Nobel_Laureate

November 23, 2008 Nobel Laureate: How to Get Out of the Financial Crisis With plunging stock markets, a temporary seize in bank lending, and central bankers and treasury secretaries appearing daily on television looking distraught, it’s no surprise the people’s concern over the future of our nation. While it may seem that we are facing the worst economic crisis since 1929, over the past 30 years, market economies have faced more than 100 crises. As a functioning market economy, government regulation and oversight are necessary. The government must play a role if our market is going to succeed. With that being said, here is a brief description of how we got to where we are and a few ways that government can help bail us out. Deregulation and low interest rates are the source of where we are today. Once the tech bubble collapsed, everything slowly began to go downhill. While the Fed tried to help the economy by flooding it with liquidity, the economy has already overinvested and the money was unable to go to good use. In the process, bankers began gambling with other people’s money and the combination of loose money and light regulation finally exploded. Unfortunately, not only did we disrupt our own economy, but due to globalization we had a help in the decline of Europe’s economy as well. In order to fix the mess that we have now caused, lawmakers will need to focus on solving the liquidity, solvency, and macroeconomic problems. The government needs to provide equity in order to help recapitalize banks. In addition, we need to help people stay in their homes, my converting the mortgage – interest and property-tax deductions into cashable tax credits. Furthermore, if we are to really see our economy turn around, government must pass a stimulus that works, restore confidence through regulatory reform, and create an effective multilateral agency. While no one expects that our economy can be turned around over night, it is absolutely that government step in and do its part to stimulate what was once a booming economy. Joseph Stiglitz put forth a good argument for how the government can turn this nation around, however, it would have been nice to see how his cure for the problem compares to other economists. Finally, because Stiglitz writes about both what the economy is and how the economy works, as well as what the goals of the economy should be, I believe this article was written with both normative and positive economics in mind.