Joseph Stiglitz feels depressed. Having been a voice in the wilderness urging caution when financial capitalism was in a speculative frenzy, he wants the crisis to be the catalyst for radical thinking. But he fears it won’t be: Greece is being forced to cut its deficit, the bankers are behaving as if nothing has changed since August 2007, and the political running in the US is being made by the right-wing anti-state Tea Party.
“There was a moment of euphoria when we were all Keynesians,” he said in an interview to mark the publication of his new book. “Those ideas were working and every government stood behind them. It was not just Keynesian macro-economic policies, it was the need for regulation and the recognition that economics had failed.”
Since those heady days of optimism a year ago, when unprecedented government action hauled the global economy back from the brink of a new Depression, Stiglitz says two things have happened to derail prospects of change.
“Plans to re-regulate the financial markets have run into a political quagmire and there has been a resurgence of deficit fetishism.”
He says he is surprised at how fast the forces in favour of the pre-2007 status quo have re-grouped and believes business as usual will store up problems. “The optimist in me is hopeful that we won’t need another crisis to finally motivate the political process,” he said. “The pessimist in me says it may need to happen.”
Now 67, Stiglitz has been a critic of the Chicago School of free-market economics and its international cousin — the Washington consensus —throughout his career. His trenchant objections to the deflationary policies imposed on Asian countries by the IMF in the late 1990s led to him being ousted as the World Bank’s chief economist after lobbying from Bill Clinton’s treasury secretary, Larry Summers.
Since then, he has written books on the defects in globalisation, the 1990s boom, the cost of the Iraq war and now his take on the Great Recession.
“I’m pretty pessimistic about the US. It will be a long time before unemployment returns to normal. The economy is not doing well.”
Despite the pick-up in growth across the global economy in the latter half of 2009, he says the improvement will not last.
In the years ahead, Stiglitz says the big story will be the challenge to the west from China and India, a development hastened by the crisis. There was a time when emerging economies had no choice but to accept the free-market policies imposed by Washington. “The US treasury would be laughed out of town if it went to China or India today and told them they had to de-regulate. We can now see a day when the dominance of the West will end.”