Economics Nobel laureate and Columbia University professor Joseph E. Stiglitz has what very well be the best year end piece I have seen to date;
“The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which we seemed to be perched in late 2008, and that 2010 will almost surely be better for most countries around the world. The world has also learned some valuable lessons, though at great cost both to current and future prosperity – costs that were unnecessarily high given that we should already have learned them.”
What were those 6 “harsh” lessons?
1. Markets are not self-correcting, and without adequate regulation, they are prone to excess.
2. There are many reasons for market failures. Too-big-to-fail financial institutions had perverse incentives: Privatized gains, socialized losses. .
3. When information is imperfect, markets often do not work well – and information imperfections are central in finance.
4. Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster
5. There is more to monetary policy than just fighting inflation. Excessive focus on inflation meant that some central banks ignored what was happening to their financial markets. The costs of mild inflation are miniscule compared to the costs imposed on economies when central banks allow asset bubbles to grow unchecked.
6. Not all innovation leads to a more efficient and productive economy – let alone a better society. Private incentives matter, and if they are not properly aligned, the result can be excessive risk taking, excessively shortsighted behavior, and distorted innovation.
Why this was published in the China Daily, and not in the US is beyond my understanding . . .
Harsh lessons we may need to learn again
Joseph E. Stiglitz
China Daily, 2009-12-31 07:51