Friday, August 6, 2010

Book Review: Freefall by Joseph Stiglitz

Freefall
Joseph Stiglitz

A friend recommended this book and described it as "a tragedy for those who feel and a comedy for those who think." Stiglitz is the 2001 winner of the Nobel Prize in Economics and former Chief Economist at the World Bank.

I feel confident recommending this book because Stiglitz has plenty of blame to pass around for the current economic crisis. Politically, he criticizes what both the Bush and Obama administrations have done. Plus he makes a valiant attempt to make the situation understandable to the lay person.

Points that stand out to me are:

Leading up to the housing bubble, there was excessive emphasis placed on finance in our economy, with 40% of corporate profits coming from this sector alone.

There doesn't need to be a dichotomy between regulation and free enterprise. Both are necessary for an efficient market economy. The question is, "What regulations will we have?"

He explains the problem of "moral hazard," and how the bank bailouts contribute to this but are not the only source of moral hazard.

Later in the book, Stiglitz moves beyond the immediate crisis to the readjustments to the global economy needs in order to generate more stability.

Among other issues he discusses six main points:
  • the gap between global supply and demand--global supply is currently being underused while billons of people still have unmet needs
  • climate change
  • global imbalances in consumption and saving
  • the shift of manufacturing jobs from developed countries to developing countries
  • sheer economic inequality--with 40% of humanity living on less than $2 a day, and 1 billion people living on less than $1 a day.
  • financial stability--economic crises have been happening more often, with more severity
There have been a number of good books published on the current crisis. I recommend this one for its comprehensive coverage of the issues and for being 90% understandable by me!

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