Nobel Prize-winning economist, Joseph Stiglitz criticizes presidential policies on both sides. Of President Barack Obama’s financial-industry rescue plan, Stiglitz says that whomever designed it was “either in the pocket of the banks or …. incompetent.”
5 Replies to “Joseph Stiglitz: "Government could have prevented much of what happened"”
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I would tend to err on the side of caution and state that it was deliberate.
I can’t believe that. More likely arrogance, ignorance and self-interest.
This article by two American economics professors http://www.prosper.org.au/2012/09/17/banking-on-land-rent/
says that current macro economic models fail to explain how most credit expansion 1) inflates asset prices without raising wages 2) creates a reciprocal flow of debt service which tends to rise as a proportion of personal and business income, outgrowing the ability of debtors to pay, leading to 3) debt deflation.
They say most credit is spent to buy assets already in place, not to create new productive capacity. This bids up asset prices and turns property rents into a flow of mortgage interest diverting money from being spent on consumption or new capital investment. This is why we have had a long period of low cpi inflation but skyrocketing asset price inflation.
I question that even if the USA and UK bank bailouts had had conditions attached to prevent the money being used for international speculation what difference would it have made if it had been lent to the domestic economy? Would it have been just more of the same, increasing debt and supporting asset prices while deflating the “real” economy?
The professors say that macroeconomic models, by promoting a misleading view of how the economy works lead to policy that fails to prevent debt bubbles or deal with the ensuing depression.
Obama may have believed his own propaganda but has failed because he does not receive realist economic advice.