Consequences of the Economic Crisis

I've never really understood the intricacies of the stock market or Wall Street, but the economic crisis of the Bush administration and the continuation of that crisis in the Obama administration have prompted me to become a lot more informed. This week I followed a link to an article published in Vanity Fair by Joseph E. Stiglitz, Nobel Prize-winning economist and professor at Columbia University. I had read other articles and interviews with Stiglitz, and what he said made sense, so I was interested in reading "Wall Street's Toxic Message." In this article, Stiglitz discusses what he sees as consequences of a world-wide economic crisis for which America (Wall Street, bankers, mortgage lenders, the American government, the American people who lived beyond their means) is greatly responsible.

With the ideals of democracy, America has also proselytized the ideals of an unfettered market to developing countries (as well as to the rest of the world and ourselves). Now, however, this recent economic crisis has revealed to developing nations the magnitude of America's displaced faith in unfettered markets. "Today," Stiglitz writes, "only the deluded would argue that markets are self-correcting or that we can rely on the self-regulated behavior of market participants to guarantee that everything works honestly and properly." Even in the past, unfettered markets did not work to the advantage of developing countries; the cards were stacked in favor of western powers:

Europe and America didn't open up their own markets to the agricultural produce of the Third World, which was often all these poor countries had to offer. They forced developing countries to eliminate subsidies aimed at creating new industries, even as they provided massive subsidies to their own farmers.

These countries have noted that the United States and the International Monetary Fund responded much differently to the East Asia crisis of ten years ago than to the current economic crisis. Then, the United States and the I.M.F. insisted that Third World countries be tough: to "cut their deficits by cutting back on expenditures," "to raise interest rates, in some cases more than 50 percent," and not to bail out their banks. These restrictions created great hardships in the countries most affected. Now, however, in the current crisis, the U.S. has not expected from itself what it expected from poorer, developing countries in that crisis ten years ago. The U.S. government has bailed out its banks, has raised the deficit, and has lowered interest rates. This hypocrisy does not improve our standing in the world. Stiglitz notes, "Why, people in the Third World ask, is the United States administering different medicine to itself?"

There are consequences to these actions, Stiglitz argues:

• The role of the Unites States has diminished and may continue to diminish: "We are no longer the chief source of capital. The world's top three banks are now Chinese. America's largest bank is down at the No. 5 spot." Developing countries have used the American dollar as their "reserve money" to maintain confidence in their solvency. However, the American dollar does not engender the confidence it once did. The world may choose other currency to serve as reserve currency, and the Chinese are out front in suggesting such a possibility.
  
  
• In the current economic crisis, America has provided less monetary support to developing countries. Stiglitz points out that we were never terribly generous anyway. However, China is stepping into the breach, and more and more developing countries are turning to China for assistance. I can think of how countries such as Sudan have received much infrastructure support from China. China is a lot less interested in human rights than the U.S. is, so China's increasing influence will have a different effect than that of the U.S.
  
  
• There is the possiblity that this increasingly lack of confidence in America will blossom into a rejection of capitalism altogether, at least by governing powers of developing countries, which can lead to regimes that will not be good for the poor.
  
  
• The loss of confidence in American-style free markets may also result in a rejection of other American ideals, such as democracy. Stiglitz writes that "democracy and market forces are essential to a just and prosperous world," but concludes that "[t]he economic crisis, created largely by America's behavior, has done more damage to these fundamental values than any totalitarian regime ever could have."

More of Joseph Stiglitz's analysis can be found here: Articles by Joseph Stiglitz about the Current Economic Crisis. Other economists may have different views that merit our attention. This is just the most recent article about the economic crisis that sparked my interest.

By the way, the photo at the beginning of this post has little to do with the economic crisis. This is Tom stir-frying beet greens and chopped beats to serve over pasta for our evening meal. My contributions were a green salad with leafy green stuff from a local farm and our own garden--and a fruit salad that included fruit not-so-locally grown. Living with two vegetarians has meant that I eat many vegetarian meals these days, though I did have a turkey-ham sandwich yesterday!