Welcome to Eureka Street

back to site


The chuckling economist

  • 13 October 2008

On the night of 6 October 2008 the Nobel Laureate economist stood before a crowded lecture theatre in Geneva and grinned like a five-year-old at his own birthday party.

Two extra theatres, complete with big screens, were opened to accommodate the punters. Students, academics, UN workers, private bankers, and the odd housewife, such as myself, crowded around like it was a football game.

That day the markets had bled over the world and the University flooded with people waiting to hear his diagnosis, but Joseph Stiglitz couldn't stop chuckling. Perhaps it was because he stood minutes from the UN, where he used to be Chief Economist of the World Bank, and where he ended his term in fisty cuffs with the IMF and the US treasury over their financial bullying of developing nations.

When he stood at the podium, Joseph Stiglitz had schadenfreude written all over his face.

As bankers pressed their suits against my back and French translations echoed over the crowd, Stiglitz commenced by quoting Keynes and 'the importance of the influence of ideas' on the markets. He called for the revitalisation of history and traditional economic laws, and for the financial markets to be populated by people with a solid generalist education rather than narrow 'financial' specialists who don't know the first thing about human behaviour.

To make his point he quoted George Bush's summation of the financial crisis, 'We built too many houses'.

Stiglitz giggled with the audience, who laughed like the wonderful Europeans they are, but as a sobering follow-on, he stated that three million Americans have lost their homes and in the coming months another two million people will have their houses foreclosed.

He added, with raised eyebrows, that many of these houses are being bulldozed because they are vacant, then shook his head and mentioned waste. I wondered about increased homeless rates, increased unemployment and where all those families of those vacant houses were now.

Stiglitz argued that the markets had failed in their three main tasks: to mobilise savings, manage risk and allocate capital. The US has no savings to write home about, their debt runs indefinitely into the future, risk hasn't been managed — Look above! The sky's falling in — and capital, well all those vacant houses speak volumes.

Stiglitz calculated that the current American bailout package is equivalent to the amount that developed nations give in foreign aid to developing nations over a