Joseph Stiglitz on the Economic Crisis

Nobel Economics Prize winner Joseph Stiglitz has an interesting interview on Truthout. Noting that we live in a very different economy than the one that led to the Great Depression, but that the situation is very serious.

I quote a couple of Q&As:

The Institute of International Finance estimates that the private flow of capital to developing countries will shrink by about two-thirds. Are we facing a situation where we could see a total collapse of many developing countries?

I think many governments of emerging nations actually have a much better central banking system than the United States. They realized the risks of excessive leverage, excessive dependance on real estate lending and so they took much more prudent actions. Many developing countries also built up large reserves and are in a better position to meet this crisis than they were a decade ago.

But some will face very difficult times, potentially defaults. Some of these countries are suffering from having paid too much attention to what has gone on in the United States.

In her speech at the World Economic Forum, German Chancellor Merkel warned the U.S. of protectionism and criticized subsidies for American auto companies. Is she correct? Do you see a danger that the U.S. will resort to protectionist measures?

Yes, very clearly. We have always been aware that protectionism takes two forms: Tariffs and subsidies. Subsidies distort the playing field just like tariffs do. Subsidies are even more unfair and even more distorting, because while developed countries can give subsidies, poor countries can't afford to do so. Rich countries are distorting the level playing field by giving huge subsidies, not necessarily in the intention of protection, but with the consequence of protection.

Comment: Stiglitz suggests that many developing countries are well positioned to deal with this crisis, but that some are going to fall victim to it, and calls for assistance to those countries from the rich. That seems a very likely situation to me, and I agree with his call for assistance to those caught in the global recession where that assistance can be directed to helping the most vulnerable.

I think that Chancellor Merkel is right that globalization of financial industries calls for some kind of intergovernmental regulatory apparatus. JAD