Joseph Stiglitz: “The banking system destroys value”

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Joseph Stiglitz: “The banking system destroys value”

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Nicholas Rainer | 08/02/2011

● The world economy is still generating wealth yet less and less of it seems to be making it down the people. This might sound a bit simplistic but it’s a question that everyone wants an answer to: “Where’s all the money going?”

It’s a good question. The resources that existed before the crisis – the assets, people, machines and land – are all still here. There are two sides to the problem. Firstly, we got ourselves in trouble with excessive debt. Secondly, the people who own the assets don’t want to invest them because it’s not clear what kind of returns they’re going to get. So, on one hand, people aren’t spending because they’re in debt and, on the other, people aren’t investing because they don’t know how much they’re going to earn.

The banking system destroys value. As a result, there’s been a huge increase in inequality. For example, in the US a quarter of the income goes to 1% of the population. They can’t spend it as fast as they make it so this money isn’t being injected back into the economy. The people who have money are putting it aside because of uncertainty so it’s not getting recycled in productive investments.

● Many people thought that the fi nancial crisis would provide a golden opportunity to repair a system that benefits a minority whilst penalizing the majority. Instead of that, it’s been business as usual: bankers are once again paying themselves fat bonuses and governments are loath to regulate the sector. Why?

Well, one reason is because the people who created the mess were put in charge of the job of repairing it. And governments, such as the Obama administration, were afraid to reform the system they wanted stability more than change. They thought that if they provided stability they would be able to restore the system more quickly. What they don’t seem to realize is that if they don’t repair what is fundamentally wrong with the economy it will remain vulnerable to future crises.

● Isn’t this ironic given that Barack Obama ran on a platform of change?

It’s one of the reasons the Democrats did so badly in the midterm elections.

● Across the world, inflation is also rearing its ugly head. Is this going to be a temporary blip or a more permanent feature?

The infl ation affecting the poor is mainly food inflation, which is more to do with long-term structural problems. Ironically, the 2008 food crisis was solved because of the financial crisis that drove demand down. This only offered temporary respite. There are several causes behind food inflation. Firstly, we’ve been massively under-investing in agriculture, irrigation, etc. At the same time, population pressures have continued to increase. More and more people are now eating meat, which uses up a lot of grain.
There’s also been our failure to address the energy problem, which has resulted in large amounts of land being diverted to produce biofuels. Finally, the US and EU subsidy programs have undermined incentives to invest in agriculture in the developing world.

(Lire l’intégralité de l’entretien dans le e-paper)

Commentaires

Par:-Tryptophan

Welcome back Nicholas. What a breath of fresh air [ a well deserved break from all this pseudo-xenophobic innuendos (our yearly 1st Feb. syndrome)!]. Our focus should be on relations between the haves and the have-nots ( class relations), as compared to the on-going creole/non-creole futile rants. A timely, and a masterstroke of an interview by a Mauritian journalist ! The problems of impoverishment, social degradation, crime and other vices such as gambling ( nowadays institutioinalised by governmental collaboration) are part and parcel of the financial system, the IMF, World Bank , Capitalism and , arguably, democracy . In his book“ Globalisation and its Discontents” the Professor exposes “interest” as the baddy, the “evil” mechanism at the centre of the widening gap between the rich and the poor (within countries , and between countries). Despite Keynes acknowledging ( and Stiglitz is Keynesian) that MONEY is nothing more than a medium of exchange and a measure of value, I wonder why no modern economists have challenged the practice of the charge of interest on money, something that has no intrinsic value. I believe that this aspect should be studied academically. Until then it will be business as usual….or, worse, the Banks may begin to work on Sundays too.

Par:-Manuel

With regard to rising food prices, we can not forget that high productivity of agriculture is due in large part because we have some great fertilizer from a vast majority of petroleum products. As it goes shortages, high prices will make food production costs rise too much. You need to think much about the problem of sustainable agriculture for a population that can not grow. Either we regulate ourselves voluntarily, or is the environment that makes it so bad for us.

Par:-Jean Batiste Say

JOSEPH STIGLITZ EST UN ECONOMISTE UN PEU DEPASSE AUJOURD'HUI ET A QUOI CELA LUI SERT DE VENIR NOUS ENSORCELER A MAURICE ? JE NE SAIS PAS SI LES SOI-DISANT ECONOMISTES QUI FONT SON ELOGE NT DEJA LU LES ECRITS DE AMARTYA SEN. POUR MOI IL N'Y A AUCUNE DIFFERENCE ENTRE JOSEPH STIGLITZ ET JUGDISH BHAGWATI !

Par:-jean chung

Nous n'avons pas besoin d'experts pour nous dire que tout va bien et qu'il faut des petits ajustements. On evite de parler de Medpoint et d'Infinity avec lui. Pour vivre decemment, chaque travailleur a besoin de Rs.15000/mois. Encore faut-il se grouiller pour meriter ce salaire? Combien d'entre nous parviennent a atteindre cet objectif?

Par:-JP

Student rightly wrote: "They also have the privilege of creating money out of thin air… and lending it at unreasonably high interest rate spreads." THE EVIL in our world is the ability granted or taken by Banks to Create MONEY. Les banques se sont détournées de leurs fonctions. Les gouvernements, s'ils pensent vouloir amener une solution aux crises financières et aux déséquilibres de notre société devraient légiférer pour interdire la création de l'argent fictif par les banques. Bien sûr qu'avec ce système qui a perduré si longtemps, cette mesure peut paraitre utopique, mais c'est là où se trouve la solution. Progressivement on devrait pouvoir prendre des mesures pour arriver à grandement réduire cette capacité des banques à créer de l'argent fictif... Ne disons nous que pas « nul ne peut servir deux maitres a la fois, Dieu et l'argent » ... alors l'argent fictif ??? Et bien C la recette à l'échec

Par:-student

Banks’ main function is the processing of the payment system of the economy and as such has a role similar to other utilities like the CWA, CEB, MAURITIUS TELECOM. However, they seem to abuse this role by imposing high fees/tariffs thereby reaping excessive/super profits to the detriment of real producers of wealth and the society at large. They also have the privilege of creating money out of thin air… and lending it at unreasonably high interest rate spreads. Agriculture is very hard work as compared to computer clicks and yet the returns in the banking “industry” are way above the food industry. Hope the Professor will also tell his audience that it is time to dress down the predators and parasites!

Par:-Hypocrite

Just wondering how many bankers will be paying to listen to Pr Stiglitz telling them that they are destroying value? And they will leave him to continue business as usual... Not unlike the politicians who will listen to him on sustainability or their obsession with GDP, only to continue doing the contrary of what they have learnt from him Thanks anyway for the show. The bigger show will go on!