A review of two recent books of the two giants.
- End This Depression Now! by Paul Krugman
- The Price of Inequality: How Today’s Divided Society Endangers Our Future by Joseph E. Stiglitz
Both talk about pretty similar things with Stiglitz having a far broader compass. Krugman is as all know talks about fiscal stimulus for ending depression. Stiglitz goes a step further and talks about several ills facing the economy and what can be done to fix it:
In this indictment, Krugman is joined by another Nobel laureate economist, Joseph Stiglitz, whose claims are much more sweeping than his. In an argument that dovetails with those of Occupy Wall Street protesters, Stiglitz insists that the huge and growing divide between the richest 1 percent and “the 99 percent” is not just one concern among many, but the defining characteristic of a thoroughly sick economy. We may be the richest nation in the world, but poverty is higher and social mobility between generations lower than in other rich nations. In other respects, our model is bloated: we release far more carbon dioxide and use far more water on a per capita basis; and we spend far more on health care, while leaving tens of millions uninsured and achieving health outcomes that are mediocre at best.
The reason, according to Stiglitz, is that the vaunted American market is broken. And the reason for that, he argues, is that our economy is being overwhelmed by politically engineered market advantages—special deals that Stiglitz labels with a term familiar to economists: “rent-seeking.” By this, he means economic returns above normal market levels that are derived from favorable political treatment. In the most powerful parts of The Price of Inequality, Stiglitz chronicles the blatant tax and spending giveaways to big agriculture, big energy, and countless other sectors. Yet he also pointedly argues that much of the rent-seeking that plagues our economy takes a more subtle form, also familiar to economists: “negative externalities,” or costs that economic producers impose on society for which they don’t pay.
The spectacular profits of the energy industry, for example, rely heavily on the failure of regulation to incorporate fully the social and economic costs associated with environmental degradation, including climate change. Similarly, the increasingly aggressive activities of Wall Street—whether in the marketing of unsound mortgages, the use of excessive leverage, or the irresponsible use of derivatives—create huge risks for the economy as a whole. Yet these risks are largely not taken into account in the prices paid in financial markets. Without effective regulation, the costs are borne by all of us—most acutely by the struggling millions who have been pushed out of jobs.
So if things not sorted we could see a Middle East kind of revolution in US!:
Weeding out these and other forms of rent-seeking would thus promote both efficiency and equity, and Stiglitz provides a broad list of reform ideas, ranging from strict regulation of financial markets to more effective anti-trust laws. Yet he is most passionate about the need for political reform. Either those at the top will realize that things must change, or, he suggests, the kinds of popular revolts sweeping Middle Eastern nations will come to the United States.