To Restructure or Not to Restructure?
Joseph Stiglitz looks to the past and the future:
For Europe and the United States, 2010 was a year of disappointment. It’s been three years since the bubble broke, and more than two since Lehman Brothers’ collapse. In 2009, we were pulled back from the brink of depression, and 2010 was supposed to be the year of transition: as the economy got back on its feet, stimulus spending could smoothly be brought down.
Growth, it was thought, might slow slightly in 2011, but it would be a minor bump on the way to robust recovery. We could then look back at the Great Recession as a bad dream; the market economy — supported by prudent government action — would have shown its resilience.
Resilience? Recovery? Prudent government action? I think not. Stiglitz continues:
In fact, 2010 was a nightmare. The crises in Ireland and Greece called into question the euro’s viability and raised the prospect of a debt default. On both sides of the Atlantic, unemployment remained stubbornly high, at around 10%. Even though 10% of US households with mortgages had already lost their homes, the pace of foreclosures appeared to be increasing — or would have, were it not for legal snafus that raised doubts about America’s vaunted “rule of law.”
But profits were made secure. Sure, the EU may have just averted a systemic crisis, but it didn’t fall. Still, there can be no doubt that the “little people” feel put out by their insecurity. The elite response to their most recent failures and the insecurity they engendered:
Unfortunately, the New Year’s resolutions made in Europe and America were the wrong ones. The response to the private-sector failures and profligacy that had caused the crisis was to demand public-sector austerity! The consequence will almost surely be a slower recovery and an even longer delay before unemployment falls to acceptable levels.
Why should anyone find it surprising that a political elite committed to neoliberal policies would propose remedies to a recession that won’t work and will intensify the misery of the politically powerless? Only the daft and the vicious would find this surprising.
Stiglitz offers this solution to our common problem:
Debt restructuring — writing down the debts of homeowners and, in some cases, governments — will be key. It will eventually happen. But delay is very costly — and largely unnecessary.
Color Stiglitz an optimist!