Freefall by Joseph Stiglitz
Freefall by Joseph Stiglitz is a book that traces the origins of the Great Recession. The author demolishes the contention that America needs more billion-dollar bailouts and free passes to those “too big to fail,” while also outlining the alternatives and revealing that even now there are choices ahead that can make a difference.
A central theme of Freefall is the notion of incentives and the distorted incentive structures that allowed the financial crisis to happen.
Stiglitz argues in favor of alternative explanations of inequality, with particular reference to the theory of rent-seeking and to the influence of institutional and political factors, which have shaped labor markets and patterns of remuneration.
He repeatedly argues that for economic liberalization to succeed, it is essential that reform be implemented at the right speed and in the right sequence.
The book concludes by asking whether we will seize the opportunity to restore our sense of balance between the market and the state, between individualism and the community, between man and nature, between means and ends. Faced with a similar set of circumstances in the 30s, the New Deal generation of Roosevelt proved ready to meet the challenge. Stiglitz clearly doubts whether Obama is made of the same stern stuff.
Useful takeaways from the book include:
- The global economy was – and remains – seriously unbalanced between debtor and creditor nations.
- Corporate welfare has reached fresh heights with the billions of dollars ladled out to commercial banks, investment banks, and America’s biggest insurance company, AIG.
- America has lived off one bubble after another for years.
- Lessons need to be learned from this near-death experience; if they are not, if the warnings go unheeded as they did a decade ago, the future will be punctuated by systemic crises.
What I Liked
The book is very well-written and smartly argued. Editing this review in 2023 shows that he was generally right about the financial system…but also wrong in the real risks (rise of populism rather than another bust).
What I Did Not Like
The book aged pretty quickly. These books are better to read than the newspaper or newsfeed, but they still go out of date pretty fast…with not many takeaways to show for it.
