Joseph Stiglitz’s “Freefall” offers interpretation of recession

Stiglitz's Freefall is available in either paperback or e-reader format for around $10.

As the economy begins to slowly piece itself back together after the Great Recession, many are still wondering how it all happened. What went wrong? How could this have been prevented? Nobel Prize-winning economist Joseph Stiglitz tackles those questions and more in his analytic book “Freefall: America, Free Markets, and the Sinking of the World Economy.”

“But the crisis was not something that just happened to the financial markets; it was manmade – it was something that Wall Street did to itself and to the rest of our society,” Stiglitz argues in the introduction.

First printed in January 2010, “Freefall” takes a serious, critical look at what Stiglitz believes were mistakes in policy and judgment in the decade leading up to the recession.

The paperback and e-reader editions released in October 2010 include an afterward with Stiglitz’s updated take on how the economy is recovering.

As someone who strongly supports regulation, Stiglitz does a good job of spreading the blame across the board – naming everyone from former Chairman of the Federal Reserve Alan Greenspan for encouraging variable rate mortgages to President Obama for continuing the economic policies of the last administration; the economics profession for failing to warn the world in time; and citizens for overextending themselves financially.

Stiglitz asserts that had more stringent regulations been in place, the crash might have been avoided.

“In Greenspan and Bush’s attempt to minimize the role of government in the economy, the government has assumed an unprecedented role across a wide swath… A country in which socialism is often treated as an anathema has socialized risk and intervened in markets in unprecedented ways,” Stiglitz points out early on in the book.

Even though I had already read quite a bit on the 2008 recession, this was the first time clear alternatives were laid out – a plan of what could have been done to prevent the collapse. Stiglitz wrote the book in the hope that, in the future, the government could take some of his suggestions under consideration.

While Stiglitz certainly uses some technical terms in the book, he also explains them and the overall situation in a way that is easy to understand and simple to follow (even for those without a financial background).

For example, he compares the packaging of subprime mortgages into AAA-rated products with an alchemist turning base metal into gold. He says toxic assets consumed government funds like Pac-Man gobbles up pac-dots in the iconic video game. This former chief economist for the World Bank clearly knows how to keep readers engaged in the text.

Stiglitz is quick to point out that the bailouts did not go far enough, and something should have been done to help homeowners instead of focusing on the banks. He also explains what we could have done right when the Great Recession first struck and also what regulations to put in place for the future to prevent another such disaster.

But I was left wondering “What about now? What can we do now?” This is where the Columbia University professor falls short: A decisive plan for what we can do right now to make things better. I walked away from the book thinking that the United States is doomed to suffer a “Japanese-style malaise,” a lost decade. Although Stiglitz’s advice on how to deal with recessions in the future, and the regulations we need to put in place to avoid history repeating itself (again), he did not answer all my questions about options for the American and world economies today.

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