Joseph Stiglitz: Man who ran World Bank calls for bankers to
face the music
http://www.independent.co.uk/news/business/analysis-and-features/joseph-stiglitz-man-who-ran-world-bank-calls-for-bankers-to-face-the-music-7902920.html
Joseph Stiglitz tells Ben Chu that rogue financiers have
proven that regulation must get tougher
By Ben Chu
The Barclays Libor scandal may have shocked the British
public, but Joseph Stiglitz saw it coming decades ago. And he's convinced that
jailing bankers is the best way to curb market abuses. A towering genius of
economics, Stiglitz wrote a series of papers in the 1970s and 1980s explaining
how when some individuals have access to privileged knowledge that others
don't, free markets yield bad outcomes for wider society. That insight (known
as the theory of "asymmetric information") won Stiglitz the Nobel
Prize for economics in 2001.
And he has leveraged those credentials relentlessly ever
since to batter at the walls of "free market fundamentalism".
It is a crusade that has taken Stiglitz from Massachusetts
Institute of Technology, to the Clinton White House, to the World Bank, to the
Occupy Wall Street camp and now, to London, to promote his new book The Price
of Inequality.
And kind fortune has engineered it so that Stiglitz's UK
trip has coincided with a perfect example of the repellent consequences of
asymmetric information.
When traders working for Barclays rigged the Libor interest
rate and flogged toxic financial derivatives – using their privileged position
in the financial system to make profits at the expense of their customers –
they were unwittingly proving Stiglitz right.
"It's a textbook illustration," Stiglitz said.
"Where there are these asymmetries a lot of these activities are directed
at rent seeking [appropriating resources from someone else rather than creating
new wealth]. That was one of my original points. It wasn't about productivity,
it was taking advantage."
Yet Stiglitz's interest in the abuses of banks extends
beyond the academic. He argues that breaking the economic and political power
that has been amassed by the financial sector in recent decades, especially in
the US and the UK, is essential if we are to build a more just and prosperous
society. The first step, he says, is sending some bankers to jail. " That
ought to change. That means legislation. Banks and others have engaged in rent
seeking, creating inequality, ripping off other people, and none of them have
gone to jail."
Next, politicians need to stop spending so much time
listening to the financial lobby, which, according to Stiglitz, demonstrates
its spectacular economic ignorance whenever it claims that curbs on banks'
activities will damage the broader economy.
This talk of economic ignorance brings us to the eurozone
crisis and the extreme austerity policies being pursued. Stiglitz is depressed.
In 2000 he resigned from the World Bank and launched an excoriating attack on
the way it and its sister institution, the International Monetary Fund, handled
the Asian financial crisis of the late 1990s. He condemned the IMF for imposing
brutal and inappropriate adjustment policies on bailed out nations – medicine
which, he argued, merely pushed nations further into crisis. "For me
there's some nostalgia here," he says.
Does he see any hope for the eurozone, I ask, or is it now
heading, inevitably, for a breakup? "It is a train that can still be
stopped" he says. "But the relevant question is the politics in
Germany. Have they created in their rhetoric a dynamic that makes it difficult
to stop? In particular [German Chancellor] Angela Merkel's rhetoric that the
crisis was caused by profligacy. She's framed the issue as profligacy, rather
than framing it as 'the European system is fundamentally flawed' ".
The central argument of his latest oeuvre is that the huge
inequalities of income and wealth that have developed in the US and elsewhere
in the West over recent decades are not only unjust in themselves but are
retarding growth.
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