Joseph Stiglitz's Academic Solutions

Joseph Stiglitz's Academic Solutions

Card: Do you recommend any theoretical solutions to the crisis?
Stiglitz:    Well, the question... the pivotal question right now is what should be done?  What we did, you know, the... they turn to the financial markets to get advice.  The government turned to financial markets to get advice and what to do with the problems with Fannie Mae and Freddie Mac, didn't work.  You know, they have a proven track record, not only of getting us into the mess, but of not knowing how to get us out okay?  So, the question is, who do we turn to, to understand the systemic properties, how the whole things fit together and in a way, that was the critical failure of [IB].  They didn't see how the whole picture fit together.  They didn't see how it was impossible for house prices to go up and incomes to go down, it didn't add up, but they didn't... they didn't look at that broader picture and so, you have to turn to people who have been studying the economic system as a whole, understanding what happens when households borrow, the government borrows, the nation as a whole borrows, as much as we've been doing, what are the consequences for the functioning of the entire system.  It's complex.  I mean, it's very easy for a business to understand how to make money for itself, I mean, that's difficult enough, but to try to understand the interrelations between all of the parts.  That's what economists are supposed to do [IB] better than others and we all don't see eye to eye, I mean, that clear.  But we need to have a national debate and recognize that we made some very big mistakes along this road.

Card: Do you recommend any theoretical solutions to the crisis?
Stiglitz:    Well, the question... the pivotal question right now is what should be done?  What we did, you know, the... they turn to the financial markets to get advice.  The government turned to financial markets to get advice and what to do with the problems with Fannie Mae and Freddie Mac, didn't work.  You know, they have a proven track record, not only of getting us into the mess, but of not knowing how to get us out okay?  So, the question is, who do we turn to, to understand the systemic properties, how the whole things fit together and in a way, that was the critical failure of [IB].  They didn't see how the whole picture fit together.  They didn't see how it was impossible for house prices to go up and incomes to go down, it didn't add up, but they didn't... they didn't look at that broader picture and so, you have to turn to people who have been studying the economic system as a whole, understanding what happens when households borrow, the government borrows, the nation as a whole borrows, as much as we've been doing, what are the consequences for the functioning of the entire system.  It's complex.  I mean, it's very easy for a business to understand how to make money for itself, I mean, that's difficult enough, but to try to understand the interrelations between all of the parts.  That's what economists are supposed to do [IB] better than others and we all don't see eye to eye, I mean, that clear.  But we need to have a national debate and recognize that we made some very big mistakes along this road.