Posted by: Dirk | July 6, 2010

(Book review) Freefall

Joseph Stiglitz is doing what nobody else does better – showing the big picture. From the excesses of Wall Street to the (flawed) response of the Fed and the US administration to the issue of Chimerica – it is all in there. Stiglitz explains in a way that non-economists understand the issues that are at stake. The financial system that does not allocate capital as it should (efficiently, that is), the central bank that is doing things that a democratic administration would find hard to do, etc..

Since I have read about these topics a lot of times by now, let me go straight to the conclusions. Stiglitz blames a shift in ideas for the crisis. Morality (I would call it ethics) play a big role, with people relying on religious belief in markets to justify their socially wrong (not-welfare-maximizing) decisions. He claims that the embrace of markets has changed values, and that this has led to the crisis. These isuues are a natural result of the preceeding chapters. To sum it up: we have to rethink the way we want society to work, and on the way not forget that by designing institutions we will transform people. Just as people were transformed by free-market ideology, they could be transformed by “better economics” which, for instance, stresses more the role of the state (instead of markets) and cooperation (instead of competition).

I recommend this book who are no economists and want to read just one book on the crisis. Make it Freefall, and you’ll probably be interested to go more into details afterwards.

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