stiglitz - Based on a Joseph Stiglitz lecture delivered...

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Based on a Joseph Stiglitz lecture delivered 26th of July 2010 at the University of Queensland in Australia. Extensively modified. Free Fall: Free Markets and the sinking of the global economy What I'm going to talk about tonight is the sinking of the global economy, the mistakes in economic policy that contributed to it, and the lessons that ought to be drawn from it. There are 3 questions I'm going to be dealing with this evening: where are we in the global economic crisis, how did we get here, and what are the lessons - how do we get to a more stable and prosperous economy. We have clearly pulled back from the brink of this disaster that we were at in September 2008, but the world is not yet on a course of robust economic recovery. In fact, the most likely prospect is that growth will slow towards the end of this year (this was July 2010) or early next year (that would be 2011 - the year we're in - and boy was he right with that prediction!) The only source of near-term strength is in Asia. Europe and the United States are facing the prospect of slow economic growth for at least the next several years, and in fact some countries are likely to enter a second recession, something you will hear in the press referred to as a "double-dip" recession - basically two recessions back to back with a brief period - maybe 6 to 18 months - of slow growth in between. How did we get here? Before this crisis, global growth was supported by a series of bubbles. First we had the tech bubble, and we replaced the tech bubble with a housing bubble. There were real estate bubbles in many countries around the world, but the largest was in the United States. Many economic leaders - people like Alan Greenspan - talked about a new economy. They believed that financial innovation and deregulation had brought us TO this new economy, in which economic downturns would be a thing of the past. But in fact, this financial innovation and deregulation actually allowed the bubble to grow bigger and bigger. And in fact, if we look at the history of capitalism, there has only been a short period - the three decades after the Great Depression - when the world did not face economic crisis after economic crisis. And the reason this three decade period was different from all other periods in economic history is that, in response to the Great Depression, the United States and most other developed nations put in place a set of very sensible
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regulations designed to prevent widespread risk-taking in the financial world at the expense of the general population. In other words to prevent people from taking risks in order to make a profit, but then passing on the risk to another party while pocketing the profit. These regulations ensured that in order to make a profit, you had to take a risk. You couldn't pass on the risk to someone else. And these regulations worked.
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This note was uploaded on 11/26/2011 for the course BUSINESS 10 taught by Professor Lilly during the Fall '11 term at DeAnza College.

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stiglitz - Based on a Joseph Stiglitz lecture delivered...

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