Stiglitz: To Cure the Economy

Joe Stiglitz argues that our economic problems are deeper than most people realize:

To Cure the Economy, by Joseph E. Stiglitz, Commentary, Project Syndicate: As the economic slump that began in 2007 persists, the question on everyone’s minds is obvious: Why? Unless we have a better understanding of the causes of the crisis, we can’t implement an effective recovery strategy. And, so far, we have neither. ...

The financial sector’s inexcusable recklessness, given free rein by mindless deregulation, was the obvious precipitating factor of the crisis. The legacy of excess real-estate capacity and over-leveraged households makes recovery all the more difficult.

But the economy was very sick before the crisis; the housing bubble merely papered over its weaknesses. Without bubble-supported consumption, there would have been a massive shortfall in aggregate demand. ... So anyone who talks about the consumer “coming back” – even after deleveraging – is living in a fantasy world.

Fixing the financial sector was necessary for economic recovery, but far from sufficient. To understand what needs to be done, we have to understand the economy’s problems before the crisis hit. ...[continue reading]...