Nobel Prize winning economist and Columbia University professor Joseph Stiglitz has some good ideas about what we should do to get out of the financial and economic mess we find ourselves in. In a July 8th article at Project Syndicate , he prefaced his advice with his understanding of what brought us to this point.
“The “innovations” unleashed by modern finance did not lead to higher long-term efficiency, faster growth, or more prosperity for all. Instead, they were designed to circumvent accounting standards and to evade and avoid taxes that are required to finance the public investments in infrastructure and technology – like the Internet – that underlie real growth, not the phantom growth promoted by the financial sector.”
Then he lists his recipe for recovery:
- Shift spending away from wars in Afghanistan and Iraq and unconditional bank bailouts that do not revive lending toward high-return investments.
- Raise taxes on corporations that don’t reinvest, and lower them on those that do.
- Raise taxes on speculative capital gains and on carbon and pollution intensive energy, and cut taxes for lower income payers.
- Help banks that lend to small- and medium-size enterprises, which are the main source of job creation – or establish new financial institutions that would do so – rather than supporting big banks that make their money from derivatives and abusive credit card practices.
And then he reminds:
“Finance is a means to an end, not an end in itself. It is supposed to serve the interests of the rest of society, not the other way around. Taming financial markets will not be easy, but it can and must be done, through a combination of taxation and regulation – and, if necessary, government stepping in to fill some of the breaches (as it already does in the case of lending to small- and medium-size enterprises.)”
Joseph Stiglitz is also author of Freefall: Free Markets and the Sinking of the Global Economy, an excellent extended explanation of how we arrived at the perilous economic situation we find ourselves in today and how we might find our balance once again.
Photo by: Justin Thomas