In Freefall, Stiglitz traces the origins of the Great Recession, Identifier Views. 1 Favorite. DOWNLOAD OPTIONS. download 1 file. PDF | The article reviews the book "Freefall: America, Free Markets, and the Sinking of the World Economy," by Joseph E. Stiglitz. Download full-text PDF. Citations (0). References (0). This research hasn't been cited in any. Freefall - Joseph E. Stiglitz - Ebook download as PDF File .pdf), Text File .txt) or read book online.
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'Freefall' ” continued from page 1 continued on page 3. Joseph E. Stiglitz (photo prv.) .. cy/wess/wespfiles/switunludisftalk.tk The In- ternational Labour. Return to Article Details Freefall: America, Free Markets, and the Sinking of the World Economy by Stiglitz, Joseph E Download Download PDF. Thumbnails. Freefall: Free Markets and the Sinking of the Global Economy Download citation · switunludisftalk.tk Full Article · Figures & data · Citations; Metrics; Reprints & Permissions · PDF Freefall is Stiglitz's latest book, focused on analysing the financial crisis or, as Stiglitz's.
These views could roughly be divided into three categories.
The first category exists of scholars who conclude that inequality has a negative effect on economic growth Persson and Tabellini; Perotti ; Kremer and Chen; Reich; Thompson and Leigh; Acemoglu and Robinson. The second category covers scholars who claim that inequality has a positive effect on economic growth Partridge; Li and Zhou; Forbes; Frank. Finally, the third category concerns a group of academics that does not necessarily see a direct causal link between inequality and economic growth Barro; Lopez.
Throughout this essay, we will see that Stiglitz can be placed in this first category. The following section from the introductory chapter, in my opinion, perfectly summarizes the main thesis of this book: "We have a system that has been working overtime to move money from the bottom and the middle to the top, but the system is so inefficient that the gains to the top are far less than the losses to the middle and bottom.
We are, in fact, paying a high price for our growing and outsize inequality: not only slower growth and lower GDP but even more instability This robs lower and middle class households of opportunities to grow economically.
As Stiglitz states: "Over the last three decades those with low wages in the bottom 90 percent have seen a growth of only 15 percent in their wages, while those in the top 1 percent have seen an increase of almost percent and the top 0.
The term rent seeking, according to Stiglitz and many other economists, refers to activities that are carried out with the goal of "getting income not as a reward to creating wealth but by grabbing a larger share of the wealth that would otherwise have been produced without their effort" And in this case, 'their' applies to the people at the top of society According to Stiglitz, people at the top are making money by "taking advantage of their market and political power to favor themselves, to increase their own income, at the expense of the rest" He adds to this that the "government has the power to move money from the top to the bottom and the middle, or vice versa" 73 , but that the American political system has, instead, worked towards more inequality of outcomes and opportunity However, how did he come to this argument?
In the section 'Acknowledgements', Stiglitz devotes four pages to describing his research methods and the processes he has passed through while investigating the issue delineated in his book. Stiglitz explains here that he has been working "on the origins and consequences of inequality" ever since he was a graduate student Among the persons who have greatly influenced his way of thinking, and whom he has worked with during the fifty years since the beginning of his studies, we find names such as, Robert Solow, Paul Samuelson, George Akerlof, and Tony Atkinson, whom are all household names in the field of economics.
In the 'Preface' of the book, Stiglitz explains that he has traveled through the United States and Europe to discuss "inequality, its causes and consequences and what could be done about it 9.
This becomes evident from expressions such as "Many people shared with me their personal stories of how what was going on was affecting them, their families, and their friends", and "They didn't want to take on even more loans, and their sense of disillusionment, of hopelessness, was sobering and sad 9.
Even though he explains that behind these stories, there "was a raft of new data that also has a bearing on the arguments of the book 9. One example is when Stiglitz states that "financiers make up a significant portion of the top 1 or 0.
To back up this statement, he refers to an article by Bakija, Cole and Heim, who have concluded that "executives, managers, supervisors, and financial professionals account for about 60 percent of the top 0. This is reinforced by the fact that this exact same data is also used by Piketty and Saez, who, in their article 'Top Incomes and the Great Recession: Recent Evolutions and Policy Implications', present new findings on the rising shares of top income.
However, even recent empirical data may not be sufficient to make certain conclusions, as we will find out later. Furthermore, at some points, it seems as if Stiglitz writes about certain aspects as if they were a given fact, whereas it is merely a reflection of the author's own view.
An example of this is when Stiglitz argues that the financial sector has "powerfully" contributed to the current level of inequality As to why this is so, he refers to his previous book,'Freefall', in which he explained several reasons as to why the financial sector did "not perform its functions well in the run-up to the crisis Especially, since there are so many different views and opinions on who and what has contributed to the crises and slow economic growth.
Another example is when Stiglitz argues that "those at the top, of course, have continued to be helped by the Federal Reserve We have seen how Stiglitz blames the government and rent seeking activities by the top, for most of the inequality. However, when we read other books and articles on this subject, we can observe opposed views.
Therefore, it is important to realize that other factors, on which Stiglitz does not focus so much, may have contributed to the inequality to a much larger extent than Stiglitz suggests. This is because the book represents Stiglitz view on the issue, which might be formed by different experiences and factors than other scholars. Thus, in order to support his arguments, Stiglitz uses data and findings of research methods which, more or less, are in line with his own argument.
However, it would have been useful if Stiglitz had been less subjective and if he had discussed different views and opinions more thoroughly throughout his book. This, while the relationship between inequality and growth has been subject to debate for a long time.
For example, Barro, in his article 'Inequality and Growth in a Panel of Countries', states that "there is evidence that the negative effect of inequality on growth shows up for poor countries but that the relationship for rich countries is positive", but that the "overall effect of inequality on growth" is weak 8.
Furthermore, Panizza and Frank are two other scholars who have studied the relationship between inequality and growth in the United States, and who both reached different conclusions.
Panizza finds no relationship at all, whereas Frank concludes that there is a positive long-run relationship. These are just few of the many different outcomes, which suggests that assessing the relationship between inequality and economic growth is highly complicated.
In my opinion, this is a good enough reason to directly challenge Stiglitz's argument. On top of that, it must be stressed that much of the existing empirical literature did not make use of the "appropriate distributional statistics", due to the "limited availability of distributional data", as Brzezinski indicates 4. He adds to this that "most of the empirical studies have relied on the most popular inequality measure - namely, the Gini index - which is most sensitive to changes in the middle of the distribution 4.
Another flaw of the book, in my opinion, is that Stiglitz justifies his focus on rent seeking, as main cause of inequality, as a matter of different opinions. As he states, "as expected a few critics suggested that I paid less attention to market forces than I should have and, correspondingly, gave too much weight to rent seeking.
Still others look ahead and serve the purpose of explaining Stiglitz's proposal for "a reassessment of the sort of economy in which financiers enriched themselves by selling over-priced and risky products to some of the most vulnerable citizens in America. Bush and his far-reaching tax cuts for wealthy Americans.
He also attacks Bush's successor Barack Obama for practically continuing with that fiscal policy. Moreover, he mentions the danger of economic interconnectedness and globalization , stating that by "purchasing enormous amounts of U.
He consequently considers regulation a requirement for solid recovery and expressed concern regarding economic policy as performed during Barack Obama's first months as president in an interview with The New York Times : "At the time Obama appointed his economics team, he was focused on getting a team that he thought would have the confidence of the financial markets, a team that the bankers liked.
Over the last year, there has been a drumbeat that has increased as Congress has failed to enact adequate regulations.
He tells things as they are. There is no choice: any institution that has the benefits of a commercial bank — including the government's safety nets — has to be severely restricted in its ability to take on risk.
There are simply too many conflicts of interest and too many problems to allow commingling of the activities of commercial and investment banks. The promised benefits of the repeal of Glass-Steagall proved illusory and the costs proved greater than even critics of the repeal imagined.
The problems are especially acute with the too-big-to-fail banks.