Joe Stiglitz Tells Us What's Wrong In The World Economy and What to Do About It

Joe Stiglitz answers a lot of questions in this interview by The European.  His answers are thought provoking, as usual.  He puts a lot of the blame for our economic problems on the economics profession.  He argues that free marketer's provided the academic support for the liberalization of finance that led to the crisis.  They failed to predict the problems that arose, but their faith in the ideal of free markets has not been affected by the failure of their belief system.  He also articulates the problems in the US political system that undermine democracy.  The good news is that the root causes of its dysfunction are small in number.  The bad news is that they are not easy to change.  Things will have to get worse in order to arouse the public to make the changes.  He expects that they will get worse because the current policies in Europe, and in the US, will make them worse.

He makes a good distinction between rent seeking industries, e.g., finance, drugs, extraction, defense contractors, and other industries.  They are the industries that depend upon government policies that enable them to extract economic rent.  They get most of their political support from the GOP but they spread their money around.  Both parties depend upon political contributions to finance their campaigns.  He alludes to the potential for a third party to stir things up, but he does not go very far into a discussion on how that might work.

He points out the good things about the German Model in Europe. Its social welfare programs have kept the economy moving during a slowdown, but it is an export economy, and it is not possible for all of the nations in the eurozone to emulate the German model.  Exports and imports have to net out to zero.  Some countries must be net importers.  He extends the good aspects of the German model to the Scandinavian countries. They along with Germany, have shown that social welfare programs are not inconsistent with economic growth and prosperity.  He is very critical of the argument that social welfare programs are unaffordable.

He is also critical on our exclusive focus on GDP as the measure of economic success.  He believes that social welfare is more important than the gross output of an economy.  He gives many reasons why American's are less well off despite the growth in GDP.