for the event.

Photo credit: World Economic Forum