Europe is not a victim. The EU’s malaise is self-inflicted, owing to an unprecedented succession of bad economic decisions, beginning with the creation of the euro.
At long last, the United States is showing signs of recovery from the crisis that erupted at the end of President George W. Bush’s administration, when the near-implosion of its financial system sent shock waves around the world.
Across the Atlantic, there are few signs of even a modest US-style recovery: The gap between where Europe is and where it would have been in the absence of the crisis continues to grow.
The current mess stems partly from adherence to a long-discredited belief in well-functioning markets without imperfections of information and competition.
Repeatedly, voters have thrown out incumbents, dissatisfied with the direction of the economy
– only to have the new government continue on the same course dictated from Brussels, Frankfurt, and Berlin.
But for how long can this continue?
Joseph E. Stiglitz, Project Syndicate 8 January 2015
Hubris has also played a role. How else to explain the fact that, year after year, European officials’ forecasts of their policies’ consequences have been consistently wrong?
These forecasts have been wrong not because EU countries failed to implement the prescribed policies, but because the models upon which those policies relied were so badly flawed.
Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, was Chairman of President Bill Clinton’s Council of Economic Advisers and served as Senior Vice President and Chief Economist of the World Bank.
This is going to be the year in which the eurozone will have its moment of truth.
Top of page
Three scheduled elections — in Greece this month; in Portugal and in Spain in the second half of the year —
will tell us whether the EU’s approach to crisis resolution works politically or not.
Wolfgang Münchau FT January 4, 2015
The new governor of the Bank of Japan, Haruhiko Kuroda,
not wedded to central bankers’ obsolete doctrines, he has made a commitment to reverse Japan’s chronic deflation,
setting an inflation target of 2%
There is every reason to believe that Japan’s strategy for rejuvenating its economy will succeed
Joseph E. Stiglitz, Project Syndicate 25 April 2013
The real risk for the global economy is in Europe.
Spain and Greece are in depression, with no hope of recovery in sight.
The eurozone’s “fiscal compact” is no solution, and ECB’s purchases of sovereign debt are at most a temporary palliative.
Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, Project Syndicate 31 december 2012
European governments have signed a "suicide pact" by imposing fiscal austerity plans that will collapse their economies,
Joseph Stiglitz, the liberal economist, has warned.
Malcolm Moore, Daily Telegraph,Hong Kong, 17 Jan 2012
A principled Europe would not leave Greece to bleed
Trichet failed to note that there had long been a double standard – in effect two Maastricht treaties, one for the large and powerful countries, another for the smaller and less powerful.
When France broke the EU edict not to let debt exceed 3% of GDP, there were strong words, but little else.
Joseph Stiglitz guardian.co.uk, 25 January 2010
"An awful lot of people are not managing their own money,"
"In old-style 19th Century capitalism, I owned my company, I made a mistake, I bore the consequences."
Joseph Stiglitz, Columbia University professor and Nobel laureate CNBC 19/1 2010
"Today, (at) most of the big companies you have managers who, when things go well, walk off with a lot of money. When things go bad the shareholders bear the costs," he said.
It's a system where "you socialize the losses and privatize the gains," which is not capitalism, he said.
There's "moral hazard everywhere," he added.
There is, after all, a severe agency problem in banking whereby managers and employees
have hogged a disproportionate share of the returns to the disadvantage of shareholders.
John Plender, FT, December 20, 2011
The corporation is a wonderful institution. But it contains inherent drawbacks, at the core of which are conflicts of interest. Control over the company's resources is vested in the hands of top managers who may rationally pursue their interests at the expense of all others.
Economists call this the "principal-agent" problem.
In the modern economy, where shares are held by fund managers, there is not just one set of principal-agent relations but a long chain of them.
Martin Wolf Financial Times Jan 30 2002
Nobel Prize-winning economist Joseph Stiglitz
The U.S. economy must grow at least 3 percent to create enough jobs for new entrants into the labor force
CNBC 21 Dec 2009
The Economic Consequences of Mr. Bush
The damage done to the American economy does not make front-page headlines every day, but the repercussions will be felt beyond the lifetime of anyone reading this page.
Nobel laureate Joseph E. Stiglitz, Vanity Fair December 2007
Will the dam break in 2007?
Joseph Stiglitz, The Guardian 27/12 2006
Joseph Stiglitz is University Professor at Columbia University.
In 2001, he was awarded the Nobel Prize in economics.
Of course, a slowing US economy constitutes another major global risk. At the root of America's economic problem are measures adopted early in Bush's first term. In particular, the administration pushed through a tax cut that largely failed to stimulate the economy, because it was designed to benefit mainly the wealthiest taxpayers. The burden of stimulation was placed on the Federal Reserve Board, which lowered interest rates to unprecedented levels. While cheap money had little impact on business investment, it fuelled a real estate bubble, which is now bursting, jeopardising households that borrowed against rising home values to sustain consumption.
This economic strategy was not sustainable. Household savings became negative for the first time since the Great Depression, with the country borrowing $3 billion a day from foreigners. But households could continue to take money out of their houses only as long as prices continued to rise and interest rates remained low. Thus, higher interest rates and falling house prices does not bode well for the American economy. Indeed, according to some estimates, roughly 80% of the increase in employment and almost two-thirds of the increase in GDP in recent years stemmed directly or indirectly from real estate.
Top of page
How long can the global economy endure America's enormous trade deficits
How long can the global economy endure America's enormous trade deficits or China's growing trade surplus of almost $500 million a day?
- the United States borrows close to $3 billion a day -
Joseph E. Stiglitz, Herald Tribune, October 3, 2006
China knows well the terms of its hidden "deal" with the United States: China helps finance the American deficits by buying Treasury bonds with the money it gets from its exports. If it doesn't, the dollar will weaken further, which will lower the value of China's dollar reserves (by the end of the year, these will exceed $1 trillion).
Underlying the current imbalances are fundamental structural problems with the global reserve system.
John Maynard Keynes called attention to these problems three-quarters of a century ago. His ideas on how to reform the global monetary system, including creating a new reserve system based on a new international currency, could, with a little work, be adapted to today's economy. Until we attack the structural problems, the world is likely to continue to be plagued by imbalances that threaten the financial stability and economic well-being of us all.
These imbalances simply can't go on forever.