The Myth of Market Fundamentalism and Failed Polices: Review of Joseph Stiglitz's Book, 'Freefall: America, Free Markets and the Sinking of the World Economy'

Abstract

A professor at Columbia University and a Nobel-Prize winning economist, Joseph Stiglitz sent his book to press nearly two years after the inception of the Great Recession of 2008. In his book, he unfolds the causes of the recession, assesses the Bush and Obama administrations’ responses to the economic crisis and lays out suggestions for preempting another future meltdown. He goes beyond passing blame to individuals and emphasizes, “‘pealing back the onion’ figuring out what lies behind each of the mistakes” made both prior and after the crisis. He lucidly explains how overleveraged banks, mortgage frauds, reckless lending and deregulation led to the crisis. Despite the wide spectrum of the issues Stiglitz covers in the book, it is readily understandable to any layperson with interest in the subject matter. Some may complain about his demeaning tone of “I told you so,” but he is right that this crisis was foreseen by several economists including himself. Despite their warnings, Stiglitz points out many including Bush turned a blind eye to a mounting evidence of the crisis. He argues that the crisis could have been prevented with right measures, to name a few, good regulations and right incentive structure in place. In his book, Stiglitz calls for changes in the regulatory system, noting that “the problems are systematic”. Coming from the Keynesian background, he emphasizes that “markets on their own evidently fail - and fail very frequently” as evinced in the current crisis.