Do you agree with Joseph Stiglitz on market fundamentalism?

joseph stiglitz, market fundammentalism, neo-liberalism, inequality

That’s right, not Islamic or Christian fundamentalism but Market fundamentalism. Nobel Prize winner Joseph Stiglitz has a lot to say about market extremists. As you may know, he predicted the 2008 economic crisis but nobody listened until it was too late. Decided to post a video with him because I read his book “Free Fall: America, Free Markets and the Sinking of the World Economy”. Columbia University Professor Stiglitz knows what he is talking about so devote 4 minutes to watching this video :

It’s interesting to note that even Alan Greenspan, former chairman of The Federal Reserve concedes he put too much faith in the self-correcting power of free markets and failed to anticipate the self-destructive power of wanton mortgage lending. And to make matters worse American style deregulation was forced upon a multitude of countries world-wide by the IMF. No wonder the domino effect was so swift when Lehman Brothers collapsed. India,for instance, didn’t deregulate and hence weathered the storm.

Do you agree with Joseph Stiglitz that Market fundamentalism is flawed? In retrospect do you believe deregulating the financial markets was such a good idea? Would the world be a better place today if the markets hadn’t been deregulated? Do you believe the financial markets should be regulated again? Should the Glass Seagall Act become law again to prevent another meltdown? In short, is it time for the world to stop implementing neo liberal economic policies that don’t work? If not, will poverty keep on increasing on a global scale? Or maybe you think neo liberalism is the way forward?

Video: gmshadowtraders) Picture: Abhisit Vejjajiva

85 thoughts on “Do you agree with Joseph Stiglitz on market fundamentalism?

  1. Market fundamentalism is flawed, but like most belief systems, logic is unlikely to break it down. In the face of market failure, persistent unemployment and growing inequality support for it maintains. Having said that, strangely Donald Trump has made noises about bringing back Glass-Steagle. We are living in strange times.

  2. Interesting video. I doubt I know enough about the financial market to leave a comment. Your articles never fail to challenge me.

  3. If you are going to have a free flow market then when the domino's fall (2008) you must let them fall so that the 'free market' can recover and move on. If you 'save it' then it will never 'learn'. Of course It's harder to make simplistic decisions when so much lobbying and backhanding goes on behind the scenes!

  4. I think there needs to be some regulation on the financial industry so we don't have the same problems as a few years ago. The bailout of the banks because they were deemed to big to fail, was entirely unfair. But I can't imagine the sense of injustice that must have been felt by the people that were losing their homes, jobs, everything at that time. Where was their bailout? Checks and balances need to be put in place to keep this from happening again.

  5. So much to say on this issue. But to make it short, there are 2 points. First is the approval with professor Stiglitz that market fundamentalism took Global economy to that far point of bankruptcy through wall street derivatives on real estate loans and finances. what the world need is a new formula of PPP that makes National state strong again and capable to hold a strong hand on what is going on in the markets. Public/ private partnership is the best path to buy happiness for all parties The state..the private sector and the new power called NGOs.

  6. Nothing much has changed. The financial system is still highly unregulated and it was criminal that not one leader of any of these “welfare” institutions was punished for the unlawful things they did. As usual, it was the consumers who suffered the consequences of defaults on mortgages and a near worldwide collapse of the financial system. All those CEOs are back making millions of dollars. If the Republicans retain control of Congress after the election we’ll see more of this “free market” philosophy.
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  7. What a great post.
    I agree with much of what is discussed by the video. People complain about how government regulates business, and their solution is to establish a Laissez-Faire attitude toward them. An unchecked business, or marker, can do more damage than the government can ever do. I think the bottom line is, who looks out for you more, the government, or a business. At least we vote for who is in out government.

  8. Hi Catarina,

    Great post and very interesting video. Indeed, I also think that financial markets should be regulated and still there is so much room for improvement in it. Remember, Lehman Brothers, Conseco, Thornburg Mortgage? Nothing of that would happen if the real power was in hands of the regulators and not the individual players of the financial system

  9. Catarina, I enjoyed listening to Stiglitz – he really pinpointed out the absurdity of government bailouts without oversight. At least here in Canada when the Federal Government bailied out the automotive industry they stipulated repayment terms and even purchased shares in the companies. Listening to the news it seemed to me that in the States, they bailed the banks and corporations out without any safeguards only to find they turned around and did exactly the same thing again – huge upper management salaries and bonuses. And that country is considered a global leader.

  10. Yes I agree with Stiglitz and like his characterization of the U.S. version of a free market economy as "corporatism." Nothing has changed in the years since this video was recorded except for the fact that the continuation of this approach has led to even further income inequality as the recovery from 2008 never amounted to a recovery for the middle and lower classes.

    1. Exactly, Ken. And what's worse American robber capitalism has been exported by powerful people in the US. It's a major reason for the millions and millions of economic migrants we have in the world.

  11. Interesting video. I heard about people warning about the crisis before but I was dealing with a death in the family and had to dismantle an estate and just didn't put that much thought into it. We had several friends who thought it was a good idea to get these type of mortgages on their overpriced homes and then they had issues with payments when the crisis happened. Corporations were no better. Foreclosing on homes. Having to lay off people because finances were tight. It was so sad to watch.

    I feel education on different types of mortgages is crucial before agreeing to one type. It's better to be conservative in decisions that take years to pay off and do the research than take action quickly. People are still dealing with struggling to find jobs after 7 years. I hope corporations learn from the situation. Only time will tell.

    1. Agree with you, Sabrina. Hopefully some corportations have changed but all definitely have not. And all human beings have to think and not take a loan they know they can't afford. US banks are still peddling loans to poor people who will never be able to pay back and hence lose everything they have and, usually, be in debth for the rest of their lives. Sad but true.

  12. I would love to be more knowledgeable on issues surrounding the global economy. However, my brain is just not wired up this way.

    I am glad someone is willing to speak out.

  13. Yes, in the US, we need more and effective regulation of corporations, big business and financial institutions. However, the problem is that we have a revolving door between those entities and the regulators! One day, you're chairperson of a major corporate board. The next day, you're head of Securities and Exchange Commission and you know you will have a job waiting for you at some corporation when you're finished your "public service". Big corporations are allowed to finance the political campaigns of the so-called lawmakers who will be called on to determine what is in the best interests of the economy! But, who will guard the guardians!?!?
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  14. Fundamentalism of any kind is never a good thing. Then again, the world tends to be full of black and white thinkers who like easy questions and answers that benefit them the most. It's the shades of gray that people don't like to deal with, but then the financial meltdown happened, and then economic issues had to be dealt with in the worse of ways.
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    1. I would also add those who make such policies are often those with the power to make sure the policies benefit those already in power. More activists are needed on the left to fight the policies of the right. More people seem to be waking up to how much the wool has been pulled over their eyes, but it’s a slow process

      1. Yes, it will take time, Jeri. Or maybe not? The most popular presidential candidates in your country are Trump and Sanders, for better or for worse. They are both against what's going on.

  15. I agree with Joseph Stiglitz to the extent that market fundamentalism is flawed . How far the pendulum will or should swing back is a whole other matter.
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  16. I really wish I were more informed on this subject–or I should say I wish I had a better understanding, because I do try to stay informed. But I do think that fundamentalism of any stripe–even this non-religious variety–has the potential to be dangerous if it's applied too zealously. Also, government and big business (including banks) being in bed together doesn't seem to work out well for anyone but individual politicians and the businesses.
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  17. I love the reference to the Banana republic. When the government did all the huge bail outs it was irresponsible, and unfair to the American people and just bad business. There needs to be safeguards in place and they just weren't there. Stigliz is a v. charismatic speaker I have to say. Thanks for this one Catarina.

    1. Agree with you, AK. Stiglitz is not only a charismatic speaker he knows what he is talking about. What would the world look like today if US authorities had listened to him and Warren Buffet? The latter told Paulsen to save Lehman Brothers.

  18. GuyW said, and I concur – The lack of oversight and the hubris of both business and political leaders is a massive problem.

    That's the real problem. It's not free market which is a problem. It is not deregulation (which is definitely the way to go) which is the problem.

    Whether it's government or corporate or an individual, whenever we let ourselves be ruled by greed and fear, consequences are bad. That happened in the past and that will continue to happen i future too no matter what regulations we bring. The real issue is, can people in the positions of power have a way to not be greedy and corrupt?
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  19. "The nerve that somebody did that is just amazing." When he said this toward the end of this video, I was thinking almost the same thing. Our USA leadership is incredibly smug, likely not the right word and just too weak. Others commenting have mentioned greed, regulation, lack of oversight – all true. Yesterday a friend of mine emailed me a link to another video and my take away is right in line with my conclusion from listening to Stiglitz here, even though it was 2008. Money is changing and the USA just is not keeping up. We have a flawed system and corrupt leaders and until those things are course corrected, we could see it all happen again. Sigh.

    1. Agree with you, Pat. And it's still going on in the US as well as all over the world. A major problem is that when someone studies economics at university they focus almost exclusively on neo liberalism. Consequently they don't master Keynes, Smith and so forth. Can't help wondering when a major crash will happen. It's just a question of when. 🙂

  20. U.S. financial institutions did so many things wrong it's hard to list them. First, they gave — no, encouraged — people to take out home mortgages when when the banks knew there was no way they were qualified. Then they securitized these bad loans and sold them to unsuspecting investors. When the crash came, the government bailed out these institutions that were "too big to fail." These same banks are now rolling in profits and American taxpayers footed the bill.
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  21. I think like Debra commented on Canada, Australia also fared pretty well due to our regulated banks. Our proximity to Asia also helped.
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  22. Boy, couldn't we write a book about this after the fact? Greed aside, we do seem to like to swing from one extreme to another. It would be nice if we could just take a few minutes to think about the long term affects of our actions before we take a leap… sigh! But we don't. 🙁
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  23. To me the most important point was finding a middle ground. My opinion is that we lean too far in one direction and after disastrous results, have a knee-jerk reaction and lean too far the other way…no regulation to too much regulation. And I also agree with one comment about personal responsibility. While predatory lending could apply to some folks, others took advantage of a very loose situation and then resented the consequences…sort of like eating a box of cookies and then blaming the manufacturer for a five pound weight gain!
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  24. I feel a lot of the problem that caused the economic crisis was greed. Not just the banks and lending institutions but people. The US got caught up in credit. As much as you can blame Wall Street it also has to fall on people., People starting buying houses they couldn't afford, jewelry, boats, you name it. We keep borrowing more and more money to pay for these loans. It got out of control. Regulation is necessary as the banks knew people could not afford to pay them back. They were making no income, no verification loans. Where is the protection for the people? Banks are using our money, borrowing from overseas and need accountability.
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    1. Glad you agree, Arleen. Unfortunately for the world, however, neo liberal economic policies are still being implement, despite causing the meltdown after Lehman Brothers collapsed.

  25. Thought provoking article Catarina. I am all for regulation because I believe financial markets left unregulated are prone to cowboy style profit seekers who do not care about the investor but their own pockets. Neo Liberalism is much like democracy to me, everyone wants it but implemented 100% it causes problems for everyone because sometimes, people really are not clear what they want and what they want may not be good for others. A third force is always required to bring order.

  26. Despite our proximity and reliance on the U.S. market , Canada's economy has faired relatively well through most of the economic storm that impacted so may countries. I think that is in no small part due to the fact that we have well regulated banks.
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    1. Sweden's economy has faired well too, Debra, mainly because we didn't join the Euro. But our government, like the majority of governments in the world, is still implementing neo liberal policies, which already is causing problems that will increase in the future.

  27. Glad you agree with me that the markets have to be regulated Ken. However unfortunately the neoclassical thinkers out of University of Chicago has managed to get the world to adapt it's ideas. Not until now has it irrevocably been proved that they are wrong. The market isn't perfect and it doesn't regulate itself. But for some reason not only bankers and people making money out of the de-regulated markets but politicians world-wide cling on to the neo-classical ideas.

  28. I was a community banker and lender for 30 years. My time in banking was prior to the repeal of Glass-Steagall. More importantly, banking had active regulation prior to the 911 reassignment of most of the FBI agents from white collar crime to terrorism prevention. With no regulation, the greedy and dishonest bankers gained control and ruined the economy.

    Banking needs regulation because banking deals with other people's money. Bank owners or managers have relatively low loss exposure as compared to the bank's depositors. The concept of fiduciary responsibility, enforced by regulators, needs to be restored to recreate trust in the system. The recreation of trust will create confidence and investment.

  29. Hi Catarina,
    I think Joseph made a valid and interesting point on the video.

    thanks for sharing.
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  30. Measures should be taken against market "manipulation" of the global economy. The national economies should be "shield" to be protected mainly from the “dominos effect”. The way it is going to be managed (regulations etc) must become the first priority for the economic advisors and ministers.

    1. Agree with you Kia. The markets have to be regulated again. However, all markets need the same regulations. If not trade in risky financial instruments will just move to a country that allows it, unfortunately.

  31. Freedom without regulation is not freedom, but is instead chaos. And regulations without the backing of serious consequences for their infraction is an open invitation for the proliferation of the worst of human behavior.
    It is my considered opinion that corporate america is no longer the practitioner of Free Capitalism, but is in fact the pimp of an enormousness collective of prostitutes (for the most part) commonly referred to as the legislative branch of the United States Government.

  32. Yes Radu the markets need to be regulated in order to prevent the world economy from collapsing again. But not regulations communist style. Just what's being implemented slowly in for instance the UK:

  33. Hi Catarina, I feel Joseph Stiglitz speaks common sense and is straight to the point. Too bad the countries 'leaders' don't have more of it as well as integrity.

  34. I think you have to have some regulation and accountability to safeguard tax payers' money. I could be wrong but I think in our country we had less regulation in the 80s and some fell over. Now we have regulation however the big banks still try and do their own thing. What I got from the view is you can't go with either extremewhich i agree with.
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  35. The lack of oversight and the hubris of both business and political leaders is a massive problem.

    The concept of "too big to fail" doesn't wash with me, and those that take big risks and profit handsomely through bonuses when they go right should equally lose big when they go wrong. The recent scenario of bank bosses simply converting their performance bonuses to retention bonuses is beyond ludicrous, and the politicians providing the bail-out money should have attached stringent regulations and oversight to the money – ensuring it did not simply get paid out to shareholders and senior executives.

      1. Catarina,

        If you could regulate your way around bubbles they wouldn't exist. They have occurred since humans began trading goods & services.

        The biggest problem with bubbles is that those within it do not realize they are in a bubble until it is too late. We are laying the groundwork right now for the next bubble/market crisis/currency crisis, yet we don't know it. We'll realize it when the next one occurs. It will occur. Markets are cyclical.

        The next time your mother-in-law or grocery store bagger gives you investment advice in ANYTHING, look out, you may be in a bubble. When everyone is quitting their current jobs to start businesses in _________ (examples; flower bulb business, internet stock day trader, real estate speculator, home assessment business, etc.), LOOK OUT, you may be in a bubble.

        We should regulate those powerful entities that make money off everyone else's misery by shorting markets. Shorts were nearly dictating policy during the most recent financial crisis by choosing what firms they targeted.

    1. I agree with you Mac, economy has become really sensitive. People have different opinions but no one got the confident way out of this mess at this moment.
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