American Economic History in Perspective: 'Freefall: America, Free Markets, and the Sinking of the World Economy,' by Joseph E. Stiglitz

by: John M. Mason

Perhaps the easiest way to find out what Joe Stiglitz is thinking, as represented by his new book, "Freefall: America, Free Markets, and the Sinking of the World Economy" (W. W. Norton & Company, 2010), is to review his more popular writings for the last twenty years of so. He has really said very little new over this time period, and the more popular pieces capture the best sound bites without all the verbiage around them.

Stiglitz, and his fellow Nobel-prize winning polemicist Paul Krugman, are fundamentalist preachers giving forth the “true gospel” of Keynesianism, much as their tele-evangelist brothers (and sisters) do within their own sphere.

The “Keynesians” believe that they have won!

The fact that the financial markets collapsed and economic dislocation followed, to them, is sufficient evidence of this truth.

Mr. Stiglitz was one of the few who saw the potential financial crisis coming before the 2008 meltdown. In the course of the book, he lets the reader know that “he was right about the crisis.” Over-and-over again!

But what does he suggest. The same tired old proposals that we have heard from him, and Mr. Krugman, for years and years.

And, the major argument for why the Keynesian approach has not worked in the past?

Well, the stimulus packages were not large enough.

This is the same argument that has been around since the 1930s. The concern at that time? Why didn’t the “Keynesian” policies of President Franklin D. Roosevelt work?

The answer that has been given ever since then is that Roosevelt was too timid. The United States government did not engage in sufficient spending in the 1930s. Economic recovery did not take place until the 1940s because it was only then that the United States government spent enough on the war effort to bring the economy out of the depression.

And, how do we achieve the appropriate level of government activity at the present time?

We need a group of elite, public intellectuals, like Joe Stiglitz, to run the government in the way it needs to be run. We need economic stimulus of appropriate magnitude and we need to establish control over Wall Street and the leaders of Wall Street who are “morally bankrupt.” (See this.)

After all, this group of elite intellectuals is not only extremely smart and talented but they also only care for the welfare of the society. They are morally rich and possess no self-interest.

Keynes assumed that this type of people led the Treasury in Great Britain during his lifetime, a belief that was handed down to him by his parents and which he kept throughout his participation in the Treasury or on government committees from the 1910s through till his death in 1946. (See the work of Peter F. Clarke, especially his latest effort, “Keynes: The Rise, Fall, and Return of the 20th Century’s Most Influential Economist”.)

But didn’t government officials create the huge deficits and excessively low interest rates leading up and through the asset bubble of the 2000s which subsequently resulted in the financial crisis? Oh, that was another set of elite, public intellectuals who were smart and talented.

If you want to know where the dogmatic progressives stand, Mr. Stiglitz’s new book, “Freefall: America, Free Markets, and the Sinking of the World Economy” is the book for you.