Joseph Stiglitz, 2001 Nobel Prize Winner, Says Downturn Not Even Half Over

I was listening to Joseph Stiglitz today on CNBC and was struck by his gloomy assessment of the economy. Here's what he had to say.

Joseph Stiglitz is one of the most quoted economists in the world.  He won the Nobel Prize in 2001 for economics and boasts a very impressive resume.  He also tends to be a bit outspoken and isn't afraid to say what he's thinking.  So, here's what he said today about the economy on CNBC:

On Fannie and Freddie Mac & Wall Street

He thinks it's ridiculous that taxpayers are giving a blank check to Fannie and Freddie.  They can basically continue to operate as they are and the government is on the hook to make up any shortfall.  He thinks it's bad policy for the public to be bailing out CEOs that earn hundreds of millions of dollars for the bad decisions they have made.  He also thinks there's a problem when we're asking the people who got us into this economic mess to help us get out. 

On Economy

He thinks the economy won't perform in a V shape or a U shape but instead will be L shape.  Down and then flat for an extended period of time.  He doesn't think we're though the worst of it.  Why?

  • No contraction yet in state and local government - this will come.
  • Housing still falling and will continue to do so for some time.

On Whether Markets Accurate Reflect Future Economic Expectations

Joe Kiernan, one of the CNBC hosts then asked an interesting question.  If markets are efficienct and forward looking, shouldn't they already reflect the bad economic future?  Stiglitz doesn't believe so.  In his opinion, markets are unable to price in what's happening.  Why?

1. Analysts unable to think across so many dimensions and so globally.  

2. Most investors display wishful thinking.  People don't want to admit they were wrong about quick recovery and have a built in optimism. 

On Global Economic Prospects

He doesn't believe there will be a global recession but rather a significant global slowdown.  China and India will continue to grow, although at a slower pace.  But the slowdown shows that if the US sneezes the world still does catch a cold.  "US consumption overwhelms everything."

This analysis is remarkably similar to the analysis of the economy put forth by Larry Summers, who is equally pessimistic about the short and medium term outlook for the economy. 




Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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  • Sam Cass

    August 09, 2008

    Maybe when all the economists are so glum, it's time to take a contrarian viewpoint and go long.

  • soczie

    August 09, 2008

    Stiglitz is the real deal. I am afraid that he is probably spot on with his assessment of the economy. Less certain of his assessment of the stock market, but he may be right.

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