The Nonprofit Quarterly has frequently cited Nobel Laureate and former World Bank chief economist Joseph Stiglitz as the brightest of the practitioners of the dismal science. Insights from Stiglitz’s new book about the current economic crisis, Freefall, will shake up many of us. In an interview with the UK’s The Independent , Stiglitz is unsparing in his critique of banks, markets, and governments:
In the TARP program, according to Stiglitz, the government “was reduced to the role of garbage disposal service for the banks’ toxic assets, bad loans and worthless securities they themselves had created.” He says that the banks have kept “a gun to our heads’ that says if we don’t keep them going on their terms then they will ‘kill the economy.” He abhors government budget cuts meant to signal “the market” and give it confidence, a practice he calls “fiscal fetishism,” and concludes “cutting back means the economy goes into a downturn and the markets lose even more confidence, as it will trigger another recession or depression.”
Noting that there are 77 members of the House Financial Services Committee, attractive to members of Congress because they get the lion’s share of campaign contributions from the financial services sector, and that the financial setctor contributed as much to Obama’s election as all of the “people’s campaign” small contributions together, Stiglitz believes the political system in the U.S. is corrupt.
He has nothing good to say about how President Bush handled the economic downturn, but despite his “most liberal of the liberal establishment” status, he is even more disappointed in President Obama because he had higher hopes for him. Because of Obama’s appointment of advisors such as Tim Geithner and Larry Summers, Stiglitz concludes, “The entire series of efforts to rescue the banking system were so flawed partly because those who were somewhat responsible for the mess – as advocates of deregulation, as failed regulators, or as investment bankers – were put in charge of the repair.”
But the biggest target of his book is the concept of the “free market.” He believes the free markets deliver a financial crisis on average every year or two and “are completely unsuited to the new challenges of pricing in environmental damage and degradation.” It is odd, then, to find President Obama telling Bloomberg’s BusinessWeek that he is a “fierce advocate” for the free markets and defending the appointments of Geithner and Summers in a manner completely contrary to Stiglitz’s observation: “I thought it was very important to have Larry Summers and Tim Geithner as two of my key economic advisers early on because they had gone through significant global economic crises before.”
It seems to us that Stiglitz has been leveling this critique for some time (he accurately predicted the Great Recession we’re in), but our leaders just haven’t been able to absorb the message. As a sector that exists because of the dysfunction of the markets, nonprofits should be carrying Stiglitz’s message and reminding the White House and Congress that banking on the free markets to do the right thing might be a losing investment.