Describing how ideology, special-interest pressure, populist politics, and sheer incompetence have left the U.S. economy on life support, the author puts forth a clear, commonsense plan to reverse the Bush-era follies and regain America’s economic sanity.
Joseph E. Stiglitz in Vanity Fair:
We are in the midst of micro-economic failure on a grand scale. Financial markets receive generous compensation—in the form of more than 30 percent of all corporate profits—presumably for performing two critical tasks: allocating savings and managing risk. But the financial markets have failed laughably at both. Hundreds of billions of dollars were allocated to home loans beyond Americans’ ability to pay. And rather than managing risk, the financial markets created more risk. The failure of our financial system to do what it is supposed to do matches in destructive grandeur the macro-economic failures of the Great Depression.
Economic theory—and historical experience—long ago proved the need for regulation of financial markets. But ever since the Reagan presidency, deregulation has been the prevailing religion. Never mind that the few times “free banking” has been tried—most recently in Pinochet’s Chile, under the influence of the doctrinaire free-market theorist Milton Friedman—the experiment has ended in disaster. Chile is still paying back the debts from its misadventure. With massive problems in 1987 (remember Black Friday, when stock markets plunged almost 25 percent), 1989 (the savings-and-loan debacle), 1997 (the East Asia financial crisis), 1998 (the bailout of Long Term Capital Management), and 2001–02 (the collapses of Enron and WorldCom), one might think there would be more skepticism about the wisdom of leaving markets to themselves.