Freefall: America, Free Markets, and the Sinking of the World Economy

Abstract

Freefall: America, Free Markets, and the Sinking of the World Economy Joseph E. Stiglitz W. W. Norton & Company, 2010 Joseph Stiglitz's Freefall is another excellent discussion of the global economic crisis, authored by a man who ranks high among the commentators. Stiglitz was the chief economist at the World Bank during the East Asian economic crisis in 1997-1998, and then chaired the United Nations commission that sought reforms for the global financial and monetary system. He was a member of President Clinton's Council of Economic Advisors. This is his fifth book. There seem to be a great many Nobel Prize winners in Economics (whose collective wisdom doesn't seem to have saved the world from its financial travails), but it would surely be amiss not to mention that Stiglitz is among them. This book testifies to his distinction in that select group. Because Freefall can hardly examine the crisis without covering much of the same ground as the other books we have reviewed, we will avoid repeating that analysis here. We prefer to focus on those aspects of Stiglitz's discussion that address unresolved issues or that most bring his own learning to bear: * His view of the plight in which today's "capitalism" finds itself. * What he says (and yet doesn't say) about the whirlpool of global finance. * His critique of the response that the U.S. Federal Reserve and government have made to the crisis, including what he thinks should have been done. * In connection with this critique, his reflections on the performance both of the George W. Bush and Barack Obama administrations' actions through the end of 2009. * What reforms Stiglitz considers needed. His view of today's "capitalism." Although Stiglitz affirms "that markets lie at the heart of every successful economy" and is by no means anticapitalist, he shares the view that has come to be held by a great many thoughtful commentators that today's "capitalism" bears little resemblance to the competitive "private enterprise" that supporters of a market economy have long championed. He speaks of an "ersatz capitalism" that features a "corporate welfare state" driven by "blatant greed" and an ideology, sponsored by special interests, that has made a fetish of "self-regulating markets." "The current crisis has uncovered fundamental flaws in the capitalist system, or at least the peculiar version of capitalism that emerged in the latter part of the twentieth century in the United States." This realization is an intellectual earthquake. It should profoundly redirect the thinking of America's free-market enthusiasts, who will do their philosophy a great disservice if they insist on blind loyalty to the current system. We saw the same theme in our review of John Bogle's The Battle for the Soul of Capitalism,1 where we wrote that "in common with many others today, Bogle sees that the market system has become untracked - has 'lost its soul' - and needs much devoted attention (especially from capitalism's supporters...)." It is worth noting that Bogle saw the problem as societal, not just economic. "Our society is moving in the wrong direction," with "absurdities and inequities that we've come to accept" in a "wealth-oriented, things-fixated society" within which "the lure of money has overwhelmed the prestige of reputation." This suggests that even though national and international financial reforms are essential, they cannot appropriately be understood as a "quick fix" that will be sufficient to put things right. There needs to be deep concern for the systemic health of the society. What Stiglitz says (and doesn't say) about the multi-trillion dollar ocean of global finance. In our review of David Smick's The World is Curved: Hidden Dangers to the Global Economy, 2 we found that "the risks Smick describes are so many and so palpable that any objective observer would be justified in considering them intolerable. …